INSMED Inc [INSM] Filings

10-Q 1 insm-20230930.htm 10-Q insm-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ 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 000-30739

INSMED INCORPORATED

(Exact name of registrant as specified in its charter)


Virginia						54-1972729
(State or other jurisdiction of incorporation or organization)						(I.R.S. employer identification no.)

700 US Highway 202/206,
Bridgewater, New Jersey						08807
(Address of principal executive offices)						(Zip Code)

(908) 977-9900

(Registrant’s telephone number including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section12(b) of the Act:


Title of each class	Trading symbols	Name of each exchange on which registered
Common stock, par value $0.01 per share	INSM	Nasdaq Global Select Market

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 x 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 x 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 o

Non-accelerated filer o						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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of October 23, 2023, there were 143,062,065 shares of the registrant’s common stock outstanding.

INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2023

INDEX


PART I. FINANCIAL INFORMATION

ITEM 1	Consolidated Financial Statements

	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3

	Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2023 and 2022	4

	Consolidated Statements of Shareholders' Equity (unaudited) for the three and nine months ended September 30, 2023 and 2022	5

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022	7

	Notes to Consolidated Financial Statements (unaudited)	8

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	47
ITEM 4	Controls and Procedures	47

PART II. OTHER INFORMATION

ITEM 1	Legal Proceedings	47
ITEM 1A	Risk Factors	47
ITEM 2	Unregistered Sales of Equity Securities , Use of Proceeds, and Issuer Purchases of Equity Securities	49
ITEM 5	Other Information	49
ITEM 6	Exhibits	49

SIGNATURE		50

Unless the context otherwise indicates, references in this Form 10-Q to “Insmed Incorporated” refers to Insmed Incorporated, a Virginia corporation, and the “Company,” “Insmed,” “we,” “us” and “our” refer to Insmed Incorporated together with its consolidated subsidiaries. INSMED, PULMOVANCE, ARIKARES and ARIKAYCE are trademarks of Insmed Incorporated. This Form 10-Q also contains trademarks of third parties. Each trademark of another company appearing in this Form 10-Q is the property of its owner.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

INSMED INCORPORATED

Consolidated Balance Sheets

(in thousands, except par value and share data)


	As of		As of
	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	487,113	$	1,074,036
Marketable securities	298,838		74,244
Accounts receivable	35,579		29,713
Inventory	77,923		69,922
Prepaid expenses and other current assets	27,123		25,468
Total current assets	926,576		1,273,383

Fixed assets, net	64,630		56,491
Finance lease right-of-use assets	21,663		23,697
Operating lease right-of-use assets	18,441		21,894
Intangibles, net	64,967		68,756
Goodwill	136,110		136,110
Other assets	92,486		76,104
Total assets	$	1,324,873	$	1,656,435

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	187,783	$	182,117


Finance lease liabilities	2,527		1,217
Operating lease liabilities	6,418		6,909

Total current liabilities	196,728		190,243

Debt, long-term	1,147,519		1,125,250
Royalty financing agreement	153,430		148,015
Contingent consideration	69,900		51,100
Finance lease liabilities, long-term	27,712		29,636
Operating lease liabilities, long-term	13,023		14,853
Other long-term liabilities	5,918		9,387
Total liabilities	1,614,230		1,568,484

Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 143,049,197 and 135,653,731 issued and outstanding shares at September 30, 2023 and December 31, 2022, respectively	1,430		1,357
Additional paid-in capital	2,971,375		2,782,416
Accumulated deficit	(3,260,084)		(2,696,578)
Accumulated other comprehensive (loss) income	(2,078)		756
Total shareholders’ (deficit) equity	(289,357)		87,951
Total liabilities and shareholders’ equity	$	1,324,873	$	1,656,435

See accompanying notes to the unaudited consolidated financial statements

INSMED INCORPORATED

Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Product revenues, net	$	79,072	$	67,730	$	221,515	$	186,058

Operating expenses:
Cost of product revenues (excluding amortization of intangible assets)	16,706		13,471		47,130		42,057
Research and development	109,148		99,872		433,982		272,755
Selling, general and administrative	90,626		75,583		254,971		192,305
Amortization of intangible assets	1,263		1,263		3,789		3,789
Change in fair value of deferred and contingent consideration liabilities	8,997		5,238		12,997		(19,002)
Total operating expenses	226,740		195,427		752,869		491,904

Operating loss	(147,668)		(127,697)		(531,354)		(305,846)

Investment income	10,583		1,791		32,279		2,763
Interest expense	(20,288)		(3,353)		(60,910)		(10,001)
Change in fair value of interest rate swap	(1,301)		—		(1,650)		—

Other income (expense), net	285		(1,514)		(314)		(7,069)
Loss before income taxes	(158,389)		(130,773)		(561,949)		(320,153)

Provision for income taxes	544		372		1,557		1,258

Net loss	$	(158,933)	$	(131,145)	$	(563,506)	$	(321,411)

Basic and diluted net loss per share	$	(1.11)	$	(1.09)	$	(4.06)	$	(2.68)

