Rigel Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited. Rigel is a biotechnology company whose only FDA-approved product was TAVALISSE (fostamatinib), launched in the U.S. in May 2018 for adults with chronic ITP after insufficient response to prior treatment.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $20.9m | $4.9m | $43.9m | $6.7m |
| Net product sales | $11.7m | $4.9m | $29.9m | $6.7m |
| Collaboration revenue | $9.1m | — | $13.9m | — |
| Research and development | $14.5m | $11.1m | $38.6m | $33.1m |
| Selling, general and administrative | $18.1m | $18.1m | $56.3m | $48.6m |
| Loss from operations | $(12.0)m | $(24.4)m | $(51.8)m | $(75.2)m |
| Net loss | $(11.5)m | $(23.8)m | $(49.7)m | $(73.7)m |
| Basic and diluted loss per share | $(0.07) | $(0.14) | $(0.30) | $(0.47) |
- Cash and cash equivalents were $39.1m and short-term investments $68.4m at September 30, 2019, totaling $107.5m, versus $128.5m at December 31, 2018. Current assets were $126.0m and current liabilities $31.0m.
- Operating cash outflow was $31.9m for the first nine months, compared with $70.5m in 2018. Investing activities used $16.0m; financing provided $10.7m, including the initial MidCap loan tranche.
- At quarter end, the loan’s carrying amount was $9.8m against $10.0m initial principal. The facility offers up to $60.0m in four tranches; $50.0m remained available, with $40.0m subject to customary conditions. Interest is one-month LIBOR plus 5.65%, subject to a 1.50% floor. Interest-only payments initially run for 24 months, followed by 36 months of amortization; final maturity is no later than September 2024.
- The filing does not present a headline gross-margin measure. Product-sales cost was $0.3m in Q3 and $0.7m for nine months, but management cautioned that costs exclude some active pharmaceutical ingredient manufactured and expensed before FDA approval; future product costs are expected to rise as that inventory is replaced.
Material changes and business developments
- Net product sales grew 141% year over year in Q3 and 350% for the nine-month period, reflecting the ongoing TAVALISSE launch; reported sales volume increased 109% and 309%, respectively. Management also reported Q3 net sales were up about 15% sequentially from Q2.
- Collaboration revenue was new in 2019. It included license and milestone revenue, notably $4.0m from Aclaris and $3.8m from Celgene/Impact Biomedicines, as well as revenue recognized under the Grifols and Kissei arrangements. Grifols and Kissei upfront payments included amounts deferred pending performance obligations.
- Operating loss narrowed year over year as revenue grew, while R&D rose with the Phase 3 warm AIHA and Phase 1 RIP1 programs. Nine-month SG&A increased, mainly reflecting commercialization costs and stock compensation; Q3 SG&A was nearly flat year over year.
- Rigel entered a $60.0m MidCap term-loan facility in September and drew $10.0m at closing. In October, after the reporting date, it received a $5.0m upfront payment from Medison for Canada and Israel rights.
Outlook, commentary and risks
- Management said available capital was expected to fund current and projected needs, including U.S. TAVALISSE commercialization, for at least 12 months from the filing date. This is an estimate based on assumptions; Rigel also stated it expects to need significant additional funding over the longer term.
- Management expected R&D expense to increase during the remainder of 2019 as the warm AIHA Phase 3 and RIP1 programs ramped up, and SG&A to increase with continued commercialization and program expansion. No quantified revenue or earnings guidance was provided.
- The warm AIHA Phase 3 study was enrolling approximately 80 patients; topline results were expected in mid-2021. The filing notes clinical-development timing and outcomes are uncertain.
- In October 2019, the EMA committee adopted a positive trend vote on the TAVALISSE application for chronic ITP. A final committee recommendation and European Commission decision were still pending; a decision could enable initial European launches in early 2020. Approval would trigger a $20.0m Grifols payment. If approval had not occurred by the specified 2021 timeframe, Grifols could terminate the agreement, requiring a $25.0m repayment and return of rights to Rigel.
- Key risks include reliance on successful U.S. commercialization of TAVALISSE, reimbursement and pricing uncertainty, competition, clinical and regulatory setbacks, dependence on partners and third-party manufacturing, and the need for future financing. Two wholesale distributors accounted for 50% of Q3 revenue in aggregate. Additional loan draws depend on facility conditions; covenants include revenue and cash requirements for later tranches. Rigel reported no covenant violation at quarter end.
- Rigel reported no legal proceedings under Part II, Item 1. The filing discusses potential litigation and other contingencies as risks; it does not provide a clear value for any related potential loss reserve.
Important facts for investors to verify
- Whether the EMA process resulted in a final positive recommendation and European Commission approval, and whether the associated $20.0m Grifols payment was received.
- Subsequent TAVALISSE sales, patient persistence, reimbursement and pricing trends, and the impact of distributor concentration on reported sales.
- Cash consumption and the assumptions supporting management’s stated 12-month funding runway, including the timing and availability of additional MidCap tranches.
- Enrollment progress and eventual results of the warm AIHA Phase 3 study, expected in mid-2021, and costs of the expanding pipeline.
- Grifols’ ongoing performance obligations and the potential $25.0m repayment/termination exposure if the specified European approval condition is not met.