Rigel Pharmaceuticals, Inc. — Q1 2018 Form 10-Q
Business context and period: Biotechnology company developing small-molecule therapies for immune and hematologic disorders, cancer, and rare diseases. This unaudited report covers the three months ended March 31, 2018; financial amounts below are in millions unless stated otherwise. TAVALISSE (fostamatinib) was approved by the FDA for chronic ITP in April 2018, after the quarter.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Collaboration revenue | $0 | $3.584 |
| Research and development expense | $11.242 | $12.376 |
| General and administrative expense | $13.492 | $7.410 |
| Operating loss | $24.734 | $16.202 |
| Net loss | $24.385 | $15.314 |
| Net loss per share | $0.17 | $0.13 |
| Operating cash used | $23.394 | $20.762 |
- Cash, cash equivalents, and short-term investments totaled $94.3 million at March 31, down from $115.8 million at December 31, 2017. Cash and cash equivalents alone were $40.1 million.
- Current assets were $96.6 million and current liabilities $18.8 million. Stockholders’ equity was $79.8 million. The filing reports no debt balance.
- Cash flow from investing activities was positive $23.2 million, primarily reflecting net maturities of short-term investments; financing activities provided $2.0 million, principally from option exercises. Cash increased $1.8 million during the quarter.
- The company reported no operating margin because it had no collaboration revenue and incurred an operating loss. No positive profit or product-sales margin was reported.
- In April 2018, after quarter-end, Rigel sold 16 million shares at $3.90 per share and received approximately $58.4 million net proceeds.
Material changes and operating developments
- G&A expense increased $6.1 million year over year, largely due to $5.0 million of TAVALISSE commercial-launch preparation costs. Rigel expected G&A to rise further during 2018 as it built its commercial team.
- R&D expense decreased $1.1 million, primarily from lower clinical-trial and NDA-submission costs, partly offset by higher personnel costs. Management expected quarterly R&D expense to remain relatively consistent in 2018.
- Q1 2017 collaboration revenue included a $3.3 million BerGenBio milestone payment; there was no collaboration revenue in Q1 2018.
- Rigel adopted the new revenue-recognition standard on January 1, 2018 and recorded no opening accumulated-deficit adjustment.
- Management recorded a $3.0 million contingent liability for a third-party consulting agreement after concluding certain milestone events were probable; $1.5 million was expensed in Q1 2018.
Outlook, commentary, and risks
- Rigel expected to launch TAVALISSE in the U.S. in late May 2018 and planned to commercialize it directly in the U.S., while seeking partners for Europe, Asia, and other markets. The company said it expected significant 2018 operating expenses from launch activity.
- Management believed available resources, including the subsequent April offering, would support current and projected requirements for at least 12 months from the filing date. It cautioned that estimates rely on assumptions and that substantial additional funding will be needed over time; future financing could dilute shareholders or impose restrictions.
- The Phase 2 IgA nephropathy study did not meet its primary endpoint. An initial prespecified subgroup analysis suggested a greater proteinuria reduction among patients with higher baseline proteinuria, but the finding was not statistically significant; further analyses were expected later in 2018.
- In the open-label Phase 2 AIHA study, 9 of 17 evaluable patients had met response criteria as of February 2018; enrollment in Stage 2 had begun. These are preliminary, open-label results.
- Key risks include successful TAVALISSE launch and market acceptance, pricing and reimbursement, competition, regulatory and post-approval requirements, clinical-development uncertainty, reliance on third-party manufacturers and distribution, and the need for additional capital. The filing also identifies a $47.2 million facilities lease commitment through the stated payment periods, partly offset by expected sublease income of approximately $21.2 million through January 2023.
- Disclosure controls were assessed as effective. A new accounting system was implemented in March 2018, with related control-process modifications; the company said these changes were not made in response to identified control deficiencies.
Important facts for investors to verify
- Whether TAVALISSE launch timing, uptake, pricing, reimbursement, and commercial spending matched management’s expectations; the 10-Q contains no post-launch sales data.
- Cash burn and financing runway after incorporating the April offering and ongoing commercialization and R&D spending.
- Further IgAN analyses and progress and safety results from the AIHA Stage 2 study.
- Whether contingent consulting milestones become payable and how the recorded $3.0 million liability is settled.
- The extent of future dilution or other financing needs, and the timing and likelihood of contingent collaboration payments; the stated potential payments are milestone-dependent, not committed revenue.