Weighted average basic and diluted common shares outstanding	142,899		120,789		138,960		119,780

Net loss	$	(158,933)	$	(131,145)	$	(563,506)	$	(321,411)
Other comprehensive income (loss):
Foreign currency translation loss	(1,075)		(553)		(3,448)		(1,255)
Unrealized gain (loss) on marketable securities	248		96		614		(1,099)
Total comprehensive loss	$	(159,760)	$	(131,602)	$	(566,340)	$	(323,765)

See accompanying notes to the unaudited consolidated financial statements

INSMED INCORPORATED

Consolidated Statements of Shareholders' Equity (unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at June 30, 2022	119,865	$	1,199	$	2,449,281	$	(2,405,310)	$	(929)	$	44,241
Comprehensive loss:
Net loss						(131,145)				(131,145)
Other comprehensive loss								(457)		(457)
Exercise of stock options and ESPP shares issuance	395	3		4,066						4,069
Net proceeds from issuance of common stock	1,290	13		33,370						33,383
Issuance of common stock for vesting of RSUs	5	—								—
Deferred business combination payments	171	2		4,294						4,296
Stock compensation expense				15,654						15,654
Balance at September 30, 2022	121,726	$	1,217	$	2,506,665	$	(2,536,455)	$	(1,386)	$	(29,959)

Balance at June 30, 2023	142,750	$	1,428	$	2,945,229	$	(3,101,151)	$	(1,251)	$	(155,745)
Comprehensive loss:
Net loss						(158,933)				(158,933)
Other comprehensive income								(827)		(827)
Exercise of stock options and ESPP shares issuance	121	—		2,258						2,258

Issuance of common stock for vesting of RSUs	1	—		—						—
Deferred payments for Business Acquisition	177	2		3,895						3,897

Stock compensation expense				19,993						19,993
Balance at September 30, 2023	143,049	$	1,430	$	2,971,375	$	(3,260,084)	$	(2,078)	$	(289,357)

See accompanying notes to the unaudited consolidated financial statements

INSMED INCORPORATED

Consolidated Statements of Shareholders' Equity (unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance at December 31, 2021	118,738	$	1,187	$	2,673,556	$	(2,265,243)	$	968	$	410,468
Cumulative impact of ASU 2020-06 adoption				(264,609)		50,199				(214,410)
Comprehensive loss:
Net loss						(321,411)				(321,411)
Other comprehensive loss								(2,354)		(2,354)
Exercise of stock options and ESPP shares issuance	1,190	11		17,318						17,329
Net proceeds from issuance of common stock	1,290	13		33,370						33,383
Issuance of common stock for vesting of RSUs	337	4								4
Deferred business combination payments	171	2		4,294						4,296
Stock compensation expense				42,736						42,736
Balance at September 30, 2022	121,726	$	1,217	$	2,506,665	$	(2,536,455)	$	(1,386)	$	(29,959)

Balance at December 31, 2022	135,654	$	1,357	$	2,782,416	$	(2,696,578)	$	756	$	87,951
Comprehensive loss:
Net loss						(563,506)				(563,506)
Other comprehensive income								(2,834)		(2,834)
Exercise of stock options and ESPP shares issuance	716	7		10,674						10,681
Net proceeds from issuance of common stock	2,028	20		37,994						38,014
Issuance of common stock for vesting of RSUs	543	5								5
Deferred payments for Business Acquisition	177	2		3,895						3,897
Issuance of common stock for asset acquisition	3,931	39		81,601						81,640
Stock compensation expense				54,795						54,795
Balance at September 30, 2023	143,049	$	1,430	$	2,971,375	$	(3,260,084)	$	(2,078)	$	(289,357)

See accompanying notes to the unaudited consolidated financial statements

INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Operating activities
Net loss	$	(563,506)	$	(321,411)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,052		3,095
Amortization of intangible assets	3,789		3,789
Stock-based compensation expense	54,795		42,736

Amortization of debt issuance costs	5,568		2,465

Paid-in-kind interest capitalized	17,202		—
Royalty financing non-cash interest expense	14,016		—
Accretion of discount on marketable securities, net	(6,291)		—
Finance lease amortization expense	2,034		1,846
Non-cash operating lease expense	8,423		11,440
Change in fair value of deferred and contingent consideration liabilities	12,997		(19,002)
Change in fair value of interest rate swap	1,650		—
Vertuis acquisition	10,250		—
Adrestia acquisition	76,481		—
Changes in operating assets and liabilities:
Accounts receivable	(7,428)		(5,440)
Inventory	(9,179)		624
Prepaid expenses and other current assets	(1,196)		1,806
Other assets	(16,905)		(13,023)
Accounts payable and accrued liabilities	(6,554)		15,137
Other liabilities	(5,626)		(21,352)

Net cash used in operating activities	(405,428)		(297,290)
Investing activities
Purchase of fixed assets	(11,135)		(5,187)
Purchase of marketable securities	(292,689)		(99,706)
Cash acquired in asset acquisition	3,417		—
Maturities of marketable securities	75,000		50,000
Net cash used in investing activities	(225,407)		(54,893)
Financing activities
Proceeds from exercise of stock options and ESPP	10,763		17,333
Proceeds from issuance of common stock, net	38,014		33,383




