10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2017

OR

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

For the transition period from                to                

Commission File Number 0-30739

INSMED INCORPORATED

(Exact name of registrant as specified in its charter)

Virginia	54-1972729
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
10 Finderne Avenue, Building 10
Bridgewater, New Jersey	08807
(Address of principal executive offices)	(Zip Code)

(908) 977-9900

(Registrant’s telephone number including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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 (Do not check if a smaller reporting company)	Smaller reporting company o
	Emerging growth company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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. o

As of April 28, 2017, there were 62,090,141 shares of the registrant’s common stock, $0.01 par value, outstanding.

INSMED INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2017

INDEX

PART I.  FINANCIAL INFORMATION
ITEM 1	Consolidated Financial Statements
	Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016	3
	Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2017 and 2016	4
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2017 and 2016	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4	Controls and Procedures	22
PART II.  OTHER INFORMATION
ITEM 1	Legal Proceedings	23
ITEM 1A	Risk Factors	23
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 6	Exhibits	23
SIGNATURE		24
EXHIBIT INDEX		25

In this Form 10-Q, we use the words “Insmed Incorporated” to refer to Insmed Incorporated, a Virginia corporation, and we use the words “Company,” “Insmed,” “Insmed Incorporated,” “we,” “us” and “our” to refer to Insmed Incorporated and its consolidated subsidiaries. ARIKAYCE, INSMED and CONVERT 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.

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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
	March 31, 2017			December 31, 2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	125,839		$	162,591
Prepaid expenses and other current assets	5,785			5,816
Total current assets	131,624			168,407
In-process research and development	58,200			58,200
Fixed assets, net	9,807			10,020
Other assets	1,028			1,329
Total assets	$	200,659		$	237,956
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	8,454		$	10,439
Accrued expenses	14,143			16,822
Other current liabilities	674			728
Total current liabilities	23,271			27,989
Debt, long-term	54,993			54,791
Other long-term liabilities	711			693
Total liabilities	78,975			83,473
Shareholders’ equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 62,087,828 and 62,019,889 issued and outstanding shares at March 31, 2017 and December 31, 2016, respectively	621			620
Additional paid-in capital	923,760			919,164
Accumulated deficit	(802,650		)	(765,236		)
Accumulated other comprehensive loss	(47		)	(65		)
Total shareholders’ equity	121,684			154,483
Total liabilities and shareholders’ equity	$	200,659		$	237,956

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

Consolidated Statements of Comprehensive Loss (unaudited)

(in thousands, except per share data)

	Three Months ended March 31,
	2017			2016
Revenues	$	—		$	—
Operating expenses:
Research and development	22,254			20,547
General and administrative	13,715			12,520
Total operating expenses	35,969			33,067
Operating loss	(35,969		)	(33,067		)
Investment income	154			170
Interest expense	(1,474		)	(622		)
Other (expense) income, net	(95		)	15
Loss before income taxes	(37,384		)	(33,504		)
Provision for income taxes	30			28
Net loss	$	(37,414	)	$	(33,532	)
Basic and diluted net loss per share	$	(0.60	)	$	(0.54	)
Weighted average basic and diluted common shares outstanding	62,041			61,858
Net loss	$	(37,414	)	$	(33,532	)
Other comprehensive income (loss):
Foreign currency translation gains (losses)	18			(3		)
Total comprehensive loss	$	(37,396	)	$	(33,535	)

See accompanying notes to consolidated financial statements

4

INSMED INCORPORATED

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Three months ended March 31,
	2017			2016
Operating activities
Net loss	$	(37,414	)	$	(33,532	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	716			514
Stock based compensation expense	4,032			4,219
Amortization of debt discount and debt issuance costs	31			38
Accrual of backend fee on debt	171			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets	352			(316		)
Accounts payable	(2,026		)	527
Accrued expenses and other	(2,774		)	(978		)
Net cash used in operating activities	(36,912		)	(29,528		)
Investing activities
Purchase of fixed assets	(417		)	(588		)
Net cash used in investing activities	(417		)	(588		)
Financing activities
Proceeds from exercise of stock options	565			81
Net cash provided by financing activities	565			81
Effect of exchange rates on cash and cash equivalents	12			31
Net decrease in cash and cash equivalents	(36,752		)	(30,004		)
Cash and cash equivalents at beginning of period	162,591			282,876
Cash and cash equivalents at end of period	$	125,839		$	252,872
Supplemental disclosures of cash flow information:
Cash paid for interest	$	1,273		$	975
Cash paid for income taxes	$	17		$	—

See accompanying notes to consolidated financial statements

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INSMED INCORPORATED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.The Company and Basis of Presentation

Insmed is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. The Company’s lead product candidate is ARIKAYCE®, or liposomal amikacin for inhalation (LAI), which is in late-stage development for adult patients with treatment refractory nontuberculous mycobacteria (NTM) lung disease caused by Mycobacterium avium complex (MAC), a rare and often chronic infection that can cause irreversible lung damage and which can be fatal. The Company’s earlier clinical-stage pipeline includes INS1007, a novel oral reversible inhibitor of dipeptidyl peptidase 1, and INS1009, an inhaled treprostinil prodrug nanoparticle formulation.

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are in Bridgewater, New Jersey. The Company has legal entities in the United States (US), Ireland, Germany, France, the United Kingdom (UK) and the Netherlands. All intercompany transactions and balances have been eliminated in consolidation.

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 for complete consolidated financial statements are not included herein. The interim 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, 2016.

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.

2.Summary of Significant Accounting Policies

The following are interim updates to certain of the policies described in “Note 2” to the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016:

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 judgments 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 are 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 only assets and liabilities which were measured at fair value as of March 31, 2017 and December 31, 2016 were Level 1 and such assets were comprised of cash and cash equivalents of $125.8 million and $162.6 million, respectively.

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. Cash equivalents consist of liquid investments with a maturity of three months or less from the date of purchase.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the three months ended March 31, 2017 and 2016, respectively.

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As of March 31, 2017 and December 31, 2016, the Company held no securities that were in an unrealized gain or loss position. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company’s ability and intent to retain the investment for a sufficient period of time for it to recover.

Net Loss Per Common Share - Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common 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 and restricted stock units (RSUs) would be antidilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of outstanding stock options are determined based on the treasury stock method.

The following table sets forth the reconciliation of the weighted average number of shares used to compute basic and diluted net loss per share for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
	2017			2016
Numerator:
Net loss	$	(37,414	)	$	(33,532	)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	62,041			61,858
Effect of dilutive securities:
Stock options to purchase common stock	—			—
RSUs	—			—
Weighted average common shares outstanding used in calculation of diluted net loss per share	62,041			61,858
Net loss per share:
Basic and diluted net loss per share	$	(0.60	)	$	(0.54	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of March 31, 2017 and 2016 as their effect would have been anti-dilutive (in thousands):

	2017	2016
Stock options to purchase common stock	7,719	6,221
Unvested RSUs	89	—

Recently Adopted Accounting Pronouncements - In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The new standard was effective for the annual period ending after December 15, 2016, and for interim periods thereafter. The Company adopted ASU 2014-15 in the fourth quarter of 2016, which had no impact on the Company’s consolidated financial statements. The interim assessment during the first quarter of 2017 did not have an impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation—Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 in the first quarter of 2017 and impact of the adoption was not material to the consolidated financial statements as of and for the quarter ended March 31, 2017.

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3.Identifiable Intangible Asset

The Company believes there are no indicators of impairment relating to its in-process research and development intangible asset as of March 31, 2017.

4.Accrued Expenses

Accrued expenses consist of the following:

	As of March 31,		As of December 31,
	2017		2016
	(in thousands)
Accrued clinical trial expenses	$	7,842	$	7,071
Accrued compensation	2,674		6,937
Accrued professional fees	2,290		1,604
Accrued technical operation expenses	534		591
Accrued interest payable	438		438
Other accrued expenses	365		181
	$	14,143	$	16,822

5.Debt

On September 30, 2016, the Company and its domestic subsidiaries, as co-borrowers, entered into an Amended and Restated Loan and Security Agreement (the A&R Loan Agreement) with Hercules Capital, Inc. (Hercules). The A&R Loan Agreement included a total commitment from Hercules of up to $55.0 million, of which $25.0 million was previously outstanding. The amount of borrowings was increased by $10.0 million to an aggregate total of $35.0 million on September 30, 2016. An additional $20.0 million was available at the Company’s option through June 30, 2017 subject to certain conditions, including the payment of a facility fee of 0.375%. The Company exercised this option in early October 2016 and borrowed an additional $20.0 million in connection with its upfront payment obligation under the license agreement with AstraZeneca AB. The interest rate for the term is floating and is calculated as the greater of (i) 9.25% or (ii) 9.25% plus the sum of the US prime rate minus 4.50%, along with a backend fee of 4.15% of the aggregate principal amount outstanding and an aggregate facility fee of $337,500. Upon entry into the A&R Loan Agreement, the interest-only period was extended through November 1, 2018, and it could be extended up to six additional months under certain conditions. The maturity date of the loan facility was also extended to October 1, 2020. Pursuant to the A&R Loan Agreement, the Company is required to have consolidated minimum cash liquidity in an amount no less than $25.0 million. Such requirement terminates upon the earlier of the date by which the Company completes an equity financing with at least $75.0 million in proceeds or the date the Company generates and announces data from the CONVERT study in a manner that could support the filing of a new drug application. In addition, pursuant to the A&R Loan Agreement, Hercules has the right to participate, in an aggregate amount of up to $2.0 million, in a subsequent private financing that involves the issuance of our equity securities.

In connection with the A&R Loan Agreement, the Company granted Hercules a first position lien on all of the Company’s assets, excluding intellectual property. Prepayment of the loans made pursuant to the A&R Loan Agreement is subject to penalty. The backend fee of 4.15% on the aggregate outstanding principal balance is being charged to interest expense (and accreted to the debt) using the effective interest method over the original life of the A&R Loan Agreement. Debt issuance fees paid to Hercules were recorded as a discount on the debt and are being amortized to interest expense using the effective interest method over the life of the A&R Loan Agreement.

The following table presents the components of the Company’s debt balance as of March 31, 2017 (in thousands):

Debt:
Notes payable	$	55,000
Accretion of backend fee	342
Debt issuance costs, unamortized	(349		)
Debt, long-term	$	54,993

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As of March 31, 2017, future principal repayments of the debt for each of the fiscal years through maturity were as follows (in thousands):

Year Ending in December 31:
2017	$	—
2018	3,271
2019	20,753
2020	30,976
	$	55,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place.  The Company believes the estimated fair value at March 31, 2017 approximates the carrying amount.

6.Shareholders’ Equity

Common Stock — As of March 31, 2017, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 and 62,087,828 shares of common stock issued and outstanding. In addition, as of March 31, 2017, the Company had reserved 7,718,990 shares of common stock for issuance upon the exercise of outstanding common stock options and 89,194 shares of common stock for issuance upon the vesting of RSUs.

Preferred Stock — As of March 31, 2017, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.01 and no shares of preferred stock were issued and outstanding.

7.Stock-Based Compensation

The Company’s current equity compensation plan, the 2015 Incentive Plan, was approved by shareholders at the Company’s 2015 Annual Meeting of Shareholders. The 2015 Incentive Plan is administered by the Compensation Committee and the Board of Directors of the Company. Under the terms of the 2015 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), performance options/shares and other stock awards, as well as the payment of incentive bonuses to all employees and non-employee directors. The Company has 5,000,000 shares of common stock authorized for issuance under the 2015 Incentive Plan and, as of March 31, 2017, there were 1,596,242 shares remaining for future grants (or issuances) of stock options, stock appreciation rights, restricted stock, restricted stock units and incentive bonuses thereunder. The 2015 Incentive Plan will terminate on April 9, 2025 unless it is extended or terminated earlier pursuant to its terms. The Company has submitted a proposal to its shareholders to approve a new equity compensation plan, the 2017 Incentive Plan, at the 2017 Annual Meeting of Shareholders. The 2017 Incentive Plan, if approved, will provide for the issuance of 5,000,000 shares, plus any shares that were subject to outstanding awards under the 2015 Incentive Plan and the 2013 Incentive Plan, as of the effective date of the 2017 Incentive Plan, that are cancelled, terminate unearned, expire, are forfeited, lapse for any reason or are settled in cash without the delivery of shares. If approved, no additional awards will be granted under the 2015 Incentive Plan. In addition, from time to time, the Company makes inducement grants of stock options. These awards are made pursuant to the NASDAQ inducement grant exception as a component of new hires’ employment compensation.

