Rigel Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise indicated.
Business context
Rigel is a biotechnology company whose principal commercial product is TAVALISSE (fostamatinib) for chronic immune thrombocytopenia (ITP). It also develops fostamatinib for warm autoimmune hemolytic anemia (AIHA) and maintains other early-stage programs. Fostamatinib received European Commission approval for chronic ITP in January 2020; partner Grifols launched TAVLESSE in the UK and Germany in July 2020.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net product sales | $15.0 | $10.2 | $27.7 | $18.2 |
| Collaboration revenue | $1.0 | $0.2 | $44.1 | $4.8 |
| Total revenue | $16.0 | $10.4 | $71.8 | $23.0 |
| Research and development expense | $14.2 | $13.2 | $30.4 | $24.2 |
| Selling, general and administrative expense | $18.9 | $18.2 | $37.4 | $38.2 |
| Operating income (loss) | $(17.4) | $(21.3) | $3.6 | $(39.7) |
| Net income (loss) | $(17.6) | $(20.6) | $3.7 | $(38.2) |
| Net income (loss) per share, diluted | $(0.10) | $(0.12) | $0.02 | $(0.23) |
Q2 net product sales rose 47% year over year; management attributed growth to higher sales volume and selling prices. First-half net product sales increased 52%. Collaboration revenue for the first half included $39.9 million recognized for Grifols licensed rights after the European approval and related changes to the transaction price; this materially contributed to first-half operating and net income. The reported first-half result should not be read as evidence of recurring profitability.
Reported Q2 product cost of sales was $0.3 million, or about 1.9% of net product sales. The filing cautions that this cost is unusually low because some manufacturing costs were expensed as R&D before product approval; future product costs are expected to rise as newer inventory is sold. Overall operating margin was approximately negative 109% in Q2 and positive 5% for the first half, with the latter affected by collaboration revenue recognition.
- Cash flow: First-half cash used in operating activities was $17.1 million, similar to $17.2 million in 2019. Investing activities provided $19.2 million, primarily from net maturities of short-term investments; financing provided $11.9 million, mainly from the second $10 million MidCap loan tranche.
- Liquidity: Cash, cash equivalents and short-term investments totaled $92.5 million at June 30, 2020, versus $98.1 million at December 31, 2019. Current assets were $113.1 million and current liabilities $34.8 million, implying working capital of about $78.3 million.
- Debt and leases: Term-loan principal outstanding was $20.0 million, reported at $19.8 million net of discount. The loan bears interest at one-month LIBOR plus 5.65% (subject to a 1.50% floor); Rigel reported no covenant violations. Lease liabilities totaled $23.3 million.
- Equity: Stockholders’ equity was $63.2 million at June 30, 2020; accumulated deficit was $1.273 billion. The company reported 168,928,904 common shares outstanding as of August 1, 2020.
Material changes and unusual items
- First-half collaboration revenue increased to $44.1 million from $4.8 million, driven principally by the Grifols European approval payment and recognition of previously received consideration. Rigel received $20.0 million from Grifols in February 2020; the approval also made $25.0 million of the earlier upfront payment nonrefundable.
- First-half R&D expense increased $6.2 million year over year, mainly from the Phase 3 warm-AIHA study and Phase 1 RIP1 and IRAK1/4 programs. Q2 SG&A rose $0.7 million, while first-half SG&A declined $0.8 million.
- On August 4, 2020, after quarter-end, Rigel entered an at-the-market agreement allowing sales of up to $65.0 million of common stock, subject to a commission of up to 3% of gross proceeds. Sales are optional and could dilute existing shareholders.
Outlook, management commentary and risks
- Management said existing resources were expected to fund operations for at least 12 months from the filing date, based on assumptions that may prove incorrect. It also said significant additional funding would be required over the longer term. Potential sources include equity, debt, collaborations and licensing arrangements.
- Rigel expected R&D expense to increase during the remainder of 2020 as it continued AIHA, RIP1, IRAK1/4 and other fostamatinib work; it also expected SG&A to increase with U.S. commercialization activities. No numerical revenue or earnings guidance was provided.
- COVID-19 had reduced patient-doctor interactions and in-person commercial activity, and delayed or paused enrollment at some clinical-trial sites. Rigel could not forecast the pandemic’s full effect on product sales, trial enrollment, data collection, partner programs or timelines. The company reported that some sites had resumed screening and that it did not then anticipate significant disruption to TAVALISSE supply.
- The Phase 3 FORWARD AIHA trial had enrolled 44 of a targeted 90 patients across more than 90 sites in 22 countries; Rigel could not provide an expected enrollment-completion date. The COVID-19 pneumonia Phase 2 investigator-sponsored study was announced in July 2020 and was investigational, not an approved indication.
- Key risks include dependence on TAVALISSE commercialization, clinical and regulatory uncertainty, reliance on third-party manufacturing and partners, competition and reimbursement/pricing pressures, the COVID-19 impact, and the need for additional capital. The filing lists no legal proceedings in the “Legal Proceedings” section; it also discusses potential litigation and other contingencies as risks.
Important facts for investors to verify
- Whether TAVALISSE sales growth continues and how COVID-19, payer access, rebates and discounts affect net sales.
- How much first-half income depended on the nonrecurring Grifols-related revenue recognition, and the pace of future collaboration, royalty and milestone receipts.
- Cash burn, liquidity runway, access conditions for the remaining MidCap facility tranches, and any use of the $65.0 million ATM offering.
- Enrollment progress and results for the AIHA Phase 3 trial, as well as delays or changes to partnered and other clinical programs.
- Whether product costs rise as older inventory is depleted, and the effect on product margins.