Payments of finance lease principal	(2,383)		(830)

Payment of debt issuance costs	(1,218)		—
Net cash provided by financing activities	45,176		49,886
Effect of exchange rates on cash and cash equivalents	(1,264)		148
Net decrease in cash and cash equivalents	(586,923)		(302,149)
Cash and cash equivalents at beginning of period	1,074,036		716,782
Cash and cash equivalents at end of period	$	487,113	$	414,633
Supplemental disclosures of cash flow information:
Cash paid for interest	$	27,461	$	7,442
Cash paid for income taxes	$	1,880	$	1,626

See accompanying notes to the unaudited consolidated financial statements

Table of Contents

INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Basis of Presentation

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, ARIKAYCE, is approved in the United States (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 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 pipeline includes brensocatib, treprostinil palmitil inhalation powder (TPIP) and early-stage research programs. Brensocatib is a small molecule, oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), which the Company is developing for the treatment of patients with bronchiectasis, as well as 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). 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, protein manufacturing, and synthetic rescue.

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are located in Bridgewater, New Jersey. The Company has legal entities in the US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the United Kingdom (UK), and Japan.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the US (GAAP) for complete consolidated financial statements are not included herein. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Any references in these notes to applicable accounting guidance are meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The unaudited interim consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated in consolidation.

The Company had $487.1 million in cash and cash equivalents and $298.8 million of marketable securities as of September 30, 2023 and reported a net loss of $563.5 million for the nine months ended September 30, 2023. 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 research and development (R&D) activities for ARIKAYCE, brensocatib, TPIP and its other pipeline programs, continuing commercialization and regulatory activities for ARIKAYCE 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. While 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.

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies

The Company’s complete listing of significant accounting policies is set forth in Note 2 of the notes to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Selected significant accounting policies are discussed in further detail below.

Use of Estimates - The preparation of the consolidated financial statements in conformity with 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 in process research and development (IPR&D) and goodwill, fair value of contingent consideration, and accounting for research and development costs. Actual results could differ from those estimates.

Concentration of Credit Risk - 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 uncollectible trade receivables. The following table presents the percentage of gross product revenue represented by the Company's three largest customers as of the nine months ended September 30, 2023 and their respective percentages for the nine months ended September 30, 2022.


	September 30,
	2023	2022
Customer A	35%	33%
Customer B	35%	35%
Customer C	18%	19%

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.

Inventory and Cost of Product Revenues (excluding amortization of intangible assets) - Inventory is stated at the lower of cost or net realizable value and consists of raw materials, work-in-process and finished goods. 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 ARIKAYCE 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 first in, first out flow of goods. Inventory used for clinical development purposes is expensed to R&D expense when consumed. See Note 5 - Inventory for further details.

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 test 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 test is met, the transaction is accounted for as an asset acquisition. If the screen test is not met,

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

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 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 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. If the in-licensed agreement for IPR&D does not meet the definition of a business and the assets have not reached technological feasibility and therefore have no alternative future use, the Company expenses payments made under such license agreements as acquired IPR&D expense in its consolidated statement of comprehensive loss. 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. See Note 16 - Acquisitions for further information.

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 performs a qualitative test for its indefinite-lived intangible assets annually as of October 1. See Note 6 - Intangibles, Net and Goodwill for further details.

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

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. See Note 6 - Intangibles, Net and Goodwill for further details.

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.

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 September 30, 2023 and December 31, 2022, the Company continues to operate as one reporting unit. The Company will perform its next annual impairment testing for goodwill as of October 1, 2023. See Note 6 - Intangibles, Net and Goodwill for further details.

Leases - A lease is a contract, or part of a contract, that conveys the right to control the use of explicitly or implicitly 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. See Note 9 - Leases for further details.

Foreign Currency - The Company has operations in the US, France, Germany, Ireland, Italy, the Netherlands, Switzerland, the UK, and Japan. The results of the Company's 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. Equity is translated at the prevailing exchange rate at the date of the equity transaction. Translation adjustments are included in shareholders' (deficit) equity, as a component of accumulated other comprehensive (loss) 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 income (expense), net.

Debt Issuance Costs - 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.

Synthetic Royalty Financing Agreement - In October 2022, the Company entered into a revenue interest purchase agreement (the Royalty Financing Agreement) with OrbiMed Royalty & Credit Opportunities IV, LP (OrbiMed). The fair value of the Royalty Financing Agreement at the time of the transaction was based on the Company’s estimates of future royalties

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

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 is utilizing the prospective method to account for subsequent changes in the estimated future payments to be made to OrbiMed and updates the effective interest rate on a quarterly basis. See Note 11 - Royalty Financing Agreement for further details.

Derivatives - 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.