Stock Options - The Company calculates the fair value of stock options granted using the Black-Scholes valuation model. The following table summarizes the Company’s grant date fair value and assumptions used in determining the fair value of all stock options granted:

	Three Months Ended March 31,
	2017	2016
Volatility	73%-74%	77%
Risk-free interest rate	1.86%-1.99%	1.16%-1.73%
Dividend yield	0.0%	0.0%
Expected option term (in years)	6.25	6.25
Weighted average fair value of stock options granted	$9.18	$10.68

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For each period presented, the volatility factor was based on the Company’s historical volatility since the closing of the Company’s merger with Transave in December 2010. The expected life was determined using the simplified method as described in ASC Topic 718, Accounting for Stock Compensation, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the US Treasury yield in effect at the date of grant. Estimated forfeitures are based on the actual percentage of option forfeitures since the closing of the Company’s merger with Transave in December 2010.

From time to time, the Company grants performance-condition options to certain of its employees. Vesting of these options is subject to the Company achieving certain performance criteria established at the date of grant and the grantees fulfilling a service condition (continued employment). As of March 31, 2017, the Company had performance options totaling 133,334 shares outstanding which had not yet met the recognition criteria.

The following table summarizes the Company’s aggregate stock option activity for the three months ended March 31, 2017:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2016	7,116,706		$	13.30
Granted	940,060		$	13.77
Exercised	(67,939	)	$	8.58
Forfeited or expired	(269,837	)	$	14.50
Options outstanding at March 31, 2017	7,718,990		$	13.36	7.58	$	37,828
Vested and expected to vest at March 31, 2017	7,418,298		$	13.32	7.52	$	36,705
Exercisable at March 31, 2017	3,436,957		$	11.80	6.17	$	22,276

The total intrinsic value of stock options exercised during the three months ended March 31, 2017 and 2016 was $0.5 million and $0.1 million, respectively.

As of March 31, 2017, there was $28.4 million of unrecognized compensation expense related to unvested stock options which is expected to be recognized over a weighted average period of 2.7 years. Included in unrecognized compensation expense was $1.1 million related to outstanding performance-based options. The following table summarizes the range of exercise prices and the number of stock options outstanding and exercisable:

Outstanding as of March 31, 2017					Exercisable as of March 31, 2017
			Weighted
			Average
			Remaining	Weighted
Range of Exercise		Number of	Contractual	Average	Number of	Weighted Average
Prices ($)		Options	Term (in years)	Exercise Price ($)	Options	Exercise Price ($)
3.03	3.40	841,850	5.34	3.34	841,850	3.34
3.60	6.90	452,003	4.25	5.82	414,503	5.72
6.96	10.85	1,096,296	9.05	10.76	23,751	6.96
11.14	12.58	1,121,225	6.79	12.18	664,466	12.21
12.66	13.58	187,880	8.17	13.24	68,887	13.30
13.67	13.67	880,750	9.77	13.67	—	—
13.94	16.07	867,990	7.47	15.18	467,219	15.13
16.09	16.54	775,528	8.55	16.18	215,355	16.17
17.14	22.76	1,427,631	7.54	21.27	714,903	21.00
22.84	27.38	67,837	8.13	23.78	26,023	23.79

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Restricted Stock and Restricted Stock Units — The Company may grant Restricted Stock (RS) and RSUs to eligible employees, including its executives, and non-employee directors. Each share of RS vests upon, and each RSU represents a right to receive one share of the Company’s common stock upon the completion of a specific period of continued service or achievement of a certain milestone. RS and RSU awards granted are valued at the market price of the Company’s common stock on the date of grant. The Company recognizes noncash compensation expense for the fair values of these RS and RSUs on a straight-line basis over the requisite service period of these awards. The following table summarizes the Company’s RSU award activity during the three months ended March 31, 2017:

		Weighted
	Number of	Average
	RSUs	Grant Price ($)
Outstanding at December 31, 2016	89,194	10.85
Granted	—	—
Released	—	—
Outstanding at March 31, 2017	89,194	10.85

The following table summarizes the aggregate stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss related to stock options and RSUs during the three months ended March 31, 2017 and 2016:

	Three months ended March 31,
	2017		2016
	(in millions)
Research and development expenses	$	1.5	$	1.4
General and administrative expenses	2.5		2.8
Total	$	4.0	$	4.2

8.Income Taxes

The Company’s provision for income taxes was $30,000 and $28,000 for the three months ended March 31, 2017 and 2016, respectively. The provision for income taxes in both periods was a result of certain of the Company’s subsidiaries in Europe, which had taxable income during the three months ended March 31, 2017 and 2016. 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, US state and foreign income taxes. The statute of limitations for tax audit is open for the Company’s US federal tax returns for the years ended 2013 and later and is generally open for certain states for the years 2012 and later. The Company’s US federal tax return for the year ended December 31, 2013 is currently under audit by the Internal Revenue Service. The Company has incurred net operating losses since inception, except for 2009. Such loss carryforwards are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of March 31, 2017 and December 31, 2016, the Company had recorded no reserves for unrecognized income tax benefits, nor had it 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.

9.Commitments and Contingencies

Commitments

The Company has an operating lease for office and laboratory space located in Bridgewater, NJ, its corporate headquarters, for which the initial lease term expires in November 2019. Future minimum rental payments under this lease are $2.7 million. In July 2016, the Company signed an operating lease for additional laboratory space located in Bridgewater, NJ for which the initial lease term expires in September 2021. Future minimum rental payments under this lease are $2.2 million.

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Rent expense charged to operations was $0.4 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively. Future minimum rental payments required under the Company’s operating leases for the period from April 1, 2017 to December 31, 2017 and for each of the five years thereafter are as follows (in thousands):

Year Ending December 31:
2017 (remaining)	$	1,107
2018	1,515
2019	1,421
2020	477
2021	498
2022	—
	$	5,018

Legal Proceedings

On July 15, 2016, a lawsuit captioned Hoey v. Insmed Incorporated, et al, No. 3:16-cv-04323-FLW-TJB (D.N.J. July 15, 2016) was filed in the US District Court for the District of New Jersey on behalf of a putative class of investors who purchased the Company’s common stock from March 18, 2013 through June 8, 2016. The complaint alleged that the Company and certain of its executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act) by misrepresenting and/or omitting the likelihood of the EMA approving the Company’s European MAA for use of ARIKAYCE in the treatment of NTM lung disease and the likelihood of commercialization of ARIKAYCE in Europe.

On October 25, 2016, the Court issued an order appointing Bucks County Employees Retirement Fund as lead plaintiff for the putative class. On December 15, 2016, lead plaintiff filed an amended complaint that shortens the putative class period for the Exchange Act claims to March 26, 2014 through June 8, 2016 and adds claims under Sections 11, 12, and 15 of the Securities Act on behalf of a putative class of investors who purchased common stock in or traceable to the Company’s March 31, 2015 public offering. The amended complaint names as defendants in the Securities Act claims the Company, certain directors and officers, and the investment banks who served as underwriters in connection with the secondary offering. The amended complaint alleges defendants violated the Securities Act by using a purportedly misleading definition of “culture conversion” and supposedly failing to disclose in the offering materials purported flaws in its Phase 2 study that made the secondary offering risky or speculative. The amended complaint seeks damages in an unspecified amount. The Company moved to dismiss the amended complaint on March 1, 2017. The lead plaintiff’s opposition to the motion is currently due by May 17, 2017. The Company believes that the allegations in the complaints are without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of the lawsuit.

From time to time, the Company is a party to various other 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.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward looking statements.  “Forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995, are statements that are not historical facts and involve a number of risks and uncertainties.  Words herein such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” “continues,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

Forward-looking statements are based on our current expectations and beliefs, and involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking statements. Such factors include, among others, the following:

·uncertainties in the research and development of our existing product candidates, including due to delays in patient enrollment or failure of our preclinical studies or clinical trials to satisfy pre-established endpoints;

·failure to develop, or to license for development, additional product candidates, including a failure to attract experienced third party collaborators;

·failure to obtain, or delays in obtaining, regulatory approval from the United States (US) Food and Drug Administration (FDA), the European Medicines Agency (EMA), and other regulatory authorities for our product candidates or their delivery devices, including due to insufficient clinical data or selection of endpoints that are not satisfactory to regulators;

·failure of third parties on which we are dependent to conduct our clinical trials and to manufacture sufficient quantities of our product candidates for clinical or commercial needs;

·failure to comply with license agreements that are critical for our product development, including our license agreements with PARI Pharma GmbH (PARI) and AstraZeneca AB (AstraZeneca);

·lack of safety and efficacy of our product candidates;

·inaccuracies in our estimate of the size of the potential markets for our product candidates;

·failure to maintain regulatory approval for our product candidates, once received, due to a failure to satisfy post-approval regulatory requirements, such as the need for post-clinical trials;

·uncertainties in the rate and degree of market acceptance of product candidates, if approved;

·uncertainties in the timing, scope and rate of reimbursement for our product candidates;

·competitive developments affecting our product candidates;

·inaccurate estimates regarding our future capital requirements, including those necessary to fund milestone payments or royalties owed to third parties;

·inability to repay our existing indebtedness or to obtain additional financing when needed;

·failure to obtain, protect and enforce our patents and other intellectual property;

·inability to create an effective direct sales and marketing infrastructure or to partner with a third party that offers such an infrastructure for distribution of our product candidates;

·the cost and potential reputational damage resulting from litigation to which we are a party, including, without limitation, the class action lawsuit pending against us;

·failure to comply with the laws and regulations that impact our business;

·loss of key personnel; and

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·changes in laws and regulations applicable to our business, including those related to pricing and reimbursement of our product candidates.

We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. More information on factors that could cause actual results to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, particularly under the caption “Risk Factors.” We disclaim any obligation, except as specifically required by law, and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2016.

OVERVIEW

We are a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. Our lead product candidate is ARIKAYCE, or liposomal amikacin for inhalation (LAI), which is in late-stage development for adult patients with treatment refractory nontuberculous mycobacteria (NTM) lung disease caused by Mycobacterium avium complex (MAC), a rare and often chronic infection that can cause irreversible lung damage and can be fatal. Our earlier clinical-stage pipeline includes INS1007 and INS1009. INS1007 is a novel oral, reversible inhibitor of dipeptidyl peptidase 1 (DPP1), an enzyme responsible for activating neutrophil serine proteases, which are implicated in the pathology of chronic inflammatory lung diseases, such as non-cystic fibrosis (non-CF) bronchiectasis. INS1009 is an inhaled nanoparticle formulation of a treprostinil prodrug that may offer a differentiated product profile for rare pulmonary disorders, including pulmonary arterial hypertension (PAH).

The table below summarizes the current status and anticipated milestones for our principal product candidates: ARIKAYCE, INS1007, and INS1009.

Product Candidate/Target Indications	Status	Next Expected Milestones
ARIKAYCE (LAI) for adult patients with treatment refractory NTM lung infections caused by MAC	·We are advancing the CONVERT (or 212) study, a randomized, open-label global phase 3 clinical study of ARIKAYCE in adult patients with treatment refractory NTM lung disease caused by MAC. We have achieved our enrollment objective for the CONVERT study. ·The US Food and Drug Administration (FDA) has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a qualified infectious disease product (QIDP). ·The European Commission has granted an orphan designation for ARIKAYCE for the treatment of NTM lung disease.	·We expect to report top-line results for the Month 6 primary endpoint in the second half of 2017. ·If the CONVERT study meets its primary endpoint, we intend to seek accelerated marketing approval for ARIKAYCE in the US. We intend to seek marketing approvals for ARIKAYCE in certain countries outside the US, when sufficient data are available. If approved, we expect ARIKAYCE would be the first inhaled antibiotic specifically indicated for the treatment of refractory NTM lung infections caused by MAC in North America, Europe, and Japan. ·If approved, we plan to commercialize ARIKAYCE in the US, certain countries in Europe, Japan and certain other countries.

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Product Candidate/Target Indications	Status	Next Expected Milestones
INS1007 (oral reversible inhibitor of dipeptidyl peptidase 1) for non-CF bronchiectasis	·In October 2016, we entered into a license agreement with AstraZeneca for the exclusive global rights for the purpose of developing and commercializing AZD7986 (AZ License Agreement). We renamed the compound INS1007 and plan to pursue an initial indication in non-CF bronchiectasis. ·We are defining our regulatory strategies to potentially secure US and EU orphan drug designations and expedite the development and regulatory review of INS1007 through programs such as US fast track designation and breakthrough therapy.	·We plan to submit an Investigational New Drug (IND) application with the FDA for non-CF bronchiectasis and subsequently commence a phase 2 clinical study of INS1007. The study is expected to begin in the second half of 2017.
INS1009 (inhaled nanoparticle formulation of a treprostinil prodrug) for rare pulmonary disorders	·The results of our phase 1 study of INS1009 were presented at the European Respiratory Society international congress in September 2016. ·The phase 1 study was a randomized, double-blind, placebo-controlled, single ascending dose study of INS1009 for inhalation to determine its safety, tolerability, and pharmacokinetics in healthy volunteers.	·We believe INS1009 may offer a differentiated product profile for rare pulmonary disorders, including PAH, and we are currently evaluating our options to advance its development.

