Rigel Pharmaceuticals, Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results. Rigel is a clinical-stage biotechnology company focused on immunology, oncology and immuno-oncology; it had no approved products or product sales reported.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Collaboration revenue | $20.4 million | $28.9 million |
| Research and development expense | $63.4 million | $62.8 million |
| General and administrative expense | $20.9 million | $17.8 million |
| Restructuring charges | $5.8 million | None |
| Operating loss | $69.7 million | $51.7 million |
| Net loss | $69.2 million | $51.5 million |
| Basic and diluted loss per share | $0.73 | $0.58 |
| Cash, cash equivalents and short-term investments at year-end | $74.8 million | $126.3 million |
| Working capital at year-end | $53.6 million | $95.2 million |
| Net cash used in operating activities | $75.9 million | $23.4 million |
Collaboration revenue was primarily BMS revenue recognition and milestone payments, plus a $3.7 million BerGenBio payment. FY 2016 revenue fell about 29% year over year, while net loss increased about 35%. Operating costs exceeded collaboration revenue; conventional product gross margins are not applicable. The filing reports no borrowings or off-balance-sheet arrangements.
Fourth-quarter 2016 revenue was $3.0 million and net loss was $15.6 million, compared with $8.5 million revenue and $12.7 million net loss in Q4 2015. The 2016 quarter included a $3.0 million BMS milestone payment.
Operating cash outflow was funded in part by $25.2 million of financing cash inflows, mainly equity issuance. Rigel sold 7.9 million shares under its controlled equity offering during 2016, generating $23.6 million net proceeds. In February 2017, it sold 23 million shares at $2.00 per share and reported approximately $43.0 million net proceeds. Management stated that available resources were expected to fund current and projected needs, including preparation for a potential U.S. launch, through at least the next 12 months; this estimate depends on assumptions and development progress.
Business developments and changes
- Fostamatinib for chronic immune thrombocytopenia (ITP): one Phase 3 trial met its primary endpoint, with an 18% stable-response rate versus 0% for placebo; the second also had an 18% treatment response but did not meet its endpoint because 4% of placebo patients responded. The combined studies showed a statistically significant difference. Rigel planned an NDA submission in Q1 2017, expected an FDA decision in Q1 2018, and projected a possible U.S. launch in the first half of 2018.
- Fostamatinib Phase 2 programs continued in autoimmune hemolytic anemia (AIHA) and IgA nephropathy (IgAN). Stage 1 AIHA results were expected in 2017. Initial IgAN cohort data suggested a trend toward greater proteinuria reduction versus placebo; further analysis and a higher-dose cohort were ongoing.
- Rigel discontinued the R348 ocular graft-versus-host disease program after it failed its Phase 2 primary endpoint. It also planned to select an IRAK preclinical candidate in 2017.
- In September 2016, Rigel reduced its workforce by 46 positions, mostly in research, a 38% reduction; it recorded $5.8 million in restructuring charges. Headcount was 77 at year-end.
- Two oncology programs were being developed with partners: BerGenBio’s was in Phase 2 and Daiichi’s in Phase 1. Potential contingent payments under existing collaborations could exceed $531.9 million if specified events occur; these are partner-dependent and not assured.
Outlook, risks and unusual items
- Management expected R&D expense to decline in 2017 following the workforce reduction and completion of ITP pivotal trials, while G&A expense was expected to rise with preparation for a potential commercial launch.
- Rigel had accumulated losses of approximately $1.1 billion and expected continued operating losses. It anticipated needing additional capital; future financing could dilute shareholders or impose restrictive terms.
- ITP approval was uncertain: one pivotal trial missed its primary endpoint, and the FDA could reject the NDA or require additional costly trials. Clinical, regulatory, manufacturing, reimbursement and market-acceptance risks also apply to its pipeline.
- Collaboration revenue is variable and concentrated: BMS accounted for 82% and BerGenBio 18% of 2016 revenue. Future milestones and royalties are uncertain, and Rigel reported no royalties from commercial drug sales to date.
- Other notable items included the $5.8 million 2016 restructuring charge and a $9.3 million sublease loss recognized in 2014. The filing stated that adoption of the new revenue standard could materially affect financial statements, particularly the timing of contingent revenue recognition.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Subsequent FDA actions and the actual status and outcome of the fostamatinib ITP NDA, including how the agency assessed the Phase 3 results.
- Current cash, operating cash burn and runway after the February 2017 offering, alongside commercialization and clinical-trial spending.
- Progress and results from the AIHA and IgAN trials, and whether the IgAN proteinuria trend is supported by completed analyses.
- Changes in partner programs, milestone eligibility and revenue concentration, and whether any contingent payments or royalties have actually been earned.
- Potential dilution from equity sales and outstanding options; the filing reported 20.3 million options outstanding at December 31, 2016.