Net Loss Per Share - Basic 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), performance stock units (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 common shares used to compute basic and diluted net loss per share for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Numerator:
Net loss	$	(158,933)	$	(131,145)	$	(563,506)	$	(321,411)
Denominator:
Weighted average common shares used in calculation of basic net loss per share:	142,899		120,789		138,960		119,780
Effect of dilutive securities:
Common stock options	—		—		—		—
RS and RSUs	—		—		—		—
PSUs	—		—		—		—
Convertible debt securities	—		—		—		—
Weighted average common shares outstanding used in calculation of diluted net loss per share	142,899		120,789		138,960		119,780
Net loss per share:
Basic and diluted	$	(1.11)	$	(1.09)	$	(4.06)	$	(2.68)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Summary of Significant Accounting Policies (Continued)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of September 30, 2023 and 2022, respectively, as their effect would have been anti-dilutive (in thousands):


	September 30,
	2023	2022
Common stock options	22,496	17,459
Unvested RS and RSUs	2,787	1,582
PSUs	666	672
Convertible debt securities	23,438	23,438

Recently Adopted Accounting Pronouncements - In August 2020, the Financial Accounting Standards Board issued ASU 2020-06, Debt — 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. 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 on January 1, 2022 resulted in an opening balance sheet adjustment increasing debt by approximately $221.9 million, increasing issuance costs classified to debt by $6.1 million, decreasing the deferred tax liability by $1.4 million, and increasing retained earnings by $50.2 million, with an offsetting reduction to additional paid-in-capital of $264.6 million, net of tax.

3. Fair Value Measurements

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. Hierarchical 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:

•Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2 — 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 — 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.

Each 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.

The following table shows assets and liabilities that are measured at fair value on a recurring basis and their carrying value (in millions):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)


	September 30, 2023
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	487.1	$	487.1	$	—	$	—
Marketable securities	$	298.8	$	298.8	$	—	$	—
Collateral for interest rate swap	$	5.0	$	5.0	$	—	$	—
Liabilities
Interest rate swap	$	3.2	$	—	$	3.2	$	—
Deferred consideration	$	4.7	$	—	$	4.7	$	—
Contingent consideration	$	69.9	$	—	$	—	$	69.9


	December 31, 2022
			Fair Value
	Carrying Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	1,074.0	$	1,074.0	$	—	$	—
Marketable securities	$	74.2	$	74.2	$	—	$	—
Collateral for interest rate swap	$	5.0	$	5.0	$	—	$	—
Liabilities
Interest rate swap	$	1.5	$	—	$	1.5	$	—
Deferred consideration	$	7.4	$	—	$	7.4	$	—
Contingent consideration	$	58.1	$	—	$	—	$	58.1

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. 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 September 30, 2023 and 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 three and nine months ended September 30, 2023.

As of September 30, 2023, the Company held $298.8 million of current available-for-sale securities, net of an unrealized gain of $0.1 million recorded in accumulated other comprehensive (loss) income. 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.

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: (1) the significance of the decline; (2) whether the security was rated below investment grade; (3) failure of the issuer to make scheduled interest or principal payments; 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 three and nine months ended September 30, 2023.

Deferred Consideration

The deferred consideration arose from the acquisitions of Motus Biosciences, Inc. (Motus) and AlgaeneX, Inc. (AlgaeneX) (the Business Acquisition) in August 2021. 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 and August 2023, the Company fulfilled the payments due on the first and second anniversaries of the closing date by issuing 171,427 shares and 177,203 shares of the Company's common stock,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

respectively, after 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 within accounts payable and accrued liabilities. As of September 30, 2023, the fair value of deferred consideration included in accounts payable and accrued liabilities was $4.7 million.

The following observable input was used in the valuation of the deferred consideration as of September 30, 2023:


	Fair Value as of September 30, 2023 (in millions)	Observable Input	Input Value
Deferred consideration	$4.7	Insmed share price as of September 30, 2023	$25.25

Contingent Consideration

The contingent consideration liabilities arose from the Business Acquisition in August 2021 (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 September 30, 2023, the weighted average probability of success was 42%. 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% of the after tax net proceeds received by the Company from a sale of the priority review voucher or 50% 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 September 30, 2023, 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 expected to be settled within twelve months or less is classified as a current liability within accounts payable and accrued liabilities. There is no contingent consideration expected to be settled within twelve months of September 30, 2023. Contingent consideration expected to be settled in more than twelve months is classified as a non-current liability. As of September 30, 2023, the fair value of non-current contingent consideration was $69.9 million.

