2022
Annual Report
Infinite
potential.
One patient
at a time.
“
For me, it’s important not
to make this my identity. I
want to feel like I’m living my
life and not focusing only on
being a sick person.”
Kelsey
L I V I N G W I T H
B R O N C H I EC TA S I S
A
fter having undergone radiation
treatment to her lung in 2016, Kelsey
began experiencing a crackling
sound when breathing, especially while lying
down. Her doctor—a specialist who had
been overseeing the radiation—reviewed her
computed tomography (CT) scans, but despite
noticing some damage from the radiation,
did not make a diagnosis or advise further
treatment. For the next few years, Kelsey tried
to deal with it as best as possible. But as time
went on, she began coughing and needing to
clear her throat more than usual. What started
as a dry cough became a mucus-producing
cough that was more persistent with physical
activity. Her doctor would prescribe antibiotics
that would help for a few months, but the
symptoms would always return.
Then in 2021, after coughing up blood one day,
Kelsey’s boyfriend urged her to go back to the
doctor. Her original specialist recommended
that she visit a primary care physician,
who ordered a variety of tests, including a
pulmonary function test (PFT). The results of
the PFT, combined with those of her earlier
CT scan, showed a slight abnormality. The
physician referred her to a pulmonologist, who
reviewed the scans and almost immediately
diagnosed her with non-cystic fibrosis
bronchiectasis. While it was a relief to finally
have an answer after five years of searching,
Kelsey had never heard of this disease and
had many new questions. Was it serious? Was
it curable? Were there treatments available?
Although her case is considered mild, Kelsey
must still take steps to manage the disease,
including practicing airway clearance
techniques that her doctor recommended,
which can take up to 90 minutes each day
and often leave her exhausted. Some days
she’ll feel tired or “unwell,” but as much
as she’s able, she tries not to let this stop
her from doing the things she loves—bike
riding, traveling, and going to restaurants
with friends. Looking to the future, Kelsey
is encouraged by ongoing research in
bronchiectasis and feels excited knowing that
additional information and resources may be
on the horizon for her and others like her.
Kelsey is a bronchiectasis patient who has been
compensated for her time.
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I am proud to reflect on a year of tremendous
execution in 2022, as we laid the groundwork for
what I believe will be the total transformation of
Insmed. Today we stand at a major inflection point,
with substantial cash on hand, a strong commercial
engine, and four distinct development programs
that have the potential to accelerate Insmed to the
next level through their positive impact on patients’
lives: ARIKAYCE® (amikacin liposome inhalation
suspension), brensocatib, treprostinil palmitil
inhalation powder (TPIP), and our fourth pillar, early-
stage research. We take great pride in what we have
built, but we are even more excited for where we will
be in the very near future.
We are operating in some of the most turbulent times
in recent memory. Macroeconomic and geopolitical
pressures are the worst they have been in decades.
Insmed cannot control these forces, but we can
anticipate them and prepare for them. This is exactly
what we have done. Completing a large financing of
mostly non-permanent capital last fall has enabled
us to operate in a fairly insulated fashion, progressing
our goal of creating the next great biotechnology
company by amassing programs, human talent, and
financial capital. The best companies are built in the
most challenging times. We must hold fast and focus
on the execution of the many programs we possess—
each of which, we believe, will become a meaningful
first-in-class or best-in-class therapy addressing a
clear unmet medical need.
As we consider the broader biotech landscape,
the industry is facing a reckoning where not all
companies will prosper, either due to lack of
financial resources or lack of clinical programs at
a stage that will drive value during their window
of existing financial resources. We have positioned
ourselves to transit these turbulent times and are
pushing forward aggressively to build upon our
successes. We are very deliberately adding while
others are cutting, and we keep a close eye out for
additional programs to augment the opportunity
we see across our four pillars and beyond. From an
accountability standpoint, we believe a substantial
increase in the realization of our shareholder
value will be clear by the time of our 2024 Annual
Shareholder Meeting, reflecting new clinical data
from each of our four pillars that will clarify their
intrinsic value.
The means to build the next great sustainable
biotechnology company are already within our
grasp. With near-term readouts for ARIKAYCE and
brensocatib potentially unlocking the commercial
value of these assets, we believe the Company
will be on the path toward profitability, leveraging
potential revenues from our late-stage pillars to
fund the earlier ones. To answer the question of
how we will accomplish this given the different
development stages, technologies, and patient
populations we are pursuing, we have developed
an operational design that is flexible and scalable.
A global leader is responsible for the overall
success of each program, and our central support
functions act as a distinct entity within the company,
responsive to the different operating tempos of
each pillar. The ability of the central functions to
treat each pillar like a ‘customer’ allows seemingly
disparate programs to progress in harmony. The
common denominator of each pillar—regardless
of modality or life stage—is its potential to deliver a
life-transforming impact to patients with some of
the most urgent unmet needs.
As we reflect on the key ingredients that will enable
us to achieve this vision, our culture is undoubtedly
the most important. We believe that the best
performers are unleashed, not managed. We find
great talent and give people the latitude to deliver
what they are capable of, while challenging each
other to do the same. I often describe the culture
we’ve built at Insmed as intentional and bottom-
up. Our values and ways of working are crafted by
our people, and we all share a singular focus on
the needs of patients and their families. That is why
people choose to work—and stay—at Insmed.
I’ve had many recent opportunities to see
this culture on display, including during our
inaugural Global Day of Good, when more than
500 employees came together to volunteer
simultaneously in communities around the world.
And it was no surprise to me that in 2022, Insmed
was named Science magazine’s No. 1 Top Employer
for the second year in a row—an achievement only
previously earned by Regeneron and Genentech.
This same culture enabled us to deliver critical
business achievements in 2022 and early 2023,
including:
• 30 percent global revenue growth for ARIKAYCE
in 2022 over the prior year;
• enrollment completion in the ARISE study of
ARIKAYCE in the frontline setting;
• enrollment completion of adult patients with
bronchiectasis in the pivotal ASPEN trial of
brensocatib;
• and strategic financings that resulted in
aggregate gross proceeds of $775 million,
allowing us to end the year with approximately
$1.15 billion in cash.
We also pulled back the curtain on our fourth
pillar and highlighted some of the cutting-edge
early-stage research taking place in San Diego,
New Hampshire, and New Jersey. These efforts
encompass a wide range of technologies, including
gene therapy, protein engineering, and protein
manufacturing, and are driven by industry-leading
scientists. Even as we take on newer modalities,
we believe these programs fit squarely into our
company ethos of addressing the most significant
unmet patient needs in transformational ways. We
further believe our differentiated approach has the
potential to deliver safer and more effective gene
therapies for monogenic diseases in less time and
for lower cost—further positioning us to navigate
impending economic pressures. As we have done
historically, we will continue to dedicate more than
80 percent of 2023 expenditures to our mid- to
late-stage and commercial programs, and we are
excited about the potential that our early-stage
research holds for the future.
We have a rallying cry at Insmed that you’ll
see reflected in these pages: “Count Us In.” It
summarizes our unique culture and steadfast
commitment to patients, and I believe we walk the
talk of patient advocacy in a sincere way as we
operate across the biotechnology ecosystem. It is
true, few companies are taking on as much as we
are. But we are in this to build a great company, not
clear a single milestone, and our focus remains on
this now-visible destination.
As always, I am grateful to you, our shareholders,
for believing in our vision. This will be the year you
truly begin to see it take shape and I thank you
for your support throughout this journey. Thank
you, also, to our Board of Directors, our dedicated
employees, and the healthcare professionals and
investigators we work with. Above all, thank you
to the patients who are our true North Star. When
it comes to serving you and your families, you can
count us in.
• compelling Phase 2 pharmacokinetic/
pharmacodynamic (PK/PD) data for brensocatib
in patients with cystic fibrosis (CF);
Will Lewis
• continued advancement of our Phase 2 studies
of TPIP;
Chair & CEO
Recent
highlights
“People need to feel seen, and
their unique stories need to
be heard. It’s easy for that
to get lost in the demands
of everyday life. Insmed’s
mission inspires me to pause,
reflect, and give a voice to
those who feel unseen and
unheard.”
I’m Amy Bennett,
Associate Director, HCP
Marketing in New Jersey.
Count me in.
Completed enrollment in the
ARISE frontline study in patients
with MAC lung disease
Announced Phase 2
brensocatib PK/PD CF data
Completed enrollment in the
ASPEN study in adults with
bronchiectasis
Announced plans to
study brensocatib in
CRSsNP
Advanced TPIP into Phase 2
trials in PH-ILD and PAH
~800
employees around
the globe
Great Place to
Work Certification
in the U.S. for second
year in a row
No. 1
Science Top Employer for
second year in a row
#90
on 2022 Deloitte
Technology Fast 500
List, North America
No. 2
on 2022 Best Workplaces
in Biopharma™, Small
and Medium list
One of the 2022
Best Workplaces
in New York™
(including companies
headquartered in NY,
NJ, and CT)
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O U R P U R P O S E
Putting
patients first
in everything
we do
At Insmed, we are powered by a shared
sense of purpose to serve patients with
serious and rare diseases. Their stories
inspire us and guide the work we do each
day. From the scientists in our laboratories
pioneering our early-stage research to
our colleagues engaging with physicians
in the field, each of us feels a sense of
pride knowing that we may be able to
make a difference in patients’ lives.
“
You have to be your
own advocate, so
learn as much as
you can on your own.
What you find may
raise more questions,
but that’s what your
doctor is there for.”
Carol
L I V I N G W I T H
M AC LU N G D I S E A S E
C
arol first sensed that something was
wrong when she noticed a constant
need to clear her throat. She mentioned
it during her annual physical in early 2014,
and her doctor ordered a chest X-ray to rule
out allergies as the cause. Upon reviewing
the results of the X-ray, he diagnosed her
with bronchiectasis and referred her to a
pulmonologist. Over the next several months,
the pulmonologist conducted quarterly
CT scans on Carol’s lungs, which showed
increasing signs of inflammation. Frustrated by
his lack of urgency and growing uneasy with
the possibilities she was uncovering online, she
pushed for a sputum test. The results showed
that she had Mycobacterium avium complex
(MAC) lung disease.
Initially, receiving the MAC diagnosis was
scary and difficult to accept. Although her
symptoms were mild, Carol was eager to take
action. Her doctor started her on the standard
multi-drug regimen, but after a year on
treatment, she continued to test positive for
MAC. So, her infectious disease specialist and
a new pulmonologist decided to put her on
ARIKAYCE. Fortunately, this worked, and her
first sputum sample after starting ARIKAYCE
came back negative for MAC lung disease.
She continued to test negative for two years.
The infection later returned and is something
Carol continues to manage today by making
adjustments to her home and lifestyle. She
and her doctors regularly track her symptoms
and sputum results, while monitoring for any
changes and assessing whether to re-initiate
therapy. Carol is open to the possibility of
re-initiating therapy in the future, potentially
including with ARIKAYCE, if she and her
doctors determine that it is necessary to help
manage her condition. In the meantime, she
regularly reminds herself, “You still have to
live”—whether that means going out to dinner
with friends, playing with her grandchildren, or
planning her daughter’s wedding.
Carol is an ARIKAYCE patient who has been
compensated for her time.
O U R C U LT U R E
Together,
we amount
to more
Our Mission
To transform the lives of patients with
serious and rare diseases.
Our Vision
To be a globally recognized leading
biotech company that empowers great
people to deliver, with a profound sense
of urgency and compassion, life-altering
therapies to small patient populations
experiencing big health problems.
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Our Values
C O L L A B O R AT I O N
We check our egos at the door and
share ideas openly and candidly.
When we disagree, we do so with
respect and a willingness to listen.
P A S S I O N
We are driven to expect more
than others think is possible and
deliver excellence to our patients,
colleagues, and stakeholders.
A C C O U N TA B I L I T Y
We are each responsible for
ensuring that our actions
align with our values.
R E S P E C T
We embrace our colleagues’
differences, recognize their
contributions, and create a culture
of empowerment and trust.
I N T E G R I T Y
We are committed to acting in an
ethical, honest, and transparent
manner in everything we do.
A passion that’s
impossible to miss
Highlights from our
annual employee
pulse survey
93%
EMPLOYEES WHO SAID THEY
ARE INSPIRED BY THE WORK
WE DO
92%
EMPLOYEES WHO SAID
THEY ARE PROUD TO WORK
AT INSMED
89%
OVERALL EMPLOYEE
ENGAGEMENT SCORE
REFLECTING THE STRENGTH
OF CONNECTION EMPLOYEES
FEEL TOWARD THEIR WORK,
TEAMS, AND INSMED
“
Insmed truly empowers
employees to forge their
own paths by giving us the
tools to be successful and
then letting us navigate how
to do that. The people are
incredibly kind and everyone
cares about the mission.”
O U R R E S P O N S I B I L I T Y
Supporting our
communities
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In 2022, we significantly expanded our support for the
communities where we live and work with a focus on
the key areas of health, education, and human services.
With employees once again beginning to gather in
person, we revitalized our Insmed Cares team to
provide hands-on community outreach primarily in the
area surrounding our Bridgewater, NJ headquarters.
We also launched a pilot matching gift program,
allowing employees to double the impact of their own
charitable giving with a donation from Insmed.
S
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2
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Donated 24 virtual reality
headsets to provide much-
needed distraction and
entertainment to seriously
ill children in hospitals
throughout the U.S.
Funded 18 STEM workshops
for youth
Sponsored 2 STEM-based
certificate scholarships to
help people in our community
pursue a career in healthcare
Held 6 Insmed Cares volunteer
events and 9 charitable team-
building activities
Collected 3,000+ in-kind
donations
Supported 30+ organizations
globally
At Insmed, we are driven by our mission to
transform the lives of patients with serious and
rare diseases. Serving these patients—and their
families—is our No. 1 responsibility, and we firmly
believe that when we get that right, everything
else follows. Importantly, our responsibility also
extends to the ways in which we engage our
employees, support the communities where
we live and work, interact with the medical
community, and run our company.
We are proud of the sense of corporate
citizenship we have always held, and as our
company grows, we continuously challenge
ourselves to do better. Since 2021, we have
advanced a more formal framework to
enhance our focus on environmental, social,
and governance (ESG) matters, led by an ESG
working group and sponsored by members of
our Executive Committee. This year, we will issue
our inaugural responsibility report, which will
describe these efforts in greater detail. Check
back at insmed.com to download the report.
On October 6, 2022, Insmed held its inaugural
Global Day of Good—a companywide day of
service that gave employees the opportunity
to collectively give back in a fun and
rewarding way. Across geographies and time
zones, more than 500 employees participated
in volunteer opportunities focused on health,
education, and human services, and made a
meaningful impact in their communities. From
assembling hygiene kits to building a new
home for a family in need to providing meals
for refugees, the breadth of organizations
we supported served as an important
reminder of the significant needs in our own
communities, as well as the ability we have to
collectively make a difference.
O U R F O U R P I L L A R S
Pursuing
unmet need,
no matter the
challenge
The past year was one of tremendous execution,
as we advanced our four pillars—ARIKAYCE,
brensocatib, TPIP, and early-stage research—
setting us up for continued growth and success
in the years to come. As we make the transition
from a one- to potentially multi-product
company, we are excited by the opportunity to
transform the lives of significantly more patients
in need around the world.
ARIKAYCE
ARIKAYCE, our first commercial product, is
the cornerstone of our global business. It was
developed entirely in-house, from laboratory
to commercialization, and is approved in the
U.S., Europe, and Japan as the first and only
treatment available for adult patients with
refractory MAC lung disease with limited
treatment options. It is also the only product
strongly recommended by international
treatment guidelines, in combination with a
standard multidrug regimen, for the treatment
of this disease.
In 2022, two years into navigating the
challenges presented by the global COVID-19
pandemic, we returned the ARIKAYCE
franchise to growth—delivering our strongest
quarters to date since launch and achieving
30% year-over-year revenue growth from 2021.
July marked the first full year since the launch
of ARIKAYCE in Japan, where we continued
to make commercial progress despite the
ongoing prevalence of COVID.
U.S. vial only
2022 FINANCIAL HIGHLIGHTS
Throughout the year, we also continued
to progress European reimbursement and
launches on a country-by-country basis.
In July, the first patient was treated with
ARIKAYCE commercially in Italy, where the
medicine is available through local hospital
funding while reimbursement negotiations
remain ongoing. In late October, England’s
National Health Service commissioned the use
of ARIKAYCE, enabling all eligible patients to
access the medication through centralized,
dedicated funding in the country. We are very
encouraged by our global progress and look
forward to continuing to serve even more
patients who could benefit from treatment in
the year ahead.
We are also advancing the development of
amikacin liposome inhalation suspension in the
frontline setting of patients newly diagnosed
with MAC lung disease in the ARISE and
ENCORE post-marketing confirmatory trials.
We completed enrollment in the ARISE study at
the end of 2022 and anticipate reporting topline
efficacy and safety data from the trial in the
third quarter of this year. We expect to complete
enrollment in ENCORE by the end of 2023.
Global Annual Net
Product Revenues
(in millions)
2020
2021
2022
$164.4
$188.5
$245.4
In 2023, we anticipate
global ARIKAYCE
revenues to be
between $285 million
and $300 million.
Cash and Cash
Equivalents
(in millions)
2020
2021
2022
$532.8
$766.8*
$1,148.3*
*Includes cash, cash
equivalents, and
marketable securities
Brensocatib
Brensocatib, our investigational dipeptidyl
peptidase 1 (DPP1) inhibitor, is the lead
candidate in our pipeline. Offering a unique
and highly differentiated mechanism of action,
it has the potential to become a blockbuster
therapy across a range of neutrophil-
mediated diseases. We recently completed
enrollment of adults in the Phase 3 ASPEN
study, a global, randomized, double-blind,
placebo-controlled trial assessing the efficacy,
safety, and tolerability of brensocatib in
bronchiectasis. We anticipate sharing topline
data from ASPEN in the second quarter of
2024. If successful, brensocatib could become
the first and only approved therapy for the
more than one million patients around the
world already diagnosed with this chronic and
often debilitating disease.
In addition to bronchiectasis, we are studying
brensocatib as a potential treatment for CF
and other neutrophil-mediated diseases,
including chronic rhinosinusitis without nasal
polyps (CRSsNP). In early 2023, we reported
topline data from the Phase 2 PK/PD study of
brensocatib in CF patients. Data demonstrated
a clear dose-dependent and exposure-
dependent inhibition of blood neutrophil
serine proteases in patients treated with
brensocatib across all doses, consistent with
the mechanism of action of brensocatib. Safety
and tolerability were consistent with what was
observed during the Phase 2 WILLOW study
in bronchiectasis, with no significant drug-
related findings. In CRSsNP, we anticipate
initiating our Phase 2 development program in
the middle of this year.
With no therapies currently approved for
bronchiectasis or CRSsNP and no anti-
inflammatory treatments approved for CF,
brensocatib has the potential to make a
tremendous impact for patients living with
these serious and rare diseases.
I’m Ryoko Ozaki,
Associate, Quality
Assurance in Japan.
Count me in.
“My motivation comes from my
colleagues. In all regions, they
support my desire to learn, take
on new responsibilities, constantly
grow as an employee, and
contribute more to the team and
organization. I am grateful for the
opportunities they give me.”
Treprostinil Palmitil Inhalation Powder
TPIP, the next investigational therapy in our
pipeline, is a specialized treprostinil prodrug
formulation designed to harness the full
potential of prostanoid therapy. Like ARIKAYCE,
TPIP was developed entirely in our labs.
Its inhaled slow-release formulation takes
advantage of the superior potency associated
with inhaled delivery by maintaining
prolonged local exposure to treprostinil—
addressing a significant unmet need.
We are currently evaluating TPIP as a potential
treatment for two serious and rare pulmonary
disorders—pulmonary hypertension associated
with interstitial lung disease (PH-ILD) and
pulmonary arterial hypertension (PAH). Our
Phase 2 studies of TPIP in both PH-ILD and
PAH are currently enrolling, and we anticipate
sharing interim, blinded dose titration and
safety and tolerability data from some of the
patients in both the PH-ILD and PAH studies
in the second half of this year. We expect to
provide topline data from the PH-ILD study in
the first half of 2024.
“
We strongly believe that TPIP has
the potential to be the best-in-class
prostanoid therapy…”
HCP expert at December 2022
Ad Board meeting
“
Gene therapy is still a new field and we’re learning
each and every time we do studies. The one thing
we have built here in San Diego and across the
Insmed organization is a real collective expertise
of individuals who have been in this game for a
long time—these are really the A players.”
Brian Kaspar,
Chief Scientific Officer
“
We’re working on developing deimmunized
protein therapies for a wide spectrum of diseases
that lack effective treatments, and we’re
simultaneously bringing the technology to bear
on developing enhanced gene therapy platforms
to treat rare and unmet medical needs.”
Karl Griswold,
Executive Director, Biologics
Early-Stage Research
Our early-stage research portfolio
encompasses a wide range of technologies
and modalities, including gene therapy,
artificial intelligence (AI)-driven protein
engineering, and protein manufacturing.
Under the leadership of our highly
accomplished Research colleagues in New
Hampshire, New Jersey, and San Diego, we are
driving forward potential solutions that may
offer a distinct advantage in the development
of much-needed medicines for patients with
serious and rare diseases.
Our initial therapeutic areas of focus for this
pillar include musculoskeletal, central nervous
system (CNS), ocular, and rheumatologic
diseases. We anticipate completing our first
investigational new drug (IND) filing and
sharing preclinical data in musculoskeletal
and CNS indications in the first half of this
year. Clinical data from our first trial in a
musculoskeletal disease is anticipated in the
first half of 2024.
Moving forward, we anticipate having at least
six IND applications filed or Phase 1 studies
underway from this pillar by the end of 2025.
We look forward to sharing more about our
early-stage research at our research day, The
Future of Rare at Insmed: Functional Genes,
AI-Enhanced Proteins, Glowing Algae, and
More, in May.
Near-Term Catalysts
S I G N I F I C A N T U P C O M I N G D A T A R E A D O U T S
1H 2023
2H 2023
1H 2024
ARIKAYCE
ARISE Topline
Results (3Q)
Brensocatib
Cystic Fibrosis
PK/PD Data (1Q)
Interim Dose Titration
and Safety and
Tolerability Data
TPIP
Early-Stage
Research
Musculoskeletal
Preclinical Data (2Q)
CNS Preclinical
Data (2Q)
First Musculoskeletal
IND (2Q)
ASPEN Topline
Results (2Q)
PH-ILD
Topline Results
Musculoskeletal
Clinical Data
Infinite potential.
One patient at a time.
I’m Syed Munem,
Senior Director, Clinical Quality
Assurance in New Jersey. Count me in.
“What motivates me in my role at Insmed
are the great people I work with and the
teams I support to ensure that our clinical
trials are designed and executed with
patient safety as the priority.”
The vision we have set for ourselves is ambitious and
may, at times, feel insurmountable. What will it take to
get there? The contributions and drive of every team
member. No matter how many hurdles to clear or tough
questions to answer, we take on the challenge if it means
we can change one patient’s life. Whatever our role is in
the organization, you can count us in.
I’m Björn Schütz,
National Sales Director
in Germany. Count me in.
“What motivates me in leading a successful
sales team at Insmed is the opportunity
to connect with healthcare professionals
and build strong relationships, while also
constantly challenging myself and my team
to reach new heights and deliver the best
possible outcomes for patients.”
I’m Emily Wong,
Manager, Medical Science Liaison
in North Carolina. Count me in.
“In my previous life as a clinician, I
helped care for patients affected by
NTM and bronchiectasis. I’ve been
impacted by many of their shared
experiences, both disappointments and
successes in the management of their
disease, and this continues to motivate
me in my role at Insmed.”
I’m Christopher Zorrilla,
Executive Therapeutic Specialist
in New Jersey. Count me in.
“At Insmed, our North Star is the patient. As a
Therapeutic Specialist, I’m motivated each
day by the opportunity to meet and help my
HCP customers identify appropriate patients
for whom ARIKAYCE may be a potential
solution. It’s so rewarding to hear back from
my customers when ARIKAYCE helps one of
their patients.”
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
For the fiscal year ended December 31, 2022
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-30739
INSMED INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation or
organization)
700 US Highway 202/206
Bridgewater, New Jersey 08807
(Address of principal executive offices)
54-1972729
(I.R.S. employer identification no.)
(908) 977-9900
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading symbols
INSM
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company (See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company"
in Rule 12b-2 of the Exchange Act). Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth
company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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, 2022, was $2.3 billion (based on
the closing price for shares of the registrant's common stock as reported on the Nasdaq Global Select Market on that date). In determining this figure, the
registrant has assumed solely for this purpose that all of its directors, executive officers, persons beneficially owning 10% or more of the registrant's
outstanding common stock and certain other stockholders of the registrant may be considered to be affiliates. This assumption shall not be deemed conclusive
as to affiliate status for this or any other purpose.
On February 20, 2023, there were 136,405,367 shares of the registrant's common stock, $0.01 par value, outstanding.
(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)(cid:56)
DOCUM(cid:32)NTS INCORPORAT(cid:32)D (cid:29)(cid:52) R(cid:32)F(cid:32)R(cid:32)NC(cid:32)
Portions of the registrant's definitive Proxy Statement for its 2023 Annual Meeting of Shareholders to be filed with the Securities and
(cid:32)xchange Commission no later than May 1, 2023 and to be delivered to shareholders in connection with the 2023 Annual Meeting of Shareholders, are herein
incorporated by reference in Part III of this Annual Report on Form 10-(cid:38).
INSMED INCORPORATED
INDE(cid:47)
REPORT(cid:23) FORM (cid:14)(cid:13)(cid:10)(cid:34)
CA(cid:44)TIONAR(cid:48) NOTE RE(cid:30)ARDIN(cid:30) FOR(cid:46)ARD(cid:10)LOO(cid:34)IN(cid:30) STATEMENTS
PART I
PART II
IT(cid:32)M 1 (cid:29)USIN(cid:32)SS
IT(cid:32)M 1A RIS(cid:38) FACTORS
IT(cid:32)M 1(cid:29) UNR(cid:32)SOLV(cid:32)D STAFF COMM(cid:32)NTS
IT(cid:32)M 2
PROP(cid:32)RTI(cid:32)S
IT(cid:32)M 3
L(cid:32)GAL PROC(cid:32)(cid:32)DINGS
IT(cid:32)M 4 MIN(cid:32) SAF(cid:32)T(cid:52) DISCLOSUR(cid:32)S
IT(cid:32)M 5 MAR(cid:38)(cid:32)T FOR R(cid:32)GISTRANT'S COMMON (cid:32)(cid:44)UIT(cid:52), R(cid:32)LAT(cid:32)D
STOC(cid:38)(cid:35)OLD(cid:32)R MATT(cid:32)RS AND ISSU(cid:32)R PURC(cid:35)AS(cid:32)S OF
(cid:32)(cid:44)UIT(cid:52) S(cid:32)CURITI(cid:32)S
IT(cid:32)M 6
(cid:54)R(cid:32)S(cid:32)RV(cid:32)D(cid:55)
IT(cid:32)M 7 MANAG(cid:32)M(cid:32)NT'S DISCUSSION AND ANAL(cid:52)SIS OF FINANCIAL
CONDITION AND R(cid:32)SULTS OF OP(cid:32)RATIONS
IT(cid:32)M 7A (cid:44)UANTITATIV(cid:32) AND (cid:44)UALITATIV(cid:32) DISCLOSUR(cid:32)S A(cid:29)OUT
IT(cid:32)M 8
MAR(cid:38)(cid:32)T RIS(cid:38)
FINANCIAL STAT(cid:32)M(cid:32)NTS AND SUPPL(cid:32)M(cid:32)NTAR(cid:52) DATA
IT(cid:32)M 9 C(cid:35)ANG(cid:32)S IN AND DISAGR(cid:32)(cid:32)M(cid:32)NTS (cid:50)IT(cid:35) ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSUR(cid:32)
IT(cid:32)M 9A CONTROLS AND PROC(cid:32)DUR(cid:32)S
IT(cid:32)M 9(cid:29) OT(cid:35)(cid:32)R INFORMATION
IT(cid:32)M 9C DISCLOSUR(cid:32) R(cid:32)GARDING FOR(cid:32)IGN JURISDICTIONS T(cid:35)AT
PR(cid:32)V(cid:32)NT INSP(cid:32)CTIONS
IT(cid:32)M 10 DIR(cid:32)CTORS, (cid:32)X(cid:32)CUTIV(cid:32) OFFIC(cid:32)RS AND CORPORAT(cid:32)
GOV(cid:32)RNANC(cid:32)
IT(cid:32)M 11 (cid:32)X(cid:32)CUTIV(cid:32) COMP(cid:32)NSATION
IT(cid:32)M 12 S(cid:32)CURIT(cid:52) O(cid:50)N(cid:32)RS(cid:35)IP OF C(cid:32)RTAIN (cid:29)(cid:32)N(cid:32)FICIAL O(cid:50)N(cid:32)RS
AND MANAG(cid:32)M(cid:32)NT AND R(cid:32)LAT(cid:32)D STOC(cid:38)(cid:35)OLD(cid:32)R MATT(cid:32)RS
IT(cid:32)M 13 C(cid:32)RTAIN R(cid:32)LATIONS(cid:35)IPS AND R(cid:32)LAT(cid:32)D TRANSACTIONS
AND DIR(cid:32)CTOR IND(cid:32)P(cid:32)ND(cid:32)NC(cid:32)
IT(cid:32)M 14 PRINCIPAL ACCOUNTANT F(cid:32)(cid:32)S AND S(cid:32)RVIC(cid:32)S
PART III
PART I(cid:45)
IT(cid:32)M 15 (cid:32)X(cid:35)I(cid:29)ITS AND FINANCIAL STAT(cid:32)M(cid:32)NT SC(cid:35)(cid:32)DUL(cid:32)S
IT(cid:32)M 16 FORM 10-(cid:38) SUMMAR(cid:52)
REPORTS OF INDEPENDENT RE(cid:30)ISTERED P(cid:44)(cid:25)LIC ACCO(cid:44)NTIN(cid:30) FIRM
CONSOLIDATED FINANCIAL STATEMENTS
PA(cid:30)E
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6
32
58
59
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60
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62
63
72
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79
81
84
Unless the context otherwise indicates, references in this Annual Report on Form 10-(cid:38) to (cid:94)Insmed Incorporated(cid:95) refer to
Insmed Incorporated, a Virginia corporation, and the (cid:94)Company,(cid:95) (cid:94)Insmed,(cid:95) (cid:94)we,(cid:95) (cid:94)us(cid:95) and (cid:94)our(cid:95) refer to Insmed Incorporated
together with its consolidated subsidiaries. INSM(cid:32)D, PULMOVANC(cid:32), ARI(cid:38)AR(cid:32)S and ARI(cid:38)A(cid:52)C(cid:32) are trademarks of
Insmed Incorporated. This Annual Report on Form 10-(cid:38) also contains trademarks of third parties. (cid:32)ach trademark of another
company appearing in this Annual Report on Form 10-(cid:38) is the property of its owner.
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and
uncertainties. "Forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act), are
statements that are not historical facts and involve a number of risks and uncertainties. Words herein such as "may," "will,"
"should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends,"
"potential," "continues," and similar expressions (as well as other words or expressions referencing future events, conditions or
circumstances) identify forward-looking statements.
Forward-looking statements are based on our current expectations and beliefs, and involve known and unknown risks,
uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain
events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated
in any forward-looking statements. Such risks, uncertainties and other factors include, among others, the following:
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failure to successfully commercialize ARIKAYCE, our only approved product, in the United States (US), Europe or
Japan (amikacin liposome inhalation suspension, Liposomal 590 mg Nebuliser Dispersion, and amikacin sulfate
inhalation drug product, respectively), or to maintain US, European or Japanese approval for ARIKAYCE;
uncertainties in the degree of market acceptance of ARIKAYCE by physicians, patients, third-party payors and others
in the healthcare community;
our inability to obtain full approval of ARIKAYCE from the US Food and Drug Administration (FDA), including the
risk that we will not successfully or in a timely manner complete the study to validate a patient reported outcome
(PRO) tool and the confirmatory post-marketing clinical trial required for full approval of ARIKAYCE;
inability of us, PARI Pharma GmbH (PARI) or our other third-party manufacturers to comply with regulatory
requirements related to ARIKAYCE or the Lamira® Nebulizer System (Lamira);
our inability to obtain adequate reimbursement from government or third-party payors for ARIKAYCE or acceptable
prices for ARIKAYCE;
development of unexpected safety or efficacy concerns related to ARIKAYCE, brensocatib, treprostinil palmitil
inhalation powder (TPIP) or our other product candidates;
inaccuracies in our estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP or our other
product candidates or in data we have used to identify physicians, expected rates of patient uptake, duration of
expected treatment, or expected patient adherence or discontinuation rates;
the risks and uncertainties associated with, and the perceived benefits of, our secured senior loan with certain funds
managed by Pharmakon Advisors, LP and our royalty financing with OrbiMed Royalty & Credit Opportunities IV, LP,
including our ability to maintain compliance with the covenants in the agreements for the senior secured loan and
royalty financing and the impact of the restrictions on our operations under these agreements;
our inability to create an effective direct sales and marketing infrastructure or to partner with third parties that offer
such an infrastructure for distribution of ARIKAYCE or any of our product candidates that are approved in the future;
failure to obtain regulatory approval to expand ARIKAYCE’s indication to a broader patient population;
risk that brensocatib or TPIP does not prove to be effective or safe for patients in ongoing and future clinical studies,
including, for brensocatib, the ASPEN study;
risk that our competitors may obtain orphan drug exclusivity for a product that is essentially the same as a product we
are developing for a particular indication;
failure to successfully predict the time and cost of development, regulatory approval and commercialization for novel
gene therapy products;
failure to successfully conduct future clinical trials for ARIKAYCE, brensocatib, TPIP and our other product
candidates due to our limited experience in conducting preclinical development activities and clinical trials necessary
for regulatory approval and our potential inability to enroll or retain sufficient patients to conduct and complete the
trials or generate data necessary for regulatory approval, among other things;
risks that our clinical studies will be delayed or that serious side effects will be identified during drug development;
failure to obtain, or delays in obtaining, regulatory approvals for ARIKAYCE outside the US, Europe or Japan, or for
our product candidates in the US, Europe, Japan or other markets, including separate regulatory approval for Lamira
in each market and for each usage;
failure of third parties on which we are dependent to manufacture sufficient quantities of ARIKAYCE or our product
candidates for commercial or clinical needs, to conduct our clinical trials, or to comply with our agreements or laws
and regulations that impact our business or agreements with us;
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our inability to attract and retain key personnel or to effectively manage our growth;
our inability to successfully integrate our recent acquisitions and appropriately manage the amount of management’s
time and attention devoted to integration activities;
risks that our acquired technologies, products and product candidates are not commercially successful;
our inability to adapt to our highly competitive and changing environment;
risk that we are unable to maintain our significant customers;
risk that government healthcare reform materially increases our costs and damages our financial condition;
business or economic disruptions due to catastrophes or other events, including natural disasters or public health
crises;
impact of the COVID-19 pandemic and efforts to reduce its spread on our business, employees, including key
personnel, patients, partners and suppliers;
deterioration in general economic conditions in the US, Europe, Japan and globally, including the effect of prolonged
periods of inflation, affecting us, our suppliers, third-party service providers and potential partners;
our inability to adequately protect our intellectual property rights or prevent disclosure of our trade secrets and other
proprietary information and costs associated with litigation or other proceedings related to such matters;
restrictions or other obligations imposed on us by agreements related to ARIKAYCE or our product candidates,
including our license agreements with PARI and AstraZeneca AB (AstraZeneca), and failure to comply with our
obligations under such agreements;
the cost and potential reputational damage resulting from litigation to which we are or may become a party, including
product liability claims;
risk that our operations are subject to a material disruption in the event of a cybersecurity attack or issue;
our limited experience operating internationally;
changes in laws and regulations applicable to our business, including any pricing reform, and failure to comply with
such laws and regulations;
our history of operating losses, and the possibility that we never achieve or maintain profitability;
goodwill impairment charges affecting our results of operations and financial condition;
inability to repay our existing indebtedness and uncertainties with respect to our ability to access future capital; and
delays in the execution of plans to build out an additional third-party manufacturing facility approved by the
appropriate regulatory authorities and unexpected expenses associated with those plans.
We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the
date they are made. Any forward-looking statement is based on information current as of the date of this Annual Report on
Form 10-K and speaks only as of the date on which such statement is made. Actual events or results may differ materially from
the results, plans, intentions or expectations anticipated in these forward-looking statements as a result of a variety of factors,
many of which are beyond our control. More information on factors that could cause actual results to differ materially from
those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (SEC),
including, but not limited to, those described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K. We disclaim any obligation,
except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any
change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may
affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
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5
PART I
• We are advancing commercial readiness activities in 2023 in preparation for a launch of brensocatib for patients with
ITEM 1. BUSINESS
Business Overview
We are a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare
diseases. Our first commercial product, ARIKAYCE, is approved in the US as ARIKAYCE® (amikacin liposome inhalation
suspension), in Europe as ARIKAYCE Liposomal 590 mg Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg
(amikacin sulfate inhalation drug product). ARIKAYCE received accelerated approval in the US in September 2018 for the
treatment of Mycobacterium avium complex (MAC) lung disease as part of a combination antibacterial drug regimen for adult
patients with limited or no alternative treatment options in a refractory setting. In October 2020, the European Commission
(EC) approved ARIKAYCE for the treatment of nontuberculous mycobacterial (NTM) lung infections caused by MAC in
adults with limited treatment options who do not have cystic fibrosis (CF). In March 2021, Japan's Ministry of Health, Labour
and Welfare (MHLW) approved ARIKAYCE for the treatment of patients with NTM lung disease caused by MAC who did not
sufficiently respond to prior treatment with a multidrug regimen. NTM lung disease caused by MAC (which we refer to as
MAC lung disease) is a rare and often chronic infection that can cause irreversible lung damage and can be fatal.
Our clinical-stage pipeline includes brensocatib, TPIP and early-stage research programs. Brensocatib is a small
molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which we are developing for the treatment of patients with
bronchiectasis, CF and other neutrophil-mediated diseases, including chronic rhinosinusitis without nasal polyps (CRSsNP).
TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile
for pulmonary hypertension associated with interstitial lung disease (PH-ILD) and pulmonary arterial hypertension (PAH). Our
early-stage research programs encompass a wide range of technologies and modalities, including gene therapy, artificial
intelligence-driven protein engineering, and protein manufacturing. A summary of our commercial and pipeline products is
shown below:
The information below summarizes the anticipated near-term milestones for ARIKAYCE and our product candidates.
ARIKAYCE
• We will continue to advance the ARISE and ENCORE trials, our post-marketing confirmatory, frontline clinical trial
program for ARIKAYCE.
• We anticipate sharing topline efficacy and safety data from ARISE in the third quarter of 2023.
• We anticipate completing enrollment in ENCORE by the end of 2023.
Brensocatib
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In February 2023, we completed screening of adult patients in the Phase 3 ASPEN trial and anticipate completing
enrollment in the first quarter of 2023. We anticipate sharing topline data in the second quarter of 2024.
• We plan to explore the potential of brensocatib in additional neutrophil-mediated diseases, including advancing
CRSsNP into Phase 2 development in mid-2023.
bronchiectasis, if approved.
TPIP
• We will continue to advance our Phase 2 studies in both PH-ILD and PAH.
• We anticipate sharing interim, blinded dose titration and safety and tolerability data from the PH-ILD study in the
second half of 2023.
• We anticipate sharing topline results from the PH-ILD study in the first half of 2024.
Early-Stage Research
• We anticipate submitting our first investigational new drug (IND) filing in the first half of 2023.
• We anticipate sharing preclinical data in musculoskeletal and CNS indications in the first half of 2023.
• We anticipate sharing clinical data from the first trial in a musculoskeletal disease in the first half of 2024.
To complement our internal research and development, we also actively evaluate in-licensing and acquisition
opportunities for a broad range of rare diseases.
Our Strategy
Our strategy focuses on the needs of patients with rare diseases. We secured approval for ARIKAYCE in the US as
ARIKAYCE® (amikacin liposome inhalation suspension), in Europe as ARIKAYCE Liposomal 590 mg Nebuliser Dispersion
and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). We are not aware of any other
approved inhaled therapies specifically indicated to treat MAC lung disease in North America, Europe or Japan. We believe
that ARIKAYCE has the potential to prove beneficial in other patients with MAC. Our product candidates are brensocatib, our
Phase 3 product candidate which we are developing for patients with bronchiectasis, CF and other neutrophil-mediated
diseases, and TPIP, our product candidate that may offer a differentiated product profile for patients with PH-ILD and PAH.
We are also advancing our early-stage research programs encompassing a wide range of technologies and modalities, including
gene therapy, artificial intelligence-driven protein engineering, and protein manufacturing.
Our key priorities are as follows:
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Continue to provide ARIKAYCE to appropriate patients by leveraging and expanding our reliable revenue stream;
Produce topline clinical data readouts in the near and long term;
Advance commercial readiness activities to serve significantly more patients with serious and rare diseases; and
Control spending, prudently deploying capital to support the best return-generating opportunities.
ARIKAYCE for Patients with MAC Lung Disease
ARIKAYCE is our first approved product. ARIKAYCE received accelerated approval in the US in September 2018
for the treatment of refractory MAC lung disease as part of a combination antibacterial drug regimen for adult patients with
limited or no alternative treatment options. In October 2020, ARIKAYCE received approval in Europe for the treatment of
NTM lung infections caused by MAC in adults with limited treatment options who do not have CF. In March 2021,
ARIKAYCE received approval in Japan for the treatment of patients with NTM lung disease caused by MAC who did not
sufficiently respond to prior treatment with a multidrug regimen. MAC lung disease is a rare and often chronic infection that
can cause irreversible lung damage and can be fatal. Amikacin solution for parenteral administration is an established drug that
has activity against a variety of NTM; however, its use is limited by the need to administer it intravenously and by toxicity to
hearing, balance, and kidney function. Unlike amikacin solution for intravenous administration, our proprietary Pulmovance™
technology uses charge-neutral liposomes to deliver amikacin directly to the lungs where liposomal amikacin is taken up by the
lung macrophages where the MAC infection resides. This technology also prolongs the release of amikacin in the lungs, while
minimizing systemic exposure, thereby offering the potential for decreased systemic toxicities. ARIKAYCE's ability to deliver
high levels of amikacin directly to the lung and sites of MAC infection via the use of our Pulmovance technology distinguishes
it from intravenous amikacin. ARIKAYCE is administered once-daily using Lamira, an inhalation device developed and
manufactured by PARI. Lamira is a portable nebulizer that enables aerosolization of liquid medications via a vibrating,
perforated membrane, and was designed specifically for ARIKAYCE delivery.
The FDA has designated ARIKAYCE as an orphan drug and a Qualified Infectious Disease Product (QIDP) for NTM
lung disease. Orphan designated drugs are eligible for seven years of exclusivity for the orphan indication. QIDP designation
provides an additional five years of exclusivity for the designated indication. The FDA granted a total of 12 years of exclusivity
in the indication for which ARIKAYCE was approved.
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ARIKAYCE also has been included in the international treatment guidelines for NTM lung disease. The evidence-
based guidelines, issued by the American Thoracic Society (ATS), European Respiratory Society (ERS), European Society of
Clinical Microbiology and Infectious Diseases (ESCMID), and Infectious Diseases Society of America (IDSA), strongly
recommend the use of ARIKAYCE for MAC lung disease as part of a combination antibacterial drug regimen for adult patients
with limited or no alternative treatment options who have failed to convert to a negative sputum culture after at least six months
of treatment.
In October 2020, the FDA approved a supplemental new drug application for ARIKAYCE, adding important efficacy
data regarding the durability and sustainability of culture conversion to the ARIKAYCE label. The data, which are from the
Phase 3 CONVERT study of ARIKAYCE, demonstrate that the addition of ARIKAYCE to guideline-based therapy (GBT) was
associated with sustained culture conversion through the end of treatment as well as durable culture conversion three months
post-treatment compared with GBT alone.
Accelerated Approval
In March 2018, we submitted a new drug application (NDA) for ARIKAYCE to the FDA to request accelerated
approval. Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or
condition and (ii) provide a meaningful therapeutic benefit over existing treatments to be approved substantially based on an
intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit, rather than a clinical endpoint
such as survival or irreversible morbidity. In September 2018, the FDA granted accelerated approval for ARIKAYCE under the
Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) for the treatment of refractory MAC lung disease
as part of a combination antibacterial drug regimen for adult patients with limited or no alternative treatment options via the
accelerated approval pathway. LPAD, which was enacted as part of the 21st Century Cures Act, serves to advance the
development of new antibacterial drugs to treat serious or life-threatening infections in limited populations of patients with
unmet needs. As required for drugs approved under the LPAD pathway, labeling for ARIKAYCE includes certain statements to
convey that the drug has been shown to be safe and effective only for use in a limited population.
As a condition of accelerated approval, we must conduct a post-marketing confirmatory clinical trial. In December
2020, we commenced the post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC
lung disease. The frontline clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-
sectional and longitudinal characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the
clinical benefits and evaluate the safety of ARIKAYCE in patients with newly diagnosed MAC lung disease using the PRO tool
validated in the ARISE trial. We are running these global studies in parallel and approximately 200 sites are expected to be
initiated for these clinical trials. We have completed enrollment in the ARISE trial and anticipate completing enrollment in
ENCORE by the end of 2023. The frontline clinical program is intended to fulfill the FDA’s post-marketing requirement to
allow for full approval of ARIKAYCE by the FDA, and verification and description of clinical benefit in the ENCORE trial
will be necessary for full approval of ARIKAYCE.
Regulatory Pathway Outside of the US
In October 2020, the EC granted marketing authorization for ARIKAYCE for the treatment of NTM lung infections
caused by MAC in adults with limited treatment options who do not have CF. ARIKAYCE is now available commercially for
patients in several of the major European Union (EU) countries. In October 2022, we secured reimbursement approval for
ARIKAYCE in England, at which point ARIKAYCE became reimbursed across all UK nations. In September 2022, patient
supply of ARIKAYCE in Germany was enabled by import from other EU countries. We have worked with the German
National Association of Statutory Health Insurance Funds (GKV-SV) towards an agreement on the price of ARIKAYCE that
would allow us to better serve the needs of patients in Germany; however, to date, we have been unable to reach an agreement.
We are working to ensure an uninterrupted supply of ARIKAYCE for patients in Germany and to provide physicians and
pharmacists the information they need to obtain ARIKAYCE for their patients through the importation pathway. Discussions
remain ongoing with the GKV-SV with the goal of reaching an agreement and re-initiating direct access to ARIKAYCE. In
January 2023, we agreed upon reimbursement terms with the French authorities. To date, we have been unable to reach an
acceptable agreement of a nationally reimbursed price with the Italian Medicines Agency (AIFA). ARIKAYCE remains
commercially available for physicians to prescribe in Italy under Class C, where we set the price and funding is agreed locally.
We anticipate recommencing negotiations for national reimbursement in 2023 with the newly constituted AIFA.
In March 2021, Japan's MHLW approved ARIKAYCE for the treatment of patients with NTM lung disease caused by
MAC who did not sufficiently respond to prior treatment with a multidrug regimen. In July 2021, we launched ARIKAYCE in
Japan.
The CONVERT Study and 312 Study
Accelerated approval of ARIKAYCE was supported by preliminary data from the CONVERT study, a global Phase 3
study evaluating the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement
of sputum culture conversion (defined as three consecutive negative monthly sputum cultures) by Month 6 as the primary
endpoint. Patients who achieved sputum culture conversion by Month 6 continued in the CONVERT study for an additional 12
months of treatment following the first monthly negative sputum culture in order to assess the durability of culture conversion,
as defined by patients that have completed treatment and continued in the CONVERT study off all therapy for three months. In
May 2019, we presented at the American Thoracic Society meeting that 41/65 (63.1%) of patients on ARIKAYCE plus GBT
who had achieved culture conversion by Month 6 had maintained durable culture conversion for three months off all therapy
compared to 0/10 (0%) on GBT only (p<0.0002). Safety data for these patients were consistent with safety data previously
reported for patients by Month 6 of the CONVERT study.
Patients who did not culture convert by Month 6 may have been eligible to enroll in the 312 study, an open-label
extension study for these non-converting patients who completed six months of treatment in the CONVERT study. The primary
objective of the 312 study was to evaluate the long-term safety and tolerability of ARIKAYCE in combination with a standard
multi-drug regimen. The secondary objectives of the 312 study included evaluating the proportion of subjects achieving culture
conversion (defined in the same way as the CONVERT study) by Month 6 and the proportion of subjects achieving culture
conversion by Month 12, which was the end of treatment. We previously reported interim data as of December 2017 for
patients in the 312 study, with 28.4% of patients who received GBT only in the CONVERT study (19/67) and 12.3% of patients
who had received ARIKAYCE plus GBT in the CONVERT study (7/57) achieving culture conversion by Month 6 of the 312
study. The 312 study has concluded and final efficacy data regarding culture conversion were consistent with these interim data.
We have analyzed the safety and efficacy data from the 312 study, and we did not observe any new safety signals.
Further Research and Lifecycle Management
We are currently exploring and supporting research and lifecycle management programs for ARIKAYCE beyond
treatment of refractory MAC lung disease as part of a combination antibacterial regimen for adult patients who have limited or
no treatment options. As noted above, we will continue to advance the post-marketing confirmatory, frontline clinical trial
program for ARIKAYCE, through the ARISE and ENCORE trials, which are intended to fulfill the FDA's post-marketing
requirement to allow for the full approval of ARIKAYCE in the US, as well as to support the use of ARIKAYCE as a frontline
treatment for patients with MAC lung disease.
The ARISE trial is a randomized, double-blind, placebo-controlled Phase 3b study in adult patients with newly
diagnosed MAC lung disease that aims to generate evidence demonstrating the domain specification, reliability, validity, and
responsiveness of PRO-based scores, including a respiratory symptom score. Patients will be randomized 1:1 to receive
ARIKAYCE plus background regimen or placebo plus background regimen once daily for six months. Patients will then
discontinue all study treatments and remain in the trial for one month for the continued assessment of PRO endpoints. In the
fourth quarter of 2022, we completed enrollment in the ARISE trial. In January 2023, we reported a blinded treatment
discontinuation rate of 15%. We anticipate sharing topline efficacy and safety data from ARISE in the third quarter of 2023.
The ENCORE trial is a randomized, double-blind, placebo-controlled Phase 3b study to evaluate the efficacy and
safety of an ARIKAYCE-based regimen in patients with newly diagnosed MAC lung disease. Patients will be randomized 1:1
to receive ARIKAYCE plus background regimen or placebo plus background regimen once daily for 12 months. Patients will
then discontinue all study treatments and remain in the trial for three months for the assessment of durability of culture
conversion. The primary endpoint is change from baseline to Month 13 in respiratory symptom score. The key secondary
endpoint is the proportion of subjects achieving durable culture conversion at Month 15. The study is currently enrolling
patients, and is expected to enroll approximately 250 patients. We anticipate completing enrollment for ENCORE by the end of
2023.
Subsequent lifecycle management studies could also potentially enable us to reach more patients. These initiatives
include investigator-initiated studies, which are clinical studies initiated and sponsored by physicians or research institutions
with funding from us and may also include new clinical studies sponsored by us.
Market Opportunity for ARIKAYCE in MAC Lung Disease
NTM lung disease is associated with increased rates of morbidity and mortality, and MAC is the predominant
pathogenic species in NTM lung disease in the US, Europe and Japan. The prevalence of NTM lung disease has increased over
the past two decades, and we believe it is an emerging public health concern worldwide. Based on an analysis conducted in
2017, using information from external sources, including market research funded by us and third parties, and internal analyses
8
9
and calculations, we estimated the potential patient populations in the US, the (cid:32)uropean 5 (comprised of France, Germany,
Italy, Spain and the U(cid:38)) and Japan in 2019 were as follows(cid:24)
Potential Mar(cid:61)et
United States
(cid:32)uropean 5
Japan
Esti(cid:63)ated Nu(cid:63)(cid:52)er o(cid:56)
Patients (cid:73)ith Dia(cid:57)nosed
NTM Lun(cid:57) Disease
Esti(cid:63)ated Nu(cid:63)(cid:52)er o(cid:56)
Patients Treated (cid:56)or
MAC Lun(cid:57) Disease
Esti(cid:63)ated Nu(cid:63)(cid:52)er o(cid:56)
MAC lun(cid:57) disease
Patients Re(cid:56)ractor(cid:75) to
Treat(cid:63)ent
95,000-115,000
48,000-55,000
12,000-17,000
14,000
4,400
1,400
125,000-145,000
60,000-70,000
15,000-18,000
(cid:50)e are not aware of any other approved inhaled therapies specifically indicated for NTM lung disease in North
America, (cid:32)urope or Japan. (cid:29)ased on a burden of illness study that we conducted in the US with a major medical benefits
provider, we previously concluded that patients with NTM lung disease are costly to healthcare plans, while a claims-based
study in the US has shown that patients with NTM lung disease have higher resource utilization and costs than their age and
gender-matched controls. Accordingly, we believe that a significant market opportunity for ARI(cid:38)A(cid:52)C(cid:32) in NTM lung disease
exists in the US and internationally.
In October 2020, the (cid:32)C approved ARI(cid:38)A(cid:52)C(cid:32) for the treatment of NTM lung infections caused by MAC in adults
with limited treatment options who do not have CF. The CONV(cid:32)RT study included a comprehensive pharmacokinetic sub-
study in Japanese subjects in lieu of a separate local pharmacokinetic study in Japan, as agreed with the Pharmaceuticals and
Medical Devices Agency (PMDA). In March 2021, Japan's M(cid:35)L(cid:50) approved ARI(cid:38)A(cid:52)C(cid:32) for the treatment of patients with
NTM lung disease caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen.
Product Pi(cid:66)eline
(cid:25)rensocati(cid:52)
(cid:29)rensocatib is a small molecule, oral, reversible inhibitor of DPP1, which we licensed from Astra(cid:53)eneca in October
2016. DPP1 is an enzyme responsible for activating neutrophil serine proteases (NSPs) in neutrophils when they are formed in
the bone marrow. Neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction
and inflammatory mediation. Neutrophils contain the NSPs (including neutrophil elastase, proteinase 3, and cathepsin G) that
have been implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases, neutrophils accumulate in
the airways and result in excessive active NSPs that cause lung destruction and inflammation. (cid:29)rensocatib may decrease the
damaging effects of inflammatory diseases such as bronchiectasis by inhibiting DPP1 and its activation of NSPs.
