Rigel Pharmaceuticals, Inc. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. Financial statement amounts below are in millions of dollars unless stated otherwise. Rigel is a clinical-stage drug developer with no approved commercial products.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Collaboration revenue | $0 | $0 | $0 | $1.4 |
| Research and development expense | $16.2 | $17.6 | $53.1 | $57.3 |
| General and administrative expense | $4.9 | $4.7 | $15.8 | $15.0 |
| Operating loss | $(21.0) | $(23.9) | $(68.9) | $(72.5) |
| Net loss | $(20.9) | $(23.8) | $(68.6) | $(72.2) |
| Net loss per share | $(0.24) | $(0.27) | $(0.78) | $(0.83) |
- Operating margin is not meaningful given zero Q3 revenue. The company remains loss-making and reported an accumulated deficit of $917.9 million.
- Nine-month operating cash use was $54.7 million, versus $67.2 million in 2013. Investing activities provided $46.0 million, primarily from net maturities of securities; financing provided $0.7 million. Cash and cash equivalents declined $8.0 million to $12.8 million.
- At September 30, cash, cash equivalents and available-for-sale securities totaled $157.7 million, down from $212.0 million at December 31, 2013. Current assets were $158.9 million and current liabilities $10.2 million. Total liabilities were approximately $16.4 million, principally deferred rent; no borrowings are shown on the balance sheet.
- Facilities lease commitments totaled $51.6 million, including $14.8 million due within one year. The filing reports no off-balance-sheet arrangements creating material risks.
Changes and business developments
- R&D expense decreased 8% for Q3 and 7% for the nine-month period, mainly reflecting completed Phase 2 studies and reduced laboratory and outside-service costs after the 2013 workforce reduction. Increased spending on fostamatinib’s ITP Phase 3 program partly offset these savings.
- G&A expense rose 6% for the nine months, primarily because of higher stock-based compensation. The 2013 comparison included $1.7 million of restructuring charges; there were no restructuring charges in 2014.
- Fostamatinib’s two-trial Phase 3 ITP program began in July 2014. Management expected initial results from the predominantly U.S. trial by year-end 2015 and from the second trial in Q1 2016. A Phase 2 trial for IgA nephropathy was planned for Q4 2014.
- R348 did not meet primary or secondary endpoints in a Phase 2 dry-eye study; no significant adverse events were reported, and Rigel decided not to pursue further studies for that indication. A separate Phase 2 study for dry eye associated with graft-versus-host disease had begun in Q2 2014.
- Rigel discontinued its R118 indirect AMPK activator program in August 2014 because of the side-effect profile observed in Phase 1 trials.
Outlook, risks and contingencies
- Management believed existing capital would fund current and projected requirements through Q3 2016, but cautioned that this estimate depends on assumptions and funds could be used sooner. Rigel expects to need further financing and may pursue equity, debt, or collaborations; equity could dilute shareholders, debt may impose covenants, and partnerships could require concessions.
- Management expected R&D expense to increase through the remainder of 2014 as the ITP and GvHD studies progressed and the IgA nephropathy trial was initiated.
- In October 2014, after quarter-end, Rigel earned a $2.5 million AstraZeneca milestone tied to continued development of R256 and initiation of a GLP toxicology study. This is a subsequent-period item, not Q3 revenue.
- Potential contingent payments under collaborations could exceed $149.8 million if all specified milestones were achieved, but timing and receipt are uncertain, depend on partners’ efforts, and may never occur. The filing reported no collaboration revenue for the first nine months of 2014 and no deferred revenue at September 30.
- Key risks include clinical failure or delay, regulatory hurdles, dependence on third-party manufacturers and collaborators, need for additional capital, competition, intellectual-property challenges, and potential dilution. The company had no legal proceedings reported. Management concluded disclosure controls were effective.
Investor facts to verify
- Cash runway assumptions and actual quarterly cash burn relative to the stated Q3 2016 funding horizon.
- Enrollment, safety, and timing of fostamatinib’s ITP Phase 3 trials and progress of the planned IgA nephropathy study.
- Development status and funding implications of the R348 GvHD program after the dry-eye study failure, and confirmation that R118 remains discontinued.
- Receipt and accounting period for the $2.5 million AstraZeneca milestone, and whether any further partner milestones or royalties become probable.
- Potential effects of future financing, the $51.6 million facility lease commitments, and outstanding equity awards on liquidity and shareholder dilution.