Filing summary
Entity mismatch: The supplied filing is Retrophin, Inc.’s Form 10-K, not a filing under the name Travere Therapeutics, Inc. It covers the fiscal year ended December 31, 2014, was filed March 11, 2015, and includes unaudited quarterly information. The figures below are for Retrophin.
Business context and reporting period
Retrophin was an early-stage biopharmaceutical company focused on acquiring, developing, and commercializing therapies for rare and serious diseases. It began generating product sales in March 2014 after acquiring Manchester Pharmaceuticals and licensed U.S. and Canadian marketing rights for Thiola. At year-end it reported sales of Chenodal, Thiola, and Vecamyl; it subsequently sold the ketamine, Vecamyl, and Syntocinon assets to Turing Pharmaceuticals.
Its principal development programs were sparsentan for focal segmental glomerulosclerosis (FSGS), RE-024 for PKAN, and RE-034, which remained in preclinical development. The company was building a specialty commercial organization and reported approximately 110 employees at year-end.
Financial results and liquidity
| Metric | FY 2014 | FY 2013, as restated |
|---|---|---|
| Net product sales | $28.2 million | $0 |
| Cost of goods sold | $0.6 million | $0 |
| Gross profit / gross margin | Approximately $27.6 million / 98% | Not applicable |
| Research and development | $47.8 million | $7.1 million |
| Selling, general and administrative | $59.6 million | $17.7 million |
| Operating loss | $79.8 million | $24.8 million |
| Net loss | $110.9 million | $34.6 million |
| Net loss per share | $4.43 | $2.44 |
| Cash used in operating activities | $45.8 million | $17.6 million |
| Cash, cash equivalents, and marketable securities at year-end | $27.8 million | $6.1 million |
Fourth-quarter 2014 sales were $14.1 million, operating loss was $18.7 million, and net loss was $29.0 million. Fourth-quarter 2013 sales were zero, operating loss was $11.9 million, and net loss was $12.8 million. The 2014 annual sales figure reflects a change in distribution and revenue-recognition arrangements; management said sales would have been approximately $28.8 million absent the December 1 transition.
At December 31, 2014, current assets were $37.3 million and current liabilities were $107.5 million, producing a working-capital deficit of $70.2 million. Total debt was approximately $83.8 million: $40.5 million under the secured credit facility, classified as current, and $43.3 million of convertible debt. Total liabilities were $172.7 million; stockholders’ deficit was $37.3 million. The filing reports no dividend payments.
Material changes versus the prior comparable period
- Sales rose from zero to $28.2 million following the Manchester acquisition and Thiola launch. Management said Thiola patient enrollment had exceeded its initial goal of approximately 450 patients returning to therapy and expected further revenue growth in 2015.
- Operating expenses increased $83.2 million, driven by higher R&D spending, commercial launch costs, workforce growth, and professional fees. R&D expense increased from $7.1 million to $47.8 million.
- Net loss increased from $34.6 million to $110.9 million. Other expense included a $23.8 million noncash loss from remeasuring warrant liabilities, $7.4 million of net interest expense, and $4.7 million of financing expense.
- Operating cash use increased from $17.6 million to $45.8 million. Investing cash use was $37.3 million, largely reflecting $29.2 million paid for the Manchester acquisition; financing provided $95.3 million.
- The company expanded its asset base through acquisitions and licensing: year-end intangible assets were $94.3 million versus $12.6 million a year earlier. The Manchester purchase included $71.4 million of product rights and $12.8 million of estimated contingent consideration.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management said available cash and short-term investments were insufficient for anticipated operations for at least 12 months. The auditor cited substantial doubt about the company’s ability to continue as a going concern. Management anticipated continuing losses and said additional equity or debt financing, collaborations, or other funding might be needed; no assurance of availability was given.
- Debt and covenants: The company was in covenant compliance at year-end but expected it might not comply with certain covenants in 2015. The $40.5 million credit-facility balance was classified as current because of anticipated noncompliance; a default could permit acceleration and enforcement against substantially all assets. The facility carried a rate of LIBOR plus 10%, or, in certain circumstances, the base rate plus 9%.
- Management outlook: Retrophin expected R&D spending to decrease in 2015 as it concentrated resources on key programs, and estimated $6–8 million of specified clinical-trial costs through December 2015. It said it expected positive operating cash flow by fiscal year-end 2015, while also warning that spending could be materially higher and financing would be needed. These statements were forward-looking, not guarantees.
- Pipeline: The Phase 2 DUET study of sparsentan was enrolling about 100 FSGS patients, with proteinuria reduction as the primary endpoint; accelerated approval was a possibility only if results were sufficiently robust. The company intended to file a U.S. IND for RE-024 in 2015. RE-034 remained in preclinical development, with possible IND-enabling work under consideration.
- Subsequent transactions: In January 2015, Retrophin paid $5 million for an exclusive right to purchase worldwide cholic-acid assets, subject to FDA approval, with up to $73 million in milestones and future royalties. Lenders provided a conditional commitment for a potential $30 million incremental secured loan. In February, assets and product rights sold to Turing-related entities totaled $3.1 million in stated purchase prices, with certain liabilities assumed by the buyer.
- Restatements and controls: The board concluded that the 2013 third-quarter and annual financial statements should no longer be relied upon because certain agreements described as consulting arrangements appeared principally to settle claims benefiting the former CEO or related entities. The company corrected the accounting in this 10-K and said it would amend affected filings. It also planned to restate 2014 quarterly statements for consulting-agreement and equity-award accounting errors. Management reported ineffective disclosure controls and material weaknesses involving contract review, tone at the top, and equity-award accounting.
- Governance and legal matters: The company disclosed litigation, including a shareholder securities class action, a Schwab claim seeking more than $2.5 million, and its antitrust suit against Questcor. It also received a subpoena in a U.S. Attorney investigation concerning relationships with the former CEO and related investors; Retrophin said it was not a target and intended to cooperate. No loss-contingency accrual was recorded for the disclosed cases because losses were not considered probable and reasonably estimable.
- Other key exposures: Chenodal and Thiola had no remaining patent or nonpatent exclusivity and faced potential generic competition. The company relied on single-source manufacturers for those products and a third-party distributor; one distributor accounted for 80% of 2014 revenue. Reimbursement, clinical-trial results, regulatory approval, and access to capital were significant risks.
Important facts for investors to verify
- Confirm the issuer and filing identity: this document names Retrophin, Inc., not Travere Therapeutics, Inc.
- Review the subsequent amendments and restatements for 2013 and 2014 quarterly periods, including their effect on reported results, liabilities, and equity.
- Assess the company’s current liquidity, covenant status, debt maturity and acceleration terms, and whether the proposed incremental loan was ultimately drawn.
- Track actual product sales, patient uptake, distribution concentration, and the effect of minimum Thiola royalties and potential generic competition.
- Verify clinical enrollment, results, regulatory milestones, and funding needs for sparsentan, RE-024, RE-034, and the cholic-acid program.
- Follow the remediation of internal-control weaknesses and the status and financial exposure of litigation, the government inquiry, and related-party transactions.