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 development and regulatory milestones and the priority review voucher milestone as of September 30, 2023:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Measurements (Continued)

Fair Value as of September 30, 2023 (in millions)

Valuation Technique

Unobservable Inputs

Values

Development and regulatory milestones

$61.0

Probability-adjusted

Probabilities of success

14% - 97%

Priority review voucher milestone

$5.6

Probability-adjusted discounted cash flow

Probability of success

16.4%

Discount rate

11.2%

The following table is a summary of the changes in the fair value of the Company's valuations for the deferred and contingent consideration liabilities for the nine months ended September 30, 2023 and 2022 (in thousands):


	Deferred Consideration (Level 2 Liabilities)		Contingent Consideration (Level 3 Liabilities)
Balance as of December 31, 2021	$	14,931	$	75,668
Additions	—		—
Change in Fair Value	(2,635)		(16,368)
Payments	(4,296)		—
Balance as of September 30, 2022	$	8,000	$	59,300

Balance as of December 31, 2022	$	7,400	$	58,100
Additions	—		—
Change in Fair Value	1,200		11,800
Payments	(3,900)		—
Balance as of September 30, 2023	$	4,700	$	69,900

Convertible Notes

The fair value of the convertible notes, which differs from their carrying value, is influenced by interest rates, the Company's stock price and stock price volatility (collectively, the Current Market Factors), and is determined by prices for the convertible notes observed in market trading which are Level 2 inputs.

The estimated fair value of the liability component of the Company's 0.75% convertible senior notes due 2028 (the 2028 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of September 30, 2023 was $581.5 million, determined using Current Market Factors and the ability of the Company to obtain debt on comparable terms to the 2028 Convertible Notes.

The estimated fair value of the liability component of the Company's 1.75% convertible senior notes due 2025 (the 2025 Convertible Notes) (categorized as a Level 2 liability for fair value measurement purposes) as of September 30, 2023 was $223.9 million, determined using Current Market Factors, and the ability of the Company to obtain debt on comparable terms to the 2025 Convertible Notes. See Note 10 - Debt for further details on the Company's convertible notes.

4. Product Revenues, Net

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: (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, 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: the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Product Revenues, Net (Continued)

sale of ARIKAYCE 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 ARIKAYCE. 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 ARIKAYCE in Europe. In July 2021, the Company began recognizing product revenue from commercial sales of ARIKAYCE 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 summary of the Company's product revenues, net, by geographic location for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
US	$	59,203	$	49,539	$	165,935	$	137,511
Japan	16,033		14,483		44,782		41,008
Europe and rest of world	3,836		3,708		10,798		7,539
Total product revenues, net	$	79,072	$	67,730	$	221,515	$	186,058

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). Where appropriate, these estimates take into consideration a 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: 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: The Company contracts 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. 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: 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Product Revenues, Net (Continued)

Co-payment assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. Based 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.

If any, or all, of the Company's actual experience varies from its estimates, the Company may need to adjust prior period accruals, affecting revenue in the period of adjustment.

The Company also recognizes revenue related to various early access programs (EAPs) in Europe. EAPs are intended to make products available on a named patient basis before they are commercially available in accordance with local regulations.

5. Inventory

As of September 30, 2023 and December 31, 2022, the Company's inventory balance consists of the following (in thousands):


	September 30, 2023		December 31, 2022

Raw materials	$	26,278	$	27,245
Work-in-process	31,891		22,460
Finished goods	19,754		20,217
	$	77,923	$	69,922

The Company has not recorded any significant inventory write-downs. The Company currently uses a limited number of third-party contract manufacturing organizations (CMOs) to produce its inventory.

6. Intangibles, Net and Goodwill

Intangibles, Net

Finite-lived Intangible Assets

As of September 30, 2023, the Company's finite-lived intangible assets consisted of acquired ARIKAYCE R&D and the milestones paid to PARI for the license to use Lamira for the delivery of ARIKAYCE to patients as a result of the FDA and EC approvals of ARIKAYCE in September 2018 and October 2020, respectively. The Company began amortizing the intangible assets acquired in connection with the ARIKAYCE R&D and PARI milestones in October 2018. These intangible assets will be amortized over ARIKAYCE'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.

Indefinite-lived Intangible Assets

As of September 30, 2023, the Company's indefinite-lived intangible assets consisted of acquired IPR&D from the Business Acquisition (Note 16). Indefinite-lived intangible assets are not amortized.

A rollforward of the Company's intangible assets for the nine months ended September 30, 2023 and September 30, 2022 is as follows (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Intangibles, Net and Goodwill (Continued)



Intangible Asset	December 31, 2022		Additions		Amortization		September 30, 2023
Acquired ARIKAYCE R&D	$	37,588	$	—	$	(3,638)	$	33,950
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,568		—		(151)		1,417
	$	68,756	$	—	$	(3,789)	$	64,967

Intangible Asset	December 31, 2021		Additions		Amortization		September 30, 2022
Acquired ARIKAYCE R&D	$	42,439	$	—	$	(3,638)	$	38,801
Acquired IPR&D	29,600		—		—		29,600
PARI milestones	1,770		—		(151)		1,619
	$	73,809	$	—	$	(3,789)	$	70,020

Goodwill

The Company's goodwill balance of $136.1 million as of September 30, 2023 and December 31, 2022, resulted from the August 2021 Business Acquisition. See Note 16 - Acquisitions for further details.

