Rigel Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 5, 2020. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
Rigel is a biotechnology company whose commercial product is TAVALISSE (fostamatinib), approved in the U.S. for chronic immune thrombocytopenia (ITP). The European Commission approved fostamatinib for chronic ITP in January 2020; Grifols holds commercialization rights in Europe and Turkey. Rigel is also conducting a Phase 3 study of fostamatinib in warm autoimmune hemolytic anemia (AIHA), alongside earlier-stage programs and partnered development programs.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Total revenue | $55.761 | $12.624 | Up $43.137; collaboration revenue drove most of the increase |
| Net TAVALISSE product sales | $12.680 | $8.054 | Up 57%; management cited 37% higher sales volume and higher selling prices |
| Collaboration revenue | $43.081 | $4.570 | Includes $39.9 of license revenue and $3.2 of research services; substantially related to Grifols |
| Operating income (loss) | $21.027 | $(18.378) | Turned profitable, largely reflecting collaboration revenue |
| Net income (loss) | $21.243 | $(17.598) | Basic and diluted EPS of $0.13, versus $(0.11) |
| Research and development expense | $16.149 | $10.949 | Up $5.200, primarily from increased clinical-program costs |
| Selling, general and administrative expense | $18.430 | $19.946 | Down $1.516 |
| Net cash used in operating activities | $(3.093) | $(0.569) | Higher cash use; included a $20.0 Grifols payment and product-sale proceeds |
Product sales less reported cost of product sales imply a high reported product gross margin, but it is not representative of full manufacturing economics: some active pharmaceutical ingredient costs were expensed as R&D before FDA approval and are excluded from current cost of sales. Overall operating profitability also reflects significant collaboration revenue, including Grifols-related revenue recognition; it should not be assumed to recur at this level.
Financial position, liquidity and debt
- Cash, cash equivalents and short-term investments totaled $95.926 at March 31, 2020, down from $98.078 at December 31, 2019. Cash and equivalents alone were $45.225.
- Current assets were $116.332 and current liabilities were $31.172. Stockholders’ equity was $78.499; accumulated deficit was $1,254.985.
- Loans payable were $9.829 net of discount. Operating lease liabilities totaled $25.085, with a $23.775 right-of-use asset.
- Rigel had a $60.0 MidCap term-loan facility. The initial $10.0 tranche was outstanding at quarter-end; a second $10.0 tranche, arranged in March, was received in May 2020. A further $40.0 was available subject to conditions. The loan bears interest at one-month LIBOR plus 5.65%, subject to a 1.50% floor; the company reported no covenant violations at March 31.
- Management stated that available capital resources and expected operating cash flows were expected to fund operations for at least 12 months. The filing also cautions that estimates depend on assumptions and that additional funding will be needed over the longer term.
Material changes and management commentary
- Grifols’ European approval milestone contributed to a $20.0 payment received in February 2020. Following approval, $25.0 of the earlier $30.0 upfront fee became non-refundable. Revised transaction-price accounting produced cumulative catch-up collaboration revenue in Q1.
- TAVALISSE shipments totaled 1,398 bottles in Q1; 591 bottles remained in distribution channels at quarter-end. Management said patient-doctor interactions and commercial activity were affected by COVID-19, particularly late in the quarter, and shifted field engagement and other activities to virtual formats.
- The Phase 3 FORWARD AIHA study had enrolled 41 patients, with more than 80 sites in 22 countries. Most sites temporarily paused new enrollment amid COVID-19, and management could not provide a completion-timing estimate.
- Management did not provide numerical full-year revenue or earnings guidance. It expected R&D expense to increase during the remainder of 2020 as programs continued, and SG&A to increase with commercial activity; the full COVID-19 impact was uncertain.
- Rigel reported no anticipated significant near-term disruption to TAVALISSE supply, while warning that prolonged pandemic effects could affect supply, sales, clinical trials, partner activities, regulatory timelines and access to capital. The filing also identifies commercialization, reimbursement, clinical-development, manufacturing, financing, competition and intellectual-property risks.
- The CARES Act’s tax effects were still being assessed; management did not then expect a material financial-statement impact. The filing reported no legal proceedings in Part II, Item 1.
Important facts for investors to verify
- How much of Q1 collaboration revenue and net income resulted from the Grifols approval payment and catch-up accounting, and what revenue may recur.
- Whether TAVALISSE sales growth can continue amid COVID-19 effects, reimbursement dynamics, competition and reliance on distribution and specialty-pharmacy channels.
- How COVID-related enrollment pauses affect the FORWARD study’s timeline, costs and eventual results.
- Cash use and liquidity relative to management’s 12-month sufficiency statement, including the conditions and covenants governing additional MidCap tranches.
- Whether future product costs reflect the full manufacturing cost, given that some historical production costs were charged to R&D.
- Progress of European commercialization by Grifols and development and commercialization by other partners, which drive potential milestones, royalties and geographic expansion.