Business context and reporting period
The supplied filing is Retrophin, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 1, 2017; it is not filed under the name Travere Therapeutics, Inc. Retrophin was a rare-disease biopharmaceutical company with three marketed products—Chenodal, Cholbam and Thiola—and clinical-stage candidates sparsentan and fosmetpantotenate (RE-024). The filing also describes the 2016 acquisition of rights to liquid ursodeoxycholic acid (L-UDCA).
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Net product sales | $133.6 million | $99.9 million |
| Operating expenses | $191.8 million | $150.6 million |
| Operating loss | $58.2 million | $50.7 million |
| Net income (loss) | $(47.9) million | $117.2 million |
| Net cash used in operating activities | $1.6 million | $0.6 million |
| Cash, cash equivalents and marketable securities | $255.9 million | $229.6 million |
| Working capital | $249.1 million | $215.0 million |
| Long-term debt carrying value | $44.4 million | $43.8 million |
Sales increased 33.7%, primarily reflecting a full year of Cholbam sales and higher patient counts across products. Approximate gross profit was $129.0 million and gross margin was 96.6%, compared with $97.7 million and 97.8% in 2015, based on reported net sales less cost of goods sold. R&D rose to $70.9 million from $50.4 million, chiefly as sparsentan and RE-024 development advanced; SG&A increased to $92.8 million from $79.5 million.
The $46.0 million principal amount of 4.5% senior convertible notes is due in 2019 unless converted or repurchased; the notes’ carrying value was $44.4 million at year-end. The company reported $3.99 of working capital per dollar of current liabilities. It had no dividends and reported no off-balance-sheet arrangements other than operating leases.
Material changes and unusual items
- FY 2016’s net loss contrasts with FY 2015 net income, which included a $140.0 million gain on sale of the pediatric priority review voucher, a $49.1 million bargain-purchase gain on Cholbam, and a $15.5 million litigation settlement gain. These nonrecurring items make headline year-over-year earnings comparisons less representative of ongoing operations.
- FY 2016 included $18.4 million of expense from revaluing acquisition-related contingent consideration, versus $13.8 million in 2015; a $5.2 million legal-fee settlement expense; and $29.1 million of share-based compensation. There was no intangible-asset impairment in 2016; 2015 included a $4.7 million Carbetocin write-off.
- Retrophin received the first $47.5 million anniversary payment from Sanofi in July 2016. The remaining note receivable was $46.8 million at year-end and classified as current.
- Quarterly 2016 net product sales rose from $29.0 million in Q1 to $37.3 million in Q4. Q4 operating loss was $18.2 million and net loss was $8.6 million.
Outlook, management commentary and risks
- Management said available cash and short-term investments were expected to fund near-term operations, but noted potential future financing needs depending on operating results, pipeline costs and commercialization requirements. The filing provides no specific financial guidance for 2017.
- Following positive top-line Phase 2 DUET data and an early-2017 FDA End-of-Phase-2 meeting, the company planned a single Phase 3 sparsentan trial, expected to begin in the second half of 2017. A proteinuria interim analysis might support accelerated approval if sufficiently persuasive; eGFR was planned as the confirmatory endpoint. FDA agreement on the final protocol and successful trial outcomes were not assured.
- For RE-024, the FDA had agreed to a Phase 3 protocol under a Special Protocol Assessment; the company expected dosing to begin in the coming months. The filing cautions that an SPA does not guarantee approval. The company was also pursuing the steps needed for an L-UDCA NDA and seeking out-licensing opportunities for RE-034.
- Key risks include clinical and regulatory failure or delay, uncertain patient populations and commercial acceptance, reimbursement and pricing pressure, competition, reliance on sole-source manufacturers and a third-party distributor, and the need for capital. Sparsentan’s licensed composition-of-matter patent was expected to expire in 2019, while the company’s results are exposed to fair-value changes in warrant liabilities and acquisition contingent consideration.
- Legal matters included proceedings involving former CEO Martin Shkreli and related advancement of legal fees. The company had advanced $2.8 million for one set of proceedings and $0.4 million in another matter, expensed $5.2 million in total in 2016, and received about $0.7 million from D&O insurers; further reimbursement was uncertain. The company also described prior-period financial reporting errors and a NASDAQ public letter of reprimand; it said the review was complete.
Important facts for investors to verify
- Confirm the registrant and filing identity: the document is Retrophin, Inc.’s 2016 10-K, although the request names Travere Therapeutics, Inc.
- Reconcile management’s statement that the company generated positive operating cash flow with the audited cash-flow statement, which reports $1.6 million of net cash used in operating activities for 2016.
- Review the assumptions behind $87.5 million of acquisition-related contingent consideration and the $22.4 million warrant derivative liability, both Level 3 fair-value estimates.
- Track sparsentan and RE-024 Phase 3 initiation, enrollment, endpoints, safety and regulatory feedback, plus L-UDCA’s NDA preparation and funding needs.
- Assess the remaining Sanofi receivable, 2019 convertible-note repayment or conversion exposure, legal-fee recovery, and reliance on outsourced manufacturing and distribution.