Travere Therapeutics (then Retrophin, Inc.) — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. The filing was submitted under the name Retrophin, Inc., the company’s name at the time.
Business context
Retrophin was a rare-disease biopharmaceutical company with three marketed products—Chenodal, Cholbam and Thiola—and a development pipeline including fosmetpantotenate, sparsentan, CNSA-001 and L-UDCA. The filing reports ongoing Phase 3 studies of fosmetpantotenate for PKAN and sparsentan for FSGS; it planned to begin a Phase 3 sparsentan study for IgAN in Q4 2018.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net product sales | $40.7m | $40.3m | $120.5m | $112.8m |
| Operating loss | $35.6m | $10.6m | $75.1m | $38.6m |
| Net loss | $54.5m | $17.8m | $95.2m | $42.1m |
| Loss per share | $1.34 | $0.46 | $2.37 | $1.10 |
| Operating cash flow | Not stated for the quarter | $(21.4)m | $8.3m |
Sales increased 0.9% in Q3 and 6.8% for the nine-month period. Nine-month sales growth reflected higher patient counts for both bile acid products and Thiola; Q3 growth was attributed to Thiola. Gross margin, calculated from reported sales less cost of goods sold, was approximately 97.2% for Q3 and 96.7% for the nine-month period.
At September 30, cash and cash equivalents were $154.8m and marketable securities were $324.0m, totaling $478.8m. Current assets were $503.0m and current liabilities $99.9m; reported working capital was $403.1m. Total liabilities were $397.1m. Convertible notes had $298.6m aggregate principal outstanding ($276.0m due 2025 and approximately $22.6m due 2019); their combined balance-sheet carrying value, net of discounts and issuance costs, was $215.1m.
Changes and unusual items
- R&D expense rose to $91.8m for nine months, up $33.2m year over year, primarily due to Phase 3 activity, IgAN study start-up and CNSA-001 development funding.
- Contingent-consideration remeasurement expense increased to $22.4m for nine months from $11.1m, reflecting revised projections, timing and discount factors.
- In September, the company issued $276m principal of 2.5% convertible notes due 2025, receiving approximately $267.2m net proceeds. It used approximately $40.2m to repurchase $23.4m principal of 2019 notes, recording a $17.0m extinguishment loss.
- The company early adopted accounting guidance for warrants, reclassifying a $15.7m derivative liability to equity; this eliminated subsequent fair-value remeasurement under the prior treatment.
- Operating cash flow shifted from $8.3m provided to $21.4m used year over year, which management attributed primarily to increased clinical-trial activity after noncash items.
Outlook, risks and contingencies
Management stated that available cash and short-term investments were expected to fund anticipated operations for at least 12 months from the filing date. The filing gave no specific revenue, earnings or cash-burn guidance. Management cautioned that operating results and financing needs could vary with product sales, clinical progress and costs, regulatory timing, manufacturing, debt service and potential acquisitions.
Key development risks include failure or delay in clinical trials, enrollment challenges, regulatory uncertainty—including whether sparsentan FSGS data could support accelerated approval—and dependence on third-party manufacturers and distributors. The company also disclosed that CEO Stephen Aselage planned to retire and that a successor search was underway.
Material legal matters included ongoing arbitration between the company and former CEO Martin Shkreli, with a hearing scheduled for June 2019, and a new antitrust and unfair-competition suit filed by Spring Pharmaceuticals on October 23, 2018 concerning access to Thiola samples. The company said it intended to defend the Spring claims. It had advanced $5.4m in Shkreli legal fees; $3.8m had been reimbursed by insurers, whose final reimbursement obligation remained uncertain.
Investor verification priorities
- Track cash burn against management’s stated 12-month funding expectation, including spending on the Phase 3 programs.
- Review clinical enrollment, timing and regulatory feedback for fosmetpantotenate and sparsentan, including the planned IgAN trial.
- Assess the 2019 note maturity and the 2025 notes’ conversion, repurchase and potential cash-settlement terms.
- Monitor product sales by brand, reimbursement and generic competition, particularly for Chenodal and Thiola.
- Follow contingent-consideration revaluations, the Shkreli proceedings and the Spring Pharmaceuticals lawsuit.