Rigel Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Rigel is a biotechnology company developing small-molecule therapies for immune and hematologic disorders, cancer, and rare diseases. The FDA approved its first commercial product, TAVALISSE (fostamatinib), for certain adults with chronic immune thrombocytopenia (ITP) in April 2018; U.S. sales began in May. The company is also developing fostamatinib for autoimmune hemolytic anemia (AIHA) and has an early-stage IRAK inhibitor program, alongside partnered programs.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $4.9 | $0.9 | $6.7 | $4.5 |
| Net product sales | $4.9 | — | $6.7 | — |
| Research and development | $11.1 | $10.8 | $33.1 | $34.7 |
| Selling, general and administrative | $18.1 | $7.9 | $48.6 | $23.2 |
| Operating loss | $(24.4) | $(17.9) | $(75.2) | $(53.4) |
| Net loss | $(23.8) | $(17.7) | $(73.7) | $(52.1) |
| Basic and diluted loss per share | $(0.14) | $(0.14) | $(0.47) | $(0.43) |
At September 30, 2018, cash, cash equivalents, and short-term investments totaled $115.6 million, compared with $115.8 million at year-end 2017. Current assets were $121.0 million and current liabilities $19.7 million. Stockholders’ equity was $103.5 million; the balance sheet reports no debt. Nine-month operating cash use was $70.5 million, investing activities provided $22.9 million, and financing activities provided $70.8 million, including $67.2 million net proceeds from an equity offering. Cash and cash equivalents ended the period at $61.5 million.
Reported product-sales cost was only $0.1 million for the first nine months. Rigel explains that some product manufacturing costs were expensed as R&D before FDA approval, so current cost of sales does not reflect the full expected manufacturing cost; margins are therefore not representative of future periods. No operating margin guidance was provided.
Material changes versus the prior period
- Product revenue began following the TAVALISSE launch; collaboration revenue was zero in 2018 versus $4.5 million in the first nine months of 2017.
- Nine-month SG&A more than doubled, primarily reflecting TAVALISSE commercialization costs, customer-facing and medical-affairs personnel, and higher stock-based compensation. Q3 SG&A rose $10.1 million year over year.
- Nine-month R&D declined $1.6 million, mainly due to completion of ITP pivotal trials and the related NDA submission, partly offset by personnel and AIHA/IRAK program costs.
- Operating cash use increased by $12.6 million year over year. Equity financing supported cash resources, while the accumulated deficit reached $1.21 billion.
Outlook, commentary, and risks
- Management said existing capital resources were expected to fund current and projected needs, including the U.S. TAVALISSE launch, for at least 12 months from the filing date. This estimate is subject to uncertainty; Rigel expects to need significant additional funding over time and warns that further equity financing could dilute shareholders.
- Management expected Q4 2018 R&D expense to increase as it prepared for the pivotal AIHA trial and completed the IRAK Phase 1 study; Q4 SG&A was expected to remain relatively consistent with Q3.
- In October 2018, after the quarter end, Rigel announced a Kissei agreement covering fostamatinib in Japan, China, Taiwan, and South Korea: a $33 million upfront payment, up to $147 million in potential milestones, and tiered product-supply payments based on net sales. These amounts are not all guaranteed or necessarily immediate. Rigel retained rights outside those territories and planned to seek a European commercialization partner.
- The EMA validated the European marketing application in October 2018; management anticipated a CHMP decision by Q4 2019. The pivotal AIHA Phase 3 study was expected to begin enrollment in the first half of 2019. The IgAN program was postponed after its Phase 2 trial missed the primary endpoint; BMS also discontinued its preclinical collaboration in July 2018.
- Rigel reported that TAVALISSE demand was growing and payer approval rates were 85–90%, but emphasized risks from launch execution, market acceptance, competition, reimbursement and pricing, product safety, reliance on third-party manufacturing and distribution, clinical-trial outcomes, and future financing needs. Future collaboration milestones exceeding $222.9 million are contingent on partner achievements and are not assured.
- The company reported no legal proceedings in the filing’s legal-proceedings item, no off-balance-sheet arrangements, and effective disclosure controls. It implemented a new accounting system in March 2018.
Important facts for investors to verify
- Subsequent receipt and timing of the Kissei $33 million upfront payment, and the agreement’s milestone and supply economics.
- Quarterly TAVALISSE sales, net-to-gross deductions, payer access, and whether demand translates into sustained revenue.
- Actual manufacturing costs as pre-approval inventory is depleted and the resulting effect on product margins.
- Enrollment, timing, and results for the planned AIHA Phase 3 trial and the IRAK Phase 1 program, as well as the status of a European partner.
- Cash runway relative to operating cash use, commercialization spending, and any additional financing or dilution.