Rigel Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in millions of dollars unless otherwise noted. The interim financial statements are unaudited.
Business context
Rigel is a biotechnology company commercializing TAVALISSE for chronic immune thrombocytopenia (ITP) and developing additional drug candidates. In July 2022, it licensed olutasidenib, an investigational treatment for mutated IDH1 acute myeloid leukemia (AML); its FDA action date was February 15, 2023. Much of Rigel’s revenue and prospects remain tied to TAVALISSE and contingent collaboration, government-contract, and milestone receipts.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $22.4 | $21.5 | $69.0 | $128.8 |
| Net product sales | $19.2 | $16.0 | $53.9 | $45.4 |
| Research and development expense | $14.7 | $18.3 | $44.9 | $51.9 |
| Selling, general and administrative expense | $25.9 | $22.9 | $80.3 | $67.4 |
| Operating income (loss) | ($18.4) | ($19.8) | ($57.6) | $8.9 |
| Net income (loss) | ($19.0) | ($21.0) | ($60.0) | $4.7 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | ($51.8) | $25.0 |
- Q3 net loss per share was $0.11; nine-month loss per share was $0.35. Nine-month 2021 earnings included substantial collaboration revenue, including recognition under the Lilly agreement; the 2022 comparison also reflects lower collaboration and government-contract revenue.
- Nine-month TAVALISSE sales grew 19% year over year, driven by higher unit volume and price, partly offset by increased rebates and discounts. Gross product sales were $76.0 million and discounts and allowances were $22.1 million for the period.
- Product-sales cost was $1.4 million for the first nine months. Rigel cautioned that costs remain unusually low because some active pharmaceutical ingredient was manufactured before product approval; costs are expected to rise as newly manufactured inventory is sold.
- At September 30, cash and cash equivalents were $29.9 million and short-term investments were $51.8 million, totaling $81.6 million, versus $125.0 million at December 31, 2021. Current assets were $110.4 million and current liabilities $47.3 million. Stockholders’ deficit was $19.8 million.
- Nine-month investing cash flow was $54.2 million, primarily reflecting net maturities of short-term investments. Financing cash flow was $8.6 million, including $19.5 million of net term-loan proceeds, partly offset by $12.4 million of Lilly cost-share payments. Cash and cash equivalents increased $11.0 million over the period.
- MidCap term-loan principal outstanding was $40.0 million ($39.5 million net of discount). The July amendment extended maturity to September 2026 and the interest-only period to October 2024; the rate is one-month SOFR plus a 0.11448% adjustment and 5.65% margin, subject to a 1.50% floor. An additional $20.0 million was available subject to conditions through March 31, 2023. Rigel reported covenant compliance at quarter-end.
Material changes, outlook and notable items
- Nine-month revenue fell $59.9 million year over year, chiefly because 2021 included major Lilly license revenue and higher government-contract revenue. Product sales increased $8.5 million, while collaboration revenue decreased $61.4 million.
- Management said existing cash, cash equivalents and short-term investments were expected to fund expenses and capital requirements for at least 12 months from the filing date, based on its current operating plan. It also noted that estimates depend on assumptions and that additional capital may be needed; future funding could involve equity, debt, or collaboration and licensing arrangements.
- Management expected SG&A for the rest of 2022 to increase with commercial expansion and preparation for a potential olutasidenib launch. It anticipated future cost savings from the workforce reduction announced in October. R&D spending was expected to remain significant.
- The Phase 3 FORWARD study of fostamatinib in warm autoimmune hemolytic anemia (wAIHA) did not meet its primary efficacy endpoint. After FDA feedback in October, Rigel said it did not expect to file a supplemental application for wAIHA at this time.
- Post-quarter, Rigel reported that its COVID-19 Phase 3 FOCUS trial approached but did not achieve statistical significance on its primary endpoint (p=0.0603). Prespecified secondary endpoints numerically favored fostamatinib; Rigel was evaluating next steps with the Department of Defense. The NIH-sponsored ACTIV-4 trial was also ongoing.
- Rigel licensed olutasidenib for a $2.0 million upfront payment, with potential development and regulatory milestones up to $67.5 million, commercial milestones up to $165.5 million, and tiered royalties. A $2.5 million regulatory milestone was achieved in October 2022 and was expected to be recorded as Q4 R&D expense.
- On October 10, 2022, Rigel announced a workforce reduction, primarily in development and administration, expected to be completed by January 31, 2023; related charges were expected in Q4. On October 28, it entered a new office sublease with approximately $1.7 million in future payments.
- Rigel is litigating against Annora and affiliates after Annora sought FDA approval for a generic TAVALISSE and challenged five listed patents. The defendants asserted non-infringement and invalidity; Rigel said it intended to defend its patents. The outcome and timing are uncertain.
- Other key risks include TAVALISSE sales, pricing and rebate pressure; dependence on third-party manufacturers and distributors; clinical and regulatory uncertainty; collaboration-partner execution; capital needs and debt covenants; and potential generic competition. Three wholesale distributors each represented at least 21% of reported sales and collaboration revenue in Q3, indicating customer concentration.
Important facts for investors to verify
- Whether TAVALISSE sales growth continues and how rebates, discounts, and payer contracts affect net revenue and cash collections.
- Olutasidenib’s FDA decision and commercial prospects, along with related milestone, royalty, launch, and spending obligations.
- Final FOCUS trial interpretation and any further regulatory or development plans; progress of the ACTIV-4 trial.
- Progress, cost, and possible consequences of the Annora patent litigation and any generic-entry timeline.
- Cash burn, available borrowing capacity and covenant conditions, and the assumptions supporting management’s stated 12-month liquidity outlook.
- Restructuring charges and savings, and the effect of increased commercial spending and newly manufactured product costs on future operating results.