Rigel Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Amounts below are in millions of dollars, except per-share data. The filing was signed November 5, 2020.
Business context and reporting period
Rigel is a biotechnology company developing small-molecule medicines for immune and hematologic disorders, cancer, and rare diseases. Its commercial product is TAVALISSE (fostamatinib) for chronic immune thrombocytopenia (ITP), sold in the U.S.; the European Commission approved fostamatinib in January 2020, and partner Grifols began marketing it in Germany and the U.K. in July. Rigel is also studying fostamatinib for warm autoimmune hemolytic anemia (AIHA) and COVID-19, and has early-stage IRAK and RIP inhibitor programs.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $18.4 | $20.9 | $90.2 | $43.9 |
| Net product sales | $16.3 | $11.7 | $43.9 | $29.9 |
| Collaboration revenue | $2.1 | $9.1 | $46.2 | $13.9 |
| Research and development expense | $14.6 | $14.5 | $45.0 | $38.6 |
| Selling, general and administrative expense | $17.4 | $18.1 | $54.8 | $56.3 |
| Operating loss | $(13.8) | $(12.0) | $(10.1) | $(51.8) |
| Net loss | $(14.2) | $(11.5) | $(10.5) | $(49.7) |
| Net loss per share, basic and diluted | $(0.08) | $(0.07) | $(0.06) | $(0.30) |
- Q3 total revenue fell 12% year over year as collaboration revenue declined, partly offset by 39% growth in net product sales. Nine-month revenue more than doubled, mainly due to collaboration revenue recognition associated with Grifols.
- Nine-month TAVALISSE sales increased 47% year over year. Management attributed growth primarily to higher sales volume and selling prices; reported volume increases were 27% for Q3 and 30% for the nine-month period.
- Q3 net loss widened year over year. The nine-month net loss narrowed substantially, reflecting higher collaboration revenue, while operating expenses increased overall. Nine-month R&D expense rose $6.3 million, primarily due to the warm-AIHA Phase 3 and other clinical programs.
- Product-sales cost was $0.1 million in Q3 and $0.6 million for nine months. These figures understate expected future product costs because some inventory API costs were expensed as R&D before approval.
- Cash and cash equivalents were $36.6 million and short-term investments $36.2 million at September 30, 2020, totaling $72.8 million, versus $98.1 million at December 31, 2019. Current assets were $99.8 million and current liabilities $34.2 million.
- Operating cash use was $36.6 million for the first nine months, compared with $31.9 million in 2019. Investing activities provided $38.8 million, mainly from investment maturities; financing activities provided $11.9 million, including the second $10 million MidCap loan tranche. Cash and cash equivalents increased $14.0 million during the period.
- MidCap term-loan principal outstanding was $20.0 million, reported net of discount at $19.8 million. The loan bears interest at one-month LIBOR plus 5.65%, subject to a 1.50% floor. The company reported no covenant violations.
- Operating lease liabilities totaled $21.3 million; the office lease runs through January 2023. Expected sublease income through that date was approximately $10.7 million.
Material changes, outlook, and risks
- Grifols’ European approval milestone and release of previously refundable upfront consideration drove significant collaboration revenue in the first quarter. Rigel recognized $39.9 million of license revenue and $3.6 million of research-service revenue from Grifols over the first nine months. Q3 collaboration revenue of $2.1 million was a Daiichi milestone, received in October.
- Management said available capital, expected operating cash flows, and financing sources were expected to fund operations for at least 12 months from the filing date. The company also had access to up to $40 million in additional MidCap tranches subject to conditions and entered an agreement permitting up to $65 million of common-stock sales through Jefferies. Management cautioned that actual cash needs could exceed estimates and additional funding would be required for the foreseeable future.
- Management expected R&D expense and SG&A expense to increase in the remainder of 2020 as clinical programs and TAVALISSE commercialization continued. No specific revenue, earnings, or cash-flow guidance was provided.
- COVID-19 reduced patient-doctor interactions and in-person sales engagement, affecting product sales; it also delayed or paused clinical-site enrollment and disrupted partner commercialization. The company said it did not then anticipate significant TAVALISSE supply disruption but could not predict the pandemic’s full effects on sales, trials, partners, or financing access.
- The FORWARD Phase 3 warm-AIHA study had enrolled 57 of a targeted 90 patients. Management could not provide an expected enrollment-completion date. The filing also describes COVID-19 trials announced during 2020, including a planned Phase 3 study expected to launch in Q4; later updates in the filing refer to announcements made after September 30.
- Key risks include dependence on TAVALISSE and successful commercialization, clinical and regulatory uncertainty, reliance on third-party manufacturers and commercial partners, potential future financing and dilution, debt covenants, and pricing, reimbursement, competition, and COVID-19 impacts. Future collaboration milestones of more than $607 million are contingent on partners achieving specified events and are not assured.
- The company reported no legal proceedings in this filing’s Legal Proceedings item and no off-balance-sheet arrangements. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether TAVALISSE sales growth can continue and how COVID-19, reimbursement, pricing, and competition affect demand.
- Whether Grifols’ European rollout expands beyond Germany and the U.K., and whether partner-led development and commercialization produce future milestones or royalties.
- Enrollment, timing, and results for the FORWARD AIHA trial and fostamatinib COVID-19 studies, including any effects of pandemic-related delays.
- Cash burn and runway assumptions, access conditions for remaining MidCap tranches, and any common-stock sales under the Jefferies agreement.
- Future product costs: current cost of sales excludes some pre-approval manufacturing costs, so reported product margins may not represent steady-state economics.