(cid:29)ased on the positive results of the (cid:50)ILLO(cid:50) study discussed below, in December 2020 we commenced our Phase 3
trial, ASP(cid:32)N, which will investigate brensocatib in bronchiectasis. ASP(cid:32)N is a global, randomized, double-blind, placebo-
controlled Phase 3 study to assess the efficacy, safety, and tolerability of brensocatib in adult patients with bronchiectasis.
Patients with bronchiectasis due to CF may not be enrolled in the study. Patients will be randomized to receive brensocatib 10
mg, brensocatib 25 mg, or placebo once daily for 52 weeks. The primary endpoint is the rate of pulmonary exacerbations over
the 52-week treatment period. Secondary endpoints include time to first pulmonary exacerbation, percentage of subjects who
remain pulmonary exacerbation-free, change from baseline in post-bronchodilator F(cid:32)V1, rate of severe pulmonary
exacerbations, change from baseline in the (cid:29)ronchiectasis ((cid:44)OL-(cid:29)) Respiratory Symptoms Domain Score, and incidence and
severity of treatment-emergent adverse events (A(cid:32)s). This study is currently enrolling patients, and is expected to enroll
approximately 1,620 patients (540 in each arm) at approximately 480 sites in 40 countries. In January 2023, we reported that
the blended, blinded rate of pulmonary exacerbations in the ASP(cid:32)N trial was in line with expectations, ranging from 1.12 to
1.15 events per patient per year in the most recent three months of the study. In February 2023, we completed screening of adult
patients in the Phase 3 ASP(cid:32)N trial and anticipate completing enrollment in the first quarter of 2023. (cid:50)e anticipate sharing
topline data in the second quarter of 2024.
In March 2020, Astra(cid:53)eneca exercised its first option pursuant to our October 2016 license agreement under which
Astra(cid:53)eneca can advance clinical development of brensocatib in the indications of chronic obstructive pulmonary disease
(COPD) or asthma. Under the terms of the agreement, upon exercise of this option, Astra(cid:53)eneca is solely responsible for all
aspects of the development of brensocatib up to and including Phase 2b clinical trials in COPD or asthma. The agreement also
includes a second and final option which, if exercised, would permit Astra(cid:53)eneca to further develop brensocatib beyond Phase
2b clinical trials upon reaching agreement on commercial terms satisfactory to each party for the further development and
commercialization of brensocatib in COPD or asthma. (cid:50)e retain full development and commercialization rights for brensocatib
in all other indications and geographies.
In June 2020, the FDA granted breakthrough therapy designation for brensocatib for the treatment of adult patients
with non-cystic fibrosis bronchiectasis (NCF(cid:29)(cid:32)) for reducing exacerbations. The FDA's breakthrough therapy designation is
designed to expedite the development and review of therapies that are intended to treat serious or life-threatening diseases and
for which preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available
therapy. The benefits of breakthrough therapy designation include more frequent communication and meetings with FDA,
eligibility for rolling and priority review, intensive guidance on an efficient drug development program, and organizational
commitment from the FDA involving senior managers. In November 2020, brensocatib was granted access to the PRIM(cid:32)
scheme from the (cid:32)uropean Medicines Agency ((cid:32)MA) for patients with NCF(cid:29)(cid:32).
In October 2021, the (cid:32)MA’s Paediatric Committee approved the brensocatib Pediatric Investigational Plan for the
treatment of patients with NCF(cid:29)(cid:32). Subsequently, the ASP(cid:32)N trial will now include 40 adolescent patients between ages 12 to
17, which will fulfill the pediatric study requirements to support marketing applications in this patient population in the US,
(cid:32)urope and Japan.
The (cid:43)I(cid:33)(cid:33)(cid:36)(cid:43) (cid:39)tudy
The (cid:50)ILLO(cid:50) study was a randomized, double-blind, placebo-controlled, parallel-group, multi-center, multi-national,
Phase 2 study to assess the efficacy, safety and tolerability, and pharmacokinetics of brensocatib administered once daily for 24
weeks in patients with NCF(cid:29)(cid:32). The (cid:50)ILLO(cid:50) study was conducted at 116 sites and enrolled 256 adult patients diagnosed with
NCF(cid:29)(cid:32) who had at least two documented pulmonary exacerbations in the 12 months prior to screening. Patients were
randomized 1(cid:24)1(cid:24)1 to receive either 10 mg or 25 mg of brensocatib or matching placebo. The primary efficacy endpoint was the
time to first pulmonary exacerbation over the 24-week treatment period in the brensocatib arms compared to the placebo arm.
(cid:43)I(cid:33)(cid:33)(cid:36)(cid:43) (cid:26)(cid:51)(cid:51)icacy (cid:25)ata
(cid:50)e announced topline data for the (cid:50)ILLO(cid:50) study in February 2020 and full data for the (cid:50)ILLO(cid:50) study in June
2020. In September 2020, final results from the (cid:50)ILLO(cid:50) study were published online in the New (cid:32)ngland Journal of
Medicine. The data demonstrate that the (cid:50)ILLO(cid:50) study met its primary endpoint of time to first pulmonary exacerbation over
the 24-week treatment period for both the 10 mg and 25 mg dosage groups of brensocatib compared to placebo (p(cid:27)0.027,
p(cid:27)0.044, respectively). The risk of exacerbation at any time during the trial was reduced by 42(cid:4) for the 10 mg group versus
placebo ((cid:35)R 0.58, p(cid:27)0.029) and by 38(cid:4) for the 25 mg group versus placebo ((cid:35)R 0.62, p(cid:27)0.046). In addition, treatment with
brensocatib 10 mg resulted in a significant reduction in the rate of pulmonary exacerbations, a key secondary endpoint, versus
placebo. Specifically, patients treated with brensocatib experienced a 36(cid:4) reduction in the 10 mg arm (p(cid:27)0.041) and a 25(cid:4)
reduction in the 25 mg arm (p(cid:27)0.167) versus placebo. Change in concentration of active N(cid:32) in sputum versus placebo from
baseline to the end of the treatment period was also statistically significant (p(cid:27)0.034 for 10 mg, p(cid:27)0.021 for 25 mg).
(cid:43)I(cid:33)(cid:33)(cid:36)(cid:43) (cid:39)a(cid:51)ety and Tolerability (cid:25)ata
(cid:29)rensocatib was generally well-tolerated in the study. Rates of A(cid:32)s leading to discontinuation in patients treated with
placebo, brensocatib 10 mg, and brensocatib 25 mg were 10.6(cid:4), 7.4(cid:4), and 6.7(cid:4), respectively. The most common A(cid:32)s in
patients treated with brensocatib were cough, headache, sputum increase, dyspnea, fatigue, and upper respiratory tract infection.
Rates of adverse events of special interest (A(cid:32)SIs) in patients treated with placebo, brensocatib 10 mg, and brensocatib 25 mg,
respectively, were as follows(cid:24) rates of skin events (including hyperkeratosis) were 11.8(cid:4), 14.8(cid:4), and 23.6(cid:4)(cid:25) rates of dental
events were 3.5(cid:4), 16.0(cid:4), and 10.1(cid:4)(cid:25) and rates of infections that were considered A(cid:32)SIs were 17.6(cid:4), 13.6(cid:4), and 16.9(cid:4).
Further Research and (cid:25)e(cid:67)elopment
In August 2019, we received notice from the FDA that we were awarded a development grant of $1.8 million for
specific work to be performed on a PRO tool. The grant funding is for the development of a novel PRO tool for use in clinical
trials to measure symptoms in patients with NCF(cid:29)(cid:32) with and without NTM lung infection.
In January 2023, we reported topline data from the Phase 2, multiple-dose, pharmacokinetic(cid:13)pharmacodynamic study
of brensocatib in patients with CF. This Phase 2 study included both patients who were on background CFTR modulator drugs
and patients who were not on CFTR modulator drugs. The study duration was approximately one month and dosed CF patients
to placebo, 10 mg, 25 mg, and 40 mg of brensocatib. A clear dose-dependent and exposure-dependent inhibition of blood NSPs
was observed in patients treated with brensocatib across all doses in this study, consistent with the mechanism of action of
brensocatib. Safety and tolerability were consistent with what was observed during the Phase 2 (cid:50)ILLO(cid:50) study, with no
significant drug-related findings. (cid:50)e concluded that an additional cohort evaluating a 65 mg dose of brensocatib is not needed
in this patient population. (cid:50)e believe that we can use the data from this Phase 2 study, in addition to the clinical work done for
the (cid:50)ILLO(cid:50) and ASP(cid:32)N studies, to help inform the safety and efficacy of brensocatib for CF patients.
(cid:50)e also plan to explore the potential of brensocatib in additional neutrophil-mediated diseases, including CRSsNP.
CRSsNP currently has no approved therapies and many patients do not respond to corticosteroids or endoscopic sinus surgery.
(cid:50)e anticipate moving brensocatib into Phase 2 development for CRSsNP in mid-2023.
(cid:34)ar(cid:56)et (cid:36)pportunity (cid:51)or brensocatib in bronchiectasis
10
11
(cid:29)ronchiectasis is a severe, chronic pulmonary disorder in which the bronchi become permanently dilated due to a
cycle of infection, inflammation, and lung tissue damage. The condition is marked by frequent pulmonary exacerbations
requiring antibiotic therapy and(cid:13)or hospitalizations. Symptoms include chronic cough, excessive sputum production, shortness
of breath, and repeated respiratory infections, which can worsen the underlying condition. (cid:29)ased on information from external
sources, including market research funded by us and third parties, and internal analyses and calculations, we estimate the
potential addressable market at launch in the US, the (cid:32)uropean 5 and Japan will be as follows (approximately)(cid:24)
in the research and development of gene therapies for rare genetic disorders. (cid:50)e believe that animal studies may demonstrate
the viability of these potential medicines to address serious unmet medical needs in various therapeutic areas.
Our initial therapeutic areas of focus include musculoskeletal, CNS, ocular, and rheumatologic diseases. (cid:50)e anticipate
submitting our first IND filing in the first half of 2023. Preclinical data in musculoskeletal and CNS indications are also
expected in the first half of 2023 and clinical data from the first trial in a musculoskeletal disease are anticipated in the first half
of 2024.
Potential Mar(cid:61)et
Esti(cid:63)ated Nu(cid:63)(cid:52)er o(cid:56) Patients Dia(cid:57)nosed (cid:73)ith NCF(cid:25)E
Cor(cid:66)orate De(cid:72)elo(cid:66)(cid:63)ent
United States
(cid:32)uropean 5
Japan
450,000
400,000
150,000
(cid:50)e plan to continue to develop, acquire, in-license or co-promote other products, product candidates and technologies,
including those that address serious and rare diseases that currently have significant unmet needs. (cid:50)e are focused broadly on
serious and rare disease therapeutics and prioritizing those areas that best align with our core competencies.
Today, there are no approved therapies in the US, (cid:32)urope, or Japan for the treatment of patients with bronchiectasis.
Manu(cid:56)acturin(cid:57)
Tre(cid:66)rostinil Pal(cid:63)itil Inhalation Po(cid:73)der
TPIP is an investigational inhaled formulation of a treprostinil prodrug that has the potential to address certain of the
current limitations of existing prostanoid therapies. (cid:50)e believe that TPIP prolongs duration of effect and may provide patients
with greater consistency in pulmonary arterial pressure reduction over time. Current inhaled prostanoid therapies must be dosed
four to nine times per day. Reducing dose frequency has the potential to ease patient burden and improve compliance.
Additionally, we believe that TPIP may be associated with fewer side effects, including severity and(cid:13)or frequency of cough,
headache, throat irritation, nausea, flushing and dizziness that are associated with high initial drug levels and local upper airway
exposure when using current inhaled prostanoid therapies. (cid:50)e believe TPIP may offer a differentiated product profile for P(cid:35)-
ILD and PA(cid:35).
In February 2021, we announced topline results from the Phase 1 study of TPIP in healthy volunteers. The objective of
this first-in-human single ascending dose and multiple ascending dose study was to assess the pharmacokinetics and tolerability
profile of TPIP. Data from the study demonstrated that TPIP was generally well tolerated, with a pharmacokinetic profile that
supports continued development with once-daily dosing. The most common A(cid:32)s across all cohorts in the study were cough,
dizziness, headache, and nausea. Most A(cid:32)s were mild in severity and consistent in nature with those typically seen with other
inhaled prostanoid therapies. There were few moderate A(cid:32)s and no severe or serious A(cid:32)s. Subjects in the multiple dose panel
that incorporated an up-titration approach beginning at 112.5 (cid:92)g once-daily and progressing to 225 (cid:92)g once-daily reported
fewer A(cid:32)s compared to the panel dosed with 225 (cid:92)g once-daily from the first dose.
Overall pharmacokinetic results demonstrated that treprostinil exposure (AUC and Cmax) was dose-proportional, with
low to moderate inter-subject variability. Treprostinil was detected in the plasma at 24 hours at all doses and throughout the 48-
hour sampling period for the two highest doses. Compared with currently available inhaled treprostinil therapy, TPIP showed
substantially lower Cmax and longer half-life. Data from this study were presented in an oral session at the (cid:32)uropean Society of
Cardiology Congress in August 2021.
(cid:50)e are advancing the development of TPIP with two ongoing Phase 2 studies. The first study is designed to assess the
safety and tolerability of TPIP in patients with P(cid:35)-ILD over a 16-week treatment period using an up-titration, once-daily dosing
schedule. The second study is designed to investigate the effect of TPIP in patients with PA(cid:35) on changes in PVR and six-
minute walk distance over a 16-week treatment period and will also employ an up-titration, once-daily dosing schedule. A third
study, which was a Phase 2a study designed to study the immediate impact of a single dose of TPIP in PA(cid:35) patients over a 24-
hour period was discontinued primarily due to hospital and intensive care unit restrictions during the COVID-19 pandemic that
were necessary to conduct the study. One patient was dosed in this study at 112.5 micrograms. This patient went on to complete
the 16-week extension period for the study and was titrated to a dose of 320 micrograms once daily, which was found to be safe
and tolerable. (cid:50)e did not observe any safety concerns with TPIP, and the data suggested a trend toward improvement in various
cardiac measures during the study period.
(cid:50)e will continue to advance our Phase 2 development work in both P(cid:35)-ILD and PA(cid:35). (cid:50)e anticipate sharing interim,
blinded dose titration and safety and tolerability data from the P(cid:35)-ILD study in the second half of 2023. (cid:50)e expect topline
results from the P(cid:35)-ILD study to be shared in the first half of 2024.
Earl(cid:75)(cid:10)Sta(cid:57)e Research
Our early-stage research efforts are comprised of our preclinical programs, advanced through internal research and
development and augmented through business development activities. In March 2021, we acquired a proprietary protein
deimmunization platform, called Deimmunized by Design, focused on the reengineering of therapeutic proteins to evade
immune recognition and reaction. In August 2021, we acquired Motus (cid:29)iosciences, Inc. (Motus) and AlgaeneX, Inc.
(AlgaeneX), preclinical stage companies engaged in the research, development and manufacturing of gene therapies for rare
genetic disorders. In January 2023, we acquired Vertuis (cid:29)io, Inc. (Vertuis), a privately held, preclinical stage company engaged
(cid:50)e do not have any in-house manufacturing capability other than for small-scale preclinical development programs,
and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product
candidates for use in clinical trials. (cid:50)e plan to rely primarily on third-party manufacturers and suppliers for the commercial
manufacture and supply of most product candidates that we commercialize. ARI(cid:38)A(cid:52)C(cid:32) is manufactured currently by
Resilience (cid:29)iotechnologies Inc. (Resilience) (formerly Therapure (cid:29)iopharma Inc.) in Canada at a 200 kilogram (kg) scale. For
additional information about our agreement with Resilience, see (cid:33)icense and (cid:36)ther Agreements(cid:74)ARI(cid:32)A(cid:44)C(cid:26)(cid:8)related
Agreements.
In October 2017, we entered into certain agreements with Patheon U(cid:38) Limited (Patheon), a wholly-owned subsidiary
of Thermo Fisher Scientific, Inc. (Thermo Fisher), related to increasing our long-term production capacity for ARI(cid:38)A(cid:52)C(cid:32)
commercial inventory. The agreements provide for Patheon to manufacture and supply ARI(cid:38)A(cid:52)C(cid:32) for our long-term
anticipated commercial needs. Under these agreements, we are required to deliver to Patheon the required raw materials,
including active pharmaceutical ingredients, and certain fixed assets needed to manufacture ARI(cid:38)A(cid:52)C(cid:32). The aggregate
investment to increase the long-term production capacity, including under these agreements, and related agreements or purchase
orders with third parties for raw materials and fixed assets, is estimated to be approximately $99 million. In addition, we have a
commercialization agreement with PARI, the manufacturer of our drug delivery nebulizer for ARI(cid:38)A(cid:52)C(cid:32), to address our
commercial supply needs (the Commercialization Agreement).
(cid:50)e expect our future requirements for brensocatib and TPIP will be manufactured by contract manufacturing
organizations (CMOs). Certain product candidates will be manufactured using future in-house manufacturing capabilities.
Intellectual Pro(cid:66)ert(cid:75)
(cid:50)e own or license rights to more than 450 issued patents and pending patent applications in the US and in foreign
countries, including more than 250 issued patents and pending patent applications related to ARI(cid:38)A(cid:52)C(cid:32). Our success depends
in large part on our ability to maintain proprietary protection surrounding our product candidates, technology and know-how(cid:25) to
operate without infringing the proprietary rights of others(cid:25) and to prevent others from infringing our proprietary rights. (cid:50)e
actively seek patent protection by filing patent applications, including on inventions that are important to the development of
our business in the US, (cid:32)urope, Japan, Canada, and selected other foreign markets that we consider key for our product
candidates. These international markets generally include Australia, China, India, Israel and Mexico.
Our patent strategy includes obtaining patent protection, where possible, on compositions of matter, methods of
manufacture, methods of use, dosing and administration regimens and formulations. (cid:50)e also rely on trade secrets, know-how,
continuing technological innovation, in-licensing and partnership opportunities to develop and maintain our proprietary
position.
(cid:50)e monitor for activities that may infringe our proprietary rights, as well as the progression of third-party patent
applications that may have the potential to create blocks to our products or otherwise interfere with the development of our
business. (cid:50)e are aware, for example, of US patents, and corresponding international counterparts, owned by third parties that
contain claims related to treating lung infections using inhaled antibiotics. If any of these patents were to be asserted against us,
we do not believe that our marketed product or development candidates would be found to infringe any valid claim of these
patents.
Reflecting our commitment to safeguarding proprietary information, we require our employees, consultants, advisors,
collaborators and other third-party partners to sign confidentiality agreements to protect the exchange of proprietary materials
and information. (cid:50)e also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our information technology systems.
ARI(cid:32)A(cid:44)C(cid:26) Patents
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Of the patents and applications related to ARIKAYCE, there are 12 issued US patents that cover the ARIKAYCE
composition and its use in treating NTM that are listed in the FDA Orange Book. These patents and their expiration dates are as
follows:
US Patent No. 7,718,189 (expires June 6, 2025)
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US Patent No. 8,226,975 (expires August 15, 2028)
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US Patent No. 8,632,804 (expires December 5, 2026)
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US Patent No. 8,802,137 (expires April 8, 2024)
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US Patent No. 8,679,532 (expires December 5, 2026)
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US Patent No. 8,642,075 (expires December 5, 2026)
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US Patent No. 9,566,234 (expires January 18, 2034)
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US Patent No. 9,827,317 (expires April 8, 2024)
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US Patent No. 9,895,385 (expires May 15, 2035)
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US Patent No. 10,251,900 (expires May 15, 2035)
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US Patent No. 10,751,355 (expires May 15, 2035)
• US Patent No. 11,446,318 (expires May 15, 2035)
In addition, we own five pending US patent applications that cover the ARIKAYCE composition and/or its use in
treating NTM, including MAC lung infections. We also own a pending US application that covers methods for making
ARIKAYCE. One or more of these patent applications, if issued as patents in their current form, may be eligible for listing in
the FDA Orange Book for ARIKAYCE. We anticipate that in the US, we will have patent coverage for ARIKAYCE and its use
in treating NTM lung disease, including NTM lung disease caused by MAC, through May 15, 2035.
Eight patents have been granted by the European Patent Office (EPO) (European Patent Nos. 1581236, 1909759,
1962805, 2823820, 3067046, 3142643, 3427742 and 3466432) that relate to ARIKAYCE and its use in treating NTM,
including MAC lung infections. In addition, we have three patent applications pending before the EPO that relate to
ARIKAYCE and its use in treating NTM lung disease. European Patent No. 1909759 (the '759 patent), owned by us, was
previously opposed by Generics (UK) Ltd. A hearing was held on October 19, 2015, during which we submitted amended
claims. The European Patent Office Opposition Division (EPOOD) maintained the patent as amended and Generics (UK) Ltd
appealed the decision. The EPO Technical Board of Appeals heard arguments related to the appeal on January 8, 2019 and the
product claims of the patent were held invalid. The method of manufacture claims was remitted to the EPOOD for further
consideration, and the EPO has since maintained the validity of these claims. European Patent Nos. 1962805 and 3067046, both
of which expire approximately five months after the ‘759 patent (December 5, 2026 vs. July 19, 2026), also include claims
related to ARIKAYCE and its use in treating NTM lung disease. European Patent Nos. 3142643 and 3466432 each expire May
15, 2035 and include claims related to ARIKAYCE and its use for treating MAC lung infections.
More than 60 patents have also been issued in other major foreign markets, e.g., Japan, China, Korea, Australia, and
India, that relate to ARIKAYCE and/or methods of using ARIKAYCE for treating various pulmonary disorders, including
NTM lung disease. More than 30 foreign patent applications are pending that relate to the ARIKAYCE composition and/or its
use in treating various pulmonary disorders, including NTM lung disease.
Through our agreements with PARI, we have license rights to US and foreign patents and applications that cover the
Lamira medical device through January 18, 2034. We have entered into a commercial supply agreement with PARI and we also
have rights to use the nebulizers in expanded access programs and clinical trials.
Brensocatib Patents
Through our agreement with AstraZeneca, we have licensed US Patent Nos. 9,522,894, 9,815,805, 10,287,258,
10,669,245 and 11,117,874, which have claims related to brensocatib and methods for using brensocatib in certain treatment
methods. US Patent No. 9,522,894 expires March 12, 2035 while the remaining US patents expire January 21, 2035 (not taking
into account any potential patent term extension). Counterpart patents have issued in Australia, Canada, Europe, China, Japan,
South Korea, India, Israel, and Mexico. In addition, patent applications related to brensocatib are pending in the US and
throughout the world, including in Europe, China, and Japan.
TPIP Patents
We own US Patent Nos. 9,255,064, 9,469,600, 10,010,518, 10,526,274 and 10,995,055, each expiring October 24,
2034 (not taking into account any potential patent term extensions or adjustments), each with claims covering treprostinil
palmitil, the treprostinil prodrug component of TPIP, compositions comprising the same, and/or its use. US Patent No.
9,255,064 has claims reciting hexadecyl-treprostinil, and other treprostinil prodrugs. US Patent No. 9,469,600 has claims
directed to TPIP and other treprostinil prodrug formulations. US Patent No. 10,010,518 has claims directed to methods of
treating pulmonary hypertension, including PAH, with TPIP and other treprostinil prodrug formulations. US Patent No.
10,526,274 has claims directed to methods for treating pulmonary fibrosis with treprostinil palmitil. US Patent No. 10,995,055
has claims directed to compositions comprising treprostinil palmitil in the form of a dry powder, and methods for treating
pulmonary hypertension with the same. Counterpart patent applications to these US Patents have issued in Europe, Japan and
other foreign jurisdictions. Counterpart patent applications to these US Patents are also pending in select jurisdictions, including
the US, Europe and Japan.
We own pending patent applications that relate to methods for using treprostinil prodrugs and formulations comprising
the same, including TPIP in treating patients with PAH and other diseases, as well as methods for manufacturing such
treprostinil prodrugs and formulations.
Trademarks
In addition to our patents and trade secrets, we have filed applications to register certain trademarks in the US and/or
abroad, including INSMED and ARIKAYCE. At present, we have received two registrations for the INSMED mark and one
registration for the ARIKAYCE mark from the US Patent and Trademark Office (USPTO). We have also received notices of
allowance or registrations in a number of countries abroad for the INSMED and ARIKAYCE marks, among others. The EMA
has authorized the use of the name ARIKAYCE liposomal, and the FDA has approved our use of the name ARIKAYCE, as the
trade name for amikacin liposome inhalation suspension. Our ability to obtain and maintain trademark registrations will in
certain geographical locations depend on making use of the mark in commerce on or in connection with our products and
approval of the trademarks for our products by regulatory authorities in each country.
License and Other Agreements
ARIKAYCE-related Agreements
We currently rely, and will continue to rely, on agreements with a number of third parties in connection with the
development and manufacture of ARIKAYCE.
PARI
We have a licensing agreement with PARI for use of the optimized Lamira Nebulizer System for delivery of
ARIKAYCE in treating patients with NTM lung infections, CF and bronchiectasis. Under the licensing agreement, we have
rights under several US and foreign issued patents and patent applications involving improvements to the optimized Lamira
Nebulizer System, to exploit the system with ARIKAYCE for the treatment of such indications, but we cannot manufacture the
nebulizers except as permitted under our Commercialization Agreement with PARI, which is described in further detail below.
Lamira has been approved for use in the US (in combination with ARIKAYCE) and EU and is authorized for use in Japan. We
also currently have rights to use the nebulizers in expanded access programs and clinical trials. Lamira must receive regulatory
approval before we can market ARIKAYCE outside the US, EU and Japan, and it is labeled as investigational for use in our
clinical trials outside of these regions.
We have certain obligations under this licensing agreement in relation to specified licensed indications. With respect to
NTM, we met all obligations to achieve certain commercial, developmental and regulatory milestones by the required
deadlines. With respect to bronchiectasis, we have an obligation to use commercially reasonable efforts to initiate a Phase 3 trial
for bronchiectasis by a set deadline. With respect to CF, we are obligated to use commercially reasonable efforts to develop,
obtain regulatory and reimbursement approval, market and sell ARIKAYCE in two or more major European countries, as well
as to achieve certain milestones specified in the licensing agreement. Termination of the licensing agreement or loss of
exclusive rights may occur if we fail to meet our obligations, including payment of royalties to PARI.
Under the licensing agreement, we paid PARI an upfront license fee and milestone payments. Upon FDA acceptance
of our NDA and the subsequent FDA and EMA approvals of ARIKAYCE, we made additional milestone payments of €1.0
million, €1.5 million and €0.5 million, respectively, to PARI. In October 2017, we exercised an option to buy-down the
royalties payable to PARI. PARI is entitled to receive royalty payments in the mid-single digits on the annual global net sales of
ARIKAYCE pursuant to the licensing agreement, subject to certain specified annual minimum royalties.
This licensing agreement will remain in effect on a country-by-country basis until the final royalty payments have been
made with respect to the last country in which ARIKAYCE is sold, or until the agreement is otherwise terminated by either
party. We have the right to terminate this licensing agreement upon written notice for PARI's uncured material breach, if PARI
is the subject of specified bankruptcy or liquidation events, or if PARI fails to reach certain specified obligations. PARI has the
right to terminate this licensing agreement upon written notice for our uncured material breach, if we are the subject of specified
bankruptcy or liquidation events, if we assign or otherwise transfer the agreement to a third-party that does not agree to assume
all of our rights and obligations set forth in the agreement, or if we fail to reach certain specified milestones.
In July 2014, we entered into a Commercialization Agreement with PARI for the manufacture and supply of the
Lamira Nebulizer Systems and related accessories (the Device) as optimized for use with ARIKAYCE. Under the
Commercialization Agreement, PARI manufactures the Device except in the case of certain defined supply failures, when we
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will have the right to make the Device and have it made by third parties (but not certain third parties deemed under the
Commercialization Agreement to compete with PARI). The Commercialization Agreement has an initial term of 15 years that
began to run in October 2018 (the Initial Term). The term of the Commercialization Agreement may be extended by us for an
additional five years by providing written notice to PARI at least one year prior to the expiration of the Initial Term.
Resilience
In February 2014, we entered into a contract manufacturing agreement with Therapure Biopharma Inc., which has
been assumed by Resilience, for the manufacture of ARIKAYCE, on a non-exclusive basis, at a 200 kg scale. Pursuant to the
agreement, we collaborated with Resilience to construct a production area for the manufacture of ARIKAYCE in Resilience's
existing manufacturing facility in Mississauga, Ontario, Canada. The agreement has an initial term of five years, which began in
October 2018, and will renew automatically for successive periods of two years each, unless terminated by either party by
providing the required two years' prior written notice to the other party. Notwithstanding the foregoing, the parties have rights
and obligations under the agreement prior to the commencement of the initial term. Under the agreement, we are obligated to
pay a minimum of $6 million for commercial ARIKAYCE batches produced and certain manufacturing activities each calendar
year. The agreement allows for termination by either party upon the occurrence of certain events, including (i) the material
breach by the other party of any provision of the agreement or the quality agreement expected to be entered into between the
parties, and (ii) the default or bankruptcy of the other party. In addition, we may terminate the agreement for any reason upon
no fewer than 180 days' advance notice.
Patheon (a wholly-owned subsidiary of Thermo Fisher) and related agreements
In October 2017, we entered into certain agreements with Patheon related to the increase of our long-term production
capacity for ARIKAYCE. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our anticipated
commercial needs. Under these agreements, we are required to deliver to Patheon the required raw materials, including active
pharmaceutical ingredients, and certain fixed assets needed to manufacture ARIKAYCE. Patheon's supply obligations will
commence once certain technology transfer and construction services are completed. Our manufacturing and supply agreement
with Patheon will remain in effect for a fixed initial term, after which it will continue for successive renewal terms unless either
we or Patheon have given written notice of termination. The technology transfer agreement will expire when the parties agree
that the technology transfer services have been completed. The agreements may also be terminated under certain other
circumstances, including by either party due to a material uncured breach of the other party or the other party’s insolvency.
These early termination clauses may reduce the amounts due to the relevant parties. The aggregate investment to increase our
long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third
parties for raw materials and fixed assets, is estimated to be approximately $99 million.
Cystic Fibrosis Foundation Therapeutics, Inc.
In 2004 and 2009, we entered into research funding agreements with Cystic Fibrosis Foundation Therapeutics, Inc.
(CFFT) whereby we received $1.7 million and $2.2 million in research funding for the development of ARIKAYCE. As a result
of the US approval of ARIKAYCE and in accordance with the agreements, as amended, we owe milestone payments to CFFT
of $13.4 million in the aggregate payable through 2025, of which $4.9 million has been paid as of December 31, 2022.
Furthermore, if certain global sales milestones are met within five years of the commercialization of ARIKAYCE, we would
owe up to an additional $3.9 million. Through December 31, 2022, we have paid $1.7 million of these additional global sales
milestone payments.
PPD Development, L.P. (a wholly-owned subsidiary of Thermo Fisher)
In April 2020, we entered into a master services agreement with PPD Development, L.P. (PPD) pursuant to which we
retained PPD to perform clinical development services in connection with certain of our clinical research programs. The master
services agreement has an initial term of five years. Either party may terminate (i) any project addendum under the master
services agreement for any reason and without cause upon 30 days’ written notice, (ii) any project addendum in the event of the
other party’s breach of the master services agreement or such project addendum upon 30 days’ written notice, provided that
such breach is not cured within such 30-day period, (iii) the master services agreement or any project addendum immediately
upon the occurrence of an insolvency event with respect to the other party or (iv) any project addendum upon 30 days’ written
notice if (a) the continuation of the services under such project addendum would post material ethical or safety risks to study
participants, (b) any approval from a regulatory authority necessary to perform the applicable study is revoked, suspended or
expires without renewal or (c) in the reasonable opinion of such party, continuation of the services provided under such project
addendum would be in violation of applicable law. We have entered into project addenda with PPD to perform clinical
development services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib
and TPIP studies. We currently expect to incur approximately $370 million of costs related to these project addenda.
Brensocatib-related Agreements
AstraZeneca
In October 2016, we entered into a license agreement with AstraZeneca (the AZ License Agreement), pursuant to
which AstraZeneca granted us exclusive global rights for the purpose of developing and commercializing AZD7986 (renamed
brensocatib). In consideration of the licenses and other rights granted by AstraZeneca, we made an upfront payment of
$30.0 million in late October 2016. In December 2020, we incurred a $12.5 million milestone payment obligation upon the first
dosing in a Phase 3 clinical trial of brensocatib. We are obligated to make a series of additional contingent milestone payments
to AstraZeneca totaling up to $72.5 million upon the achievement of clinical development and regulatory filing milestones. If
we elect to develop brensocatib for a second indication, we will be obligated to make an additional series of contingent
milestone payments totaling up to $42.5 million, the first of which occurs at the initiation of a Phase 3 trial in the additional
indication. We are not obligated to make any additional milestone payments for additional indications. In addition, we have
agreed to pay AstraZeneca tiered royalties ranging from a high single-digit to mid-teens on net sales of any approved product
based on brensocatib and one additional payment of $35.0 million upon the first achievement of $1 billion in annual net sales.
The AZ License Agreement provides AstraZeneca with the option to negotiate a future agreement with us for
commercialization of brensocatib in chronic obstructive pulmonary disease or asthma. If we fail to comply with our obligations
under our agreements with AstraZeneca (including, among other things, if we fail to use commercially reasonable efforts to
develop and commercialize a product based on brensocatib, or we are subject to a bankruptcy or insolvency), AstraZeneca
would have the right to terminate the license.
Competition
The biotechnology and pharmaceutical industries are highly competitive. We face potential competitors from many
different areas including commercial pharmaceutical, biotechnology and device companies, academic institutions and scientists,
other smaller or earlier stage companies and non-profit organizations developing anti-infective drugs and drugs for respiratory,
inflammatory, immunology, oncology, and rare diseases. Many of these companies have greater human and financial resources
and may have product candidates in more advanced stages of development and may reach the market before our product
candidates. Competitors may develop products that are more effective, safer or less expensive or that have better tolerability or
convenience. We also may face generic competitors where third-party payors will encourage use of the generic products.
Although we believe that our formulation delivery technology, respiratory and anti-infective expertise, experience and
knowledge in our specific areas of focus provide us with competitive advantages, these potential competitors could reduce our
commercial opportunity. Additionally, there currently are, and in the future there may be, already-approved products for certain
of the indications for which we are developing, or in the future may choose to develop, product candidates. For instance, PAH
is a competitive indication with established products, including other formulations of treprostinil.
In the lung disease market, our major competitors include pharmaceutical and biotechnology companies that have
approved therapies or therapies in development for the treatment of chronic lung infections. There are other companies that are
currently conducting clinical trials for the treatment of lung disease. While there are currently no approved treatments for
bronchiectasis, clinical studies in this disease state and specific endotypes (for instance, bronchiectasis with eosinophilic
inflammation) have been initiated. Products developed by certain of our competitors may potentially be used in combination
with brensocatib, if approved.
With regard to ARIKAYCE, we are not aware of any approved inhaled therapies specifically indicated for refractory
NTM lung infections in North America, Europe or Japan, but there is a recommended treatment regimen that is utilized. The
international treatment guidelines, which are issued by the ATS, ERS, ESCMID and IDSA, strongly recommend the use of
ARIKAYCE for the treatment of patients with refractory NTM lung disease caused by MAC as a part of a combination
antibacterial drug regiment for adult patients with limited or no alternative treatment options who have failed to convert to a
negative sputum culture after at least six months of treatment.
The fields of gene therapy and protein engineering are rapidly advancing and highly competitive. While we believe our
internal expertise provides a competitive advantage, we expect competition to intensify, including from other pharmaceutical
companies, government agencies and public and private research institutions. If any of our gene therapy or protein engineering
programs are approved for their indications, we expect to compete with other gene therapy products, protein engineering
technologies and any other existing or new therapies or technologies that may become available in the future.
Government Regulation
Orphan Drug Designation
United States
Under the Orphan Drug Act (ODA), the FDA may grant orphan drug designation to drugs intended to treat a rare
disease or condition, defined as a disease or condition for which the drug is intended affects fewer than 200,000 people in the
US or for which there is no reasonable expectation that the cost of developing and making available in the US a drug for such
disease or condition will be recovered from US sales of such drug, if it meets certain criteria specified by the ODA and FDA.
After the FDA grants orphan drug designation, the drug and the specific intended use(s) for which it has obtained designation
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are listed by the FDA in a publicly accessible database. The FDA has designated ARIKAYCE as an orphan drug for treatment
of (i) NTM infections, (ii) bronchiectasis in patients with Pseudomonas aeruginosa or other susceptible microbial pathogens
and (iii) bronchopulmonary Pseudomonas aeruginosa infections in CF patients.
Orphan drug designation qualifies the sponsor for various development incentives of the ODA, including tax credits
for qualified clinical testing, and a waiver of the PDUFA application fee (unless the application seeks approval for an indication
not included in the orphan drug designation). Orphan drug designation also may afford the company a period of exclusivity for
the orphan indication upon approval of the drug. Specifically, the first NDA or biologics license application (BLA) applicant
with an FDA orphan drug designation for a particular drug to receive FDA approval of the drug for an indication covered by the
orphan designation is entitled to a seven-year exclusive marketing period, often referred to as orphan drug exclusivity, in the
US for that drug in that indication. A product that has several separate orphan designations may have several separate
exclusivities for separate orphan indications. During the orphan drug exclusivity period, the FDA may not approve any other
applications to market the same drug for the same indication for use, except in limited circumstances, such as a showing of
clinical superiority to the product that has orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from
approving a different drug for the same disease or condition or the same drug for a different disease or condition, and it does not
alter the timing or scope of the regulatory review and approval process; the sponsor must still submit evidence from clinical and
non-clinical studies sufficient to demonstrate the safety and effectiveness of the drug.
In a decision issued in September 2021 (Catalyst Pharmaceuticals, Inc. v. Becerra), the US Court of Appeals for the
Eleventh Circuit held that the FDA had erred by limiting the scope of orphan drug exclusivity for FIRDAPSE® (amifampridine)
to the product’s approved indication, an action that the FDA taken in accordance with its regulations interpreting the ODA. The
court held that under the ODA, FIRDAPSE®’s orphan drug exclusivity instead protected the broader rare disease or condition
that received orphan drug designation. Notwithstanding the Eleventh Circuit’s decision in Catalyst, the FDA announced in
January 2023 that it would continue to apply the FDA’s regulations tying the scope of orphan drug exclusivity to a product’s
approved uses or indications. In light of the FDA’s announcement, the scope of orphan drug exclusivity and other issues
relating to the FDA’s implementation of the ODA with respect to previously approved and future products may be the subject
of further litigation or legislative action.
European Union
The EC grants orphan drug designation to promote the development of drugs or biologics (1) for life-threatening or
chronically debilitating conditions affecting not more than five in 10,000 people in the EU, or (2) for life threatening, seriously
debilitating or serious and chronic condition in the EU where, without incentives, sales of the drug in the European Economic
Area (the EU plus Iceland, Lichtenstein and Norway) (EEA) are unlikely to be sufficient to justify its development. Orphan
drug designation is available either if no other satisfactory method of diagnosing, preventing or treating the condition is
approved in the EEA or if such a method does exist but the proposed orphan drug will be of significant benefit to patients. The
EC has granted an orphan designation for ARIKAYCE for the treatment of NTM lung disease.
If a drug with an orphan drug designation subsequently receives a marketing authorization for a therapeutic indication
which is covered by such designation, the drug is entitled to orphan exclusivity. Orphan exclusivity means that the EMA or a
national medicines agency may not accept another application for authorization, or grant an authorization, for a same or similar
drug for the same therapeutic indication. Competitors may receive such a marketing authorization despite orphan exclusivity,
provided that they demonstrate that the existing orphan product is not supplied in sufficient quantities or that the 'second' drug
or biologic is clinically superior to the existing orphan product. The 'second' drug may but need not have an orphan designation
as well. The period of orphan exclusivity is 10 years, which can be extended by two years where an agreed pediatric
investigation plan has been implemented. The exclusivity period may also be reduced to six years if the designation criteria are
no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market
exclusivity. Each orphan designation carries the potential for one market exclusivity for all the therapeutic indications that are
covered by the designation. A product that has several separate orphan designations may have several separate market
exclusivities.
Orphan drug designation also provides opportunities for free protocol assistance and fee reductions for access to the
centralized regulatory procedure or fee exemptions for companies with a small and medium enterprises status. In addition, EU
Member States may provide national benefits to orphan drugs, such as early access to the reimbursement procedure or
exemption from any turnover tax imposed on pharmaceutical companies.
The orphan designation may be applied for at any time during the development of the drug but before the application
for marketing authorization. At the time of marketing authorization, the criteria for orphan designation are examined again, and
the EC decides on the maintenance of the orphan designation. The non-maintenance of the orphan designation means that the
drug loses its orphan status and thus no longer benefits from orphan exclusivity, fee reductions or exemptions, and national
benefits.
Japan
The MHLW may, after hearing the opinion of the Pharmaceutical Affairs and Food Sanitation Council, grant orphan
drug designation to a drug intended to treat a rare disease or condition if the drug meets the following conditions: (i) the number
of target patients is less than 50,000 in Japan, (ii) the necessity of orphan drug designation is high from a medical point of view,
(iii) there are sufficient theoretical grounds to use the drug for the target disease, and (iv) the plan for development of the drug
is appropriate. Even if a drug is granted orphan drug designation, however, it does not always receive the manufacturing and
marketing approval that is necessary for the drug to be sold or marketed in Japan. ARIKAYCE did not qualify for orphan drug
designation in Japan due to the estimated number of NTM patients in Japan exceeding 50,000.
Drug Approval
United States
In the US, pharmaceutical products are subject to extensive regulation by the FDA and other government bodies. The
US Federal Food, Drug, and Cosmetic Act (FDCA), the Public Health Services Act (PHSA) (in the case of biological products),
and other federal and state statutes and regulations govern, among other things, the research, development, testing, manufacture,
storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting,
sampling and import and export of pharmaceutical products. Failure to comply with applicable US requirements at any time
during product development, approval, or after approval may subject a company to a variety of administrative or judicial
sanctions, such as imposition of clinical holds, FDA refusal to file or approve NDAs or BLAs, warning letters, product seizures,
total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution,
disgorgement, civil penalties, and criminal prosecution. The description below summarizes the current approval process in the
US for our product and product candidates.
Preclinical Studies
Preclinical studies may include laboratory evaluation of product chemistry, formulation and toxicity, and
pharmacology, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct
of the preclinical tests must comply with federal regulations and requirements including the FDA's good laboratory practice
(GLP) regulations and the US Department of Agriculture's regulations implementing the Animal Welfare Act. An IND sponsor
must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical
data or literature, and a proposed clinical trial protocol, among other things, to the FDA as part of an IND. Certain non-clinical
tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue even after the IND is submitted. An IND
automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions
related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and
the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not
result in the FDA allowing clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects (healthy volunteers or
patients) under the supervision of a qualified investigator. Clinical trials must be conducted (i) in compliance with all applicable
federal regulations and guidance, including those pertaining to good clinical practice (GCP) standards that are meant to protect
the rights, safety, and welfare of human subjects and to define the roles of clinical trial sponsors, investigators, and monitors as
well as (ii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring
safety, and the effectiveness criteria to be evaluated. Each protocol involving testing of a new drug in the US (whether in
patients or healthy volunteers) must be included as a submission to the IND, and the FDA must be notified of subsequent
protocol amendments, including new protocols. In addition, the protocol must be reviewed and approved by an institutional
review board (IRB), and all study subjects must provide informed consent. Typically, before any clinical trial, each institution
participating in the trial will require review of the protocol before the trial commences at that institution. Progress reports
detailing the results of the clinical trials must be submitted at least annually to the FDA and there are additional, more frequent
reporting requirements for certain AEs.
A study sponsor might choose to discontinue a clinical trial or a clinical development program for a variety of reasons.
The FDA may impose a temporary or permanent clinical hold, or other sanctions, if it believes that the clinical trial either is not
being conducted in accordance with the FDA requirements or presents an unacceptable risk to the clinical trial subjects. An IRB
also may require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's
requirements, or may impose other conditions.
Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential pre-
approval phases, but the phases may overlap or be combined. In Phase 1, short term (typically less than a few months) testing is
conducted in a small group of subjects (typically 20-100), who may be patients with the target disease or condition or healthy
volunteers, to evaluate its safety, determine a safe dosage range, and identify side effects. In Phase 2, the drug is given to a
larger group of subjects (typically up to several hundred) with the target condition to further evaluate its safety and gather
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preliminary evidence of efficacy. Phase 3 studies typically last between several months and two years. In Phase 3, the drug is
given to a large group of subjects with the target disease or condition (typically several hundred to several thousand), often at
multiple geographical sites, to confirm its effectiveness, monitor side effects, and collect data to support drug approval. Only a
small percentage of investigational drugs complete all three phases of development and obtain marketing approval.
NDAs and BLAs
After completion of the required clinical testing, an NDA or BLA can be prepared and submitted to the FDA. FDA
approval of the NDA or BLA is required before marketing of the product may begin in the US. The NDA or BLA is a large
submission that must include, among other things, the results of all preclinical, clinical and other testing and a compilation of
data relating to the product's pharmacology, chemistry, manufacture, and controls. The application also includes representative
samples, copies of the proposed product labeling, patent information, and a financial certification or disclosure statement. The
cost of preparing and submitting an NDA or BLA is substantial. Additionally, under federal law (as amended by the most recent
reauthorization of the Prescription Drug User Fee Act (PDUFA VII) in the FDA Reauthorization Act of 2022), most NDAs and
BLAs are subject to a substantial application fee and, upon approval, the applicant will be assessed an annual prescription drug
program fee, both of which are adjusted annually. NDAs and BLAs for orphan drugs are not subject to an application fee,
unless the application includes an indication other than an orphan-designated indication. FDA also has the authority to grant
waivers of certain user fees, pursuant to the FDCA.
The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application is accepted for filing
based on the FDA's threshold determination that it is sufficiently complete to permit substantive review. Once the submission is
accepted for filing, the FDA begins a substantive review. The FDA may refer applications for novel drug or biological products
or drug or biological products that present difficult questions of safety or efficacy to an advisory committee, typically a panel
that includes outside clinicians and other experts, for review, evaluation and a recommendation as to whether the application
should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such
recommendations.
Before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with
GCP. Additionally, the FDA will typically inspect the facility or the facilities at which the drug or biological product is
manufactured. FDA will not approve the product unless, among other requirements, compliance with current good
manufacturing practice (cGMP) is satisfactory and the NDA or BLA contains data that provide substantial evidence of
effectiveness for the proposed indication, generally consisting of adequate and well-controlled clinical investigations, and that
the drug is safe for use under the conditions of use in the proposed labeling. The FDA also reviews the proposed labeling
submitted with the NDA or BLA and typically requires changes in the labeling text.
After the FDA evaluates the NDA or BLA and the manufacturing and testing facilities, it issues either an approval
letter or a complete response letter. Complete response letters generally outline the deficiencies in the submission and delineate
the additional testing or information needed in order for the FDA to reconsider the application. If and when those deficiencies
have been addressed to the FDA's satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. An
approval letter, which may specify post approval requirements, authorizes commercial marketing of the drug or biological
product for the approved indication or indications and the other conditions of use set out in the approved prescribing
information. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or
problems are identified following initial marketing. The FDA sets a goal date by which the FDA expects to issue either an
approval letter or a complete response letter, unless the review period is adjusted by mutual agreement between the FDA and
the applicant or as a result of the applicant submitting a major amendment. The FDA's current performance goals call for the
FDA to complete review of 90 percent of standard (non-priority) NDAs and BLAs within 10 months and priority NDAs and
BLAs within six months of NDA filing (in the case of new molecular entity (NME) NDA and original BLA submissions) or
receipt (in the case of non-NME original NDA submissions).
As a condition of NDA or BLA approval, the FDA may require substantial post-approval testing, known as Phase 4
studies, to be conducted in order to gather additional information on the drug's effect in various populations and any side effects
associated with long-term use. Beyond routine post marketing safety surveillance, the FDA may require specific additional
surveillance to monitor the drug's safety or efficacy and may impose other conditions, including labeling restrictions that can
materially affect the potential market and profitability of the drug. As a condition of approval, or after approval, the FDA also
may require submission of a risk evaluation and mitigation strategy (REMS) or a REMS with elements to assure safe use to
mitigate any identified or suspected serious risks. The REMS may include medication guides, physician communication plans,
assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk
minimization tools. Further post-approval requirements are discussed below.
Expedited Review and Approval of Eligible Drugs
Under the FDA's accelerated approval program, the FDA may approve certain drugs for serious or life-threatening
conditions on the basis of a surrogate or intermediate endpoint that is reasonably likely to predict clinical benefit, which can
substantially reduce time to approval. A surrogate endpoint used for accelerated approval is a marker—a laboratory
measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit, but is not itself a
measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than irreversible
morbidity and mortality (IMM) that is reasonably likely to predict an effect on IMM or other clinical benefit. The FDA bases its
decision on whether to accept the proposed surrogate or intermediate clinical endpoint on the scientific support for that
endpoint.
As a condition of accelerated approval, the FDA typically requires certain post-marketing clinical studies to verify and
describe clinical benefit of the product, and may impose restrictions on distribution to assure safe use. Post marketing studies
would usually be required to be studies already underway at the time of the accelerated approval. In addition, promotional
materials for an accelerated approval drug to be used in the first 120 days post-approval must be submitted to the FDA prior to
approval, and materials to be used after that 120-day period must be submitted 30 days prior to first use. If the required post-
marketing studies fail to verify the clinical benefit of the drug, or if the applicant fails to perform the required post-marketing
studies with due diligence, the FDA may withdraw approval of the drug under streamlined procedures in accordance with the
FDCA, as amended by the Food and Drug Omnibus Reform Act of 2022. The agency may also withdraw approval of a drug if,
among other things, the promotional materials for the product are false or misleading, or other evidence demonstrates that the
drug product is not shown to be safe or effective under its conditions of use.
The FDA also has various programs—fast track designation, priority review and breakthrough designation—that are
intended to expedite or streamline the process for the development and FDA review of drugs that meet certain qualifications.
The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review
procedures. The programs each have different eligibility criteria and provide different benefits, and can be applied either alone
or in combination depending on an applicant's circumstances.
Fast track designation applies to a drug that is intended to treat a serious condition and for which nonclinical or clinical
data demonstrate the potential to address unmet medical need. It should be requested at the time of IND submission or ideally
no later than the pre-NDA or pre-BLA meeting. The FDA must respond to requests for fast track designation within 60 days of
receipt of the request. If granted, the applicant is eligible for actions to expedite development and review, such as frequent
interaction with the review team, as well as for rolling review, meaning that the applicant may submit sections of the
application as they are available. The timing of FDA's review of these sections depends on a number of factors, and the review
clock does not start running until the agency has received a complete NDA or BLA submission. The FDA may withdraw fast
track designation if the agency determines that the designation is no longer supported by data emerging in the drug
development process.
Priority review applies to an application (both original and efficacy supplement) for a drug that treats a serious
condition and that, if approved, would provide a significant improvement in safety or effectiveness. It also applies to any
supplement that proposes a labeling change pursuant to a report on a pediatric study. A request for priority review is submitted
at the time of submission of an NDA or BLA, or supplemental NDA or BLA. The FDA must respond within 60 days of receipt
of the request. If granted, the review time is shortened from the standard 10 months to 6 months, beginning either at the 60 day
filing date (in the case of NME NDA and original NDA submissions) or the date of receipt (in the case of non-NME original
NDA submissions).
Breakthrough therapy designation applies to a drug that is intended to treat a serious condition and for which
preliminary clinical evidence indicates that the drug may demonstrate substantial improvement on a clinically significant
endpoint(s) over available therapies. It can be requested with the IND submission and ideally no later than the end-of-Phase 2
meeting. The FDA must respond within 60 days of receipt of the request. If granted, the applicant receives intensive guidance
on efficient drug development, intensive involvement of senior managers and experienced review and regulatory health project
management staff in a proactive, collaborative, cross-disciplinary review, rolling review, and other actions to expedite review.
Designation may be rescinded if the product no longer meets the criteria for breakthrough therapy designation.
Drugs that are designated as QIDPs may be eligible for priority review and will receive fast track designation upon the
request of the sponsor, and also may be eligible for market exclusivity. A product is eligible for QIDP designation if it is an
antibacterial or anti-fungal drug for human use that is intended to treat serious or life-threatening infections, including: those
caused by an anti-bacterial or anti-fungal resistant pathogen, including novel or emerging infectious pathogens; or caused by
qualifying pathogens listed by the FDA. A drug sponsor may request that the FDA designate its product as a QIDP at any time
prior to NDA submission. The FDA must make a QIDP determination within 60 days of receiving the designation request.
ARIKAYCE has been designated as a QIDP for NTM lung disease.
Additionally, the FDA may approve eligible drugs under the LPAD. A product is eligible if it is intended to treat a
serious or life-threatening infection in a limited population of patients with unmet needs, the drug otherwise meets the standards
of approval, and the FDA receives a written request from the sponsor to approve the drug under this pathway. An antibacterial
or anti-fungal drug approved through this pathway may follow a streamlined clinical development program involving smaller,
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shorter, or fewer clinical trials. Approval is based on a benefit-risk assessment in the intended limited population, taking into
account the severity, rarity, or prevalence of the infection the drug is intended to treat and the availability or lack of alternative
treatment for the patient population. Such drugs may not have favorable benefit-risk profiles in a broader population. Drugs
approved under LPAD are subject to additional regulatory requirements, including labeling and advertising statements
regarding the limited population and submission of promotional materials to the FDA at least 30 days prior to
dissemination. The FDA may remove these additional requirements if the agency approves the drug for a broader population.
Exclusivities
In the US, after NDA or BLA approval, owners of relevant drug patents may obtain up to a five-year patent term
extension on a single patent. The allowable patent term extension is generally calculated as half of the drug's testing phase (the
time between the date the IND becomes effective and the NDA or BLA submission date) and all of the review phase (the time
between the NDA or BLA submission date and the approval date) up to a maximum of five years, to the extent such testing
phase and approval phase occur after the issue date of the patent. The total post-NDA or BLA approval patent term including
the extension may not exceed 14 years. The extension also can be shortened if the FDA determines that the applicant did not
pursue approval with due diligence. For patents that might expire while a patent term extension application is pending, the
patent owner may request an interim patent term extension. The Director of the USPTO shall extend, until a final determination
is made, the term of the patent for periods of up to one year if the Director determines that the patent is eligible for extension.