Our earlier-stage pipeline includes preclinical compounds that we are evaluating in multiple rare diseases of unmet medical need, including methicillin-resistant staph aureus (MRSA) and NTM. To complement our internal research and development, we actively evaluate in-licensing and acquisition opportunities for a broad range of rare diseases.

Our Strategy

Our strategy focuses on the needs of patients with rare diseases. We are currently focused on the development and commercialization of ARIKAYCE. We are not aware of any inhaled products specifically indicated to treat refractory NTM lung disease in North America, Europe or Japan. While we believe that ARIKAYCE has the potential to treat a number of different bacterial infections, we are prioritizing securing US regulatory approval of ARIKAYCE for adult patients with refractory NTM lung disease caused by MAC. We are also advancing earlier-stage programs in other rare pulmonary disorders.

Our current priorities are as follows:

·Completing the CONVERT study;

·Preparing a New Drug Application (NDA) for submission to the FDA for ARIKAYCE, which we plan to base on the primary endpoint of the CONVERT study;

·Ensuring our product supply chain will support the clinical development and, if approved, commercialization of ARIKAYCE;

·Preparing for potential commercialization of ARIKAYCE in the US, certain countries in Europe, Japan, and certain other countries;

·Developing the core value dossier to support the global reimbursement of ARIKAYCE;

·Supporting further research and lifecycle management strategies for ARIKAYCE;

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·Filing an investigational new drug (IND) application with the FDA and starting a phase 2 study of INS1007 in non-CF bronchiectasis;

·Generating preclinical findings from our earlier-stage program(s); and

·Expanding our rare disease pipeline through corporate development.

Product Pipeline

ARIKAYCE for patients with NTM lung disease

Our lead product candidate is ARIKAYCE, or LAI, a novel, once-daily liposomal formulation of amikacin that is in late-stage clinical development for adult patients with treatment refractory NTM lung disease caused by MAC, a rare and often chronic infection that can cause irreversible lung damage and which can be fatal. Amikacin solution for parenteral administration is an established drug that has activity against a variety of NTM; however, its use is limited by the need to administer it intravenously and by toxicity to hearing, balance, and kidney function (Peloquin et al., 2004). Unlike intravenous amikacin, our advanced liposome technology uses charge-neutral liposomes to deliver amikacin directly to the lung where it is taken up by the lung macrophages where the NTM infection resides. This technology prolongs the release of amikacin in the lungs while minimizing systemic exposure thereby offering the potential for decreased systemic toxicities. ARIKAYCE’s ability to deliver high levels of amikacin directly to the lung distinguishes it from intravenous amikacin. ARIKAYCE is administered once-daily, using a portable aerosol delivery system, via an optimized, investigational eFlow® Nebulizer System manufactured by PARI.

The FDA has designated ARIKAYCE as an orphan drug, a breakthrough therapy, and a QIDP for NTM lung disease. Orphan designation features seven years of post-approval market exclusivity, and QIDP features an additional five years of post-approval exclusivity. As a result, ARIKAYCE would have 12 years of post-approval marketing exclusivity in the US, if approved. A QIDP-designated product is eligible for fast track status and is often granted priority review status. A priority review designation for a drug means the FDA’s goal is to take action on the NDA within six months following the 60-day filing date, as compared to within 10 months following the 60-day filing date under a standard review.

The CONVERT study

ARIKAYCE is currently being evaluated in a phase 3 randomized, open-label clinical study taking place in North America, Europe, Australia, New Zealand and Asia that is designed to confirm the culture conversion results seen in our phase 2 clinical trial, which we expect will provide the basis for submitting an NDA to the FDA. Because the highest response to ARIKAYCE treatment in our phase 2 study was observed in the subgroup of non-CF patients with NTM lung infection caused by MAC, the CONVERT study is comprised of non-CF patients 18 years and older with an NTM lung infection caused by MAC that is refractory to a stable multi-drug regimen for at least six months, with the regimen either ongoing or interrupted within 12 months of screening. The CONVERT study excludes patients whose susceptibility scores indicate that their MAC lung infection may be resistant to amikacin. We achieved our enrollment objective for the CONVERT study in the fourth quarter of 2016.

After a screening period of approximately 10 weeks, eligible patients were randomized 2:1 to once-daily ARIKAYCE plus a multi-drug regimen or a multi-drug regimen without ARIKAYCE. The first analysis, after the last patient has completed Month 6, will be based on the primary efficacy endpoint comparing the proportion of patients who achieve culture conversion (three consecutive monthly negative sputum cultures) by Month 6 in the ARIKAYCE plus multi-drug regimen arm compared to the arm in which patients receive a multi-drug regimen without ARIKAYCE. The study’s key secondary endpoint in the first analysis includes the change from baseline in the six-minute walk test. We expect to report top-line results for the Month 6 primary endpoint during the second half of 2017. A subsequent analysis will examine off-treatment assessments to evaluate the durability of the anti-mycobacterial effect on sputum culture at 3 months off all treatment, in patients that achieve conversion. The study also includes a comprehensive pharmacokinetic sub-study in Japanese patients in lieu of a separate local pharmacokinetic study in Japan.

At Month 8, after all sputum culture results are known up to and including Month 6, patients will be assessed as converters (those achieving culture conversion by Month 6) or non-converters for the primary efficacy endpoint. All converters will continue on their randomized treatment regimen for an additional 12 months. All converters will return for off-treatment follow-up visits. A 12-month off-treatment study visit will be the last visit for the CONVERT study. All non-converters, as determined at the Month 8 visit, may be eligible to enter a separate 12-month, single-arm, open-label study (the 312 study). The primary objective of the 312 study is to evaluate the long-term safety and tolerability of ARIKAYCE in combination with a standard multi-drug regimen. The secondary endpoints of the 312 study include evaluating the proportion of patients achieving culture conversion (three consecutive monthly negative sputum cultures) by Month 6 and the proportion of patients achieving culture conversion by Month 12 (end of treatment).

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The protocol for the CONVERT study incorporates feedback from the FDA and the EMA via its scientific advice working party process, as well as local health authorities in other countries, including Japan’s Pharmaceuticals and Medical Devices Agency. If the CONVERT study meets the primary endpoint of culture conversion by Month 6, we believe we would be eligible to submit an NDA pursuant to 21 C.F.R. Part 314 Subpart H (Accelerated Approval of New Drugs for Serious or Life-Threatening Illnesses), which permits the FDA to approve a drug based on a surrogate or intermediate endpoint, provided the sponsor commits to study the drug further to verify and describe the confirmatory data of the drug’s clinical benefit. We believe that efficacy data from the CONVERT study after Month 6 in combination with the durability data, if successful, will suffice to meet both the accelerated and confirmatory data requirements.

Phase 2 Study (or 112 Study)

Our completed phase 2 study (or 112 study) was a randomized, double-blind, placebo-controlled study that evaluated the efficacy and safety of ARIKAYCE in adults with NTM lung disease due to MAC or M. abscessus that was refractory to guideline-based therapy. In October 2016, the results from the phase 2 study were published online in the American Journal of Respiratory and Critical Care Medicine (Olivier et al. 2016).

The study included an 84-day double-blind phase in which patients were randomized 1:1 either to ARIKAYCE once-daily plus a multi-drug regimen or to placebo once-daily plus a multi-drug regimen. After completing the 84-day double-blind phase, patients had the option of continuing in an 84-day open-label phase during which all patients received ARIKAYCE plus the same multi-drug regimen. The study also included 28-day and 12-month off-ARIKAYCE follow-up assessments. Eighty-nine (89) patients were randomized and dosed in the study. Of the 80 patients who completed the 84-day double-blind phase, 78 patients entered the open-label phase and received ARIKAYCE plus the same multi-drug regimen for an additional 84 days. Seventy-six (76) percent (59/78) of patients who entered the open-label phase of the study completed the open-label study.

The primary efficacy endpoint of the study was the change from baseline (Day 1) to the end of the double-blind phase of the trial (Day 84) in a semi-quantitative measurement of mycobacterial density on a seven-point scale. ARIKAYCE did not meet the pre-specified level for statistical significance although there was a positive trend (p=0.072) in favor of ARIKAYCE. The p-value for the key secondary endpoint of culture conversion to negative at Day 84 was 0.003, in favor of ARIKAYCE. A shorter time to first negative sputum culture was also observed with ARIKAYCE relative to placebo during the double-blind phase (p=0.013).

The microbiologic outcomes from the 112 study were also explored post hoc using a more stringent definition of culture conversion, which was defined as at least three consecutive monthly sputum samples that test negative for NTM, consistent with the definition of culture conversion in the guidelines and in clinical practice. Twenty-three (23) patients achieved at least three consecutive negative monthly sputum samples by the 28-day follow-up assessment, of which four started to convert at baseline prior to administration of study drug. For the other 19 patients who achieved culture conversion, 17 achieved culture conversion after receiving ARIKAYCE (10 during the double-blind phase and seven after entering the open-label phase, of which six received ARIKAYCE for the first time in the open-label phase). Two patients achieved culture conversion while receiving placebo during the double-blind phase. The majority of patients who achieved culture conversion (three consecutive negative monthly sputum samples) during the double-blind phase continued to have negative cultures through the open-label and follow-up phases.

At the end of the double-blind phase, the ARIKAYCE group improved from baseline in mean distance walked in the six-minute walk test. At the end of the open-label phase, patients in the ARIKAYCE group continued to improve in the mean distance walked in the six-minute walk test, while the patients who previously received placebo in the double-blind phase and subsequently received ARIKAYCE in the open-label phase demonstrated a reduced rate of decline from baseline.

Ninety (90) percent of patients in both treatment groups experienced at least one treatment-emergent adverse event, with most events either mild or moderate in severity. During the double-blind phase a greater percentage of patients treated with ARIKAYCE experienced dysphonia, bronchiectasis exacerbation, cough, oropharyngeal pain, fatigue, chest discomfort, wheezing, and infective pulmonary exacerbation of cystic fibrosis. No clinically relevant changes were detected in laboratory values and vital signs.

INS1007

INS1007 is a small molecule, oral, reversible inhibitor of DPP1, which we in-licensed from AstraZeneca in October 2016. DPP1 is an enzyme responsible for activating neutrophil serine proteases in neutrophils when they are formed in the bone marrow. Neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory mediation. Neutrophils, which play a key role in the pathologic inflammatory process, contain three neutrophil serine proteases, neutrophil elastase, proteinase 3, and cathepsin G, that have been implicated in a variety of inflammatory diseases. In chronic inflammatory lung diseases, neutrophils accumulate in the airways and result in excessive active neutrophil serine proteases that cause lung destruction

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and inflammation. INS1007 may decrease the damaging effects of inflammatory diseases, such as non-CF bronchiectasis, by inhibiting DPP1 and its activation of neutrophil serine proteases. Non-CF bronchiectasis is a rare, progressive pulmonary disorder in which the bronchi become permanently dilated due to chronic inflammation and infection.

Phase 1 study results

In a phase 1 study of healthy volunteers, INS1007 (previously AZD7986) was well tolerated and demonstrated inhibition of the activity of the neutrophil serine protease neutrophil elastase in a dose and concentration dependent manner. In preclinical studies, it was shown to reversibly inhibit DPP1 and the activation of neutrophil serine proteases within maturing neutrophils.

We plan to submit an IND application with the FDA for INS1007 in non-CF bronchiectasis, and after it becomes effective, to commence a phase 2 clinical study of INS1007 in that indication. We expect the study to begin in the second half of 2017. In addition, we are evaluating INS1007 in other potential indications.

INS1009

INS1009 is an investigational sustained-release inhaled treprostinil prodrug nanoparticle formulation that has the potential to address certain of the current limitations of existing prostanoid therapies. We believe that INS1009 prolongs duration of effect and may provide PAH patients with greater consistency in pulmonary arterial pressure reduction over time. Current inhaled prostanoid therapies must be dosed four to nine times per day for the treatment of PAH. Reducing dose frequency has the potential to ease patient burden and improve compliance. Additionally, we believe that INS1009 may be associated with fewer side effects, including elevated heart rate, low blood pressure, and severity and/or frequency of cough, associated with high initial drug levels and local upper airway exposure when using current inhaled prostanoid therapies. We believe INS1009 may offer a differentiated product profile for rare pulmonary disorders, including PAH, and we are currently evaluating our options to advance its development.

Phase 1 study results

In late 2014, we had a pre-IND meeting with the FDA for INS1009 and clarified that, subject to final review of the preclinical data, INS1009 could be eligible for an approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA) (505(b)(2) approval). Like a traditional NDA that is submitted under Section 505(b)(1) of the FDCA, a 505(b)(2) NDA must establish that the drug is safe and effective, but unlike a traditional NDA, the applicant may rely at least in part on studies not conducted by or for the applicant and for which the applicant does not have a right of reference. The ability to rely on existing third-party data to support safety and/or effectiveness can reduce the time and cost associated with traditional NDAs.

