Travere Therapeutics, Inc. quarterly report, Q2 FY2019

Business context and reporting period

Retrophin, Inc. (the company identified in this filing; the request metadata names Travere Therapeutics) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. Retrophin was a rare-disease biopharmaceutical company with three marketed products—Chenodal, Cholbam and Thiola—and development programs including fosmetpantotenate and sparsentan.

Financial performance and liquidity

Product sales grew about 8% year over year in both the quarter and first half. Approximate gross margin, calculated from reported product sales less cost of goods sold, was 97.8% in Q2 2019 versus 97.1% in Q2 2018, and 97.6% for the first half versus 96.5%. Losses widened as research and development and selling, general and administrative costs increased; the filing does not present a separately labeled operating or net margin.

At June 30, 2019, cash and cash equivalents were $75.7 million and marketable securities were $350.2 million, totaling $425.9 million. Current assets were $457.0 million and current liabilities $90.6 million; reported working capital was $366.4 million and the current ratio was 5.05. Total liabilities were $370.5 million. The 2025 convertible notes had $276.0 million principal outstanding and a $199.9 million net carrying value; the remaining $22.6 million 2019 notes converted into approximately 1.3 million shares in May.

Material changes and unusual items

• First-half R&D expense rose $12.3 million to $71.4 million, primarily with three ongoing Phase 3 trials. SG&A rose $20.1 million to $71.6 million, driven by compensation for a larger workforce and increased legal expenses.
• First-half results included a $25.5 million noncash impairment of the L-UDCA in-process R&D asset and an $18.0 million reversal of related contingent consideration, producing a net $7.5 million noncash charge. The Q2 income statement had no L-UDCA impairment or write-off.
• Interest expense increased to $9.7 million for the first half, principally reflecting the 2025 notes and accounting amortization of their discount and issuance costs.
• In August 2019, after quarter-end, Retrophin declined to acquire Censa and ended CNSA-001 development; it expected to impair its $15 million investment in Q3.

Outlook, management commentary and risks

• Management said available cash and short-term investments were expected to fund anticipated operations for at least the next 12 months. Funding needs remain dependent on product revenue, clinical and commercial costs, debt service and other factors.
• Management expected fosmetpantotenate Phase 3 FORT Study top-line data in Q3 2019; sparsentan DUPLEX interim data in FSGS in the first half of 2021; and PROTECT primary-endpoint data in IgAN in the first half of 2022. These were expectations, not guarantees.
• The FDA approved 100 mg and 300 mg enteric-coated THIOLA EC tablets in June; the filing said the formulation became available in July 2019.
• Key risks include clinical-trial failure or delay, uncertainty over regulatory acceptance of proteinuria endpoints and accelerated approval, generic competition and reimbursement pressure, reliance on sole-source manufacturers and a third-party distributor, and the company’s continuing operating losses.
• Spring Pharmaceuticals’ Thiola antitrust/unfair-competition case remained pending, with discovery focused on standing; no amount was accrued and the outcome was undetermined. The company also disclosed a July 2019 FTC civil investigative demand concerning product marketing, sales, distribution and pricing; the FTC had not initiated a claim or proceeding. Retrophin and Martin Shkreli settled their disputes in June for an undisclosed cash payment and mutual releases; his securities-fraud conviction was affirmed in July.
• The company reported effective disclosure controls and no significant change in internal control over financial reporting during the quarter.

Important facts for investors to verify

1. Whether FORT results met expectations and what subsequent regulatory or clinical developments followed.
2. Enrollment, execution, endpoint results and regulatory feedback for the DUPLEX and PROTECT Phase 3 trials.
3. Actual cash burn and liquidity runway against management’s stated 12-month expectation, including the effect of the expected $15 million Censa impairment.
4. Sales trends and the commercial impact of THIOLA EC, generic competition, and any resolution of the Spring litigation or FTC inquiry.
5. The cash, dilution and repayment implications of the $276 million principal amount of 2025 convertible notes and their conversion terms.