Rigel Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited interim results; dollar amounts below are in millions unless stated otherwise. Rigel is a biotechnology company whose marketed product is TAVALISSE for chronic immune thrombocytopenia (ITP), alongside partnered and internally developed clinical programs.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $81.0 | $55.8 | +$25.3; +45% |
| Net product sales | $12.4 | $12.7 | −2% |
| Collaboration revenue | $65.6 | $43.1 | +$22.6 |
| Government contract revenue | $3.0 | — | New |
| Operating income | $41.8 | $21.0 | +$20.7 |
| Net income | $39.5 | $21.2 | +$18.3 |
| Diluted earnings per share | $0.22 | $0.13 | +$0.09 |
Operating and net margins were approximately 51.5% and 48.8%, respectively. The quarter’s earnings included substantial collaboration/license revenue, principally from the Lilly agreement, and should not be read as evidence of a comparable recurring earnings run rate. Research and development expense was $16.8 million (up 4%); selling, general and administrative expense was $22.1 million (up 20%). Cost of product sales was $0.3 million, but the company cautioned that it excludes some pre-approval manufacturing costs and is below the expected level as newer inventory is sold.
Cash, liquidity and debt
- Cash, cash equivalents and short-term investments totaled $39.3 million at March 31, 2021, down from $57.3 million at year-end 2020. The $125 million Lilly upfront payment was received in April, after quarter-end.
- Operating cash flow was negative $20.0 million, compared with negative $3.1 million a year earlier. The period included a $126.2 million increase in accounts receivable and a $57.9 million increase in other current and long-term liabilities, largely reflecting Lilly agreement accounting.
- Accounts receivable rose to $142.2 million from $16.0 million. Inventory increased to $6.9 million from $1.6 million, including raw materials transferred from advance payments.
- Term-loan principal outstanding was $20.0 million; its balance-sheet carrying value, net of discount, was $19.8 million. The facility bears interest at one-month LIBOR plus 5.65%, subject to a 1.50% floor. Rigel reported compliance with covenants at quarter-end.
- The Lilly agreement also created a $58.0 million financing liability for Rigel’s minimum development-cost commitment; this is separate from the MidCap term loan. Rigel may opt out of specified co-funding, with a first opt-out potentially capping its commitment at $65 million through April 2024.
Material changes and business developments
- Collaboration revenue rose mainly because Rigel recognized $60.6 million under its new Lilly RIP1 inhibitor license/collaboration agreement. Rigel received the $125 million non-refundable, non-creditable upfront payment in April 2021. Additional development, regulatory and sales milestones could total up to $835 million, plus royalties, subject to achievement and agreement terms.
- Q1 2020 collaboration revenue was primarily associated with Grifols’ European approval milestone and related license revenue; therefore, collaboration revenue is timing- and milestone-dependent.
- TAVALISSE U.S. net sales declined 2% year over year to $12.4 million. Management cited COVID-19-related patient and physician access limitations, first-quarter reimbursement resets and lower distributor-channel inventory.
- Rigel recognized $3.0 million of a U.S. Department of Defense award of up to $16.5 million for the Phase 3 hospitalized COVID-19 trial; the remaining $13.5 million is contingent on specified trial events and government approval.
- A separate $4.0 million one-time fee from a non-exclusive patent license was recognized as collaboration revenue.
Outlook, commentary and risks
Management expected 2021 research and development spending to increase as warm autoimmune hemolytic anemia (wAIHA) and hospitalized COVID-19 studies progress, with the Defense Department award partially funding the COVID-19 Phase 3 trial. Selling, general and administrative expense was also expected to increase with expanded TAVALISSE commercial activity. Rigel stated that available capital was expected to fund current and projected needs for at least 12 months from the filing date, while noting the estimate depends on assumptions and that additional funding will be needed for the business over time. No specific full-year revenue or earnings guidance was provided.
- COVID-19 continued to affect commercial access and clinical-trial enrollment; management could not reliably forecast the full impact on sales, trial timelines or results. Supply disruption was not then anticipated, but remained a risk.
- The wAIHA Phase 3 trial had enrolled 72 of its 90-patient target, with slower-than-expected enrollment. A COVID-19 Phase 2 study reported positive topline safety results in April 2021, after quarter-end; the filing describes efficacy findings but these remain clinical data, not regulatory approval. Rigel intended to discuss an Emergency Use Authorization application with regulators.
- Business risks include dependence on TAVALISSE and collaboration income, drug-development and regulatory uncertainty, reimbursement and pricing pressure, reliance on third-party manufacturers and distributors, and potential need for further financing. Lilly represented 78% of reported Q1 revenue, underscoring customer/revenue concentration.
- The filing reported no legal proceedings in its Legal Proceedings item. It discusses general litigation and contingency risks elsewhere. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm receipt and collection of the $125 million Lilly payment after quarter-end, and how subsequent cash and receivable balances evolved.
- Assess the recurring revenue and cash economics of the Lilly agreement, including the $58 million financing liability, co-funding obligations, opt-out rights and milestone/royalty contingencies.
- Track TAVALISSE prescriptions and net sales separately from channel inventory, discounts, reimbursement effects and pandemic-related access disruptions.
- Monitor enrollment, results and regulatory developments for the wAIHA and COVID-19 trials; the reported COVID-19 Phase 2 results were announced after March 31 and do not establish approval or commercial revenue.
- Review cash burn, the MidCap facility’s covenant and draw conditions, and the company’s stated funding runway in light of continuing development and commercial spending.