Business context and reporting period
This is Retrophin, Inc.’s Form 10-Q for the quarter ended September 30, 2017, filed November 7, 2017. The request metadata identifies Travere Therapeutics, Inc.; the filing itself names Retrophin, Inc. Retrophin was a rare-disease biopharmaceutical company with marketed products Chenodal, Cholbam and Thiola, and development programs including fosmetpantotenate (RE-024), sparsentan and liquid ursodeoxycholic acid (L-UDCA).
Financial performance
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2017 | Q3 2016 | First 9 months 2017 | First 9 months 2016 |
|---|---|---|---|---|
| Net product sales | $40.3 | $33.9 | $112.8 | $96.3 |
| Operating loss | $(10.6) | $(20.4) | $(38.6) | $(40.0) |
| Net loss | $(17.8) | $(37.1) | $(42.1) | $(39.3) |
| Net loss per share, diluted | $(0.46) | $(1.00) | $(1.10) | $(1.07) |
| Cash provided by operating activities | Not presented quarterly | $8.3 | $5.1 |
Gross margin was approximately 97.7% in Q3 and 97.8% for the first nine months, based on net sales less cost of goods sold. Research and development expense was $19.6 million in Q3 and $58.6 million year to date; selling, general and administrative expense was $24.9 million and $74.7 million, respectively.
At September 30, cash and cash equivalents were $99.0 million and marketable securities were $204.9 million. Working capital was $241.4 million, with a current ratio of 3.88. Convertible debt had a $44.9 million carrying value; the notes have $46.0 million principal, bear 4.5% interest and mature in 2019. The filing estimates their fair value at $71.7 million. Total liabilities were $216.0 million.
Material changes versus the prior comparable period
- Sales increased 18.8% in Q3 and 17.1% for the first nine months, which management attributed to higher patient counts for Chenodal, Cholbam and Thiola.
- Q3 operating loss narrowed by $9.8 million, while year-to-date operating loss narrowed by $1.4 million. Year-to-date net loss increased by $2.8 million, notwithstanding improved operating loss, reflecting a larger loss from warrant fair-value changes and other items.
- Operating cash flow rose $3.2 million year over year for the first nine months. Investing activities provided $45.7 million, compared with $20.1 million used in the prior-year period; the change primarily reflected retaining more cash in operating accounts rather than investing it in marketable securities.
- Cash and cash equivalents increased $58.0 million from year-end 2016, while marketable securities declined $10.0 million. The $46.8 million note receivable outstanding at year-end was collected in June 2017.
Outlook, risks and unusual items
- Management said available cash and short-term investments were expected to fund anticipated operations for at least the next 12 months. It also cautioned that funding needs depend on product revenue, clinical and regulatory costs, and other factors.
- Management anticipated initiating sparsentan’s pivotal Phase 3 FSGS trial in 2018. After the quarter, the FDA requested additional quantitative analyses to support the trial design’s eligibility for the Subpart H accelerated-approval pathway. The filing notes accelerated approval is not assured.
- The first patient in the RE-024 FORT Phase 3 PKAN study was dosed in July 2017. In September, Retrophin entered a research agreement with NIH’s NCATS and NGLY1.org to explore potential NGLY1 deficiency therapies.
- Non-cash charges included $8.9 million of year-to-date losses from changes in warrant fair value and $11.1 million of contingent-consideration revaluation expense. Contingent consideration totaled $92.9 million at quarter-end.
- Restructuring costs were $2.6 million year to date for consolidating operations in San Diego. The company estimated up to $4.0 million of total employee-related separation and transition cash charges, with approximately $1.4 million of additional expense expected in 2017.
- Legal matters included former CEO Martin Shkreli’s conviction in August 2017 and potential further legal-fee advancement and insurance-reimbursement uncertainty. The company reported $3.3 million reimbursed by D&O insurers to date, with certain coverage rights reserved.
- Key risks include clinical-trial failure or delay, regulatory and reimbursement uncertainty, dependence on sole-source manufacturers and a third-party distributor, generic competition for Chenodal and Thiola, intellectual-property limitations, and the possibility of needing additional financing.
Important facts for investors to verify
- Confirm the entity and ticker corresponding to this filing: the document is filed under Retrophin, Inc., despite the request metadata naming Travere Therapeutics, Inc.
- Track marketed-product patient counts, sales growth and payer access to assess whether commercial growth can support development spending.
- Review FDA feedback, protocol readiness and timing for sparsentan Phase 3, including whether accelerated-approval eligibility is supported.
- Monitor RE-024 trial progress and clinical outcomes, as well as development costs for L-UDCA and other programs.
- Assess cash use, operating cash flow, contingent-consideration payments and the company’s capacity to meet obligations through the 2019 convertible-note maturity.
- Follow legal-fee advancement, insurance recoveries and potential reimbursement obligations related to the Shkreli matters.