We have completed a phase 1 study of INS1009. The phase 1 study was a randomized, double-blind, placebo-controlled single ascending dose study of INS1009 for inhalation to determine its safety, tolerability, and pharmacokinetics in healthy volunteers. Twenty-four (24) patients were enrolled and received INS1009 with cohorts of eight patients receiving doses of 85 micrograms (mcg), 170 mcg, 340 mcg or placebo. Participants in the first cohort (8 patients) received a single dose of open label treprostinil (Tyvaso) at 54 mcg 24 hours prior to receiving INS1009 at 85 mcg. The 85 mcg dose of INS1009 provides an equivalent amount of treprostinil on a molar basis as the 54 mcg dose of Tyvaso. The peak serum concentration was approximately 90% lower for treprostinil after INS1009 administration compared with Tyvaso, which could indicate a reduced future adverse event (AE) profile. The pharmacokinetic characteristics also supported once- or twice-daily dosing. The longer half-life of treprostinil for INS1009 was likely due to a sustained pulmonary release. The AE profile was consistent with other inhaled prostanoids. These data were presented at the European Respiratory Society international congress in September 2016.

KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Research and Development (R&D) Expenses

R&D expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions. Expenses also include other internal operating expenses, the cost of manufacturing our drug candidate for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities. In addition, our R&D expenses include payments to third parties for the license rights to products in development (prior to marketing approval), such as for INS1007. Our expenses related to manufacturing our drug candidate for clinical study are primarily related to activities at contract manufacturing organizations (CMOs) that manufacture ARIKAYCE for our use. Our expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on our behalf.

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General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for our non-management directors and personnel serving in our executive, finance and accounting, legal, pre-commercial, corporate development, information technology, program management and human resource functions. General and administrative expenses also include professional fees for legal services, including fees incurred in connection with the securities litigation filed against us and patent-related expenses, consulting services, insurance, board of director fees, tax and accounting services.

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash and cash equivalents. Interest expense consists primarily of interest costs and amortization of debt issuance costs related to our debt obligations.

Debt Issuance Costs

Debt issuance costs are amortized to interest expense using the effective interest rate method over the term of the debt. Our balance sheet reflects debt, net of debt issuance costs paid to the lender and other third party costs. Unamortized debt issuance costs associated with extinguished debt are expensed in the period of the extinguishment.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2017 and 2016

Net Loss

Net loss for the quarter ended March 31, 2017 was $37.4 million, or $0.60 per common share—basic and diluted, compared with a net loss of $33.5 million, or $0.54 per common share—basic and diluted, for the quarter ended March 31, 2016. The $3.9 million increase in our net loss for the quarter ended March 31, 2017 as compared to the same period in 2016 was due to:

·Increased R&D expenses of $1.7 million primarily resulting from higher compensation and related expenses due to an increase in headcount; and

·Increased general and administrative expenses of $1.2 million resulting from an increase in pre-commercial planning activities and higher compensation and related expenses due to an increase in headcount.

In addition, there was a $0.9 million increase in interest expense resulting from the increase in our debt in the second half of 2016.

R&D Expenses

R&D expenses for the quarters ended March 31, 2017 and 2016 were comprised of the following:

	Quarters Ended March 31,				Increase (decrease)
	2017		2016		$			%
External Expenses
Clinical development & research	$	8,475	$	8,206	$	269		3.3	%
Manufacturing	2,744		3,464		(720		)	-20.8	%
Regulatory and quality assurance	968		234		734			313.7	%
Subtotal—external expenses	$	12,187	$	11,904	$	283		2.4	%
Internal Expenses
Compensation and related expenses	$	7,651	$	6,552	$	1,099		16.8	%
Other internal operating expenses	2,416		2,091		325			15.5	%
Subtotal—internal expenses	$	10,067	$	8,643	$	1,424		16.5	%
Total	$	22,254	$	20,547	$	1,707		8.3	%

R&D expenses increased to $22.3 million during the quarter ended March 31, 2017 from $20.5 million in the same period in 2016. The $1.7 million increase was primarily due to a $1.1 million increase in compensation and related expenses due to an increase in headcount as compared to the prior year period.

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General and Administrative Expenses

General and administrative expenses for the quarter ended March 31, 2017 and 2016 were comprised of the following:

	Quarters Ended March 31,				Increase (decrease)
	2017		2016		$			%
General & administrative	$	8,654	$	9,025	$	(371	)	-4.1	%
Pre-commercial expenses	5,061		3,495		1,566			44.8	%
Total general & administrative expenses	$	13,715	$	12,520	$	1,195		9.5	%

General and administrative expenses increased to $13.7 million during the quarter ended March 31, 2017 from $12.5 million in the same period in 2016. The $1.2 million increase was primarily due to an increase of $0.8 million in consulting fees relating to pre-commercial planning activities and an increase of $0.7 million due to higher compensation costs related to an increase in headcount. These increases were offset, in part, by a $0.2 million decrease in stock-based compensation expense.

Interest Expense

Interest expense was $1.5 million for the quarter ended March 31, 2017 as compared to $0.6 million in the same period in 2016. The $0.9 million increase in interest expense in the first quarter of 2017 relates primarily to an increase in our borrowings from Hercules Capital, Inc. (Hercules) in September and October of 2016. We entered into an Amended and Restated Loan Agreement (A&R Loan Agreement) with Hercules which increased our borrowing capacity by an additional $30.0 million to an aggregate total of $55.0 million, and we used this increased borrowing capacity to fund the upfront payment to AstraZeneca for the exclusive global rights to INS1007.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. In recent years, we have funded our operations through public offerings of equity securities and debt financings. To date, we have not generated material revenue from ARIKAYCE, and we do not know when, or if, we will generate such revenue. We do not expect to generate such revenue unless or until we obtain marketing approval of, secure reimbursement for, and commercialize, ARIKAYCE. Accordingly, we expect to continue to incur losses both in our US and certain international entities, as we plan to fund R&D activities, regulatory submissions and potential commercial launch activities.

We expect our future cash requirements to be substantial, and we will need to raise additional capital to fund our operations, to develop and commercialize ARIKAYCE, to develop INS1007 and INS1009, and to develop, acquire, in-license or co-promote other products that address orphan or rare diseases. While we believe we currently have sufficient funds to meet our financial needs for at least the next 12 months, we will seek additional capital within the next 12 months and may do so through equity or debt financing(s), strategic transactions or otherwise. The source, timing and availability of any future financing or other transaction will depend principally upon continued progress in our regulatory, development and commercial activities, which is likely to be affected by a number of factors, including:

·the timing and cost of our anticipated clinical trials of ARIKAYCE for the treatment of patients with NTM lung infections;

·the decisions of the FDA and EMA with respect to our potential applications for marketing approval of ARIKAYCE in the US and Europe; the costs of activities related to the regulatory approval process; and the timing of approvals, if received;

·the costs associated with commercializing ARIKAYCE, if we receive marketing approvals; including the costs of establishing the sales and marketing capabilities to be prepared for potential commercial launches of ARIKAYCE, if approved;

·the cost of filing, prosecuting, defending, and enforcing patent claims;

·the timing and cost of our anticipated clinical trials, including INS1007 and the related milestone payments due to AstraZeneca;

·the costs of our manufacturing-related activities; and

·subject to receipt of marketing approval, the levels, timing and collection of revenue received from sales of approved products, if any, in the future.

In addition, any financing will be contingent upon equity and debt market conditions and interest rates at the time. We cannot assure you that adequate capital will be available on favorable terms, or at all, when needed. If we are unable to obtain sufficient additional funds when required, we will be forced to delay, restrict or eliminate all or a portion of our R&D programs and pre-commercialization activities, dispose of assets or technology or cease operations.

Cash Flows

As of March 31, 2017, we had total cash and cash equivalents of $125.8 million, as compared with $162.6 million as of December 31, 2016. The $36.8 million decrease was due primarily to the use of cash in operating activities. Our working capital was $108.4 million as of March 31, 2017 as compared with $140.4 million as of December 31, 2016.

Net cash used in operating activities was $36.9 million and $29.5 million for the three months ended March 31, 2017 and 2016, respectively. The net cash used in operating activities during 2017 and 2016 was primarily for the clinical, manufacturing and pre-commercial activities related to ARIKAYCE, as well as general and administrative expenses.

Net cash used in investing activities was $0.4 million and $0.6 million for the three months ended March 31, 2017 and 2016, respectively. The net cash used in investing activities was primarily related to payments for the build out of our headquarters and lab facilities in Bridgewater, New Jersey.

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Net cash provided by financing activities was $0.6 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively. Net cash provided by financing activities was cash proceeds received from stock option exercises.

Contractual Obligations

There were no material changes outside of the ordinary course of business in our contractual obligations during the first quarter of 2017 from those disclosed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources - Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2016.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than operating leases, that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We do not have any interest in special purpose entities, structured finance entities or other variable interest entities.

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016. For the required interim updates of our accounting policies, see Note 2 to our Consolidated Financial Statements — “Summary of Significant Accounting Policies” in this Quarterly Report on Form 10-Q.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2017, our cash and cash equivalents were in cash accounts or were invested in money market funds. Such accounts or investments are not insured by the federal government.

As of March 31, 2017, we had $55.0 million of fixed rate borrowings outstanding that bear interest at 9.25% under the A&R Loan Agreement with Hercules. If a 10% change in interest rates had occurred on March 31, 2017, this change would not have had a material effect on the fair value of our debt as of that date, nor would it have had a material effect on our future earnings or cash flows.

The majority of our business is conducted in US dollars. However, we do conduct certain transactions in other currencies, including Euros, British Pounds, and Japanese Yen. Historically, fluctuations in foreign currency exchange rates have not materially affected our results of operations and during the three months ended March 31, 2017 and 2016, our results of operations were not materially affected by fluctuations in foreign currency exchange rates.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2017.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the periodic reports that we file or submit with the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  Based on that evaluation as of March 31, 2017, our Chief Executive Officer and principal financial officer have concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Note 9 to our Consolidated Financial Statements — “Commitments and Contingencies — Legal Proceedings” in this Quarterly Report on Form 10-Q for a description of our material legal proceedings. From time to time, we are also party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. While the outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1A.RISK FACTORS

There have been no material changes during the quarter ended March 31, 2017 to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of the Company’s equity securities during the quarter ended March 31, 2017.

ITEM 6.EXHIBITS

A list of exhibits to this Quarterly Report on Form 10-Q is included in the Exhibit Index, which is incorporated herein by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		INSMED INCORPORATED
Date: May 3, 2017	By	/s/ John R. Goll III
		John R. Goll III
		Vice President, Corporate Controller (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

3.1	Articles of Incorporation of Insmed Incorporated, as amended through June 14, 2012 (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s Annual Report on Form 10-K filed on March 18, 2013).
3.2	Amended and Restated Bylaws of Insmed Incorporated (incorporated by reference from Exhibit 3.1 to Insmed Incorporated’s Quarterly Report on Form 10-Q filed on August 6, 2015).
10.1	Form of Award Agreement for Restricted Stock Units issued to directors pursuant to the Insmed Incorporated 2015 Incentive Plan.
10.2	Form of Award Agreement for a Non-Qualified Stock Option pursuant to the Insmed Incorporated 2015 Incentive Plan.
31.1	Certification of William H. Lewis, Chief Executive Officer of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of John R. Goll III, Vice President, Corporate Controller (Principal Financial and Accounting Officer) of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of William H. Lewis, Chief Executive Officer of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
32.2	Certification of John R. Goll III, Vice President, Corporate Controller (Principal Financial and Accounting Officer) of Insmed Incorporated, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101	The following materials from Insmed Incorporated’s quarterly report on Form 10-Q for the quarter ended March 31, 2017 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016, (ii) Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2017 and 2016, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016, and (iv) Notes to the Unaudited Consolidated Financial Statements.

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EX-10.1

Exhibit 10.1

INSMED INCORPORATED

RESTRICTED UNIT AWARD AGREEMENT

UNDER THE 2015 INCENTIVE PLAN
FOR MEMBERS OF THE BOARD OF DIRECTORS

Name:

Number of RSUs:

Grant Date:

Pursuant to the Insmed Incorporated 2015 Incentive Plan (the “Plan”) as amended through the date hereof and this Restricted Stock Unit Award Agreement (the “Agreement”), Insmed Incorporated (the “Company”) hereby grants an award of            restricted stock units (the “Restricted Stock Units” or the “RSU Award”) to the Grantee named above.  The RSU Award shall be referred to herein as the “Award.”  Subject to the restrictions and conditions set forth herein and in the Plan, the Grantee shall receive the number of Restricted Stock Units specified above.

The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator and permitted under the Plan and applicable law.

1.             Agreement with Terms.  Receipt of any benefits under this Agreement by the Grantee shall constitute the Grantee’s acknowledgement of and agreement with all of the provisions of this Agreement and of the Plan that are applicable to this Award, and the Company shall administer this Agreement accordingly.