An interim patent term extension may be renewed up to four times until a final determination is made, and up to the amount of
time for which the patent might be eligible for extension. For each interim patent term extension granted, the final patent term
extension is reduced by a corresponding amount. Interim patent extensions may also be available for a patent that will expire
before a drug is expected to be approved, but the NDA or BLA for the drug must have been submitted.
A variety of non-patent exclusivity periods are available under the FDCA that can delay the submission or approval of
certain applications for competing products.
A five-year period of non-patent exclusivity within the US is granted to the first applicant to gain approval of an NDA
for a new chemical entity (NCE). An NCE is a drug that contains no active moiety (the molecule or ion responsible for the
action of the drug substance) that has been approved by the FDA in any other application submitted under section 505(b) of the
FDCA. During the exclusivity period for an NCE, the FDA may not accept for review an abbreviated NDA, or ANDA, or a
505(b)(2) NDA submitted by another company that references (i.e., relies on the FDA's prior approval of) the NCE drug.
However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or
non-infringement with respect to a patent listed with the FDA for the NCE drug.
A three-year period of non-patent exclusivity is granted for a drug product that contains an active moiety that has been
previously approved, when the application contains reports of new clinical investigations (other than bioavailability studies)
conducted or sponsored by the sponsor that were essential to approval of the application, for example, for new indications,
dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated
with the new clinical investigations, which means that the FDA may approve ANDAs and 505(b)(2) NDAs for other versions of
the original, unmodified drug product. Where this form of exclusivity applies, it prevents FDA approval of an ANDA or
505(b)(2) NDA that is subject to the exclusivity for the three-year period; however, the FDA may accept and review ANDAs or
505(b)(2) NDAs during the three-year period.
These exclusivities also do not preclude FDA approval of a 505(b)(1) NDA for a duplicate version of the drug during
the period of exclusivity, provided that the applicant conducts or obtains a right of reference to all of the preclinical studies and
adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Products with QIDP designation may receive a five-year extension of other non-patent exclusivities for which the drug
is also eligible, subject to certain limitations. Depending upon the scope of the non-patent exclusivity that is extended, the five-
year extension might not prevent the FDA from approving a subsequent application for a change to the QIDP-designated drug
that results in, for example, a new indication, route of administration, dosing, schedule, dosage form, delivery system, delivery
device, or strength. A drug that has been designated as both an orphan drug and a QIDP for the same indication, like
ARIKAYCE, might be eligible for a combined 12 years of exclusivity for that indication.
Under the PHSA, FDA recognizes reference product exclusivity starting from the first licensure of a biological
product. Reference product exclusivity affects the timing of submission and approval of a BLA for a biosimilar product. Under
section 351(k) of the PHSA, a BLA for a biosimilar product may be approved based upon a showing that the proposed product
is highly similar to a previously licensed product, known as the reference product, notwithstanding minor differences in
clinically inactive components; and there are no clinically meaningful differences between the proposed biosimilar product and
the reference product in terms of safety, purity, and potency. Reference product exclusivity prevents the FDA from accepting a
BLA submitted under section 351(k) of the PHSA for a proposed biosimilar product for 4 years after the date of first licensure
of the reference product, and prevents the FDA from approving such BLA for a proposed biosimilar product for 12 years after
such date of first licensure. An additional period of reference product exclusivity is not available upon approval of a
supplemental BLA. Moreover, the PHSA limits the availability of reference product exclusivity for a subsequent BLA filed by
the same sponsor or manufacturer of a biological product (or a licensor, predecessor in interest, or other related entity).
Medical Device Regulation
Medical devices, such as Lamira, may be marketed as stand-alone devices, or in some cases, as constituent parts of a
combination product. In either case, the product will need to satisfy and comply with FDA requirements. Unless an exemption
applies, each medical device commercially distributed in the US requires either FDA clearance of a 510(k) premarket
notification, approval of a premarket approval application (PMA), or issuance of a de novo classification order. Medical devices
are classified into one of three classes -- Class I, Class II or Class III -- depending on the degree of risk and the level of control
necessary to assure the safety and effectiveness of each medical device. Medical devices deemed to pose lower risks are
generally placed in either Class I or II.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most
Class II devices are required to submit to the FDA a pre-market notification. The FDA’s permission to commercially distribute
a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose
the greatest risk, such as life-sustaining, life-supporting, or many implantable devices, or devices that have been found not
substantially equivalent to a legally marketed Class I or Class II predicate device, are placed in Class III, requiring approval of a
PMA. De novo classification is a risk-based classification process to classify novel medical devices into Class I or Class II.
Medical devices are also subject to certain postmarket requirements. Those requirements include, for example,
establishment registration and device listing; compliance with the requirements of the Quality System Regulation (QSR);
medical device reporting regulations; correction and removal reporting regulations; compliance with requirements for Unique
Device Identification; and post-market surveillance activities and obligations. Device manufacturers must also comply with
FDA requirements regarding promotion, which require that promotion is truthful, not misleading, fairly balanced, and that all
claims are substantiated, and prohibit the promotion of products for unapproved or “off-label” uses.
Medical device manufacturers must demonstrate and maintain compliance with the FDA’s QSR. The QSR is a
complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling,
quality assurance, packaging, storage and shipping of medical devices. The FDA enforces the QSR through periodic inspections
and unannounced “for cause” inspections.
The FDCA permits medical devices intended for investigational use to be shipped to clinical sites if such devices
comply with prescribed procedures and conditions. All clinical investigations of devices to determine safety and effectiveness
must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations that govern
investigational device labeling, prohibit promotion of the investigational device, and specify an array of study review and
approval, informed consent, recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.
Failure to comply with applicable regulations could result in enforcement actions such as: warning letters; fines;
injunctions; civil penalties; inability to distribute products; recalls or seizures of products; delays in the introduction of products
into the market; total or partial suspension of production; FDA refusal to grant, or delay in obtaining, marketing authorizations;
and in the most serious cases, criminal penalties.
Combination Products
A combination product is a product comprising two or more regulated components (e.g., a drug and device) that are
combined into a single product, co-packaged, or sold separately but intended for co-administration, as evidenced by the labeling
for the products. Drugs that are administered using a nebulizer or another device, such as ARIKAYCE or TPIP, are examples of
drug/device combination products.
The FDA is divided into various Centers, which each have authority over a specific type of product. NDAs are
reviewed by personnel within the Center for Drug Evaluation and Research, while device applications, premarket notifications,
and de novo authorization requests are reviewed by the Center for Devices and Radiological Health. Combination products,
such as drug/device combinations, are typically reviewed through a marketing submission that corresponds to the constituent
part which provides the product's primary mode of action (PMOA), i.e., is the single mode of action that provides the most
important therapeutic action of the combination product. If the PMOA is unclear or in dispute, a sponsor may file a Request for
Designation with FDA’s Office of Combination Products (OCP), which will render a determination and assign a lead Center.
OCP generally assigns jurisdiction based on PMOA. If it is not possible to determine which one mode of action will provide a
greater contribution than any other mode of action to the overall therapeutic effects of the combination product, the FDA makes
a determination as to which Center to assign the product based on consistency with other combination products raising similar
types of safety and effectiveness questions. When there are no other combination products that present similar questions of
safety and effectiveness with regard to the combination product as a whole, the agency will assign the combination product to
the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the
combination product.
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When evaluating an application or other marketing submission for a combination product, a lead Center may consult
other Centers, or it may assign review of a specific section of the application to another Center, delegating its review authority
for that section. Depending on the type of combination product, approval or clearance could be obtained through submission of
a single marketing application or through separate applications for the individual constituent parts (e.g., an NDA for the drug
and a premarket notification for the device). The FDCA directs the FDA to conduct a review of a combination product under a
single marketing application whenever appropriate. Applicants may choose to submit separate applications for constituent parts
of a combination product (unless the FDA determines one application is necessary), and in limited situations, FDA may
determine an application for each constituent part is warranted. One reason to submit multiple applications is if the applicant
wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product
exclusivity. If multiple applications are submitted, each application is generally reviewed by the Center with authority over each
application type. For combination products that contain an approved constituent part (such as a drug-device combination
product in which the device has previously received clearance), the FDA may require that the application(s) include only such
information as is necessary to meet the standard for clearance or approval, using a risk-based approach and taking into account
any prior finding of safety or effectiveness for the approved constituent part.
Like their constituent products—e.g., drugs and devices—combination products are highly regulated and subject to a
broad range of post marketing requirements including cGMP, adverse event reporting, periodic reports, labeling and advertising
and promotion requirements and restrictions. Failure to comply with applicable requirements could result in enforcement
actions.
Disclosure of Clinical Trial Information
Under US and certain foreign laws intended to improve clinical trial transparency, sponsors of clinical trials may be
required to register and disclose certain information about their clinical trials. This can include information related to the
investigational drug, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical
trial. This information is then made publicly available. Under US regulations, sponsors are obligated to disclose the results of
these trials after completion. In the US, disclosure of the results of these trials can be delayed for up to two years if the sponsor
is seeking initial approval of the product or approval of a new indication. Competitors may use this publicly available
information to gain knowledge regarding the progress of development programs.
Other Post-approval Regulatory Requirements
Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements, including those
relating to advertising, promotion, adverse event reporting, recordkeeping, and cGMP, as well as registration, listing, and
inspection. There also are continuing, annual user fee requirements.
The FDA regulates the content and format of prescription drug labeling, advertising, and promotion, including direct-
to-consumer advertising and promotional Internet communications. FDA also establishes parameters for permissible non-
promotional communications between industry and the medical community, including industry-supported scientific and
educational activities. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion for uses
not consistent with the approved labeling, and a company that is found to have improperly promoted off-label uses or otherwise
not to have met applicable promotion rules may be subject to significant liability under the FDCA, the PHSA, and other
statutes, including the False Claims Act.
Manufacturers are subject to requirements for adverse event reporting and submission of periodic reports following
FDA approval of an NDA or BLA.
All aspects of pharmaceutical manufacture must conform to cGMP after approval. Drug manufacturers and certain of
their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA during which the FDA inspects manufacturing facilities to assess compliance
with cGMP. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting
and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use.
Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to
maintain compliance with cGMP.
Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved
labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling,
product formulation, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or BLA or
NDA or BLA supplement, in some cases before the change may be implemented. An NDA or BLA supplement for a new
indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and
actions in reviewing NDA supplements as it does in reviewing NDAs or BLAs.
As previously mentioned, the FDA also may require Phase 4 studies and may require a REMS, which could restrict the
distribution or use of the product.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act
(PDMA), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the
registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription
pharmaceutical product samples and impose requirements to ensure accountability in distribution.
European Union
Marketing Authorization Application
To obtain approval of a drug under the EU regulatory system, an application for a marketing authorization may be
submitted under a centralized, a decentralized or a national procedure. The centralized procedure, which is compulsory for
medicines produced by certain biotechnological processes or for orphan drugs, provides for the grant of a single marketing
authorization that is valid for all EU member states, which grants the same rights and obligations in each member state as a
national marketing authorization. As a general rule, only one marketing authorization may be granted for drugs approved
through the centralized procedure and the marketing authorization is also relevant for the EEA countries.
Under the centralized procedure, the Committee for Medicinal Products for Human Use (CHMP) is required to adopt
an opinion on a valid application within 210 days, excluding clock stops when additional information is to be provided by the
applicant in response to questions. More specifically, on day 120 of the procedure, once the CHMP has received the preliminary
assessment reports and opinions from the Rapporteur and Co-Rapporteur designated by the CHMP, it adopts a list of questions,
which are sent to the applicant together with the CHMP's overall conclusions. Applicants then have three months to respond to
the CHMP (and can request a three-month extension). The Rapporteur and Co-Rapporteur assess the applicant's replies, revise
the assessment report as necessary and may prepare a list of outstanding issues. The revised assessment report and list of
outstanding issues are sent to the applicant together with the CHMP's recommendation by day 180 of the procedure. Applicants
then have one month to respond to the CHMP (and can request a one or two-month extension). The Rapporteur and Co-
Rapporteur assess the applicant's replies, submit them for discussion to the CHMP and prepare a final assessment report. Once
its scientific evaluation is completed, the CHMP gives a favorable or unfavorable opinion as to whether to grant the marketing
authorization. After the adoption of the CHMP opinion, a decision must be adopted by the EC, after consulting the Standing
Committee of the Member States. The EC prepares a draft decision and circulates it to the member states; if the draft decision
differs from the CHMP opinion, the Commission must provide detailed explanations. The EC adopts a decision within 15 days
of the end of the consultation procedure.
Accelerated Procedure, Conditional Approval and Approval Under Exceptional Circumstances
Various programs, including accelerated assessment, conditional approval and approval under exceptional
circumstances, are intended to expedite or simplify the approval of drugs that meet certain qualifications. The purpose of these
programs is to provide important new drugs to patients earlier than under standard approval procedures.
For drugs which are of major interest from the point of view of public health, in particular from the viewpoint of
therapeutic innovation, applicants may submit a substantiated request for accelerated assessment. If the CHMP accepts the
request, the review time is reduced from 210 to 150 days.
Furthermore, for certain categories of medicinal products, marketing authorizations may be granted on the basis of less
complete data than is normally required in order to meet unmet medical needs of patients or in the interest of public health. In
such cases, the company may request, or the CHMP may recommend, the granting of a marketing authorization, subject to
certain specific obligations; such marketing authorization may be conditional or under exceptional circumstances. The timelines
for the centralized procedure described above also apply with respect to applications for a conditional marketing authorization
or marketing authorization under exceptional circumstances.
Conditional marketing authorizations may be granted for products designated as orphan medicinal products, if all of
the following conditions are met: (1) the risk-benefit balance of the product is positive, (2) the applicant will likely be in a
position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs, and (4) the
benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk
inherent in the fact that additional data are still required.
Conditional marketing authorizations are valid for one year, on a renewable basis until the holder provides a
comprehensive data package. The granting of conditional marketing authorization depends on the applicant's ability to fulfill
the conditions imposed within the agreed upon deadline. They are subject to "conditions", i.e., the holder is required to
complete ongoing studies or to conduct new studies with a view to confirming that the benefit-risk balance is positive or to
fulfill specific obligations in relation to pharmacovigilance. Once the holder has provided a comprehensive data package, the
conditional marketing authorization is replaced by a 'regular' marketing authorization.
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Marketing authorizations under exceptional circumstances may be granted where the applicant demonstrates that, for
objective and verifiable reasons, they are unable to provide comprehensive data on the efficacy and safety of the drug under
normal conditions of use. Such marketing authorizations are subject to certain conditions, in particular relating to safety of the
drug, notification of incidents relating to its use or actions to be taken. They are valid for an indefinite period of time, but the
conditions upon which they are based are subject to an annual reassessment in order to ensure that the risk-benefit balance
remains positive.
Exclusivities
If an approved drug contains a new active substance, it is protected by data exclusivity for eight years from the
notification of the Commission decision granting the marketing authorization and then by marketing protection for an additional
two or three years. Overall, the drug is protected for ten or eleven years against generic competition, and no additional
exclusivity protection is granted for any new development of the active substance it contains.
modifications to the device or quality system depending on the conformity assessment procedure used must be submitted to and
approved by the Notified Body before placing the modified device on the market.
Economic Operators, include device manufactures, must register their establishments and devices in the EUDAMED
database once available. Manufacturers of medical devices are subject to vigilance obligations that require reporting of
incidents and are required to implement a post-marketing surveillance system (for monitoring data about the device and
confirming the benefits of the device outweigh the risks). The vigilance obligations require that manufacturers must report
serious incidents involving the device made available in the EU and any field safety corrective actions in respect of the device
made available in the EU (including actions taken outside the EU) to relevant competent authorities. In addition, Notified
Bodies regularly reassess the conformity of a medical device to the GSPRs and may from time to time audit the manufacturer
and may, where needed, suspend or withdraw the manufacturer's certificate of conformity.
Japan
During the eight-year period of data exclusivity, competitors may not refer to the marketing authorization dossier of
Under the Japanese regulatory system administered by the MHLW and the PMDA (which is responsible for product
the approved drug for regulatory purposes. During the period of marketing protection, competitors may not market their generic
drugs. The period of marketing protection is normally two years but may become three years if, during the eight-year data
exclusivity period, a new therapeutic indication is approved that is considered as bringing a significant clinical benefit over
existing therapies.
Medical Devices Regulations
In May 2017, the EU adopted a new Medical Devices Regulation (EU) 2017/745 (MDR), which repealed and replaced
Directive 93/42/EEC on Medical Devices (Directive 93/42) on May 26, 2021. The MDR and its associated guidance documents
and harmonized standards, govern, among other things, device design and development, preclinical and clinical or performance
testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and
distribution, export and import and post-market surveillance, vigilance, and market surveillance.
As of May 26, 2021, before a device can be placed on the market in the EU, compliance with the MDR requirements
(i.e., the General Safety and Performance Requirements, or GSPRs, set out in Annex I of the MDR) must be demonstrated in
order to affix the Conformité Européene mark, or CE Mark, to the product. The MDR provides recourse to harmonized
European standards in order to facilitate compliance with the GSPRs. Harmonized standards provide a presumption of
conformity with the GSPRs (although there are a limited number of standards harmonized currently). However, under
transitional provisions provided for in the MDR, medical devices with Notified Body certificates issued under Directive 93/42
prior to May 26, 2021 may continue to be placed on the market for the remaining validity of the certificate, until May 27, 2024
at the latest, so long as there is no significant changes in the design or intended purpose. After the expiry of any applicable
transitional period, only devices that have been CE marked under the MDR may be placed on the market in the EU.
To demonstrate compliance with these requirements, a conformity assessment procedure is required. The MDR
provides for several conformity assessment procedures, which depends on the type of medical device and the risks involved.
Devices are divided in four groups based on risk: Class I, Class IIa, Class IIb, and Class III. Class I devices present the lowest
level of risk so that, for most of these devices (other than those that are sterile and/or have measuring functionality) the
manufacturer can self-certify the product plus affix the CE mark. For the other classes, the conformity assessment is carried out
by an organization designated and supervised by a member state of the EEA to conduct conformity assessments, known as a
Notified Body. The manufacturer initially classifies every device. However, when a device undergoes a conformity assessment
with a Notified Body, the Notified Body may dispute the classification and assert that the device should be included in a class
requiring stricter conformity assessment procedures. Specific rules apply to custom-made medical devices, medical devices that
are used in clinical trials, and medical devices that incorporate a medicinal ingredient.
For classes of devices other than Class I, the Notified Body carries out the conformity assessment and issues a
certificate of conformity, which entitles the manufacturer to affix the CE mark to its devices after having prepared and signed a
related EU Declaration of Conformity. Affixing a CE mark allows the product to move freely within the EU and thus prevents
EU Member States from restricting sales and marketing of the devices, unless such measure is justified on the basis of evidence
of non-compliance. Ultimately, the manufacturer is responsible for the conformity of the device with the GSPRs and for the
affixing of the CE mark. Lamira is CE marked by PARI, i.e., its manufacturer, in the EU.
Clinical evidence is required for most medium and high risk devices. In some cases, a clinical study may be required to
support a CE marking application. A manufacturer that wishes to conduct a clinical study involving the device is subject to the
clinical investigation requirements of the MDR, EU member state requirements, and current good clinical practices defined in
harmonized standards and guidance documents.
After a device is placed on the market, it remains subject to significant regulatory requirements. The MDR prohibits
misleading claims about devices and so devices may be marketed only for the uses and indications for which they are approved
(although more detailed rules on marketing may be contained in national legislation). For CE marked devices, certain
review and evaluations under the supervision of the MHLW), in principle, pre-marketing approval and clinical studies are
required for all pharmaceutical products. The Law on Securing Quality, Efficacy and Safety of Products Including
Pharmaceuticals and Medical Devices (Act No. 145 of 1960) requires a license for marketing authorization when importing to
Japan and selling pharmaceutical products manufactured in other countries. It also requires a foreign manufacturer to get each
of its manufacturing sites certified as a manufacturing site of pharmaceutical products to be marketed in Japan. To receive a
license for marketing authorization, the manufacturer or seller must, at the very least, employ certain manufacturing marketing,
quality and safety personnel. A license for marketing authorization may not be granted if the quality management methods and
post marketing safety management methods applied with respect to the pharmaceutical product fail to conform to the standards
stipulated in the ordinances promulgated by the MHLW. To obtain manufacturing/marketing approval for a new product, a
Company must submit an application for approval to the MHLW with results of nonclinical and clinical studies to show the
quality, efficacy and safety of the product candidate. A data compliance review, on-site inspection for good clinical practice,
audit and detailed data review for compliance with current good manufacturing practices are undertaken by the PMDA. The
application is then discussed by the committees of the Pharmaceutical Affairs and Food Sanitation Council. Based on the results
of these reviews, the final decision on approval is made by the MHLW. The time required for the approval process varies
depending on the product, but it can take years. The product also needs approval for pricing in order to be eligible for
reimbursement under Japan's National Health Insurance system. The medical products which, once they are approved and
marketed, are subject to the continuing standards of Good Manufacturing Practice and Good Quality Practice and are also
subject to regular post-marketing vigilance of safety and quality under the standards of Good Vigilance Practice and Good Post-
marketing Study Practice. In Japan, the National Health Insurance system maintains a Drug Price List specifying which
pharmaceutical products are eligible for reimbursement, and the MHLW sets the prices of the products on this list. After receipt
of marketing approval, negotiations regarding the reimbursement price with the MHLW would begin. Price would be
determined within 60 to 90 days following receipt of marketing approval unless the applicant disagrees, which may result in
extended pricing negotiations. The government is currently introducing price cut rounds every year and mandates price
decreases for specific products. New products judged innovative or useful, that are indicated for pediatric use, or that target
orphan or small population diseases, however, may be eligible for a pricing premium. The government has also promoted the
use of generics, where available.
Pediatric Information
United States
Under the Pediatric Research Equity Act of 2003 (PREA), as amended, certain NDAs, BLAs, and supplements must
contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant
pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe
and effective. The FDA may, on its own initiative or at the request of an applicant, grant deferrals for submission of data or full
or partial waivers. Unless otherwise required by regulation, and subject to an exception for certain oncology drugs, PREA does
not apply to any drug for an indication for which orphan designation has been granted. Under the Best Pharmaceuticals for
Children Act (BPCA), pediatric research is incentivized by the possibility of six months of pediatric exclusivity, which if
granted, is added to existing statutory and patent-based exclusivity periods listed for the applicable drug in the FDA's Orange
Book at the time PDA determines that the sponsor has satisfied the FDA's "written request" for pediatric research, provided that
FDA makes such determination at least nine months before the expiration of such exclusivity period. Sponsors may seek to
negotiate the terms of a written request during drug development. While the sponsor of an orphan-designated drug may not be
required to perform pediatric studies under PREA unless one of the above exceptions applies, they are eligible to participate in
the incentives under the BPCA if the FDA issues a written request.
European Union
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In the EU, new drugs (i.e., drugs containing a new active substance) for adults must also be tested in children. This
mandatory pediatric testing is carried out through the implementation of a pediatric investigation plan (PIP), which is proposed
by the applicant and approved by the EMA. A PIP contains all the studies to be conducted and measures to be taken in order to
support the approval of the new drug, including pediatric pharmaceutical forms, in all subsets of the pediatric population.
Validation of the MAA for adults is subject to the implementation of the PIP, subject to one or more waivers or deferrals. On
the one hand, the PIP may allow a deferral for one or more of the studies or measures included therein in order not to delay the
approval of the drug in adults, and, on another hand, the EMA may grant either a product-specific waiver for the (adult) disease/
condition or one or more pediatric subsets or a class waiver for the disease/condition. PIPs are subject to modifications from
time to time, when they no longer are workable. Prior to obtaining the validation of a MAA for adults, the applicant has to
demonstrate compliance with the PIP at the time of submission of the application. In the case of orphan medicinal products,
completion of an approved PIP can result in an extension of the market exclusivity period from ten to twelve years.
Japan
In Japan, there is no statutory rule which imposes any different obligation on pharmaceutical manufacturers engaging
in pediatric drug development than on other pharmaceutical manufacturers. However, the guidelines of the MHLW (Handling
of Pharmaceuticals during the Reexamination Interval Period (Issue No. 107, February 1, 1999) and Enforcement of the
Ministerial Ordinance Partially Revising the Ministerial Ordinance on Standards for Post-marketing Surveillance of
Pharmaceutical Products and Review of Post-marketing Surveillance for the Reexamination of Pharmaceutical Products (No.
1324, December 27, 2000)) state as follows: (i) since information on pediatric patients obtained in clinical trials may be limited,
the MHLW recommends that pharmaceutical manufacturers conduct adequate post-marketing surveillance during the
reexamination interval period and collect as much information as possible for proper use of drugs for pediatric patients; and (ii)
if a pharmaceutical manufacturer plans to conduct a clinical trial to set the dose of a pediatric drug to prepare application for
manufacturing/marketing approval or after receiving the same approval, the reexamination interval period may be extended up
to 10 years. In addition, since February 2010 the MHLW has convened a study group composed of physicians on a regular basis
to discuss and promote the development of children’s drugs that have been approved for use in Europe and the US but are not
yet approved in Japan, so that they can be used as early as possible in Japan as well.
Regulation Outside the US, Europe and Japan
In addition to regulations in the US, Europe and Japan, we will be subject to a variety of regulations in other
jurisdictions governing clinical studies of our candidate products, including medical devices. Regardless of whether we obtain
FDA approval for a product candidate, we must obtain approval by the comparable regulatory authorities of countries outside
the US before we can commence clinical studies or marketing of the product candidate in those countries. The requirements for
approval and the approval process vary from country to country, and the time may be longer or shorter than that required for
FDA approval. Under certain harmonized medical device approval/clearance regulations outside the US, reference to US
clearance permits fast-tracking of market clearance. Other regions are harmonized with EU standards, and therefore recognize
the CE mark as a declaration of conformity to applicable standards. Furthermore, we must obtain any required pricing approvals
in addition to regulatory approval prior to launching a product candidate in the approving country. Although the UK is no
longer part of the EU, its medicinal product and medical device regulations remain broadly aligned with the EU requirements.
Early Access Programs (EAPs)
Certain countries allow the supply or use of non-authorized medicinal products within strictly regulated EAPs. Some
may also provide reimbursement for drugs provided in the context of EAPs. Under EU law, member states are authorized to
adopt national legal regimes for the supply or use of non-authorized drugs in case of therapeutic needs. The most common
national legal regimes are compassionate use programs and named patient sales, but other national regimes for early access may
be available, depending on the member state. For drugs that must be approved through the centralized procedure, such as
orphan drugs, compassionate use programs are also regulated at the European level. ARIKAYCE is available in certain
countries under these early access programs.
Special programs can be set up to make available to patients with an unmet medical need a promising drug which has
not yet been authorized for their condition (compassionate use). As a general rule, compassionate use programs can only be put
in place for drugs or biologics that are expected to help patients with life-threatening, long-lasting or seriously disabling
illnesses who currently cannot be treated satisfactorily with authorized medicines, or who have a disease for which no medicine
has yet been authorized. The compassionate use route may be a way for patients who cannot enroll in an ongoing clinical trial to
obtain treatment with a potentially life-saving medicine. Compassionate use programs are coordinated and implemented by the
EU member states, which decide independently how and when to open such programs according to national rules and
legislation. Generally, doctors who wish to obtain a promising drug for their seriously ill patients will need to contact the
relevant national authority in their respective country and follow the procedure that has been set up. Typically, the national
authority keeps a register of the patients treated with the drug within the compassionate use program, and a system is in place to
record any side effects reported by the patients or their doctors. Orphan drugs very often are subject to compassionate use
programs due to their very nature (rare diseases are life-threatening, long-lasting or seriously disabling diseases) and the long
time required for both their approval and effective marketing.
Doctors can also obtain certain drugs for their patients by requesting a supply of a drug from the manufacturer or a
pharmacist located in another country, to be used for an individual patient under their direct responsibility. This is often called
treatment on a 'named-patient basis' and is distinct from compassionate use programs. In this case, the doctor responsible for the
treatment will either contact the manufacturer directly or issue a prescription to be fulfilled by a pharmacist. While
manufacturers or pharmacists do record what they supply, there is no central register of the patients that are being treated in this
way.
Reimbursement of Pharmaceutical Products
In the US, many independent third-party payors, as well as the Medicare and state Medicaid programs, reimburse
dispensers of pharmaceutical products. Medicare is the federal program that provides healthcare benefits to senior citizens and
certain disabled and chronically ill persons. Medicaid is the need-based federal and state program administered by the states to
provide healthcare benefits to certain persons.
As one of the conditions for obtaining Medicaid and, if applicable, Medicare Part B coverage for our marketed
pharmaceutical products, we will need to agree to pay a rebate to state Medicaid agencies that provide reimbursement for those
products. We will also have to agree to sell our commercial products under contracts with the Department of Veterans Affairs,
Department of Defense, Public Health Service, and numerous other federal agencies as well as certain hospitals that are
designated by federal statutes to receive drugs at prices that are significantly below the price we charge to commercial
pharmaceutical distributors. These programs and contracts are highly regulated and will impose restrictions on our business.
Failure to comply with these regulations and restrictions could result in adverse consequences such as civil money penalties,
imposition of a Corporate Integrity Agreement and/or a loss of Medicare and Medicaid reimbursement for our drugs.
Private healthcare payors also attempt to control costs and influence drug pricing through a variety of mechanisms,
including through negotiating discounts with the manufacturers and through the use of tiered formularies and other mechanisms
that provide preferential access to certain drugs over others within a therapeutic class. Payors also set other criteria to govern
the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered.
Members of Congress have indicated an interest in legislative measures designed to lower drug costs. The Biden
Administration has also indicated that lowering prescription drug prices is a priority. In August 2022, President Biden signed
the Inflation Reduction Act (IRA) of 2022 (P.L. 117-169) into law. This law will, for the first time, allow Medicare to negotiate
the price of certain high expenditure, single source Medicare Part B or Part D drugs. The Centers for Medicare & Medicaid
Services is in the process of implementing a Medicare Drug Price Negotiation Program, and this program may affect future
Medicare reimbursement for our drugs. Drug pricing is an active area for regulatory reform at both the federal and state levels,
and additional significant changes to current drug pricing and reimbursement structures in the US could be forthcoming.
Different pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of
drugs through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost
of those products to patients. Some jurisdictions operate positive and negative list systems under which drugs may only be
marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries
may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently
available therapies. Other member states allow companies to fix their own prices for drugs, but monitor and control company
profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a
result, increasingly high barriers are being erected to the entry of new drugs. In addition, in some countries, cross-border
imports from low-priced markets exert a commercial pressure on pricing within a country. There can be no assurance that any
country that has price controls or reimbursement limitations for drugs will allow favorable reimbursement and pricing
arrangements for any of our products.
In Japan, drugs can be sold on the market if they undergo the PMDA’s review of quality, efficacy and safety and
receive manufacturing/marketing approval. However, in order for drugs to be covered by the National Health Insurance, they
must be included in a Drug Price List. The "Drug Pricing Organization," which is a division of the Central Social Insurance
Medical Council (CSIMC), calculates the price of drugs, the general meeting of the CSIMC approves the calculated price, and
the MHLW includes the drugs and the calculated price in the Drug Price List. After receiving manufacturing/marketing
approval, drugs are included in the Drug Price List within 60 to 90 days unless the applicant disagrees, which may result in
extended pricing negotiations. The MHLW updates the Drug Price List annually after taking into account the survey result of
the actual sales price of drugs and hearing the opinion of the CSIMC.
Fraud and Abuse and Other Laws
Physicians and other healthcare providers and third-party payors (government or private) often play a primary role in
the recommendation and prescription of healthcare products. In the US and most other jurisdictions, numerous detailed
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requirements apply to government and private healthcare programs, and a broad range of fraud and abuse laws, transparency
laws, and other laws are relevant to pharmaceutical companies. US federal and state healthcare laws and regulations in these
areas include the following:
The federal anti-kickback statute;
The federal civil False Claims Act;
cognizant of our environmental impact, currently support several green measures and community service programs, and
continue to explore options to improve and build upon our sustainability efforts. We are committed to ensuring the health and
well-being of our employees and promoting patient advocacy and safety. Finally, we are driven by integrity and believe good
corporate governance is important and necessary to maintain ethical and compliant business practices. For additional
perspective on our ESG and human capital practices and resources, please refer to our upcoming annual proxy statement and
ESG report.
The federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health
Information Technology for Economic and Clinical Health Act;
COVID-19
The federal criminal false statements statute;
The price reporting requirements under the Medicaid Drug Rebate Program and the Veterans Health Care Act of 1992;
The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program; and
Analogous and similar state laws and regulations.
We are committed to the safety and well-being of our workforce. Our employees (other than our laboratory personnel)
have been provided a flexible approach to where and how they work to enable them to more easily manage business and
personal responsibilities. We have enhanced our internal communications and touch points to ensure connectivity to our
workforce. We will continue to manage this situation with a focus on the safety of our employees, ARIKAYCE physicians,
caregivers and patients.
Similar restrictions apply in the member states of the EU and Japan, which have been set out by laws or industry codes
Available Information
We file electronically with the 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 (Exchange Act). 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, or furnishing them to, the SEC. The public can also obtain materials that
we file with the SEC through the SEC's website at http://www.sec.gov.
Also available through our website's "Investors-Corporate Governance" page are charters for the Audit, Compensation,
Nominations and Governance and Science and Technology Committees of our board of directors, our Corporate Governance
Guidelines, and our Code of Business Conduct and Ethics. We intend to satisfy the disclosure requirements regarding any
amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by making disclosures concerning such
matters available on our website.
The references to our website and the SEC's website are intended to be inactive textual references only. Neither the
information in or that can be accessed through our website, nor the contents of the SEC's website, are incorporated by reference
in this Annual Report on Form 10-K.
Financial Information
The financial information required under this Item 1 is incorporated herein by reference to Item 8 of this Annual
Report on Form 10-K.
of conduct.
Employees
As of December 31, 2022, we had a total of 736 full-time employees: 339 in research, clinical, regulatory, medical
affairs and quality assurance; 62 in technical operations, manufacturing and quality control; 139 in general and administrative
functions; and 196 in commercial activities. We had 579 full-time employees in the US, 85 employees in Europe and 72
employees in Japan. We anticipate increasing our headcount in 2023.
None of our employees are represented by a labor union and we believe that our relations with our employees are
generally good. Generally, our employees are at-will employees; however, we have entered into employment agreements with
certain of our executive officers.
Human Capital
Employee Attraction, Retention and Development
We are dedicated to attracting and retaining the best possible talent. Our compensation program, including short- and
long-term incentives and benefits, is designed to allow us to attract and retain individuals whose skills are critical to our current
and long-term success. Total compensation is generally positioned within a competitive range of the peer market median, with
differentiation based on tenure, skills, proficiency, and performance to attract and retain key talent. With our compensation
program, we also aim to align the interests of our employees with those of our stockholders.
We believe that continued growth and development are essential to the professional well-being of our team. We seek
to develop our employee talent within the organization through access to training, continuous learning programs and other
development initiatives. As our organization and capabilities grow, we aim to ensure we have provided our team members with
the guidance and resources they need to develop as professionals and to support our business.
Core Values
Five core values—collaboration, accountability, passion, respect, and integrity—set the tone for our culture and guide
the actions we take each day. We strive to ensure that these values drive all of our human capital endeavors, including our
annual employee feedback process, our Leadership Competencies, our Recognition Program, and our new employee
onboarding initiatives.
Diversity and Inclusion
We are focused on maintaining an inclusive work environment that best supports the diverse needs of the patient
communities we serve. Among other factors in hiring, we consider geographic, gender, age, racial and ethnic diversity. Women
represent 38% of our executive team, 28% of our leadership team (vice president and above), 33% of our board of directors and
51% of our workforce. We continue to grow our list of employee resource groups and expand our sourcing for new talent to
foster increased diversity in our talent pipeline. We are also committed to equitable pay for all employees. We use industry
benchmarks and annual internal equity reviews to make salary adjustments as needed in efforts to ensure a fair and bias-free
compensation system. As we grow, we are continuing to implement initiatives to advance the development of diverse talent and
ensure diverse succession plans both in our employee workforce and our board of directors, and to support equity and inclusion
for all.
Environmental, Social and Governance (ESG)
As of 2021, we have a cross-functional group of employees that, together with members of our executive leadership,
updates our Nominations and Governance Committee and Board of Directors on ESG considerations and strategy. We are
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ITEM 1A. RISK FACTORS
Our business is subject to substantial risks and uncertainties. Any of the risks and uncertainties described below,
either alone or taken together, could materially and adversely affect our business, financial condition, results of operations,
prospects for growth, and the value of an investment in our common stock. In addition, these risks and uncertainties could
cause actual results to differ materially from those expressed or implied by forward-looking statements contained in this
Annual Report on Form 10-K (please read the Cautionary Note Regarding Forward-Looking Statements appearing at the
beginning of this Annual Report on Form 10-K).
Risk Factor Summary
An investment in our securities is subject to various risks, the most significant of which are summarized below.
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Our prospects are highly dependent on the success of our only approved product, ARIKAYCE. If we are unable to
successfully market and commercialize or maintain approval for ARIKAYCE, our business, financial condition,
results of operations and prospects and the value of our common stock will be materially adversely affected.
The commercial success of ARIKAYCE will depend on the degree of market acceptance by physicians, patients, third-
party payors and others in the healthcare community.
• We obtained regulatory approval of ARIKAYCE in the US through an accelerated approval process, and full approval
will be contingent on successful and timely completion of a confirmatory post-marketing clinical trial.
• We remain subject to substantial, ongoing regulatory requirements related to ARIKAYCE, and failure to comply with
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these requirements could lead to enforcement action or otherwise materially harm our business.
If we are unable to obtain adequate reimbursement from government or third-party payors for ARIKAYCE or if we are
unable to obtain acceptable prices for ARIKAYCE, our prospects for generating revenue and achieving profitability
will be materially adversely affected.
ARIKAYCE could develop unexpected safety or efficacy concerns, which would have a material adverse effect on us.
If estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP, or our other product candidates are
overstated or data we have used to identify physicians is inaccurate, our ability to earn revenue to support our business
could be materially adversely affected.
• We may not be successful in clinical trials or in obtaining regulatory approvals required to expand the indications for
•
ARIKAYCE, which may materially adversely affect our prospects and the value of our common stock.
Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in developing
product candidates in the future.
• We may not be able to obtain regulatory approvals for brensocatib, or for our other product candidates, and we may
•
not be able to receive approval for ARIKAYCE in new markets. Any such failure to obtain regulatory approvals may
materially adversely affect us.
If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious side effects are
identified during drug development, we may experience delays, incur additional costs and ultimately be unable to
obtain regulatory approval for and commercialize our product candidates in the US, Europe, Japan or other markets.
•
• We may not be able to enroll enough patients to conduct and complete our clinical trials or retain a sufficient number
of patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.
If another party obtains orphan drug exclusivity for a product essentially the same as a product we are developing for a
particular indication, we may be precluded or delayed from commercializing the product in that indication.
Our early-stage research activities include the research and development of novel gene therapy product candidates. It
will be difficult to predict the time and cost of development and of subsequently obtaining regulatory approval for any
such product candidates, or how long it will take to commercialize any gene therapy product candidates.
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• We will need to secure regulatory approval in each market for Lamira as a delivery system for ARIKAYCE. Any
failures to secure separate regulatory approvals for Lamira as a delivery system will limit our ability to successfully
commercialize ARIKAYCE. Additionally, we plan to submit an NDA for TPIP as a drug/device combination product
or as a stand-alone marketing application, as dictated by local regulations. Failure to obtain or maintain regulatory
approval or clearance of our product devices could materially harm our business.
If we are unable to form and sustain relationships with third party service providers that are critical to our business, or
if any third-party arrangements that we may enter into are unsuccessful, our ability to develop and commercialize our
products may be materially adversely affected.
•
• We may not have, or may be unable to obtain, sufficient quantities of ARIKAYCE, Lamira or our product candidates
to meet our required supply for commercialization or clinical studies, which would materially harm our business.
Adverse consequences to our business could result if we and our manufacturing partners fail to comply with applicable
regulations or maintain required approvals.
•
• We are dependent upon retaining and attracting key personnel, the loss of whose services could materially adversely
affect our business, financial condition, results of operations and prospects and the value of our common stock.
• We may encounter difficulties in managing our growth, which could disrupt our operations.
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Any acquisitions we make, or collaborative relationships we enter into, may not be clinically or commercially
successful, and may require financing or a significant amount of cash, which could adversely affect our business.
Our business and operations, including our drug development and commercialization programs, could be materially
disrupted in the event of system failures, security breaches, cyber-attacks, deficiencies in our cybersecurity, violations
of data protection laws or data loss or damage by us or third parties.
• We have limited experience operating internationally, are subject to a number of risks associated with our international
activities and operations and may not be successful in our efforts to expand internationally.
• We operate in a highly competitive and changing environment, and if we are unable to adapt to our environment, we
may be unable to compete successfully.
• We have a limited number of significant customers and losing any of them could have an adverse effect on our
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financial condition and results of operations.
Deterioration in general economic conditions in the US, Europe, Japan and globally, including the effect of prolonged
periods of inflation on our suppliers, third-party service providers and potential partners, could harm our business and
results of operations.
The COVID-19 pandemic and efforts to reduce its spread have negatively impacted, and could continue to negatively
impact, our business and operations.
If we are unable to adequately protect our intellectual property rights, the value of ARIKAYCE and our product
candidates could be materially diminished.
If we fail to comply with obligations in our third party agreements, our business could be adversely affected, including
as a result of the loss of license rights that are important to our business.
Government healthcare reform could materially increase our costs, which could materially adversely affect our
business, financial condition, results of operations and prospects and the value of our common stock.
If we fail to comply with applicable laws, including "fraud and abuse" laws, anti-corruption laws and trade control
laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and legal
expenses, which could adversely affect our business, financial condition, results of operations and prospects and the
value of our common stock.
Our use of hazardous materials could expose us to damages, fines, penalties and sanctions and materially adversely
affect our results of operations and financial condition.
• We have a history of operating losses, expect to incur operating losses for the foreseeable future and may never
achieve or maintain profitability.
• We may need to raise additional funds to continue our operations, but we face uncertainties with respect to our ability
to access capital.
• We have outstanding indebtedness in the form of convertible senior notes, a term loan and a royalty financing
arrangement and may incur additional indebtedness in the future, which could adversely affect our financial position,
prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders.
• We may be unable to use certain of our net operating losses and other tax assets.
• Goodwill impairment charges in the future could have a material adverse effect on our business, results of operations
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and financial condition.
Our shareholders may experience dilution of their ownership interests because of the future issuance of additional
shares of our common stock for general corporate purposes and upon the conversion of the Convertible Notes.
The market price of our stock has been and may continue to be highly volatile, which could lead to shareholder
litigation against us.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements
between us and our employees could hamper a third party’s acquisition of us or discourage a third party from
attempting to acquire control of us.
Risks Related to the Commercialization and Continued Approval of ARIKAYCE
Our prospects are highly dependent on the success of our only approved product, ARIKAYCE, which was approved in the
United States as ARIKAYCE (amikacin liposome inhalation suspension), in Europe as ARIKAYCE Liposomal 590 mg
Nebuliser Dispersion and in Japan as ARIKAYCE inhalation 590mg (amikacin sulfate inhalation drug product). If we are
unable to successfully market and commercialize or maintain approval for ARIKAYCE, our business, financial condition,
results of operations and prospects and the value of our common stock will be materially adversely affected.
Our long-term viability and growth depend on the successful commercialization of ARIKAYCE, our only approved
product. ARIKAYCE was approved in the US for the treatment of MAC lung disease as part of a combination antibacterial
drug regimen for adult patients with limited or no alternative treatment options in a refractory setting, as defined by patients
who do not achieve negative sputum cultures after a minimum of six consecutive months of a multidrug background regimen
therapy. Subsequently, ARIKAYCE was approved in Europe for the treatment of NTM lung infections caused by MAC in
adults with limited treatment options who do not have CF, and in Japan for the treatment of patients with NTM lung disease
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caused by MAC who did not sufficiently respond to prior treatments with a multidrug regimen. We refer to NTM lung disease
caused by MAC as MAC lung disease. We have invested and continue to invest significant efforts and financial resources in the
commercialization of ARIKAYCE, and our ability to continue to generate revenue from ARIKAYCE will depend heavily on
successfully commercializing and obtaining full regulatory approval for ARIKAYCE from the US FDA by conducting an
appropriate confirmatory post-marketing study. ARIKAYCE was our first commercial launch, and its successful
commercialization and our receipt of full regulatory approval for ARIKAYCE in the US are subject to many risks.
In order to commercialize ARIKAYCE, we must establish and maintain marketing, market access, sales and
distribution capabilities on our own or make arrangements with third parties for its marketing, sale and distribution. We have
commenced commercialization of ARIKAYCE in the US, Europe and Japan using our sales force, but we may not continue to
be successful in these efforts. The establishment, development and maintenance of our own sales force is and will continue to
be expensive and time-consuming. As a result, we may seek one or more partners to handle some or all of the sales and
marketing of ARIKAYCE in certain markets following approval by the relevant regulatory authority in those markets. In that
case, we will be reliant on third parties to successfully commercialize ARIKAYCE and will have less control over
commercialization efforts than if we handled commercialization with our own sales force. However, we may not be able to
enter into arrangements with third parties to sell ARIKAYCE on favorable terms or at all. In the event that either our own
marketing, market access, sales force or third-party marketing, and sales organizations are not effective, our ability to generate
revenue would be adversely affected.
The commercial success of ARIKAYCE will depend on the degree of market acceptance by physicians, patients, third-party
payors and others in the healthcare community.
Despite receiving US FDA, EC and Japan's MHLW approval of ARIKAYCE, market acceptance may vary among
physicians, patients, third-party payors or others in the healthcare community. ARIKAYCE was the first product approved in
the US via the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD) pathway, and its approval under
this pathway may impact market acceptance of the product. If ARIKAYCE does not achieve and maintain an adequate level of
acceptance, it is not likely that we will generate significant revenue or become profitable. The degree of market acceptance of
ARIKAYCE, which we launched in the US early in the fourth quarter of 2018, in Europe in the fourth quarter of 2020, and in
Japan in the second quarter of 2021, is also dependent on a number of additional factors, including the following:
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The willingness of the target patient populations to use, and of physicians to prescribe, ARIKAYCE;
The efficacy and potential advantages of ARIKAYCE over alternative treatments;
The risk and safety profile of ARIKAYCE, including, among other things, physician and patient concern regarding the
US boxed warning and other safety precautions resulting from its association with an increased risk of respiratory
adverse reactions, and any adverse safety information that becomes available as a result of longer-term use of
ARIKAYCE;
Relative convenience and ease of administration, including any requirements for hospital administration of
ARIKAYCE;
The ability of the patient to tolerate ARIKAYCE;
The pricing of ARIKAYCE;
The ability and willingness of the patient to pay out of pocket costs for ARIKAYCE (for example co-payments);
Sufficient third-party insurance coverage and reimbursement;
The strength of marketing and distribution support and timing of market introduction of competitive products and
treatments; and
Publicity concerning ARIKAYCE or any potential competitive products and treatments.
Our efforts to educate physicians, patients, third-party payors and others in the healthcare community on the benefits
of ARIKAYCE have required and will continue to require significant resources, which may be greater than those required to
commercialize more established technologies and these efforts may never be successful.
We obtained regulatory approval of ARIKAYCE in the US through an accelerated approval process, and full approval will
be contingent on successful and timely completion of a confirmatory post-marketing clinical trial. Failure to obtain full
approval or otherwise meet our post-marketing requirements and commitments would have a material adverse effect on our
business.
The FDA approved ARIKAYCE under the LPAD and accelerated approval pathways, and full approval will be based
on results from a post-marketing confirmatory clinical trial. Accelerated approval allows drugs that (i) are being developed to
treat a serious or life-threatening disease or condition and (ii) provide a meaningful therapeutic benefit over existing treatments
to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict
clinical benefit, rather than a clinical endpoint such as survival or irreversible morbidity. Accelerated approval of ARIKAYCE
was supported by preliminary data from the Phase 3 CONVERT study, which evaluated the safety and efficacy of ARIKAYCE
in adult patients with refractory MAC lung disease, using achievement of sputum culture conversion (defined as three
consecutive negative monthly sputum cultures) by Month 6 as the primary endpoint.
As a condition of accelerated approval, we must conduct a post-marketing confirmatory clinical trial. Additionally, we
are required to submit periodic reports on the progress of this clinical trial. In the fourth quarter of 2020, we commenced the
post-marketing confirmatory frontline clinical trial program for ARIKAYCE in patients with MAC lung disease. The frontline
clinical trial program consists of the ARISE trial, an interventional study designed to validate cross-sectional and longitudinal
characteristics of a PRO tool in MAC lung disease, and the ENCORE trial, designed to establish the clinical benefits and
evaluate the safety of ARIKAYCE in patients with newly diagnosed MAC lung disease using the PRO tool validated in the
ARISE trial. We are running these global studies in parallel in approximately 200 sites for these clinical trials. The frontline
clinical program is intended to fulfill the FDA’s post-marketing requirement to allow for full approval of ARIKAYCE by the
FDA, and verification and description of clinical benefit in the ENCORE trial will be necessary for full approval of
ARIKAYCE. Pursuant to the timetable agreed upon with the FDA when the approval letter of ARIKAYCE was received,
confirmatory trial results are to be reported by 2024. We are engaged with FDA regarding the status and execution of the
ARISE and ENCORE trials. There is little precedent for clinical development and regulatory expectations for agents to treat
MAC lung disease. If our PRO tool is not validated in the ARISE trial, we would need to develop a new clinical endpoint for
the ENCORE trial. We may also encounter substantial delays in completing enrollment for the ENCORE trial and in conducting
either trial, and we may not be able to enroll and conduct the trials in a manner satisfactory to the FDA or within the time period
required by the FDA. The FDA could, among other things, withdraw its approval of ARIKAYCE using expedited procedures if
the ENCORE trial is not successful or if the FDA concludes that we failed to conduct the ENCORE trial with due diligence,
that other evidence demonstrates that ARIKAYCE is not shown to be safe and effective, or that we disseminated false or
misleading promotional materials with respect to ARIKAYCE. Additionally, under the amendments to the FDCA made by the
Food and Drug Omnibus Reform Act of 2022, the FDA could pursue administrative and judicial remedies for a violation of the
FDCA if we were to fail to conduct the ENCORE trial with due diligence or not timely submit the required reports on the
progress of the ENCORE trial. Separate from the confirmatory trial, additional results from ongoing and recently completed
studies may affect the FDA’s benefit-risk analysis for the product. Additionally, ARIKAYCE is subject to post-marketing
commitments consisting of implementation of a healthcare provider communication plan, conducting a drug utilization
assessment, and conducting further studies to identify an optimal quality control in vitro drug release method. We have fulfilled
the post-marketing commitment for the identification of the in vitro drug release method. Failure to meet all post-marketing
commitments may raise additional regulatory challenges.
We remain subject to substantial, ongoing regulatory requirements, and failure to comply with these requirements could
lead to enforcement action or otherwise materially harm our business.
We are subject to a variety of manufacturing, packaging, storage, labeling, advertising, promotion, and record-keeping
requirements in the US, Europe, and Japan including requirements to:
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Conduct sales, marketing and promotion, scientific exchange, speaker programs, charitable donations and educational
grant programs in compliance with federal and state laws;
Disclose clinical trial information and payments to healthcare professionals and healthcare organizations on publicly
available databases;
• Monitor and report complaints, AEs and instances of failure to meet product specifications;
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Comply with cGMP and quality systems requirements for devices;
Acquire licenses for marketing authorization and certifications for our third party manufacturers when importing and
selling pharmaceutical products manufactured in other countries into Japan;
Negotiate with national governments and other counterparties on pricing and reimbursement status;
Carry out post-approval confirmatory clinical trials;
Comply with ongoing pharmacovigilance requirements; and
Disclose payments to healthcare professionals and healthcare organizations to national regulatory authorities and/or on
publicly available websites.
If we ultimately receive approval for ARIKAYCE in jurisdictions other than the US, EU, and Japan, we expect to be
subject to similar ongoing regulatory oversight by the relevant foreign regulatory authorities, including the requirement to
negotiate with national governments and other counterparties on pricing and reimbursement prices for each new jurisdiction.
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Failure to comply with these ongoing regulatory obligations could have significant negative consequences, including:
Issuance of warning letters or untitled letters by the FDA asserting that we are in violation of the law;
Imposition of injunctions or civil monetary penalties or pursuit by regulators of civil or criminal prosecutions and fines
against us or our responsible officers;
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Suspension or withdrawal of regulatory approval;
Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications
or supplements to approved applications;
Seizure of products, required product recalls or refusal to allow us to enter into supply contracts, including government
contracts, or to import or export products;
Enforcement actions, such as a product recalls, or product shortages due to failure to meet certain manufacturing or
regulatory requirements, including the successful completion and results of quality control or release testing;
Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with
respect to ARIKAYCE, brensocatib, TPIP, or any of our other product candidates; and
Negative publicity, including communications issued by regulatory authorities, which could negatively impact the
perception of us or ARIKAYCE, brensocatib, TPIP, or any of our other product candidates by patients, physicians,
third-party payors or the healthcare community.
We provide financial assistance with out-of-pocket costs to patients enrolled in commercial health insurance plans. In
addition, independent foundations may assist with out-of-pocket financial obligations. The ability of these organizations to
provide assistance to patients is dependent on funding from external sources, and we cannot guarantee that such funding will be
available at adequate levels, if at all. Patient assistance programs, whether provided directly by manufacturers or charitable
foundations, have come under recent government scrutiny. If we are deemed to fail to comply with relevant laws, regulations or
government guidance with respect to these programs, we could be subject to significant fines or penalties.
If we are unable to obtain adequate reimbursement from government or third-party payors for ARIKAYCE or if we are
unable to obtain acceptable prices for ARIKAYCE, our prospects for generating revenue and achieving profitability will be
materially adversely affected.
Our prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate
reimbursement for the use of ARIKAYCE from governmental and other third-party payors, both in the US and in other
markets. A portion of our current ARIKAYCE revenue in the US comes from Medicare reimbursement, and we expect that
trend to continue. Reimbursement by a third-party payor depends upon a number of factors, including the third-party payor’s
determination that use of a product is:
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A covered benefit under its health plan;
Safe, effective and medically necessary;
Appropriate for the specific patient;
Cost-effective; and
Neither experimental nor investigational.
