Travere Therapeutics, Inc. (then Retrophin, Inc.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing registrant was Retrophin, Inc., now known as Travere Therapeutics, Inc. Financial statements are unaudited and compare Q1 2018 with Q1 2017.
Business context
The company commercialized Chenodal, Cholbam and Thiola and was developing therapies for rare diseases, including fosmetpantotenate for PKAN, sparsentan for FSGS and IgA nephropathy (IgAN), CNSA-001 for PKU, and liquid ursodeoxycholic acid (L-UDCA) for PBC.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Net product sales | $38.4 million | $33.6 million; up $4.8 million (14.3%) |
| Cost of goods sold | $1.6 million | $0.7 million |
| Gross margin | 95.8% | 97.9% |
| Research and development | $24.6 million | $20.9 million |
| Selling, general and administrative | $26.5 million | $23.1 million |
| Operating loss | $17.9 million | $14.4 million |
| Net loss | $18.4 million; $0.46 per share | $11.1 million; $0.29 basic loss per share |
| Cash used in operating activities | $14.7 million | $3.4 million |
Bile acid product sales were $18.5 million, up $2.8 million; Thiola sales were $19.9 million, up $2.0 million. Management attributed growth to increased patient counts. Operating expenses rose $8.3 million, including higher clinical-trial R&D spending and corporate-support G&A. The operating margin was approximately (46.6%), compared with (42.9%) a year earlier.
At March 31, cash and cash equivalents were $61.1 million and marketable securities were $202.9 million, together totaling $264.1 million. Net working capital was $230.3 million and the current ratio was 5.07. Total assets were $500.8 million; total liabilities were $201.3 million. The company reported $45.2 million carrying value of convertible notes, bearing 4.5% interest and due May 2019; their estimated fair value was $63.4 million. The notes had $46.0 million aggregate principal outstanding.
Cash declined $38.3 million during the quarter. Investing activities used $20.9 million, including $10.0 million for an equity investment and $8.2 million for intangible assets. Financing activities used $2.7 million. Management stated that available cash and short-term investments were expected to fund anticipated operations for at least the next 12 months.
Material changes and notable items
- The company adopted ASC 606 retrospectively on January 1, 2018; it reported no effect on revenue timing or recognition.
- It adopted ASU 2017-11 for warrants, reclassifying a $15.7 million warrant derivative liability to equity. The prior-year period included a $1.3 million noncash gain from warrant remeasurement; there was no corresponding Q1 2018 income-statement gain or loss.
- Contingent consideration revaluation expense was $3.6 million, versus $3.3 million in Q1 2017. Acquisition-related contingent consideration stood at $91.5 million at quarter-end.
- Operating cash use increased by $11.3 million year over year, which management attributed primarily to Censa development funding and changes in operating liabilities.
Outlook, management commentary and risks
- In April 2018, the company announced initiation of the Phase 3 DUPLEX study of sparsentan for FSGS. It expected to initiate a Phase 3 IgAN study in Q4 2018. The filing cautioned that trial outcomes, accelerated approval, timelines and regulatory acceptance were uncertain.
- The Phase 3 FORT study of fosmetpantotenate for PKAN was enrolling. A Phase 2 proof-of-concept study of CNSA-001 for PKU was expected to begin in mid-2018.
- Under its Censa option and development agreement, the company expected to fund approximately $17 million through proof of concept. It had paid $10 million upfront and $5 million in development funding and accrued a further $5 million milestone. If exercised, the acquisition would involve $65 million upfront consideration, generally 20% cash and 80% stock, plus up to $25 million in milestone payments.
- Key risks include clinical-trial failure or delay, regulatory and reimbursement uncertainty, generic or compounded competition for Chenodal and Thiola, dependence on sole-source manufacturers and a third-party distributor, and the possibility of future financing needs. The company remained loss-making and expected operating results to vary.
- Legal matters included former CEO Martin Shkreli’s appeal and related advancement and insurance-reimbursement issues. The ultimate insurance reimbursement was not estimable; $2.6 million of prior insurance reimbursements was recorded as a liability pending the appeal. Management said other pending litigation was not expected to have a material adverse effect.
- Disclosure controls were deemed effective; management reported no significant changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether product-sales growth and patient counts continue, and how pricing, reimbursement and competition affect those sales.
- Clinical enrollment, timelines and results for FORT, DUPLEX, the planned IgAN study and CNSA-001 proof of concept, including the regulatory basis for any accelerated approval.
- Quarterly operating cash burn, the assumptions behind management’s 12-month liquidity assessment, and funding needs as development spending progresses.
- Censa development costs, milestone accruals and option-exercise terms, including potential cash, stock and contingent payments.
- The 2019 convertible-note maturity and potential dilution upon conversion, along with contingent consideration and Shkreli-related insurance and indemnification exposures.