Rigel Pharmaceuticals, Inc. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Financial statement amounts below are in millions of dollars unless stated otherwise. Rigel is a clinical-stage drug developer with no marketed products; collaboration payments and equity financing have funded its operations.
Financial performance and liquidity
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Collaboration revenue | $4.4 | $72.3 | $4.8 | $125.0 |
| Research and development expense | $17.3 | $16.4 | $49.5 | $50.6 |
| General and administrative expense | $5.1 | $5.5 | $15.7 | $19.4 |
| Net income (loss) | $(17.9) | $50.4 | $(60.2) | $55.1 |
| Basic net income (loss) per share | $(0.25) | $0.97 | $(0.99) | $1.06 |
- At September 30, cash, cash equivalents and available-for-sale securities totaled $265.7 million, versus $177.3 million at December 31, 2010. Current assets were $268.6 million; current liabilities were $8.4 million; stockholders’ equity was $258.0 million.
- For the nine months, operating cash used was $50.7 million, investing cash used was $80.7 million, and financing cash provided was $141.2 million. Financing included approximately $140.5 million net proceeds from a June public offering of 18.745 million shares at $8.00 per share.
- Capital lease obligations were approximately $0.135 million, including interest, due through January 2012. Facilities lease commitments totaled $92.6 million. No material off-balance-sheet arrangements were reported.
- No operating margin was reported; the company recorded operating losses of $18.0 million for Q3 and $60.5 million for the nine-month period in 2011.
Changes versus prior comparable periods
- Revenue fell sharply because the 2010 periods included recognition of AstraZeneca’s $100 million upfront payment and a $25 million payment tied to the fostamatinib program. 2011 collaboration revenue instead primarily reflected a $4.3 million payment from terminated collaborator Merck Serono and BerGenBio license revenue. Further Merck Serono revenue is not expected.
- Rigel moved from reported profit in 2010 to losses in 2011, reflecting the absence of the large AstraZeneca revenue recognition. The 2010 profit was not indicative of recurring product sales.
- Nine-month R&D expense decreased modestly, while Q3 R&D rose 5.6%, mainly due to asthma and topical JAK3 program spending. Nine-month G&A declined, principally because of lower stock-based compensation and the absence of certain 2010 investment-banking fees.
- The share offering increased common shares outstanding to 71.2 million at September 30, 2011, from 52.3 million at year-end 2010.
Outlook, commentary and risks
- Management said existing capital and anticipated collaboration proceeds should fund current and projected requirements for at least 12 months. It cautioned that this estimate depends on assumptions and that significant additional funding will be needed over time; future financing could dilute shareholders or require restrictive terms or licensing concessions.
- AstraZeneca is funding and conducting fostamatinib’s Phase 3 OSKIRA rheumatoid arthritis program. It expected initial data in the second half of 2012 and remained on track for planned U.S. and European NDA filings in 2013. Rigel is eligible for up to $320 million in development, regulatory and launch milestones, up to $800 million in sales milestones, and stepped double-digit royalties; these payments depend on future events and are not assured.
- Pfizer returned R343 asthma rights in May 2011. Rigel expects to begin a Phase 2 asthma trial in mid-2012. Management expected to begin clinical studies for oral and topical JAK3 programs by the end of 2011, select a PKC-theta candidate for preclinical development in 2011, and target clinic entry in 2013 for muscle endurance and muscle-wasting programs.
- Clinical and regulatory success is uncertain. Fostamatinib’s prior Phase 2b TASKi2 trial showed improvement in patients inadequately responding to methotrexate, but TASKi3 in patients inadequately responding to biologics failed its efficacy endpoints. Diarrhea and hypertension were notable adverse events; later trials may reveal additional or more frequent risks.
- A securities class action concerning alleged statements about fostamatinib Phase 2a results had been dismissed, but the plaintiff appealed. Rigel said it could not estimate potential costs or damages and had recorded no reserve; an adverse outcome could materially affect results and cash flows.
- Rigel highlighted dependence on collaborators, uncertain future funding, clinical-trial delays or failures, regulatory and manufacturing risks, competition, intellectual-property challenges and financial-market risks. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent AstraZeneca trial progress, safety and efficacy data, and whether stated data and regulatory filing timelines are met.
- Actual cash burn and runway as Rigel advances internally funded programs; management’s 12-month liquidity estimate is not a guarantee.
- Any new collaboration, milestone or royalty receipts, given the steep decline in revenue after the one-time AstraZeneca payments.
- R343 and JAK3 trial starts, costs and results, and whether development plans change.
- Status and potential financial exposure of the securities-litigation appeal, for which no reserve was recorded.