Rigel Pharmaceuticals, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; the filing also reports fourth-quarter results. Rigel is a clinical-stage drug developer with no marketed products. Its principal programs target inflammatory and autoimmune diseases and muscle disorders.
Financial results and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Collaboration revenue | $4.75 million | $125.0 million |
| Research and development expense | $69.35 million | $64.39 million |
| General and administrative expense | $21.77 million | $25.29 million |
| Operating income (loss) | $(86.37) million | $35.32 million |
| Net income (loss) | $(85.97) million | $37.89 million |
| Basic and diluted EPS | $(1.36) | $0.73 basic; $0.72 diluted |
| Operating cash flow | $(69.38) million | $46.74 million |
FY 2011 revenue comprised a $4.25 million final Merck Serono payment and a $0.5 million BerGenBio licensing payment. The 2010 profit and revenue were largely driven by AstraZeneca’s $100 million upfront payment and $25 million payment tied to the fostamatinib program; 2011’s loss therefore reflects a return to substantial operating burn, not a comparable recurring revenue base. Rigel reported no deferred revenue at year-end.
Fourth-quarter 2011 revenue was zero, net loss was $25.79 million, and loss per share was $0.36. In fourth-quarter 2010, revenue was also zero, net loss was $17.24 million, and loss per share was $0.33.
At year-end, cash, cash equivalents and available-for-sale securities totaled $247.64 million, up from $177.30 million; working capital was $238.71 million and total assets were $257.11 million. The June 2011 share offering generated approximately $140.5 million net proceeds from 18.745 million shares. Management said existing resources were expected to fund current and projected requirements for at least 12 months, while noting estimates depend on uncertain development costs. Operating cash use was $69.38 million. The reported $62.85 million investing cash outflow primarily reflects net purchases of marketable securities, rather than solely operating investment. Rigel had no capital-lease obligations at year-end; facilities lease commitments totaled $89.40 million. No off-balance-sheet arrangements were reported.
Gross margin is not meaningful for this development-stage business; the filing reports no product sales. No cash dividends were paid or planned. The independent auditor issued an unqualified opinion on the financial statements and internal controls.
Material changes and business developments
- Research and development expense rose about 8% year over year, mainly due to asthma and oral/topical JAK-program costs, partly offset by transfer of fostamatinib extension-study responsibilities to AstraZeneca. Management expected R&D spending to increase as trials advanced.
- General and administrative expense fell about 14%, primarily due to lower stock-based compensation.
- Rigel raised net proceeds of approximately $140.5 million in a June 2011 equity offering; shares outstanding increased to 71.38 million at year-end from 52.27 million.
- Pfizer returned R343 rights in 2011 and the collaboration ended; Rigel assumed development. R548 and R333 entered Phase 1 trials in the fourth quarter.
Outlook, programs and principal risks
- Fostamatinib: AstraZeneca reported Phase 3 rheumatoid arthritis studies continuing as planned; OSKIRA-1 completed enrollment in Q4 2011. AstraZeneca expected to submit U.S. and European applications in the second half of 2013. AstraZeneca funds and controls future development and commercialization. Potential additional milestones and royalties are contingent, not assured revenue.
- R343: Rigel expected to begin a Phase 2 allergic-asthma trial in summer 2012, planned for approximately 300 patients. R548 was in Phase 1 for transplant rejection and other immune disorders; R333 was in Phase 1 for discoid lupus, with Phase 2 starts anticipated in summer 2012. These were forward-looking plans, not completed milestones.
- Management expected operating losses for at least the next two years. Future funding may require equity, debt or licensing/collaboration deals; additional financing could dilute shareholders or restrict operations.
- Clinical failure, adverse effects, delays, regulatory uncertainty, manufacturing dependence, partner decisions, competition, reimbursement constraints and intellectual-property challenges are material risks. Prior fostamatinib Phase 2b results were mixed: TASKi2 showed improvement in methotrexate-inadequate responders, while TASKi3 failed its efficacy endpoints in patients who had failed biologics. Diarrhea and hypertension, including blood-pressure medication adjustments, were notable safety concerns.
- A securities class action dismissed in the district court was on appeal; the Ninth Circuit heard oral argument in February 2012. Rigel said it could not estimate potential costs or damages and had recorded no reserve.
Key facts for investors to verify
- Progress, safety and efficacy results from AstraZeneca’s Phase 3 fostamatinib studies, and whether the projected 2013 filing timing remained achievable.
- Actual timing, enrollment, costs and results for planned R343, R548 and R333 trials.
- Cash burn and runway against the $247.64 million year-end liquidity balance, including operating-lease commitments and future financing needs.
- Whether contingent collaboration milestones, royalties or new licensing proceeds materialize; none should be treated as certain recurring revenue.
- Developments and any potential exposure in the securities-litigation appeal, and dilution from equity awards or future capital raises.