Obtaining a determination of coverage and reimbursement for a product from each relevant governmental or other
third-party payor is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost-
effectiveness data for the use of our products to each payor. Payors in the US have evaluated ARIKAYCE for inclusion on
formularies. Going forward, we may not be able to provide data sufficient to gain positive coverage and reimbursement
determinations or we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of
ARIKAYCE to such payors’ satisfaction. Such studies might require us to commit a significant amount of management time
and financial and other resources.
Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations
that preclude payment for some uses that are approved by the FDA or non-US regulatory authorities and/or may set a
reimbursement rate that is too low to support a profitable sales price for the product. For example, in France we agreed with the
French authorities to a reimbursed price which was lower than the price in our temporary authorization for use (Autorisation
Temporaire d'Utilisation or ATU) and are required to refund the difference. As a result, we recorded a revenue reversal in the
fourth quarter of 2022, related to revenue recorded in prior periods. In addition, in 2023, we anticipate a one-time, prospective
price decrease for ARIKAYCE in Japan in the high-single digit to low-double digit range. In the US, payors have restricted and
continue to restrict coverage of ARIKAYCE by using a variable co-payment structure that imposes higher costs on patients for
drugs that are not preferred by the payor and by imposing requirements for prior authorization or step edits. Subsequent
approvals of competitive products could result in a detrimental change to the reimbursement of our products. The occurrence of
any of these events likely would adversely impact market acceptance and demand for ARIKAYCE, which, in turn, could affect
our ability to successfully commercialize ARIKAYCE and adversely impact our business, financial condition, results of
operations and prospects and the value of our common stock.
There is a significant focus in the US healthcare industry and elsewhere on drug prices and value, and public and
private payors are taking increasingly aggressive steps to control their expenditures for pharmaceuticals by, inter alia,
negotiating manufacturer discounts and placing restrictions on reimbursement for, and patient access to, medications. These
pressures could negatively affect our business. We expect changes in the Medicare program and state Medicaid programs, as
well as managed care organizations and other third-party payors, to continue to put pressure on pharmaceutical product pricing.
For instance, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) expanded Medicare
outpatient prescription drug coverage for the elderly through Part D prescription drug plans sponsored by private entities and
authorized such plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class.
The plans generally negotiate significant price concessions as a condition of formulary placement. The MMA also introduced a
new reimbursement methodology based on average sales prices for physician-administered drugs, which is generally believed
to have resulted in lower Medicare reimbursement for physician-administered drugs. These cost reduction initiatives and other
provisions of this legislation provide additional pressure to contain and reduce drug prices and could decrease the coverage and
price that we receive for any approved products and could seriously harm our business. Although the MMA applies only to
drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations when
setting their own reimbursement rates, and any reimbursement reduction resulting from the MMA may result in a similar
reduction in payments from private payors. Additionally, the Patient Protection and Affordable Care Act (ACA) revised the
definition of “average manufacturer price” for reporting purposes and increased the minimum percentage for Medicaid drug
rebates to states, required drug manufacturers to provide a significant discount (70% as of January 1, 2022) on prescriptions for
branded drugs filled while the beneficiary is in the Medicare Part D coverage gap (also known as the donut hole), and imposed
a significant annual fee on companies that manufacture or import branded prescription drug products. We believe it is likely
that the ACA, or any legislation enacted to amend or replace it, will continue the pressure on pharmaceutical pricing, especially
under the Medicare program, and also may increase our regulatory burdens and operating costs. One significant example of
recent legislative action is the IRA, which was signed into law on August 16, 2022. While the IRA is still subject to rulemaking
(with more information to come via guidance documents from the responsible federal agencies), the IRA, as written, gives the
US Department of Health and Human Services (the HHS) the ability and authority to directly negotiate with manufacturers the
price that Medicare will pay for certain high-priced drugs and set caps on the negotiated price of such drugs, among other
changes. The IRA will also require manufacturers of certain Part B and Part D drugs to issue to HHS rebates based on certain
calculations and triggers (i.e., when drug prices increase and outpace the rate of inflation). At this time, we cannot predict the
implications the IRA provisions will have on our business. These types of laws may have a significant impact on our ability to
set a product price we believe is fair and may adversely affect our ability to generate revenue and achieve or maintain
profitability. For instance, we have observed an increase in the time to fill prescriptions, particularly for patients insured
through Medicare, in the first quarter of each year since we began commercializing ARIKAYCE as a result of the donut hole,
and, while the situation has not extended through the entire year, this situation may recur in the first quarter of subsequent
years. We expect further federal and state proposals and healthcare reforms to continue to be proposed, which could limit the
prices that can be charged for the products we develop or may otherwise limit our commercial opportunity. See Reimbursement
of Pharmaceutical Products in Item 1 of Part I of this Annual Report on Form 10-K for more information. In addition, in
connection with various government programs, we are required to report certain pricing information to the government, and the
failure to do so may subject us to penalties.
In markets outside the US, including countries in Europe, Japan and Canada, pricing of pharmaceutical products is
subject to governmental control. Evaluation criteria used by many government agencies in European countries for the purposes
of pricing and reimbursement typically focus on a product’s degree of innovation and its ability to meet a clinical need
unfulfilled by currently available therapies. The ACA created a similar entity, the Patient-Centered Outcomes Research
Institute, designed to review the effectiveness of treatments and medications in federally-funded healthcare programs. An
adverse result could lead to a treatment or product being removed from Medicare or Medicare coverage. The decisions of such
governmental agencies could affect our ability to sell our products profitably.
We continue to have discussions with third-party payors regarding our price for ARIKAYCE, and our pricing may
meet resistance from them and the public generally. If we are unable to maintain adequate reimbursement for ARIKAYCE in
the US, Europe and Japan, the adoption of ARIKAYCE by physicians and patients may be limited. If we are unable to negotiate
acceptable prices for ARIKAYCE, we may be unable to generate sufficient revenue to achieve profitability. Both of these risks,
in turn, could affect our ability to successfully commercialize ARIKAYCE and adversely impact our business, financial
condition, results of operations and prospects and the value of our common stock.
ARIKAYCE could develop unexpected safety or efficacy concerns, which would likely have a material adverse effect on us.
ARIKAYCE is now being used by larger numbers of patients, for longer periods of time than during our clinical trials
(including in the CONVERT study), and we and others (including regulatory agencies and private payors) are collecting
extensive information on the efficacy and safety of ARIKAYCE by monitoring its use in the marketplace. In addition, we are
conducting a confirmatory trial to assess and describe the clinical benefit of ARIKAYCE in patients with MAC lung disease
and may conduct additional trials in connection with lifecycle management programs for ARIKAYCE. New safety or efficacy
data from both market surveillance and our clinical trials may result in negative consequences including the following:
• Modification to product labeling or promotional statements, such as additional boxed or other warnings or
contraindications, or the issuance of additional “Dear Doctor Letters” or similar communications to healthcare
professionals;
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Required changes in the administration of ARIKAYCE;
Imposition of additional post-marketing surveillance, post-marketing clinical trial requirements, distribution
restrictions or other risk management measures, such as a risk evaluation and mitigation strategy (REMS) or a REMS
with elements to assure safe use;
Suspension or withdrawal of regulatory approval;
Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications
or supplements to approved applications;
Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with
respect to ARIKAYCE; and
Voluntary or mandatory product recalls or withdrawals from the market and costly product liability claims.
Any of these circumstances could reduce ARIKAYCE’s market acceptance and would be likely to materially
adversely affect our business.
If estimates of the size of the potential markets for ARIKAYCE, brensocatib, TPIP, or our other product candidates are
overstated or data we have used to identify physicians is inaccurate, our ability to earn revenue to support our business
could be materially adversely affected.
We have relied on external sources, including market research funded by us and third parties, and internal analyses and
calculations to estimate the potential market opportunities for ARIKAYCE, brensocatib, TPIP, or any of our other product
candidates. The externally sourced information used to develop these estimates has been obtained from sources we believe to be
reliable, but we have not verified the data from such sources, and their accuracy and completeness cannot be assured. With
respect to ARIKAYCE, our internal analyses and calculations are based upon management’s understanding and assessment of
numerous inputs and market conditions, including, but not limited to, the projected increase in prevalence of MAC lung disease,
Medicare patient population growth and ongoing population shifts to geographies with increased rates of MAC lung disease.
These understandings and assessments necessarily require assumptions subject to significant judgment and may prove to be
inaccurate. As a result, our estimates of the size of these potential markets for ARIKAYCE could prove to be overstated,
perhaps materially.
In addition, we are relying on third-party data to identify the physicians who treat the majority of MAC lung disease
patients in the US and to determine how to deploy our resources to market to those physicians; however, we may not be
marketing to the appropriate physicians and may therefore be limiting our market opportunity.
With regards to brensocatib, our estimated number of total diagnosed bronchiectasis patients in the US was derived
from an external source. A similar per capita prevalence was used to calculate the estimated prevalence in the European 5.
However, studies indicate a lack of consensus on prevalence rates.
In the future, we may develop additional estimates with respect to market opportunities for our other product
candidates, and such estimates are subject to similar risks. In addition, a potential market opportunity could be reduced if a
regulator limits the proposed treatment population for one of our product candidates, similar to the limited population for which
ARIKAYCE was approved. In either circumstance, even if we obtain regulatory approval, we may be unable to commercialize
the product on a scale sufficient to generate significant revenue from such product candidates, which could have a material
adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.
We may not be successful in clinical trials or in obtaining regulatory approvals required to expand the indications for
ARIKAYCE, which may materially adversely affect our prospects and the value of our common stock.
The FDA granted accelerated approval of ARIKAYCE for the treatment of MAC lung disease as part of a combination
antibacterial drug regimen for adult patients with limited or no alternative treatment options in a refractory setting, as defined
by patients who do not achieve negative sputum culture after a minimum of six consecutive months of a multidrug background
regimen therapy. Our CONVERT study and 312 study focused on this refractory population, and we do not anticipate obtaining
an indication for a broader population of patients with MAC lung disease or any other illnesses or infections without additional
clinical data. Additional clinical trials will require additional time and expense. We are conducting our confirmatory clinical
trial program for full approval of ARIKAYCE, through the ARISE trial and the ENCORE trial, in the broader population of
patients with MAC lung disease, but this trial program, along with any other clinical trials of ARIKAYCE may not be
successful. Additional results from ongoing and recently completed studies may affect the FDA’s benefit-risk analysis for the
product. If we are unable to expand the indication for use of ARIKAYCE, our prospects and the value of our common stock
may be materially adversely affected.
Risks Related to the Development and Regulatory Approval of Our Product Candidates Generally
Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in developing
product candidates in the future.
Product development in the pharmaceutical industry is an expensive, high-risk, lengthy, complicated, resource
intensive process. In order to develop a product successfully, we must, among other things:
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Identify potential product candidates;
Submit for and receive regulatory approval to perform clinical trials;
Design and conduct appropriate preclinical and clinical trials, including confirmatory clinical trials, according to good
laboratory practices and good clinical practices and disease-specific expectations of the FDA and other regulatory
bodies;
Select and recruit clinical investigators and subjects for our clinical trials;
Obtain and correctly interpret data establishing adequate safety of our product candidates and demonstrating with
statistical significance that our product candidates are effective for their proposed indications, as indicated by
satisfaction of pre-established endpoints;
Submit for and receive regulatory approvals for marketing; and
• Manufacture the product candidates and device constituent parts according to cGMP and other applicable standards
and regulations.
There is a high rate of failure inherent in this process, and potential products that appear promising at early stages of
development may fail for a number of reasons. Importantly, positive results from preclinical studies of a product candidate may
not be predictive of similar results in human clinical trials, and promising results from earlier clinical trials of a product
candidate may not be replicated in later clinical trials. Many companies in the pharmaceutical and biotechnology industries
have suffered significant setbacks in late-stage clinical trials even after achieving positive results in earlier stages of
development and have abandoned development efforts or sought partnerships in order to continue development.
In addition, there are many other difficulties and uncertainties inherent in pharmaceutical research and development
that could significantly delay or otherwise materially impair our ability to develop future product candidates, including the
following:
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Conditions imposed by regulators, ethics committees or institutional review boards for preclinical testing and clinical
trials relating to the scope or design of our clinical trials, including selection of endpoints and number of required
patients or clinical sites;
Challenges in designing our clinical trials to support potential claims of superiority over current standard of care or
future competitive therapies;
Restrictions placed upon, or other difficulties with respect to, clinical trials and clinical trial sites, including with
respect to potential clinical holds or suspension or termination of clinical trials due to, among other things, potential
safety or ethical concerns or noncompliance with regulatory requirements;
Delayed or reduced enrollment in clinical trials, high discontinuation rates or overly concentrated patient enrollment in
specific geographic regions;
Failure by third-party contractors, contract research organizations (CROs), clinical investigators, clinical laboratories,
or suppliers to comply with regulatory requirements or meet their contractual obligations in a timely manner;
Greater than anticipated cost of our clinical trials; and
Insufficient product supply or inadequate product quality.
Failure to successfully develop future product candidates for any of these reasons may materially adversely affect our
business, financial condition, results of operations and prospects and the value of our common stock.
We may not be able to obtain regulatory approvals for brensocatib, or for our other product candidates and we may not be
able to receive approval for ARIKAYCE in new markets. Any such failure to obtain regulatory approvals may materially
adversely affect us.
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, and the failure to obtain such approvals will prevent us from commercializing our
products, which would materially adversely affect our business, financial condition, results of operations and prospects and the
value of our common stock. While we have obtained accelerated approval for ARIKAYCE in the US and approval in the EU
and Japan, seeking regulatory approvals for brensocatib or our other product candidates as well as approval for ARIKAYCE in
other jurisdictions presents significant obstacles. Approval processes in the US, Europe, Japan and other markets require the
submission of extensive preclinical and clinical data, manufacturing and quality information regarding the process and facility,
scientific data characterizing our product and other supporting data in order to establish safety and effectiveness. These
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processes are complex, lengthy, expensive, resource intensive and uncertain. Regulators will also conduct a rigorous review of
any trade name we intend to use for our products. Even after they approve a trade name, these regulators may request that we
adopt an alternative name for the product if adverse event reports indicate a potential for confusion with other trade names and
medication error. If we are required to adopt an alternative name, potential commercialization of brensocatib or our other
product candidates or commercialization of ARIKAYCE could be delayed or interrupted. We have limited experience in
submitting and pursuing applications necessary to obtain these regulatory approvals.
Data submitted to regulators are subject to varying interpretations that could delay, limit or prevent regulatory agency
approval. Even if we believe our clinical trial results are promising, regulators may disagree with our interpretation of data,
study design or execution and may refuse to accept our application for review or decline to grant approval.
In addition, the grant of a designation by the FDA or EMA or approval by the FDA, EC or MHLW does not ensure a
similar decision by the regulatory authorities of other countries, and a decision by one foreign regulatory authority does not
ensure regulatory authorities in other foreign countries or the FDA will agree with the decision. For instance, although
ARIKAYCE received orphan drug designation in the US, ARIKAYCE did not qualify for orphan drug designation in Japan due
to the estimated number of NTM patients in Japan exceeding 50,000. Similarly, clinical studies conducted in one country may
not be accepted by regulatory authorities in other countries. Approval procedures vary among countries and can involve
additional product testing, including additional preclinical studies or clinical trials, and administrative review periods. The time
required to obtain approval in these other territories might differ from that required to obtain FDA approval. We may never
obtain approval for brensocatib or for our other product candidates in the US or other jurisdictions, or for ARIKAYCE outside
of the US, Europe and Japan, which would limit our market opportunities and materially adversely affect our business. Even if
brensocatib or another product candidate is approved, or if ARIKAYCE is approved outside of the US, Europe and Japan,
regulators may limit the indications for which the product may be marketed, require extensive warnings on the product labeling
or require expensive and time-consuming additional clinical trials or reporting as conditions of approval.
We routinely assess regulatory strategies which could expedite the development and regulatory review of our product
candidates in the US and other markets, but we may be unsuccessful in pursuing such strategies. The FDA has denied our
request for orphan drug designation for brensocatib for the treatment of bronchiectasis.
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. Resolving such delays could force us or third parties to incur significant costs, limit our allowed activities or the
allowed activities of third parties, diminish any competitive advantages that we or our third parties may attain or adversely
affect our ability to receive royalties, any of which could materially adversely affect our business, financial condition, results of
operations and prospects and the value of our common stock.
If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious side effects are identified
during drug development, we may experience delays, incur additional costs and ultimately be unable to obtain regulatory
approval for and successfully commercialize our product candidates in the US, Europe, Japan or other markets.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense,
extensive preclinical tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the
safety and efficacy of our product candidates in humans. If we experience delays in our clinical trials or other testing or the
results of these trials or tests are not positive or are only modestly positive, including with respect to safety, we may:
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Experience increased product development costs;
Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates;
Obtain approval for indications or patient populations that are not as broad as intended or entirely different than those
indications for which we sought approval or with labeling with boxed warnings or other warnings or contraindications;
Need to change the way the product is administered;
Be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing
requirements;
Have regulatory authorities withdraw, or suspend, their approval of the product or impose risk mitigation strategies
such as restrictions on distribution or other REMS;
Face a shortened patent protection period during which we may have the exclusive right to commercialize our
products;
Have competitors that are able to bring similar products to market before us;
Be sued for alleged injuries caused to patients using our products; or
Suffer reputational damage.
Such circumstances would impair our ability to commercialize our products and harm our business and results of
operations.
We may not be able to enroll enough patients to conduct and complete our clinical trials or retain a sufficient number of
patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.
The completion rate of our clinical trials 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;
Regulatory approvals to initiate study sites;
Patient population size;
The nature of the protocol to be used in the trial;
Patient proximity to clinical sites;
Eligibility criteria for the trial;
Patient willingness to participate in the trial;
Discontinuation rates; and
Competition from other companies’ potential clinical trials for the same patient population.
Delays in patient enrollment for our clinical trials could increase costs and delay commercialization and sales, if any,
of our products. Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to
discontinue participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by
regulators for approval of our product candidates.
If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we are developing for
a particular indication, we may be precluded or delayed from commercializing the product in that indication.
Under the ODA, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. In
the EU, the EMA Committee for Orphan Medicinal Products grants orphan drug designation to products that are intended for
the diagnosis, prevention or treatment of a life-threatening or chronically debilitating disease or condition affecting not more
than five in 10,000 people in the EU. The company that obtains the first regulatory approval from the FDA for a designated
orphan drug for a rare disease or condition generally receives marketing exclusivity for use of that drug for the designated
disease or condition for a period of seven years. Similar laws exist in the EU with a term of 10 years. See Business —
Government Regulation — Orphan Drug Designation in Item 1 of Part I of this Annual Report on Form 10-K for additional
information. If a competitor obtains approval of the same drug for the same disease or condition before us, and the FDA grants
such orphan drug exclusivity, we would be prohibited from obtaining approval for our product for seven or more years, unless
our product can be shown to be clinically superior. In addition, even if we obtain orphan exclusivity, the FDA may approve
another product during our orphan exclusivity period for the same disease or condition under certain circumstances.
Our early-stage research activities include the research and development of novel gene therapy product candidates. It will be
difficult to predict the time and cost of development and of subsequently obtaining regulatory approval for any such product
candidates, or how long it will take to commercialize any gene therapy product candidates.
We intend to identify and develop novel gene therapy product candidates as part of our early-stage research efforts.
We have limited experience with gene therapy programs and cannot be certain that any gene therapy product candidates that we
develop will successfully complete preclinical studies and clinical trials, or that they will not cause significant adverse events or
toxicities. Any such results could impact our ability to develop a product candidate, including our ability to enroll patients in
our clinical trials. Furthermore, there is the potential risk of delayed adverse events following exposure to gene therapy products
due to persistent biological activity of the genetic material or other components of products used to carry the genetic material,
which could adversely affect our ability to obtain and maintain regulatory approvals for and commercialize any gene therapy
products we may develop.
In addition, only a small number of gene therapy products have been approved in the US, Europe or elsewhere, and
regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the
future. We may seek regulatory approval in territories outside the US and Europe, which may have their own regulatory
authorities along with frequently changing requirements or guidelines. The regulatory review committees and advisory groups
in the US, Europe and elsewhere, and any new guidelines they promulgate, may lengthen the regulatory review process, require
us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or
restrictions. Within the FDA, the Center for Biologics Evaluation and Research (CBER) regulates gene therapy products.
Within CBER, the review of gene therapy and related products is consolidated in the Office of Therapeutic Products, and the
FDA has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its reviews. CBER
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works closely with the National Institutes of Health (the NIH) to accelerate the development of gene therapy. The FDA has
published guidance documents with respect to the development and approval of gene therapy products. For example, in January
2020, the FDA issued final guidance documents that updated draft guidance documents that were originally released in July
2018 to reflect recent advances in the field, and to set forth the framework for the development, review and approval of gene
therapies. These final guidance documents pertain to the development of gene therapies for the treatment of specific disease
categories, including rare diseases, and to manufacturing and long-term follow-up issues relevant to gene therapy, among other
topics. The FDA also issued a final guidance document in September 2021 describing the FDA’s approach for determining
whether two gene therapy products are the same or different for the purpose of orphan-drug designation and orphan-drug
exclusivity. In addition, the FDA can put an IND for a gene therapy study on clinical hold for several reasons, including if the
information in an IND is not sufficient to assess the risks in study subjects.
As we advance gene therapy product candidates, we will be required to consult with these regulatory and advisory
groups, and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of
certain of our product candidates. These additional processes may result in a review and approval process that is longer than we
otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary
to bring a potential product to market could decrease our ability to generate product revenue.
Due to these factors, it is more difficult for us to predict the time and cost of gene therapy product candidate
development, and we cannot predict whether the application of our approach to gene therapy, or any similar or competitive
programs, will result in the identification, development and regulatory approval of any product candidates, or that the gene
therapy programs of our competitors will not be considered better or more attractive. There can be no assurance that any
development problems we experience in the future related to gene therapy product candidates will not cause significant delays
or unanticipated costs, or that such development problems can be solved. We may also experience delays and challenges in
achieving sustainable, reproducible and scalable production. Any of these factors may prevent us from completing our
preclinical studies or clinical trials or commercializing any gene therapy product candidates we may develop on a timely or
profitable basis, if at all.
We will need to secure regulatory approval in each market for Lamira as a delivery system for ARIKAYCE. Any failures to
secure separate regulatory approvals for Lamira as a delivery system will limit our ability to successfully commercialize
ARIKAYCE. Additionally, we plan to submit an NDA for TPIP as a drug/device combination product or as a stand-alone
marketing application, as dictated by local regulations. Failure to obtain or maintain regulatory approval or clearance of
our product devices could materially harm our business.
Lamira must receive separate regulatory approval or clearance in connection with each approved product or product
candidate it will be used to administer. The FDA granted accelerated approval of Lamira with ARIKAYCE as part of the
approval of the drug/device combination product, and Lamira is CE marked by PARI in Europe and authorized for use by
MHLW in Japan. However, outside the US, Europe and Japan, Lamira is labeled as investigational for use in our clinical trials,
including in Canada and Australia, and is not approved for commercial use in Canada or certain other markets in which we may
seek to commercialize ARIKAYCE in the future.
In addition, we plan to submit a marketing application for TPIP as a drug/device combination product or as a stand-
alone application, as dictated by local regulations, and we will need to seek additional approvals in connection with the delivery
device for TPIP in certain markets before we can market and commercialize TPIP in them.
We will continue to work closely with PARI to coordinate efforts regarding regulatory requirements, including our
proposed filings. If we and PARI are not successful in obtaining approval for each usage of Lamira in each market, our ability
to commercialize ARIKAYCE in those markets would be materially impaired. In addition, failure to maintain regulatory
approval or clearance of Lamira could result in increased development costs, withdrawal of regulatory approval, delays or other
material harm our business. Finally, failure to obtain regulatory approval or clearance of the delivery device for TPIP would
affect our ability to develop and commercialize TPIP.
Risks Related to Our Reliance on Third Parties
We rely on third parties including collaborators, CROs, clinical and analytical laboratories, CMOs and other providers for
many services that are critical to our business. If we are unable to form and sustain these relationships, or if any third-party
arrangements that we may enter into are unsuccessful, including due to non-compliance by such third parties with our
agreements or applicable law, our ability to develop and commercialize our products may be materially adversely affected.
We currently rely, and expect to continue to rely, on third parties for significant research, analytical services,
preclinical development, clinical development and manufacturing of our product candidates and commercial scale
manufacturing of ARIKAYCE and Lamira. For example, we do not own facilities for clinical-scale or commercial
manufacturing of our product candidates, and we expect that our future supply requirements for brensocatib and TPIP will be
manufactured by CMOs. We currently rely on Resilience to provide our clinical and commercial supply of ARIKAYCE, and
intend to rely on Patheon in the future. We currently primarily rely on Esteve Pharmaceuticals, S.A. (Esteve) and Thermo
Fisher to provide our clinical supply for brensocatib. Additionally, almost all of our clinical trial work is done by CROs, such as
PPD, our CRO for the ARISE, ENCORE and ASPEN trials, and clinical laboratories. In addition, we rely on third parties to
manufacture clinical materials for our early-stage research programs, Reliance on these third parties poses a number of risks,
including the following:
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The diversion of management time and cost of third-party advisers associated with the negotiation, documentation and
implementation of agreements with third parties in the pharmaceutical industry;
The inability to control whether third parties devote sufficient resources to our programs or products, including with
respect to meeting contractual deadlines;
The inability to control the regulatory and contractual compliance of third parties, including their quality systems,
processes and procedures, systems utilized to collect and analyze data, and equipment used to test drug product and/or
clinical supplies;
The inability to establish and implement collaborations or other alternative arrangements on favorable terms;
Disputes with third parties, including CROs, leading to loss of intellectual property rights, delay or termination of
research, development, or commercialization of product candidates or litigation or arbitration;
Contracts with our collaborators fail to provide sufficient protection of our intellectual property; and
Difficulty enforcing our contractual rights if one of these third parties fails to perform.
We also rely on third parties to select and enter into agreements with clinical investigators to conduct clinical trials to
support approval of our product candidates, and the failure of these third parties to appropriately carry out such evaluation and
selection can adversely affect the quality of the data from these studies and, potentially, the approval of our products. In
particular, as part of future drug approval submissions to the FDA, we must disclose certain financial interests of investigators
who participated in any of the clinical studies being submitted in support of approval, or must certify to the absence of such
financial interests. The FDA evaluates the information contained in such disclosures to determine whether disclosed interests
may have an impact on the reliability of a study. If the FDA determines that financial interests of any clinical investigator raise
serious questions of data integrity, the FDA can institute a data audit, request that we submit further data analyses, conduct
additional independent studies to confirm the results of the questioned study, or refuse to use the data from the questioned study
as a basis for approval. A finding by the FDA that a financial relationship of an investigator raises serious questions of data
integrity could delay or otherwise adversely affect approval of our products.
These risks could materially harm our business, financial condition, results of operations and prospects and the value
of our common stock.
We may not have, or may be unable to obtain, sufficient quantities of ARIKAYCE, Lamira or our product candidates to meet
our required supply for commercialization or clinical studies, which would materially harm our business.
We do not have any in-house manufacturing capability other than for small-scale preclinical development programs
and depend completely on a small number of third-party manufacturers and suppliers for the manufacture of our product
candidates on a clinical or commercial scale. For instance, we are and expect to remain dependent upon Resilience and
eventually Patheon to supply ARIKAYCE both for our clinical trials and commercial sale. Resilience manufactures placebo for
our clinical trials and our current supply of ARIKAYCE. If approved, we expect Patheon to significantly increase our
ARIKAYCE manufacturing capacity. However, we may not be able to maintain adequate quantities to meet future demand,
including as a result of manufacturing and/or quality issues experienced by our third party manufacturers or higher customer
demands than expected. As additional supporting data become available, we believe the current approved shelf life for product
manufactured at our CMOs will increase. If we encounter delays or difficulties in the manufacturing process that disrupt our
ability to supply our distributors and others with ARIKAYCE or our product candidates, we may experience product stock-outs,
which would likely have a material adverse effect on our business and reputation.
In addition, we have entered into certain agreements with Patheon related to increasing our long-term production
capacity for ARIKAYCE commercial inventory, although Patheon’s supply obligations will commence only after certain
technology transfer and construction services are completed. Any delay in the commencement of Patheon’s supply obligations,
whether due to delays in technology transfer and construction or from adding Patheon to our NDA as a CMO, would increase
the risks associated with Resilience being unable to provide us with an adequate supply of ARIKAYCE.
We are also dependent upon PARI being able to provide an adequate supply of nebulizers for commercial sale of
ARIKAYCE, any ongoing clinical trials, and future commercial sales of our product candidates that use Lamira as their
delivery mechanism, as PARI is the sole manufacturer of Lamira. We have no alternative supplier for the nebulizer, and
because significant effort and time were expended in the optimization of the nebulizer for use with ARIKAYCE, we do not
intend to seek an alternative or secondary supplier. In the event PARI cannot provide us with sufficient quantities of the
nebulizer, replication of the optimized device by another party would likely require considerable time and additional regulatory
approval. In the case of certain specified supply failures, we have the right under our commercialization agreement with PARI
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to make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to
compete with PARI.
We also anticipate that we will be reliant on CMOs to manufacture supply of brensocatib and TPIP for our future
requirements. Esteve and Thermo Fisher manufacture our current supply of brensocatib. We plan to enter into commercial
agreements with CMOs for brensocatib and TPIP, and cannot guarantee that we will be able to locate adequate partners or enter
into favorable agreements with them.
We are in the process of developing in-house clinical manufacturing capability for our gene therapy product
candidates, but we expect to rely on third party CMOs for manufacturing of all testing materials until at least 2023. Products
intended for use in gene therapies are novel, complex and difficult to manufacture. As we shift towards in-house clinical
manufacturing capability for our gene therapy product candidates, we may encounter delays in obtaining regulatory approval of
our manufacturing processes or in complying with ongoing manufacturing regulatory requirements and applicable cGMP,
including challenges related to producing adequate quantities of clinical grade materials that meet FDA, EMA, MHLW or other
applicable standards or specifications with consistent and acceptable production yields and costs.
We do not have long-term commercial agreements with all of our suppliers and if any of our suppliers are unable or
unwilling to perform for any reason, we may not be able to locate suppliers or enter into favorable agreements with them.
An inadequate supply of ARIKAYCE, Lamira, brensocatib or our other product candidates would likely harm our
commercial efforts or delay or impair clinical trials of ARIKAYCE or our product candidates and adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
The manufacturing facilities of our third-party manufacturers are subject to significant government regulations and
approvals, which are often costly and could result in adverse consequences to our business if we and our manufacturing
partners fail to comply with the regulations or maintain the approvals.
Manufacturers of ARIKAYCE, Lamira and our product candidates are subject to cGMP, Quality System Regulations
and similar standards. While we have policies and procedures in place to select third-party manufacturers for our product and
product candidates that adhere, and monitor their adherence to, such standards, they may nonetheless fail to do so. Similarly,
while we have entered into a Commercialization Agreement with PARI for the manufacture of Lamira for use with
ARIKAYCE, PARI may fail to adhere to applicable standards. These manufacturers and their facilities will be subject to
periodic review and inspections by the FDA and other regulatory authorities following regulatory approval of our products, as
with ARIKAYCE. For instance, to monitor compliance with applicable regulations, the FDA routinely conducts inspections of
facilities and may identify potential deficiencies. The FDA issues what are referred to as “Form 483s” that set forth
observations and concerns identified during its inspections. Failure to satisfactorily address the concerns or potential
deficiencies identified in a Form 483 could result in the issuance of a warning letter, which is a notice of the issues that the
FDA believes to be significant regulatory violations requiring prompt corrective actions. Failure to respond adequately to a
warning letter, or to otherwise fail to comply with applicable regulatory requirements could result in enforcement, remedial and/
or punitive actions by the FDA or other regulatory authorities.
If one of these manufacturers fails to maintain compliance with regulatory requirements or experiences supply
problems, including in the scale-up of commercial production, the production of ARIKAYCE, Lamira, brensocatib and our
other product candidates could be interrupted, resulting in delays, additional costs or restrictions on the marketing or sale of our
products. An alternative manufacturer would need to be qualified, through regulatory filings, which could result in further
delay. The regulatory authorities may also require additional testing if a new manufacturer is relied upon for commercial
production. In addition, with respect to our product candidates, our manufacturers and their facilities are subject to pre-approval
cGMP inspection by the FDA and other regulatory authorities, and the findings of the cGMP inspection could result in a failure
to obtain, or a delay in obtaining, regulatory approval for future product candidates.
Risks Related to the Operation of our Business
We are dependent upon retaining and attracting key personnel, the loss of whose services could materially adversely affect
our business, financial condition, results of operations and prospects and the value of our common stock.
We depend heavily on our management team and our principal clinical and commercial personnel, the loss of whose
services might significantly delay or prevent the achievement of our research, development or commercialization objectives.
Our success depends, in large part, on our ability to attract and retain qualified management, clinical and commercial personnel,
including those who join us through our business development activities, and on our ability to develop and maintain important
relationships with commercial partners, leading research institutions and key distributors.
Competition for skilled personnel in our industry and market is intense because of the numerous pharmaceutical and
biotechnology companies that seek similar personnel. These companies may have greater financial and other resources, offer a
greater opportunity for career advancement and have a longer history in the industry than we do. We also experience
competition for the hiring of our clinical and commercial personnel from universities, research institutions, and other third
parties. We cannot assure that we will attract and retain such persons or maintain such relationships. Our inability to retain and
attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the
value of our common stock.
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter
difficulties in managing our growth, which could disrupt our operations.
In connection with our commercialization of ARIKAYCE in the US, Europe and Japan, our continued international
expansion efforts, and our ongoing development and planned commercialization of brensocatib, TPIP and other product
candidates, we expect to continue to experience significant growth in the number of our employees and the scope of our
operations, particularly in the areas of drug development, regulatory affairs, quality, commercial compliance, medical affairs,
and sales and marketing. For example, we plan to continue to hire additional personnel to support ARIKAYCE, the continued
development and anticipated commercialization of brensocatib and the advancement of our other pipeline programs. To manage
our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems,
expand our facilities and continue to recruit and train additional qualified personnel. Due to the limited experience of our
management team in managing a company with this anticipated growth, we may not be able to effectively manage the
expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may
lead to significant costs and may divert our management and business development resources. We may not be able to
effectively manage the expansion of our operations, which could delay the execution of our business plans or disrupt our
operations.
Any acquisitions we make, or collaborative relationships we enter into, may not be clinically or commercially successful, and
may require financing or a significant amount of cash, which could adversely affect our business.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies,
capabilities and personnel. For example, we acquired Motus and AlgaeneX in August 2021 and Vertuis in January 2023, each a
privately-held, preclinical stage company. Acquisitions involve a number of operational risks, including:
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Failure to achieve expected synergies;
The possibility that our acquired technologies, products and product candidates may not be commercially successful;
Difficulty and expense of assimilating the operations, technology and personnel of any acquired business;
The inability to retain the management, key personnel and other employees of any acquired business;
The inability to maintain any acquired company’s relationship with key third parties, such as alliance partners;
Exposure to legal claims or other liabilities for activities of any acquired business prior to acquisition;
Diversion of our management’s attention from our core business; and
Potential impairment of intangible assets, adversely affecting our reported results of operations and financial condition.
We also may enter into collaborative relationships that would involve our collaborators conducting proprietary
development programs. Disagreements with collaborators may develop over the rights to our intellectual property, and any
conflict with our collaborators could limit our ability to obtain future collaboration agreements and negatively influence our
relationship with existing collaborators.
If we make one or more significant acquisitions or enter into a significant collaboration in which the consideration
includes cash, we may be required to use a substantial portion of our available cash and/or need to raise additional capital,
which could adversely affect our financial condition.
We may be subject to product liability claims, and we have only limited product liability insurance.
The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims,
particularly as we now commercialize ARIKAYCE in the US, Europe and Japan. Regardless of merit or eventual outcome,
liability claims may result in:
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Decreased demand for ARIKAYCE and any other products that we may commercialize, and a corresponding loss of
revenue;
Substantial monetary awards to patients or trial participants;
Significant time and costs to defend the related litigation;
• Withdrawal or reduced enrollment of clinical trial participants; and
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Reputational harm and significant negative media attention.
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
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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 and may materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
Our business and operations, including our drug development and commercialization programs, could be materially
disrupted in the event of system failures, security breaches, cyber-attacks, deficiencies in cybersecurity, violations of data
protection laws or data loss or damage by us or third parties.
We are dependent upon information technology systems, infrastructure, and data to operate our business. In the
ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of our suppliers, as well as personally identifiable information of clinical trial participants and employees.
Despite the implementation of security measures, our internal computer systems and those of our CROs, CMOs and other
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,
war and telecommunication and electrical failures. Such an event could have a material adverse effect on our business
operations, including a material disruption of our drug development and commercialization programs.
It is critical that we maintain such confidential information in a manner that preserves its confidentiality and integrity.
Unauthorized disclosure of sensitive or confidential patient or employee data, including personally identifiable information,
whether through breach of computer systems, systems failure, employee negligence, fraud or misappropriation, or otherwise, or
unauthorized access to or through our information systems and networks, whether by our employees or third parties, could
result in negative publicity, legal liability and damage to our reputation. Unauthorized disclosure of personally identifiable
information could also expose us to sanctions for violations of data privacy laws and regulations around the world. In addition,
the loss of clinical trial data for our product candidates could result in delays in our regulatory submission and approval efforts
and significantly increase our costs to recover or reproduce the data, if possible. To the extent that any disruption or security
breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and the further development of our product candidates could be delayed. For example, the
loss of or damage to clinical trial data, such as from completed or ongoing clinical trials, for any of our product candidates
could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
Likewise, we rely on third parties for the manufacture of our drug candidates or any future drug candidates and to conduct
clinical trials, and similar events relating to their systems and operations could also have a material adverse effect on our
business and lead to regulatory agency actions.
We have previously been, and expect to remain, the target of cyber-attacks. We may not be able to anticipate all types
of security threats, and we may not be able to implement preventive measures effective against all such security threats. The
techniques used by cyber criminals change frequently, may not be recognized until launched, and can originate from a wide
variety of sources, including outside groups such as external service providers, organized crime affiliates, terrorist
organizations, or hostile foreign governments or agencies. Notifications and follow-up actions related to a security incident
could impact our reputation or cause us to incur substantial costs, including legal and remediation costs, in connection with
these measures and otherwise in connection with any actual or suspected security breach. Although we have general liability
insurance coverage, including coverage for errors and omissions and potential cyber security breaches, our insurance may not
cover all claims, continue to be available on reasonable terms or be sufficient in amount to cover one or more large claims;
additionally, the insurer may disclaim coverage as to any claim. The successful assertion of one or more large claims against us
that exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial
condition, results of operations and prospects and the value of our common stock.
Risks generally associated with the upgrade of our enterprise resource planning (ERP) system may materially adversely
affect our business, financial condition, results of operations and prospects and the value of our common stock or the
effectiveness of our internal controls over financial reporting.
We upgraded our company-wide ERP system in the third quarter of 2022, in order to enhance certain business and
financial operations and processes and increase data security. If the upgrade to our ERP system does not enhance our business
and financial operations or increase our data security as we expect, our business could be adversely affected. The upgrade to our
ERP system has required and will continue to require capital and human resources, changes to our business processes and the
attention of many of our employees. Any deficiencies in the design and implementation of the upgraded ERP system could
result in potentially significantly more expenses than already incurred and could adversely affect our ability to operate our
business, including our ability to manage our inventory, maintain a secure data environment, file timely reports with the SEC,
or otherwise affect our controls. Any of these consequences could materially adversely affect our business, financial condition,
results of operations and prospects and the value of our common stock or the effectiveness of our internal controls over
financial reporting.
We have limited experience operating internationally, are subject to a number of risks associated with our international
activities and operations and may not be successful in our efforts to expand internationally.
We currently have limited operations outside of the US. As of December 31, 2022, we had 85 employees located in
Europe and 72 employees located in Japan, although we have clinical trial sites and suppliers located around the world. In order
to meet our long-term goals, we expect to grow our international operations over the next several years, including in Europe and
Japan, and continue to source material used in the manufacture of our product candidates from abroad. Consequently, we are
and will continue to be subject to risks related to operating in foreign countries, including:
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Limited experience with international regulatory requirements;
An inability to achieve optimal pricing and reimbursement for ARIKAYCE, if approved in another jurisdiction, or
subsequent changes in reimbursement, pricing and other regulatory requirements;
Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the US or other
countries in which we, or our third-party partners, operate;
Unexpected AEs related to ARIKAYCE or our product candidates occurring in foreign markets that we have not
experienced in the US, Europe or Japan;
Scrutiny from customers, regulators, investors and other stakeholders related to environmental, health and safety,
diversity, labor conditions, human rights and other concerns in the countries in which we, or our third-party partners,
operate;
Economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency
fluctuations and inflation, which could result in disruption to our international operations, including planned or
ongoing clinical studies, reduced revenue, increased or unpredictable operating expenses and other obligations incident
to doing business in, or with a company located in, another country; and
Compliance with foreign or US laws, rules and regulations, including data privacy requirements, labor relations laws,
tax laws, anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws,
regulations or rules, which could lead to actions by us or our distributors, manufacturers, other third parties who act on
our behalf or with whom we do business in foreign countries or our employees who are working abroad that could
subject us to investigation or prosecution under such foreign or US laws.
These and other risks associated with our international operations may materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
We operate in a highly competitive and changing environment, and if we are unable to adapt to our environment, we may be
unable to compete successfully.
Biotechnology and related pharmaceutical technology have undergone and are likely to continue to experience rapid
and significant change. Our future success will depend in large part on our ability to maintain a competitive position with
respect to these technologies and to obtain and maintain protection for our intellectual property. Compounds, products or
processes that we develop may become obsolete before we recover any expenses incurred in connection with their
development. We face substantial competition from pharmaceutical, biotechnology and other companies, universities and
research institutions with respect to NTM lung disease, bronchiectasis, PAH and PH-ILD, and will face substantial competition
with respect to future product candidates we may develop. Relative to us, most of these entities have substantially greater
capital resources, research and development staffs, facilities and experience in conducting clinical studies, obtaining regulatory
approvals, and manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product
commercialization or obtain patent protection earlier than us. Furthermore, we believe that our competitors have used, and may
continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or approaches
to develop products similar to ARIKAYCE and our product candidates.
We expect that competing successfully will depend on, among other things, 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, as well as product efficacy, safety, reliability, availability, timing and scope of regulatory approval and
price. We expect competition to increase as technological advances are made and commercial applications broaden. There are
potential competitive products, both approved and in development, which include oral, systemic, or inhaled antibiotic products
to treat chronic respiratory infections. For instance, certain entities have expressed interest in studying their products for lung
disease and are seeking to advance studies in lung disease, including NTM lung disease caused by mycobacterial species other
than MAC. We are not aware of any entities currently conducting clinical trials for the treatment of refractory MAC lung
disease or of any other approved inhaled therapies specifically indicated for NTM lung disease in North America, Europe or
Japan. If any of our competitors develops a product that is more effective, safe, tolerable or convenient, or less expensive than
ARIKAYCE or our product candidates, it would likely materially adversely affect our ability to generate revenue. We also may
face lower priced generic competitors if third-party payors encourage use of generic or lower-priced versions of our product or
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if competing products are imported into the US or other countries where we may sell ARIKAYCE. In addition, in an effort to
put downward pressure on drug pricing, Congress and the FDA are working to facilitate generic competition, which could result
in our experiencing competition earlier than otherwise would be the case.
supply chain, if we encounter delays or difficulties in the manufacturing process that disrupt our ability to supply ARIKAYCE,
we may not be able to satisfy patient demand or we may experience a product stock-out, which would likely have a material
adverse effect on our business.
There are also other amikacin products that have been approved by the FDA, MHLW and other regulatory agencies for
The COVID-19 pandemic could also require us to delay the start of new clinical trials or otherwise impair our ability
use in other indications, and physicians may elect to prescribe those products rather than ARIKAYCE to treat the indications
for which ARIKAYCE has received approval, which is commonly referred to as off-label use. Although regulations prohibit a
drug company from promoting off-label use of its product, the FDA and other regulatory agencies do not regulate the practice
of medicine and cannot direct physicians as to what product to prescribe to their patients. As a result, we would have limited
ability to prevent any off-label use of a competitor’s product to treat diseases for which we have received FDA or other
regulatory agency approval, even if this use violates our patents or any statutory exclusivities that the FDA may grant for the
use of amikacin to treat such diseases. If we are unable to compete successfully, it will materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
We have a limited number of significant customers and losing any of them could have an adverse effect on our financial
condition and results of operations.
Our three largest customers as of December 31, 2022 accounted for 90% and 75% of our total gross product revenue
for the years ended December 31, 2022 and 2021, respectively. The degree to which a limited number of customers make up a
significant portion of our gross product revenue may change as we continue to commercialize ARIKAYCE and, if approved,
our product candidates in additional markets. There can be no guarantee that we will be able to sustain our accounts receivable
or gross sales levels from our key customers. If, for any reason, we were to lose, or experience a decrease in the amount of
business with our largest customers, whether directly or through our distributor relationships, our financial condition and results
of operations could be negatively affected.
Deterioration in general economic conditions in the United States, Europe, Japan and globally, including the effect of
prolonged periods of inflation on our suppliers, third-party service providers and potential partners, could harm our
business and results of operations.
Our business and results of operations could be adversely affected by changes in national or global economic
conditions. These conditions include but are not limited to inflation, rising interest rates, limited availability of financing,
energy availability and costs, the negative impacts caused by the COVID-19 pandemic and other public health crises, negative
impacts resulting from the military conflict between Russia and the Ukraine, relations between the US and China, and the
effects of governmental initiatives to manage economic conditions. Impacts of such conditions could be passed on to our
business in the form of higher costs for labor and materials, possible reductions in pharmaceutical industry-wide spending on
research and development and acquisitions and higher costs of capital.
The COVID-19 pandemic and efforts to reduce its spread have negatively impacted, and could continue to negatively impact,
our business and operations.
Our global operations expose us to risks associated with public health crises and pandemics, including COVID-19,
particularly as the patients we seek to treat suffer from serious and rare diseases that may make them especially vulnerable. The
degree to which COVID-19 affects us will depend on developments that are highly uncertain and beyond our knowledge or
control, including, but not limited to, the duration and severity of the pandemic, the actions taken to reduce its transmission, and
the speed with which and the extent to which normal economic and operating conditions resume.
We are committed to the safety and well-being of our workforce. Our employees (other than our laboratory personnel)
have been provided a flexible approach to where and how they work to enable them to more easily manage business and
personal responsibilities. We have enhanced our internal communications and touch points to ensure connectivity to our
workforce. We will continue to manage this situation with a focus on the safety of our employees, ARIKAYCE physicians,
caregivers and patients.
COVID-19 may also have an adverse impact on our operations and supply chain as a result of (i) our or our third-party
manufacturers’ employees or other key personnel becoming infected, (ii) preventive and precautionary measures that
governments and we and other businesses, including our third-party manufacturers, are taking, such as border closures,
prolonged quarantines and other travel restrictions, (iii) shortages of supplies necessary for the manufacture of ARIKAYCE,
including as a result of government orders providing for the requisition of personal protective equipment and other medical
supplies and equipment, and (iv) cold-chain storage and shipping limitations resulting from the need to prioritize delivery of
one or more COVID-19 vaccines, which could cause disruptions or delays in our ability to distribute ARIKAYCE due to lack
of sufficient cold-chain storage and shipping capacity. Any of these circumstances could impact the ability of third parties on
which we rely to manufacture ARIKAYCE or its components and our ability to perform critical functions, which could
significantly hamper our ability to supply ARIKAYCE to patients. While we have experienced no disruption to date in our
to complete those trials. For instance, our ability to enroll patients and retain principal investigators and site staff could be
impaired due to an outbreak in their geography or prioritization of hospital resources toward the outbreak, or as a result of
quarantines and other travel restrictions that interrupt healthcare services. Furthermore, patients, investigators, or site staff may
be unwilling or unable to comply with clinical trial protocols due to COVID-19 illness, concerns about the pandemic, or
quarantines or other travel restrictions that impede their movement. Additionally, any interruption in the supply of the study
drug might delay our ability to start or complete clinical trials. Significant delays in the timing and completion of our clinical
trials are costly and could adversely affect our ability to satisfy our post-marketing requirements for ARIKAYCE and to obtain
regulatory approval for and to commercialize our product candidates.
Risks Related to Our Intellectual Property
If we are unable to protect our intellectual property rights adequately, the value of ARIKAYCE and our product candidates
could be materially diminished.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves
complex legal, technical, scientific and factual questions, and our success depends in large part on our ability to protect our
proprietary technology and to obtain and maintain patent protection for our products, prevent third parties from infringing our
patents, both domestically and internationally. We have sought to protect our proprietary position by filing patent applications
in the US and abroad related to our novel technologies and products that are important to our business. This process is
expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and
development output before it is too late to obtain patent protection. Our existing patents and any future patents we obtain may
not be sufficiently broad to prevent others from using our technologies or from developing competing products and
technologies.
Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us
with any meaningful protection or otherwise provide us with any competitive advantage. Any conclusions we may reach
regarding non-infringement, inapplicability or invalidity of a third party’s intellectual property vis-à-vis our proprietary rights,
or those of a licensor, are based in significant 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 could render these conclusions inaccurate. Our
competitors may also be able to circumvent our owned or licensed patents by developing similar or alternative technologies or
products in a non-infringing manner.
Additionally, patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable
or circumvented through litigation, which could limit our ability to stop competitors from marketing similar products or reduce
the term of patent protection for amikacin liposome inhalation suspension or our product candidates. US patents and patent
applications may also be subject to interference or derivation proceedings, and US patents may be subject to re-examination
proceedings, reissue, post-grant review and/or inter partes review in the USPTO. Our foreign patents have been and may be in
the future subject to opposition or comparable proceedings in the corresponding foreign patent office, which could result in
either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the
patent or patent application. See Intellectual Property—ARIKAYCE Patents in Item 1 of Part I of this Annual Report on Form
10-K for more information on our European patents that have been previously opposed.
Changes in either patent laws or in interpretations of patent laws in the US and other countries may also diminish the
value of our intellectual property or narrow the scope of our patent protection, including making it easier for competitors to
challenge our patents. For example, the America Invents Act included a number of changes to established practices, including
the transition to a first-inventor-to-file system and new procedures for challenging patents and implementation of different
methods for invalidating patents.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of
ARIKAYCE and our product candidates could be materially diminished.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our
employees, consultants, advisors, collaborators, and other third parties and partners to protect our trade secrets and other
proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not
provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, third parties may
independently develop or discover our trade secrets and proprietary information. Regulators also may disclose information we
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consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such
disclosure under the Freedom of Information Act or comparable laws. Additionally, the FDA, as part of its Transparency
Initiative, continues to consider whether to make additional information publicly available on a routine basis, including
information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time
whether and how the FDA’s disclosure policies may change in the future.
We may not be able to enforce our intellectual property rights throughout the world, which could harm our business.
The legal systems of some foreign countries, particularly developing countries, do not favor the enforcement of patents
and other intellectual property protection, especially those relating to life sciences. Many companies have encountered
significant problems in protecting and defending intellectual property rights in such foreign jurisdictions. For example, certain
foreign countries have compulsory licensing laws under which a patent owner may be required to grant licenses to third parties.
In addition, many countries limit the enforceability of patents against third parties, including government agencies or
government contractors. In these countries, patents may provide limited or no benefit. This legal environment could make it
difficult for us to stop the infringement of our patents or in-licensed patents or the misappropriation of our other intellectual
property rights. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, and our efforts to protect our intellectual property rights in such
countries may be inadequate.
The drug research and development industry has a history of intellectual property litigation, and we could become involved
in costly intellectual property disputes, which could delay or impair our product development efforts or prevent us from, or
increase the cost of, commercializing ARIKAYCE or any other approved product candidate.
Third parties may claim that we have infringed upon or misappropriated their proprietary rights. Any existing third-
party patents, or patents that may later issue to third parties, could negatively affect our commercialization of ARIKAYCE,
brensocatib, TPIP, or any other product candidate that receives regulatory approval. For instance, PAH is a competitive
indication with established products, including other formulations of treprostinil. Our supply of the active pharmaceutical
ingredient for TPIP is dependent upon a single supplier. The supplier owns patents on its manufacturing process and crystalline
drug product, and we have filed patent applications for TPIP; however, a competitor in the PAH indication may claim that we
or our supplier have infringed upon or misappropriated its proprietary rights. Moreover, in the event that we pursue approval of
TPIP, or any other product candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification against
any unexpired patents listed in the Orange Book for the third-party drug we rely upon as part of our regulatory submission. This
certification process may lead to litigation and could also delay launch of a product candidate, if approved by regulators.
In the event of successful litigation or settlement of claims against us for infringement or misappropriation of a third
party’s proprietary rights, we may be required to take actions including but not limited to the following:
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Paying damages, including up to treble damages, royalties, and the other party’s attorneys’ fees, which may be
substantial;
Ceasing development, manufacture, marketing and sale of products or use of processes that infringe the proprietary
rights of others;
Expending 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, or may result in significant regulatory delays associated with conducting
additional clinical trials or other steps to obtain regulatory approval; and/or
Acquiring one or more licenses from third parties, which may not be available to us on acceptable terms or at all.
We may also have to undertake costly litigation or engage in other proceedings, such as interference or inter partes
review, to enforce or defend the validity of any patents issued or licensed to us, to confirm the scope and validity of our or a
licensor’s proprietary rights or to defend against allegations that we have infringed a third party’s intellectual property rights.
Any proceedings regarding our intellectual property rights are likely to be time consuming and may divert management
attention from operation of our business, and could have a material adverse effect on our business, financial condition, results of
operations and prospects and the value of our common stock.
Certain of the agreements to which we are, or may become, a party relating to ARIKAYCE and our product candidates
impose, or may in the future impose, restrictions on our business or other material obligations on us. If we fail to comply
with these obligations, our business could be adversely affected, including as a result of the loss of license rights that are
important to our business.
We are a party to various agreements related to ARIKAYCE and our product candidates, including licensing
agreements with PARI and AstraZeneca, which we view as material to our business. For additional information regarding the
terms of these agreements, see Business—License and Other Agreements in Item 1 of Part I of this Annual Report on Form 10-
K. These agreements impose a number of obligations on us and our business, including restrictions on our ability to freely
develop or commercialize our product candidates and requirements to make milestone and royalty payments to our
counterparties upon certain events. Under our license agreement with AstraZeneca, AstraZeneca retains a right of first
negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a third party regarding any
transaction to develop or commercialize brensocatib, subject to certain exceptions. While this right of first negotiation is not
triggered by a change of control, it may impede or delay our ability to consummate certain other transactions involving
brensocatib.
