Travere Therapeutics, Inc. (then Retrophin, Inc.) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The filing was signed May 11, 2020. The company described itself as a rare-disease biopharmaceutical business with marketed products and clinical-stage programs. Unless stated otherwise, amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Net product sales | $47.8 million | $39.6 million |
| Cost of goods sold | $1.4 million | $1.0 million |
| Gross profit / approximate gross margin | $46.4 million / 97.1% | $38.6 million / 97.4% |
| Research and development expense | $30.2 million | $33.4 million |
| Selling, general and administrative expense | $33.1 million | $32.7 million |
| Operating loss | $15.1 million | $38.2 million |
| Net income (loss) | $0.8 million | $(41.0) million |
| Operating cash used | $29.2 million | $20.5 million |
Sales increased $8.2 million, with bile-acid products contributing $22.3 million and tiopronin products $25.5 million. Management attributed growth to increased patient counts and normal variation in new patient starts and refills. Approximate gross margin is calculated from reported sales less cost of goods sold.
Q1 2020 net income included a $19.0 million income tax benefit tied primarily to CARES Act net operating loss carryback provisions; it should not be read as evidence of operating profitability. Operating expenses were lower year over year, including because Q1 2019 included L-UDCA write-off activity and higher R&D spending. A $1.9 million reduction in contingent-consideration expense also benefited Q1 2020; the comparable quarter recorded a $3.2 million expense.
Cash, liquidity and debt
- At March 31, 2020, cash and cash equivalents were $67.0 million and available-for-sale securities were $289.4 million, together about $356.5 million. The company reported working capital of $338.5 million and a current ratio of 5.97.
- Total assets were $573.1 million; total liabilities were $347.3 million; stockholders’ equity was $225.7 million.
- The 2025 convertible notes had $276.0 million principal outstanding and a $207.4 million net carrying amount. They bear 2.5% stated interest, mature September 15, 2025, and had an estimated fair value of $195.6 million. The filing reports $4.9 million of total interest expense for the quarter.
- Operating cash use was $29.2 million. Investing activities provided $39.6 million, mainly reflecting marketable-security maturities net of purchases; financing activities used $5.8 million, including acquisition-related contingent-consideration payments. Cash and cash equivalents increased $4.6 million during the quarter.
- Management believed available cash and short-term investments would fund anticipated operations for at least the next 12 months. It also noted that future needs depend on product revenue, clinical-trial costs and progress, manufacturing, debt service, and other factors.
Programs, outlook and material risks
- Sparsentan was in Phase 3 trials for FSGS and IgA nephropathy. The company expected FSGS interim top-line data in Q1 2021 and IgAN primary-endpoint top-line data in the first half of 2022, with timing potentially affected by COVID-19. It increased the PROTECT study’s confirmatory sample size from 280 to 380 while keeping the primary-endpoint sample at 280.
- The Phase 3 RESTORE trial of Chenodal for cerebrotendinous xanthomatosis began enrolling in January 2020. Chenodal was not then labeled for CTX.
- COVID-19 had not materially affected Q1 financial position or results, but the company reported reduced clinical-trial enrollment and warned of possible further delays, workforce and operational disruption, supply-chain interruption, patient-access or reimbursement pressure, and constrained financing access. It did not anticipate a material near-term reduction in demand for marketed products, but said the ultimate impact was uncertain.
- Other significant risks included clinical-trial failure or delay, regulatory uncertainty around accelerated approval based on proteinuria endpoints, generic competition for commercial products, dependence on third-party manufacturers and distributors, reimbursement and pricing pressure, and the company’s ability to finance development and meet debt obligations.
- The filing disclosed an FTC civil investigative demand concerning marketing, sale, distribution and pricing of products; it stated that no FTC claim or proceeding had been initiated at that time. In a separate Thiola sample-access lawsuit, Spring filed a voluntary dismissal without prejudice on April 22, 2020, after quarter-end; no amount had been accrued.
- The company had a $100 million at-the-market equity offering program but had sold no shares under it through March 31, 2020. It reported no off-balance-sheet arrangements and concluded its disclosure controls were effective.
Most important facts for investors to verify
- How much of reported net income depends on the one-time $19.0 million CARES Act tax benefit, and whether the related refund is received as expected.
- Whether marketed-product sales growth continues and how COVID-19, patient access, reimbursement and generic competition affect revenues and cash generation.
- Whether COVID-related enrollment disruptions change sparsentan trial timelines, and whether the trials meet endpoints and support regulatory approval.
- Cash burn, available liquid resources and the company’s ability to fund operations while servicing or settling the $276.0 million principal amount of convertible notes.
- Developments in the FTC inquiry and other legal or regulatory matters, as well as any use of the $100 million ATM program.