Business context and reporting period
Retrophin, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2017. It describes a rare-disease biopharmaceutical business with three marketed products—Chenodal, Cholbam and Thiola—and development programs including sparsentan, fosmetpantotenate (RE-024) and liquid ursodeoxycholic acid (L-UDCA). The request identifies Travere Therapeutics, Inc.; the filing itself names Retrophin, Inc., so confirm the intended issuer before relying on this summary.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Net product sales | $33.6 | $29.0; up $4.6, or about 16% |
| Cost of goods sold | $0.7 | $0.8 |
| Gross margin | About 97.9% | About 97.4% |
| Research and development | $20.9 | $14.7 |
| Selling, general and administrative | $23.1 | $19.1 |
| Operating loss | $(14.4) | $(8.2) |
| Net income (loss) | $(11.1) | $11.2 |
| Basic earnings (loss) per share | $(0.29) | $0.31 |
| Cash used in operating activities | $2.8 | $3.6 |
Operating margin was approximately (42.9%), versus (28.4%) in the prior-year quarter. The 2016 net income included a $14.3 million noncash gain from the change in fair value of warrant liabilities; the comparable 2017 gain was $1.3 million. Contingent-consideration revaluation added $3.3 million to operating expenses in Q1 2017.
At March 31, 2017, cash and cash equivalents were $41.9 million and marketable securities were $206.3 million, totaling $248.2 million. Current assets were $322.4 million, current liabilities $76.6 million, and working capital $245.8 million. The company also reported a $47.2 million current note receivable. Convertible notes had a $44.6 million carrying value, bear 4.5% interest and mature in 2019; the filing estimates their fair value at $62.3 million. Total assets were $510.4 million and stockholders’ equity $300.9 million.
Cash increased by $0.9 million during the quarter to $41.9 million. Investing activities provided $4.1 million, principally reflecting marketable-security maturities, while financing activities used $0.4 million. Management said available cash and short-term investments were expected to fund anticipated operations for at least 12 months.
Material changes versus the prior comparable period
- Sales grew on increased patient counts for Chenodal, Cholbam and Thiola.
- R&D expense rose $6.2 million, primarily from increased late-stage sparsentan and RE-024 development activity ($5.2 million), Thiola reformulation ($0.6 million) and compensation ($0.4 million).
- SG&A expense increased $4.0 million. The filing attributes the comparison partly to a $3.0 million settlement of accounts payable with former outside counsel in Q1 2016, and partly to $1.0 million of increased sales and marketing in Q1 2017.
- The operating loss widened despite higher revenue. Net results also shifted from income to loss, in part because the prior-year quarter benefited from a much larger noncash warrant fair-value gain.
- Under early-adopted income-tax guidance, the company reversed a $4.9 million prepaid tax asset as a charge to opening accumulated deficit. It also recorded $0.3 million of tax expense related to stock-compensation shortfalls, net of valuation allowance released.
Outlook, commentary, risks and unusual items
- Management expected to finalize the sparsentan Phase 3 protocol and align with the FDA in the second half of 2017, then initiate the trial. A proteinuria interim analysis might support an accelerated-approval application if results are sufficiently strong; the filing cautions that approval is not assured.
- The company expected to begin dosing patients in the RE-024 Phase 3 trial in mid-2017. The FDA had agreed to a Special Protocol Assessment, which the filing states does not guarantee approval.
- Management cited potential variability in operating results and future funding needs, dependent on product revenue, clinical-development costs, regulatory timing and other factors. Although it stated current resources should cover at least 12 months, additional financing could be needed depending on results and plans.
- Key business risks include clinical-trial failure or delay, regulatory and reimbursement uncertainty, competition and generic entry, reliance on third-party manufacturers and distribution, and the possibility that products or candidates fail to achieve market acceptance.
- The company reported $89.1 million of acquisition-related contingent consideration and $21.2 million of warrant derivative liabilities, both measured using significant unobservable inputs. Changes in estimates can affect reported earnings.
- Legal matters involving former CEO Martin Shkreli include advancement of legal fees. The company reported a $1.0 million payment under the settlement in Q1 2017 and a further $2.0 million advance in April 2017; 35% of that latter advance is refundable if settlement occurs before trial begins. Insurance reimbursement beyond approximately $0.7 million received was not estimable.
- A hypothetical 1% adverse interest-rate move would reduce the value of available-for-sale securities by approximately $1.6 million if sold. The filing reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the issuer identity: the supplied request names Travere Therapeutics, while this filing is for Retrophin, Inc.
- Track product-level sales, patient counts and payer access, and assess whether sales growth can offset rising development and commercial expenses.
- Monitor Phase 3 progress, protocol and FDA alignment for sparsentan, and trial initiation and enrollment for RE-024.
- Review liquidity and cash burn against management’s 12-month funding statement, including the timing of the $47.2 million note receivable and 2019 convertible-note obligations.
- Assess the effect of contingent-consideration and warrant fair-value estimates on reported results, and follow legal-fee advances and potential insurance recoveries.