2.             Restrictions and Conditions on Award.  Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by the Grantee other than by will or the laws of descent and distribution, and shall be subject to all the terms, conditions and restrictions set forth herein and in the Plan.

3.             Timing and Form of Payout of Restricted Stock Units.  As soon as practicable (but in no event later than 30 days) following the Vesting Date, the vested Restricted Stock Units shall be settled in shares of Stock.

4.             Vesting of Award.  Except as set forth in Section 5 of this Agreement, the restrictions and conditions in Section 2 of this Agreement shall lapse, with respect to 100% of the RSU Award, on the first anniversary of the Grant Date (the “Vesting Date”) so long as (a) the Grantee remains a member of the Board on such Vesting Date and (b) the Grantee attends at least seventy-five percent (75%) of the Board meetings that take place during the period of time commencing from the Grant Date and ending of the first anniversary of the Grant Date.

1

Except as otherwise provided in Sections 5 and 6 of this Agreement, the Grantee shall forfeit any unvested portion of the RSU Award if either the following shall occur: (i) in the event the Grantee’s service as a member of the Board is terminated for any reason prior to the Vesting Date; or (ii) in the event that the Grantee fails to attend at least seventy-five percent (75%) of the Board meetings that take place during the period of time commencing from the Grant Date and ending of the first anniversary of the Grant Date.

Notwithstanding anything to the contrary herein or in the Plan, the Administrator may at any time accelerate the vesting schedule specified in this Section 4.

5.             Change in Control.  In the event of a Change in Control of the Company, the unvested portion of the RSU Award, to the extent not previously forfeited or cancelled, shall immediately vest as of the date of such Change in Control.

6.             Termination of Service.  Except as otherwise provided herein, any unvested portion of the RSU Award shall be forfeited without payment of consideration upon the termination of the Grantee’s service with the Company or its Affiliates for any reason, except as otherwise provided in this Section 6.  Notwithstanding the foregoing, upon the Grantee’s death (while an active member of the Board) or upon the termination of the Grantee’s service due to Disability (as defined below), the RSU Award to extent not previously forfeited or cancelled, shall immediately vest as of the date of the Grantee’s death or Disability.  For purposes of this Agreement, the Grantee will be considered “disabled” if, as a result of the Grantee’s incapacity due to physical or mental illness, the Grantee shall have been absent from his duties to the Company or its Affiliates on a full-time basis for 180 calendar days in the aggregate in any 12-month period.

7.             Voting Rights and Dividends.  If and until such time as Restricted Stock Units are paid out in shares of Common Stock (if at all), the Grantee shall not have any voting rights with respect to any shares of Common Stock underlying this RSU Award (“Underlying Shares”).  However, bookkeeping equivalents of all dividends and other distributions paid with respect to the Common Stock shall accrue with respect to the Underlying Shares and shall be converted to additional Restricted Stock Units (rounded to the nearest whole share of Common Stock) based on the closing price of the Common Stock on the dividend distribution date.  Such additional Restricted Stock Units shall be subject to the same restrictions on transferability as are the Restricted Stock Units with respect to which they were paid.

8.             Adjustments Upon Certain Unusual or Nonrecurring Events or Other Events.  Upon certain unusual or nonrecurring events, or other events, the terms of these Restricted Stock Units shall be adjusted by the Administrator pursuant to Section 15 of the Plan.

9.             Incorporation of Plan.  Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 6 of the Plan.  To the extent any provision hereof is inconsistent with a provision of the Plan, the provisions of the Plan will govern.  Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

2

10.          Taxes.  The Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection with this RSU Award. The Company makes no representation or undertaking regarding the tax treatment of the grant, vesting, or settlement of this RSU Award or the subsequent sale of any of the Underlying Shares.  The Company does not commit and is under no obligation to structure this RSU Award to reduce or eliminate Grantee’s tax liability.

11.          No Right to Re-Election or Continued Service.  Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its Affiliates to terminate the Grantee’s service on the Board at any time or for any reason in accordance with the Company’s Bylaws and governing law, nor shall any terms of the Plan or this Agreement confer upon Grantee any right to continue his or her service for any specified period of time.  Neither this Agreement nor any benefits arising under the Plan shall constitute an employment contract with the Company, any Subsidiary and/or its Affiliates.

12.          Notices.  Any notice or other communication given pursuant to this Agreement shall be in writing and shall be personally delivered or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the Company at its principal place of business or to the Grantee at the address on the Company’s records or, in either case, at such other address as one party may subsequently furnish to the other party in writing.  Additionally, if such notice or communication is by the Company to the Grantee, the Company may provide such notice electronically (including via email).  Any such notice shall be deemed to have been given (a) on the date of postmark, in the case of notice by mail, or (b) on the date of delivery, if delivered in person or electronically.

INSMED INCORPORATED

By:

Name:

Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned.

Dated: By:

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EX-10.2

Exhibit 10.2

INSMED INCORPORATED

NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE 2015 INCENTIVE PLAN

No. of shares subject to Option:

THIS AGREEMENT dated this          , between INSMED INCORPORATED, a Virginia corporation (the “Company”), and          (“Participant”), is made pursuant and subject to the provisions of the Insmed Incorporated 2015 Incentive Plan, as amended (the “Plan”), a copy of which has been made available to the Participant.  All terms used herein that are defined in the Plan have the same meaning given them in the Plan.

If and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions and provisions of any employment, consulting or similar services agreement between the Participant and the Company as may be in effect (the “Service Agreement”), the Service Agreement shall control, and this Award Agreement shall be deemed to be modified accordingly so long as such modification is not expressly prohibited by the Plan.

1.             Grant of Option.  Pursuant to the Plan, the Company, on           (the “Date of Grant”), granted to Participant, subject to the terms and conditions of the Plan and subject further to the terms and conditions herein set forth, the right and Option to purchase from the Company all or any part of an aggregate of            shares of Common Stock at the Option price of $           per share, being not less than the Fair Market Value of such shares on the Date of Grant.  This Option is intended to be a nonqualified stock option and not an “incentive stock option” within the meaning of Section 422 of the Code.  This Option is exercisable as hereinafter provided.

2.             Terms and Conditions.  This Option is subject to the following terms and conditions:

a.Expiration Date.  This Option shall expire ten years from the Date of Grant (the “Expiration Date”).

b.Exercise of Option.  Except as provided in paragraphs 3, 4 and 5, this Option shall be exercisable with respect to twenty-five percent (25%) of the shares of Common Stock subject to this Option on the first anniversary of the Date of Grant (the “First Anniversary Date”) and with respect to an additional twelve and a half percent (12.5%) of the shares of Common Stock subject to this Option on the sixth month anniversary of the First Anniversary Date and each sixth month anniversary date thereafter through the fourth anniversary of the Date of Grant. If the foregoing schedule would produce fractional shares, the number of shares for which the Option becomes exercisable shall be rounded down to the nearest whole share. Once this Option has become exercisable in accordance with the preceding sentence it shall continue to be exercisable until the termination of Participant’s rights hereunder pursuant to paragraph 3, 4 or 5 or until the Option has expired pursuant to subparagraph 2(a).  A partial exercise of this

Option shall not affect Participant’s right to exercise this Option with respect to the remaining shares, subject to the conditions of the Plan and this Agreement.

c.Method of Exercising Option and Payment for Shares.  This Option shall be exercised by written notice delivered to the attention of the Company’s Chief Financial Officer at the Company’s principal office in New Jersey.  The exercise date shall be (i) in the case of notice by mail, the date of postmark, or (ii) if delivered in person, the date of delivery.  Such notice shall be accompanied by payment of the Option price in full, in cash or cash equivalent acceptable to the Committee, or such other method as determined by the Committee, including an irrevocable commitment by a broker to pay over such amount from a sale of the shares of Common Stock issuable under the Option, the delivery of previously owned shares of Common Stock or withholding of shares of Common Stock deliverable upon exercise which, together with any cash or cash equivalent paid, is not less than the Option price for the number of shares for which this Option is being exercised.

d.Nontransferability.  This Option may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by Participant except by will or by the laws of descent and distribution.  During Participant’s lifetime, this Option may be exercised only by Participant.

e.Agreement with Terms.  Receipt of any benefits under this Agreement by Participant shall constitute Participant’s acknowledgement of and agreement with all of the provisions of this Agreement and of the Plan that are applicable to this Option, and the Company shall administer this Agreement accordingly.

3.             Exercise in the Event of Death.  In the event Participant dies before the expiration of this Option pursuant to subparagraph 2(a), this Option shall be exercisable with respect to all or part of the shares of Common Stock that Participant was entitled to purchase under subparagraph 2(b) on the date of Participant’s death.  In that event, this Option may be exercised, to the extent exercisable under subparagraph 2(b), by Participant’s estate or by the person or persons to whom his rights under this Option shall pass by will or the laws of descent and distribution.  Participant’s estate or such persons may exercise this Option within one (1) year of Participant’s death or during the remainder of the period preceding the Expiration Date, whichever is shorter.

4.             Exercise in the Event of Permanent and Total Disability.  In the event Participant becomes permanently and totally disabled within the meaning of Section 22(e)(3) of the Code (“Permanently and Totally Disabled”) before the expiration of this Option pursuant to subparagraph 2(a), this Option shall be exercisable with respect to all or part of the shares of Common Stock that Participant was entitled to purchase under subparagraph 2(b) on the date he ceases to be employed by the Company and its Affiliates as a result of his becoming Permanently

and Totally Disabled.  In that event, Participant may exercise this Option, to the extent exercisable under subparagraph 2(b), within one (1) year of the date he ceases to be employed by the Company and its Affiliates as a result of his becoming Permanently and Totally Disabled or during the period preceding the Expiration Date, whichever is shorter.

5.             Exercise After Termination of Employment.  Except as provided in paragraphs 3 and 4 hereof, if the Participant ceases to be employed by the Company and its Affiliates prior to the Expiration Date, this Option shall be exercisable for all or part of the number of shares that the Participant was entitled to purchase under subparagraph 2(b), as well as set forth under any Service Agreement, on the date of Participant’s termination of employment. In that event, Participant may exercise this Option, to the extent exercisable under subparagraph 2(b) and/or under any Service Agreement, during the remainder of the period preceding the Expiration Date or until the date that is three (3) months (or such other period of time provided under any Service Agreement) after the date he ceases to be employed by the Company and its Affiliates, whichever is shorter.

6.             Notice.  Any notice or other communication given pursuant to this Agreement shall be in writing and shall be personally delivered or mailed by United States registered or certified mail, postage prepaid, return receipt requested, to the Company at its principal place of business or to the Participant at the address on the payroll records of the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.  Additionally, if such notice or communication is by the Company to the Participant, the Company may provide such notice electronically (including via email).  Any such notice shall be deemed to have been given (a) on the date of postmark, in the case of notice by mail, or (b) on the date of delivery, if delivered in person or electronically.

7.             Fractional Shares.  Fractional shares shall not be issuable hereunder, and when any provision hereof may entitle Participant to a fractional share such fraction shall be disregarded.

8.             Tax Withholding.  The Grantee shall, not later than the date as of which the receipt of this Award becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements satisfactory to the Administrator for payment of any Federal, state, local or other taxes required by law to be withheld on account of such taxable event.

9.             No Right to Continued Employment or Other Service.  Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its Affiliates to terminate the Participant’s employment at any time or for any reason in accordance with the Company’s Bylaws and governing law, nor shall any terms of the Plan or this Agreement confer upon Participant any right to continue his or her employment for any specified period of time.  Neither this Agreement nor any benefits arising under the Plan shall constitute an employment contract with the Company, any Subsidiary and/or its Affiliates.  If Participant is not an employee, nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its Affiliates to terminate the Grantee’s service, (i) if a member of the Board, on the Board at any time or for any reason in accordance with the Company’s Bylaws and governing law, or (ii) if a non-employee consultant or advisor, in

accordance with the terms of the contract with such consultant or advisor.  In no event shall any of the terms of the Plan or this Agreement itself confer upon Grantee any right to continue his or her service for any specified period of time.

10.          Adjustments Upon Certain Unusual or Nonrecurring Events or Other Events.  Upon certain unusual or nonrecurring events, or other events, the terms of this Option shall be adjusted by the Administrator pursuant to Section 15 of the Plan.

11.          Governing Law.  This Agreement shall be governed by the laws of the Commonwealth of Virginia.

12.          Conflicts.  In the event of any conflict between the provisions of the Plan as in effect on the date hereof and the provisions of this Agreement, the provisions of the Plan shall govern.  All references herein to the Plan shall mean the Plan as in effect on the date hereof.

13.          Participant Bound by Plan.  Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

14.          Binding Effect.  Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees, and personal representatives of Participant and the successors of the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized officer, and Participant has affixed his signature hereto.

