Business context and reporting period
Retrophin, Inc. (the registrant named in the filing; the request metadata identifies Travere Therapeutics) filed this unaudited Form 10-Q for the quarter ended March 31, 2014. The company focused on developing, acquiring and commercializing therapies for serious and rare diseases. It completed its acquisition of Manchester Pharmaceuticals on March 26, adding the marketed products Chenodal and Vecamyl; its first product sales were recorded in March. It also advanced clinical and preclinical programs including sparsentan, RE-024, Syntocinon and RE-034.
Financial results and position
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net product sales | $27,900 | $0 |
| Operating expenses | $16.98 million | $1.89 million |
| Operating loss | $16.95 million | $1.89 million |
| Net loss | $70.63 million | $4.87 million (restated) |
| Net loss per share | $3.03 | $0.46 (restated) |
| Net cash used in operations | $9.81 million | $4.58 million |
Q1 2014 net loss included a $53.6 million noncash charge from remeasuring warrant liabilities, primarily reflecting the increase in the stock price. Product sales were too limited to provide a meaningful margin comparison. R&D was $6.89 million and SG&A was $10.09 million, versus $0.16 million and $1.73 million, respectively, in the restated prior-year quarter.
At March 31, cash was $3.70 million and marketable securities were $1.35 million. Current assets were $6.44 million against current liabilities of $113.45 million; management reported a working-capital deficit of approximately $107 million, including $69.35 million of warrant derivative liabilities. Total liabilities were $129.44 million, and stockholders’ deficit was $35.39 million. The Manchester acquisition added a note recorded at $31.28 million, payable in three $11 million installments in June, September and December 2014, plus contingent consideration valued at approximately $12.8 million. Cash flows were $31.11 million used in investing, largely reflecting $29.15 million of acquisition cash outlay, and $38.62 million provided by financing, including $36.84 million net proceeds from a January stock offering.
Material changes and unusual items
- Manchester was acquired for stated consideration of $73.23 million, including cash, the discounted promissory note and contingent consideration. The preliminary allocation included approximately $71.4 million of product rights and $1.04 million of goodwill.
- Operating expenses increased by $15.1 million year over year, driven by higher R&D, professional fees, compensation and other SG&A. The warrant fair-value charge increased other expense substantially and was noncash.
- The company issued 4.71 million shares in its January offering and received $36.84 million net; it also repurchased 248,801 shares for $2.26 million and issued shares upon warrant exercises.
- The 2013 comparative financial results were restated for omitted placement-agent warrants and overstated consulting and offering expenses; the filing also disclosed a registration-payment obligation.
Outlook, risks and contingencies
Management said continued operations depend on raising additional capital and disclosed substantial doubt about the company’s ability to continue as a going concern. No financing commitments were in place, and additional financing might not be available on acceptable terms. Management anticipated ongoing operating losses and possible dilution or reductions, delays or discontinuation of development if funding is unavailable.
Plans through March 2015 included approximately $15–$20 million for clinical trials, an estimated $3 million to relaunch Syntocinon for milk let-down, approximately $8.5 million for preclinical work, and approximately $29.5 million in personnel costs; the company also expected to hire up to 100 employees by year-end 2014. These were plans and estimates, not guaranteed outcomes. The filing described planned trials and regulatory submissions but gave no financial guidance for revenue, profitability or cash flow.
Other notable risks include 100% customer concentration in revenue and accounts receivable, product development and regulatory uncertainty, acquisition payment obligations, and the possibility of further equity dilution. Disclosure controls were deemed ineffective, with material weaknesses related to financial reporting systems and data, complex GAAP and SEC reporting, and limited segregation of duties. The company outlined remediation plans. No material legal proceedings were reported.
Investor verification points
- Confirm the issuer identity: this filing is for Retrophin, Inc., not Travere Therapeutics.
- Track cash, financing availability, and the timing and funding of the three $11 million Manchester note installments.
- Assess warrant-liability valuation changes separately from operating cash burn and monitor warrant exercises and dilution.
- Verify acquisition accounting, contingent consideration estimates, and the realized sales and economics of Chenodal and Vecamyl.
- Monitor customer concentration, clinical and regulatory milestones, stated spending plans, and remediation of the disclosed control weaknesses.