If we fail to comply with our obligations under these agreements, our counterparties may have the right to take action
against us, up to and including termination of a relevant license. For instance, under our licensing agreement with PARI, with
respect to NTM lung disease and bronchiectasis, we have specific obligations to use commercially reasonable efforts to achieve
certain developmental and regulatory milestones by set deadlines. Additionally, for NTM lung disease, we are obligated to use
commercially reasonable efforts to achieve certain commercial milestones in Europe. The consequences of our failing to use
commercially reasonable efforts to achieve certain commercial milestones are context-specific, but include ending PARI’s non-
compete obligation, making the license non-exclusive and terminating the license, in each case with respect to the applicable
indication. Similarly, under our license agreement with AstraZeneca, AstraZeneca may terminate our license to brensocatib if
we fail to use commercially reasonable efforts to develop and commercialize a product based on brensocatib, or we are subject
to a bankruptcy or insolvency. Reduction or elimination of our licensed rights may result in our having to negotiate new or
reinstated licenses with less favorable terms and may materially harm our business.
Finally, if we do not proceed with the development of our ARIKAYCE program in the NTM lung disease or CF
indications, certain of our contract counterparties may elect to proceed with the development of these indications.
Risks Related to Government Regulation
Government healthcare reform could materially increase our costs, which could materially adversely affect our business,
financial condition, results of operations and prospects and the value of our common stock.
Our industry is highly regulated and changes in or revisions to laws and regulations that make gaining regulatory
approval, reimbursement and pricing more difficult or subject to different criteria and standards may adversely impact our
business, operations or financial results.
There have been a number of legal challenges and certain changes to the ACA since it was enacted. On January 28,
2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through May 15,
2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed
certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare,
including, among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements,
and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.
Further, on February 10, 2021, the Biden Administration withdrew the federal government’s support for overturning the ACA.
It is unclear how the Supreme Court ruling, other such litigation and the healthcare reform measures of the Biden
Administration will impact the ACA. It is difficult to predict the future legislative landscape in healthcare and the effect on our
business, results of operations, financial condition and prospects. The Biden Administration has also indicated that lowering
prescription drug prices is a priority, and the IRA was signed into law on August 16, 2022. See Reimbursement of
Pharmaceutical Products in Item 1 of Part I of this Annual Report on Form 10-K for more information. Changes to the ACA, to
the Medicare or Medicaid programs, or to the ability of the federal government to negotiate or otherwise affect drug prices, or
other federal legislation regarding healthcare access, financing or legislation in individual states, could affect our business,
financial condition, results of operations and prospects and the value of our common stock. We may face similar challenges to
gaining regulatory approval and sufficient reimbursement and pricing due to government healthcare reform in the EU, Japan
and other jurisdictions where ARIKAYCE or any of our other product candidates are approved. It remains unclear how any new
legislation or regulation might affect the prices we may obtain for ARIKAYCE or any of our product candidates for which
regulatory approval is obtained.
If we are found in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty or may be
suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial
condition, results of operations and prospects and the value of our common stock.
In the US, we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws,
false claims laws and other laws intended to reduce fraud and abuse in federal and state healthcare programs. Although we seek
to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is
often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our
practices may be challenged under these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil
sanctions, including fines or exclusion or suspension from federal and state healthcare programs such as Medicare and
Medicaid and debarment from contracting with the US government, and our business, financial condition, results of operations
and prospects and the value of our common stock may be adversely affected. Our reputation could also suffer. In addition,
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private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as
under the false claims laws of several states.
We have a history of operating losses, expect to incur operating losses for the foreseeable future and may never achieve or
maintain profitability.
Under the ACA, we are required to report information on payments or transfers of value to US physicians and teaching
hospitals, which is posted in searchable form on a public website. Failure to submit required information may result in civil
monetary penalties.
Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or
price disclosures to the state. In addition to the federal government, some states, as well as other countries, including France,
require the disclosure of certain payments to healthcare professionals. The federal privacy regulations under the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), state, and foreign medical record privacy laws may limit access
to information identifying those individuals who may be prospective users. There are ambiguities as to what is required to
comply with these requirements, and we could be subject to penalties if it is determined that we have failed to comply with an
applicable legal requirement.
We are subject to anti-corruption laws and trade control laws, as well as other laws governing our operations. If we fail to
comply with these laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and
legal expenses, which could adversely affect our business, financial condition, results of operations and prospects and the
value of our common stock.
Our operations are subject to anti-corruption laws, including the US Foreign Corrupt Practices Act (FCPA), the UK
Bribery Act and other anti-corruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and these
other laws generally prohibit us, our employees and our intermediaries from making prohibited payments to government
officials or other persons to obtain or retain business or gain some other business advantage. We have conducted various
studies at a broad range of trial sites around the world. Certain of these jurisdictions pose a risk of potential FCPA violations,
and we have relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-
corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our
international operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations
administered by the US Department of Commerce’s Bureau of Industry and Security, the US Department of Treasury’s Office
of Foreign Assets Control, and various non-US government entities, including applicable export control regulations, economic
sanctions on countries and persons, customs requirements, currency exchange regulations and transfer pricing regulations
(collectively, Trade Control laws).
We may not be effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or
other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA and other anti-corruption
laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial
measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations
and prospects and the value of our common stock. Likewise, even an investigation by US or foreign authorities of potential
violations of the FCPA other anti-corruption laws or Trade Control laws could have an adverse impact on our reputation,
business, financial condition, results of operations and prospects and the value of our common stock.
Our research, development and manufacturing activities used in the production of ARIKAYCE and our product candidates
involve the use of hazardous materials, which could expose us to damages, fines, penalties and sanctions and materially
adversely affect our results of operations and financial condition.
We are subject to numerous environmental, health and safety laws and regulations, including those governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research
and development program and manufacturing activities for ARIKAYCE and our product candidates involve the controlled use
of hazardous materials and chemicals. We generally contract with third parties for the disposal of these materials and wastes.
Although we strive to comply with all pertinent regulations, the risk of environmental contamination, damage to
facilities or injury to personnel from the accidental or improper use or control of these materials remains. In addition to any
liability we could have for any misuse by us of hazardous materials and chemicals, we could also potentially be liable for
activities of our CMOs or other third parties. Any such liability, or even allegations of such liability, could materially adversely
affect our results of operations and financial condition. We also could incur significant costs as a result of civil or criminal fines
and penalties.
In addition, we may incur substantial costs to comply with current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to
comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to Our Financial Condition and Need for Additional Capital
We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility
and certain other assets to Merck & Co, Inc. As of December 31, 2022, our accumulated deficit was $2.7 billion. For the years
ended December 31, 2022, 2021 and 2020, our consolidated net loss was $481.5 million, $434.7 million and $294.1 million,
respectively. Our ability to generate revenue depends on the success of commercial sales of ARIKAYCE; however, we do not
anticipate our revenue from the sale of ARIKAYCE will be sufficient for us to become profitable without reductions in our
operating expenses. Despite our commercialization of ARIKAYCE in the US, Europe and Japan, we expect to continue to incur
substantial operating expenses, and resulting operating losses, for the foreseeable future as we:
Initiate or continue clinical studies of our product candidates, including our Phase 3 ASPEN trial;
Complete a post-marketing clinical trial of ARIKAYCE, consisting of the ARISE and ENCORE trials, as required by
the FDA;
Seek to discover or in-license additional product candidates;
Support the sales and marketing efforts necessary for the continued commercialization of ARIKAYCE;
Scale-up manufacturing capabilities for future ARIKAYCE production, including the increase of production capacity
at Patheon and process improvements in order to manufacture at a larger commercial scale;
Seek the approval and potential commercial launch of brensocatib in the US and other markets;
Seek the approval and potential commercial launch of TPIP and other product candidates in various markets;
File, prosecute, defend, and enforce patent claims related to ARIKAYCE, brensocatib, TPIP and our other product
candidates; and
Enhance operational, compliance, financial, quality and information management systems and hire more personnel,
including personnel to support our commercialization efforts and development of our product candidates.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
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We may need to raise additional funds to continue our operations, but we face uncertainties with respect to our ability to
access capital.
Our operations have consumed substantial amounts of cash since our inception. We expect to expend substantial
financial resources to commercialize ARIKAYCE, fund the Phase 3 ASPEN trial and the confirmatory post-marketing ARISE
and ENCORE trials, seek full regulatory approval for ARIKAYCE as well as continue research and development of brensocatib
and TPIP, as well as our future product candidates, and fund pre-commercialization activities for brensocatib. We may need to
raise additional capital to fund these activities, including due to changes in our product development plans or misjudgment of
expected costs, to fund corporate development, to maintain our intellectual property portfolio or for other purposes, including to
resolve litigation. Our operating expenses and long-term investments were significantly higher in 2022 than in 2021, reflecting
our continued investment in the build-out of our commercial organization to support global expansion activities for
ARIKAYCE and manufacture of commercial inventory, which includes capital and long-term investments, and continued
investment in research and development as well as selling, general and administrative expenses. We do not know whether
additional financing will be available when needed, or, if available, whether the terms will be favorable. If adequate funds are
not available to us when needed, we may be forced to delay, restrict or eliminate all or a portion of our development programs
or commercialization efforts.
We have outstanding indebtedness in the form of convertible senior notes, a term loan and a royalty financing arrangement
and may incur additional indebtedness in the future, which could adversely affect our financial position, prevent us from
implementing our strategy, and dilute the ownership interest of our existing shareholders.
In October 2022, we entered into a loan agreement (the Loan Agreement) with certain funds managed by Pharmakon
Advisors, LP (Pharmakon) and a revenue interest purchase agreement (the Royalty Financing Agreement) with OrbiMed
Royalty & Credit Opportunities IV, LP (OrbiMed).
The Loan Agreement provides for a $350 million senior secured term loan (the Term Loan) that matures on October
19, 2027. The Term Loan bears interest at a rate based upon the secured overnight financing rate (SOFR), subject to a SOFR
floor of 2.5%, in addition to a margin of 7.75% per annum. Up to 50% of the interest payable during the first 24 months from
the closing of the Term Loan may be paid-in-kind at our election. If elected, paid-in-kind interest will be capitalized and added
to the principal amount of the Term Loan. The Term Loan will be repaid in eight equal quarterly payments starting in the 13th
quarter following the closing of the Term Loan, except that the repayment start date may be extended at our option for an
additional four quarters, so that repayments start in the 17th quarter following the closing of the Term Loan, subject to the
achievement of specified ARIKAYCE data thresholds and certain other conditions.
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Under the Royalty Financing Agreement, OrbiMed paid us $150 million in exchange for the right to receive, on a
quarterly basis, royalties (the Royalty Financing) in an amount equal to 4% of ARIKAYCE global net sales prior to September
1, 2025 and 4.5% of ARIKAYCE global net sales on or after September 1, 2025, as well as 0.75% of brensocatib global net
sales, if approved (the Revenue Interest Payments). In the event that OrbiMed has not received aggregate Revenue Interest
Payments equal to or greater than $150 million on or prior to March 31, 2028, the royalty rate for ARIKAYCE will be
increased for all subsequent fiscal quarters to a rate which, if applied retroactively, would have resulted in aggregate Revenue
Interest Payments to OrbiMed for all fiscal quarters ended on or prior to March 31, 2028 equal to $150 million. In addition, we
must make a one-time payment to OrbiMed in an amount that, when added to the aggregate amount of Revenue Interest
Payments received by OrbiMed as of March 31, 2028, would equal $150 million. The total Revenue Interest Payments payable
by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of the purchase price under certain
conditions.
In May 2021, we completed an underwritten offering of 0.75% convertible senior notes due 2028 (the 2028
Convertible Notes). The 2028 Convertible Notes may be convertible into common stock at an initial conversion rate of 30.7692
shares of common stock per $1,000 principal amount of 2028 Convertible Notes. We sold $575.0 million aggregate principal
amount of the 2028 Convertible Notes, including the exercise in full of the underwriters’ option to purchase additional 2028
Convertible Notes, resulting in net proceeds of approximately $559.3 million. Holders of the 2028 Convertible Notes may
convert their 2028 Convertible Notes at their option at any time prior to the close of business on the business day immediately
preceding March 1, 2028 only under certain circumstances. On or after March 1, 2028 until the close of business on the second
scheduled trading day immediately preceding the maturity date, holders may convert their 2028 Convertible Notes at any time.
Upon conversion of the 2028 Convertible Notes, we may deliver cash, shares of our common stock or a combination of cash
and shares of our common stock, at our election.
In January 2018, we completed an underwritten public offering of 1.75% convertible senior notes due 2025 (the 2025
Convertible Notes, and, together with the 2028 Convertible Notes, the Convertible Notes). The 2025 Convertible Notes may be
convertible into common stock at an initial conversion rate of 25.5384 shares of common stock per $1,000 principal amount of
2025 Convertible Notes. We sold $450.0 million aggregate principal amount of the 2025 Convertible Notes, including the
exercise in full of the underwriters’ option to purchase additional 2025 Convertible Notes, resulting in net proceeds of
approximately $435.8 million. A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0
million of our outstanding 2025 Convertible Notes. Holders of the 2025 Convertible Notes may convert their 2025 Convertible
Notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2024
only under certain circumstances. On or after October 15, 2024 until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert their 2025 Convertible Notes at any time. Upon conversion of
the 2025 Convertible Notes, we may deliver cash, shares of our common stock or a combination of cash and shares of our
common stock, at our election.
Our debt service obligations and the degree to which we are leveraged could have negative consequences on our
business, such as the following:
• We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in
responding to changing economic conditions;
Our ability to obtain financing in the future may be limited;
•
• We may be required to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable terms,
to meet payment obligations;
• We may be placed at a possible competitive disadvantage with less leveraged competitors and competitors that may
•
have better access to capital resources;
A substantial portion of our cash flows from operations in the future may be required for the payment of our interest or
principal payments under the Loan Agreement, Revenue Interest Payments under the Royalty Financing Agreement
and the principal amounts of the Convertible Notes when they or any additional indebtedness become due, thereby
reducing the amount of our cash flow available for other purposes, including funds for clinical development or to
pursue future business opportunities; and
• We may elect to make cash payments upon conversion of the Convertible Notes, which would reduce our available
cash.
Our ability to pay principal or interest on or, if desired, to refinance our indebtedness, including the Loan Agreement,
the Royalty Financing Agreement and the Convertible Notes, depends on our future performance, which is subject to economic,
financial, competitive and other factors, some of which are beyond our control. Our business may not generate cash flow from
operations in the future sufficient to satisfy any obligations under the Loan Agreement, the Royalty Financing Agreement or the
Convertible Notes or our obligations under any future indebtedness we may incur. If we are unable to generate such cash flow,
we may be required to delay, restrict or eliminate all or a portion of our development programs or commercialization efforts or
refinance or obtain additional equity capital on terms that may be onerous or highly dilutive. If we do not meet our debt
obligations, it could materially adversely affect our results of operations, financial condition and the value of our common
stock.
The Loan Agreement and the Royalty Financing Agreement each contain customary affirmative and negative
covenants that restrict our operations, including, among other things, restrictions on our ability to incur liens, incur additional
indebtedness, make investments, engage in certain mergers and acquisitions or asset sales, and declare dividends or redeem or
repurchase capital stock. The Loan Agreement includes certain customary events of default. If a default occurs and is
continuing, we may be required to repay all amounts outstanding under the Loan Agreement. The Royalty Financing
Agreement gives OrbiMed the option (the Put Option) to terminate the Royalty Financing Agreement and to require us to
repurchase future Revenue Interest Payments upon enumerated events such as a bankruptcy event, a payment default, an
uncured material breach or a change of control. The triggering of the Put Option, including by our failure to comply with these
covenants, could permit OrbiMed to declare certain amounts to be immediately due and payable. Further, if we are liquidated,
Pharmakon’s and OrbiMed’s rights to repayment would be senior to the rights of the holders of our common stock. Any
triggering of the Put Option or other event of default under the Loan Agreement or Royalty Financing Agreement could
significantly harm our financial condition, business and prospects and could cause the price of our common stock to decline.
The accounting method for the Convertible Notes may have an adverse effect on our reported financial results.
Accounting guidance requires that we separately account for the liability and equity components of the Convertible
Notes because they may be settled entirely or partially in cash upon conversion in a manner that reflects our economic interest
cost. As a result, the equity component of the Convertible Notes is required to be included in the additional paid-in capital
section of shareholders’ equity on our consolidated balance sheet, and the value of the equity component is treated as original
issue discount for purposes of accounting for the debt component of the Convertible Notes. We may report greater net loss (or
lower net income) in our financial results because this guidance requires interest to include both the current period’s
amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future
financial results, the market price of our common stock and the trading prices of the Convertible Notes.
Holders may convert their 2028 Convertible Notes and 2025 Convertible Notes at their option at any time prior to the
close of business on the business day immediately preceding March 1, 2028 and October 15, 2024, respectively, only under
certain circumstances. For example, during any calendar quarter commencing after the calendar quarter ending on March 31,
2018, holders may convert their 2025 Convertible Notes at their option during any quarter (and only during such quarter) if the
last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30
consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to 130% of
the conversion price on each applicable trading day. If the 2028 Convertible Notes or 2025 Convertible Notes become
convertible prior to March 1, 2028 or October 15, 2024, respectively, we may be required to reclassify the Convertible Notes
and the related debt issuance costs as current liabilities and certain portions of our equity outside of equity to mezzanine equity,
which would have an adverse impact on our reported financial results for such quarter, and could have an adverse impact on the
market price of our common stock and the trading price of the Convertible Notes.
We may be unable to use certain of our net operating losses and other tax assets.
We have substantial tax loss carry forwards for US federal income tax and state income tax purposes, and beginning in
2015, we had tax loss carry forwards in Ireland as well. In general, our net operating losses and tax credits have been fully
offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. In particular, our ability
to fully use certain US tax loss carry forwards and general business tax credit carry forwards recorded prior to December 2010
to offset future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended. Changes
in the ownership of our stock, including those resulting from the issuance of shares of our common stock offerings or upon
exercise of outstanding options, may limit or eliminate our ability to use certain net operating losses and tax credit carry
forwards in the future.
Goodwill impairment charges in the future could have a material adverse effect on our business, results of operations and
financial condition.
We have recorded a significant amount of goodwill on our consolidated balance sheet as a result of acquisitions. We
review the recoverability of goodwill annually and whenever events or circumstances indicate that the carrying value of a
reporting unit may not be recoverable.
The impairment tests require us to make an estimate of the fair value of our reporting units. An impairment could be
recorded as a result of changes in assumptions, estimates or circumstances, some of which are beyond our control. Since a
number of factors may influence determinations of fair value of goodwill, we are unable to predict whether impairments of
goodwill will occur in the future, and there can be no assurance that continued conditions will not result in future impairments
of goodwill. The future occurrence of a potential indicator of impairment could include matters such as (i) a decrease in
expected net earnings, (ii) adverse equity market conditions, (iii) a decline in current market multiples, (iv) a decline in our
common stock price, (v) a significant adverse change in legal factors or the general business climate, and (vi) an adverse action
54
55
•
•
•
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.
The prohibition against 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 certain criteria are met.
In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of
equity awards upon a change in control, a severance plan for eligible full-time employees that provides such
employees with severance equal to six months of their then-current base salaries in connection with a termination of
employment without cause upon, or within 18 months following, a change in control.
We previously had a shareholder rights plan, or “poison pill,” which expired in May 2011. Under Virginia law, our
board of directors may implement a new shareholders’ rights plan without shareholder approval. Our board of directors intends
to regularly consider this matter, even in the absence of specific circumstances or takeover proposals, to facilitate its future
ability to quickly and effectively protect shareholder value.
or assessment by a regulator. Any such impairment would result in us recognizing a non-cash charge in our consolidated
balance sheets, which could adversely affect our business, results of operations and financial condition.
Risks Related to Ownership of Our Common Stock
Our shareholders may experience dilution of their ownership interests because of the future issuance of additional shares of
our common stock for general corporate purposes and upon the conversion of the Convertible Notes.
In the future, we may issue additional equity securities for capital raising purposes, in connection with hiring or
retaining employees, to fund acquisitions, or for other business purposes. We have previously funded, and expect to continue to
fund, acquisitions using shares of our common stock as consideration. In addition, we may issue shares of our common stock
upon the conversion of our Convertible Notes. The conversion of some or all of the Convertible Notes will dilute the ownership
interests of our existing shareholders to the extent we deliver shares upon their conversion. Any sales in the public market of the
common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition,
the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the
Convertible Notes could be used to satisfy short positions, or the anticipated conversion of the Convertible Notes into shares of
our common stock could depress the price of our common stock. The future issuance of any additional shares of common stock
will dilute our current shareholders and may create downward pressure on the value of our shares. The potential for the issuance
of a significant amount of our common stock pursuant to the convertible notes could create a circumstance commonly referred
to as an “overhang” and in anticipation of which the market price of our stock could fall. The existence of an overhang, whether
or not sales have occurred or are occurring, could also hinder our ability to raise additional equity capital at a time and price that
we deem reasonable or appropriate.
The market price of our stock has been and may continue to be highly volatile, which could lead to shareholder litigation
against us.
Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol “INSM”. The market price of
our stock has been and may continue to be highly volatile and could be subject to wide fluctuations in price in response to
various factors, including those discussed herein, many of which are beyond our control. 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 pharmaceutical companies like us, and which have often been unrelated to their operating
performance.
Historically, when the market price of a stock has been volatile, shareholders are more likely to institute securities and
derivative class action litigation against the issuer of such stock. We previously faced a shareholder suit following a decline in
our stock price. If any of our shareholders bring a lawsuit against us in the future, it could have a material adverse effect on our
business. We have insurance policies related to some of the risks associated with our business, including directors’ and officers’
liability insurance policies; however, our insurance coverage may not be sufficient and our insurance carriers may not cover all
claims in a given litigation. If we are not successful in our defense of claims asserted in shareholder litigation, those claims are
not covered by insurance or they exceed our insurance coverage, we may have to pay damage awards, indemnify our executive
officers, directors and third parties from damage awards that may be entered against them and pay our and their costs and
expenses incurred in defense of, or in any settlement of, such claims. In addition, such shareholder suits could divert the time
and attention of management from our business.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements
between us and our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to
acquire control of us.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements
with our employees could hamper a third party’s acquisition of us or discourage a third party from attempting to acquire control
of us, or limit the price that investors might be willing to pay for shares of our common stock. These provisions or arrangements
include:
•
•
•
The ability to issue preferred stock with rights senior to those of our common stock without any further vote or action
by the holders of our common stock. The issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to the holders of our common stock or could adversely affect the rights and powers, including
voting rights, of the holders of our common stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of our 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.
The requirement that shareholders provide advance notice when nominating director candidates to serve on our board
of directors.
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57
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We currently lease 117,022 square feet of office space for our corporate headquarters in Bridgewater, New Jersey. The
initial lease, which commenced in the fourth quarter of 2019, provides us a one-time option to expand the leased premises by up
to 50,000 square feet prior to the fifth anniversary of the initial lease commencement. The initial term of this lease will expire in
2030.
We lease laboratory space located in Bridgewater for which we exercised the renewal option to extend the lease term
until December 2026. In October 2018, we expanded this lease to a total of 28,002 square feet. We also lease facilities in
California totaling 40,543 square feet and a facility in New Hampshire. In addition, we lease office space outside of the US in
France, Ireland, the Netherlands, Switzerland and Japan.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary
course of business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to
resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash
flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
58
59
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our trading symbol is "INSM." Our common stock currently trades on the Nasdaq Global Select Market. As of
February 20, 2023, there were approximately 150 holders of record of our common stock.
We have never declared or paid cash 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 for the foreseeable future. Any future
determination as to the payment of dividends will be dependent upon these and any contractual or other restrictions to which we
may be subject and, to the extent permissible thereunder, 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 at
that time.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Insmed Incorporated, the NASDAQ Composite Index,
the S&P 500 Index, the NASDAQ Biotechnology Index and the SPDR S&P Biotech ETF
_________________________________
*
$100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2022 Standard & Poor's, a division of S&P Global. All rights reserved.
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61
ITEM 6. [RESERVED]
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion also should be read in conjunction with our consolidated financial statements and the notes
thereto contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that
involve risks and uncertainties. As a result of many factors, such as those set forth under the section entitled Risk Factors,
Cautionary Note Regarding Forward-Looking Statements and elsewhere herein, our actual results may differ materially from
those anticipated in these forward-looking statements.
EXECUTIVE OVERVIEW
We are a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare
diseases. Our first commercial product, ARIKAYCE, was approved in the US in September 2018, in the EU in October 2020
and in Japan in March 2021. Our clinical-stage pipeline includes brensocatib and TPIP. Brensocatib is a small molecule, oral,
reversible inhibitor of DPP1, which we are developing for the treatment of patients with bronchiectasis, CF and other
neutrophil-mediated diseases, including CRSsNP. TPIP is an inhaled formulation of the treprostinil prodrug treprostinil palmitil
which may offer a differentiated product profile for PH-ILD and PAH. We are also advancing our early-stage research
programs encompassing a wide range of technologies and modalities, including gene therapy, artificial intelligence-driven
protein engineering, and protein manufacturing. We have legal entities in the US, France, Germany, Ireland, Italy, the
Netherlands, Switzerland, the UK and Japan.
Refer to Part I, Item 1. "Business" for a summary of our ongoing commercial and clinical programs for ARIKAYCE
and our ongoing clinical activities for brensocatib, TPIP and early-stage research programs.
Prior to 2019, we had not generated significant revenue and through December 31, 2022, we had an accumulated
deficit of $2.7 billion. We have financed our operations primarily through the public offerings of our equity securities, debt
financings and revenue interest financings. Although it is difficult to predict our future funding requirements, based upon our
current operating plan, we anticipate that our cash and cash equivalents and marketable securities as of December 31, 2022 will
enable us to fund our operations for at least the next 12 months.
Our ability to reduce our operating loss and begin to generate positive cash flow from operations depends on the
continued success in commercializing ARIKAYCE and achieving positive results from the ARIKAYCE frontline clinical trial
program in order to obtain full approval of ARIKAYCE in the US and potentially reach more patients. Additionally, our
continued success also depends on bringing additional clinical stage products to market, such as brensocatib, TPIP and our
early-stage research programs. We expect to continue to incur substantial expenses related to our research and development
activities as we continue the ARIKAYCE frontline clinical program, conduct the Phase 3 ASPEN trial for brensocatib, continue
the trials for TPIP, and fund development of our early-stage research programs. We also expect to continue to incur significant
costs related to the commercialization of ARIKAYCE and our pre-commercialization activities related to brensocatib. Our
financial results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of ARIKAYCE;
the scope and progress of our research and development efforts; and the timing of certain expenses. We cannot predict whether
or when new products or new indications for marketed products will receive regulatory approval or, if any such approval is
received, whether we will be able to successfully commercialize such products and whether or when they may become
profitable.
KEY COMPONENTS OF OUR RESULTS OF OPERATIONS
Product Revenues, Net
Product revenues, net, consist of net sales of ARIKAYCE. In October 2018, we began shipping ARIKAYCE to our
customers in the US, which include specialty pharmacies and specialty distributors. In December 2020, we began commercial
sales of ARIKAYCE in Europe. In July 2021, we began recognizing product revenue from commercial sales of ARIKAYCE in
Japan. We recognize revenue for product received by our customers net of allowances for customer credits, including prompt
pay discounts, service fees, estimated rebates, including government rebates, such as Medicaid rebates and Medicare Part D
coverage gap reimbursements in the US, and chargebacks.
Cost of Product Revenues (Excluding Amortization of Intangible Assets)
Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs
related to the manufacturing of ARIKAYCE sold, including third-party manufacturing costs, packaging services, freight, and
allocation of overhead costs, in addition to royalty expenses and revenue-based milestones. We began capitalizing inventory
upon FDA approval of ARIKAYCE. All costs related to inventory for ARIKAYCE prior to FDA approval were expensed as
incurred and therefore not included in cost of product revenues.
Research and Development (R&D) Expenses
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63
R&D expenses consist of salaries, benefits and other related costs, including stock-based compensation, for personnel
serving in our research and development functions, including medical affairs and program management. R&D expenses also
includes other internal operating expenses, the cost of manufacturing product candidates, including the medical devices for drug
delivery, for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities.
In addition, R&D expenses include payments to third parties for the license rights to products in development (prior to
marketing approval), such as brensocatib. Our R&D expenses related to manufacturing our product candidates and medical
devices for clinical study are primarily related to activities at CMOs that manufacture brensocatib, TPIP and early-stage
research activities. Our R&D expenses related to clinical trials are primarily related to activities at CROs that conduct and
manage clinical trials on our behalf. These contracts with CROs set forth the scope of work to be completed at a fixed fee or
amount per patient enrolled. Payments under these contracts with CROs primarily depend on performance criteria such as the
successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees. (cid:32)xpenses are accrued
based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol.
Deposits for goods or services that will be used or rendered for future research and development activities are deferred and
capitalized. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.
Sellin(cid:57)(cid:9) (cid:30)eneral and Ad(cid:63)inistrati(cid:72)e (S(cid:30)(cid:4)A) E(cid:74)(cid:66)enses
SG&A expenses consist of salaries, benefits and other related costs, including stock-based compensation, for our non-
employee directors and personnel serving in our executive, finance and accounting, legal and compliance, commercial and pre-
commercial, corporate development, field sales, information technology and human resource functions. SG&A expenses also
include professional fees for legal services, consulting services, including commercial activities, insurance, board of director
fees, tax and accounting services and certain milestones related to ARI(cid:38)A(cid:52)C(cid:32).
A(cid:63)orti(cid:76)ation o(cid:56) Intan(cid:57)i(cid:52)le Assets
Upon commercialization of ARI(cid:38)A(cid:52)C(cid:32), our intangible assets began to be amortized over their estimated useful lives.
The fair values assigned to our intangible assets are based on estimates and assumptions we believe are reasonable based on
available facts and circumstances. Unanticipated events or circumstances may occur that require us to review the assets for
impairment.
Chan(cid:57)e in Fair (cid:45)alue o(cid:56) De(cid:56)erred and Contin(cid:57)ent Consideration Lia(cid:52)ilities
In connection with our acquisitions of Motus and AlgaeneX in August 2021 (the (cid:29)usiness Acquisition), we recorded
deferred and contingent consideration liabilities related to potential future milestone payments. Adjustments to the fair value are
due to changes in(cid:24) the probability of achieving milestones(cid:25) our stock price(cid:25) or certain other estimated assumptions. The change
in fair value of deferred and contingent consideration liabilities is calculated quarterly with gains and losses recorded in the
consolidated statements of comprehensive loss.
In(cid:72)est(cid:63)ent Inco(cid:63)e and Interest E(cid:74)(cid:66)ense
Investment income consists of interest and dividend income earned on our cash and cash equivalents and marketable
securities. Interest expense consists primarily of contractual interest costs, Royalty Financing Agreement non-cash interest
expense and the amortization of debt issuance costs related to our debt. Debt issuance costs are amortized to interest expense
using the effective interest rate method over the term of the debt. Debt discount was accreted to interest expense using the
effective interest rate method prior to the adoption of ASU 2020-26, Debt (cid:93) Accounting for Convertible Instruments (ASU
2020-06). Our December 31, 2022 balance sheet reflects debt, net of debt issuance costs paid to the lender and other third-party
costs and our December 31, 2021 balance sheet reflects debt, net of the debt discount, debt issuance costs paid to the lender, and
other third-party costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the
extinguishment.
Chan(cid:57)e in Fair (cid:45)alue o(cid:56) Interest Rate S(cid:73)a(cid:66)
(cid:50)e record derivative and hedge transactions in accordance with GAAP. In the fourth quarter of 2022, we entered into
an interest rate swap contract (the Swap Contract) with a notional value of $350 million to economically hedge our variable
rate-based term debt for three years, effectively changing the variable rate under the term debt to a fixed interest rate. Our
interest rate swap has not been designated as a hedging instrument for accounting purposes. Consequently, all changes in the
fair value of the Swap Contract are reported as a component of net loss in the consolidated statements of comprehensive loss.
RES(cid:44)LTS OF OPERATIONS
CO(cid:45)ID(cid:10)(cid:14)(cid:22) (cid:44)(cid:66)date
Though we continue to see use of ARI(cid:38)A(cid:52)C(cid:32), including new patient adds and continued prescription renewals, there
remains a general uncertainty regarding the impact of COVID-19 on all aspects of our business, including how it will impact
our patients, physicians, employees, suppliers, vendors, business partners and distribution channels. (cid:50)hile the pandemic did not
materially affect our financial results and business operations through the year ended December 31, 2022, we are unable to
predict the impact that COVID-19 will have on our financial position and operating results in future periods due to these and
other numerous uncertainties. (cid:50)e are committed to the safety and well-being of our workforce and will continue to assess the
evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.
Co(cid:63)(cid:66)arison o(cid:56) the (cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15) and (cid:15)(cid:13)(cid:15)(cid:14)
O(cid:72)er(cid:72)ie(cid:73) (cid:10) O(cid:66)eratin(cid:57) Results
Our operating results for the year ended December 31, 2022, included the following(cid:24)
(cid:87)
(cid:87)
Product revenues, net, increased $56.9 million, or 30.2(cid:4), as compared to the prior year as a result of the growth in
ARI(cid:38)A(cid:52)C(cid:32) sales(cid:25)
Cost of product revenues (excluding amortization of intangibles) increased $11.0 million as compared to the prior year
as a result of the increase in sales of ARI(cid:38)A(cid:52)C(cid:32)(cid:25)
• R&D expenses increased $124.8 million as compared to the prior year primarily resulting from increases in
manufacturing expenses, as well as increases related to clinical development and research costs, to support ongoing
clinical trials(cid:25)
SG&A expenses increased $31.5 million as compared to the prior year resulting from increases in compensation and
benefit related expenses, as well as increases related to our commercial launch efforts in Japan and (cid:32)urope(cid:25)
Amortization of intangible assets was consistent with the prior year(cid:25)
Change in fair value of deferred and contingent consideration liabilities was $20.8 million as a result of our (cid:29)usiness
Acquisition in the third quarter of 2021(cid:25)
Interest expense decreased $14.0 million as compared to the prior year due to the cessation of accreting debt discount
in accordance with the adoption of ASU 2020-06.
(cid:87)
(cid:87)
(cid:87)
(cid:77)
Product Re(cid:72)enues(cid:9) Net
Product revenues, net, consists of net sales of ARI(cid:38)A(cid:52)C(cid:32). The following table summarizes revenue by geography for
the years ended December 31, 2022 and 2021 (in thousands)(cid:24)
US
Japan
(cid:32)urope and rest of world
Total product revenues, net
For the (cid:48)ear Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
Increase (decrease)
(cid:3)
(cid:2)
$
$
185,994 $
159,510 $
56,506
2,858
16,006
12,945
245,358 $
188,461 $
26,484
40,500
(10,087)
56,897
16.6(cid:4)
253.0(cid:4)
(77.9)(cid:4)
30.2(cid:4)
Product revenues, net, for the year ended December 31, 2022 increased to $245.4 million as compared to $188.5
million in 2021 as a result of the growth in sales of ARI(cid:38)A(cid:52)C(cid:32) in Japan and the US. During the fourth quarter of 2022, we
reached an agreement with the French authorities on the final reimbursement price related to the ATU program in France and
we are required to refund the difference. This final pricing resulted in a change in estimate that reduced revenue by
approximately $7.5 million in the fourth quarter of 2022, of which $5.8 million related to periods prior to 2022. In 2023, we
anticipate a one-time, prospective price decrease for ARI(cid:38)A(cid:52)C(cid:32) in Japan in the high-single digit to low-double digit range.
Cost o(cid:56) Product Re(cid:72)enues (E(cid:74)cludin(cid:57) A(cid:63)orti(cid:76)ation o(cid:56) Intan(cid:57)i(cid:52)les)
Cost of product revenues (excluding amortization of intangibles) for the years ended December 31, 2022 and 2021
were comprised of the following (in thousands)(cid:24)
For the (cid:48)ear Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Increase (decrease)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:2)
(cid:3)
Cost of product revenues (excluding
amortization of intangibles)
$
55,126
$
44,152
$
10,974
24.9(cid:4)
Cost o(cid:51) product re(cid:67)enues, as (cid:3) o(cid:51) re(cid:67)enues
22.5 (cid:4)
23.4 (cid:4)
Cost of product revenues (excluding amortization of intangibles) increased by $11.0 million, or 24.9(cid:4), to $55.1
million for the year ended December 31, 2022 as compared to $44.2 million in 2021. The increase in cost of product revenues
(excluding amortization of intangibles) in the year ended December 31, 2022 was directly attributable to the increase in total
revenues discussed above.
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65
R(cid:4)D E(cid:74)(cid:66)enses
R&D expenses for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands)(cid:24)
For the (cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Increase (decrease)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:2)
(cid:3)
E(cid:74)ternal E(cid:74)(cid:66)enses
Clinical development and research
Manufacturing
Regulatory, quality assurance, and medical affairs
Subtotal(cid:93)external expenses
Internal E(cid:74)(cid:66)enses
Compensation and benefit related expenses
Stock-based compensation
Other internal operating expenses
Subtotal(cid:93)internal expenses
Total R&D expenses
$
$
$
$
$
71,998
20,129
29,503
17,734
2,395
236,973 $
154,333 $ 82,640
104,094 $
82,909 $ 21,185
26,379
30,072
160,545 $
397,518 $
17,814
17,688
8,565
12,384
118,411 $ 42,134
272,744 $ 124,774
Amortization of intangible assets for the years ended December 31, 2022 and 2021 was $5.1 million and $5.1 million,
respectively. Amortization of intangible assets is comprised of amortization of acquired ARI(cid:38)A(cid:52)C(cid:32) R&D and amortization of
the milestones paid to PARI for the FDA and (cid:32)MA approvals of ARI(cid:38)A(cid:52)C(cid:32).
Chan(cid:57)e in Fair (cid:45)alue o(cid:56) De(cid:56)erred and Contin(cid:57)ent Consideration Lia(cid:52)ilities
The change in fair value of deferred and contingent consideration liabilities for the year ended December 31, 2022 was
$(20.8) million as a result of our (cid:29)usiness Acquisition in the third quarter of 2021. Adjustments to the fair value are due to
changes in factors such as the probability of achieving milestones, our stock price, or certain other estimated assumptions.
13.5(cid:4)
53.5(cid:4)
25.6(cid:4)
48.1(cid:4)
70.0(cid:4)
35.6(cid:4)
45.7(cid:4)
Interest expense was $26.4 million for the year ended December 31, 2022 as compared to $40.5 million for 2021. The
$14.0 million decrease in interest expense in the year ended December 31, 2022 as compared to the prior year period is
primarily due to the cessation of accreting debt discount in accordance with the adoption of ASU 2020-06 partially offset by
interest expense from the Term Loan and Royalty Financing entered into in the fourth quarter of 2022.
Chan(cid:57)e in Fair (cid:45)alue o(cid:56) Interest Rate S(cid:73)a(cid:66)
The change in fair value of interest rate swap for the year ended December 31, 2022 was $1.5 million. Adjustments to
the fair value are due to changes in interest rates as of December 31, 2022 relative to the interest rate of our Swap Contract.
Pro(cid:72)ision ((cid:25)ene(cid:56)it) (cid:56)or Inco(cid:63)e Ta(cid:74)es
144,846 $
107,096 $ 37,750
35.2(cid:4)
42,495
144.0(cid:4)
Interest E(cid:74)(cid:66)ense
R&D expenses increased to $397.5 million during the year ended December 31, 2022 from $272.7 million in 2021.
The $124.8 million increase was primarily due to a $42.5 million increase in manufacturing expenses to support ongoing
clinical trials, a $37.8 million increase in clinical development and research costs related primarily to the Phase 3 ASP(cid:32)N trial
of brensocatib and the ARI(cid:38)A(cid:52)C(cid:32) frontline clinical trial program, as well as a $29.8 million increase in compensation and
benefit related expenses and stock-based compensation due to an increase in headcount.
The income tax provision was $1.4 million for the year ended December 31, 2022 and the income tax (benefit) was
$(1.8) million for the year ended December 31, 2021. The income tax provision for the year ended December 31, 2022 reflects
the income tax expense recorded as a result of taxable income in certain of our subsidiaries in (cid:32)urope and Japan as well as a
liability for certain state income taxes. The income tax (benefit) for the year ended December 31, 2021 is primarily due to the
partial reversal of a valuation allowance as a result of the (cid:29)usiness Acquisition in the third quarter of 2021.
(cid:32)xternal R&D expenses by product for the years ended December 31, 2022 and 2021 were comprised of the following
Co(cid:63)(cid:66)arison o(cid:56) the (cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14) and (cid:15)(cid:13)(cid:15)(cid:13)
(in thousands)(cid:24)
ARI(cid:38)A(cid:52)C(cid:32) external R&D expenses
(cid:29)rensocatib external R&D expenses
Other external R&D expenses
Total external R&D expenses
For the (cid:48)ear Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Increase (decrease)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:2)
$
$
61,024 $
61,887 $
(863)
102,530
73,419
62,065
30,381
236,973 $
154,333 $
40,465
43,038
82,640
(cid:3)
(1.4)(cid:4)
65.2(cid:4)
141.7(cid:4)
53.5(cid:4)
(cid:50)e expect R&D expenses to increase in 2023 relative to 2022 primarily due to our clinical trial activities and related
spend including our Phase 3 ASP(cid:32)N trial of brensocatib, our confirmatory clinical trials of ARI(cid:38)A(cid:52)C(cid:32) in a frontline treatment
setting for patients with MAC lung disease, our TPIP clinical trials and other research efforts for future product candidates.
S(cid:30)(cid:4)A E(cid:74)(cid:66)enses
SG&A expenses for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands)(cid:24)
For the (cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Increase (decrease)
Compensation and benefit related expenses
$
92,709 $
84,447 $
Stock-based compensation
Professional fees and other external expenses
Facility related and other internal expenses
31,307
105,352
36,416
28,206
94,549
27,071
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:2)
8,262
3,101
10,803
9,345
Total SG&A expenses
$
265,784 $
234,273 $
31,511
(cid:3)
9.8(cid:4)
11.0(cid:4)
11.4(cid:4)
34.5(cid:4)
13.5(cid:4)
SG&A expenses increased to $265.8 million during the year ended December 31, 2022 from $234.3 million in 2021.
The $31.5 million increase was primarily due to a $11.4 million increase in compensation and benefit related expenses and
stock-based compensation due to an increase in headcount, as well as a $10.8 million increase in professional fees and other
external expenses primarily resulting from our commercial launch efforts in Japan and (cid:32)urope and from resuming certain
commercial activities in the US.
A(cid:63)orti(cid:76)ation o(cid:56) Intan(cid:57)i(cid:52)le Assets
Please refer to the section titled (cid:2)Management's Discussion and Analysis of Financial Condition and Results of
Operations(cid:2) in our Annual Report on Form 10-(cid:38) for the fiscal year ended December 31, 2021 for a comparative discussion of
our fiscal years ended December 31, 2021 and December 31, 2020.
LI(cid:40)(cid:44)IDIT(cid:48) AND CAPITAL RESO(cid:44)RCES
O(cid:72)er(cid:72)ie(cid:73)
There is considerable time and cost associated with developing potential pharmaceutical products to the point of
regulatory approval and commercialization. (cid:50)e commenced commercial shipments of ARI(cid:38)A(cid:52)C(cid:32) in October 2018. (cid:50)e
expect to continue to incur consolidated operating losses, including losses at our US and certain international entities, as we
plan to fund R&D for ARI(cid:38)A(cid:52)C(cid:32), brensocatib, TPIP and our other pipeline programs, continue commercialization and
regulatory activities for ARI(cid:38)A(cid:52)C(cid:32), fund pre-commercialization activities for brensocatib, and engage in other general and
administrative activities.
In October 2022, we entered into a $350 million Term Loan with Pharmakon that matures on October 19, 2027. The
Term Loan bears interest at a rate based upon the SOFR, subject to a SOFR floor of 2.5(cid:4), in addition to a margin of 7.75(cid:4) per
annum. Up to 50(cid:4) of the interest payable during the first 24 months from the closing of the Term Loan may be paid-in-kind at
our election. If elected, paid-in-kind interest will be capitalized and added to the principal amount of the Term Loan. The Term
Loan, including the paid-in-kind interest, will be repaid in eight equal quarterly payments starting in the 13th quarter following
the closing of the Term Loan (i.e., the quarter ending March 31, 2026), except that the repayment start date may be extended at
our option for an additional four quarters, so that repayments start in the 17th quarter following the closing of the Term Loan,
subject to the achievement of specified ARI(cid:38)A(cid:52)C(cid:32) data thresholds and certain other conditions. Net proceeds from the Term
Loan, after deducting the lenders fees and deal expenses of $15.1 million, were $334.9 million.
In October 2022, we entered into the Royalty Financing Agreement with OrbiMed, whereby OrbiMed paid us
$150 million in exchange for the right to receive, on a quarterly basis, royalties in an amount equal to 4(cid:4) of ARI(cid:38)A(cid:52)C(cid:32)
global net sales prior to September 1, 2025 and 4.5(cid:4) of ARI(cid:38)A(cid:52)C(cid:32) global net sales on or after September 1, 2025, as well as
0.75(cid:4) of brensocatib global net sales, if approved. In the event that OrbiMed has not received aggregate Revenue Interest
Payments equal to or greater than $150 million on or prior to March 31, 2028, the royalty rate for ARI(cid:38)A(cid:52)C(cid:32) will be
increased for all subsequent fiscal quarters to a rate which, if applied retroactively, would have resulted in aggregate Revenue
Interest Payments to OrbiMed for all fiscal quarters ended on or prior to March 31, 2028 equal to $150 million. In addition, we
must make a one-time payment to OrbiMed in an amount that, when added to the aggregate amount of Revenue Interest
Payments received by OrbiMed as of March 31, 2028, would equal $150 million. The total Revenue Interest Payments payable
by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of the purchase price under certain
66
67
conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders fees and deal expenses of $3.6
million, were $146.4 million.
In October 2022, we also completed an underwritten offering of 13,750,000 shares of our common stock at a public
offering price of $20.00 per share. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and
offering expense of $16.2 million, were $258.8 million.
In the first quarter of 2021, we entered into a sales agreement with SVB Leerink LLC (now known as SVB Securities
LLC) (SVB Securities), to sell shares of the Company's common stock, with aggregate gross sales proceeds of up to
$250.0 million, from time to time, through an “at the market” equity offering program (the ATM program), under which SVB
Securities acts as sales agent. During the third quarter of 2022, we issued and sold an aggregate of 1,289,995 shares of common
stock through the ATM program at a weighted-average public offering price of $26.68 per share and received net proceeds of
$33.4 million. As of December 31, 2022, an aggregate of $215.6 million of shares of common stock remain available to be
issued and sold under the ATM program.
In May 2021, we completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028
Convertible Notes, including the exercise in full of the underwriters' option to purchase additional notes. Our net proceeds from
the offering, after deducting underwriting discounts and offering expenses of $15.7 million, were $559.3 million. A portion of
the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of our outstanding 2025 Convertible
Notes. We recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on
extinguishment of a portion of the 2025 Convertible Notes.
In May 2021, we also completed an underwritten public offering of 11,500,000 shares of our common stock, including
1,500,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional shares, at a public
offering price of $25.00 per share. Our net proceeds from the sale of the shares, after deducting the underwriting discounts and
offering expenses of $17.5 million, were $270.1 million.
In the second quarter of 2020, we completed an underwritten public offering of 11,155,000 shares of our common
stock, including 1,455,000 shares issued pursuant to the exercise in full of the underwriters' option to purchase additional
shares, at a public offering price of $23.25 per share. Our net proceeds from the sale of the shares, after deducting the
underwriting discounts and commissions and other offering expenses of $13.5 million, were $245.9 million.
We may need to raise additional capital to fund our operations, the continued commercialization of ARIKAYCE,
launch readiness activities for the potential launch of brensocatib for the treatment of patients with bronchiectasis, if approved,
clinical trials for brensocatib, TPIP, and our future product candidates, and to develop, acquire, in-license or co-promote other
products or product candidates, including those that address orphan or rare diseases. While we believe we currently have
sufficient funds to meet our financial needs for at least the next 12 months, we may opportunistically raise additional capital and
may do so through equity or debt financing(s), strategic transactions or otherwise. Our cash requirements for the next 12
months will be impacted by a number of factors, the most significant of which we expect to be the ASPEN trial, expenses
related to our commercialization efforts and our ARISE and ENCORE clinical trials for ARIKAYCE, and other development
activities for brensocatib, and to a lesser extent, expenses related to the clinical development of TPIP and our early-research
programs.
Cash Flows
As of December 31, 2022, we had cash and cash equivalents of $1,074.0 million, as compared with $716.8 million as
of December 31, 2021. In addition, as of December 31, 2022, we also had marketable securities of $74.2 million. The $357.3
million increase in cash and cash equivalents was primarily due to our Term Loan, Royalty Financing, and underwritten public
offering of our common stock in October 2022, partially offset due to cash used in operating activities and the purchase of
marketable securities. Our working capital was $1,083.1 million as of December 31, 2022 as compared with $701.9 million as
of December 31, 2021.
Net cash used in operating activities was $400.4 million and $363.3 million for the years ended December 31, 2022
and 2021, respectively. The net cash used in operating activities during the years ended December 31, 2022 and 2021 was
primarily for the commercial, clinical and manufacturing activities related to ARIKAYCE, as well as other SG&A expenses and
clinical trial expenses related to brensocatib and TPIP. The increase in cash used in operating activities for the year ended
December 31, 2022 compared to 2021 was primarily due to the increase in R&D expenses to support our ongoing clinical trials
and other research activities.
Net cash used in investing activities was $34.6 million and $64.3 million for the years ended December 31, 2022 and
2021, respectively. The net cash used in investing activities during the years ended December 31, 2022 and 2021 was for
purchases of marketable securities and purchases of fixed assets. In 2022, the cash used in investing activities was partially
offset by the maturity of certain marketable securities.
Net cash provided by financing activities was $793.3 million and $612.5 million for the years ended December 31,
2022 and 2021, respectively. Net cash provided by financing activities for the year ended December 31, 2022 was primarily due
to net cash proceeds from our Term Loan, Royalty Financing Agreement, and the issuance of our common stock in October
2022. Net cash provided by financing activities for the year ended December 31, 2021 was primarily from the issuance and
extinguishment of debt, as well as net proceeds from the issuance of common stock.
Contractual Obligations
In October 2022, we entered into financings resulting in aggregate gross proceeds of $500 million. We entered into the
$350 million senior secured Term Loan with funds managed by Pharmakon, which matures on October 19, 2027. The Term
Loan bears interest at a rate based upon SOFR, subject to a SOFR floor of 2.5%, in addition to a margin of 7.75% per annum.
We also entered into a $150 million Royalty Financing Agreement with OrbiMed. Under the Royalty Financing Agreement,
OrbiMed will be entitled to receive royalties of 4% on ARIKAYCE global net sales until September 1, 2025, and royalties of
4.5% on ARIKAYCE global net sales on or after September 1, 2025, as well as royalties of 0.75% on brensocatib global net
sales, if approved. The total royalty payable to OrbiMed is capped at 1.8x of the $150 million purchase price or up to a
maximum of 1.9x of the $150 million purchase price under certain conditions. For more information, see Note 8 - Debt and
Note 9 - Royalty Financing Agreement in our notes to the consolidated financial statements.
In May 2021, we completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028
Convertible Notes pursuant to an indenture between the Company and Wells Fargo Bank, National Association, as trustee (the
Indenture). Net proceeds from the offering, after deducting underwriting discounts and offering expenses of $15.7 million, were
$559.3 million. The 2028 Convertible Notes bear interest payable semiannually in arrears on June 1 and December 1 of each
year, beginning on December 1, 2021. The 2028 Convertible Notes mature on June 1, 2028, unless earlier converted, redeemed,
or repurchased. The 2028 Convertible Notes are convertible into common stock of the Company under certain circumstances
described in the indenture. For more information, see Note 8 - Debt in our notes to the consolidated financial statements.
In January 2018, we completed an underwritten public offering of $450.0 million aggregate principal amount of the
2025 Convertible Notes pursuant to the Indenture. Net proceeds from the offering, after deducting underwriting discounts and
commissions and other offering expenses of $14.2 million, were approximately $435.8 million. A portion of the net proceeds
from the 2028 Convertible Notes was used to repurchase $225.0 million of the Company's outstanding 2025 Convertible Notes.
The Company recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on
extinguishment of a portion of the 2025 Convertible Notes. The 2025 Convertible Notes bear interest payable semiannually in
arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The 2025 Convertible Notes mature on January 15,
2025, unless earlier converted, redeemed, or repurchased. The 2025 Convertible Notes are convertible into common stock of
the Company under certain circumstances described in the Indenture. For more information, see Note 8 - Debt in our notes to
the consolidated financial statements.
In April 2020, we entered into a master services agreement with PPD pursuant to which we retained PPD to perform
clinical development services in connection with certain of our clinical research programs. The master services agreement has
an initial term of five years. Either party may terminate (i) any project addendum under the master services agreement for any
reason and without cause upon 30 days’ written notice, (ii) any project addendum in the event of the other party’s breach of the
master services agreement or such project addendum upon 30 days’ written notice, provided that such breach is not cured
within such 30-day period, (iii) the master services agreement or any project addendum immediately upon the occurrence of an
insolvency event with respect to the other party or (iv) any project addendum upon 30 days’ written notice if (a) the
continuation of the services under such project addendum would post material ethical or safety risks to study participants, (b)
any approval from a regulatory authority necessary to perform the applicable study is revoked, suspended or expires without
renewal or (c) in the reasonable opinion of such party, continuation of the services provided under such project addendum
would be in violation of applicable law. We have entered into project addenda with PPD to perform clinical development
services over several years for, but not limited to, our ARISE, ENCORE, ASPEN studies and other brensocatib and TPIP
studies. We currently expect to incur approximately $370 million of costs related to these project addenda.
