Insmed: A Going Concern…

It is often a challenging path to be first to market. Insmed (NASDAQ: INSM) is blazing that trail via their aim to be the first US-based biotechnology company to develop a comprehensive portfolio of Follow-on Biologics (FOBs). From my understanding, one such challenge the company faces is that no regulatory pathway currently exists for FOBs, which are also commonly referred to as biosimilars or biogenerics, in the US, though a regulatory system for approving FOBs was established in Europe in 2006. As many a successful company in the life science space has done is avoid being a one-trick pony by diversifying the product portfolio. Insmed subscribes to this asset diversification strategy with incorporation of their proprietary protein platform (say the five times) that focuses upon niche markets with unmet needs.

Insmed announced, in order to remain compliant with NASDAQ rules and regs, a going concern audit opinion was submitted with the most recent 10K SEC filings. This going concern audit opinion was given because the Company’s ability to continue as a going concern is dependent upon its ability to raise capital through securities offerings, debt financing and partnerships to fund on-going operations. Since mid-December 2007 the share price has been trading below $1.00 thus setting off various warning bells.

Interestingly the London-based I-Bank Collins Stewart (which many of you Coloradoan’s may recall acquired C.E. Unterberg Towbin in 2007 who had offices in LoDo) has begun coverage of Insmed and issued this valuation not two weeks ago…

By applying a 6-7x multiple to our 2012 revenue forecast of $88.7MM and discounting back at a rate of 20% per annum, we arrive at a fair value for INSM shares of $2.

I am most interested to hear if Collins Stewart has any direct or indirect relationships with Insmed and if not then why then have they initiated coverage and their BUY recommendation? Collins Stewart covers a number of other public companies with Colorado roots or ties including Allos Therapeutics (NASDAQ: ALTH), Array Biopharma (NASDAQ: ARRY) and OSI Pharmaceuticals (NASDAQ: OSIP).

With Insmed’s cash position as-of 31 December 2007 at approximately $16.5M combined with the planned initiation of clinical trials this year for INS-19 and INS-20 [generic versions of Amgen’s (NASDAQ: AMGN) Neupogen and Neulasta] combined with ongoing Phase II enrollment for the proprietary IPLEX™ asset myotonic muscular dystrophy study, at least IMHO the current cash position does not compute with ongoing needs.

Just an interesting aside…if I am not mistaken the Insmed manufacturing facility in Boulder is across the street from the Amgen site…hmmm?

So, it is unambiguous that there is continuing developmental risk here if a financing event in the form of debt, equity or partnership is not achieved, I would venture to guess based-upon an anticipated ramp in quarterly burn, some time this year. Let’s keep our fingers crossed that management is able to get a deal done and soon!

*NOTE* Feel the power of the Colorado BioScience Association (HERE)!
*NOTE* Take a look at the new Boulder Biotech Company Tree (HERE)!
*NOTE* Read the new eBook CLSDF 2007 - What's In A Year? (HERE)!

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