Rigel Pharmaceuticals, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 27, 2020. The filing also presents unaudited fourth-quarter results. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Rigel is a biotechnology company with a commercial product, TAVALISSE (fostamatinib), approved in the U.S. for certain adults with chronic immune thrombocytopenia (ITP). The company sells directly in the U.S. and licenses fostamatinib internationally. Its principal company-funded late-stage program is a Phase 3 trial in warm autoimmune hemolytic anemia (AIHA); R835 and R552 were in Phase 1. Partnered programs include candidates with Aclaris, BerGenBio, Daiichi Sankyo and AstraZeneca.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $59.3 million | $44.5 million | Up $14.8 million |
| Net product sales | $43.8 million | $13.9 million | Up $29.8 million |
| Collaboration revenue | $15.5 million | $30.6 million | Down $15.0 million |
| Research and development expense | $52.9 million | $46.9 million | Up $6.0 million |
| Selling, general and administrative expense | $74.6 million | $70.0 million | Up $4.6 million |
| Operating loss | $69.1 million | $72.7 million | Loss narrowed $3.6 million |
| Net loss | $66.9 million | $70.5 million | Loss narrowed $3.6 million |
| Net loss per share | $0.40 | $0.44 | Loss per share narrowed |
Product sales growth reflected continued U.S. uptake of TAVALISSE. Collaboration revenue fell primarily because 2018 included recognition of $30.6 million of Kissei’s upfront license payment; 2019 collaboration revenue included Aclaris milestones and fees, Celgene milestone revenue, and services and supply revenue from Grifols and Kissei. Q4 2019 revenue was $15.4 million and net loss was $17.2 million, compared with Q4 2018 revenue of $37.9 million and net income of $3.2 million; the prior-year quarter included substantial Kissei license revenue.
Reported 2019 product gross profit was approximately $42.9 million, or 97.9% of net product sales. This margin is not representative of full ongoing product cost: some fostamatinib manufacturing costs incurred before FDA approval were expensed as R&D rather than capitalized into inventory and cost of sales.
Net cash used in operating activities was $41.5 million, versus $58.8 million in 2018. Cash, cash equivalents and short-term investments totaled $98.1 million at year-end, down from $128.5 million. Working capital was $60.8 million. Total assets were $147.6 million and stockholders’ equity was $53.8 million. The company reported an accumulated deficit of $1.276 billion.
Rigel had $9.8 million of term-loan debt, net of discount, at year-end. The MidCap facility provides up to $60 million: $10 million was funded in 2019, with up to $50 million potentially available subject to terms and conditions. Interest is LIBOR plus 5.65%, subject to a 1.50% floor; the loan is due no later than September 2024. The filing reports no covenant violation at December 31, 2019. Current assets exceeded current liabilities by $60.8 million.
Material developments, outlook and risks
- International licensing: Grifols received European and Turkish rights under an agreement with a $30 million upfront payment and up to $297.5 million in regulatory and commercial milestones, plus tiered royalties potentially reaching 30%. Kissei holds rights in Japan, China, Taiwan and South Korea; Medison holds rights in Canada and Israel.
- Post-year-end European approval: The European Commission approved fostamatinib for chronic ITP in January 2020. Rigel received $20 million from Grifols in February 2020, comprising a $17.5 million approval milestone and a $2.5 million creditable advance royalty. Grifols’ anticipated European launch was Q2 2020; that timing was management’s expectation, not a guarantee.
- Pipeline: Rigel said the AIHA Phase 3 trial remained on track to complete enrollment in mid-2020; 34 patients were enrolled as of February 2020. The Phase 2 AIHA study reported a 44% response rate by week 24 among evaluable patients, or 48% including one later responder. R835 Phase 1 results showed tolerability, pharmacokinetic data and proof of mechanism; R552 Phase 1 was ongoing.
- Management and spending: Rigel appointed a new chief medical officer in October 2019. Its chief commercial officer resigned in December, and the CEO temporarily assumed oversight of senior commercial leadership. Management expected R&D expense and SG&A expense to increase in 2020 as trials and commercial activities continued.
- Funding outlook: Management believed available capital would fund current projected needs for at least 12 months from the filing date, while stating that significant additional funding would be needed over time. The estimate depends on assumptions about sales, trials, partner payments and spending; future equity or debt financing could dilute shareholders or restrict operations.
- Key risks: The business remains dependent on TAVALISSE adoption, reimbursement and pricing, and on partners’ execution and milestone achievements. The FDA’s 2019 publication of product-specific bioequivalence guidance could facilitate generic competition. Rigel also cited clinical-development and regulatory uncertainty, reliance on third-party manufacturers and distribution, concentration of customers, and potential supply or trial disruption from the then-evolving coronavirus outbreak. No formal quantitative revenue guidance was provided.
- Reporting and contingencies: The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective. The filing’s Item 3 lists no legal proceedings, although it discusses litigation and other contingencies as risks. Rigel adopted lease accounting Topic 842 in 2019, recording a $25.7 million operating lease right-of-use asset and $27.0 million lease liability at year-end.
Important facts for investors to verify
- Subsequent TAVALISSE sales, net pricing and patient access, including the effect of rebates, discounts and reimbursement.
- Whether the European launch occurred as anticipated and what royalties and additional milestone payments Rigel actually received.
- AIHA Phase 3 enrollment, completion, results and regulatory plans, alongside progress and safety findings for R835 and R552.
- Cash burn, remaining liquidity and debt-facility availability, including the conditions for drawing additional MidCap tranches.
- Actual 2020 operating expenses and whether collaboration milestones or other financing were needed to support operations.