INSMED INCORPORATED

By:

PARTICIPANT

By:

EX-31.1

EXHIBIT 31.1

Section 302 Certification

I, William H. Lewis, Chief Executive Officer of Insmed Incorporated, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of Insmed Incorporated;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 3, 2017
	/s/ William H. Lewis
	William H. Lewis
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Section 302 Certification

I, John R. Goll III, Vice President, Corporate Controller (Principal Financial and Accounting Officer) of Insmed Incorporated, certify that:

(1) I have reviewed this Quarterly Report on Form 10-Q of Insmed Incorporated;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 3, 2017
	/s/ John R. Goll III
	John R. Goll III
	Vice President, Corporate Controller
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

Solely for the purposes of complying with 18 U.S.C. § 1350, I, William Lewis, Chief Executive Officer of Insmed Incorporated (the “Company”), hereby certify, based on my knowledge, that:

(1)the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William H. Lewis

William H. Lewis

Chief Executive Officer

(Principal Executive Officer)

May 3, 2017

This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Insmed Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.  A signed original of this statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

Solely for the purposes of complying with 18 U.S.C. § 1350, I, John R. Goll III, Vice President, Corporate Controller (Principal Financial and Accounting Officer) of Insmed Incorporated (the “Company”), hereby certify, based on my knowledge, that:

(1)the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John R. Goll III

John R. Goll III

Vice President, Corporate Controller

(Principal Financial and Accounting Officer)

May 3, 2017

This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Insmed Incorporated under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.  A signed original of this statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 28, 2017
Document and Entity Information
Entity Registrant Name	INSMED INC
Entity Central Index Key	0001104506
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		62,090,141
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 125,839	$ 162,591
Prepaid expenses and other current assets	5,785	5,816
Total current assets	131,624	168,407
In-process research and development	58,200	58,200
Fixed assets, net	9,807	10,020
Other assets	1,028	1,329
Total assets	200,659	237,956
Current liabilities:
Accounts payable	8,454	10,439
Accrued expenses	14,143	16,822
Other current liabilities	674	728
Total current liabilities	23,271	27,989
Long-term liabilities:
Debt, long-term	54,993	54,791
Other long-term liabilities	711	693
Total liabilities	78,975	83,473
Shareholders' equity:
Common stock, $0.01 par value; 500,000,000 authorized shares, 62,087,828 and 62,019,889 issued and outstanding shares at March 31, 2017 and December 31, 2016, respectively	621	620
Additional paid-in capital	923,760	919,164
Accumulated deficit	(802,650)	(765,236)
Accumulated other comprehensive loss	(47)	(65)
Total shareholders' equity	121,684	154,483
Total liabilities and shareholders' equity	$ 200,659	$ 237,956

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Consolidated Balance Sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	500,000,000	500,000,000
Common stock, issued shares	62,087,828	62,019,889
Common stock, outstanding shares	62,087,828	62,019,889

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Consolidated Statements of Comprehensive Loss (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating expenses:
Research and development	$ 22,254	$ 20,547
General and administrative	13,715	12,520
Total operating expenses	35,969	33,067
Operating loss	(35,969)	(33,067)
Investment income	154	170
Interest expense	(1,474)	(622)
Other (expense) income, net	(95)	15
Loss before income taxes	(37,384)	(33,504)
Provision for income taxes	30	28
Net loss	$ (37,414)	$ (33,532)
Basic and diluted net loss per share	$ (0.60)	$ (0.54)
Weighted average basic and diluted common shares outstanding (in shares)	62,041	61,858
Net loss	$ (37,414)	$ (33,532)
Other comprehensive income (loss):
Foreign currency translation gains (losses)	18	(3)
Total comprehensive loss	$ (37,396)	$ (33,535)

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Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating activities
Net loss	$ (37,414)	$ (33,532)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	716	514
Stock based compensation expense	4,032	4,219
Amortization of debt discount and debt issuance costs	31	38
Accrual of backend fee on debt	171
Changes in operating assets and liabilities:
Prepaid expenses and other assets	352	(316)
Accounts payable	(2,026)	527
Accrued expenses and other	(2,774)	(978)
Net cash used in operating activities	(36,912)	(29,528)
Investing activities
Purchase of fixed assets	(417)	(588)
Net cash used in investing activities	(417)	(588)
Financing activities
Proceeds from exercise of stock options	565	81
Net cash provided by financing activities	565	81
Effect of exchange rates on cash and cash equivalents	12	31
Net decrease in cash and cash equivalents	(36,752)	(30,004)
Cash and cash equivalents at beginning of period	162,591	282,876
Cash and cash equivalents at end of period	125,839	252,872
Supplemental disclosures of cash flow information:
Cash paid for interest	1,273	$ 975
Cash paid for income taxes	$ 17

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The Company and Basis of Presentation

3 Months Ended

Mar. 31, 2017

The Company and Basis of Presentation

The Company and Basis of Presentation

1.The Company and Basis of Presentation

Insmed is a global biopharmaceutical company focused on the unmet needs of patients with rare diseases. The Company’s lead product candidate is ARIKAYCE®, or liposomal amikacin for inhalation (LAI), which is in late-stage development for adult patients with treatment refractory nontuberculous mycobacteria (NTM) lung disease caused by Mycobacterium avium complex (MAC), a rare and often chronic infection that can cause irreversible lung damage and which can be fatal. The Company’s earlier clinical-stage pipeline includes INS1007, a novel oral reversible inhibitor of dipeptidyl peptidase 1, and INS1009, an inhaled treprostinil prodrug nanoparticle formulation.

The Company was incorporated in the Commonwealth of Virginia on November 29, 1999 and its principal executive offices are in Bridgewater, New Jersey. The Company has legal entities in the United States (US), Ireland, Germany, France, the United Kingdom (UK) and the Netherlands. All intercompany transactions and balances have been eliminated in consolidation.

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 for complete consolidated financial statements are not included herein. The interim 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, 2016.

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.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

2.Summary of Significant Accounting Policies

The following are interim updates to certain of the policies described in “Note 2” to the Company’s audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016:

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 judgments 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 are 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 only assets and liabilities which were measured at fair value as of March 31, 2017 and December 31, 2016 were Level 1 and such assets were comprised of cash and cash equivalents of $125.8 million and $162.6 million, respectively.

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. Cash equivalents consist of liquid investments with a maturity of three months or less from the date of purchase.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017 and December 31, 2016, the Company held no securities that were in an unrealized gain or loss position. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company’s ability and intent to retain the investment for a sufficient period of time for it to recover.

Net Loss Per Common Share - Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common 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 and restricted stock units (RSUs) would be antidilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of outstanding stock options are determined based on the treasury stock method.

The following table sets forth the reconciliation of the weighted average number of shares used to compute basic and diluted net loss per share for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
	2017			2016
Numerator:
Net loss	$	(37,414	)	$	(33,532	)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	62,041			61,858
Effect of dilutive securities:
Stock options to purchase common stock	—			—
RSUs	—			—
Weighted average common shares outstanding used in calculation of diluted net loss per share	62,041			61,858
Net loss per share:
Basic and diluted net loss per share	$	(0.60	)	$	(0.54	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of March 31, 2017 and 2016 as their effect would have been anti-dilutive (in thousands):

	2017	2016
Stock options to purchase common stock	7,719	6,221
Unvested RSUs	89	—

Recently Adopted Accounting Pronouncements - In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The new standard was effective for the annual period ending after December 15, 2016, and for interim periods thereafter. The Company adopted ASU 2014-15 in the fourth quarter of 2016, which had no impact on the Company’s consolidated financial statements. The interim assessment during the first quarter of 2017 did not have an impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation—Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 in the first quarter of 2017 and impact of the adoption was not material to the consolidated financial statements as of and for the quarter ended March 31, 2017.

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Identifiable Intangible Asset

3 Months Ended

Mar. 31, 2017

Identifiable Intangible Asset

Identifiable Intangible Asset

3.Identifiable Intangible Asset

The Company believes there are no indicators of impairment relating to its in-process research and development intangible asset as of March 31, 2017.

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Accrued Expenses

3 Months Ended

Mar. 31, 2017

Accrued Expenses

Accrued Expenses

4.Accrued Expenses

Accrued expenses consist of the following:

	As of March 31,		As of December 31,
	2017		2016
	(in thousands)
Accrued clinical trial expenses	$	7,842	$	7,071
Accrued compensation	2,674		6,937
Accrued professional fees	2,290		1,604
Accrued technical operation expenses	534		591
Accrued interest payable	438		438
Other accrued expenses	365		181
	$	14,143	$	16,822

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Debt

3 Months Ended

Mar. 31, 2017

Debt

Debt

5.Debt

On September 30, 2016, the Company and its domestic subsidiaries, as co-borrowers, entered into an Amended and Restated Loan and Security Agreement (the A&R Loan Agreement) with Hercules Capital, Inc. (Hercules). The A&R Loan Agreement included a total commitment from Hercules of up to $55.0 million, of which $25.0 million was previously outstanding. The amount of borrowings was increased by $10.0 million to an aggregate total of $35.0 million on September 30, 2016. An additional $20.0 million was available at the Company’s option through June 30, 2017 subject to certain conditions, including the payment of a facility fee of 0.375%. The Company exercised this option in early October 2016 and borrowed an additional $20.0 million in connection with its upfront payment obligation under the license agreement with AstraZeneca AB. The interest rate for the term is floating and is calculated as the greater of (i) 9.25% or (ii) 9.25% plus the sum of the US prime rate minus 4.50%, along with a backend fee of 4.15% of the aggregate principal amount outstanding and an aggregate facility fee of $337,500. Upon entry into the A&R Loan Agreement, the interest-only period was extended through November 1, 2018, and it could be extended up to six additional months under certain conditions. The maturity date of the loan facility was also extended to October 1, 2020. Pursuant to the A&R Loan Agreement, the Company is required to have consolidated minimum cash liquidity in an amount no less than $25.0 million. Such requirement terminates upon the earlier of the date by which the Company completes an equity financing with at least $75.0 million in proceeds or the date the Company generates and announces data from the CONVERT study in a manner that could support the filing of a new drug application. In addition, pursuant to the A&R Loan Agreement, Hercules has the right to participate, in an aggregate amount of up to $2.0 million, in a subsequent private financing that involves the issuance of our equity securities.

In connection with the A&R Loan Agreement, the Company granted Hercules a first position lien on all of the Company’s assets, excluding intellectual property. Prepayment of the loans made pursuant to the A&R Loan Agreement is subject to penalty. The backend fee of 4.15% on the aggregate outstanding principal balance is being charged to interest expense (and accreted to the debt) using the effective interest method over the original life of the A&R Loan Agreement. Debt issuance fees paid to Hercules were recorded as a discount on the debt and are being amortized to interest expense using the effective interest method over the life of the A&R Loan Agreement.

The following table presents the components of the Company’s debt balance as of March 31, 2017 (in thousands):

Debt:
Notes payable	$	55,000
Accretion of backend fee	342
Debt issuance costs, unamortized	(349		)
Debt, long-term	$	54,993

As of March 31, 2017, future principal repayments of the debt for each of the fiscal years through maturity were as follows (in thousands):

Year Ending in December 31:
2017	$	—
2018	3,271
2019	20,753
2020	30,976
	$	55,000

The estimated fair value of the debt (categorized as a Level 2 liability for fair value measurement purposes) is determined using current market factors and the ability of the Company to obtain debt at comparable terms to those that are currently in place.  The Company believes the estimated fair value at March 31, 2017 approximates the carrying amount.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2017

Shareholders' Equity

Shareholders' Equity

6.Shareholders’ Equity

Common Stock — As of March 31, 2017, the Company had 500,000,000 shares of common stock authorized with a par value of $0.01 and 62,087,828 shares of common stock issued and outstanding. In addition, as of March 31, 2017, the Company had reserved 7,718,990 shares of common stock for issuance upon the exercise of outstanding common stock options and 89,194 shares of common stock for issuance upon the vesting of RSUs.

Preferred Stock — As of March 31, 2017, the Company had 200,000,000 shares of preferred stock authorized with a par value of $0.01 and no shares of preferred stock were issued and outstanding.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2017

Stock-Based Compensation

Stock-Based Compensation

7.Stock-Based Compensation

The Company’s current equity compensation plan, the 2015 Incentive Plan, was approved by shareholders at the Company’s 2015 Annual Meeting of Shareholders. The 2015 Incentive Plan is administered by the Compensation Committee and the Board of Directors of the Company. Under the terms of the 2015 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), performance options/shares and other stock awards, as well as the payment of incentive bonuses to all employees and non-employee directors. The Company has 5,000,000 shares of common stock authorized for issuance under the 2015 Incentive Plan and, as of March 31, 2017, there were 1,596,242 shares remaining for future grants (or issuances) of stock options, stock appreciation rights, restricted stock, restricted stock units and incentive bonuses thereunder. The 2015 Incentive Plan will terminate on April 9, 2025 unless it is extended or terminated earlier pursuant to its terms. The Company has submitted a proposal to its shareholders to approve a new equity compensation plan, the 2017 Incentive Plan, at the 2017 Annual Meeting of Shareholders. The 2017 Incentive Plan, if approved, will provide for the issuance of 5,000,000 shares, plus any shares that were subject to outstanding awards under the 2015 Incentive Plan and the 2013 Incentive Plan, as of the effective date of the 2017 Incentive Plan, that are cancelled, terminate unearned, expire, are forfeited, lapse for any reason or are settled in cash without the delivery of shares. If approved, no additional awards will be granted under the 2015 Incentive Plan. In addition, from time to time, the Company makes inducement grants of stock options. These awards are made pursuant to the NASDAQ inducement grant exception as a component of new hires’ employment compensation.