In September 2018, we entered into an agreement (the Lease) with Exeter 700 Route 202/206, LLC to lease 117,022
square feet of office space located in Bridgewater, New Jersey for our corporate headquarters. Subject to certain conditions, we
have the one-time option to expand the leased premises by up to 50,000 rentable square feet, exercisable prior to the fifth
anniversary of the Commencement Date, which was October 1, 2019. The initial Lease term runs 130 months from the
Commencement Date and we have the option to extend that term for up to three additional five-year periods. In addition, we are
responsible for operating expenses and taxes pursuant to the Lease. Future minimum payments under the Lease during the
initial Lease term are approximately $19.6 million. The Lease contains customary default provisions, including those relating to
payment defaults, performance defaults and events of bankruptcy.
In October 2017, we entered into certain agreements with Patheon related to the increase of our long-term production
capacity for ARIKAYCE. The agreements provide for Patheon to manufacture and supply ARIKAYCE for our anticipated
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69
commercial needs. Under these agreements, we are required to deliver to Patheon the required raw materials, including active
pharmaceutical ingredients, and certain fixed assets needed to manufacture ARIKAYCE. Patheon's supply obligations will
commence once certain technology transfer and construction services are completed. Our manufacturing and supply agreement
with Patheon will remain in effect for a fixed initial term, after which it will continue for successive renewal terms unless either
we or Patheon have given written notice of termination. The technology transfer agreement will expire when the parties agree
that the technology transfer services have been completed. The agreements may also be terminated under certain other
circumstances, including by either party due to a material uncured breach of the other party or the other party’s insolvency.
These early termination clauses may reduce the amounts due to the relevant parties. The aggregate investment to increase our
long-term production capacity, including under the Patheon agreements and related agreements or purchase orders with third
parties for raw materials and fixed assets, is estimated to be approximately $99 million.
In October 2016, we entered into the AZ License Agreement, pursuant to which AstraZeneca granted us exclusive
global rights for the purpose of developing and commercializing AZD7986 (which we renamed brensocatib). In consideration
of the licenses and other rights granted by AstraZeneca, we made an upfront payment of $30.0 million, which was included as
research and development expense in the fourth quarter of 2016. In December 2020, we incurred a $12.5 million milestone
payment obligation upon first dosing in a Phase 3 clinical trial of brensocatib. We are obligated to make a series of additional
contingent milestone payments to AstraZeneca totaling up to an additional $72.5 million upon the achievement of clinical
development and regulatory filing milestones. If we elect to develop brensocatib for a second indication, we will be obligated to
make an additional series of contingent milestone payments totaling up to $42.5 million, the first of which occurs at the
initiation of a Phase 3 trial in the additional indication. We are not obligated to make any additional milestone payments for any
additional indications. In addition, we have agreed to pay AstraZeneca tiered royalties ranging from a high single-digit to mid-
teens on net sales of any approved product based on brensocatib and one additional payment of $35.0 million upon the first
achievement of $1 billion in annual net sales. The AZ License Agreement provides AstraZeneca with the option to negotiate a
future agreement with us for commercialization of brensocatib in chronic obstructive pulmonary disease or asthma.
We have a licensing agreement with PARI for the use of optimized Lamira for delivery of ARIKAYCE in treating
patients with NTM lung infections, CF and bronchiectasis. Under the licensing agreement, we have rights under several US and
foreign issued patents, and patent applications involving improvements to optimized Lamira, to exploit the system with
ARIKAYCE for the treatment of such indications, but we cannot manufacture the nebulizers except as permitted under our
Commercialization Agreement with PARI, as described below. Lamira has been approved for use in the US (in combination
with ARIKAYCE), the EU and Japan. Under the licensing agreement, we made an upfront license fee and milestone payments
to PARI. Upon FDA acceptance of our NDA and the subsequent FDA and EMA approvals of ARIKAYCE, we made additional
milestone payments of €1.0 million, €1.5 million, and €0.5 million, respectively, to PARI. In October 2017, we exercised an
option to buy-down the royalties payable to PARI, which was included within selling, general and administrative expenses in
the fourth quarter of 2017. PARI is entitled to receive royalty payments in the mid-single digits on the annual global net sales of
ARIKAYCE, pursuant to the licensing agreement, subject to certain specified annual minimum royalties.
In July 2014, we entered into a Commercialization Agreement with PARI for the manufacture and supply of Lamira as
optimized for use with ARIKAYCE. Under the Commercialization Agreement, PARI manufactures Lamira except in the case
of certain defined supply failures, when the Company will have the right to make Lamira and have it made by third parties (but
not certain third parties deemed under the Commercialization Agreement to compete with PARI). The Commercialization
Agreement has an initial term of 15 years that began in October 2018. The term of the Commercialization Agreement may be
extended by us for an additional five years by providing written notice to PARI at least one year prior to the expiration of the
Initial Term.
In February 2014, we entered into a contract manufacturing agreement with Therapure Biopharma Inc., which has
been assumed by Resilience, for the manufacture of ARIKAYCE, on a non-exclusive basis, at a 200 kg scale. Pursuant to the
agreement, we collaborated with Resilience to construct a production area for the manufacture of ARIKAYCE in Resilience's
existing manufacturing facility in Canada. The agreement has an initial term of five years, which began in October 2018, and
will renew automatically for successive periods of two years each, unless terminated by either party by providing the required
two years' prior written notice to the other party. Under the agreement, we are obligated to pay certain minimum amounts for
the batches of ARIKAYCE produced each calendar year.
In 2004 and 2009, we entered into research funding agreements with CFFT whereby we received $1.7 million and $2.2
million in research funding for the development of ARIKAYCE. As a result of the US approval of ARIKAYCE and in
accordance with the agreements, as amended, we owe milestone payments to CFFT of $13.4 million in the aggregate payable
through 2025, of which $4.9 million has been paid as of December 31, 2022. Furthermore, if certain global sales milestones are
met within five years of the commercialization of ARIKAYCE, we would owe up to an additional $3.9 million. Through
December 31, 2022, we have paid $1.7 million of these additional global sales milestone payments.
Future Funding Requirements
We may need to raise additional capital to fund our operations, including the continued commercialization of
ARIKAYCE, current and future clinical trials related to ARIKAYCE, development of brensocatib and TPIP, and the potential
development, acquisition, in-license or co-promotion of other products or product candidates, including those that address
orphan or rare diseases. We expect that our future capital requirements may be substantial and will depend on many factors,
including:
•
•
•
•
•
•
•
•
•
•
•
The timing and cost of our ongoing and anticipated clinical trials for our product candidates, including our Phase 3
ASPEN trial;
The timing and cost of our current and future clinical trials of ARIKAYCE for the treatment of patients with NTM
lung infections, including the ARISE and ENCORE trials;
The cost of discovering or in-licensing additional product candidates;
The costs of activities related to the regulatory approval process and the timing of approvals, if received;
The cost of supporting the sales and marketing efforts necessary to support the continued commercial efforts of
ARIKAYCE;
The timing and costs of supporting the commercial launch activities of brensocatib;
The cost of eventually supporting the commercial launches of TPIP and our other product candidates;
The cost of filing, prosecuting, defending, and enforcing patent claims;
The costs of our manufacturing-related activities;
The cost of hiring more personnel to support our ongoing development and commercialization efforts; and
The levels, timing and collection of revenue earned from sales of ARIKAYCE and other products approved in the
future, if any.
We have raised $1.8 billion in net proceeds from securities offerings since 2020. We believe we currently have
sufficient funds to meet our financial needs for at least the next 12 months. However, our business strategy may require us to
raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise.
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
material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.
CRITICAL ACCOUNTING ESTIMATES
Preparation of financial statements in accordance with generally accepted accounting principles in the US 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 and we regularly evaluate these estimates and assumptions. The amounts of assets and liabilities
reported in our consolidated balance sheets and the amounts reported in our consolidated statements of comprehensive loss are
affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition and
indefinite-lived intangible assets. The accounting estimates discussed below involve a significant level of estimation uncertainty
and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Actual
results could differ materially from our estimates. For additional accounting policies, see Note 2 to our Consolidated Financial
Statements—Summary of Significant Accounting Policies.
Revenue Recognition
In accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, we
recognize revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration
we expect to receive in exchange for the goods or services provided. To determine revenue recognition for arrangements within
the scope of ASC 606, we perform the following five steps: (1) identify the contracts with a customer; (2) identify the
performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance
obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. At contract
inception, we assess the goods or services promised within each contract and determine those that are performance obligations
and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price
that is allocated to the respective performance obligation when or as the performance obligation is satisfied. For all contracts
that fall into the scope of ASC 606, we have identified one performance obligation: the sale of ARIKAYCE to its customers.
We have not incurred or capitalized any incremental costs associated with obtaining contracts with customers.
70
71
Product revenues, net, consist of net sales of ARIKAYCE. Our customers in the US include specialty pharmacies and
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial
specialty distributors. In December 2020, we began recognizing product revenue from commercial sales of ARIKAYCE in
Europe. In July 2021, we began recognizing product revenue from commercial sales of ARIKAYCE in Japan. Globally,
product revenues are recognized once we perform and satisfy all five steps of the revenue recognition criteria mentioned above.
Revenue is recorded at net selling price (transaction price), which includes estimates of variable consideration for
which reserves are established for estimated government rebates, such as Medicaid and Medicare Part D reimbursements, and
estimated managed care rebates. These reserves are based on the amounts earned or to be claimed on the related sales and are
classified as a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes which
are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements,
and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of
consideration to which we are entitled based on the terms of the applicable contract. The amount of variable consideration
included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable
that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts
of consideration ultimately received may differ from our estimates. If actual results in the future vary from estimates, we adjust
these estimates, which would affect net product revenue and earnings in the period such variances become known.
Rebates: We contract with certain government agencies and managed care organizations, or collectively, third-party
payors, so that ARIKAYCE will be eligible for purchase by, or partial or full reimbursement from, such third-party payors. We
estimate the rebates we will provide to third-party payors and deduct these estimated amounts from total gross product revenues
at the time the revenues are recognized. These reserves are recorded in the same period in which the revenue is recognized,
resulting in a reduction of product revenue and the establishment of a current liability. The current liability is included in
accrued liabilities on the consolidated balance sheets. We estimate the rebates that will be provided to third-party payors based
upon (i) our contracts with these third-party payors, (ii) the government mandated discounts applicable to government-funded
programs, (iii) a range of possible outcomes that are probability-weighted for the estimated payor mix, and (iv) information
obtained from our specialty pharmacies.
If any, or all, of our actual experience vary from the estimates above, we may need to adjust prior period accruals,
affecting revenue in the period of adjustment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2022, our cash and cash equivalents were in cash accounts or were invested in money market
funds. Our investments in money market funds are not insured by the federal government. As of December 31, 2022, our
marketable securities were invested in US treasury notes with an original maturity of greater than 90 days.
Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term "disclosure
controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit with
the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and to
ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective
as of December 31, 2022 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.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, as a process
designed by, or under the supervision of, our principal executive and principal financial and accounting officers and effected by
our board of directors and management 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 and
includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with US generally accepted accounting principles, and that receipts and expenditures of our company
are being made only in accordance with authorizations of our management and board of directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our 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.
Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our
management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—
Integrated Framework. Based on management's assessment, management concluded that the Company's internal control over
financial reporting was effective as of December 31, 2022.
As of December 31, 2022, we had $225 million and $575 million of 2025 Convertible Notes and 2028 Convertible
Changes in Internal Control Over Financial Reporting
Notes outstanding, respectively. Our 2025 Convertible Notes and our 2028 Convertible Notes bear interest at a coupon rate of
1.75% and 0.75%, respectively. In addition, as of December 31, 2022, we had our $350 million term loan and a $150.0 million
Royalty Financing Agreement outstanding. The Term Loan accrues interest quarterly at the SOFR plus a margin of 7.75% per
annum. We entered into the Swap Contract as a hedge to the Term Loan variable interest rate. The Royalty Financing
Agreement pays interest at 4% of ARIKAYCE global net sales prior to September 1, 2025 and 4.5% thereafter as well as 0.75%
of brensocatib global net sales, if approved. If a 10% change in interest rates had occurred on December 31, 2022, it would not
have had a material effect on the fair value of our debt as of that date, nor would it have a material effect on our future earnings
or cash flows.
The majority of our business is conducted in US dollars. However, we do conduct certain transactions in other
currencies, including Euros, British Pounds and Japanese Yen. Historically, fluctuations in foreign currency exchange rates
have not materially affected our results of operations. During the years ended December 31, 2022, 2021 and 2020, our results of
operations were not materially affected by fluctuations in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is included in our Financial Statements and Supplementary Data set forth in
Item 15 of Part IV of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the implementation of our new global ERP system, which went live in the third quarter of 2022,
there were material changes to our internal control over financial reporting. Our new ERP system replaced our legacy system in
which a significant portion of our business transactions originate, are processed and recorded. We believe our new ERP system
will facilitate better transactional processing, enhanced reporting and oversight, and function as an important component of our
transactional and reporting controls and procedures. There were no changes in our internal control over financial reporting
identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during
the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Attestation Report on Internal Control over Financial Reporting
Ernst & Young LLP, our independent registered public accounting firm, issued an attestation report on our internal
control over financial reporting. The report of Ernst & Young LLP is contained in Item 15 of Part IV of this Annual Report on
Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
72
73
ITEM (cid:14)(cid:13)(cid:11) DIRECTORS(cid:9) E(cid:47)EC(cid:44)TI(cid:45)E OFFICERS AND CORPORATE (cid:30)O(cid:45)ERNANCE
ITEM (cid:14)(cid:18)(cid:11) E(cid:47)(cid:31)I(cid:25)ITS AND FINANCIAL STATEMENT SC(cid:31)ED(cid:44)LES
PART III
PART I(cid:45)
The information required by Item 10 of Form 10-(cid:38) is incorporated by reference from the discussion responsive thereto
under the captions (cid:26)lection o(cid:51) Class II (cid:25)irectors, Corporate Go(cid:67)ernance and (cid:25)elin(cid:62)uent (cid:39)ection (cid:11)(cid:16)(a) Reports in our definitive
proxy statement for our 2023 annual meeting of shareholders to be filed with the S(cid:32)C no later than 120 days after the close of
the fiscal year covered by this Annual Report on Form 10-(cid:38).
ITEM (cid:14)(cid:14)(cid:11) E(cid:47)EC(cid:44)TI(cid:45)E COMPENSATION
The information required by Item 11 of Form 10-(cid:38) is incorporated by reference from the discussion responsive thereto
under the captions Compensation (cid:25)iscussion and Analysis, Compensation Committee Report, Compensation Committee
Interloc(cid:56)s and Insider Participation and (cid:25)irector Compensation in our definitive proxy statement for our 2023 annual meeting
of shareholders to be filed with the S(cid:32)C no later than 120 days after the close of the fiscal year covered by this Annual Report
on Form 10-(cid:38).
ITEM (cid:14)(cid:15)(cid:11) SEC(cid:44)RIT(cid:48) O(cid:46)NERS(cid:31)IP OF CERTAIN (cid:25)ENEFICIAL O(cid:46)NERS AND MANA(cid:30)EMENT AND
RELATED STOC(cid:34)(cid:31)OLDER MATTERS
The information required by Item 12 of Form 10-(cid:38) is incorporated by reference from the discussion responsive thereto
under the captions Compensation (cid:25)iscussion and Analysis, (cid:39)ecurity (cid:36)(cid:68)nership o(cid:51) Certain Bene(cid:51)icial (cid:36)(cid:68)ners and (cid:25)irectors
and (cid:34)anagement in our definitive proxy statement for our 2023 annual meeting of shareholders to be filed with the S(cid:32)C no
later than 120 days after the close of the fiscal year covered by this Annual Report on Form 10-(cid:38).
ITEM (cid:14)(cid:16)(cid:11) CERTAIN RELATIONS(cid:31)IPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Form 10-(cid:38) is incorporated by reference from the discussion responsive thereto
under the captions Corporate Go(cid:67)ernance and Certain Relationships and Related Transactions in our definitive proxy
statement for our 2023 annual meeting of shareholders to be filed with the S(cid:32)C no later than 120 days after the close of the
fiscal year covered by this Annual Report on Form 10-(cid:38).
ITEM (cid:14)(cid:17)(cid:11) PRINCIPAL ACCO(cid:44)NTANT FEES AND SER(cid:45)ICES
The information required by Item 14 of Form 10-(cid:38) is incorporated by reference from the discussion responsive thereto
under the caption Corporate Go(cid:67)ernance and Rati(cid:51)ication o(cid:51) the Appointment o(cid:51) Independent Registered Public Accounting
Firm in our definitive proxy statement for our 2023 annual meeting of shareholders to be filed with the S(cid:32)C no later than
120 days after the close of the fiscal year covered by this Annual Report on Form 10-(cid:38).
(a) Documents filed as part of this report.
(cid:14)(cid:11)
forth herein, beginning on page 84(cid:24)
FINANCIAL STATEMENTS. The following consolidated financial statements of the Company are set
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(cid:15)(cid:11)
Reports of Independent Registered Public Accounting Firm (PCAO(cid:29) ID(cid:24) 42)
Consolidated (cid:29)alance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Comprehensive Loss for the (cid:52)ears (cid:32)nded December 31, 2022, 2021 and 2020
Consolidated Statements of Shareholders' (cid:32)quity for the (cid:52)ears (cid:32)nded December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the (cid:52)ears (cid:32)nded December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SC(cid:31)ED(cid:44)LES(cid:11)
None required.
(cid:16)(cid:11)
E(cid:47)(cid:31)I(cid:25)ITS(cid:11)
The exhibits that are required to be filed or incorporated by reference herein are listed in the (cid:32)xhibit Index.
E(cid:47)(cid:31)I(cid:25)IT INDE(cid:47)
Articles of Incorporation of Insmed Incorporated, as amended through June 14, 2012
(incorporated by reference from (cid:32)xhibit 3.1 to Insmed Incorporated's Annual Report on
Form 10-(cid:38) filed on March 18, 2013).
Amended and Restated (cid:29)ylaws of Insmed Incorporated (incorporated by reference from
(cid:32)xhibit 3.1 to Insmed Incorporated's Current Report on Form 8-(cid:38) filed on March 30, 2020).
Specimen stock certificate representing common stock, $0.01 par value per share, of the
Registrant (incorporated by reference from (cid:32)xhibit 4.2 to Insmed Incorporated's Registration
Statement on Form S-4(cid:13)A (Registration No. 333-30098) filed on March 24, 2000).
Indenture, dated as of January 26, 2018, by and between the Company and (cid:50)ells Fargo
(cid:29)ank, National Association (incorporated by reference from (cid:32)xhibit 4.1 to Insmed
Incorporated’s Current Report on Form 8-(cid:38) filed on January 26, 2018).
First Supplemental Indenture, dated as of January 26, 2018, by and between the Company
and (cid:50)ells Fargo (cid:29)ank, National Association (incorporated by reference from (cid:32)xhibit 4.2 to
Insmed Incorporated’s Current Report on Form 8-(cid:38) filed on January 26, 2018).
Second Supplemental Indenture, dated as of May 13, 2021, by and between the Company and
(cid:50)ells Fargo (cid:29)ank, National Association (incorporated by reference from (cid:32)xhibit 4.2 to
Insmed Incorporated’s Current Report on Form 8-(cid:38) filed on May 13, 2021).
Form of 1.75(cid:4) Convertible Senior Note due 2025 (included in (cid:32)xhibit 4.3).
Form of 0.75(cid:4) Convertible Senior Note due 2028 (included in (cid:32)xhibit 4.4).
Description of Securities Registered Under Section 12 of the Securities (cid:32)xchange Act of
1934 (incorporated by reference from (cid:32)xhibit 4.5 of Insmed Incorporated’s Annual Report on
Form 10-(cid:38) filed on February 25, 2021).
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Insmed Incorporated Amended and Restated 2000 Stock Incentive Plan (incorporated by
reference from (cid:32)xhibit 10.3 to Insmed Incorporated's (cid:44)uarterly Report on Form 10-(cid:44) filed
on May 8, 2013).
Insmed Incorporated 2013 Incentive Plan (incorporated by reference from (cid:32)xhibit 99.1 to
Insmed Incorporated's Registration Statement on Form S-8 filed on May 24, 2013).
10.1(cid:9)(cid:9)
10.2(cid:9)(cid:9)
74
75
Form of Award Agreement for Incentive Stock Options pursuant to the Insmed Incorporated
2013 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5 to Insmed Incorporated's
Annual Report on Form 10-(cid:38) filed on March 6, 2014).
Form of Award Agreement for Non-(cid:44)ualified Stock Options pursuant to the Insmed
Incorporated 2013 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.6 to Insmed
Incorporated's Annual Report on Form 10-(cid:38) filed on March 6, 2014).
Insmed Incorporated 2015 Incentive Plan (incorporated by reference from (cid:32)xhibit 99.1 to
Insmed Incorporated's Registration Statement on Form S-8 filed on May 28, 2015).
Form of Award Agreement for Non-(cid:44)ualified Stock Options pursuant to the Insmed
Incorporated 2015 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.2 to Insmed
Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed May 3, 2017).
Insmed Incorporated 2017 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.3 to
Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed August 3, 2017).
Form of Award Agreements for Restricted Stock Units pursuant to the Insmed Incorporated
2017 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.4 to Insmed Incorporated’s
(cid:44)uarterly Report on Form 10-(cid:44) filed August 3, 2017).
Amendment to Form of Award Agreement for Restricted Stock Units pursuant to the Insmed
Incorporated 2017 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.4.2 to Insmed
Incorporated's Annual Report on Form 10-(cid:38) filed on February 17, 2022).
Form of Award Agreement for Non-(cid:44)ualified Stock Options pursuant to the Insmed
Incorporated 2017 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5 to Insmed
Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed August 3, 2017).
Insmed Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.1 to
Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed August 1, 2019).
Amendment No. 1 to the Insmed Incorporated 2019 Incentive Plan (incorporated by reference
from Appendix A to Insmed Incorporated’s Proxy Statement on Schedule 14A filed March
31, 2020).
Form of Award Agreement for Restricted Stock Units pursuant to the Insmed Incorporated
2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.2 of Insmed Incorporated’s
(cid:44)uarterly Report on Form 10-(cid:44) filed on October 28, 2021).
Amendment to Form of Award Agreement for Restricted Stock Units pursuant to the Insmed
Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.3 of Insmed
Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed on October 28, 2021).
Form of Award Agreement for Restricted Stock Units to non-US employees pursuant to the
Insmed Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5.4 to
Insmed Incorporated's Annual Report on Form 10-(cid:38) filed on February 17, 2022).
Form of Award Agreement for Non-(cid:44)ualified Stock Options pursuant to the Insmed
Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5.3 of Insmed
Incorporated’s Annual Report on Form 10-(cid:38) filed on February 25, 2021).
Form of Award Agreement for Non-(cid:44)ualified Stock Options issued to non-US employees
pursuant to the Insmed Incorporated 2019 Incentive Plan (incorporated by reference from
(cid:32)xhibit 10.1 of Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed on October 28,
2021).
Form of Award Agreement for Restricted Stock Units issued to directors pursuant to the
Insmed Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5.4 of
Insmed Incorporated’s Annual Report on Form 10-(cid:38) filed on February 25, 2021).
Form of Award Agreement for Performance-(cid:29)ased Restricted Stock Units pursuant to the
Insmed Incorporated 2019 Incentive Plan (incorporated by reference from (cid:32)xhibit 10.5.8 to
Insmed Incorporated's Annual Report on Form 10-(cid:38) filed on February 17, 2022).
10.2.1(cid:9)(cid:9)
10.2.2(cid:9)(cid:9)
10.3(cid:9)(cid:9)
10.3.1(cid:9)(cid:9)
10.4(cid:9)(cid:9)
10.4.1(cid:9)(cid:9)
10.4.2(cid:9)(cid:9)
10.4.3(cid:9)(cid:9)
10.5(cid:9)(cid:9)
10.5.1(cid:9)(cid:9)
10.5.2(cid:9)(cid:9)
10.5.3(cid:9)(cid:9)
10.5.4(cid:9)(cid:9)
10.5.5(cid:9)(cid:9)
10.5.6(cid:9)(cid:9)
10.5.7(cid:9)(cid:9)
10.5.8(cid:9)(cid:9)
Form of Award Agreement for Performance-(cid:29)ased Restricted Stock Units to non-US
employees pursuant to the Insmed Incorporated 2019 Incentive Plan (incorporated by
reference from (cid:32)xhibit 10.5.9 to Insmed Incorporated's Annual Report on Form 10-(cid:38) filed on
February 17, 2022).
Omnibus Amendment to Insmed Incorporated Incentive Plans, dated December 10, 2020
(incorporated by reference from (cid:32)xhibit 10.6 of Insmed Incorporated’s Annual Report on
Form 10-(cid:38) filed on February 25, 2021).
Amendment No. 2 to Insmed Incorporated 2019 Incentive Plan (incorporated by reference
from Appendix A to Insmed Incorporated’s Proxy Statement on Schedule 14A filed April 1,
2021).
Insmed Incorporated Senior (cid:32)xecutive (cid:29)onus Plan (incorporated by reference from (cid:32)xhibit
10.2 to Insmed Incorporated's (cid:44)uarterly Report on Form 10-(cid:44) filed on November 5, 2013).
Form of Non-(cid:44)ualified Stock Option Inducement Award Agreement (incorporated by
reference from (cid:32)xhibit 10.6 to Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed
August 3, 2017).
Form of Indemnification Agreement entered into with each of the Company's directors and
officers (incorporated by reference from (cid:32)xhibit 10.1 to Insmed Incorporated's Current
Report on Form 8-(cid:38) filed on January 16, 2014).
(cid:32)mployment Agreement, effective as of September 10, 2012, between Insmed Incorporated
and (cid:50)illiam Lewis (incorporated by reference from (cid:32)xhibit 10.1 to Insmed Incorporated's
Current Report on Form 8-(cid:38) filed on September 11, 2012).
10.5.9(cid:9)(cid:9)
10.6(cid:9)(cid:9)
10.7(cid:9)(cid:9)
10.8(cid:9)(cid:9)
10.9(cid:9)(cid:9)
10.10(cid:9)(cid:9)
10.11(cid:9)(cid:9)
Amendment to (cid:32)mployment Agreement, effective as of July 31, 2019, between Insmed
Incorporated and (cid:50)illiam Lewis (incorporated by reference from (cid:32)xhibit 10.5 to Insmed
Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed on August 1, 2019).
10.11.1(cid:9)(cid:9)
Amended and Restated (cid:32)mployment Agreement, effective as of April 1, 2022, between
Insmed Incorporated and S. Nicole Schaeffer (incorporated by reference from (cid:32)xhibit 10.4 to
Insmed Incorporated's (cid:44)uarterly Report on Form 10-(cid:44) filed on May 5, 2022).
Amended and Restated (cid:32)mployment Agreement, effective as of April 1, 2022, between
Insmed Incorporated and Roger Adsett (incorporated by reference from (cid:32)xhibit 10.1 to
Insmed Incorporated's (cid:44)uarterly Report on Form 10-(cid:44) filed May 5, 2022).
Side Letter to Amended and Restated (cid:32)mployment Agreement, effective as of August 8,
2022, between Insmed Incorporated and Roger Adsett (incorporated by reference from
(cid:32)xhibit 10.3 to Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed October 27,
2022).
Amended and Restated (cid:32)mployment Agreement, effective as of April 1, 2022, between
Insmed Incorporated and Sara (cid:29)onstein (incorporated by reference from (cid:32)xhibit 10.2 to
Insmed Incorporated's Annual Report on Form 10-(cid:44) filed May 5, 2022).
Amended and Restated (cid:32)mployment Agreement, effective as of April 1, 2022, by and
between Insmed Incorporated and Martina Flammer, M.D. (incorporated by reference from
(cid:32)xhibit 10.3 of Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed May 5, 2022).
Amended and Restated (cid:32)mployment Agreement, effective as of April 1, 2022, by and
between Insmed Incorporated and Michael Smith (incorporated by reference from (cid:32)xhibit
10.5 of Insmed Incorporated’s (cid:44)uarterly Report on Form 10-(cid:44) filed May 5, 2022).
(cid:32)mployment Agreement, effective as of May 23, 2022, by and between Insmed Incorporated
and J. Drayton (cid:50)ise (incorporated by reference from (cid:32)xhibit 10.1 of Insmed Incorporated’s
(cid:44)uarterly Report on Form 10-(cid:44) filed August 4, 2022).
License Agreement, dated April 25, 2008, between Transave, Inc. and PARI Pharma Gmb(cid:35),
and Amendments No. 1-4 thereto (incorporated by reference from (cid:32)xhibit 10.1 to Insmed
Incorporated's (cid:44)uarterly Report on Form 10-(cid:44) filed on October 29, 2020).
Amendment No. 5 to License Agreement between Insmed Incorporated and PARI Pharma
Gmb(cid:35), effective as of October 5, 2015 (incorporated by reference from (cid:32)xhibit 10.14.1 to
Insmed Incorporated's Annual Report on Form 10-(cid:38) filed on February 25, 2016).
10.12(cid:9)(cid:9)
10.13(cid:9)(cid:9)
10.13.1(cid:9)(cid:9)
10.14(cid:9)(cid:9)
10.15(cid:9)(cid:9)
10.16(cid:9)(cid:9)
10.17(cid:9)(cid:9)
10.18(cid:9)
10.18.1(cid:9)
76
77
Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive
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 (filed herewith).
Certification of Sara Bonstein, Chief Financial Officer (Principal Financial Officer and
Principal 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 (filed herewith).
Certification of William H. Lewis, Chair and Chief Executive Officer (Principal Executive
Officer) of Insmed Incorporated, pursuant to 18 USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes Oxley Act of 2003 (filed herewith).
Certification of Sara Bonstein, Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer) of Insmed Incorporated, pursuant to 18 USC Section 1350, as
adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2003 (filed herewith).
The following materials from Insmed Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2022 formatted in iXBRL (Inline eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets as of December 31, 2022 and 2021,
(ii) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022,
2021 and 2020, (iii) Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2022, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the
years ended December 31, 2022, 2021, and 2020, and (v) Notes to the Consolidated Financial
Statements, and (vi) Cover Page.
The cover page from the Annual Report on Form 10-K for the year ended December 31,
2022, formatted in iXBRL and contained in Exhibit 101.
Certain portions of this exhibit have been redacted.
Management contract or compensatory plan or arrangement.
31.1
31.2
32.1
32.2
101
104
*
**
ITEM 16. FORM 10-K SUMMARY
Not applicable.
Amendment No. 6 to License Agreement between Insmed Incorporated and PARI Pharma
GmbH, effective as of October 9, 2015 (incorporated by reference from Exhibit 10.14.2 to
Insmed Incorporated's Annual Report on Form 10-K filed on February 25, 2016).
Amendment No. 7 to License Agreement between Insmed Incorporated and PARI Pharma
GmbH, effective as of July 21, 2017 (incorporated by reference from Exhibit 10.1 to Insmed
Incorporated’s Quarterly Report on Form 10-Q filed on November 2, 2017).
Amendment No. 8 to License Agreement between Insmed Incorporated and PARI Pharma
GmbH, effective as of December 19, 2018 (incorporated by reference from Exhibit 10.15.4 to
Insmed Incorporated’s Annual Report on Form 10-K filed on February 22, 2019).
Contract Manufacturing Agreement, dated February 7, 2014, between Insmed Incorporated
and Resilience Biotechnologies Inc. (successor to Therapure Biopharma Inc.) (incorporated
by reference from Exhibit 10.2.1 to Insmed Incorporated's Quarterly Report on Form 10-Q
filed on October 29, 2020).
Amending Agreement, dated March 13, 2014, between Insmed Incorporated and Resilience
Biotechnologies Inc. (successor to Therapure Biopharma Inc.) (incorporated by reference
from Exhibit 10.2.2 to Insmed Incorporated's Quarterly Report on Form 10-Q filed on
October 29, 2020).
Commercialization Agreement dated July 8, 2014 between Insmed Incorporated and PARI
Pharma GmbH (incorporated by reference from Exhibit 10.1 to Insmed Incorporated's
Quarterly Report on Form 10-Q filed on November 6, 2014).
Amendment No. 1 to Commercialization Agreement between Insmed Incorporated and PARI
Pharma GmbH, effective as of July 21, 2017 (incorporated by reference from Exhibit 10.2 to
Insmed Incorporated’s Quarterly Report on Form 10-Q filed on November 2, 2017).
Manufacturing and Supply Agreement between Insmed Incorporated and Patheon UK
Limited, dated as of October 20, 2017 (incorporated by reference from Exhibit 10.39 to
Insmed Incorporated's Annual Report on Form 10-K filed February 23, 2018).
Technology Transfer Agreement between Insmed Incorporated and Patheon UK Limited,
dated as of October 20, 2017 (incorporated by reference from Exhibit 10.40 to Insmed
Incorporated's Annual Report on Form 10-K filed February 23, 2018).
Amendment to the Technology Transfer Agreement and to the Manufacturing and Supply
Agreement, by and between Insmed Incorporated and Patheon UK Limited, dated as of
March 11, 2021 (incorporated by reference from Exhibit 10.3 to Insmed Incorporated’s
Quarterly Report on Form 10-Q filed May 6, 2021).
License Agreement, dated October 4, 2016, between Insmed Incorporated and AstraZeneca
AB (incorporated by reference from Exhibit 10.29 to Insmed Incorporated’s Annual Report
on Form 10-K filed February 23, 2017).
Lease Agreement, dated September 11, 2018, by and between Insmed Incorporated and
Exeter 700 Route 202/206, LLC (incorporated by reference from Exhibit 10.1 to Insmed
Incorporated’s Current Report on Form 8-K filed on September 17, 2018).
Sales Agreement, dated as of February 25, 2021, by and between Insmed Incorporated and
SVB Leerink LLC (incorporated by reference from Exhibit 10.1 to Insmed Incorporated’s
Current Report on Form 8-K filed on February 25, 2021).
Revenue Interest Purchase Agreement, dated October 19, 2022, between Insmed Incorporated
and OrbiMed Royalty & Credit Opportunities III, LP (incorporated by reference from Exhibit
10.1 to Insmed Incorporated’s Quarterly Report on Form 10-Q filed on October 27, 2022).
Loan Agreement, dated October 19, 2022, between Insmed Incorporated, BioPharma Credit
PLC, BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP
(incorporated by reference from Exhibit 10.2 to Insmed Incorporated’s Quarterly Report on
Form 10-Q filed on October 27, 2022).
Subsidiaries of Insmed Incorporated (filed herewith).
Consent of Ernst & Young LLP (filed herewith).
10.18.2*
10.18.3*
10.18.4*
10.19*
10.19.1*
10.20*
10.20.1*
10.21*
10.22*
10.22.1*
10.23*
10.24
10.25
10.26*
10.27*
21.1
23.1
78
79
SI(cid:30)NAT(cid:44)RES
Re(cid:66)ort o(cid:56) Inde(cid:66)endent Re(cid:57)istered Pu(cid:52)lic Accountin(cid:57) Fir(cid:63)
Pursuant to the requirements of Section 13 or 15(d) of the Securities (cid:32)xchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 23, 2023.
INSM(cid:32)D INCORPORAT(cid:32)D
a Virginia corporation
(Registrant)
(cid:29)y(cid:24)
(cid:13)s(cid:13) (cid:50)ILLIAM (cid:35). L(cid:32)(cid:50)IS
(cid:50)illiam (cid:35). Lewis
Chair and Chie(cid:51) (cid:26)(cid:69)ecuti(cid:67)e (cid:36)(cid:51)(cid:51)icer
(Principal (cid:26)(cid:69)ecuti(cid:67)e (cid:36)(cid:51)(cid:51)icer)
To the Shareholders and the (cid:29)oard of Directors of Insmed Incorporated
O(cid:66)inion on the Financial State(cid:63)ents
(cid:50)e have audited the accompanying consolidated balance sheets of Insmed Incorporated (the Company) as of December 31,
2022 and 2021, the related consolidated statements of comprehensive loss, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 2022, and the related notes (collectively referred to as the (cid:94)consolidated financial
statements(cid:95)). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
(cid:50)e also have audited, in accordance with the standards of the Public Company Accounting Oversight (cid:29)oard (United States)
(PCAO(cid:29)), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 23, 2023 expressed an unqualified opinion thereon.
Pursuant to the requirements of the Securities (cid:32)xchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on February 23, 2023.
Ado(cid:66)tion o(cid:56) AS(cid:44) No(cid:11) (cid:15)(cid:13)(cid:15)(cid:13)(cid:10)(cid:13)(cid:19)
Si(cid:57)nature
Title
(cid:13)s(cid:13) (cid:50)ILLIAM (cid:35). L(cid:32)(cid:50)IS
(cid:50)illiam (cid:35). Lewis
(cid:13)s(cid:13) SARA (cid:29)ONST(cid:32)IN
Sara (cid:29)onstein
(cid:13)s(cid:13) DAVID R. (cid:29)R(cid:32)NNAN
David R. (cid:29)rennan
(cid:13)s(cid:13) ALFR(cid:32)D F. ALTOMARI
Alfred F. Altomari
(cid:13)s(cid:13) (cid:32)LI(cid:53)A(cid:29)(cid:32)T(cid:35) MC(cid:38)(cid:32)(cid:32) AND(cid:32)RSON
(cid:32)lizabeth Mc(cid:38)ee Anderson
(cid:13)s(cid:13) CLARISSA D(cid:32)SJARDINS, P(cid:35).D.
Clarissa Desjardins, Ph.D.
(cid:13)s(cid:13) L(cid:32)O L(cid:32)(cid:32)
Leo Lee
(cid:13)s(cid:13) DAVID (cid:50).J. MCGIRR
David (cid:50).J. McGirr
(cid:13)s(cid:13) CAROL A. SC(cid:35)AF(cid:32)R
Carol A. Schafer
(cid:13)s(cid:13) M(cid:32)LVIN S(cid:35)ARO(cid:38)(cid:52), M.D.
Melvin Sharoky, M.D.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for convertible
notes in 2022 due to the adoption of Accounting Standards Update (ASU) No. 2020-06, Debt(cid:93) (Subtopic 470-20 & 815-40),
and the related amendments.
Chair and Chief (cid:32)xecutive Officer
(Principal (cid:32)xecutive Officer)
(cid:25)asis (cid:56)or O(cid:66)inion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. (cid:50)e are a public accounting firm registered with the PCAO(cid:29) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and (cid:32)xchange Commission and the PCAO(cid:29).
(cid:50)e conducted our audits in accordance with the standards of the PCAO(cid:29). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. (cid:50)e believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that(cid:24) (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
Chief Financial Officer
(Principal Financial and Accounting Officer)
Lead Independent Director
Director
Director
Director
Director
Director
Director
Director
80
81
(cid:25)escription o(cid:51) the
(cid:34)atter
(cid:38)(cid:41)(cid:58)i(cid:41)b(cid:52)e conside(cid:58)(cid:41)tion in cont(cid:58)(cid:41)cts (cid:63)it(cid:48) custo(cid:53)e(cid:58)s
As discussed in Note 2 of the consolidated financial statements, the transaction price for product sales
is typically adjusted for variable consideration, which includes rebates paid to government agencies,
specifically Medicaid. The Company estimates these reserves based upon a range of possible
outcomes that are probability-weighted for the estimated payor mix.
Auditing the Company's estimate of variable consideration for amounts to be paid to government
agencies was complex and judgmental due to uncertainty about the ultimate third-party payor at the
time of shipment to the specialty pharmacies and the amounts of rebates to be paid to those
government agencies. The transaction price is sensitive to assumptions used in the rebate calculations.
Ho(cid:68) (cid:43)e Addressed the
(cid:34)atter in (cid:36)ur Audit
(cid:50)e identified, evaluated and tested controls over management’s review of the calculated reductions to
gross product prices related to government agencies including management’s review of the significant
assumptions and the data utilized in its calculations.
To test the revenue adjustments related to government agencies our audit procedures included, among
others, using internal specialists to assist with recalculating government rebates. (cid:50)e also tested the
underlying data and inputs used by the Company in its determination of the estimated payor mix. (cid:50)e
compared the inputs used by management to historical trends, evaluated the change in the estimated
rebates amounts recorded throughout the year and assessed the historical accuracy of management’s
estimates against actual results.
(cid:13)s(cid:13) (cid:32)rnst & (cid:52)oung LLP
(cid:50)e have served as the Company’s auditor since at least 1999, but we are unable to determine the specific year.
Iselin, New Jersey
February 23, 2023
Re(cid:66)ort o(cid:56) Inde(cid:66)endent Re(cid:57)istered Pu(cid:52)lic Accountin(cid:57) Fir(cid:63)
To the Shareholders and the (cid:29)oard of Directors of Insmed Incorporated
O(cid:66)inion on Internal Control O(cid:72)er Financial Re(cid:66)ortin(cid:57)
(cid:50)e have audited Insmed Incorporated’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control (cid:93) Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), (the COSO criteria). In our opinion, Insmed Incorporated (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria(cid:11)
(cid:50)e also have audited, in accordance with the standards of the Public Company Accounting Oversight (cid:29)oard (United States)
(PCAO(cid:29)), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related consolidated
statements of comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December
31, 2022, the related notes and our report dated February 23, 2023 expressed an unqualified opinion thereon.
(cid:25)asis (cid:56)or O(cid:66)inion
The Company’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 the accompanying 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. (cid:50)e are a public accounting firm registered with the PCAO(cid:29) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and (cid:32)xchange Commission and the PCAO(cid:29).
(cid:50)e conducted our audit in accordance with the standards of the PCAO(cid:29). 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. (cid:50)e believe that our audit provides a
reasonable basis for our opinion.
De(cid:56)inition and Li(cid:63)itations o(cid:56) Internal Control O(cid:72)er Financial Re(cid:66)ortin(cid:57)
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(cid:25) (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(cid:25) 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.
(cid:29)ecause 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.
(cid:13)s(cid:13) (cid:32)rnst & (cid:52)oung LLP
Iselin, New Jersey
February 23, 2023
82
83
INSMED INCORPORATED
Consolidated (cid:25)alance Sheets
(in thousands(cid:9) e(cid:74)ce(cid:66)t (cid:66)ar (cid:72)alue and share data)
INSMED INCORPORATED
Consolidated State(cid:63)ents o(cid:56) Co(cid:63)(cid:66)rehensi(cid:72)e Loss
(in thousands(cid:9) e(cid:74)ce(cid:66)t (cid:66)er share data)
Assets
Current assets(cid:24)
Cash and cash equivalents
Marketable securities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Total current assets
Marketable securities, non-current
Fixed assets, net
Finance lease right-of-use assets
Operating lease right-of-use assets
Intangibles, net
Goodwill
Other assets
Total assets
Lia(cid:52)ilities and shareholders(cid:5) e(cid:67)uit(cid:75)
Current liabilities(cid:24)
Accounts payable and accrued liabilities
Finance lease liabilities
Operating lease liabilities
Total current liabilities
Debt, long-term
Royalty financing agreement
Contingent consideration
Finance lease liabilities, long-term
Operating lease liabilities, long-term
Other long-term liabilities
Total liabilities
Shareholders' equity(cid:24)
Common stock, $0.01 par value(cid:25) 500,000,000 authorized shares, 135,653,731
and 118,738,266 issued and outstanding shares at December 31, 2022 and
December 31, 2021, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders' equity
Total liabilities and shareholders' equity
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
$ 1,074,036 $ 716,782
74,244
29,713
69,922
25,468
(cid:93)
24,351
67,009
28,898
1,273,383
837,040
(cid:93)
56,491
23,697
21,894
68,756
136,110
76,104
50,043
52,955
9,256
33,305
73,809
136,110
50,990
$ 1,656,435 $ 1,243,508
$ 182,117 $ 125,030
1,217
6,909
609
9,527
190,243
135,166
1,125,250
566,588
148,015
51,100
29,636
14,853
9,387
(cid:93)
75,668
14,103
21,441
20,074
1,568,484
833,040
1,357
1,187
2,782,416
2,673,556
(2,696,578) (2,265,243)
756
968
87,951
410,468
$ 1,656,435 $ 1,243,508
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
Product revenues, net
Operating expenses(cid:24)
Cost of product revenues (excluding amortization of intangible assets)
Research and development
Selling, general and administrative
Amortization of intangible assets
Change in fair value of deferred and contingent consideration
liabilities
Total operating expenses
Operating loss
Investment income
Interest expense
Change in fair value of interest rate swap
Loss on extinguishment of debt
Other (expense) income, net
Loss before income taxes
$ 245,358 $ 188,461 $ 164,413
55,126
397,518
265,784
5,053
44,152
272,744
234,273
5,052
39,872
181,157
203,613
5,003
(20,802)
7,334
(cid:93)
702,679
563,555
429,645
(457,321)
(375,094)
(265,232)
11,081
174
1,703
(26,446)
(40,473)
(29,564)
(1,526)
(cid:93)
(cid:93)
(17,689)
(5,939)
(3,330)
(cid:93)
(cid:93)
405
(480,151)
(436,412)
(292,688)
Provision (benefit) for income taxes
1,383
(1,758)
1,402
Net loss
$ (481,534) $ (434,654) $ (294,090)
(cid:29)asic and diluted net loss per share
$
(3.91) $
(3.88) $
(3.01)
(cid:50)eighted average basic and diluted common shares outstanding
123,035
112,111
97,605
Net loss
$ (481,534) $ (434,654) $ (294,090)
Other comprehensive income (loss)(cid:24)
Foreign currency translation and other gains
Unrealized loss on marketable securities
Total comprehensive loss
303
(515)
775
(cid:93)
203
(cid:93)
$ (481,746) $ (433,879) $ (293,887)
(cid:39)ee accompanying notes to audited consolidated (cid:51)inancial statements
(cid:39)ee accompanying notes to consolidated (cid:51)inancial statements
84
85
INSMED INCORPORATED
Consolidated State(cid:63)ents o(cid:56) Shareholders(cid:5) E(cid:67)uit(cid:75)
(in thousands)
Co(cid:63)(cid:63)on Stoc(cid:61)
Shares A(cid:63)ount
Additional
Paid(cid:10)in
Ca(cid:66)ital
Accu(cid:63)ulated
De(cid:56)icit
Accu(cid:63)ulated
Other
Co(cid:63)(cid:66)rehensi(cid:72)e
Inco(cid:63)e (Loss)
Total
(cid:25)alance at Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:14)(cid:22)
89,682 $
897 $ 1,797,286 $
(1,536,499) $
(10) $ 261,674
Comprehensive loss(cid:24)
Net loss
Other comprehensive income
(cid:32)xercise of stock options and (cid:32)SPP
shares issuance
Net proceeds from issuance of common
stock
Issuance of common stock for vesting
of RSUs
Stock-based compensation expense
1,795
18
26,054
11,155
112
245,754
131
1
36,158
(294,090)
(294,090)
203
203
26,072
245,866
1
36,158
(cid:25)alance at Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:13)
102,763 $ 1,028 $ 2,105,252 $
(1,830,589) $
193 $ 275,884
Comprehensive loss(cid:24)
Net loss
Other comprehensive income
(cid:32)xercise of stock options and (cid:32)SPP
shares issuance
Net proceeds from issuance of common
stock
(cid:32)quity component of convertible debt
issuance
(cid:32)quity component of convertible debt
redemption
Issuance of common stock for vesting
of RSUs
Issuance of common stock for business
acquisition
Stock-based compensation expense
(cid:25)alance at Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14)
Cumulative impact of ASU 2020-06
adoption
Comprehensive loss(cid:24)
Net loss
Other comprehensive loss
(cid:32)xercise of stock options and (cid:32)SPP
shares issuance
Net proceeds from issuance of common
stock
Issuance of common stock for vesting
of RSUs
Deferred payment for (cid:29)usiness
Acquisition
Stock-based compensation expense
1,359
13
22,022
11,500
115
269,771
196,358
(37,846)
71,978
46,021
217
2,899
2
29
(434,654)
(434,654)
775
775
22,035
269,886
196,358
(37,846)
2
72,007
46,021
118,738 $ 1,187 $ 2,673,556 $
(2,265,243) $
968 $ 410,468
(264,609)
50,199
(214,410)
(481,534)
(481,534)
(212)
(212)
1,328
14
19,486
15,040
150
292,003
377
171
4
2
4,294
57,686
19,500
292,153
4
4,296
57,686
(cid:25)alance at Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)
135,654 $ 1,357 $ 2,782,416 $
(2,696,578) $
756 $ 87,951
(cid:39)ee accompanying notes to audited consolidated (cid:51)inancial statement
INSMED INCORPORATED
Consolidated State(cid:63)ents o(cid:56) Cash Flo(cid:73)s
(in thousands)
O(cid:66)eratin(cid:57) acti(cid:72)ities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities(cid:24)
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:13)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(481,534) $ (434,654) $ (294,090)
Depreciation
Amortization of intangible assets
Stock-based compensation expense
Loss on extinguishment of debt
Amortization of debt issuance costs
Accretion of debt discount
Paid-in-kind interest capitalized
Royalty Financing non-cash interest expense
Finance lease amortization expense
Noncash operating lease expense
5,278
5,053
57,686
(cid:93)
3,991
(cid:93)
4,165
3,687
1,960
11,976
9,130
5,052
46,021
17,689
1,890
29,149
(cid:93)
(cid:93)
1,078
12,589
Change in fair value of deferred and contingent consideration liabilities
(20,802)
7,334
Change in fair value of interest rate swap
Changes in operating assets and liabilities(cid:24)
1,526
(cid:93)
9,147
5,003
36,158
(cid:93)
1,397
18,981
(cid:93)
(cid:93)
1,078
5,932
(cid:93)
(cid:93)
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable and accrued liabilities
Other liabilities
(6,423)
(8,118)
2,670
(1,714)
(17,456)
(21,180)
2,528
(5,549)
(3,114)
(25,243)
(24,435)
(6,261)
50,011
(7,575)
29,825
(12,584)
4,553
(4,894)
Net cash used in operating activities
(400,439) (363,302) (219,348)
In(cid:72)estin(cid:57) acti(cid:72)ities
Purchase of fixed assets
Purchase of marketable securities
Maturities of marketable securities
Cash paid for (cid:29)usiness Acquisition, net
PARI milestone upon regulatory approvals
Net cash used in investing activities
Financin(cid:57) acti(cid:72)ities
(9,878)
(7,289)
(6,240)
(99,706)
(50,292)
75,000
(cid:93)
(cid:93)
(cid:93)
(6,704)
(cid:93)
(582)
(34,584)
(64,285)
(6,822)
(cid:93)
(cid:93)
(cid:93)
Proceeds from exercise of stock options and (cid:32)SPP
19,504
22,037
26,073
Proceeds from issuance of common stock, net
292,153
269,886
245,866
Payment on extinguishment of 1.75(cid:4) convertible senior notes due 2025
Payment of principal of 1.75(cid:4) convertible senior notes due 2025
Proceeds from issuance of 0.75(cid:4) convertible senior notes due 2028
Proceeds from issuance of Term Loan
Proceeds from issuance Royalty Financing Agreement
Payment of debt issuance costs
Other financing activities
(cid:93)
(cid:93)
(cid:93)
(12,578)
(225,000)
575,000
350,000
150,000
(cid:93)
(cid:93)
(17,783)
(15,718)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(601)
(1,081)
(936)
Net cash provided by financing activities
793,273
612,546
271,003
86
87
INSMED INCORPORATED
Consolidated State(cid:63)ents o(cid:56) Cash Flo(cid:73)s
(in thousands)
(cid:32)ffect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information(cid:24)
Cash paid for interest
Cash paid for income taxes
(996)
(933)
494
357,254
184,026
45,327
716,782
532,756
487,429
$ 1,074,036 $ 716,782 $ 532,756
$ 10,157 $ 10,890 $
9,186
$
1,717 $
1,558 $
814
(cid:39)ee accompanying notes to audited consolidated (cid:51)inancial statements
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
(cid:22)esc(cid:58)i(cid:56)tion o(cid:46) Business (cid:41)nd B(cid:41)sis o(cid:46) (cid:33)(cid:58)esent(cid:41)tion
(cid:22)esc(cid:58)i(cid:56)tion o(cid:46) Business(cid:93)Insmed is a global biopharmaceutical company on a mission to transform the lives of
patients with serious and rare diseases. The Company's first commercial product, ARI(cid:38)A(cid:52)C(cid:32), is approved in the US as
ARI(cid:38)A(cid:52)C(cid:32)(cid:88) (amikacin liposome inhalation suspension), in (cid:32)urope as ARI(cid:38)A(cid:52)C(cid:32) Liposomal 590 mg Nebuliser Dispersion
and in Japan as ARI(cid:38)A(cid:52)C(cid:32) inhalation 590mg (amikacin sulfate inhalation drug product). ARI(cid:38)A(cid:52)C(cid:32) received accelerated
approval in the US in September 2018 for the treatment of MAC lung disease as part of a combination antibacterial drug
regimen for adult patients with limited or no alternative treatment options in a refractory setting. In October 2020, the (cid:32)C
approved ARI(cid:38)A(cid:52)C(cid:32) for the treatment of NTM lung infections caused by MAC in adults with limited treatment options who
do not have CF. In March 2021, Japan's M(cid:35)L(cid:50) approved ARI(cid:38)A(cid:52)C(cid:32) for the treatment of patients with NTM lung disease
caused by MAC who did not sufficiently respond to prior treatment with a multidrug regimen. NTM lung disease caused by
MAC (which the Company refers to as MAC lung disease) is a rare and often chronic infection that can cause irreversible lung
damage and can be fatal. The Company's clinical-stage pipeline includes brensocatib, TPIP and early-stage research programs.
(cid:29)rensocatib is a small molecule, oral, reversible inhibitor of DPP1, which the Company is developing for the treatment of
patients with bronchiectasis, CF and other neutrophil-mediated diseases, including CRS. TPIP is an inhaled formulation of the
treprostinil prodrug treprostinil palmitil which may offer a differentiated product profile for P(cid:35)-ILD and PA(cid:35). The Company is
also advancing its early-stage research programs encompassing a wide range of technologies and modalities, including gene
therapy, artificial intelligence-driven protein engineering, and protein manufacturing.
The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive
offices are located in (cid:29)ridgewater, New Jersey. The Company has legal entities in the US, France, Germany, Ireland, Italy, the
Netherlands, Switzerland, the U(cid:38), and Japan.
The Company had $1,074.0 million in cash and cash equivalents and $74.2 million of marketable securities as of
December 31, 2022 and reported a net loss of $481.5 million for the year ended December 31, 2022. The Company has funded
its operations through public offerings of equity securities, debt financings and revenue interest financings. The Company
expects to continue to incur consolidated operating losses, including losses in its US and certain international entities, while
funding R&D activities for ARI(cid:38)A(cid:52)C(cid:32), brensocatib, TPIP and its other pipeline programs, continuing commercialization and
regulatory activities for ARI(cid:38)A(cid:52)C(cid:32) and pre-commercial, regulatory and, if approved, commercialization activities for
brensocatib, and funding other general and administrative activities.
