Travere Therapeutics, Inc. (then Retrophin, Inc.) — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The filing is in the name of Retrophin, Inc.; the supplied filing text does not explain the company-name difference in the request metadata. Financial amounts below are in U.S. dollars.
Business context
Retrophin described itself as a rare-disease biopharmaceutical company, generating revenue from Chenodal, Cholbam and Thiola while developing sparsentan for FSGS and RE-024 for PKAN. It reported approximately 130 employees. Enrollment in the Phase 2 DUET study of sparsentan was complete.
Financial performance and position
- Revenue: Net product sales were $29.0 million, up $11.6 million (67%) from $17.4 million. Management attributed the increase to higher patient counts for Chenodal and Thiola and the addition of Cholbam following its 2015 acquisition.
- Profit and margins: Gross profit was approximately $28.3 million, or 97% of sales, based on sales less cost of goods sold. Operating loss was $8.2 million versus $8.1 million. Net income was $11.2 million versus $39.7 million; the prior-year result included a $48.6 million Cholbam bargain-purchase gain.
- Non-operating and tax items: Q1 2016 included a $14.3 million noncash gain from remeasurement of warrant liabilities and a $5.1 million income tax benefit. Basic EPS was $0.31; diluted EPS was a loss of $0.08, reflecting dilution accounting for warrants and the related fair-value adjustment. Prior-year basic and diluted EPS were $1.46 and $1.32, respectively.
- Costs: R&D was $14.7 million, up $4.3 million, mainly from clinical and preclinical spending. SG&A was $19.1 million, up $4.3 million; the filing cites higher staffing, Cholbam amortization and commercial marketing, partly offset by lower legal expense and a $3.0 million legal payable settlement.
- Cash flow: Operating cash use was $3.6 million, compared with $6.6 million used a year earlier. Investing activities used $9.8 million; financing activities used $0.9 million. Cash declined $14.5 million in the quarter to $23.3 million.
- Liquidity and working capital: Marketable securities were $199.1 million, giving cash and marketable securities of $222.3 million. Net working capital was $231.1 million and the reported current ratio was 4.47. Current assets also included $47.2 million of current notes receivable.
- Debt and obligations: Convertible notes had a $43.9 million carrying value and $46.0 million principal, bear 4.5% interest and mature in 2019. Total liabilities were $187.9 million. Contractual commitments were $62.9 million, including $53.1 million of note payments and interest.
Material changes versus prior comparable period
Sales increased substantially, while operating loss remained broadly unchanged as operating expenses rose alongside revenue. Net income fell sharply from the prior-year period, primarily because Q1 2015 included the Cholbam acquisition gain; the warrant fair-value change also swung from a $36.8 million loss in Q1 2015 to a $14.3 million gain in Q1 2016. Operating cash use improved, while the prior-year investing and financing cash flows were heavily affected by the Cholbam acquisition and a public stock offering, respectively.
Outlook, risks and contingencies
- 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 results and financing needs could vary, and additional equity, debt or strategic arrangements might be needed depending on performance and development costs.
- Management expected top-line DUET Phase 2 sparsentan results in Q3 2016. Accelerated approval might be possible depending on the data and acceptance of proteinuria as a surrogate endpoint; neither outcome was assured.
- Key risks include clinical-trial and regulatory uncertainty, commercial acceptance and reimbursement, generic or compounded competition for Chenodal and Thiola, and reliance on third parties for manufacturing and distribution.
- Legal matters include shareholder litigation with a proposed settlement pending final court approval; disputes and investigations related to former CEO Martin Shkreli; and claims for advancement of legal fees, including amounts claimed by Shkreli that the company disputed. No loss-contingency accrual was recorded because outcomes were not considered probable or reasonably estimable. The company said it was not a target of the U.S. Attorney’s investigation and was cooperating.
- The filing reported effective disclosure controls and no significant changes in internal control over financial reporting during the quarter. It reported no off-balance-sheet transactions.
Investor verification priorities
- Check subsequent DUET results and regulatory developments for sparsentan, and progress and funding needs for RE-024.
- Track product-level sales, patient growth, pricing and reimbursement, particularly the contribution from Cholbam and trends in Chenodal and Thiola.
- Reconcile earnings with cash generation, including the effects of warrant remeasurement, tax benefits, share-based compensation and working-capital movements.
- Review cash burn against management’s 12-month liquidity statement, contractual commitments and the 2019 convertible-note maturity.
- Follow final approval and implementation of the shareholder settlement, legal-fee advancement disputes, and other Shkreli-related proceedings.