Stock Options - The Company calculates the fair value of stock options granted using the Black-Scholes valuation model. The following table summarizes the Company’s grant date fair value and assumptions used in determining the fair value of all stock options granted:

	Three Months Ended March 31,
	2017	2016
Volatility	73%-74%	77%
Risk-free interest rate	1.86%-1.99%	1.16%-1.73%
Dividend yield	0.0%	0.0%
Expected option term (in years)	6.25	6.25
Weighted average fair value of stock options granted	$9.18	$10.68

For each period presented, the volatility factor was based on the Company’s historical volatility since the closing of the Company’s merger with Transave in December 2010. The expected life was determined using the simplified method as described in ASC Topic 718, Accounting for Stock Compensation, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate is based on the US Treasury yield in effect at the date of grant. Estimated forfeitures are based on the actual percentage of option forfeitures since the closing of the Company’s merger with Transave in December 2010.

From time to time, the Company grants performance-condition options to certain of its employees. Vesting of these options is subject to the Company achieving certain performance criteria established at the date of grant and the grantees fulfilling a service condition (continued employment). As of March 31, 2017, the Company had performance options totaling 133,334 shares outstanding which had not yet met the recognition criteria.

The following table summarizes the Company’s aggregate stock option activity for the three months ended March 31, 2017:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2016	7,116,706		$	13.30
Granted	940,060		$	13.77
Exercised	(67,939	)	$	8.58
Forfeited or expired	(269,837	)	$	14.50
Options outstanding at March 31, 2017	7,718,990		$	13.36	7.58	$	37,828
Vested and expected to vest at March 31, 2017	7,418,298		$	13.32	7.52	$	36,705
Exercisable at March 31, 2017	3,436,957		$	11.80	6.17	$	22,276

The total intrinsic value of stock options exercised during the three months ended March 31, 2017 and 2016 was $0.5 million and $0.1 million, respectively.

As of March 31, 2017, there was $28.4 million of unrecognized compensation expense related to unvested stock options which is expected to be recognized over a weighted average period of 2.7 years. Included in unrecognized compensation expense was $1.1 million related to outstanding performance-based options. The following table summarizes the range of exercise prices and the number of stock options outstanding and exercisable:

Outstanding as of March 31, 2017					Exercisable as of March 31, 2017
			Weighted
			Average
			Remaining	Weighted
Range of Exercise		Number of	Contractual	Average	Number of	Weighted Average
Prices ($)		Options	Term (in years)	Exercise Price ($)	Options	Exercise Price ($)
3.03	3.40	841,850	5.34	3.34	841,850	3.34
3.60	6.90	452,003	4.25	5.82	414,503	5.72
6.96	10.85	1,096,296	9.05	10.76	23,751	6.96
11.14	12.58	1,121,225	6.79	12.18	664,466	12.21
12.66	13.58	187,880	8.17	13.24	68,887	13.30
13.67	13.67	880,750	9.77	13.67	—	—
13.94	16.07	867,990	7.47	15.18	467,219	15.13
16.09	16.54	775,528	8.55	16.18	215,355	16.17
17.14	22.76	1,427,631	7.54	21.27	714,903	21.00
22.84	27.38	67,837	8.13	23.78	26,023	23.79

Restricted Stock and Restricted Stock Units — The Company may grant Restricted Stock (RS) and RSUs to eligible employees, including its executives, and non-employee directors. Each share of RS vests upon, and each RSU represents a right to receive one share of the Company’s common stock upon the completion of a specific period of continued service or achievement of a certain milestone. RS and RSU awards granted are valued at the market price of the Company’s common stock on the date of grant. The Company recognizes noncash compensation expense for the fair values of these RS and RSUs on a straight-line basis over the requisite service period of these awards. The following table summarizes the Company’s RSU award activity during the three months ended March 31, 2017:

		Weighted
	Number of	Average
	RSUs	Grant Price ($)
Outstanding at December 31, 2016	89,194	10.85
Granted	—	—
Released	—	—
Outstanding at March 31, 2017	89,194	10.85

The following table summarizes the aggregate stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss related to stock options and RSUs during the three months ended March 31, 2017 and 2016:

	Three months ended March 31,
	2017		2016
	(in millions)
Research and development expenses	$	1.5	$	1.4
General and administrative expenses	2.5		2.8
Total	$	4.0	$	4.2

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Income Taxes

3 Months Ended

Mar. 31, 2017

Income Taxes

Income Taxes

8.Income Taxes

The Company’s provision for income taxes was $30,000 and $28,000 for the three months ended March 31, 2017 and 2016, respectively. The provision for income taxes in both periods was a result of certain of the Company’s subsidiaries in Europe, which had taxable income during the three months ended March 31, 2017 and 2016. 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, US state and foreign income taxes. The statute of limitations for tax audit is open for the Company’s US federal tax returns for the years ended 2013 and later and is generally open for certain states for the years 2012 and later. The Company’s US federal tax return for the year ended December 31, 2013 is currently under audit by the Internal Revenue Service. The Company has incurred net operating losses since inception, except for 2009. Such loss carryforwards are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. As of March 31, 2017 and December 31, 2016, the Company had recorded no reserves for unrecognized income tax benefits, nor had it 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.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies

Commitments and Contingencies

9.Commitments and Contingencies

Commitments

The Company has an operating lease for office and laboratory space located in Bridgewater, NJ, its corporate headquarters, for which the initial lease term expires in November 2019. Future minimum rental payments under this lease are $2.7 million. In July 2016, the Company signed an operating lease for additional laboratory space located in Bridgewater, NJ for which the initial lease term expires in September 2021. Future minimum rental payments under this lease are $2.2 million.

Rent expense charged to operations was $0.4 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively.

Future minimum rental payments required under the Company’s operating leases for the period from April 1, 2017 to December 31, 2017 and for each of the five years thereafter are as follows (in thousands):

Year Ending December 31:
2017 (remaining)	$	1,107
2018	1,515
2019	1,421
2020	477
2021	498
2022	—
	$	5,018

Legal Proceedings

On July 15, 2016, a lawsuit captioned Hoey v. Insmed Incorporated, et al, No. 3:16-cv-04323-FLW-TJB (D.N.J. July 15, 2016) was filed in the US District Court for the District of New Jersey on behalf of a putative class of investors who purchased the Company’s common stock from March 18, 2013 through June 8, 2016. The complaint alleged that the Company and certain of its executives violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (Exchange Act) by misrepresenting and/or omitting the likelihood of the EMA approving the Company’s European MAA for use of ARIKAYCE in the treatment of NTM lung disease and the likelihood of commercialization of ARIKAYCE in Europe.

On October 25, 2016, the Court issued an order appointing Bucks County Employees Retirement Fund as lead plaintiff for the putative class. On December 15, 2016, lead plaintiff filed an amended complaint that shortens the putative class period for the Exchange Act claims to March 26, 2014 through June 8, 2016 and adds claims under Sections 11, 12, and 15 of the Securities Act on behalf of a putative class of investors who purchased common stock in or traceable to the Company’s March 31, 2015 public offering. The amended complaint names as defendants in the Securities Act claims the Company, certain directors and officers, and the investment banks who served as underwriters in connection with the secondary offering. The amended complaint alleges defendants violated the Securities Act by using a purportedly misleading definition of “culture conversion” and supposedly failing to disclose in the offering materials purported flaws in its Phase 2 study that made the secondary offering risky or speculative. The amended complaint seeks damages in an unspecified amount. The Company moved to dismiss the amended complaint on March 1, 2017. The lead plaintiff’s opposition to the motion is currently due by May 17, 2017. The Company believes that the allegations in the complaints are without merit and intends to defend the lawsuit vigorously; however, there can be no assurance regarding the ultimate outcome of the lawsuit.

From time to time, the Company is a party to various other 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.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Fair Value Measurements

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 judgments 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 are 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 only assets and liabilities which were measured at fair value as of March 31, 2017 and December 31, 2016 were Level 1 and such assets were comprised of cash and cash equivalents of $125.8 million and $162.6 million, respectively.

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. Cash equivalents consist of liquid investments with a maturity of three months or less from the date of purchase.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers in or out of Level 1, Level 2 or Level 3 during the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017 and December 31, 2016, the Company held no securities that were in an unrealized gain or loss position. The Company reviews the status of each security quarterly to determine whether an other-than-temporary impairment has occurred. In making its determination, the Company considers a number of factors, including: (1) the significance of the decline; (2) whether the securities were rated below investment grade; (3) how long the securities have been in an unrealized loss position; and (4) the Company’s ability and intent to retain the investment for a sufficient period of time for it to recover.

Net Loss Per Common Share

Net Loss Per Common Share - Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common 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 and restricted stock units (RSUs) would be antidilutive as the Company incurred a net loss. Potentially dilutive common shares resulting from the assumed exercise of outstanding stock options are determined based on the treasury stock method.

The following table sets forth the reconciliation of the weighted average number of shares used to compute basic and diluted net loss per share for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
	2017			2016
Numerator:
Net loss	$	(37,414	)	$	(33,532	)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	62,041			61,858
Effect of dilutive securities:
Stock options to purchase common stock	—			—
RSUs	—			—
Weighted average common shares outstanding used in calculation of diluted net loss per share	62,041			61,858
Net loss per share:
Basic and diluted net loss per share	$	(0.60	)	$	(0.54	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of March 31, 2017 and 2016 as their effect would have been anti-dilutive (in thousands):

	2017	2016
Stock options to purchase common stock	7,719	6,221
Unvested RSUs	89	—

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements - In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The new standard was effective for the annual period ending after December 15, 2016, and for interim periods thereafter. The Company adopted ASU 2014-15 in the fourth quarter of 2016, which had no impact on the Company’s consolidated financial statements. The interim assessment during the first quarter of 2017 did not have an impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation—Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 in the first quarter of 2017 and impact of the adoption was not material to the consolidated financial statements as of and for the quarter ended March 31, 2017.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

Reconciliation of the weighted average number of shares used to compute basic and diluted net loss per share

	Three Months Ended March 31,
	2017			2016
Numerator:
Net loss	$	(37,414	)	$	(33,532	)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	62,041			61,858
Effect of dilutive securities:
Stock options to purchase common stock	—			—
RSUs	—			—
Weighted average common shares outstanding used in calculation of diluted net loss per share	62,041			61,858
Net loss per share:
Basic and diluted net loss per share	$	(0.60	)	$	(0.54	)

Potentially dilutive securities excluded from computations of diluted weighted average common shares outstanding

The following potentially dilutive securities have been excluded from the computations of diluted weighted average common shares outstanding as of March 31, 2017 and 2016 as their effect would have been anti-dilutive (in thousands):

	2017	2016
Stock options to purchase common stock	7,719	6,221
Unvested RSUs	89	—

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Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2017

Accrued Expenses

Accrued Expenses

	As of March 31,		As of December 31,
	2017		2016
	(in thousands)
Accrued clinical trial expenses	$	7,842	$	7,071
Accrued compensation	2,674		6,937
Accrued professional fees	2,290		1,604
Accrued technical operation expenses	534		591
Accrued interest payable	438		438
Other accrued expenses	365		181
	$	14,143	$	16,822

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Debt (Tables)

3 Months Ended

Mar. 31, 2017

Debt

Components of the Company's debt balance

The following table presents the components of the Company’s debt balance as of March 31, 2017 (in thousands):

Debt:
Notes payable	$	55,000
Accretion of backend fee	342
Debt issuance costs, unamortized	(349		)
Debt, long-term	$	54,993

Future principal repayments of the Company's long-term debt

As of March 31, 2017, future principal repayments of the debt for each of the fiscal years through maturity were as follows (in thousands):

Year Ending in December 31:
2017	$	—
2018	3,271
2019	20,753
2020	30,976
	$	55,000

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Stock-Based Compensation

Summary of Company's grant date fair value and assumptions used in determining fair value of stock options

	Three Months Ended March 31,
	2017	2016
Volatility	73%-74%	77%
Risk-free interest rate	1.86%-1.99%	1.16%-1.73%
Dividend yield	0.0%	0.0%
Expected option term (in years)	6.25	6.25
Weighted average fair value of stock options granted	$9.18	$10.68