The Company expects its future cash requirements to be substantial. (cid:50)hile the Company currently has sufficient funds
to meet its financial needs for at least the next 12 months, the Company may raise additional capital in the future to fund its
operations, its ongoing commercialization and clinical trial activities, and its future product candidates, and to develop, acquire,
in-license or co-promote other products or product candidates, including those that address orphan or rare diseases. The source,
timing and availability of any future financing or other transaction will depend principally upon continued progress in the
Company’s commercial, regulatory and development activities. Any future financing will also be contingent upon market
conditions. If the Company is unable to obtain sufficient additional funds when required, the Company may be forced to delay,
restrict or eliminate all or a portion of its development programs or commercialization efforts.
(cid:34)is(cid:51)s (cid:41)nd (cid:37)nce(cid:58)t(cid:41)inties(cid:93)There are many uncertainties regarding the novel coronavirus (COVID-19) pandemic, and
the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how the pandemic will
impact its patients, employees, suppliers, vendors, business partners and distribution channels. (cid:50)hile the pandemic did not
materially affect the Company's financial results and business operations for the year ended December 31, 2022, the Company
is unable to predict the impact that COVID-19 will have on its financial position and operating results in future periods due to
numerous uncertainties. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make
adjustments to its operations as necessary.
B(cid:41)sis o(cid:46) (cid:33)(cid:58)esent(cid:41)tion(cid:93)The consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries, Celtrix Pharmaceuticals, Inc., Insmed (cid:35)oldings Limited, Insmed Gene Therapy LLC, Insmed Ireland
Limited, Insmed France SAS, Insmed Germany Gmb(cid:35), Insmed Limited, Insmed Netherlands (cid:35)oldings (cid:29).V., Insmed
Netherlands (cid:29).V., Insmed Godo (cid:38)aisha, Insmed Switzerland Gmb(cid:35), and Insmed Italy S.R.L.. All intercompany transactions
and balances have been eliminated in consolidation and certain prior year amounts have been reclassified to conform to the
current year presentation.
88
89
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2.
Summary of Significant Accounting Policies
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. The Company bases its estimates and
judgments on historical experience and on various other assumptions. The amounts of assets and liabilities reported in the
Company's balance sheets and the amounts of revenues and expenses reported for each period presented are affected by
estimates and assumptions, which are used for, but not limited to, the accounting for revenue allowances, stock-based
compensation, income taxes, loss contingencies, acquisition related intangibles including IPR&D and goodwill, fair value of
contingent consideration, and accounting for research and development costs. Actual results could differ from those estimates.
Cash and Cash Equivalents—The Company considers cash equivalents to be highly liquid investments with
maturities of three months or less from the date of purchase.
Accounts Receivable—Accounts receivable are recorded net of customer allowances for prompt pay discounts,
chargebacks, and any estimated expected credit losses. The Company's measurement of expected credit losses is based on
relevant information about past events, including historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. To date, expected credit losses have not been material.
Marketable Securities—Marketable securities consists of available-for-sale investments in US Treasury Notes with an
original maturity of greater than 90 days. Marketable securities under this classification are recorded at fair value and unrealized
gains and losses are recorded within accumulated other comprehensive income. The estimated fair value of available-for-sale
marketable securities is determined based on quoted market prices. Marketable securities maturing in one year or less are
classified as current assets and marketable securities maturing in more than one year are classified as non-current assets.
Management does not expect the Company's available-for-sale securities with a maturity of more than one year to be sold or
redeemed within the next year and therefore has classified the marketable securities as long-term assets in the consolidated
balance sheet as of December 31, 2021.
Fixed Assets, Net—Fixed assets are recorded at cost and are depreciated on a straight-line basis over the estimated
useful lives of the assets. Estimated useful lives of three years to five years are used for computer equipment. Estimated useful
lives of seven years are used for laboratory equipment, office equipment, manufacturing equipment and furniture and fixtures.
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset.
Finite-lived Intangible Assets—Finite-lived intangible assets are measured at their respective fair values on the date
they were recorded. The fair values assigned to the Company's intangible assets are based on reasonable estimates and
assumptions given available facts and circumstances.
Impairment Assessment—The Company reviews the recoverability of its finite-lived intangible assets and long-lived
assets for indicators of impairments. Events or circumstances that may require an impairment assessment include negative
clinical trial results, a significant decrease in the market price of the asset, or a significant adverse change in legal factors or the
manner in which the asset is used. If such indicators are present, the Company assesses the recoverability of affected assets by
determining if the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such
assets are found to not be recoverable, the Company measures the amount of the impairment by comparing the carrying value
of the assets to the fair value of the assets. The Company determined that no indicators of impairment of finite-lived intangible
assets or long-lived assets existed at December 31, 2022.
Business Combinations and Asset Acquisitions—The Company evaluates acquisitions of assets and other similar
transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by
first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset
acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and
processes that have the ability to create outputs, which would meet the requirements of a business. If determined to be a
business combination, the Company accounts for the transaction under the acquisition method of accounting as indicated in
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires the acquiring entity
in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and any non-controlling interest
in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes
assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, and non-controlling
interest in the acquiree based on the fair value estimates as of the date of acquisition. In accordance with ASC 805, Business
2. Summary of Significant Accounting Policies (Continued)
Combinations, the Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the
consideration paid over the fair value of the identified net assets acquired.
The consideration for the Company’s business acquisitions may include future payments that are contingent upon the
occurrence of a particular event or events. The obligations for such contingent consideration payments are recorded at fair value
on the acquisition date. The contingent consideration obligations are then evaluated each reporting period. Changes in the fair
value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within
change in the fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive
loss.
If determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires
the acquiring entity in an asset acquisition to recognize assets acquired and liabilities assumed based on the cost to the acquiring
entity on a relative fair value basis, which includes transaction costs in addition to consideration given. No gain or loss is
recognized as of the date of acquisition unless the fair value of non-cash assets given as consideration differs from the assets’
carrying amounts on the acquiring entity’s books. Consideration transferred that is non-cash will be measured based on either
the cost (which shall be measured based on the fair value of the consideration given) or the fair value of the assets acquired and
liabilities assumed, whichever is more reliably measurable. Goodwill is not recognized in an asset acquisition and any excess
consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair
values.
Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the
consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case
the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the
amount is included in the cost of the acquired asset or group of assets.
Indefinite-lived Intangible Assets—Indefinite-lived intangible assets consist of IPR&D. IPR&D acquired directly in a
transaction other than a business combination is capitalized if the projects will be further developed or have an alternative future
use; otherwise they are expensed. The fair values of IPR&D project assets acquired in business combinations are capitalized.
The Company generally utilizes the Multi-Period Excess Earning Method to determine the estimated fair value of the IPR&D
assets acquired in a business combination. The projections used in this valuation approach are based on many factors, such as
relevant market size, patent protection, and expected pricing and industry trends. The estimated future net cash flows are then
discounted to the present value using an appropriate discount rate. These assets are treated as indefinite-lived intangible assets
until completion or abandonment of the projects, at which time the assets are amortized over the remaining useful life or written
off, as appropriate. Intangible assets with indefinite lives, including IPR&D, are tested for impairment if impairment indicators
arise and, at a minimum, annually. However, an entity is permitted to first assess qualitative factors to determine if a
quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative
assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount.
The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the
intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss
is recognized in an amount equal to that excess. The Company considers many factors in evaluating whether the value of its
intangible assets with indefinite lives may not be recoverable, including, but not limited to, expected growth rates, the cost of
equity and debt capital, general economic conditions, the Company’s outlook and market performance of the Company’s
industry and recent and forecasted financial performance. The Company performed a qualitative annual test for its indefinite-
lived intangible assets as of October 1, 2022. During the year ended December 31, 2022, the Company concluded that no
impairment exists.
Goodwill—Goodwill represents the amount of consideration paid in excess of the fair value of net assets acquired as a
result of the Company’s business acquisitions accounted for using the acquisition method of accounting. Goodwill is not
amortized and is subject to impairment testing at a reporting unit level on an annual basis or when a triggering event occurs that
may indicate the carrying value of the goodwill is impaired. An entity is permitted to first assess qualitative factors to determine
if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative
assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As of October
1, 2022, the Company's single reporting unit for purposes of its goodwill impairment test had a negative carrying value and the
Company performed a qualitative impairment test for goodwill. During the year ended December 31, 2022, the Company
concluded that no impairment exists. The Company reassesses its reporting units as part of its annual segment review. As of
December 31, 2022, the Company concluded that it continues to operate as one reporting unit.
90
91
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:29)e(cid:41)ses(cid:93)A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly
The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying
identified property, plant or equipment in exchange for consideration. Control of an asset is conveyed to the Company if the
Company obtains the right to obtain substantially all of the economic benefits of the asset or the right to direct the use of the
asset. The Company recognizes right-of-use (ROU) assets and lease liabilities at the lease commencement date based on the
present value of future, fixed lease payments over the term of the arrangement. ROU assets are amortized on a straight-line
basis over the term of the lease or are amortized based on consumption, if this approach is more representative of the pattern in
which benefit is expected to be derived from the underlying asset. Lease liabilities accrete to yield and are reduced at the time
when the lease payment is payable to the vendor. Variable lease payments are recognized at the time when the event giving rise
to the payment occurs and are recognized in the consolidated statements of comprehensive loss in the same line item as
expenses arising from fixed lease payments.
Leases are measured at present value using the rate implicit in the lease or, if the implicit rate is not determinable, the
lessee's implicit borrowing rate. As the implicit rate is not typically available, the Company uses its implicit borrowing rate
based on the information available at the lease commencement date to determine the present value of future lease payments.
The implicit borrowing rate approximates the rate the Company would pay to borrow on a collateralized basis over a similar
term an amount equal to the lease payments.
Refer to (cid:35)ote (cid:17) (cid:8) (cid:33)eases for details about the Company's lease portfolio, including required disclosures.
(cid:22)ebt (cid:26)ssu(cid:41)nce Costs(cid:93)Debt issuance costs are amortized to interest expense using the effective interest rate method
over the term of the debt. Unamortized debt issuance costs paid to the lender and third parties are reflected as a discount to the
debt in the consolidated balance sheets. Unamortized debt issuance costs associated with extinguished debt are expensed in the
period of the extinguishment.
(cid:24)(cid:41)i(cid:58) (cid:38)(cid:41)(cid:52)ue (cid:30)e(cid:41)su(cid:58)e(cid:53)ents(cid:93)The Company categorizes its financial assets and liabilities measured and reported at fair
value in the financial statements on a recurring basis based upon the level of judgment associated with the inputs used to
measure their fair value. (cid:35)ierarchical levels, which are directly related to the amount of subjectivity associated with the inputs
used to determine the fair value of financial assets and liabilities, are as follows(cid:24)
(cid:87)
(cid:87)
(cid:87)
Level 1 (cid:93) Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement
date.
Level 2 (cid:93) Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the
assets or liability through correlation with market data at the measurement date and for the duration of the instrument’s
anticipated life.
Level 3 (cid:93) Inputs reflect management’s best estimate of what market participants would use in pricing the asset or
liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk
inherent in the inputs to the model.
(cid:32)ach major category of financial assets and liabilities measured at fair value on a recurring basis is categorized based
upon the lowest level of significant input to the valuations. The fair value hierarchy also requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments in Level 1
generally include US treasuries and mutual funds listed in active markets. The Company's cash and cash equivalents permit
daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the
holding financial institutions.
value (in millions)(cid:24)
Assets
Cash and cash equivalents
Marketable securities
Collateral for interest rate swap
Lia(cid:52)ilities
Interest rate swap
Deferred consideration
Contingent consideration
Assets
Cash and cash equivalents
Marketable securities
Lia(cid:52)ilities
Deferred consideration
Contingent consideration
Carr(cid:75)in(cid:57)
(cid:45)alue
$
$
$
$
$
$
1,074.0
74.2
5.0
1.5
7.4
58.1
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)
Fair (cid:45)alue
Le(cid:72)el (cid:14)
Le(cid:72)el (cid:15)
Le(cid:72)el (cid:16)
$
$
$
$
$
$
1,074.0
74.2
5.0
(cid:93)
(cid:93)
(cid:93)
$
$
$
$
$
$
(cid:93)
(cid:93)
(cid:93)
1.5
7.4
(cid:93)
$
$
$
$
$
$
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
58.1
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14)
Fair (cid:45)alue
Carr(cid:75)in(cid:57)
(cid:45)alue
Le(cid:72)el (cid:14)
Le(cid:72)el (cid:15)
Le(cid:72)el (cid:16)
$
$
$
$
716.8
50.0
14.9
75.7
$
$
$
$
716.8
50.0
(cid:93)
(cid:93)
$
$
$
$
(cid:93)
(cid:93)
14.9
(cid:93)
$
$
$
$
(cid:93)
(cid:93)
(cid:93)
75.7
During the year ended December 31, 2022, the Company purchased $99.7 million of marketable securities consisting
of US Treasury Notes. Additionally, during the year ended December 31, 2022, a new Level 1 asset, collateral for interest rate
swap, and liability, interest rate swap, was added in connection with the Company's Term Loan. The Company entered into the
interest rate swap to hedge its variable interest rate in an exchange for a fixed interest rate. The collateral for interest rate swap
and the interest rate swap are recorded in other assets and accounts payable and accrued liabilities, respectively, in the
consolidated balance sheet as of December 31, 2022. The collateral for interest rate swap is cash, a Level 1 asset. The interest
rate swap is a Level 2 liability as it uses observable inputs other than quoted market prices in an active market. There were no
transfers in or out of Level 1, Level 2 or Level 3 during the years ended December 31, 2022 and 2021.
As of December 31, 2022, the Company held $74.2 million of available-for-sale securities, net of an unrealized loss of
$0.5 million recorded in accumulated other comprehensive income. As of December 31, 2021, the Company held $50.0 million
of available-for-sale securities, net of an unrealized loss of $0.2 million that were in an unrealized gain or loss position.
The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment
has occurred. In making its determination, the Company considers a number of factors, including(cid:24) (1) the significance of the
decline(cid:25) (2) whether the security was rated below investment grade(cid:25) (3) failure of the issuer to make scheduled interest or
principal payments(cid:25) and (4) the Company's ability and intent to retain the investment for a sufficient period of time for it to
recover. The Company has determined that there were no other-than-temporary impairments during the year ended December
31, 2022.
(cid:25)e(cid:51)erred Consideration
The deferred consideration arose from the (cid:29)usiness Acquisition in August 2021 (see Note 16). The Company is
obligated to issue to Motus equityholders an aggregate of 184,433 shares of the Company’s common stock on each of the first,
second and third anniversaries of the closing date, subject to certain reductions. During August 2022, the Company fulfilled the
payment due on the first anniversary of the closing date by issuing shares 171,427 of the Company's common stock, after
92
93
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
certain reductions. A valuation of the deferred consideration is performed quarterly with gains and losses included within
change in fair value of deferred and contingent consideration liabilities in the consolidated statements of comprehensive loss.
As the deferred consideration is settled in shares, there is no discount rate applied in the fair value calculation.
The deferred consideration has been classified as a Level 2 recurring liability as its valuation utilizes an input, the
Insmed share price, which is a directly observable input at the measurement date and for the duration of the liabilities'
anticipated lives. Deferred consideration expected to be settled within twelve months or less is classified as a current liability
and are included in accrued liabilities. As of December 31, 2022, the fair value of deferred consideration included in accrued
liabilities was $3.7 million. Deferred consideration expected to be settled in more than twelve months are classified as a non-
current liability and are included in other long-term liabilities. As of December 31, 2022, the fair value of deferred
consideration included in other long-term liabilities was $3.7 million.
The following observable input was used in the valuation of the deferred consideration as of December 31, 2022 and
2021(cid:24)
Fair (cid:45)alue as o(cid:56)
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)
(in (cid:63)illions)
Deferred consideration
$7.4
O(cid:52)ser(cid:72)a(cid:52)le In(cid:66)ut
Insmed share price on December
31, 2022
In(cid:66)ut (cid:45)alue
$19.98
Fair (cid:45)alue as o(cid:56)
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14)
(in (cid:63)illions)
Deferred consideration
$14.9
Contingent Consideration (cid:33)iabilities
O(cid:52)ser(cid:72)a(cid:52)le In(cid:66)ut
Insmed share price on December
31, 2021
In(cid:66)ut (cid:45)alue
$27.24
The contingent consideration liabilities arose from the (cid:29)usiness Acquisition in August 2021 (see Note 16). The
contingent consideration liabilities consist of developmental and regulatory milestones, a priority review voucher milestone and
net sales milestones. Upon the achievement of certain development and regulatory milestone events, the Company is obligated
to issue to Motus equityholders up to 5,348,572 shares in the aggregate and AlgaeneX equityholders up to 368,867 shares in the
aggregate. The fair value of the development and regulatory milestones are estimated utilizing a probability-adjusted approach.
At December 31, 2022, the weighted average probability of success was 42(cid:4). The development and regulatory milestones will
be settled in shares of the Company's common stock. As such, there is no discount rate applied in the fair value calculation.
If the Company were to receive a priority review voucher, the Company is obligated to pay to the Motus equityholders
a portion of the value of the priority review voucher, subject to certain reductions. The potential payout will be either 50(cid:4) of
the after-tax net proceeds received by the Company from a sale of the priority review voucher or 50(cid:4) of the average of the
sales prices for the last three publicly disclosed priority review voucher sales, less certain adjustments. The fair value of the
priority review voucher milestone is estimated utilizing a probability-adjusted discounted cash flow approach. This obligation
will be settled in cash.
The contingent consideration liabilities for net sales milestones were valued using an option pricing model with Monte
Carlo simulation. As of December 31, 2022, the fair value of these net sales milestones were deemed immaterial to the overall
fair value of the contingent consideration.
The contingent consideration liabilities have been classified as a Level 3 recurring liability as its valuation requires
substantial judgment and estimation of factors that are not currently observable in the market. If different assumptions were
used for the inputs to the valuation approach, the estimated fair value could be significantly different than the fair value the
Company determined. Contingent consideration liabilities expected to be settled within twelve months are classified as a current
liability withing accounts payable and accrued liabilities in the consolidated balance sheet. Contingent consideration liabilities
expected to be settled in more than twelve months are classified as a non-current liability in the consolidated balance sheet. A
valuation of the contingent consideration liabilities is performed quarterly with gains and losses included within change in fair
value of contingent consideration liabilities in the consolidated statements of comprehensive loss.
The following significant unobservable inputs were used in the valuation of the contingent consideration liabilities as
of December 31, 2022 and 2021(in millions)(cid:24)
Contin(cid:57)ent
Consideration
Lia(cid:52)ilities
Development and
regulatory milestones
Priority review voucher
milestone
Contin(cid:57)ent
Consideration
Lia(cid:52)ilities
Development and
regulatory milestones
Priority review voucher
milestone
Fair (cid:45)alue as o(cid:56)
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)
(cid:45)aluation Techni(cid:67)ue
(cid:44)no(cid:52)ser(cid:72)a(cid:52)le In(cid:66)uts
(cid:45)alues
$48.1
$6.8
Probability-adjusted
Probabilities of success
14(cid:4) - 95(cid:4)
Probability-adjusted
discounted cash flow
Probability of success
Discount rate
16.4(cid:4)
8.5(cid:4)
Fair (cid:45)alue as o(cid:56)
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14)
(cid:45)aluation Techni(cid:67)ue
(cid:44)no(cid:52)ser(cid:72)a(cid:52)le In(cid:66)uts
(cid:45)alues
$65.5
$5.3
Probability-adjusted
Probabilities of success
14(cid:4) - 95(cid:4)
Probability-adjusted
discounted cash flow
Probability of success
Discount rate
13.5(cid:4)
6.7(cid:4)
A rollforward of the Company's valuations deferred and contingent consideration liabilities for the years ended
December 31, 2022 and 2021 follows (in thousands)(cid:24)
De(cid:56)erred Consideration
(le(cid:72)el (cid:15) lia(cid:52)ilities)
Contin(cid:57)ent
Consideration
(le(cid:72)el (cid:16) lia(cid:52)ilities)
(cid:29)alance as of December 31, 2020
$
(cid:93)
$
Additions
Change in Fair Value
Payments
(cid:29)alance as of December 31, 2021
Additions
Change in Fair Value
Payments
13,700
1,372
(141)
14,931
(cid:93)
(3,234)
(4,297)
(cid:29)alance as of December 31, 2022
$
7,400
$
(cid:93)
69,706
5,962
(cid:93)
75,668
(cid:93)
(17,568)
(cid:93)
58,100
The change in fair value of deferred and contingent consideration liabilities are due to changes in factors such as the
probability of achieving milestones, our stock price, or certain other estimated assumptions.
Con(cid:67)ertible (cid:35)otes
The estimated fair value of the liability component of the Company's 0.75(cid:4) convertible senior notes due 2028 (the
2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of December 31, 2022 was
$475.0 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to
the 2028 Convertible Notes. The $562.7 million carrying value of the 2028 Convertible Notes as of December 31, 2022
excludes the $12.3 million of unamortized issuance costs.
The estimated fair value of the liability component of the Company's 1.75(cid:4) convertible senior notes due 2025 (the
2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of December 31, 2022 was
$209.6 million, determined using current market factors and the ability of the Company to obtain debt on comparable terms to
the 2025 Convertible Notes. The $222.9 million carrying value of the 2025 Convertible Notes as of December 31, 2022
excludes the $2.1 million of unamortized issuance costs.
(cid:39)ynthetic Royalty Financing Agreement
94
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INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
In October 2022, the Company entered into the Royalty Financing Agreement with OrbiMed. Under the Royalty
Financing Agreement, OrbiMed paid the Company $150 million in exchange for the right to receive, on a quarterly basis,
royalties in an amount equal to 4(cid:4) of ARI(cid:38)A(cid:52)C(cid:32) global net sales prior to September 1, 2025 and 4.5(cid:4) of ARI(cid:38)A(cid:52)C(cid:32) global
net sales on or after September 1, 2025, as well as 0.75(cid:4) of brensocatib global net sales, if approved. In the event that OrbiMed
has not received aggregate Revenue Interest Payments of at least $150 million on or prior to March 31, 2028, the Company
must make a one-time payment to OrbiMed for the difference between the $150 million and the aggregated Revenue Interest
Payments that have been paid. In addition, the royalty rate for ARI(cid:38)A(cid:52)C(cid:32) will be increased beginning March 31, 2028 to the
rate which would have resulted in aggregate Revenue Interest Payments as of March 31, 2028 equaling $150 million. The total
Revenue Interest Payments payable by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of
the purchase price under certain conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders
fees and deal expenses of $3.6 million, were $146.4 million.
The fair value of the Royalty Financing Agreement at the time of the transaction was based on the Company’s
estimates of future royalties expected to be paid to OrbiMed over the life of the arrangement, which was determined using
forecasts from market data sources, which are considered Level 3 inputs. This liability is being amortized using the effective
interest method over the life of the arrangement, in accordance ASC 470, Debt and ASC 835, Interest. The Company will
utilize the prospective method to account for subsequent changes in the estimated future payments to be made to OrbiMed and
will update the effective interest rate on a quarterly basis. For more information, see (cid:35)ote (cid:8) (cid:19) Royalty Financing Agreement.
Financial Instruments
(cid:24)o(cid:58)ei(cid:47)n Cu(cid:58)(cid:58)enc(cid:65)(cid:93)The Company has operations in the US, France, Germany, Ireland, Italy, the Netherlands,
Switzerland, the U(cid:38), and Japan. The results of its non-US dollar based functional currency operations are translated to US
dollars at the average exchange rates during the period. Assets and liabilities are translated at the exchange rate prevailing at the
balance sheet date. (cid:32)quity is translated at the prevailing exchange rate at the date of the equity transaction. Translation
adjustments are included in shareholders' equity, as a component of accumulated other comprehensive income.
The Company realizes foreign currency transaction gains and losses in the normal course of business based on
movements in the applicable exchange rates. These gains and losses are included as a component of other (expense) income,
net.
(cid:22)e(cid:58)iv(cid:41)tives(cid:93)In the normal course of business, the Company is exposed to the effects of interest rate changes. The
Company may enter into derivative instruments, including interest rate swaps and caps, to manage or hedge interest rate risk.
Derivative instruments are recorded at fair value on the balance sheet date. The Company has not elected hedge accounting
treatment for the changes in the fair value of derivatives. Changes in the fair value of derivatives are recorded each period and
are included in change in fair value of interest rate swap in the consolidated statements of comprehensive loss and consolidated
statements of cash flows.
Concent(cid:58)(cid:41)tion o(cid:46) C(cid:58)edit (cid:34)is(cid:51)(cid:93)Financial instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash equivalents with high credit-quality financial
institutions and may invest its short-term investments in US treasury securities, mutual funds and government agency bonds.
The Company has established guidelines relative to credit ratings and maturities that seek to maintain safety and liquidity.
The Company is exposed to risks associated with extending credit to customers related to the sale of products. The
Company does not require collateral to secure amounts due from its customers. The Company uses an expected loss
methodology to calculate allowances for trade receivables. The Company's measurement of expected credit losses is based on
relevant information about past events, including historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. The Company does not currently have a material allowance for
collectible trade receivables. The following table presents the percentage of gross product revenue represented by the
Company's three largest customers as of the year ended December 31, 2022.
Customer A
Customer (cid:29)
Customer C
Percenta(cid:57)e o(cid:56) Total (cid:30)ross
Product Re(cid:72)enue
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
36(cid:4)
34(cid:4)
20(cid:4)
24(cid:4)
24(cid:4)
7(cid:4)
The Company relies on third-party manufacturers and suppliers for manufacturing and supply of its products. The
inability of the suppliers or manufacturers to fulfill supply requirements of the Company could materially impact future
operating results. A change in the relationship with the suppliers or manufacturers, or an adverse change in their business, could
materially impact future operating results.
(cid:34)evenue (cid:34)eco(cid:47)nition - In accordance with ASC 606, Revenue from Contracts with Customers, the Company
recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration
the Company expects to receive in exchange for the goods or services provided. To determine revenue recognition for
arrangements within the scope of ASC 606, the Company performs the following five steps(cid:24) (1) identify the contracts with a
customer(cid:25) (2) identify the performance obligations in the contract(cid:25) (3) determine the transaction price(cid:25) (4) allocate the
transaction price to the performance obligations in the contract(cid:25) and (5) recognize revenue when or as the entity satisfies a
performance obligation. At contract inception, the Company assesses the goods or services promised within each contract to
determine which are performance obligations and to assess whether each promised good or service is distinct. The Company
then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or
as the performance obligation is satisfied. For all contracts that fall into the scope of ASC 606, the Company has identified one
performance obligation(cid:24) the sale of ARI(cid:38)A(cid:52)C(cid:32) to its customers. The Company has not incurred or capitalized any incremental
costs associated with obtaining contracts with customers.
Product revenues, net consist of net sales of ARI(cid:38)A(cid:52)C(cid:32). The Company's customers in the US include specialty
pharmacies and specialty distributors. In December 2020, the Company began recognizing product revenue from commercial
sales of ARI(cid:38)A(cid:52)C(cid:32) in (cid:32)urope. In July 2021, the Company began recognizing product revenue from commercial sales of
ARI(cid:38)A(cid:52)C(cid:32) in Japan. Globally, product revenues are recognized once the Company performs and satisfies all five steps of the
revenue recognition criteria mentioned above.
The following table presents a geographic summary of the Company's product revenues, net for the years ended
December 31, 2022 and 2021 (in thousands).
US
Japan
(cid:32)urope and rest of world
Total product revenues, net
For the (cid:48)ear Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
185,994 $
159,510
56,506
2,858
16,006
12,945
245,358 $
188,461
$
$
During the fourth quarter of 2022, the Company agreed with French authorities on the final reimbursement price
related to the temporary authorization for use (Autorisation Temporaire d'Utilisation or ATU) program in France. This final
pricing resulted in a change in estimate that reduced revenue by approximately $5.8 million in the fourth quarter of 2022, which
related to periods prior to 2022. The accrued France ATU reimbursement payable is recorded within accounts payable and
accrued liabilities in the consolidated balance sheets (See Note 6).
Revenue is recorded at net selling price (transaction price), which includes estimates of variable consideration for
which reserves are established for (a) customer credits, such as invoice discounts for prompt pay, (b) estimated government
rebates, such as Medicaid and Medicare Part D reimbursements, and estimated managed care rebates, (c) estimated
chargebacks, and (d) estimated costs of co-payment assistance. These reserves are based on the amounts earned or to be claimed
on the related sales and are classified as reductions of accounts receivable (prompt pay discounts and chargebacks), prepaid
expenses (co-payment assistance), or as a current liability (rebates). (cid:50)here appropriate, these estimates take into consideration a
96
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INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
range of possible outcomes which are probability-weighted for relevant factors such as the Company's historical experience,
current contractual and statutory requirements, and forecasted customer buying and payment patterns. Overall, these reserves
reflect the Company's best estimates of the amount of consideration to which it is entitled based on the terms of the applicable
contract. The amount of variable consideration included in the transaction price may be constrained and is included in the net
sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized
will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company's estimates.
If actual results in the future vary from estimates, the Company adjusts these estimates, which would affect net product revenue
and earnings in the period such variances become known.
Customer credits(cid:24) Certain of the Company's customers are offered various forms of consideration, including prompt
payment discounts. The payment terms for sales to specialty pharmacies and specialty distributors for prompt payment
discounts are based on contractual rates agreed with the respective specialty pharmacies and distributors. The Company
anticipates that its customers will earn these discounts and, therefore, deducts the full amount of these discounts from total
gross product revenues at the time such revenues are recognized.
Rebates(cid:24) The Company contracts with certain government agencies and managed care organizations, or collectively,
third-party payors, so that ARI(cid:38)A(cid:52)C(cid:32) will be eligible for purchase by, or partial or full reimbursement from, such third-party
payors. The Company estimates the rebates it will provide to third-party payors and deducts these estimated amounts from total
gross product revenues at the time the revenues are recognized. These reserves are recorded in the same period in which the
revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The current
liability is included in accounts payable and accrued liabilities on the consolidated balance sheets. The Company estimates the
rebates that it will provide to third-party payors based upon (i) the Company's contracts with these third-party payors, (ii) the
government mandated discounts applicable to government-funded programs, (iii) a range of possible outcomes that are
probability-weighted for the estimated payor mix, and (iv) information obtained from the Company's specialty pharmacies.
Chargebacks(cid:24) Chargebacks are discounts that occur when certain contracted customers, currently public health service
institutions and federal government entities purchasing via the Federal Supply Schedule, purchase directly from the Company's
specialty distributor. Contracted customers generally purchase the product at a discounted price and the specialty distributor, in
turn, charges back to the Company the difference between the price the specialty distributor initially paid and the discounted
price paid by the contracted customers. The Company estimates chargebacks provided to the specialty distributor and deducts
these estimated amounts from gross product revenues, and from accounts receivable, at the time revenues are recognized.
Co-payment assistance(cid:24) Patients who have commercial insurance and meet certain eligibility requirements may receive
co-payment assistance. (cid:29)ased upon the terms of the program and information regarding programs provided for similar specialty
pharmaceutical products, the Company estimates the average co-pay mitigation amounts and the percentage of patients that it
expects to participate in the program in order to establish accruals for co-payment assistance. These reserves are recorded in the
same period in which the related revenue is recognized, resulting in a reduction of product revenue. The Company adjusts its
accruals for co-pay assistance based on actual redemption activity and estimates of future redemptions related to sales in the
current period.
The following table provides a summary roll-forward of the Company's sales allowances and related accruals for the
years ended December 31, 2022 and 2021, which have been deducted in arriving at product revenues, net (in thousands).
Custo(cid:63)er Credits(cid:9)
Fees and Discounts
Re(cid:52)ates(cid:9)
Char(cid:57)e(cid:52)ac(cid:61)s and
Co(cid:10)(cid:66)a(cid:75) Assistance
Total
(cid:29)alance as of December 31, 2021
Allowances for current period sales
Allowances for prior period sales
Payments and credits
(cid:29)alance as of December 31, 2022
(cid:29)alance as of December 31, 2020
Allowances for current period sales
Allowances for prior period sales
Payments and credits
(cid:29)alance as of December 31, 2021
$
$
$
$
3,122 $
13,125
5,787
(7,802)
14,232 $
453 $
6,788
(cid:93)
(4,119)
3,122 $
5,276 $
23,737
(471)
(22,978)
5,564 $
4,518 $
21,347
(476)
(20,113)
5,276 $
8,398
36,862
5,316
(30,780)
19,796
4,971
28,135
(476)
(24,232)
8,398
The Company also recognizes revenue related to various early access programs ((cid:32)APs) in (cid:32)urope, predominantly in
France. (cid:32)APs are intended to make products available on a named patient basis before they are commercially available in
accordance with local regulations. The allowance for prior period sales of customer credits, fees and discounts in the year ended
December 31, 2022 is related to the change in estimate for the final France ATU pricing.
(cid:26)nvento(cid:58)(cid:65) (cid:41)nd Cost o(cid:46) (cid:33)(cid:58)oduct (cid:34)evenues (e(cid:64)c(cid:52)udin(cid:47) (cid:41)(cid:53)o(cid:58)ti(cid:66)(cid:41)tion o(cid:46) int(cid:41)n(cid:47)ib(cid:52)e (cid:41)ssets)(cid:93)Inventory is stated at the
lower of cost and net realizable value. The Company began capitalizing inventory costs following (FDA approval of
ARI(cid:38)A(cid:52)C(cid:32) in September 2018. Inventory is sold on a first-in, first-out (FIFO) basis. The Company periodically reviews
inventory for expiry and obsolescence and, if necessary, writes down accordingly. If quality specifications are not met during
the manufacturing process, such inventory is written off to cost of product revenues (excluding amortization of intangible
assets) in the period identified.
Cost of product revenues (excluding amortization of intangible assets) consist primarily of direct and indirect costs
related to the manufacturing of ARI(cid:38)A(cid:52)C(cid:32) sold, including third-party manufacturing costs, packaging services, freight, and
allocation of overhead costs, in addition to royalty expenses and revenue-based milestone payments. Cost is determined using a
standard cost method, which approximates actual cost, and assumes a FIFO flow of goods.
Prior to FDA approval of ARI(cid:38)A(cid:52)C(cid:32), the Company expensed all inventory-related costs in the period incurred.
Inventory used for clinical development purposes is expensed to R&D expense when consumed.
(cid:34)ese(cid:41)(cid:58)c(cid:48) (cid:41)nd (cid:22)eve(cid:52)o(cid:56)(cid:53)ent(cid:93)R&D expenses consist primarily of salaries, benefits and other related costs, including
stock-based compensation, for personnel serving in the Company's research and development functions, including medical
affairs. R&D expense also includes other internal operating expenses, the cost of manufacturing a product candidate, including
the medical devices for drug delivery, for clinical study, the cost of conducting clinical studies, and the cost of conducting
preclinical and research activities. In addition, R&D expenses include payments to third parties for the license rights to products
in development (prior to marketing approval), such as brensocatib. The Company's expenses related to manufacturing its
product candidates and medical devices for clinical study are primarily related to activities at CMOs that manufacture its
clinical product supply of ARI(cid:38)A(cid:52)C(cid:32), brensocatib, TPIP and early-stage research. The Company's expenses related to clinical
trials are primarily related to activities at CROs that conduct and manage clinical trials on the Company's 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 primarily depend on performance criteria such as the successful enrollment of patients or the completion of clinical
trial milestones as well as time-based fees. (cid:32)xpenses are accrued based on contracted amounts applied to the level of patient
enrollment and to activity according to the clinical trial protocol. Nonrefundable advance payments for goods or services that
will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are then
recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no
longer expected to be provided.
Stoc(cid:51)(cid:6)b(cid:41)sed Co(cid:53)(cid:56)ens(cid:41)tion(cid:93)The Company recognizes stock-based compensation expense for awards of equity
instruments to employees and directors based on the grant-date fair value of those awards. The grant-date fair value of the
98
99
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
(cid:11). Su(cid:53)(cid:53)(cid:41)(cid:58)(cid:65) o(cid:46) Si(cid:47)ni(cid:46)ic(cid:41)nt Accountin(cid:47) (cid:33)o(cid:52)icies (Continued)
award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting
period of the award. The Company may also grant performance-based stock options and performance stock units (PSUs) to
employees from time to time. The grant-date fair value of performance-based stock options is recognized as compensation
expense over the implicit service period using the accelerated attribution method once it is probable that the performance
condition will be achieved. The grant-date fair value of performance stock units is recognized on the date the performance
conditions become probable, with an initial recording of the cumulative expense that would have been recognized if the PSU
expense had been recognized on a straight-line basis since the date of grant. The remaining unamortized fair value of the awards
will then be expensed prospectively on a straight-line basis over the remaining service period. Stock-based compensation
expense is included in both R&D and SG&A expenses in the consolidated statements of comprehensive loss.
(cid:26)nvest(cid:53)ent (cid:26)nco(cid:53)e (cid:41)nd (cid:26)nte(cid:58)est E(cid:64)(cid:56)ense(cid:93)Investment income consists of interest income earned on the Company's
cash and cash equivalents and marketable securities. Interest expense consists primarily of interest costs related to the
Company's debt, including non-cash interest expense related to the Company's Royalty Financing Agreement (See Note 9).
(cid:26)nco(cid:53)e (cid:36)(cid:41)(cid:64)es(cid:93)The Company accounts for income taxes under the asset and liability method. 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 carry forwards. 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.
A valuation allowance is recorded to reduce the deferred tax assets to the amount that is expected to be realized. In
evaluating the need for a valuation allowance, the Company takes 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 a valuation allowance, the Company records a change in valuation allowance through income tax expense in the period such
determination is made.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by taxing authorities, based solely on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be measured based on the largest benefit that is more
likely than not to be sustained upon ultimate settlement. As any adjustment to the Company’s uncertain tax positions would not
result in a cash tax liability, it has not recorded any accrued interest or penalties related to its uncertain tax positions.
The Company's policy for interest and penalties related to income tax exposures is to recognize interest and penalties
as a component of the income tax provision in the consolidated statements of comprehensive loss.
(cid:31)et (cid:29)oss (cid:33)e(cid:58) S(cid:48)(cid:41)(cid:58)e(cid:93)(cid:29)asic net loss per share is computed by dividing net loss by the weighted average number of
common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted
average number of common shares and other dilutive securities outstanding during the period. Potentially dilutive securities
from stock options, restricted stock (RS), restricted stock units (RSUs), PSUs and convertible debt securities would be anti-
dilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of
outstanding stock options and from the assumed conversion of the Company's convertible notes are determined based on the
treasury stock method.
The following table sets forth the reconciliation of the weighted average number of shares used to compute basic and
diluted net loss per share for the years ended December 31, 2022, 2021 and 2020.
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(in thousands(cid:9) e(cid:74)ce(cid:66)t (cid:66)er share a(cid:63)ounts)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
Numerator(cid:24)
Net loss
Denominator(cid:24)
(cid:50)eighted average common shares used in calculation of basic net loss per
share(cid:24)
(cid:32)ffect of dilutive securities(cid:24)
Common stock options
RS and RSUs
PSUs
Convertible debt securities
$
(481,534) $
(434,654) $
(294,090)
123,035
112,111
97,605
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:93)
(cid:50)eighted average common shares outstanding used in calculation of
diluted net loss per share
123,035
112,111
97,605
Net loss per share(cid:24)
(cid:29)asic and diluted
$
(3.91) $
(3.88) $
(3.01)
The following potentially dilutive securities have been excluded from the computations of diluted weighted average
common shares outstanding as of December 31, 2022, 2021 and 2020 as their effect would have been anti-dilutive (in
thousands).
Common stock options
Unvested RS and RSUs
PSUs
Convertible debt securities
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:13)
(cid:15)(cid:13)(cid:15)(cid:15)
17,525
1,520
671
23,438
14,089
1,020
(cid:93)
23,438
12,263
844
(cid:93)
11,492
Se(cid:47)(cid:53)ent (cid:26)n(cid:46)o(cid:58)(cid:53)(cid:41)tion(cid:93)The Company currently operates in one business segment, which is the development and
commercialization of therapies for patients with rare diseases. The Company has a single management team that reports to the
Chief (cid:32)xecutive Officer, the chief operating decision maker, who 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 has
one reportable segment.
(cid:34)ecent(cid:52)(cid:65) Ado(cid:56)ted Accountin(cid:47) (cid:33)(cid:58)onounce(cid:53)ents(cid:93)In August 2020, the Financial Accounting Standards (cid:29)oard issued
ASU 2020-06, Debt (cid:93) Accounting for Convertible Instruments, to reduce the complexity associated with applying GAAP to
certain financial instruments with characteristics of liabilities and equity. For convertible instruments, the number of accounting
models for convertible debt instruments is reduced, which results in fewer embedded conversion features being separately
recognized from the host contract as compared with current GAAP. Only convertible instruments that meet the definition of a
derivative or are issued with substantial premiums will continue to be subject to the separation models. ASU 2020-06 is
effective for fiscal years beginning after December 15, 2021. A modified retrospective and a fully retrospective transition
method are both permitted. The Company transitioned using the modified retrospective method. The impact of adopting ASU
2020-06 resulted on January 1, 2022 resulted in an opening balance sheet adjustment increasing debt by approximately
$221.9 million and issuance costs classified to debt by approximately $6.1 million, decreasing the deferred tax liability by
$1.4 million, as well as an increase to retained earnings of approximately $50.2 million, with an offsetting reduction to
additional paid-in-capital of $264.6 million, net of tax.
100
101
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:12).
(cid:26)nvento(cid:58)(cid:65)
(cid:14).
(cid:24)i(cid:64)ed Assets(cid:5) (cid:31)et
The Company's inventory balance consists of the following (in thousands)(cid:24)
Fixed assets are stated at cost and depreciated using the straight-line method, based on useful lives as follows (in
thousands)(cid:24)
Raw materials
(cid:50)ork-in-process
Finished goods
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
$
$
27,245 $
22,460
20,217
69,922 $
29,541
18,528
18,940
67,009
Inventory is stated at the lower of cost and net realizable value and consists of raw materials, work-in-process and
finished goods. The Company began capitalizing inventory costs following FDA approval of ARI(cid:38)A(cid:52)C(cid:32) in September 2018.
The Company has not recorded any significant inventory write-downs since that time. The Company currently uses a limited
number of third-party CMOs to produce its inventory.
(cid:13).
(cid:26)nt(cid:41)n(cid:47)ib(cid:52)es(cid:5) (cid:31)et (cid:41)nd (cid:25)ood(cid:63)i(cid:52)(cid:52)
Intan(cid:57)i(cid:52)les(cid:9) Net
Finite(cid:8)li(cid:67)ed Intangible Assets
As of December 31, 2022, the Company's finite-lived intangible assets consisted of acquired ARI(cid:38)A(cid:52)C(cid:32) R&D and
the milestones paid to PARI for the license to use Lamira for the delivery of ARI(cid:38)A(cid:52)C(cid:32) to patients as a result of the FDA and
(cid:32)C approvals of ARI(cid:38)A(cid:52)C(cid:32) in September 2018 and October 2020, respectively. The Company began amortizing its acquired
ARI(cid:38)A(cid:52)C(cid:32) R&D and PARI milestones intangible assets in October 2018, over ARI(cid:38)A(cid:52)C(cid:32)'s initial regulatory exclusivity
period of 12 years. Amortization of these assets during each of the next five years is estimated to be approximately $5.1 million
per year.
Inde(cid:51)inite(cid:8)li(cid:67)ed Intangible Assets
As of December 31, 2022, the Company's indefinite-lived intangible assets consisted of acquired IPR&D from the
(cid:29)usiness Acquisition (see Note 16). Indefinite-lived intangible assets are not amortized.
A rollforward of the Company's intangible assets for the years ended December 31, 2022 and 2021 follows (in
thousands)(cid:24)
(cid:15)(cid:13)(cid:15)(cid:15)
Intan(cid:57)i(cid:52)le Asset
(cid:33)anuar(cid:75) (cid:14)(cid:9)
Additions
A(cid:63)orti(cid:76)ation
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Acquired ARI(cid:38)A(cid:52)C(cid:32) R&D
$
42,439 $
(cid:93) $
(4,851) $
Acquired IPR&D
PARI milestones
29,600
1,770
(cid:93)
(cid:93)
(cid:93)
(202)
$
73,809 $
(cid:93) $
(5,053) $
37,588
29,600
1,568
68,756
(cid:15)(cid:13)(cid:15)(cid:14)
Intan(cid:57)i(cid:52)le Asset
(cid:33)anuar(cid:75) (cid:14)(cid:9)
Additions
A(cid:63)orti(cid:76)ation
Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Acquired ARI(cid:38)A(cid:52)C(cid:32) R&D
$
47,289 $
(cid:93) $
(4,850) $
Acquired IPR&D
PARI milestones
(cid:93)
1,972
29,600
(cid:93)
(cid:93)
(202)
$
49,261 $
29,600 $
(5,052) $
42,439
29,600
1,770
73,809
(cid:30)ood(cid:73)ill
The Company's goodwill balance of $136.1 million as of December 31, 2022 and 2021 resulted from the August 2021
(cid:29)usiness Acquisition (see Note 16).
Asset Descri(cid:66)tion
Lab equipment
Furniture and fixtures
Computer hardware and software
Office equipment
Manufacturing equipment
Leasehold improvements
Construction in progress
Less accumulated depreciation
Esti(cid:63)ated
(cid:44)se(cid:56)ul Li(cid:56)e ((cid:75)ears)
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
7
7
3 - 5
7
7
2 - 10
(cid:93)
$
16,403 $
11,862
6,428
5,227
89
1,203
37,057
29,529
95,936
5,799
7,264
89
1,145
36,073
27,784
90,016
(39,445)
(37,061)
$
56,491 $
52,955
Depreciation expense was $5.3 million, $9.1 million and $9.1 million for the years ended December 31, 2022, 2021
and 2020, respectively.
6.
Accounts (cid:33)(cid:41)(cid:65)(cid:41)b(cid:52)e (cid:41)nd Acc(cid:58)ued (cid:29)i(cid:41)bi(cid:52)ities
Accounts payable and accrued liabilities consist of the following (in thousands)(cid:24)
Accounts payable and other accrued operating expenses
Accrued clinical trial expenses
Accrued professional fees
Accrued technical operation expenses
Accrued compensation
Accrued royalty and milestones payable
Accrued interest payable
Royalty revenue payable
Accrued sales allowances and related costs
Accrued France ATU reimbursement payable
Deferred and contingent consideration from (cid:29)usiness Acquisition
Other accrued liabilities
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
$
50,461 $
36,456
14,403
3,345
32,040
4,710
6,340
2,149
6,974
12,943
10,700
1,596
35,784
19,410
10,678
6,187
28,581
6,655
2,175
(cid:93)
5,556
2,719
4,883
2,402
$
182,117 $
125,030
7.
(cid:29)e(cid:41)ses
The Company's lease portfolio consists primarily of office and laboratory space, manufacturing facilities, research
equipment and fleet vehicles. All of the Company's leases are classified as operating leases, except for the Company's leases of
its corporate headquarters and a research facility in San Diego, which are classified as finance leases. The terms of the
Company's lease agreements that have commenced range from less than one year to ten years, ten months. In its assessment of
the term of each such lease, the Company has not included any options to extend or terminate the lease due to the absence of
economic incentives in its lease agreements. Leases that qualify for treatment as a short-term lease are expensed as incurred.
These short-term leases are not material to the Company's financial position. Furthermore, the Company does not separate lease
102
103
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. (cid:29)e(cid:41)ses (Continued)
7. (cid:29)e(cid:41)ses (Continued)
and non-lease components for all classes of underlying assets. The Company's leases do not contain residual value guarantees
and it does not sublease any of its leased assets.
The Company outsources its manufacturing operations to CMOs. Upon review of the agreements with its CMOs, the
Company determined that these contracts contain embedded leases for dedicated manufacturing facilities. The Company obtains
substantially all of the economic benefits from the use of the manufacturing facilities, the Company has the right to direct how
and for what purpose the facility is used throughout the period of use, and the supplier does not have the right to change the
operating instructions of the facility. The operating lease right-of-use assets and corresponding lease liabilities associated with
the manufacturing facilities is the sum of the minimum guarantees over the life of the production contracts.
The table below summarizes the Company's total lease costs included in its consolidated financial statements, as well
as other required quantitative disclosures (in thousands).
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:14)
Finance lease cost(cid:24)
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Operating lease cost
Variable lease cost
Total lease cost
Other in(cid:56)or(cid:63)ation(cid:23)
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash flows for finance leases
Operating cash flows for operating leases
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for new finance
lease liabilities
Right-of-use assets obtained in exchange for new operating
lease liabilities
(cid:50)eighted average remaining lease term - finance leases
(cid:50)eighted average remaining lease term - operating leases
(cid:50)eighted average discount rate - finance leases
(cid:50)eighted average discount rate - operating leases
$
1,960
1,808
$
1,078
1,300
$
2,378
12,125
7,043
$
21,546
$
$
$
$
$
1,300
14,598
1,081
(cid:93)
12,948
8.6 years
3.8 years
8.6 (cid:4)
7.0 (cid:4)
$
$
$
$
$
$
$
3,768
12,920
11,254
27,942
1,907
11,450
601
16,741
565
8.6 years
3.2 years
7.9 (cid:4)
7.0 (cid:4)
The Company records variable consideration for variable lease payments in excess of fixed fees or minimum
guarantees. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of
ARI(cid:38)A(cid:52)C(cid:32) and are capitalized within inventory in the Company's consolidated balance sheet, while the variable costs related
to other leasing arrangements, not related to the manufacturing of ARI(cid:38)A(cid:52)C(cid:32), have been classified within operating expenses
in the Company's consolidated statements of comprehensive loss.
The table below presents the maturity of lease liabilities on an annual basis for the remaining years of the Company's
commenced lease agreements (in thousands).
(cid:48)ear Endin(cid:57) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
Finance Lease
O(cid:66)eratin(cid:57) Leases
$
3,634 $
2023
2024
2025
2026
2027
Thereafter
Total
Less(cid:24) present value discount
Present value of lease liabilities
(cid:25)alance Sheet Classi(cid:56)ication at Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9) (cid:15)(cid:13)(cid:15)(cid:15)(cid:23)
Current lease liabilities
Long-term lease liabilities
Total lease liabilities
$
$
$
4,840
4,967
5,097
5,228
19,519
43,285
12,432
30,853 $
1,217 $
29,636
30,853 $
8,242
7,333
7,182
1,217
176
135
24,285
2,523
21,762
6,909
14,853
21,762
In addition to the Company's lease agreements that have previously commenced and are reflected in the consolidated
financial statements, the Company has entered into additional lease agreements that have not yet commenced. The Company
entered into certain agreements with Patheon U(cid:38) Limited (Patheon) related to increasing its long-term production capacity for
ARI(cid:38)A(cid:52)C(cid:32) commercial inventory. The Company has determined that these agreements with Patheon contain an embedded
lease for the manufacturing facility and the specialized equipment contained therein. Costs of $40.7 million incurred by the
Company under these additional agreements have been classified within other assets in the Company's consolidated balance
sheet. Upon the commencement date, prepaid costs and minimum guarantees specified in the agreement will be combined to
establish an operating lease ROU asset and operating lease liability.
(cid:17).
(cid:22)ebt(cid:5) (cid:29)on(cid:47)(cid:6)(cid:36)e(cid:58)(cid:53)
Debt, long-term consists of the following commitments as of December 31, 2022 and 2021 (in thousands)(cid:24)
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
Convertible notes
Term Loan
Debt, long-term
$
$
785,621
$
339,629
1,125,250
$
566,588
(cid:93)
566,588
(cid:39)ecured (cid:39)enior Term (cid:33)oan
In October 2022, the Company entered into a $350 million Term Loan with Pharmakon that matures on October 19,
2027. The Term Loan bears interest at a rate based upon the SOFR, subject to a SOFR floor of 2.5(cid:4), in addition to a margin of
7.75(cid:4) per annum. Up to 50(cid:4) of the interest payable during the first 24 months from the closing of the Term Loan may be paid-
in-kind at the Company's election. If elected, paid-in-kind interest will be capitalized and added to the principal amount of the
Term Loan. The Term Loan, including the paid-in-kind interest, will be repaid in eight equal quarterly payments starting in the
13th quarter following the closing of the Term Loan (i.e., the quarter ending March 31, 2026), except that the repayment start
date may be extended at the Company's option for an additional four quarters, so that repayments start in the 17th quarter
following the closing of the Term Loan, subject to the achievement of specified ARI(cid:38)A(cid:52)C(cid:32) data thresholds and certain other
conditions. Net proceeds from the Term Loan, after deducting the lenders fees and deal expenses of $15.1 million, were
$334.9 million.
The following table presents the carrying value of the Company’s Term Loan balance as of December 31, 2022 (in
thousands)(cid:24)
104
105
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:17). (cid:22)ebt(cid:5) (cid:29)on(cid:47)(cid:6)(cid:36)e(cid:58)(cid:53) (Continued)
(cid:17). (cid:22)ebt(cid:5) (cid:29)on(cid:47)(cid:6)(cid:36)e(cid:58)(cid:53) (Continued)
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
Original Term Loan balance
Paid-in-kind interest capitalized
Term Loan issuance costs, unamortized
Term Loan
$
$
350,000
4,165
(14,536)
339,629
Con(cid:67)ertible (cid:35)otes
In May 2021, the Company completed an underwritten public offering of the 2028 Convertible Notes, in which the
Company sold $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the
underwriters' option to purchase an additional $75.0 million in aggregate principal amount of 2028 Convertible Notes. The
Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses
of $15.7 million, were approximately $559.3 million. The 2028 Convertible Notes bear interest payable semiannually in arrears
on June 1 and December 1 of each year, beginning on December 1, 2021. The 2028 Convertible Notes mature on June 1, 2028,
unless earlier converted, redeemed, or repurchased.
In January 2018, the Company completed an underwritten public offering of the Convertible Notes, in which the
Company sold $450.0 million aggregate principal amount of the 2025 Convertible Notes, including the exercise in full of the
underwriters' option to purchase an additional $50.0 million in aggregate principal amount of 2025 Convertible Notes. The
Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses
of $14.2 million, were approximately $435.8 million. The 2025 Convertible Notes bear interest payable semiannually in arrears
on January 15 and July 15 of each year, beginning on July 15, 2018. The 2025 Convertible Notes mature on January 15, 2025,
unless earlier converted, redeemed, or repurchased.