7. Fixed Assets, Net

Fixed assets are stated at cost and depreciated using the straight-line method, based on useful lives as follows (in thousands):


	Estimated Useful Life (years)	As of
Asset Description		September 30, 2023		December 31, 2022

Lab equipment	7	$	22,503	$	16,403
Furniture and fixtures	7	6,428		6,428
Computer hardware and software	3-5	5,959		5,227
Office equipment	7	89		89
Manufacturing equipment	7	1,336		1,203
Leasehold improvements	2-10	37,937		37,057
Construction in progress	—	33,512		29,529
		107,764		95,936
Less: accumulated depreciation		(43,134)		(39,445)
		$	64,630	$	56,491

8. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Accounts Payable and Accrued Liabilities (Continued)


	As of
	September 30, 2023		December 31, 2022
Accounts payable and other accrued operating expenses	$	65,377	$	50,461
Accrued clinical trial expenses	21,183		36,456
Accrued professional fees	19,239		14,403
Accrued technical operation expenses	4,252		3,345

Accrued compensation and employee related costs	33,870		32,040
Accrued royalty and milestones payable	5,979		4,710
Accrued interest payable	2,262		6,340
Revenue Interest Payments payable	3,163		2,149
Accrued sales allowances and related costs	9,464		6,974
Accrued France ATU reimbursement payable	15,072		12,943
Deferred and contingent consideration	5,700		10,700

Other accrued liabilities	2,222		1,596
	$	187,783	$	182,117

9. Leases

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 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 Company also records variable consideration for variable lease payments in excess of fixed fees or minimum guarantees. Variable consideration related to the Company's leasing arrangements was $3.9 million and $3.2 million for the three months ended September 30, 2023 and 2022, respectively, and $8.1 million and $4.9 million for the nine months ended September 30, 2023 and 2022, respectively. Variable costs related to CMO manufacturing agreements are direct costs related to the manufacturing of ARIKAYCE 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 ARIKAYCE, have been classified within operating expenses in the Company's consolidated statements of comprehensive loss.

The table below summarizes the supplemental non-cash disclosures of the Company's leases included in its consolidated financial statements (in thousands):


	Three Months Ended September 30,			Nine Months Ended September 30,
		2023		2022		2023		2022
Finance right-of-use assets obtained in exchange for lease obligations		$	—	$	—	$	—	$	9,287
Operating right-of-use assets obtained in exchange for lease obligations		$	3,089	$	58	$	4,970	$	565

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Leases (Continued)

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 UK Limited (Patheon) related to increasing its long-term production capacity for ARIKAYCE 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 $47.0 million and $40.7 million incurred by the Company under these additional agreements have been classified within other assets in the Company's consolidated balance sheet as of September 30, 2023 and December 31, 2022, respectively. 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.

10. Debt

Debt, long-term consists of the following commitments as of September 30, 2023 and December 31, 2022 (in thousands):


	As of
	September 30, 2023		December 31, 2022
Convertible notes	$	788,087	$	785,621
Term Loan	359,432		339,629
Debt, long-term	$	1,147,519	$	1,125,250

Convertible Notes

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 2025 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.

Holders 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: (i) during

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Debt (Continued)

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% 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% 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% 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.

Each 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. However, 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 that 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% 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% 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 2028 Convertible Notes have remaining terms of approximately 1.29 years and 4.67 years, respectively.

The $564.4 million carrying value of the 2028 Convertible Notes as of September 30, 2023 excludes $10.6 million of unamortized debt issuance costs. The $223.7 million carrying value of the 2025 Convertible Notes as of September 30, 2023 excludes $1.3 million of unamortized debt issuance costs. The following table presents the carrying value of the Company's

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Debt (Continued)

convertible notes balance (in thousands):


	As of
	September 30, 2023		December 31, 2022
Face value of outstanding convertible notes	$	800,000	$	800,000
Debt issuance costs, unamortized	(11,913)		(14,379)

Convertible notes	$	788,087	$	785,621

Secured Senior Term Loan

In October 2022, the Company entered into a $350 million senior secured term loan agreement with Pharmakon Advisors LP, manager of the BioPharma Credit funds (the Term Loan). The Term Loan matures on October 19, 2027 and 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 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 ARIKAYCE data thresholds and certain other conditions. During the nine months ended September 30, 2023, paid-in-kind interest capitalized was $17.2 million. Net proceeds from the Term Loan, after deducting the lenders fees and deal expenses of $15.2 million, were $334.8 million.

The following table presents the carrying value of the Company’s Term Loan balance as of September 30, 2023 (in thousands):


	As of
	September 30, 2023		December 31, 2022
Original Term Loan balance	$	350,000	$	350,000
Paid-in-kind interest capitalized	21,367		4,165
Term Loan issuance costs, unamortized	(11,935)		(14,536)
Term Loan	$	359,432	$	339,629

As of September 30, 2023, future principal repayments of debt for each of the years through maturity were as follows (in thousands):


Year Ending December 31:
2023	$	—
2024	—
2025	225,000
2026	185,684
2027	185,683
2028 and thereafter	575,000
	$	1,171,367

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Debt (Continued)

Interest Expense

Interest expense related to debt and finance leases for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Convertible debt contractual interest expense	$	2,063	$	2,063	$	6,188	$	6,188
Term Loan contractual interest expense	12,002		—		34,403		—
Royalty Financing Agreement interest expense	4,447		—		14,016		—
Amortization of debt issuance costs	1,840		822		5,568		2,465

Swap interest income	(666)		—		(1,093)		—
Total debt interest expense	19,686		2,885		59,082		8,653
Finance lease interest expense	602		468		1,828		1,348
Total interest expense	$	20,288	$	3,353	$	60,910	$	10,001

11. Royalty Financing Agreement

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% 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 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 ARIKAYCE 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 $3.8 million were, $146.2 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 initial annual effective interest rate was determined to be 12.4%. The Company is utilizing the prospective method to account for subsequent changes in the estimated future payments to be made to OrbiMed and updates the effective interest rate on a quarterly basis.

