Travere Therapeutics, Inc. — Filing Summary
Entity and period: The supplied filing is Retrophin, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2014, not a filing under the name Travere Therapeutics, Inc. It reports the three and six months ended June 30, 2014, with prior-year comparisons.
Business context
Retrophin described itself as a biopharmaceutical company developing, acquiring and commercializing therapies for rare and serious diseases. Following its March 2014 acquisition of Manchester Pharmaceuticals, it sold Chenodal and Vecamyl; it also licensed U.S. marketing rights to Thiola in May. Its development programs included sparsentan, RE-024, Syntocinon and RE-034.
Financial results and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Net product sales | $5.74 million; prior year $0 | $5.77 million; prior year $0 |
| Operating expenses | $26.25 million; prior year $5.10 million | $43.23 million; prior year $7.35 million |
| Operating loss | $20.50 million; prior year $5.10 million | $37.46 million; prior year $7.35 million |
| Net income (loss) | $8.48 million; prior-year loss $5.05 million | Loss of $62.14 million; prior-year loss $9.79 million |
| Operating cash flow | Not presented by quarter | Use of $21.26 million; prior-year use of $6.79 million |
Second-quarter reported net income was not indicative of operating performance: it included a $32.98 million noncash gain from revaluing warrant liabilities and a $2.53 million income-tax benefit, while operating results remained loss-making. Six-month results included a $20.64 million noncash warrant revaluation loss and $4.71 million of finance expense. The filing reports Q2 basic EPS of $0.33 and diluted loss per share of $0.90.
At June 30, cash was $39.88 million, marketable securities $3.56 million, working capital approximately $5.4 million, and total assets $155.54 million. Total liabilities were $154.47 million and stockholders’ equity was $1.07 million, compared with a deficit of $18.31 million at year-end 2013. Outstanding debt was approximately $91 million: $46 million principal of 4.5% senior convertible notes due 2019 and a $45 million secured credit facility due 2018. The credit facility’s stated rate was adjusted LIBOR plus 10%, or, in certain circumstances, the base rate plus 9%.
Six-month investing cash use was $37.17 million, including $29.15 million paid for the Manchester acquisition, while financing provided $92.31 million. Financing included the January stock offering’s $36.84 million net proceeds and proceeds from the convertible-note and credit agreements.
Material changes and transactions
- Manchester was acquired in March for a purchase price of approximately $73.23 million, including $12.8 million of contingent consideration; the $33 million seller note was repaid in June. The acquisition added substantial product-right intangible assets.
- The Thiola U.S. license required a $3 million upfront payment and guaranteed minimum royalties of at least $2 million annually or 20% of net sales through June 2024. Canadian rights were added in July without additional consideration.
- Revenue began in March 2014. One customer represented 99% of revenue for both the quarter and six-month period; one customer represented 98% of accounts receivable at June 30.
- R&D spending rose to $20.58 million for the half year from $0.71 million; SG&A rose to $21.43 million from $6.64 million. The company attributed growth largely to expanded development activity, personnel, professional fees and stock-based compensation.
Outlook, risks and unusual items
- Management said continued operations depend on raising capital and disclosed substantial doubt about the company’s ability to continue as a going concern. It expected further operating losses and said additional financing might not be available on acceptable terms, or at all.
- Planned spending included approximately $10–$15 million for clinical trials through June 2015, approximately $10 million for preclinical work, and approximately $30 million in personnel costs through June 2015. Management also planned to expand staffing and continue commercialization and development efforts.
- In July, Retrophin proposed acquiring Clinuvel for approximately $89 million and had acquired about 6.7% of its shares for approximately $4.5 million by July 30. Completing the proposed acquisition would require additional financing.
- The secured credit agreement contains restrictive covenants and financial tests; noncompliance could accelerate repayment. The notes are unsecured and structurally subordinated to subsidiary liabilities and effectively junior to secured debt.
- Schwab litigation alleged damages exceeding $2 million; the company said it believed it had valid defenses and could not predict the outcome.
- Management reported ineffective disclosure controls and material weaknesses in financial reporting controls, including difficulties producing timely data, applying complex accounting rules, and segregation of duties. Remediation efforts were underway.
- Estimated useful lives for Syntocinon and Carbetocin assets changed in the quarter, prompting amortization to begin. The Carbetocin estimate change also contributed to a $2.5 million tax benefit.
Key facts for investors to verify
- Confirm the filing’s registrant: the document identifies Retrophin, Inc., notwithstanding the request metadata naming Travere Therapeutics, Inc.
- Assess near-term liquidity against operating cash use, debt service, the going-concern disclosure and the credit facility’s financial tests.
- Review the sustainability and customer concentration of newly generated product sales, particularly the 99% revenue concentration.
- Separate operating performance from large warrant fair-value movements, finance expense and the tax benefit when evaluating reported earnings.
- Verify the status and financing requirements of the proposed Clinuvel acquisition, and the outcome of the Schwab litigation.
- Track remediation of material weaknesses and whether disclosure controls become effective.