Rigel Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter ended June 30, 2019; filed August 6, 2019. Financial statements are unaudited. Dollar figures below are in millions unless stated otherwise.
Business context
Rigel is a biotechnology company developing therapies for immune, hematologic, cancer and rare diseases. Its only FDA-approved product, TAVALISSE (fostamatinib), launched in the U.S. in May 2018 for certain adults with chronic ITP. The company is also advancing fostamatinib in warm AIHA and developing other programs, while partners pursue licensed programs.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $10.4 | $1.8 | $23.0 | $1.8 |
| Net product sales | $10.2 | $1.8 | $18.2 | $1.8 |
| Research and development | $13.2 | $10.8 | $24.2 | $22.0 |
| Selling, general and administrative | $18.2 | $17.1 | $38.2 | $30.6 |
| Operating loss | $(21.3) | $(26.1) | $(39.7) | $(50.8) |
| Net loss | $(20.6) | $(25.6) | $(38.2) | $(49.9) |
| Basic and diluted loss per share | $(0.12) | $(0.16) | $(0.23) | $(0.32) |
- Q2 product sales rose 26% from Q1 2019, to $10.2 million. Management attributed growth to continued uptake, broader prescriber use and patient continuation of therapy.
- Reported cost of product sales was $0.3 million in Q2. Rigel cautioned that some product costs had been expensed as R&D before approval, so current product costs and implied gross margin are not representative of future fully manufactured product costs.
- At June 30, cash and cash equivalents were $44.2 million and short-term investments were $68.1 million, totaling $112.4 million, versus $128.5 million at year-end 2018. Current assets were $124.5 million and current liabilities $28.4 million.
- Six-month operating cash use was $17.2 million, compared with $50.4 million in 2018. Investing activities used $15.7 million; financing activities provided $0.9 million. The 2018 financing comparison included $67.2 million of net public-offering proceeds.
- No borrowings or conventional debt balance are reported. Lease liabilities totaled $30.1 million at June 30; these relate to operating leases. Stockholders’ equity was $78.3 million.
Material changes versus prior period
- Revenue growth reflects the ongoing TAVALISSE launch and collaboration revenue, including $4.8 million recognized in the first half of 2019; there was no collaboration revenue in the comparable 2018 period.
- Six-month R&D expense increased $2.1 million, principally because of the Phase 3 warm AIHA study, partly offset by winding down earlier studies. SG&A increased $7.6 million, mainly from commercial-team personnel and launch costs.
- Operating and net losses narrowed year over year, alongside higher product and collaboration revenue. Cash and investments declined by $16.2 million from December 31, 2018.
- Adoption of the new lease standard on January 1, 2019 added a $32.8 million right-of-use asset and $33.2 million lease liability at adoption, with no cumulative adjustment to accumulated deficit.
Outlook, risks and unusual items
- Management stated that existing capital resources should fund current and projected requirements for at least 12 months from the filing date. It also expects significant additional funding to be needed over the longer term and notes that financing may not be available on acceptable terms.
- Rigel expected R&D expense to increase in the remainder of 2019 as the warm AIHA Phase 3 trial ramps up, and SG&A to increase with continued TAVALISSE commercialization.
- Management anticipated an EMA decision on fostamatinib for chronic ITP by Q4 2019, potentially enabling initial European launches in 2020. The warm AIHA Phase 3 study was enrolling, with topline results expected in mid-2021. These are forward-looking expectations, not assurances.
- Grifols paid a $30 million upfront fee for European and Turkish rights; up to $297.5 million in milestones and tiered royalties are contingent. If EMA approval for ITP has not occurred by the specified 2021 period, Grifols may terminate the agreement and Rigel would have to repay $25 million. Kissei’s agreement also includes contingent milestones and product-supply payments.
- Deferred revenue was $27.8 million at June 30, principally related to remaining obligations under the Grifols and Kissei agreements; it is not equivalent to future cash receipts.
- Customer concentration is notable: two U.S. specialty distributors accounted for 88% of Q2 revenue. Key risks include TAVALISSE market uptake, competition, reimbursement and pricing, clinical and regulatory outcomes, dependence on partners and third-party manufacturing, and potential need for additional capital.
- The company reported no legal proceedings in Part II, Item 1. Separately, a BerGenBio arbitration decision addressed a revenue-share interpretation; management said it did not expect a material adverse effect, but could not assure the impact.
- Disclosure controls and procedures were assessed as effective; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether TAVALISSE sales growth, patient persistence and market access continue, and how distributor concentration evolves.
- Whether the expected EMA review timing and warm AIHA trial milestones are achieved, and what outcomes imply for contingent collaboration payments.
- Whether operating cash use, commercial and clinical spending, and the stated 12-month liquidity runway remain consistent with management’s assumptions.
- The future fully loaded cost of TAVALISSE manufacturing, since reported product cost and implied margin were temporarily affected by pre-approval costs.
- Potential dilution: 25.1 million options and purchase-plan shares were excluded from diluted loss per share as antidilutive; 167.6 million common shares were outstanding at June 30.