Travere Therapeutics, Inc. quarterly report, Q2 FY2015

Business context and reporting period

The filing is Retrophin, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2015. The supplied company metadata says Travere Therapeutics, Inc.; the filing itself identifies the registrant as Retrophin, Inc., so the entity and period should be verified.

Retrophin was a rare-disease biopharmaceutical company selling Chenodal, Thiola and newly acquired Cholbam, while developing sparsentan for FSGS, RE-024 for PKAN and RE-034. Financial amounts below are in U.S. dollars; monetary figures are in millions unless stated otherwise.

Financial performance and position

Metric	Three months ended June 30, 2015	Six months ended June 30, 2015
Net product sales	$24.1; prior year $5.7	$41.4; prior year $5.8
Operating loss	$(6.8); prior year $(17.2)	$(14.9); prior year $(39.2)
Net income (loss)	$(25.5); prior year $11.8	$14.1; prior year $(63.9)
Operating cash flow	Not separately stated in the cash flow statement	$0.6; prior year $(21.3)

• Sales growth reflected the Thiola license, the earlier Chenodal business acquisition and the March 2015 Cholbam acquisition; it is not a like-for-like growth comparison.
• Cost of goods sold was $0.6 million for Q2 and $0.9 million for the first half. Implied product gross margins were approximately 97.4% and 97.8%, respectively.
• Q2 net loss included a $29.4 million noncash loss from revaluing warrant liabilities, partly offset by a $15.5 million Questcor litigation settlement gain. First-half net income also included a $49.1 million after-tax bargain-purchase gain and a $40.0 million tax benefit related to the Cholbam acquisition.
• At June 30, cash and cash equivalents were $127.7 million and marketable securities were $5.9 million. Working capital was reported as a $72.4 million surplus. Cash from operations included the $15.5 million settlement; management stated that without it, first-half operating cash use would have been $14.9 million.
• Total assets were $425.1 million and total liabilities $274.4 million. The balance sheet included a $96.3 million Pediatric Priority Review Voucher (PRV) asset and a $91.2 million warrant derivative liability.
• Debt had a $91.0 million stated principal amount at quarter-end: $45.0 million under the credit facility and $46.0 million of convertible notes due 2019. The credit facility was repaid July 1, 2015 for $47.3 million, including a $2.3 million prepayment premium and accrued interest. Convertible notes remained outstanding; their carrying value was $43.6 million.

Material changes versus the prior comparable period

• Product sales increased substantially following commercialization and acquisitions, while Q2 SG&A rose $10.1 million year over year to $19.7 million, primarily due to additional commercial personnel. Q2 R&D fell $2.7 million to $10.6 million, largely due to timing of RE-024 toxicology studies; first-half R&D increased modestly.
• First-half results shifted from a large net loss to net income, but the improvement principally reflected acquisition accounting, tax accounting and derivative fair-value changes rather than recurring operating profitability.
• The company raised $140.0 million net in a March 2015 public offering. Cash and stockholders’ equity increased materially from year-end; June 30 stockholders’ equity was $150.8 million versus a $37.3 million deficit at December 31, 2014.
• 2014 comparative results were restated for errors involving equity awards and consulting agreements. The filing says the errors did not make the earlier interim statements misleading, but reports corrected figures here.

Outlook, commentary and risks

• On July 2, 2015, Retrophin sold the PRV to Sanofi for $245 million: $150.0 million received at closing and $47.5 million due on each of the first two anniversaries. The PRV was carried at $96.3 million at June 30; the incremental sale gain was to be recorded in Q3 2015.
• Management said existing capital resources and projected revenues were expected to fund requirements for at least 12 months, while cautioning that funding might not support all programs and that profitability and positive operating cash flow were not assured. No specific revenue or earnings guidance was provided.
• Development updates included enrollment in the Phase 2 DUET sparsentan study, planned for approximately 100 FSGS patients, and initiation of a Phase 1 RE-024 study. Management noted that accelerated approval for sparsentan was only a possibility, dependent on study data.
• The EU marketing authorization for Kolbam was annulled over a competitor’s orphan-exclusivity rights, not safety or efficacy concerns. The product remained available in Europe through nationally approved named-patient programs; management was evaluating its response.
• Key risks include clinical and regulatory uncertainty, patient recruitment, market acceptance and reimbursement, reliance on sole-source manufacturers and a third-party distributor, competition and intellectual-property challenges, and continuing operating losses and financing needs.
• Legal matters included shareholder litigation and cooperation with U.S. Attorney and SEC investigations; the company said it was not a target of the criminal investigation and recorded no loss accrual because contingencies were not considered probable or reasonably estimable. Schwab’s claims were later dismissed by stipulation, while related cross-claims remained pending.
• Disclosure controls were judged ineffective as of June 30, 2015. Management cited prior material weaknesses involving the control environment, contract review and accounting for equity awards, and described remediation efforts underway.

Important facts for investors to verify

1. Confirm the issuer identity and reporting period: the filing is for Retrophin, Inc., despite the Travere Therapeutics metadata.
2. Check the Q3 accounting and cash receipt for the $245 million PRV sale, including the deferred $95 million consideration and resulting gain.
3. Assess recurring cash burn apart from the Questcor settlement, and distinguish reported first-half net income from the one-time acquisition, tax and derivative effects.
4. Confirm the post-quarter debt position after repayment of the credit facility and monitor the remaining convertible notes and potential dilution.
5. Track Kolbam’s European access and the status of litigation, investigations, and remediation of ineffective disclosure controls.