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Here’s Why Insmed Fell Hard Today

By Brian Orelli, PhD – Updated Aug 1, 2019 at 2:47PM

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After a solid second quarter, investors in the biopharmaceutical company were left to wonder about management’s tepid growth forecast.

What happened

Shares of Insmed (INSM -0.37%) were down 13% at 2:40 p.m. Thursday after the biopharmaceutical company reported second-quarter earnings and gave updated guidance for the year. It's the latter that seems to have investors fretting.

The company recently launched Arikayce, an antibiotic that treats Mycobacterium avium complex lung disease. The drug generated $29 million in the U.S. in Q2, producing solid growth of 38% quarter-over-quarter from its $21 million in sales in Q1.

Insmed also generated $1 million in revenue from Arikayce in France and Germany, where it's sold under compassionate-use programs; that wasn't much improved from the $900,000 it booked in those nations in Q1. The drug's marketing application in Europe was filed this month, which sets up a potential commercial launch for it in some European countries in the second half of next year. Others may follow in 2021, or perhaps later, depending on how reimbursement negotiations go.

Doctor looking at a lung x-ray

Image source: Getty Images.

So what

While revenue growth looked solid in Q2, investors are likely worried about management's full-year guidance for sales of Arikayce in the range of $110 million to $120 million. Subtracting out sales from the first half of the year, this means Insmed expects revenue of $58 million to $68 million in the second half.

That doesn't imply much growth from Q2's $30 million. And Insmed says it plans to spend $140 million to $155 million in the second half, so don't expect it to be profitable anytime soon.

Of course, management may just be sandbagging its guidance. Three months ago, it forecast that 2019 revenue from Arikayce would be in the $90 million to $105 million range. It seems investors shouldn't put too much stock in the guidance.

Now what

Arikayce is currently approved to treat patients who have limited or no alternative treatment options. To really drive sales higher, Insmed will need to move the drug into the front-line setting, but that's likely a few years away from happening, since the phase 3 study for that hasn't even started yet. The company also plans to test Arikayce in nontuberculous mycobacterial lung disease, which is caused by infection with Mycobacterium abscessus.

In addition, Insmed is pushing ahead with other treatments in its pipeline. Results from a phase 2 study of INS1007 in patients with non-cystic fibrosis bronchiectasis are expected in early 2020.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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