Business context and reporting period
This filing is Retrophin, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 28, 2014. The request identifies Travere Therapeutics, Inc.; the filing itself is for Retrophin, so the entity match should be verified. The 10-K reports the full fiscal year, not fourth-quarter results alone.
Retrophin was an early-stage biopharmaceutical company developing and licensing treatments for rare and serious diseases. Its principal programs included Syntocinon, sparsentan, RE-034, RE-024 and RE-001. It reported no revenue in either 2013 or 2012. Manchester Pharmaceuticals, acquired in March 2014, was a subsequent event and was not part of the 2013 year-end operating results.
Financial results and liquidity
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $24.0 million | $30.3 million |
| Operating loss | $24.0 million | $30.3 million |
| Net loss | $33.8 million | $30.3 million |
| Net cash used in operating activities | $17.6 million | $2.7 million |
- Research and development expense rose to $7.1 million from $0.7 million. Selling, general and administrative expense fell to $16.9 million from $29.6 million, largely reflecting substantially lower stock-based compensation.
- Other expense was $9.8 million, including a $10.1 million non-cash charge from remeasuring warrant liabilities. Net loss per share was $2.38, versus $8.29 in 2012.
- At December 31, 2013, cash was $6.0 million and marketable securities were $0.1 million. Current assets were $7.5 million against current liabilities of $35.2 million; the reported working-capital deficit was approximately $27.7 million, including a $25.0 million warrant derivative liability.
- Total liabilities were $38.8 million and stockholders’ deficit was $18.3 million. The year-end balance sheet included no related-party note payable; the prior-year $0.9 million note was repaid in 2013. The filing reports no meaningful operating margins because the company had no revenue.
- Financing activities provided $29.0 million in 2013, principally through equity financings. Investing activities used $5.4 million.
Changes versus the prior comparable period
- Operating expenses declined 21% year over year, but net loss increased by $3.5 million, principally because of the warrant fair-value charge.
- Operating cash use increased by $14.9 million from 2012, to $17.6 million, as operations and development spending expanded.
- R&D expense increased by $6.4 million as spending advanced across sparsentan, RE-024 and other programs. Management said expenses were expected to rise further with planned clinical development and hiring.
- The company restated its 2013 interim financial statements after identifying omitted placement-agent warrants and misallocated expenses. It also amended its 2012 filing to add disclosures about subsequent agreements; those added 2012 disclosures did not affect the reported 2012 balance sheet or primary financial results.
Outlook, risks and unusual items
- Management expected continued losses and stated that additional financing would be needed. The auditor and management cited substantial doubt about the company’s ability to continue as a going concern. The filing also says available cash and short-term investments were insufficient to cover the anticipated operating level for at least 12 months; the January 2014 financing improved resources but did not remove the stated funding risks.
- In January 2014, the company completed a public offering that generated approximately $37.4 million in net proceeds. After year-end it also received $3.8 million from warrant exercises.
- On March 26, 2014, Retrophin acquired Manchester for $62.5 million in stated aggregate consideration, plus contingent payments based on product sales. It paid $29.5 million at closing and issued a $33 million note payable in three installments. The filing says Manchester had two marketed products and approximately $5 million in revenue with positive cash flows, but acquisition financial statements, pro forma results and purchase-price allocation were not available in this filing.
- Management’s 2014–2015 plans included clinical trials for sparsentan, RE-024, RE-034 and Syntocinon, and a Syntocinon relaunch. It estimated trial costs of approximately $12.1 million through March 2015, relaunch costs of $3.2 million, and personnel costs of $16.7 million through March 2015. These are plans and estimates, not assured outcomes.
- Key risks include clinical and regulatory failure or delay, limited patent protection for some candidates, dependence on third-party manufacturers and distributors, competition, reimbursement and pricing pressures, and the need to raise capital. The company disclosed material weaknesses in internal controls and ineffective disclosure controls as of year-end.
- Other notable items include $2.3 million in settlements related to obligations involving entities associated with the CEO; recovery from the related parties was uncertain. A $2.3 million maximum reimbursement claim was supported by promissory notes and indemnifications. The company also had approximately $1.46 million of securities sold short at year-end.
Important facts for investors to verify
- Confirm the filing entity: this is Retrophin, Inc., not Travere Therapeutics, Inc., and confirm the requested period is the full year ended December 31, 2013.
- Review the audited financial statements and notes for year-end cash, working-capital deficit, warrant derivative liability, cash burn and going-concern language.
- Check the status and funding runway after the January 2014 offering, warrant exercises, Manchester acquisition payments and subsequent financing needs.
- Verify progress, trial phase and regulatory status for each program, particularly given differing trial descriptions in sections of the filing.
- Assess the interim-period restatements and the disclosed material weaknesses in financial reporting and disclosure controls.
- Review Manchester’s post-acquisition financial performance and the final accounting for the acquisition; the filing does not provide clear pro forma or purchase-price-allocation figures.