Travere Therapeutics, Inc. (then Retrophin, Inc.) — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; the filing also provides unaudited quarterly results. The issuer filed as Retrophin, Inc.
Business context
Retrophin was a rare-disease biopharmaceutical company with three marketed products—Thiola, Cholbam and Chenodal—and a development pipeline that included fosmetpantotenate for PKAN, sparsentan for FSGS and IgAN, CNSA-001 for PKU, and liquid ursodeoxycholic acid. Product sales funded continuing clinical development.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net product sales | $154.9 million | $133.6 million |
| Operating expenses | $208.7 million | $191.8 million |
| Operating loss | $53.8 million | $58.2 million |
| Net loss | $59.7 million | $47.9 million |
| Cash from operating activities | $7.4 million provided | $3.4 million used |
| Cash, cash equivalents and marketable securities at year-end | $300.6 million | $255.9 million |
| Working capital | $240.1 million | $249.1 million |
| Long-term debt carrying value | $45.1 million | $44.4 million |
Sales increased 16.0%, driven by higher patient counts across products. Thiola generated $82.3 million in 2017 sales; bile-acid products generated $72.6 million. Gross margin was approximately 97.7% and operating margin approximately negative 34.7%, based on reported sales and cost of goods sold. Despite a narrower operating loss, the net loss widened, in part reflecting a $4.5 million noncash loss from revaluing warrant liabilities and a $1.4 million income-tax provision. The 2017 tax expense also reflected the Tax Act and an increased valuation allowance.
Year-end current assets were $325.8 million and current liabilities $85.7 million; the reported working-capital ratio was 3.80. The $46 million principal amount of senior convertible notes bears 4.5% interest, is convertible initially at $17.41 per share, and matures May 30, 2019 unless converted or repurchased earlier. Management said available cash and short-term investments were expected to fund near-term operations, while noting that additional financing could be needed depending on operating results and development costs.
For the fourth quarter, net product sales were $42.2 million, operating loss $15.2 million and net loss $17.6 million. The comparable fourth-quarter 2016 figures were $37.3 million, $18.2 million and $8.6 million, respectively.
Material changes and unusual items
- Research and development expense rose 10.4% to $78.2 million, largely due to preparation for and initiation of clinical trials and supporting studies. SG&A increased 10.2% to $101.3 million.
- The company recorded $19.4 million of expense from remeasurement of acquisition-related contingent consideration, $3.6 million of restructuring expense related to consolidating operations in San Diego, and $2.6 million of legal-fee settlement expense.
- The company reported positive operating cash flow for 2017, compared with operating cash use in 2016. Investing cash flow included $47.5 million received on the final installment of the 2015 sale of a pediatric priority review voucher.
- In January 2018, the company paid Censa $10 million for an option to acquire it and agreed to fund CNSA-001 development, with funding expected to total approximately $16 million through proof of concept. A further $5 million milestone payment may be due; exercising the acquisition option would involve $65 million upfront consideration and up to $25 million in additional milestone payments.
Outlook, risks and contingencies
Management expected 2018 R&D expense to increase. It planned to start a Phase 3 FSGS sparsentan trial in the second quarter of 2018 and an IgAN trial during 2018; a CNSA-001 Phase 2 proof-of-concept study was expected in mid-2018. The company was continuing enrollment in the fosmetpantotenate Phase 3 PKAN study and expected to file an NDA for a new Thiola formulation in 2018. These are forward-looking plans, not assured outcomes. Sparsentan’s potential accelerated-approval route depends on trial results and FDA review; confirmatory clinical benefit would still be required.
Key risks include clinical-trial failure or delays, regulatory approval uncertainty, reimbursement and drug-pricing pressure, competition and generic entry, and reliance on single-source manufacturers and an outsourced distributor. The company also disclosed litigation involving former CEO Martin Shkreli and legal-fee advances; some insurance reimbursement remained subject to insurer rights and the appeal outcome. The company had $90.0 million of business-combination contingent consideration liabilities. Its financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of year-end.
Investor verification priorities
- Check subsequent filings for actual 2018 trial starts, enrollment, endpoints and regulatory feedback for sparsentan and fosmetpantotenate.
- Track product-level sales, patient counts, rebates and payer access to assess whether growth continues and supports development spending.
- Review cash burn, investment maturities, the 2019 convertible-note maturity and any financing or dilution needs.
- Confirm the Censa option’s milestone payments, development spending and whether the acquisition option was exercised.
- Monitor contingent-consideration estimates, Shkreli-related legal and insurance outcomes, and supply continuity for products dependent on single-source manufacturers.