Summary of Company's stock option activity

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2016	7,116,706		$	13.30
Granted	940,060		$	13.77
Exercised	(67,939	)	$	8.58
Forfeited or expired	(269,837	)	$	14.50
Options outstanding at March 31, 2017	7,718,990		$	13.36	7.58	$	37,828
Vested and expected to vest at March 31, 2017	7,418,298		$	13.32	7.52	$	36,705
Exercisable at March 31, 2017	3,436,957		$	11.80	6.17	$	22,276

Summary of range of exercise prices and the number of stock options outstanding and exercisable

Outstanding as of March 31, 2017					Exercisable as of March 31, 2017
			Weighted
			Average
			Remaining	Weighted
Range of Exercise		Number of	Contractual	Average	Number of	Weighted Average
Prices ($)		Options	Term (in years)	Exercise Price ($)	Options	Exercise Price ($)
3.03	3.40	841,850	5.34	3.34	841,850	3.34
3.60	6.90	452,003	4.25	5.82	414,503	5.72
6.96	10.85	1,096,296	9.05	10.76	23,751	6.96
11.14	12.58	1,121,225	6.79	12.18	664,466	12.21
12.66	13.58	187,880	8.17	13.24	68,887	13.30
13.67	13.67	880,750	9.77	13.67	—	—
13.94	16.07	867,990	7.47	15.18	467,219	15.13
16.09	16.54	775,528	8.55	16.18	215,355	16.17
17.14	22.76	1,427,631	7.54	21.27	714,903	21.00
22.84	27.38	67,837	8.13	23.78	26,023	23.79

Summary of Company's RSU activity

		Weighted
	Number of	Average
	RSUs	Grant Price ($)
Outstanding at December 31, 2016	89,194	10.85
Granted	—	—
Released	—	—
Outstanding at March 31, 2017	89,194	10.85

Summary of aggregate stock-based compensation recorded in the Consolidated Statements of Comprehensive Loss

	Three months ended March 31,
	2017		2016
	(in millions)
Research and development expenses	$	1.5	$	1.4
General and administrative expenses	2.5		2.8
Total	$	4.0	$	4.2

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies

Future minimum rental payments required under operating leases

Future minimum rental payments required under the Company’s operating leases for the period from April 1, 2017 to December 31, 2017 and for each of the five years thereafter are as follows (in thousands):

Year Ending December 31:
2017 (remaining)	$	1,107
2018	1,515
2019	1,421
2020	477
2021	498
2022	—
	$	5,018

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Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Summary of Significant Accounting Policies
Cash and cash equivalents	$ 125.8		$ 162.6
Fair value transfers in or out of Level 1, Level 2, or Level 3	0.0	$ 0.0
Securities that were in an unrealized loss or gain position	$ 0.0		$ 0.0

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Summary of Significant Accounting Policies - Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator:
Net loss	$ (37,414)	$ (33,532)
Denominator:
Weighted average common shares used in calculation of basic net loss per share	62,041	61,858
Weighted average common shares outstanding used in calculation of diluted net loss per share	62,041	61,858
Net loss per share:
Basic and diluted net loss per share	$ (0.60)	$ (0.54)

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Summary of Significant Accounting Policies - Anti-dilutive Securities (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock options to purchase common stock
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	7,719	6,221
Unvested RSUs
Anti-dilutive securities excluded from computations of diluted weighted-average common shares outstanding
Potentially dilutive securities excluded from computations of diluted weighted-average shares outstanding (in shares)	89

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Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Accrued Expenses
Accrued clinical trial expenses	$ 7,842	$ 7,071
Accrued compensation	2,674	6,937
Accrued professional fees	2,290	1,604
Accrued technical operation expenses	534	591
Accrued interest payable	438	438
Other accrued expenses	365	181
Total accrued expenses	$ 14,143	$ 16,822

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Debt (Details) - A&R Loan Agreement - USD ($)		3 Months Ended
	Mar. 31, 2017	Mar. 31, 2017	Dec. 31, 2016	Oct. 31, 2016	Sep. 30, 2016
Debt
Maximum borrowing capacity of term loan					$ 55,000,000
Amount outstanding			$ 25,000,000		35,000,000
Amount of borrowings during the period		$ 10,000,000
Remaining borrowing capacity of term loan					$ 20,000,000
Facility fee paid (as a percent)	0.375%	0.375%
Interest rate (as a percent)	9.25%	9.25%
Backend fee (as a percent)	4.15%
Facility fee	$ 337,500
Maximum interest-only extension period (in months)	6 months
Minimum cash liquidity requirement to be consolidated	$ 25,000,000	$ 25,000,000
Limit on lender's participation rights in certain future private equity financings	$ 2,000,000	$ 2,000,000
License Agreement with AstraZeneca
Debt
Amount outstanding				$ 20,000,000
Prime Rate
Debt
Variable interest rate	prime rate
Basis spread (as a percent)	(4.50%)
Minimum
Debt
Amount of cash proceeds required to extend maturity date of loan	$ 75,000,000

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Debt - Components and Principal Payments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Debt:
Notes payable	$ 55,000
Accretion Of Backend Fee	342
Debt issuance costs, unamortized	(349)
Debt, long-term	54,993	$ 54,791
Future principal repayments of the long term debt
2018	3,271
2019	20,753
2020	30,976
Total	$ 55,000

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Shareholders' Equity (Details) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Common stock, authorized shares	500,000,000	500,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, issued shares	62,087,828	62,019,889
Common stock, outstanding shares	62,087,828	62,019,889
Preferred stock
Preferred stock, authorized	200,000,000	200,000,000
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Stock options to purchase common stock
Common stock shares reserved for issuance	7,718,990
Unvested RSUs
Common stock shares reserved for issuance	89,194

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Stock-Based Compensation - Disclosures (Details)	Mar. 31, 2017 shares
Stock-Based Compensation
Shares of common stock, maximum authorized for issuance	5,000,000
Shares available for grant	1,596,242

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Stock-Based Compensation - Stock Options (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Number of Shares
Options outstanding beginning of the year (in shares)	7,116,706
Granted (in shares)	940,060
Exercised (in shares)	(67,939)
Forfeited or expired (in shares)	(269,837)
Options outstanding end of the year (in shares)	7,718,990
Vested and expected to vest (in shares)	7,418,298
Exercisable (in shares)	3,436,957
Weighted Average Exercise Price
Options outstanding beginning of the year (in dollars per share)	$ 13.30
Granted (in dollars per share)	13.77
Exercised (in dollars per share)	8.58
Forfeited or expired (in dollars per share)	14.50
Options outstanding end of the year (in dollars per share)	13.36
Vested and expected to vest (in dollars per share)	13.32
Exercisable (in dollars per share)	$ 11.80
Weighted Average Remaining Contractual Life in Years
Options outstanding	7 years 6 months 29 days
Vested and expected to vest	7 years 6 months 7 days
Exercisable	6 years 2 months 1 day
Aggregate Intrinsic Value
Options outstanding (in dollars)	$ 37,828
Vested and expected to vest (in dollars)	36,705
Exercisable (in dollars)	$ 22,276
Stock options to purchase common stock
Fair value and assumptions used in determining fair value of stock options
Volatility (as a percent)		77.00%
Dividend yield (as a percent)	0.00%	0.00%
Expected option term (in years)	6 years 3 months	6 years 3 months
Weighted average fair value of stock options granted (in dollars per share)	$ 9.18	$ 10.68
Stock options to purchase common stock | Minimum
Fair value and assumptions used in determining fair value of stock options
Volatility (as a percent)	73.00%
Risk-free interest rate (as a percent)	1.86%	1.16%
Stock options to purchase common stock | Maximum
Fair value and assumptions used in determining fair value of stock options
Volatility (as a percent)	74.00%
Risk-free interest rate (as a percent)	1.99%	1.73%
Performance-based options
Number of Shares
Options outstanding end of the year (in shares)	133,334

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Stock-Based Compensation - Range of Exercise Prices (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock options to purchase common stock
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Total intrinsic value of stock options exercised during the period	$ 0.5	$ 0.1
Unrecognized compensation expense related to unvested stock options	$ 28.4
Expected weighted average period for recognizing unrecognized compensation expense	2 years 8 months 12 days
Performance-based options
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Unrecognized compensation expense related to unvested stock options	$ 1.1
$3.03 to $3.40
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	$ 3.03
Range of Exercise Prices upper range limit (in dollars per share)	$ 3.40
Number of Options outstanding (in shares)	841,850
Weighted Average Remaining Contractual Term	5 years 4 months 2 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 3.34
Number of Options exercisable (in shares)	841,850
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 3.34
$3.60 to $6.90
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	3.60
Range of Exercise Prices upper range limit (in dollars per share)	$ 6.90
Number of Options outstanding (in shares)	452,003
Weighted Average Remaining Contractual Term	4 years 3 months
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 5.82
Number of Options exercisable (in shares)	414,503
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 5.72
$6.96 to $10.85
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	6.96
Range of Exercise Prices upper range limit (in dollars per share)	$ 10.85
Number of Options outstanding (in shares)	1,096,296
Weighted Average Remaining Contractual Term	9 years 18 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 10.76
Number of Options exercisable (in shares)	23,751
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 6.96
$11.14 to $12.58
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	11.14
Range of Exercise Prices upper range limit (in dollars per share)	$ 12.58
Number of Options outstanding (in shares)	1,121,225
Weighted Average Remaining Contractual Term	6 years 9 months 15 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 12.18
Number of Options exercisable (in shares)	664,466
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 12.21
$12.66 to $13.58
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	12.66
Range of Exercise Prices upper range limit (in dollars per share)	$ 13.58
Number of Options outstanding (in shares)	187,880
Weighted Average Remaining Contractual Term	8 years 2 months 1 day
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 13.24
Number of Options exercisable (in shares)	68,887
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 13.30
$13.67 to $13.67
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	13.67
Range of Exercise Prices upper range limit (in dollars per share)	$ 13.67
Number of Options outstanding (in shares)	880,750
Weighted Average Remaining Contractual Term	9 years 9 months 7 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 13.67
$13.94 to $16.07
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	13.94
Range of Exercise Prices upper range limit (in dollars per share)	$ 16.07
Number of Options outstanding (in shares)	867,990
Weighted Average Remaining Contractual Term	7 years 5 months 19 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 15.18
Number of Options exercisable (in shares)	467,219
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 15.13
$16.09 to $16.54
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	16.09
Range of Exercise Prices upper range limit (in dollars per share)	$ 16.54
Number of Options outstanding (in shares)	775,528
Weighted Average Remaining Contractual Term	8 years 6 months 18 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 16.18
Number of Options exercisable (in shares)	215,355
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 16.17
$17.14 to $22.76
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	17.14
Range of Exercise Prices upper range limit (in dollars per share)	$ 22.76
Number of Options outstanding (in shares)	1,427,631
Weighted Average Remaining Contractual Term	7 years 6 months 15 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 21.27
Number of Options exercisable (in shares)	714,903
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 21.00
$22.84 to $27.38
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range
Range of Exercise Prices lower range limit (in dollars per share)	22.84
Range of Exercise Prices upper range limit (in dollars per share)	$ 27.38
Number of Options outstanding (in shares)	67,837
Weighted Average Remaining Contractual Term	8 years 1 month 17 days
Outstanding Options, Weighted Average Exercise Price (in dollars per share)	$ 23.78
Number of Options exercisable (in shares)	26,023
Exercisable Options, Weighted Average Exercise Price (in dollars per share)	$ 23.79

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Stock-Based Compensation - Restricted Stock and Restricted Stock Units (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Stock options and RSUs
Weighted Average Grant Price
Allocated share-based compensation expense	$ 4.0	$ 4.2
Stock options and RSUs | Research and development expenses
Weighted Average Grant Price
Allocated share-based compensation expense	1.5	1.4
Stock options and RSUs | General and administrative expenses
Weighted Average Grant Price
Allocated share-based compensation expense	$ 2.5	$ 2.8
Unvested RSUs
Number of RSUs
Outstanding, beginning balance (in shares)	89,194
Outstanding, ending balance (in shares)	89,194
Weighted Average Grant Price
Outstanding weighted average grant price (in dollars per share)	$ 10.85
Outstanding weighted average grant price (in dollars per share)	$ 10.85
Restricted stock and restricted stock units
Stock-Based Compensation
Number of common shares each award holder is entitled to receive	1

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Income Taxes
Provision for income taxes	$ 30	$ 28
Deferred tax benefit	0
Unrecognized tax benefits, interest and penalties accrued	$ 0		$ 0

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Commitments and Contingencies - Additional Information (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Commitments
Future minimum rental payments under leases	$ 5,018
Bridgewater, NJ
Commitments
Future minimum rental payments under leases	2,700
Future minimum rental payments for additional laboratory space	$ 2,200

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Commitments and Contingencies - Minimum Rental Payments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Commitments and Contingencies
Rent expense charged to operations	$ 400	$ 200
Future minimum rental payments under operating leases
2017 (remaining)	1,107
2018	1,515
2019	1,421
2020	477
2021	498
Total	$ 5,018