Rigel Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited financial statements; amounts below are in U.S. dollars unless noted. Rigel is a biotechnology company whose first approved product, TAVALISSE (fostamatinib), launched in the U.S. in May 2018 for chronic immune thrombocytopenia (ITP).
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $12.624 million | None |
| Net product sales | $8.054 million | None |
| Collaboration revenue | $4.570 million | None |
| Research and development expense | $10.949 million | $11.242 million |
| Selling, general and administrative expense | $19.946 million | $13.492 million |
| Operating loss | $18.378 million | $24.734 million |
| Net loss | $17.598 million | $24.385 million |
| Basic and diluted net loss per share | $0.11 | $0.17 |
| Net cash used in operating activities | $0.569 million | $23.394 million |
- TAVALISSE gross sales were $9.916 million, reduced by $1.862 million in discounts and allowances. Reported cost of product sales was only $107,000; this is not a representative ongoing product margin because some manufacturing costs were expensed as R&D before FDA approval.
- Collaboration revenue primarily reflected recognition of $4.4 million of Grifols’ upfront payment upon delivery of license rights, plus research and regulatory services. The full $30 million Grifols payment was received, but most was not recognized as revenue in the quarter.
- Cash, cash equivalents and short-term investments totaled $127.923 million at March 31, 2019, versus $128.537 million at December 31, 2018. Cash and cash equivalents alone were $74.696 million. Management said existing resources were expected to fund current and projected requirements for at least 12 months from the filing date, while cautioning that estimates depend on assumptions.
- Current assets were $139.319 million and current liabilities $26.138 million. No borrowing debt is reported; operating lease liabilities were $31.705 million, including current and long-term portions. The company reported $27.913 million of deferred revenue.
- Operating cash use was substantially lower than the prior-year quarter, primarily reflecting the $30 million Grifols upfront payment and other working-capital movements. Cash and cash equivalents decreased by $1.626 million in the quarter.
Material changes versus the prior comparable period
- Revenue began to be reported following the U.S. TAVALISSE launch and collaboration agreements; Q1 2018 had no product or collaboration revenue.
- Net loss narrowed by $6.787 million, although SG&A increased $6.454 million, principally due to commercial and medical-affairs personnel and commercialization costs. R&D declined $0.293 million as NDA-related work and certain studies wound down, partly offset by AIHA Phase 3 preparation and preclinical costs.
- TAVALISSE sales increased approximately $759,000, or 10%, from Q4 2018, according to management.
- Adoption of the new lease standard on January 1, 2019 added a $32.8 million right-of-use asset and $33.2 million lease liability at adoption; there was no opening accumulated-deficit adjustment.
Outlook, management commentary and key risks
- Management said U.S. commercialization of TAVALISSE would continue and expected 2019 SG&A to rise with a full year of launch activity. R&D expense was also expected to increase as the pivotal AIHA Phase 3 program ramps up.
- Rigel planned to begin enrollment in its approximately 80-patient pivotal warm AIHA trial in the first half of 2019. It expected completion of the R835 IRAK inhibitor Phase 1 study in mid-2019 and an EMA decision on fostamatinib for ITP in the fourth quarter of 2019. These are forward-looking expectations, not guarantees.
- Grifols received European and Turkish rights under a January 2019 agreement, with a $30 million upfront payment, potential milestones of up to $297.5 million and tiered royalties that may reach 30%. If EMA approval for ITP has not occurred by the specified 2021 trigger, Grifols may terminate within the contractual window; in that circumstance Rigel would repay $25 million.
- Rigel’s key risks include uncertain TAVALISSE adoption, reimbursement and competition; clinical-trial and regulatory uncertainty; reliance on third-party manufacturers and distributors; dependence on collaboration milestones and partner execution; and the possibility of needing additional capital. The company reported a $1.2 billion accumulated deficit and expected operating losses to continue at least over the next 12 months.
- Potentially material unusual items include the Grifols upfront payment and related deferred revenue, product-sales allowances, and the unusually low reported product cost due to previously expensed manufacturing costs. The filing reported no legal proceedings in the Legal Proceedings section. Separately, an arbitration with BerGenBio concluded in February 2019; the panel ruled Rigel would not receive a share of proceeds in a specified sale of BerGenBio shares without monetary benefit to BerGenBio. Rigel said it did not expect a material adverse effect, but could not assure the impact.
- Disclosure controls were reported effective, and no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether TAVALISSE prescription growth translates into durable net sales after rebates, discounts, returns and other allowances.
- Progress and results of the AIHA Phase 3 study, the EMA review timeline, and milestones or revenue recognition under the Grifols and Kissei agreements.
- Cash runway under rising commercialization and clinical-trial spending, including the assumptions behind management’s at-least-12-month estimate.
- Future product cost and gross margin as pre-approval inventory is depleted and newly manufactured product is sold.
- Potential Grifols termination and $25 million repayment exposure, along with other collaboration, manufacturing, reimbursement and regulatory risks.