Rigel Pharmaceuticals, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. This clinical-stage biotechnology company reported for the quarter and six months ended June 30, 2016. Its programs focus on immunology, oncology and immuno-oncology; it had no approved products or product sales. The principal in-house program, fostamatinib, was in Phase 3 trials for immune thrombocytopenic purpura (ITP) and Phase 2 trials for autoimmune hemolytic anemia (AIHA) and IgA nephropathy (IgAN).
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $8.6m | $5.2m | $13.6m | $7.4m |
| Research and development expense | $17.5m | $15.1m | $35.6m | $30.8m |
| General and administrative expense | $4.8m | $4.1m | $9.2m | $8.8m |
| Operating loss | $13.6m | $14.0m | $31.2m | $32.2m |
| Net loss | $13.5m | $13.9m | $31.0m | $32.1m |
| Net loss per share | $0.15 | $0.16 | $0.34 | $0.36 |
Amounts are in U.S. dollars. Revenue consisted of collaboration payments and research fees, not product sales; expenses exceeded revenue, so the company remained loss-making. The filing does not present a gross margin measure.
- Cash and liquidity: Cash, cash equivalents and short-term investments totaled $94.9m at June 30, 2016, down from $126.3m at December 31, 2015. Current assets were $96.9m and current liabilities $22.0m. Management estimated existing capital would fund current and projected requirements into Q3 2017, subject to assumptions and development spending.
- Cash flows, first half: Operating activities used $40.9m, versus $0.2m used in the prior-year period; investing activities provided $12.4m, primarily from net investment maturities; financing activities provided $10.0m, including $9.3m of net equity-sale proceeds. Cash and cash equivalents declined $18.5m to $24.9m.
- Debt and commitments: The balance sheet reports no borrowings or debt balance. Facilities lease commitments totaled $25.3m, before expected sublease income of $4.4m over the remaining sublease term. Research and development contracts were generally cancelable on notice and obligations primarily depended on services performed.
Changes versus the prior comparable period
- Quarterly revenue increased $3.4m and first-half revenue increased $6.3m, primarily because Rigel recognized $3.7m of BerGenBio contingent payments in Q2 2016. BMS collaboration revenue continued to include amortization of its $30.0m upfront payment.
- Quarterly R&D expense rose $2.4m and first-half R&D expense rose $4.9m, mainly due to spending on fostamatinib programs, including ITP, AIHA and IgAN. G&A expense increased $0.7m for the quarter and $0.4m for the half-year.
- Despite higher expenses, operating and net losses narrowed modestly, reflecting higher collaboration revenue. First-half operating cash use increased substantially, in part because the prior-year period included the $30.0m BMS upfront payment while 2016 did not.
- Rigel sold 3.7m shares under its controlled equity offering in the first half for $9.3m net proceeds; approximately $14.7m of registered shares remained available under that agreement at quarter-end.
Outlook, commentary, risks and unusual items
- Both FIT Phase 3 ITP trials had completed enrollment. Results from the first study were expected by the end of August 2016 and the second a few months later. An FDA NDA filing was planned for Q1 2017, conditional on positive results.
- Rigel expected R&D expense to remain relatively consistent with the previous quarter as it prepared for a potential NDA submission while winding down the ITP Phase 3 trials. It expected to report first-cohort IgAN Phase 2 results by year-end 2016 and AIHA Stage 1 results in early 2017. An IRAK-program IND filing was anticipated in the first half of 2017.
- The R348 Phase 2 study in ocular graft-versus-host disease did not meet its primary endpoint; the filing reported nominal dose-related changes but no statistically significant primary-endpoint result. R348 was reported as well tolerated.
- The $3.7m BerGenBio payment comprised a $1.7m time-based fee and a $2.0m option-related payment, both recognized as Q2 revenue. The remaining $3.8m deferred from the BMS upfront payment was expected to be recognized in Q3 2016 as the estimated research term ended in September 2016; BMS had not notified Rigel of an extension.
- Severance-related option modifications generated $0.6m of incremental stock-based compensation expense in Q2. A July 1, 2016 employee stock purchase plan reset was expected to result in approximately $1.0m of incremental compensation expense recognized through June 2028.
- Management emphasized that further funding would be needed beyond the stated runway. Financing may require equity dilution, debt with restrictive covenants, or collaborations that involve relinquishing rights. Potential partner milestone payments, estimated at more than $531.9m across agreements, depend on partner achievements and may never be received.
- Major risks include clinical-trial failure or delay, regulatory uncertainty, dependence on third-party manufacturers and collaborators, lack of product revenue, and the need for additional capital. The company reported an accumulated deficit of approximately $1.0bn. No legal proceedings were reported; disclosure controls were deemed effective.
Most important facts for investors to verify
- Whether the two FIT Phase 3 ITP trials produced positive results and supported the conditional Q1 2017 NDA plan.
- Whether cash use, clinical spending and subsequent financing altered the projected runway into Q3 2017; also monitor remaining capacity and dilution under the equity sales agreement.
- Whether the BMS research term ended as expected and the remaining deferred revenue was recognized in Q3 2016.
- Progress and results in IgAN and AIHA, and any further development decisions following the failed R348 primary endpoint.
- Whether collaboration milestones or royalties materialize; the stated contingent-payment total is potential, not committed funding.