Rigel Pharmaceuticals, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Rigel is a clinical-stage small-molecule drug developer focused on inflammatory and autoimmune diseases and muscle disorders; it had no commercialized products.
Financial performance and position
Amounts below are in millions of dollars unless noted.
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Collaboration revenue | $0.395 | $49.457 | $0.395 | $52.718 |
| Research and development expense | $17.109 | $16.815 | $32.215 | $34.240 |
| General and administrative expense | $4.843 | $5.664 | $10.597 | $13.850 |
| Operating income (loss) | $(21.557) | $26.978 | $(42.417) | $4.628 |
| Net income (loss) | $(21.474) | $27.029 | $(42.255) | $4.696 |
| Basic and diluted EPS | $(0.37) | $0.52 / $0.51 | $(0.76) | $0.09 |
- Cash, cash equivalents and available-for-sale securities: $279.1 at June 30, 2011, versus $177.3 at December 31, 2010. Current assets were $282.6; current liabilities were $7.8.
- Cash flows, six months: operating cash use of $37.9; investing cash use of $69.2; financing cash provided of $141.2; cash increased $34.1 to $43.0. Investing outflows mainly reflected purchases of securities, not solely operating investment.
- Debt and commitments: capital lease obligations were approximately $0.3, due within one year; no material off-balance-sheet arrangements were reported. Facilities lease commitments totaled $95.8, including $13.0 due within one year.
- Margins: the filing does not present gross margin; revenue is collaboration-based and the company reported an operating loss in Q2 and the first half of 2011.
Material changes and unusual items
- Revenue fell sharply versus 2010 because the $100.0 AstraZeneca upfront payment was fully recognized during 2010. Q2 and first-half 2011 revenue of $0.395 came from the BerGenBio oncology license; $0.105 remained deferred at quarter-end.
- June’s public offering of 18.745 million shares at $8.00 generated approximately $140.5 million net proceeds. Common shares outstanding rose from 52.3 million at year-end 2010 to 71.2 million at June 30, 2011.
- R&D expense increased year over year in Q2, primarily with increased oral JAK3 program costs and stock compensation, but declined for the six-month period, partly because Rigel completed transfer of the fostamatinib extension study to AstraZeneca. G&A also declined, including due to lower stock compensation and the absence of certain 2010 investment-banking fees.
- Net loss for the first half followed first-half 2010 income, which included substantial AstraZeneca upfront-payment revenue. Rigel’s accumulated deficit was $617.7 million.
Outlook, management commentary and risks
- Management believed available capital and anticipated collaboration proceeds would fund current and projected needs for at least 12 months, while cautioning that assumptions could prove wrong. Rigel expected ongoing substantial funding needs and possible future equity, debt, collaboration or licensing financing.
- AstraZeneca funds and controls future development of fostamatinib. Its Phase 3 rheumatoid arthritis program was reported as progressing; AstraZeneca expected initial data in the second half of 2012 and planned U.S. and European filing dates in 2013. These are partner expectations, not guaranteed outcomes.
- Pfizer returned R343 rights in May 2011. Rigel assumed development and expected to start a Phase 2 asthma trial in the first half of 2012. Management expected R&D expense to rise as JAK3 trials and R343 toxicology work advanced.
- Rigel expected to begin clinical studies for oral and topical JAK3 programs in 2011; it projected potential clinical entry for AMPK and myostatin programs in late 2012 or 2013. These timelines are forward-looking and subject to development, regulatory and funding risks.
- Fostamatinib’s earlier TASKi2 trial showed improvement in methotrexate-inadequate responders, but TASKi3 failed its efficacy endpoints in patients who had failed biologic treatment. Diarrhea and hypertension were notable adverse events; later trials may show different efficacy or safety.
- A securities class action previously dismissed by the district court was on appeal. Rigel said it could not estimate potential costs or damages and had established no reserve. An adverse outcome could materially affect financial results, cash flows or position.
- Other key risks include clinical or regulatory failure and delays, reliance on partners and third-party manufacturers, uncertain future collaboration payments and royalties, potential financing dilution, intellectual-property disputes, competition and stock-price volatility. Rigel had not generated product-sale or royalty revenue.
Investor verification priorities
- Confirm the timing and results of AstraZeneca’s fostamatinib trials and the stated 2012 data and 2013 filing expectations.
- Track R343’s Phase 2 start, toxicology progress and costs, along with JAK3 program trial starts and spending.
- Assess cash burn against the $279.1 million liquid-asset balance and management’s at-least-12-month funding estimate; consider lease commitments and potential financing dilution.
- Review the securities-litigation appeal, potential exposure and any future reserve or settlement developments.
- Monitor whether collaboration milestones or royalties materialize; substantial potential payments described in the filing depend on future events and are not assured.