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Royalty Financing Agreement (Continued)

The following table shows the activity within the liability account for the nine month period ended September 30, 2023 and year ended December 31, 2022 (in thousands):


	Nine Months Ended September 30, 2023		Twelve Months Ended December 31, 2022
Royalty financing agreement liability - beginning balance	$	151,538	$	150,000
Revenue Interest Payments paid and payable	(8,865)		(2,149)
Interest expense recognized	14,016		3,687
Royalty financing agreement liability - ending balance	$	156,689	$	151,538
Royalty financing issuance costs:
Royalty issuance costs, unamortized - beginning balance	$	(3,523)	$	(3,624)
Amortization of issuance costs	393		101
Other	(129)		—
Deferred issuance costs, unamortized - ending balance	$	(3,259)	$	(3,523)
Royalty Financing Agreement	$	153,430	$	148,015

The Revenue Interest Payments payable in connection with the royalty financing agreement were $3.2 million and $2.1 million as of September 30, 2023 and December 31, 2022, respectively, which were recorded within accounts payable and accrued expenses on the consolidated balance sheet. Non-cash interest expense is recorded within interest expense in the consolidated statements of comprehensive loss.

12. Shareholders' Equity

Common Stock — As of September 30, 2023, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 per share and 143,049,197 shares of common stock issued and outstanding. In addition, as of September 30, 2023, the Company had reserved 22,495,537 shares of common stock for issuance upon the exercise of outstanding stock options, 2,787,364 shares of common stock for issuance upon the vesting of RSUs and 666,382 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 Business 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 and second anniversaries of the closing date of the acquisition, and will also be issued upon the third anniversary 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 Business 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 to Motus equityholders on the first anniversary of the Business Acquisition. In the third quarter of 2023, the Company issued 177,203 shares of the Company's common stock to fulfill the payment required to Motus equityholders on the second anniversary of the Business Acquisition.

In the second quarter of 2023, in connection with the Company's acquisition of Adrestia Therapeutics Ltd. (Adrestia), the Company issued 3,430,867 shares of the Company's common stock as consideration at closing. See Note 16 - Acquisitions for further details.

In connection with the Company’s acquisition of Vertuis Bio, Inc. (Vertuis), the Company reserved 550,000 shares of the Company’s common stock, subject to future adjustment. An aggregate of 500,000 of the reserved shares were issued as acquisition consideration at closing. An additional $1 million of shares of common stock will be issued to Vertuis’ former stockholders on July 1, 2024, based on the share price on June 28, 2024. See Note 16 - Acquisitions for further details.

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Shareholders' Equity (Continued)

In October 2022, the Company completed an underwritten offering of 13,750,000 shares of the Company's common stock at a public 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 expense of $16.2 million, were $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 SVB Leerink LLC (now known as Leerink Partners LLC) (Leerink), 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 Leerink acts as sales agent. In the second quarter of 2023, the Company issued and sold an aggregate of 2,000,000 shares of common stock through the ATM program at a weighted-average public offering price of $19.35 per share and received net proceeds of $37.5 million. 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 September 30, 2023, an aggregate of $176.9 million of shares of common stock remain available to be issued and sold under the ATM program.

Preferred Stock — As of September 30, 2023, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.01 per share and no shares of preferred stock were issued and outstanding.

13. Stock-Based Compensation

The Company's current equity compensation plan, the Insmed Incorporated Amended and Restated 2019 Incentive Plan (the 2019 Incentive Plan), was approved by shareholders at the Company's Annual Meeting of Shareholders on May 11, 2023. The 2019 Incentive Plan replaced the Insmed Incorporated 2019 Incentive Plan, as amended. The 2019 Incentive Plan is administered by the Compensation Committee of the Board 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/shares and other stock awards to eligible employees and non-employee directors. At the May 2023 Annual Meeting of Shareholders, in connection with approval of the 2019 Incentive Plan, the Company's shareholders approved the issuance of an additional 10,500,000 shares under the plan. As of September 30, 2023, 7,052,203 shares remain available 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 nine months ended September 30, 2023, the Company granted inducement stock options covering 2,135,330 shares of the Company's common stock to new employees.

