Travere Therapeutics, Inc. (filed as Retrophin, Inc.) — Q2 2016 Form 10-Q
Entity and period: The supplied filing is Retrophin, Inc.’s quarterly report for the three and six months ended June 30, 2016, filed August 4, 2016. It is not filed under the Travere Therapeutics name. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and reporting period
Retrophin was a rare-disease biopharmaceutical company with three marketed products—Chenodal, Cholbam and Thiola—and clinical and preclinical programs including sparsentan, RE-024, L-UDCA, RE-034 and NGLY1. The company reported approximately 130 employees. The comparative periods are Q2 and the first six months of 2016 versus the corresponding 2015 periods.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net product sales | $33.3 | $24.1 | $62.3 | $41.4 |
| Gross profit / gross margin | $32.3 / 96.9% | $23.4 / 97.4% | $60.5 / 97.1% | $40.5 / 97.8% |
| Operating expenses | $44.7 | $31.0 | $81.9 | $56.5 |
| Operating loss / operating margin | $(11.4) / (34.2%) | $(6.9) / (28.8%) | $(19.6) / (31.5%) | $(15.0) / (36.3%) |
| Net income (loss) | $(13.4) | $(25.5) | $(2.2) | $14.1 |
| Basic EPS | $(0.37) | $(0.73) | $(0.06) | $0.45 |
- Cash flow: First-half operating cash flow was $0.4 million, investing cash outflow $14.0 million and financing cash outflow $2.8 million. Cash declined $16.7 million to $21.2 million. Investing activity included $8.6 million net purchases of marketable securities.
- Liquidity: Cash and marketable securities totaled $221.5 million at June 30, 2016. Working capital was $220.1 million and the reported current ratio was 3.75.
- Debt and obligations: Convertible notes had a $44.1 million carrying value, against $46.0 million principal, and bear 4.5% interest with maturity in 2019. Acquisition-related contingent consideration was $86.4 million; warrant liabilities were $33.4 million.
- Balance sheet: Total assets were $534.0 million, total liabilities $219.6 million, and stockholders’ equity $314.4 million. Accumulated deficit was $67.3 million.
Material changes versus the prior comparable period
- Q2 sales rose $9.2 million, or 38%, year over year; first-half sales rose $20.9 million, or 50%. Management attributed growth to higher Chenodal and Thiola patient counts and Cholbam sales following its 2015 acquisition.
- First-half R&D expense increased $11.4 million, primarily from sparsentan, RE-024 and preclinical work. SG&A increased $7.8 million, reflecting personnel, commercial support and amortization, partly offset by a $3.0 million legal payable settlement.
- Contingent-consideration remeasurement charges increased operating expenses by $5.5 million in the first half, versus $0.1 million in 2015.
- First-half 2016 net loss contrasts with 2015 net income, which included a $49.1 million Cholbam bargain-purchase gain and a $15.5 million litigation settlement gain. Results also include sizable noncash warrant fair-value movements: a $5.3 million gain in the first half of 2016 versus a $66.2 million loss in 2015.
Outlook, commentary, risks and unusual items
- Management stated that cash and short-term investments were expected to fund anticipated operations for at least 12 months; it also warned that future funding needs depend on product revenue, development costs, approvals and potential acquisitions. No specific revenue or earnings guidance was provided.
- Sparsentan DUET Phase 2 enrollment was complete, with top-line results anticipated in Q3 2016. Management said sufficiently robust results might support seeking accelerated approval using proteinuria as a surrogate endpoint; approval and regulator acceptance were uncertain.
- The company intended to file an NDA for L-UDCA in 2017. It acquired the product rights in June 2016 for $25.5 million, consisting of $0.5 million cash and $25.0 million present-value contingent consideration.
- After quarter-end, Retrophin received a $47.5 million Sanofi note payment on July 1, 2016. It also signed a July 2016 lease for new San Diego headquarters, with a seven-year-seven-month term and stated annual base rent of approximately $1.1 million plus escalations.
- A disputed obligation for former CEO Martin Shkreli’s legal-fee advancement was linked to an IRS levy of approximately $4.0 million for his personal taxes. The company believed some loss was probable but could not estimate it and recorded no accrual at June 30. Other litigation included a shareholder class action settlement paid by the insurer; the company was cooperating with criminal and SEC investigations and said it was not a target of the U.S. Attorney’s investigation.
- Key risks include clinical-trial and regulatory uncertainty, reimbursement and market acceptance, generic or compounded competition for Chenodal and Thiola, reliance on sole-source manufacturers and a third-party distributor, intellectual-property limitations, and possible need for additional financing. A hypothetical 1% adverse interest-rate move could reduce marketable securities’ value by approximately $2.0 million if sold.
Important facts for investors to verify
- Confirm the filing issuer and name: this is a Retrophin, Inc. 10-Q, despite the Travere Therapeutics metadata.
- Review subsequent sparsentan trial results and regulatory developments against the Q3 2016 readout expectation.
- Track marketed-product sales, patient counts, reimbursement, and the effect of Cholbam acquisition-related costs and contingent payments.
- Assess operating cash generation against development spending and the company’s stated 12-month liquidity outlook; distinguish cash from marketable securities and scheduled note receivables.
- Monitor resolution and potential amount of the Shkreli legal-fee/IRS levy matter, for which no loss amount was accrued, and changes in contingent consideration and warrant liabilities.