A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of the
Company's outstanding 2025 Convertible Notes. The Company recorded a loss on early extinguishment of debt of $17.7
million, primarily related to the premium paid on extinguishment of a portion the 2025 Convertible Notes.
On or after October 15, 2024, until the close of business on the second scheduled trading day immediately preceding
January 15, 2025, holders may convert their 2025 Convertible Notes at any time. The initial conversion rate for the 2025
Convertible Notes is 25.5384 shares of common stock per $1,000 principal amount of 2025 Convertible Notes (equivalent to an
initial conversion price of approximately $39.16 per share of common stock). On or after March 1, 2028, until the close of
business on the second scheduled trading day immediately preceding June 1, 2028, holders may convert their 2028 Convertible
Notes at any time. The initial conversion rate for the 2028 Convertible Notes is 30.7692 shares of common stock per $1,000
principal amount of 2028 Convertible Notes (equivalent to an initial conversion price of approximately $32.50 per share of
common stock). Upon conversion of either the 2025 Convertible Notes or the 2028 Convertible Notes, holders may receive
cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the
Company's option. The conversion rates will be subject to adjustment in some events but will not be adjusted for any accrued
and unpaid interest.
(cid:35)olders may convert their 2025 Convertible Notes prior to October 15, 2024 or their 2028 Convertible Notes prior to
March 1, 2028, only under the following circumstances, subject to the conditions set forth in the applicable indenture(cid:24) (i) during
the five business day period immediately after any five consecutive trading day period (the measurement period) in which the
trading price per $1,000 principal amount of the applicable series of convertible notes, as determined following a request by a
holder of such convertible notes, for each trading day of the measurement period was less than 98(cid:4) of the product of the last
reported sale price of the common stock and the conversion rate on such trading day, (ii) the Company elects to distribute to all
or substantially all holders of the common stock (a) any rights, options or warrants (other than in connection with a stockholder
rights plan for so long as the rights issued under such plan have not detached from the associated shares of common stock)
entitling them, for a period of not more than 45 days from the declaration date for such distribution, to subscribe for or purchase
shares of common stock at a price per share that is less than the average of the last reported sale prices of the common stock for
the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the declaration date for
such distribution, or (b) the Company's assets, debt securities or rights to purchase securities of the Company, which
distribution has a per share value, as reasonably determined by the board of directors, exceeding 10(cid:4) of the last reported sale
price of the common stock on the trading day immediately preceding the declaration date for such distribution, (iii) if a
transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs, or if the Company is a
party to (a) a consolidation, merger, combination, statutory or binding share exchange or similar transaction, pursuant to which
the common stock would be converted into, or exchanged for, cash, securities or other property or assets, or (b) any sale,
conveyance, lease or other transfer or similar transaction in one transaction or a series of transactions of all or substantially all
of the consolidated assets of the Company and its subsidiaries, taken as a whole, all or any portion of the applicable series of
convertible notes may be surrendered by a holder for conversion at any time from or after the date that is 30 scheduled trading
days prior to the anticipated effective date of the transaction, (iv) if during any calendar quarter commencing after the calendar
quarter ending on March 31, 2018 or June 30, 2021 for the 2025 Convertible Notes and the 2028 Convertible Notes,
respectively (and only during such calendar quarter), the last reported sale price of the common stock for at least 20 trading
days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130(cid:4) of the conversion price on each applicable trading day,
or (v) if the Company sends a notice of redemption, a holder may surrender all or any portion of its convertible notes to which
the notice of redemption relates for conversion at any time on or after the date the applicable notice of redemption was sent
until the close of business on (a) the second business day immediately preceding the related redemption date or (b) if the
Company fails to pay the redemption price on the redemption date as specified in such notice of redemption, such later date on
which the redemption price is paid. To date, there have not been any holder-initiated redemption requests of either series of
convertible notes.
(cid:32)ach series of convertible notes can be settled in cash, common stock, or a combination of cash and common stock at
the Company's option, and thus, the Company determined the embedded conversion options in both series of convertible notes
are not required to be separately accounted for as a derivative. (cid:35)owever, since the convertible notes are within the scope of the
accounting guidance for cash convertible instruments, the Company is required to separate each series of convertible notes into
liability and equity components. The carrying amount of the liability component of each series of convertible notes as of the
date of issuance was calculated by measuring the fair value of a similar liability that did not have an associated equity
component. The fair value was based on data from readily available pricing sources which utilize market observable inputs and
other characteristics for similar types of instruments. The carrying amount of the equity component representing the embedded
conversion option for each series of convertible notes was determined by deducting the fair value of the liability component
from the gross proceeds of the applicable convertible notes. The excess of the principal amount of the liability component over
its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated
equity component using the effective interest method. The equity component is not remeasured as long as it continues to meet
the conditions for equity classification in the accounting guidance for contracts in an entity’s own equity. The fair value of the
liability component of the 2025 Convertible Notes on the date of issuance was estimated at $309.1 million using an effective
interest rate of 7.6(cid:4) and, accordingly, the residual equity component on the date of issuance was $140.9 million. The fair value
of the liability component of the 2028 Convertible Notes on the date of issuance was estimated at $371.6 million using an
effective interest rate of 7.1(cid:4) and, accordingly, the residual equity component on the date of issuance was $203.4 million. The
respective discounts were amortized to interest expense over the term of the applicable series of convertible notes through
December 31, 2021, prior to the adoption of ASU 2020-06. The 2025 Convertible Notes and the 2028 Convertible Notes have
remaining periods of approximately 2.04 years and 5.42 years, respectively. The following table presents the carrying value of
the Company’s debt balance as of December 31, 2022 and 2021 (in thousands)(cid:24)
Face value of outstanding convertible notes
Debt issuance costs, unamortized
Discount on debt
Convertible notes
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
$
$
800,000
$
(14,379)
(cid:93)
785,621
$
800,000
(11,539)
(221,873)
566,588
106
107
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(cid:17). (cid:22)ebt(cid:5) (cid:29)on(cid:47)(cid:6)(cid:36)e(cid:58)(cid:53) (Continued)
(cid:18).
(cid:34)o(cid:65)(cid:41)(cid:52)t(cid:65) (cid:24)in(cid:41)ncin(cid:47) A(cid:47)(cid:58)ee(cid:53)ent (Continued)
As of December 31, 2022, future principal repayments of debt for each of the fiscal years through maturity were as
follows (in thousands)(cid:24)
(cid:48)ear Endin(cid:57) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:23)
2023
2024
2025
2026
2027
2028 and thereafter
$
(cid:93)
(cid:93)
225,000
177,083
177,082
575,000
$
1,154,165
interest method over the life of the arrangement, in accordance ASC 470, Debt and ASC 835, Interest. The initial annual
effective interest rate was determined to be 12.4(cid:4). The Company will utilize the prospective method to account for subsequent
changes in the estimated future payments to be made to OrbiMed and will update the effective interest rate on a quarterly basis.
The following table presents the carrying value of the Company’s Royalty Financing Agreement balance as of
December 31, 2022 (in thousands)(cid:24)
Royalty Financing
Royalty revenue payable
Non-cash interest expense
Royalty Financing issuance costs, unamortized
Royalty Financing Agreement
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
$
$
150,000
(2,149)
3,687
(3,523)
148,015
The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is
determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are
currently in place.
Non-cash interest expense is recorded within interest expense in the consolidated statements of comprehensive loss.
Royalty revenue payable is recorded within accounts payable and accrued liabilities on the consolidated balance sheet.
Interest expense for the years ended December 31, 2022, 2021, and 2020, is as follows (in thousands)(cid:24)
1(cid:9).
S(cid:48)(cid:41)(cid:58)e(cid:48)o(cid:52)de(cid:58)s(cid:2) Equit(cid:65)
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:13)
Convertible debt contractual interest expense
$
8,250 $
8,134 $
7,885
Term Loan contractual interest expense
Royalty Financing Agreement non-cash interest expense
Amortization of debt issuance costs
Amortization of debt discount
Swap interest expense
Total debt interest expense
Finance lease interest expense
Total interest expense
8,330
3,687
3,991
(cid:93)
380
(cid:93)
(cid:93)
1,890
29,149
(cid:93)
$
$
24,638 $
39,173 $
1,808
1,300
26,446 $
40,473 $
(cid:93)
(cid:93)
1,397
18,981
(cid:93)
28,263
1,301
29,564
In accordance with the Company's transition using the modified retrospective method upon adopting ASU 2020-06 on
January 1, 2022, the Company ceased accreting debt discount.
(cid:18).
(cid:34)o(cid:65)(cid:41)(cid:52)t(cid:65) (cid:24)in(cid:41)ncin(cid:47) A(cid:47)(cid:58)ee(cid:53)ent
In October 2022, the Company entered into the Royalty Financing Agreement with OrbiMed. Under the Royalty
Financing Agreement, OrbiMed paid the Company $150 million in exchange for the right to receive, on a quarterly basis,
royalties in an amount equal to 4(cid:4) of ARI(cid:38)A(cid:52)C(cid:32) global net sales prior to September 1, 2025 and 4.5(cid:4) of ARI(cid:38)A(cid:52)C(cid:32) global
net sales on or after September 1, 2025, as well as 0.75(cid:4) of brensocatib global net sales, if approved. In the event that OrbiMed
has not received aggregate Revenue Interest Payments of at least $150 million on or prior to March 31, 2028, the Company
must make a one-time payment to OrbiMed for the difference between the $150 million and the aggregated Revenue Interest
Payments that have been paid. In addition, the royalty rate for ARI(cid:38)A(cid:52)C(cid:32) will be increased beginning March 31, 2028 to the
rate which would have resulted in aggregate Revenue Interest Payments as of March 31, 2028 equaling $150 million. The total
Revenue Interest Payments payable by us to OrbiMed are capped at 1.8x of the purchase price or up to a maximum of 1.9x of
the purchase price under certain conditions. Net proceeds from the Royalty Financing Agreement, after deducting the lenders
fees and deal expenses of $3.6 million were, $146.4 million.
The fair value of the Royalty Financing Agreement at the time of the transaction was based on the Company’s
estimates of future royalties expected to be paid to OrbiMed over the life of the arrangement, which was determined using
forecasts from market data sources, which are considered Level 3 inputs. This liability is being amortized using the effective
Co(cid:53)(cid:53)on Stoc(cid:51)(cid:93)As of December 31, 2022, the Company had 500,000,000 shares of common stock authorized with a
par value of $0.01 per share and 135,653,731 shares of common stock issued and outstanding. In addition, as of December 31,
2022, the Company had reserved 17,525,296 shares of common stock for issuance upon the exercise of outstanding common
stock options, 1,519,900 shares of common stock for issuance upon the vesting of RSUs and 671,112 shares for issuance upon
the vesting of PSUs. The Company has also reserved 23,438,430 shares of common stock in the aggregate for issuance upon
conversion of the 2025 Convertible Notes and 2028 Convertible Notes, subject to adjustment in accordance with the applicable
indentures. In connection with the (cid:29)usiness Acquisition, the Company reserved 9,406,112 shares of the Company’s common
stock, subject to certain closing-related reductions. The shares of the Company’s common stock reserved in connection with the
Motus acquisition were partly issued as acquisition consideration at closing and on the first anniversary of the closing date of
the acquisition, and will also be issued upon the second and third anniversaries of the closing date of the acquisition and upon
the achievement of certain development and regulatory milestone events, subject to certain reductions. The shares of the
Company’s common stock reserved in connection with the AlgaeneX acquisition will be issued upon the achievement of a
development milestone event, subject to certain reductions.
Of the 9,406,112 shares reserved, subject to certain closing-related reductions, the Company issued 2,889,367 shares
of the Company's common stock in connection with the (cid:29)usiness Acquisition (Note 16) in the third quarter of 2021, after
certain closing-related deductions. In the third quarter of 2022, the Company issued 171,427 shares of the Company's common
stock to fulfill the payment required on the first anniversary of the (cid:29)usiness Acquisition.
On October 19, 2022, the Company completed an underwritten offering of 13,750,000 shares of the Company's
common stock, at an offering price of $20.00 per share. The Company's net proceeds from the sale of the shares, after deducting
the underwriting discounts and offering expenses of approximately $16.2 million, were approximately $258.8 million.
In the second quarter of 2021, the Company completed an underwritten public offering of 11,500,000 shares of the
Company's common stock, including 1,500,000 shares issued pursuant to the exercise in full of the underwriters' option to
purchase additional shares from the Company, at a public offering price of $25.00 per share. The Company's net proceeds from
the sale of the shares, after deducting the underwriting discounts and offering expenses of $17.5 million, were $270.1 million.
In the first quarter of 2021, the Company entered into a sales agreement with SV(cid:29) Securities, to sell shares of the
Company's common stock, with aggregate gross sales proceeds of up to $250.0 million, from time to time, through the ATM
program, under which SV(cid:29) Securities acts as sales agent. During the third quarter of 2022, the Company issued and sold an
aggregate of 1,289,995 shares of common stock through the ATM program at a weighted-average public offering price of
$26.68 per share and received net proceeds of $33.4 million. As of December 31, 2022, an aggregate of $215.6 million of
shares of common stock remain available to be issued and sold under the ATM program.
108
109
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1(cid:9).
S(cid:48)(cid:41)(cid:58)e(cid:48)o(cid:52)de(cid:58)s(cid:2) Equit(cid:65) (Continued)
11. Stoc(cid:51)(cid:6)B(cid:41)sed Co(cid:53)(cid:56)ens(cid:41)tion (Continued)
In the second quarter of 2020, the Company completed an underwritten public offering of 11,155,000 shares of the
The following table summarizes stock option activity for stock options granted for the years ended December 31,
Company's common stock, including 1,455,000 shares issued pursuant to the exercise in full of the underwriters' option to
purchase additional shares from the Company, at a public offering price of $23.25 per share. The Company's net proceeds from
the sale of the shares, after deducting the underwriting discounts and offering expenses of $13.5 million, were $245.9 million.
(cid:33)(cid:58)e(cid:46)e(cid:58)(cid:58)ed Stoc(cid:51)(cid:93)As of December 31, 2022 and 2021, the Company had 200,000,000 shares of preferred stock
authorized with a par value of $0.01 and no shares of preferred stock were issued and outstanding.
11.
Stoc(cid:51)(cid:6)B(cid:41)sed Co(cid:53)(cid:56)ens(cid:41)tion
The Company's current equity compensation plan, the Insmed Incorporated 2019 Incentive Plan (as amended, the 2019
Incentive Plan), was approved by shareholders at the Company's Annual Meeting of Shareholders in May 2019. The 2019
Incentive Plan is administered by the Compensation Committee of the (cid:29)oard of Directors of the Company. Under the terms of
the 2019 Incentive Plan, the Company is authorized to grant a variety of incentive awards based on its common stock, including
stock options (both incentive stock options and non-qualified stock options), RSUs, performance options(cid:13)shares and other stock
awards to eligible employees and non-employee directors. On May 16, 2019, upon the approval of the 2019 Incentive Plan by
shareholders, 3,500,000 shares were authorized for issuance thereunder, plus any shares subject to then-outstanding awards
under the Company's 2017 Incentive Plan, the 2015 Incentive Plan and the 2013 Incentive Plan that subsequently were
canceled, terminated unearned, expired, were forfeited, lapsed for any reason or were settled in cash without the delivery of
shares. On May 12, 2020, at the Company's 2020 Annual Meeting of Shareholders, the Company's shareholders approved an
amendment of the 2019 Incentive Plan providing for the issuance of an additional 4,500,000 shares under the plan. On May 12,
2021, at the Company's 2021 Annual Meeting of Shareholders, the Company's shareholders approved the second amendment to
the 2019 Incentive Plan providing for the issuance of an additional 2,750,000 shares under the plan. On May 11, 2022, at the
Company's 2022 Annual Meeting of Shareholders, the Company's shareholders approved the third amendment to the 2019
Incentive Plan, providing for the issuance of an additional 3,000,000 shares under the plan. As of December 31,
2022, 2,465,477 shares remained for future issuance under the 2019 Incentive Plan. The 2019 Incentive Plan will terminate on
May 16, 2029 unless it is extended or terminated earlier pursuant to its terms. In addition, from time to time, the Company
makes inducement grants of stock options to new hires, which awards are made pursuant to the Nasdaq's inducement grant
exception to the shareholder approval requirement for grants of equity compensation. During the twelve months ended
December 31, 2022 and 2021, the Company granted inducement stock options covering 1,068,310 and 1,117,020 shares,
respectively, of the Company's common stock to new employees.
Stoc(cid:51) (cid:32)(cid:56)tions(cid:93)The Company calculates the fair value of stock options granted using the (cid:29)lack-Scholes valuation
model. The following table summarizes the grant date fair value and assumptions used in determining the fair value of all stock
options granted, including grants of inducement options, during the years ended December 31, 2022, 2021 and 2020.
Volatility
Risk-free interest rate
Dividend yield
(cid:32)xpected option term (in years)
(cid:50)eighted average fair value of stock options granted
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:13)
69(cid:4) - 70(cid:4)
70(cid:4) - 71(cid:4)
66(cid:4) - 71(cid:4)
1.37(cid:4) - 4.27(cid:4)
0.36(cid:4) - 1.20(cid:4)
0.22(cid:4) - 1.67(cid:4)
0.0(cid:4)
5.93
$13.19
0.0(cid:4)
5.84
$18.50
0.0(cid:4)
5.17
$13.75
For the years ended December 31, 2022, 2021 and 2020, the volatility factor was based on the Company’s historical
volatility during the expected option term. The company accounts for forfeitures as they occur.
From time to time, the Company has granted performance-conditioned options to certain of its employees. Vesting of
these options is subject to the Company achieving certain performance criteria established at the date of grant and the grantees
fulfilling a service condition (continued employment). As of December 31, 2022, the Company had performance-conditioned
options covering 114,780 shares outstanding. As of December 31, 2022, the performance conditions are not probable and
therefore, no stock-based compensation was recorded in the consolidated statements of comprehensive loss. The Company had
no performance-conditioned options outstanding as of December 31, 2021.
2022, 2021 and 2020 as follows(cid:24)
Options outstanding at December 31, 2019
Granted
(cid:32)xercised
Forfeited and expired
Options outstanding at December 31, 2020
(cid:32)xercisable at December 31, 2020
Granted
(cid:32)xercised
Forfeited and expired
Options outstanding at December 31, 2021
(cid:32)xercisable at December 31, 2021
Granted
(cid:32)xercised
Forfeited and expired
Options outstanding at December 31, 2022
(cid:32)xercisable at December 31, 2022
Nu(cid:63)(cid:52)er o(cid:56)
Shares
10,492,946 $
3,990,740 $
(1,678,604) $
(541,680) $
12,263,402 $
6,028,261 $
4,039,360 $
(1,235,186) $
(978,616) $
14,088,960 $
7,292,851 $
5,614,220 $
(1,151,341) $
(1,026,543) $
17,525,296 $
8,587,820 $
(cid:46)ei(cid:57)hted
A(cid:72)era(cid:57)e
E(cid:74)ercise
Price
(cid:46)ei(cid:57)hted
A(cid:72)era(cid:57)e
Re(cid:63)ainin(cid:57)
Contractual
Li(cid:56)e in (cid:48)ears
A(cid:57)(cid:57)re(cid:57)ate
Intrinsic
(cid:45)alue
(in (cid:5)(cid:13)(cid:13)(cid:13))
16.24
24.12
14.04
23.98
18.84
16.15
30.18
15.50
24.35
22.00
17.97
20.89
14.41
25.70
21.93
20.35
7.03 $
5.33 $
34,790
25,264
The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021 and 2020 was
$11.1 million, $22.1 million and $24.0 million, respectively.
As of December 31, 2022, there was $103.2 million of unrecognized compensation expense related to unvested stock
options, which is expected to be recognized over a weighted average period of 1.9 years.
(cid:34)est(cid:58)icted Stoc(cid:51) (cid:41)nd (cid:34)est(cid:58)icted Stoc(cid:51) (cid:37)nits(cid:93)The Company may grant RS and RSUs to employees and non-
employee directors. (cid:32)ach share of RS vests upon and each RSU represents a right to receive one share of the Company's
common stock upon the completion of a specific period of continued service.
RS and RSU awards granted are valued at the market price of the Company's common stock on the date of grant. The
Company recognizes 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.
110
111
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stoc(cid:51)(cid:6)B(cid:41)sed Co(cid:53)(cid:56)ens(cid:41)tion (Continued)
11. Stoc(cid:51)(cid:6)B(cid:41)sed Co(cid:53)(cid:56)ens(cid:41)tion (Continued)
The following table summarizes RSU awards granted during the years ended December 31, 2022, 2021 and 2020(cid:24)
Outstanding at December 31, 2019
Granted
Released
Forfeited
Outstanding at December 31, 2020
Granted
Released
Forfeited
Outstanding at December 31, 2021
Granted
Released
Forfeited
Outstanding at December 31, 2022
Nu(cid:63)(cid:52)er o(cid:56)
RS(cid:44)s
(cid:46)ei(cid:57)hted
A(cid:72)era(cid:57)e
(cid:30)rant Price
500,822 $
559,054 $
(161,774) $
(53,711) $
844,391 $
607,578 $
(291,823) $
(140,432) $
1,019,714 $
1,021,219 $
(417,894) $
(103,139) $
1,519,900 $
28.32
23.85
28.90
25.43
25.43
29.40
25.93
27.73
27.33
20.34
26.79
24.04
23.00
The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated
statements of comprehensive loss related to stock options, RSUs and (cid:32)SPP during the years ended December 31, 2022, 2021
and 2020 (in millions)(cid:24)
Research and development expenses
Selling, general and administrative expenses
Total stock-based compensation expense
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
$
$
26.4 $
31.3
57.7 $
17.8 $
28.2
46.0 $
11.8
24.4
36.2
There was no stock-based compensation expense recorded in the consolidated statements of comprehensive loss
related to PSUs during the year ended December 31, 2022, as the performance conditions associated with the PSU awards were
not probable as of December 31, 2022.
E(cid:53)(cid:56)(cid:52)o(cid:65)ee Stoc(cid:51) (cid:33)u(cid:58)c(cid:48)(cid:41)se (cid:33)(cid:52)(cid:41)n - On May 15, 2018, the Company's shareholders approved the Company’s 2018
(cid:32)mployee Stock Purchase Plan ((cid:32)SPP). As part of the (cid:32)SPP, eligible employees may acquire an ownership interest in the
Company by purchasing common stock, at a discount, through payroll deductions. The (cid:32)SPP is compensatory under GAAP and
the Company recorded stock-based compensation expense of $1.3 million, $1.3 million and $1.2 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
As of December 31, 2022, there was $24.5 million of unrecognized compensation expense related to unvested awards,
which is expected to be recognized over a weighted average period of 2.1 years.
(cid:33)e(cid:58)(cid:46)o(cid:58)(cid:53)(cid:41)nce Stoc(cid:51) (cid:37)nits (cid:78) In January 2022, the Company issued 271,612 PSUs. For these PSUs, there are two
performance conditions, a service condition, and a market condition. The performance conditions are the issuance of a press
release announcing certain top-line results from a clinical trial and the acceptance of a NDA by the FDA for brensocatib. The
service condition is continuous employment with the Company through the later of the third anniversary of the grant date of the
PSU award and the date an NDA for brensocatib is accepted by the FDA. The potential payout of the awards ranges from 0(cid:4) to
250(cid:4) of the target, dependent on a market condition that is based on the Company's total shareholder return compared to a
defined peer group. Due to the multiple vesting conditions, uncertain timing and variable payout of these PSUs, a Monte Carlo
simulation was performed to determine the fair value of the awards. Compensation cost will be recognized on the date the
performance conditions become probable, with an initial recording of the cumulative expense that would have been recognized
if the PSU expense had been recognized on a straight-line basis since the date of grant. The remaining unamortized fair value of
the awards will then be expensed prospectively on a straight-line basis over the remaining service period. Since the market
condition is reflected in the grant-date fair value and is not a condition for the award to vest, it does not impact the requisite
service period. The volatility, risk-free interest rate and weighted-average grant date fair value of the PSUs granted are 65.4(cid:4),
1.03(cid:4) and $39.12, respectively. Any forfeitures that occur after compensation cost recognition commences will result in the
cumulative reversal of expense in the period in which the forfeiture occurs. As of December 31, 2022, there were 268,442 PSUs
outstanding with an unrecognized compensation expense of $10.5 million, which assumes a payout of 100(cid:4) of the target.
112
113
INSMED INCORPORATED
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1(cid:11).
(cid:26)nco(cid:53)e (cid:36)(cid:41)(cid:64)es
The Company recorded a provision (benefit) for income taxes of $1.4 million, $(1.8) million and $1.4 million and the
effective rates were approximately 0(cid:4), 0(cid:4) and 0(cid:4) for the years ended December 31, 2022, 2021 and 2020, respectively. The
income tax provision for the years ended December 31, 2022 and December 31, 2020 reflected current income tax expense
recorded as a result of the taxable income in certain of the Company's non-US subsidiaries and certain state income taxes. The
income tax (benefit) for the year ended December 31, 2021 is primarily due to the partial reversal of a valuation allowance as a
result of the Company's (cid:29)usiness Acquisition (see Note 16), partially offset by current income tax expense. (cid:50)hile the (cid:29)usiness
Acquisition resulted in a deferred tax liability recorded under ASC 805, an adjustment to the valuation allowance is required as
this deferred tax liability provides a future reversal of a taxable temporary difference.
The Company's loss before income taxes in the US and globally was as follows (in thousands)(cid:24)
US
Foreign
Total
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
$
$
(406,262) $
(348,845) $
(207,120)
(73,889)
(480,151) $
(87,567)
(436,412) $
(85,568)
(292,688)
The Company's income tax provision (benefit) consisted of the following (in thousands)(cid:24)
Current(cid:24)
Federal
State
Foreign
Deferred(cid:24)
Federal
State
Foreign
Total
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
$
(cid:93) $
(cid:93) $
269
1,345
1,614
104
1,585
1,689
13
(244)
(cid:93)
(2,835)
(612)
(cid:93)
(231)
(3,447)
(cid:93)
268
1,134
1,402
(cid:93)
(cid:93)
(cid:93)
(cid:93)
$
1,383 $
(1,758) $
1,402
The reconciliation between the federal statutory tax rates and the Company's effective tax rate is as follows(cid:24)
Statutory federal tax rate
Permanent items
State income taxes, net of federal benefit
R&D and other tax credits
Foreign income taxes
Change in valuation allowance
Change in Irish trading status
Stock-based compensation
Other
(cid:32)ffective tax rate
(cid:48)ears Ended Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:13)
21 (cid:4)
(cid:93) (cid:4)
1 (cid:4)
3 (cid:4)
(cid:93) (cid:4)
(22) (cid:4)
(cid:93) (cid:4)
(2) (cid:4)
(1) (cid:4)
(cid:93) (cid:4)
21 (cid:4)
(1) (cid:4)
4 (cid:4)
4 (cid:4)
(1) (cid:4)
(27) (cid:4)
(cid:93) (cid:4)
(cid:93) (cid:4)
(cid:93) (cid:4)
(cid:93) (cid:4)
21 (cid:4)
(cid:93) (cid:4)
4 (cid:4)
2 (cid:4)
1 (cid:4)
(32) (cid:4)
4 (cid:4)
(cid:93) (cid:4)
(cid:93) (cid:4)
(cid:93) (cid:4)
1(cid:11). (cid:26)nco(cid:53)e (cid:36)(cid:41)(cid:64)es (Continued)
The trading income tax rate for an Irish company is 12.5(cid:4) and the non-trading income tax rate is 25(cid:4). During 2019,
the Company determined that it qualifies as a non-trading company. As such, the Company’s Irish NOLs were revalued to the
higher rate. Further, not all expenses incurred will result in a non-trading company loss carryforward. These changes had no
impact to income tax expense as a result of the valuation allowance.
Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases
using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred
tax assets and liabilities consist of the following(cid:24)
De(cid:56)erred ta(cid:74) assets(cid:23)
Net operating loss carryforwards
General business credits
Product license
Inventory
Lease liabilities
Stock-based compensation
Capitalized R&D
Other
De(cid:56)erred ta(cid:74) assets
Valuation allowance
De(cid:56)erred ta(cid:74) assets(cid:9) net o(cid:56) (cid:72)aluation allo(cid:73)ance
De(cid:56)erred ta(cid:74) lia(cid:52)ilities(cid:23)
Intangibles
Right-of-use assets
Convertible debt
De(cid:56)erred ta(cid:74) lia(cid:52)ilities
Net de(cid:56)erred ta(cid:74) lia(cid:52)ilities
As o(cid:56) Dece(cid:63)(cid:52)er (cid:16)(cid:14)(cid:9)
(cid:15)(cid:13)(cid:15)(cid:14)
(cid:15)(cid:13)(cid:15)(cid:15)
$
499,029 $
157,181
4,317
1,470
12,965
23,724
56,275
15,001
769,962
471,407
140,121
4,963
1,417
10,641
25,600
(cid:93)
11,520
665,669
(745,135)
(587,408)
24,827 $
78,261
(13,739) $
(15,214)
(11,227)
(cid:93)
(24,966) $
(139) $
(9,840)
(54,914)
(79,968)
(1,707)
$
$
$
$
The deferred tax assets, net of valuation allowance of $24.8 million and $78.3 million at December 31, 2022 and
2021, respectively, primarily consist of net operating loss and tax credit carryforwards for income tax purposes. As required by
the 2017 Tax Cuts and Jobs Act, effective January 1, 2022, our research and development expenditures were capitalized
resulting in a deferred tax asset. Due to the Company's history of operating losses, the Company recorded a valuation
allowance on its net deferred tax assets by increasing the valuation allowance by $157.7 million and $77.6 million in 2022 and
2021, respectively, as it was more likely than not that such tax benefits will not be realized. A portion of the valuation
allowance increase in 2022 is charged to tax expense and the remainder was charged to equity resulting from the adoption of
ASU 2020-06, under which the net deferred tax liability associated with the convertible debt is removed through equity.
At December 31, 2022, the Company had federal net operating loss (NOL) carryforwards for income tax purposes of
approximately $1.6 billion and federal tax credit carryforwards of $163.7 million. Due to the limitation on NOLs as more fully
discussed below, $1.3 billion of the NOLs are available to offset future taxable income, if any. The NOL carryovers and
general business tax credits expire in various years beginning in 2023. For state tax purposes, the Company has approximately
$898.5 million of NOLs in various states available to offset against future taxable income. The Company also has California
and Virginia NOLs that are entirely limited due to Section 382 (as discussed below). The Company has $391.1 million of non-
trading loss carryforwards for Irish tax purposes. The Company has disallowed interest expense carryover of $14.3 million
which carryforward indefinitely.
The Company completed an Internal Revenue Code Section 382 (Section 382) analysis in order to determine the
amount of losses that are currently available for potential offset against future taxable income, if any. It was determined that
the utilization of the Company's NOL and general business tax credit carryforwards generated in tax periods up to and
114
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INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1(cid:11). (cid:26)nco(cid:53)e (cid:36)(cid:41)(cid:64)es (Continued)
including December 2010 were subject to substantial limitations under Section 382 due to ownership changes that occurred at
various points from the Company's original organization through December 2010. In general, an ownership change, as defined
by Section 382, results from transactions increasing the ownership of shareholders that own, directly or indirectly, 5(cid:4) or more
of a corporation's stock, in the stock of a corporation by more than 50 percentage points over a testing period (usually 3 years).
Since the Company's formation in 1999, it has raised capital through the issuance of common stock on several occasions
which, combined with the purchasing shareholders' subsequent disposition of those shares, have resulted in multiple changes
in ownership, as defined by Section 382. These ownership changes resulted in substantial limitations on the use of the
Company's NOLs and general business tax credit carryforwards up to and including December 2010. The Company continues
to track all of its NOLs and tax credit carryforwards but has provided a full valuation allowance to offset those amounts.
(cid:33)a(cid:68) Changes
On March 27, 2020, the Coronavirus Aid, Relief, and (cid:32)conomic Security Act (CAR(cid:32)S Act) was enacted into law in
response to the COVID-19 pandemic. The CAR(cid:32)S Act contains numerous income tax provisions, such an enhanced interest
deductibility, repeal of the 80(cid:4) limitation with respect to net operating losses arising in taxable years 2018-2020, and
additional depreciation deductions related to qualified improvement property. The Company has concluded that the CAR(cid:32)S
Act did not have a material impact on the Company’s income taxes.
On August 16, 2022, the IRA was enacted into law containing corporate income tax provisions such as the corporate
alternative minimum tax and an excise tax on the repurchase of corporate stock. These provisions are not expected to have a
material impact on the Company’s income taxes in the near term.
The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely
than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then
measured and recognized at the largest amount that is greater than 50(cid:4) likely of being realized upon ultimate settlement. If
such unrecognized tax benefits were realized and not subject to valuation allowances, the Company would recognize a tax
benefit of $11.5 million. The following table summarizes the gross amounts of unrecognized tax benefits (in thousands)(cid:24)
(cid:29)alance as of January 1,
$
7,382
$
Additions related to prior period tax positions
Reductions related to prior period tax positions
Additions related to current period tax positions
1,564
(cid:93)
2,593
(cid:29)alance as of December 31,
$
11,539
$
5,633
112
(cid:93)
1,637
7,382
(cid:15)(cid:13)(cid:15)(cid:15)
(cid:15)(cid:13)(cid:15)(cid:14)
The Company is subject to US federal and state income taxes and the statute of limitations for tax audit is open for
the federal tax returns for the years ended 2019 and later, and is generally open for certain states for the years 2018 and later.
The Company has incurred net operating losses since inception, except for the year ended December 31, 2009. Such loss
carryforwards would be subject to audit in any tax year in which those losses are utilized, 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. As of December 31, 2022 and 2021, the Company has recorded
reserves for unrecognized income tax benefits of $11.5 million and $7.4 million, respectively. As any adjustment to the
Company’s uncertain tax positions would not result in a cash tax liability, it has not recorded any accrued interest or penalties
related to its uncertain tax positions. If any of these unrecognized tax benefits were released, there would be no impact to the
Company's effective tax rate. The Company does not anticipate any material changes in the amount of unrecognized tax
positions over the next 12 months.
1(cid:12).
(cid:29)icense (cid:41)nd (cid:32)t(cid:48)e(cid:58) A(cid:47)(cid:58)ee(cid:53)ents
In(cid:8)(cid:33)icense Agreements
PARI Pharma GmbH(cid:93)In April 2008, the Company entered into a licensing agreement with PARI for use of the
optimized Lamira Nebulizer System for delivery of ARI(cid:38)A(cid:52)C(cid:32) in treating patients with NTM lung infections, CF and
bronchiectasis. Under the licensing agreement, the Company has rights under several US and foreign issued patents and patent
applications involving improvements to the optimized Lamira Nebulizer System, to exploit the system with ARI(cid:38)A(cid:52)C(cid:32) for the
treatment of such indications, but the Company cannot manufacture the nebulizers except as permitted under the
commercialization agreement with PARI, which is described in further detail below. The Lamira Nebulizer System has been
approved for use in the US (in combination with ARI(cid:38)A(cid:52)C(cid:32)), the (cid:32)U and Japan. Under the licensing agreement, the Company
paid PARI an upfront license fee and certain milestone payments. Upon FDA acceptance of the Company's NDA and the
subsequent FDA and (cid:32)MA approval of ARI(cid:38)A(cid:52)C(cid:32), the Company paid PARI additional milestone payments of (cid:98)1.0 million,
(cid:98)1.5 million and (cid:98)0.5 million, respectively. In October 2017, the Company exercised an option to buy-down the royalties that
will be paid to PARI on ARI(cid:38)A(cid:52)C(cid:32) net sales. As a result, PARI is entitled to receive royalty payments in the mid-single digits
on the annual global net sales of ARI(cid:38)A(cid:52)C(cid:32), pursuant to the licensing agreement, subject to certain specified annual minimum
royalties. See below for information related to the commercialization agreement with PARI.
(cid:36)ther Agreements
PP(cid:25) Development, L.P.(cid:74)In April 2020, the Company entered into a master services agreement with PPD pursuant to
which it retained PPD to perform clinical development services in connection with certain of its clinical research programs. The
master services agreement has an initial term of five years. (cid:32)ither party may terminate (i) any project addendum under the
master services agreement for any reason and without cause upon 30 days’ written notice, (ii) any project addendum in the
event of the other party’s breach of the master services agreement or such project addendum upon 30 days’ written notice,
provided that such breach is not cured within such 30-day period, (iii) the master services agreement or any project addendum
immediately upon the occurrence of an insolvency event with respect to the other party or (iv) any project addendum upon 30
days’ written notice if (a) the continuation of the services under such project addendum would post material ethical or safety
risks to study participants, (b) any approval from a regulatory authority necessary to perform the applicable study is revoked,
suspended or expires without renewal or (c) in the reasonable opinion of such party, continuation of the services provided under
such project addendum would be in violation of applicable law. The Company entered into project addenda with PPD to
perform clinical development services over several years for, but not limited to, its ARIS(cid:32), (cid:32)NCOR(cid:32) and ASP(cid:32)N studies and
other brensocatib and TPIP studies.
Patheon (cid:41)(cid:32) (cid:33)imited(cid:93)In October 2017, the Company entered into certain agreements with Patheon related to the
increase of its long-term production capacity for ARI(cid:38)A(cid:52)C(cid:32) commercial inventory. The agreements provide for Patheon to
manufacture and supply ARI(cid:38)A(cid:52)C(cid:32) for its anticipated commercial needs. Under these agreements, the Company is required to
deliver to Patheon the required raw materials, including active pharmaceutical ingredients, and certain fixed assets needed to
manufacture ARI(cid:38)A(cid:52)C(cid:32). Patheon's supply obligations will commence once certain technology transfer and construction
services are completed. The Company's manufacturing and supply agreement with Patheon will remain in effect for a fixed
initial term, after which it will continue for successive renewal terms unless either party has given written notice of termination.
The technology transfer agreement will expire when the parties agree that the technology transfer services have been
completed. The agreements may also be terminated under certain other circumstances, including by either party due to a
material uncured breach of the other party or the other party’s insolvency. These early termination clauses may reduce the
amounts due to the relevant parties.
Astra(cid:45)eneca AB(cid:93)In October 2016, the Company entered into a license agreement (A(cid:53) License Agreement) with
Astra(cid:53)eneca, a Swedish corporation. Pursuant to the terms of the A(cid:53) License Agreement, Astra(cid:53)eneca granted the Company
exclusive global rights for the purpose of developing and commercializing A(cid:53)D7986 (renamed brensocatib). In consideration
of the licenses and other rights granted by Astra(cid:53)eneca, the Company made an upfront payment of $30.0 million, which was
included as research and development expense in the fourth quarter of 2016. In December 2020, the Company incurred a $12.5
million milestone payment obligation upon the first dosing in a Phase 3 clinical trial of brensocatib. The Company is also
obligated to make a series of additional contingent milestone payments totaling up to an additional $72.5 million upon the
achievement of clinical development and regulatory filing milestones. If the Company elects to develop brensocatib for a
second indication, the Company will be obligated to make an additional series of contingent milestone payments to
Astra(cid:53)eneca totaling up to $42.5 million, the first of which occurs at the initiation of a Phase 3 trial in the additional indication.
The Company is not obligated to make any additional milestone payments for additional indications. In addition, the Company
116
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INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1(cid:12). (cid:29)icense (cid:41)nd (cid:32)t(cid:48)e(cid:58) A(cid:47)(cid:58)ee(cid:53)ents (Continued)
will pay Astra(cid:53)eneca tiered royalties ranging from a high single-digit to mid-teens on net sales of any approved product based
on brensocatib and one additional payment of $35.0 million upon the first achievement of $1.0 billion in annual net sales. The
A(cid:53) License Agreement provides Astra(cid:53)eneca with the option to negotiate a future agreement with the Company for
commercialization of brensocatib in chronic obstructive pulmonary disease or asthma.
PARI Pharma GmbH(cid:93)In July 2014, the Company entered into the Commercialization Agreement for the manufacture
and supply of the Device as optimized for use with ARI(cid:38)A(cid:52)C(cid:32). Under the Commercialization Agreement, PARI manufactures
the Device except in the case of certain defined supply failures, when the Company will have the right to make the Device and
have it made by third parties (but not certain third parties deemed under the Commercialization Agreement to compete with
PARI). The Commercialization Agreement has an initial term of fifteen years from the first commercial sale of ARI(cid:38)A(cid:52)C(cid:32) in
October 2018. The term of the agreement may be extended by the Company for an additional five years by providing written
notice to PARI at least one year prior to the expiration of the Initial Term. Notwithstanding the foregoing, the parties have
certain rights and obligations under the agreement prior to the commencement of the Initial Term.
Resilience Biotechnologies Inc. (successor to Therapure Biopharma Inc.)(cid:93)In February 2014, the Company entered
into a contract manufacturing agreement with Therapure (cid:29)iopharma Inc., which was assumed by Resilience for the manufacture
of ARI(cid:38)A(cid:52)C(cid:32), on a non-exclusive basis, at a 200 kg scale. Pursuant to the agreement, the Company and Resilience
collaborated to construct a production area for the manufacture of ARI(cid:38)A(cid:52)C(cid:32) in Resilience's existing manufacturing facility in
Canada. The agreement has an initial term of five years, which began in October 2018, and will renew automatically for
successive periods of two years each, unless terminated by either party by providing the required two years prior written notice
to the other party. Notwithstanding the foregoing, the parties have rights and obligations under the agreement prior to the
commencement of the initial term. Under the agreement, the Company is obligated to pay a minimum of $6 million for
commercial ARI(cid:38)A(cid:52)C(cid:32) batches produced and certain manufacturing activities each calendar year.
Cystic Fibrosis Foundation Therapeutics, Inc.(cid:93)In 2004 and 2009, the Company entered into research funding
agreements with CFFT whereby it received $1.7 million and $2.2 million in research funding for the development of
ARI(cid:38)A(cid:52)C(cid:32). As a result of the US approval of ARI(cid:38)A(cid:52)C(cid:32) and in accordance with the agreements, as amended, the Company
owes milestone payments to CFFT of $13.4 million in the aggregate payable through 2025, of which $4.9 million has been paid
through December 31, 2022. Furthermore, if certain global sales milestones are met within five years of the commercialization
of ARI(cid:38)A(cid:52)C(cid:32), the Company would owe up to an additional $3.9 million. Through December 31, 2022, the Company has paid
$1.7 million of these additional global sales milestone payments.
1(cid:13).
Co(cid:53)(cid:53)it(cid:53)ents (cid:41)nd Contin(cid:47)encies
Co(cid:63)(cid:63)it(cid:63)ents
In September 2018, the Company entered into a lease for its new corporate headquarters in (cid:29)ridgewater, New Jersey.
The initial lease term commenced in October 2019 and expires in September 2030. In July 2016, the Company signed an
operating lease for laboratory space, also located in (cid:29)ridgewater, for which the initial lease term was extended through
December 2026. In January 2022, the Company entered into a lease for research activities in San Diego, California. The lease
term commenced in February 2022 and expires in June 2032. Future minimum rental payments under the (cid:29)ridgewater leases
and San Diego leases are $23.6 million and $24.7 million, respectively.
Rent expense charged to operations was $8.0 million, $4.9 million, and $3.7 million for the years ended December 31,
2022, 2021 and 2020, respectively. Rent expense is recorded on a straight-line basis over the term of the applicable leases.
In addition to rent, the Company has several firm purchase commitments, primarily related to the manufacturing of
ARI(cid:38)A(cid:52)C(cid:32) and annual minimum royalties on global net sales of ARI(cid:38)A(cid:52)C(cid:32). Future firm purchase commitments under these
agreements, the last of which ends in 2034, total $75.1 million. These amounts do not represent the Company's entire
anticipated purchases in the future, but instead represent only purchases that are the subject of contractually obligated minimum
purchases. The minimum commitments disclosed are determined based on non-cancelable minimum spend amounts or
termination amounts. Additionally, the Company purchases products and services as needed with no firm commitment.
Le(cid:57)al Proceedin(cid:57)s
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the
ordinary course of business. (cid:50)hile the outcomes of these matters are uncertain, management does not expect that the ultimate
costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of
operations or cash flows.
1(cid:14).
(cid:34)eti(cid:58)e(cid:53)ent (cid:33)(cid:52)(cid:41)n
The Company has a 401(k) defined contribution plan for the benefit for all US employees and permits voluntary
contributions by employees subject to IRS-imposed limitations. The Company matches 100(cid:4) of eligible employee
contributions on the first 4(cid:4) of employee compensation (up to the IRS maximum). (cid:32)mployer contributions for the year ended
December 31, 2022, 2021 and 2020 were $4.6 million, $3.0 million and $2.9 million, respectively.
16.
Business Acquisition
On August 4, 2021, the Company acquired all of the equity interests of Motus and AlgaeneX, each a privately held,
preclinical stage company. In connection with the closing of the Company’s acquisition of Motus, the Company issued an
aggregate of 2,889,367 shares of the Company’s common stock, following certain closing-related reductions, to Motus’s former
stockholders and option holders and certain individuals who are entitled to receive a portion of the acquisition consideration
(collectively, Motus equityholders), subject to certain adjustments. The Company is obligated to issue to Motus equityholders
an aggregate of 184,433 shares of the Company’s common stock on each of the first, second and third anniversaries of the
closing date and up to 5,348,572 shares in the aggregate upon the achievement of certain development and regulatory milestone
events, and to pay to the Motus equityholders an aggregate of $35 million upon the achievement of certain net sales-based
milestones and a portion of the value of a priority review voucher (to the extent issued to the Company), in each case, subject to
certain reductions. During August 2022, the Company fulfilled the payment due on the first anniversary of the closing date by
issuing 171,427 shares of the Company's common stock, after certain reductions.
At the closing of the Company’s acquisition of AlgaeneX, the Company paid $1.5 million in cash to AlgaeneX’s
former stockholders and certain individuals who are entitled to receive a portion of the acquisition consideration (collectively,
the AlgaeneX equityholders). The Company is obligated to issue to AlgaeneX’s equityholders an aggregate of 368,867 shares
of the Company’s common stock upon the achievement of a development milestone event and pay to AlgaeneX equityholders a
mid-single digits licensing fee on certain future payments received by the Company in licensing transactions for AlgaeneX’s
manufacturing technology, in each case, subject to certain reductions.
The shares of the Company’s common stock issued to the Motus equityholders and the AlgaeneX equityholders were
issued, and the shares issuable in the future will be issued, pursuant to Section 4(a)(2) of the Securities Act of 1933, and the
numbers of such issued and issuable shares was calculated based on a per share value of $27.11, which was the weighted
average price per share of the Company's common stock preceding the closing of the (cid:29)usiness Acquisition for the 45
consecutive trading day period beginning on May 24, 2021. The Company will not receive any proceeds from the issuance of
common stock to the Motus equityholders or the AlgaeneX equityholders.
The Company evaluated the (cid:29)usiness Acquisition under ASC 805 and ASU 2017-01. The Company concluded that
substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or a group of
similar identifiable assets. The transaction does not pass the screen test and thus management performed a full assessment to
determine if the acquired entities met the definition of a business. For the full assessment, management considered whether it
has acquired (a) inputs, (b) substantive processes, and (c) outputs. Under ASC 805, to be considered a business, a set of
activities and assets is required to have only the first two of the three elements, which together are or will be used in the future
to create outputs. Management determined that the acquired entities met the definition of a business since the Company
acquired inputs and substantive processes capable of producing outputs.
Therefore, the transaction has been accounted for under the acquisition method of accounting. Under the acquisition
method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and
liabilities assumed based on the fair values as of the date of the acquisition.
The fair value of the consideration totaled approximately $165.5 million, summarized as follows (in thousands)(cid:24)
Cash consideration
Fair value of Insmed common stock issued
(cid:32)stimated fair value of contingent consideration liabilities
(cid:32)stimated fair value of deferred consideration
Fair (cid:45)alue o(cid:56)
Consideration
$
$
10,500
71,570
69,706
13,700
165,476
118
119
INSMED INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Business Acquisition (Continued)
The Company recorded the assets acquired and liabilities assumed as of the date of the acquisition based on the
information available at that date. As of December 31, 2021, the Company finalized the fair values of the assets acquired and
liabilities assumed. No purchase price adjustments were recorded during the measurement period, which is the period from the
acquisition date through the period ended December 31, 2021. The following table presents the allocation of the purchase price
to the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands).
Cash and cash equivalents
Intangible assets - IPR&D
Fixed assets
Other assets
Liabilities assumed
Deferred tax liability
Fair value of net assets acquired
Goodwill
Purchase Price
Allocation
3,580
29,600
228
17
(558)
(3,501)
29,366
136,110
165,476
$
$
The Company incurred approximately $0.6 million in acquisition-related expenses, which were included in selling,
general and administrative expenses in the consolidated statements of comprehensive loss for the period ended December 31,
2021. The results of Motus's and AlgaeneX's operations have been included in the consolidated statements of comprehensive
loss beginning on the acquisition date.
The fair value of IPR&D was capitalized as of the acquisition date and accounted for as indefinite-lived intangible
assets until completion or disposition of the assets or abandonment of the associated research and development efforts. Upon
successful completion of the development efforts, the useful lives of the IPR&D assets will be determined based on the
anticipated period of regulatory exclusivity and will be amortized within operating expenses. Until that time, the IPR&D assets
will be subject to impairment testing and will not be amortized. The goodwill recorded related to the acquisition is the excess of
the fair value of the consideration transferred by the acquirer over the fair value of the net identifiable assets acquired and
liabilities assumed at the date of acquisition. The goodwill recorded is not deductible for tax purposes.
17.
Subsequent Event
In January 2023, the Company acquired Vertuis, a privately held, preclinical stage company. At the closing of the
transaction, the Company issued an aggregate of 500,000 shares of the Company’s common stock to Vertuis’ former
stockholders and an individual who are entitled to receive a portion of the acquisition consideration (collectively, the Vertuis
equityholders). The Company is obligated to issue to Vertuis equityholders shares of the Company’s common stock on July 1,
2024 of $1 million, based on the share price on June 28, 2024 and pay to the Vertuis equityholders up to an aggregate of
$23 million in cash upon the achievement of certain development and regulatory milestone events, and up to an aggregate of
$63.8 million in cash upon the achievement of certain net sales-based milestone events, in each case, subject to certain
reductions.
The shares of the Company’s common stock issuable to the Vertuis equityholders are being issued pursuant to Section
4(a)(2) of the Securities Act of 1933. The Company will not receive any proceeds from the issuance of common stock to the
Vertuis equityholders.
120
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Global Headquarters
700 US Highway 202/206
Bridgewater, NJ 08807-1704
Tel: (908) 977-9900
Trading Symbol
The common stock of Insmed Incorporated
is listed on the Nasdaq Global Select
Market under the symbol INSM.
Transfer Agent & Registrar
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Email: shareholder@broadridge.com
Tel: (866) 321-8022
Independent Auditors
Ernst & Young LLP
99 Wood Avenue South
Iselin, NJ 08830-9961
Investor Relations
Bryan Dunn
Executive Director, Investor Relations
Email: bryan.dunn@insmed.com
Tel: (646) 812-4030
Annual Shareholder Meeting
To be held on Thursday, May 11, 2023, at 9:00 a.m. ET
Shareholders may receive without charge a copy of our
Annual Report on Form 10-K for the year ended December 31,
2022, by going to investor.insmed.com or by sending a written
request to Mr. Michael A. Smith, Corporate Secretary, Insmed
Incorporated, 700 US Highway 202/206, Bridgewater, New
Jersey, 08807, (908) 977-9900. In connection with any such
request, we will provide a list of exhibits to the Annual Report
on Form 10-K for the year ended December 31, 2022, and will
provide copies of any such exhibit upon the payment of a
reasonable fee.
Executive Committee
Board of Directors
William H. Lewis, J.D., M.B.A.
Chair and Chief Executive Officer
Roger Adsett, M.B.A.
Chief Operating Officer
Sara M. Bonstein, M.B.A.
Chief Financial Officer
Martina Flammer, M.D., M.B.A.
Chief Medical Officer
S. Nicole Schaeffer, M.B.A.
Chief People Strategy Officer
Michael A. Smith, J.D.
General Counsel, Senior Vice President
Eugene J. Sullivan, M.D.
Chief Product Strategy Officer
Drayton Wise, M.B.A.
Chief Commercial Officer
William H. Lewis, J.D., M.B.A.
Chair and Chief Executive Officer,
Insmed Incorporated
Chair of the Board, Adrestia Therapeutics
David R. Brennan3
Lead Independent Director, Insmed Incorporated
Former Chief Executive Officer, AstraZeneca PLC
Alfred F. Altomari1,3
Chairman and Chief Executive Officer,
Agile Therapeutics, Inc.
Elizabeth McKee Anderson2
Former Worldwide Vice President, Global Strategic
Marketing and Market Access, Infectious Diseases
and Vaccines, Janssen Pharmaceuticals, Inc.
Clarissa Desjardins, Ph.D.4
Founder and Chief Executive Officer,
Congruence Therapeutics
Leo Lee3,4
President, Japan, Novartis Pharma
David W.J. McGirr1
Former Chief Financial Officer, Cubist
Pharmaceuticals, Inc. (acquired by Merck & Co., Inc.)
Carol A. Schafer1,2
Managing Partner, Hyphen Advisors, LLC
Melvin Sharoky, M.D.2,4
Former President and Chief Executive Officer,
Somerset Pharmaceuticals, Inc.
Committee Legend (chairpersons in green)
1: Audit; 2: Nominations & Governance; 3: Compensation; 4: Science & Technology
Starlight Children’s
Foundation Design-A-Gown
Winner
In honor of Rare Disease Day, we teamed
up with Starlight Children’s Foundation for
a contest to design a fun and comfortable
hospital gown for children. Kuan-Ju Chen,
Director, Research, created the winning
design, which will be produced into 1,000
gowns and distributed to U.S. hospitals and
healthcare facilities.
© 2023 Insmed Incorporated
ARIKAYCE and Insmed are registered trademarks of Insmed Incorporated.
All rights reserved.
www.insmed.com
Various statements in this annual report are “forward-looking statements,” as that term is defined in the Private Securities
Litigation Reform Act of 1995. Words herein such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” “continues,” and similar expressions (as well as other words
or expressions referencing future events, conditions or circumstances) identify forward-looking statements. Forward-looking
statements are based on our current expectations and beliefs, and involve known and unknown risks, uncertainties and other
factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially
from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking
statements. For additional information, see Item 1A – Risk Factors of the Form 10-K included in this Annual Report. We undertake
no obligation to update or revise publicly any forward-looking statements.