Latest CEUnterberg report.. PART 1, 2, 3
Through the litigation settlement with Tercica, Insmed has announced that it has
fulfilled its cash needs through 4Q:07. We note that by 2H:07, the company will
have IPLEX data in the HARS and MMD indications which we believe will drive
investor interest.
Additionally, following the announcement of the settlement, Insmed made
significant expense cuts. Given the lack of a marketable drug for the foreseeable
future, Insmed has laid off its entire sales and marketing force. In total, company
management expects that it will have achieved approximately $22MM in cost
savings. The company has guided operating losses to the range of $25-28MM
for 2007.
We believe the settlement solves many issues for both companies. Insmed was
faced with owing a 15-20% royalty on future sales of IPLEX, in addition to a
$7.5MM upfront payment, as well as the possibility, however small, of an
injunction against it. With no need to dedicate further resources to the marketing
of IPLEX for the small short stature indication, and with the elimination of the
$7.5MM upfront payment, Insmed is now in a better position to allocate
resources towards additional indications, which we have long held offer a
more alluring investment opportunity.
We continue to expect data from the phase II HARS trial for IPLEX in
2Q:07. We have long recommended that investors seeking to garner substantial
long term returns from INSM investments focus on opportunities for IPLEX
beyond its initial indication, rather than hyperanalyze what will likely turn out to
be a modestly sized initial opportunity particularly in light of the trial verdict.
With the legal overhang now lifted, we continue to highlight Insmed’s HARS trial.
One of the advantages of IPLEX for this indication is inclusion of patients with
insulin resistance in the trial who may have previously been excluded from
enrollment in other lipodystriphy trials. IPLEX has the unique ability to be used
in those patients who are insulin resistant thereby opening up a variety of new
indications for it including myotonic muscular dystrophy and HIV lipodystrophy.
Company management indicated during the conference call that it expects to
conduct a larger phase II HARS trial prior to moving into phase III. They
expect the phase II trial to be a randomized, placebo-controlled trial in 150-200
patients looking at IPLEX in possibly 2 doses with 40-60 patients in each arm.
The trial will likely look at measures such as visceral adiposity as well as glucose
control. Following positive data from the larger phase II trial, the company
anticipates it may be able to move into phase III trials by 2009.
We also point out that the positive phase III data in its HIV lipodystrophy drug,
TH9507, was highly accretive to Theratechnologies’ market valuation. We
believe IPLEX has the potential to be used in a wider population given that unlike
TH9507, IPLEX can be used in insulin resistant patients.
By way of background on the Theratechnologies program, the phase III trial for
TH9507 enrolled 412 patients in 43 centers in the United States and Canada. The
study examined the safety and efficacy of a daily administration of 2 milligrams of
TH9507 for a period of 26 weeks and long-term safety over 52 weeks. The
primary endpoint is a reduction of visceral adipose tissue, or VAT, which is a risk
factor for cardiovascular disease and type 2 diabetes.
By applying a 6-7x multiple to our 2012 revenue
forecast of $75MM and discounting back at a rate
20% per annum, we arrive at a fair value for INSM
shares of $2.
Risks for Insmed include the inability to successfully
develop and commercialize pipeline products
indications. We also note that INSM is a cash-burn
story and will need to raise additional funds down
line.
Fourth Quarter Results & Highlights
Insmed reported 4Q:06 revenues of $502,000 beating our estimate of $350,000 and
missing Consensus estimate of $600,000. INSM reported a loss of $0.21 per share
missing Consensus and our forecasts of a loss of $0.13 per share. Notably, R&D
expenses increased to $9.42MM compared to our forecast of $7.5MM.
Figure 1: INSM 4Q:06 Reported Earnings
4Q:06E CEUT 4Q:06E Consensus 4Q:06 ACTUAL
Total Revenues $0.35MM $0.60MM $0.50MM
COGS $0.11MM $0.84MM
R&D $5.50MM $4.25MM
SG&A $7.50MM $9.42MM
EPS ($0.13) ($0.13) ($0.21)
Source: C.E. Unterberg, Towbin, Company Reports, FirstCall
Trimming Back Expenses
We believe the settlement solves many issues for both companies. Insmed was faced
with owing a 15-20% royalty on future sales of IPLEX, in addition to a $7.5MM upfront
payment, as well as the possibility, however small, of an injunction against it. With no
need to dedicate further resources to the marketing of IPLEX for the small short stature
indication, and with the elimination of the $7.5MM upfront payment, Insmed is now in
better position to allocate resources towards additional indications, which we have long
held offer a more alluring investment opportunity.
We continue to expect data from the phase II HARS trial for IPLEX in 2Q:07. We have
long recommended that investors seeking to garner substantial long term returns from
INSM investments focus on opportunities for IPLEX beyond its initial indication, rather
than hyperanalyze what will likely turn out to be a modestly sized initial opportunity
particularly in light of the trial verdict. With the legal overhang now lifted, we continue
to highlight Insmed’s HARS trial. One of the advantages of IPLEX for this indication is
inclusion of patients with insulin resistance in the trial who may have previously been
excluded from enrollment in other lipodystriphy trials. IPLEX has the unique ability to
be used in those patients who are insulin resistant thereby opening up a variety of new
indications for it including myotonic muscular dystrophy and HIV lipodystrophy.
Company management indicated during the conference call that it expects to conduct
larger phase II HARS trial prior to moving into phase III. They expect the phase II trial
to be a randomized, placebo-controlled trial in 150-200 patients looking at IPLEX in
possibly 2 doses with 40-60 patients in each arm. The trial will likely look at measures
such as visceral adiposity as well as glucose control. Following positive data from the
larger phase II trial, the company anticipates it may be able to move into phase III trials
by 2009.
We also point out that the positive phase III data in its HIV lipodystrophy drug, TH9507,
was highly accretive to Theratechnologies’ market valuation. We believe IPLEX has the
potential to be used in a wider population given that unlike TH9507, IPLEX can be used
in insulin resistant patients.
By way of background on the Theratechnologies program, the phase III trial for TH9507
enrolled 412 patients in 43 centers in the United States and Canada. The study examined
the safety and efficacy of a daily administration of 2 milligrams of TH9507 for a period
of 26 weeks and long-term safety over 52 weeks. The primary endpoint is a reduction of
visceral adipose tissue, or VAT, which is a risk factor for cardiovascular disease and type 2 diabetes
Valuation
By applying a 6-7x multiple to our 2012 revenue forecast of $75MM and discounting
back at a rate of 20% per annum, we arrive at a fair value for INSM shares of $2.
Investment Risks
Risks for Insmed include the inability to successfully develop and commercialize pipeline
products and indications. We also note that INSM is a cash-burn story and will need to
raise additional funds down the line.
Figure 2: Insmed Upcoming Events
Timing Product Event
2Q:07 IPLEX - HIV Lipodystrophy Topline Phase II Data
2Q:07 IPLEX - MMD Phase II topline data
2H:07 IPLEX - HIV Lipodystrophy Initiate Phase IIb trial
2009 IPLEX - HIV Lipodystrophy Initiate Phase III trial
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