Rigel Pharmaceuticals, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited quarterly results, including Q4 2018. Amounts below are in U.S. dollars.
Business context
Rigel is a biotechnology company that discovers and develops small-molecule medicines. In 2018, it moved into commercial operations with TAVALISSE (fostamatinib), its first FDA-approved product, for adults with chronic immune thrombocytopenia (ITP) who had an insufficient response to prior treatment. The U.S. launch began May 29, 2018. Its principal company-funded clinical programs included fostamatinib for warm autoimmune hemolytic anemia (AIHA) and R835, an IRAK inhibitor. The company also had partnered development programs.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Net product sales | $13.9 million | None |
| Collaboration revenue | $30.6 million | $4.5 million |
| Total revenue | $44.5 million | $4.5 million |
| Research and development expense | $46.9 million | $46.3 million |
| Selling, general and administrative expense | $70.0 million | $37.8 million |
| Operating loss | $72.7 million | $79.6 million |
| Net loss | $70.5 million | $78.0 million |
| Net loss per share, basic and diluted | $0.44 | $0.62 |
| Cash, cash equivalents and short-term investments at year-end | $128.5 million | $115.8 million |
| Working capital at year-end | $109.3 million | $99.1 million |
Q4 revenue was $37.9 million and net income was $3.2 million, compared with a Q4 2017 net loss of $25.9 million. The filing attributes much of the 2018 collaboration revenue to recognition of $30.6 million of Kissei’s $33.0 million upfront payment after delivery of the license; the remaining $2.4 million was deferred for unsatisfied supply-related obligations. TAVALISSE sales grew approximately 50% in Q4 versus Q3.
Reported 2018 gross profit on product sales was approximately $13.7 million ($13.9 million net sales less $0.3 million cost of product sales). This is not a mature product margin: much of the product’s manufacturing cost was expensed as R&D before FDA approval and was therefore excluded from cost of sales in 2018. Rigel reported no debt in the balance sheet presented; total assets were $139.1 million and stockholders’ equity was $109.9 million at year-end.
Operating cash use was $58.8 million, compared with $77.6 million in 2017. Investing activities provided $25.0 million, mainly from net maturities of short-term investments; financing activities provided $71.9 million, including $67.2 million net proceeds from a public offering. Cash and cash equivalents increased by $38.0 million. The company reported no off-balance-sheet arrangements.
Material changes versus prior periods
- Revenue rose by $40.0 million year over year, reflecting the first TAVALISSE sales and Kissei license revenue. Collaboration revenue had been $4.5 million in 2017, primarily from BerGenBio-related payments.
- SG&A increased by $32.2 million, principally due to TAVALISSE launch costs and expanded commercial and medical-affairs personnel. R&D was broadly stable year over year, as increased AIHA, preclinical and IRAK spending offset lower ITP-trial costs.
- Net loss narrowed by $7.5 million, but the company remained substantially loss-making. Accumulated deficit reached $1.21 billion.
- Cash and investments increased by $12.8 million year over year, supported by the equity offering and collaboration cash receipts, despite continuing operating cash use. Shares outstanding increased to 167.2 million from 146.8 million.
Outlook, risks and unusual items
- Management outlook: Rigel said existing capital resources were expected to support current and projected funding needs for at least 12 months from the filing date, while noting that estimates depend on assumptions and that additional funding will be needed over time. It expected R&D expense to rise in 2019 with the planned AIHA Phase 3 trial, and SG&A to rise with a full year of commercialization.
- Fostamatinib partnerships: Kissei paid $33.0 million upfront for rights in Japan, China, Taiwan and South Korea, with up to $147 million in potential milestones and tiered supply payments. A January 2019 Grifols agreement covered Europe and Turkey and included $30.0 million upfront, up to $297.5 million in potential milestones, and tiered royalties that may reach 30%. If EMA approval for ITP is not obtained by the specified post-agreement deadline, Grifols may terminate and Rigel may have to repay $25.0 million.
- Pipeline: Rigel planned to initiate a pivotal warm AIHA Phase 3 study in the first half of 2019. R835 entered Phase 1 in 2018, with completion expected in 2019. The Phase 2 IgAN trial missed its primary endpoint; Rigel stopped further internal U.S. development. The EMA had validated the fostamatinib ITP marketing application, with a decision anticipated by Q4 2019.
- Commercial and financial risks: TAVALISSE was newly launched and the company had limited commercial experience. Adoption, reimbursement, pricing, competition, safety, distribution and manufacturing capacity could affect sales. Management warned of ongoing operating losses and possible future equity financing and dilution.
- Partner and legal matters: BMS discontinued its TGF-beta collaboration in 2018. A BerGenBio arbitration determination issued February 27, 2019 held that Rigel would not share in proceeds from a shareholder sale that gives BerGenBio no monetary benefit; Rigel said it was reviewing the determination and did not expect a material adverse effect.
- Other: The company relied on third-party manufacturers, including a single manufacturer for fostamatinib, and had a $40.5 million gross facilities lease commitment through 2023, partly offset by expected sublease receipts of about $18.2 million. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of future revenue comes from recurring TAVALISSE sales versus upfront license payments and contingent milestones.
- Quarterly TAVALISSE net sales, patient continuation, payer access, gross-to-net deductions and the fully loaded manufacturing cost as older inventory is sold.
- Cash burn and runway against the planned AIHA Phase 3 study and full-year commercial spending.
- EMA review timing and the Grifols termination and potential repayment provisions; Kissei’s development progress and future milestones.
- Clinical and regulatory progress for AIHA and R835, and any effect of the IgAN trial outcome on partner interest or future development.
- Potential share dilution from future financing and the effect of the BerGenBio arbitration determination on contingent economics.