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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Indicate by check x 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:

Yesx No o

As of August 7, 2002, the latest practicable date, there were 33,138,614 shares of Insmed Incorporated common stock outstanding.

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INSMED INCORPORATED
INDEX

REPORT: FORM 10-Q

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

INSMED INCORPORATED
Condensed Consolidated Balance Sheets
(in thousands)

See accompanying notes.

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INSMED INCORPORATED
Condensed Consolidated Statements of Operations
(in thousands, except per share data - unaudited)

See accompanying notes.

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INSMED INCORPORATED
Consolidated Statements of Cash Flows
(in thousands - unaudited)

See accompanying notes.

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Insmed Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and applicable Securities and Exchange Commission regulations for interim financial information. These financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is presumed that users of this interim financial information have read or have access to the audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified to conform to the June 30, 2002 presentation.

2. Summary of Significant Accounting Policies

Research and Development Costs

Research and development costs consist primarily of compensation and other expenses related to research and development personnel, costs associated with pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Research and development costs are expensed as incurred. Cost reimbursements related to the Taisho joint development agreement serve to reduce research and development costs.

3. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The Company adopted SFAS No. 142 effective January 1, 2002. SFAS No. 142 requires that an acquired, intangible asset shall initially be recognized and measured based on its fair value. The Statement also provides that goodwill shall not be amortized, but shall be periodically tested for impairment by comparing its fair value to its

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carrying amount. We performed the first of the required impairment tests for goodwill and indefinite-lived intangible assets as of January 1, 2002 and determined that currently, the only effect of the adoption of this Statement on the Company's earnings and financial position was the ceasing of amortization of goodwill. The Company recognized amortization of goodwill of $209,000 for the quarter ended June 30, 2001 and $418,000 for the six months ended June 30, 2001. If the pronouncement had been in effect at June 30, 2001, net loss as adjusted for the quarter and six months ended June 30, 2001 would have been $8.6 million and $18.5 million, respectively, and net loss per share would have been $0.26 and $0.56, compared to reported net loss for the same periods of $8.8 million and $18.9 million, respectively, and net loss per share of $0.27 and $0.58.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which it supersedes. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, that address the disposal of a segment of a business. The Company adopted this Statement effective January 1, 2002. The adoption of this statement has no impact on the Company's earnings or financial position.

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

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Part I - Item 1 of this Quarterly Report and the financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

We discover and develop pharmaceutical products for the treatment of metabolic diseases and endocrine disorders associated with insulin resistance. Insmed has two lead drug candidates — INS-1 and SomatoKine. We are actively developing these drugs to treat diabetes and polycystic ovary syndrome (commonly known as PCOS).

We have not been profitable and have accumulated a deficit of approximately $153 million through June 30, 2002. We expect to incur significant additional losses for at least the next several years until such time as sufficient revenues are generated to offset expenses. In general, our expenditures will increase as development of our product candidates progresses. However, there will be fluctuations from period to period caused by differences in project-related expenditure requirements at each stage of development.

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Results of Operations

For the three and six month periods ended June 30, 2002, we recorded a net loss of $7.1 million and $13.2 million, respectively. A net loss of $8.8 million was reported for the three months ended June 30, 2001, and a net loss of $18.9 million was reported for the six months ended June 30, 2001.

Research and development expenses decreased to $6.6 million from $8.2 million for the three months ended June 30, 2001, and to $12.3 million from $18.5 million for the six months ended June 30, 2001, reflecting the decrease in external, clinical trial and manufacturing costs as we enter the later stages of our current Phase II trials. During the three and six months ended June 30, 2002, our net expenditures for external, clinical trial and manufacturing costs related to INS-1 and SomatoKine were $3.7 million and $7.0 million, respectively, compared to $5.8 million and $13.9 million during the three and six months ended June 30, 2001.

General and administrative expenses declined to $0.8 million for the three-month period ended June 30, 2002 from $1.4 million for the three-month period ended June 30, 2001, and decreased to $1.5 million for the six-month period ended June 30, 2002 from $2.5 million for the six-month period ended June 30, 2001. The decline in expenses was caused primarily by a reduction in investor-relations costs, personnel-related costs and support service costs.

At June 30, 2002, cash and cash equivalents were $36.3 million, a reduction of $15.0 million from December 31, 2001, as funds were expended for operations.

Liquidity and Capital Resources

At June 30, 2002, our cash and cash equivalents of $36.3 million were invested in investment grade, interest-bearing securities. Our business strategy contemplates selling additional equity and entering into agreements with corporate partners to fund research and development, and provide milestone payments, license fees and equity investments to fund operations. We will need to raise substantial additional funds to continue development and commercialization of our products. There can be no assurance that adequate funds will be available when we need them, or on favorable terms. If at any time we are unable to obtain sufficient additional funds, we will be required to delay, restrict or eliminate some or all of our research or development programs, dispose of assets or technology or cease operations.

Forward Looking Statementss

Statements included within this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical in nature, may constitute forward-looking statements for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements regarding expected financial position, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing or proposed products or services, plans and

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objectives of management, demand for new pharmaceutical products, market trends in the pharmaceutical business, inflation and various economic and business trends. Such forward-looking statements are subject to numerous risks and uncertainties, including risks that product candidates may fail in the clinic or may not be successfully marketed, the Company may lack financial resources to complete development of product candidates, competing products may be more successful, demand for new pharmaceutical products may decrease, the biopharmaceutical industry may experience negative market trends and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. As a result of these and other risks and uncertainties, actual results may differ materially from those described in the discussion above.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest excess cash in investment grade, interest-bearing securities and, at June 30, 2002, had $36.3 million invested in money market instruments and investment grade corporate debt. Such investments are subject to interest rate and credit risk. Our policy of investing in highly rated securities whose maturities at June 30, 2002, are all less than one year minimizes such risks. In addition, while a hypothetical decrease in market interest rates of 10% from June 30, 2002 levels would reduce interest income, it would not result in a loss of the principal and the decline in interest income would not be material.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The information set forth in this Item 4 relates to matters submitted to a vote at the Annual Meeting of Shareholders of Insmed Incorporated on May 1, 2002. Of the 32,952,168 shares outstanding as of the record date, March 15, 2002, there were 25,718,350 shares or 78% of the

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total shares eligible to vote represented in person or by proxy. The following proposals were adopted by the margins indicated:

The other directors whose terms of office as a director continued after the meeting are Kenneth G. Condon, Steinar J. Engelsen, M.D., and Geoffrey Allan, Ph.D.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits

          None.

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(b)     Reports on Form 8-K

          None.

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.

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