On May 15, 2018, the 2018 Employee Stock Purchase Plan (ESPP) was approved by shareholders at the Company's 2018 Annual Meeting of Shareholders. The Company has reserved the following for issuance under the ESPP: (i) 1,000,000 shares of common stock, plus (ii) commencing on January 1, 2019 and ending on December 31, 2023, an additional number of shares to be added on the first day of each calendar year equal to the lesser of (A) 1,200,000 shares of common stock, (B) 2% of the number of outstanding shares of common stock on such date and (C) an amount determined by the administrator.

Stock Options — As of September 30, 2023, there was $138.4 million of unrecognized compensation expense related to unvested stock options. As of September 30, 2023, the Company had performance-conditioned options totaling 114,780 shares outstanding which had not yet met the recognition criteria.

Restricted Stock Units — As of September 30, 2023, there was $46.2 million of unrecognized compensation expense related to unvested RSU awards.

Performance Stock Units — As of September 30, 2023, there were 266,550 unvested PSUs outstanding with an unrecognized compensation expense of $10.4 million, which assumes a payout of 100% of the target.

The following table summarizes the aggregate stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to stock options, RSUs and the ESPP during the three and nine months ended September 30, 2023 and 2022, respectively (in millions):

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Stock-Based Compensation (Continued)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Research and development	$	9.6	$	7.3	$	26.3	$	19.6
Selling, general and administrative	10.4		8.3		28.5		23.1
Total	$	20.0	$	15.6	$	54.8	$	42.7

There was no stock-based compensation expense recorded in the consolidated statements of comprehensive loss related to PSUs during the three and nine months ended September 30, 2023 or September 30, 2022, as the performance conditions associated with the PSU awards were not probable as of either date.

14. Income Taxes

The Company recorded a provision for income taxes of $0.5 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $1.6 million and $1.3 million for the nine months ended September 30, 2023 and 2022, respectively. The provisions recorded for the three and nine months ended September 30, 2023 and 2022 are primarily a result of certain of the Company's international subsidiaries, which had taxable income during the periods. Additionally, the Company is impacted by certain state taxes which effectively impose income tax on modified gross revenues. In jurisdictions where the Company has net losses, there was a full valuation allowance recorded against the Company's deferred tax assets and therefore no tax benefit was recorded.

The Company is subject to US federal, state and international income taxes and the statute of limitations for tax audit is open for the Company’s federal tax returns for the years ended 2019 and later, generally open for certain states for the years 2018 and later, and generally open for international jurisdictions for the years 2017 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. As of September 30, 2023 and December 31, 2022, the Company had recorded reserves for unrecognized income tax benefits against certain deferred tax assets in the US. However, given the Company’s valuation allowance position, these reserves do not have an impact on the balance sheet as of September 30, 2023 and December 31, 2022 or the consolidated statements of comprehensive loss for the three and nine months ended September 30, 2023 and 2022. The Company has not recorded any accrued interest or penalties related to uncertain tax positions. The Company does not anticipate any material changes in the amount of unrecognized tax positions over the next twelve months.

15. Commitments and Contingencies

Rent expense charged to operations was $2.6 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively, and $6.9 million and $5.9 million for the nine months ended September 30, 2023 and 2022, respectively.

Legal Proceedings

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. 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 the Company's consolidated financial position, results of operations or cash flows.

16. Acquisitions

Asset Acquisitions

Adrestia Therapeutics Ltd

In June 2023, the Company acquired all of the issued and outstanding share capital of Adrestia, a privately held, preclinical stage company. At the closing of the transaction, the Company issued an aggregate of 3,430,867 shares of the Company’s common stock to Adrestia’s former shareholders (collectively, the Adrestia shareholders). The closing share price on the date of the transaction was $21.10, resulting in a purchase price of $72.4 million. The Adrestia shareholders may also become entitled to receive contingent payments up to an aggregate of $326.5 million in cash upon the achievement of certain development, regulatory and commercial milestone events, as well as royalty payments based upon a low single-digit percentage of net sales of certain products, both subject to the terms and conditions of the agreement.

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INSMED INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Acquisitions (Continued)

The shares of the Company’s common stock issued to the Adrestia shareholders were issued pursuant to Section 4(a)(2) of the Securities Act of 1933 (and, with respect to certain Adrestia shareholders, in reliance on Regulation S promulgated under the Securities Act of 1933). The Company did not receive any net proceeds from the issuance of common stock to the Adrestia shareholders.

The Company evaluated the acquisition under ASC 805 and ASU 2017-01 and concluded that substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets and accounted for the transaction as an asset acquisition. The Company determined that the IPR&D acquired did not have any future alternative use and, in accordance with ASC 730, Research and Development, expensed the assets within research and development in the consolidated statement of comprehensive loss as of the date of the acquisition. The Company recognized $76.5 million as IPR&D expense, after adjusting for working capital assumed in connection with the asset acquisition.

Vertuis Bio, Inc.

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 closing share price on the date of the transaction was $18.50. The Company is obligated to issue to Vertuis equityholders shares of the Company’s common stock on July 1, 2024 with an aggregate value of $1.0 million, based on the share price on June 28, 2024, and pay to the Vertuis equityholders up to an aggregate of $23.0 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 issued to the Vertuis 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.