Travere Therapeutics(TVTX) - 2019 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Net product sales increased to $84.3 million, but net loss widened to $79.7 million due to higher R&D and SG&A expenses and a program discontinuation charge Condensed Consolidated Statements of Operations Q2 2019 net sales grew to $44.7 million, but increased expenses led to a $38.7 million net loss, with a $25.5 million H1 impairment charge Financial Performance (Three Months Ended June 30) | Financial Metric | Q2 2019 | Q2 2018 | Change | | :--- | :--- | :--- | :--- | | Net Product Sales | $44.7M | $41.3M | +8.1% | | R&D Expenses | $37.9M | $34.5M | +9.8% | | SG&A Expenses | $39.0M | $25.1M | +55.4% | | Operating Loss | ($36.5M) | ($21.6M) | +69.4% | | Net Loss | ($38.7M) | ($22.3M) | +73.5% | | Net Loss Per Share | ($0.92) | ($0.56) | +64.3% | Financial Performance (Six Months Ended June 30) | Financial Metric | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Net Product Sales | $84.3M | $79.8M | +5.6% | | R&D Expenses | $71.4M | $59.1M | +20.8% | | SG&A Expenses | $71.6M | $51.6M | +38.8% | | Operating Loss | ($74.8M) | ($39.5M) | +89.4% | | Net Loss | ($79.7M) | ($40.7M) | +95.8% | | Net Loss Per Share | ($1.91) | ($1.03) | +85.4% | - In the first half of 2019, the company recorded a $25.5 million impairment charge for the L-UDCA IPR&D intangible asset and a corresponding $18.0 million write-off of the related contingent consideration, resulting in a net non-cash charge of $7.5 million[18][105] Condensed Consolidated Balance Sheets Total assets decreased to $647.6 million by June 30, 2019, due to reduced cash and marketable securities; liabilities decreased to $370.5 million from debt conversion Key Balance Sheet Items (in thousands) | Account | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $75,657 | $102,873 | | Marketable securities | $350,243 | $368,668 | | Total Assets | $647,574 | $709,160 | | Total Liabilities | $370,485 | $390,907 | | Total Stockholders' Equity | $277,089 | $318,253 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $39.6 million for H1 2019, reducing cash and equivalents to $75.7 million by period-end Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($39,601) | ($17,494) | | Net Cash Provided by Investing Activities | $13,818 | $7,056 | | Net Cash (Used in) Provided by Financing Activities | ($1,434) | $383 | | Net Change in Cash | ($27,216) | ($10,089) | | Cash at End of Period | $75,657 | $89,305 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail program discontinuations, 2019 convertible note conversion, CEO settlement, and ongoing Thiola litigation - The company's three commercial products are Chenodal, Cholbam, and Thiola; key pipeline candidates are fosmetpantotenate for PKAN and sparsentan for FSGS and IgAN[25][26][29] - In May 2019, the remaining $22.6 million principal of the 4.50% Senior Convertible Notes due 2019 was converted by holders into approximately 1.3 million shares of common stock[84] - The company discontinued the L-UDCA program in Q1 2019, resulting in a $25.5 million intangible asset write-off and the reversal of $18.0 million in associated contingent consideration[105] - In August 2019, the company decided not to exercise its option to acquire Censa Pharmaceuticals and will discontinue the joint development of CNSA-001, expecting to impair its $15 million investment in Q3 2019[106][53] - The company is involved in a lawsuit with Spring Pharmaceuticals, which alleges the company refused to sell samples of Thiola for generic bioequivalence testing[92] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights 5.6% revenue growth, increased operating expenses from Phase 3 trials and legal costs, and portfolio adjustments including program discontinuations Overview of Business and Pipeline The company focuses on rare disease therapies, with pipeline updates including expected Phase 3 data, THIOLA® EC approval, and program discontinuations - Top-line data from the pivotal Phase 3 FORT Study of fosmetpantotenate in PKAN is expected in the third quarter of 2019[114] - Top-line data from the interim analysis of the Phase 3 DUPLEX study of sparsentan in FSGS are expected in the first half of 2021[116] - Top-line data from the primary endpoint of the Phase 3 PROTECT study of sparsentan in IgAN are expected in the first half of 2022[116] - The FDA approved THIOLA® EC, a new enteric-coated formulation of tiopronin, in June 2019, which became available to patients in July 2019[128] - The company discontinued the L-UDCA program in Q1 2019 and decided in August 2019 to discontinue the CNSA-001 program and decline its option to acquire Censa Pharmaceuticals[129][130] Results of Operations H1 2019 net sales increased by $4.5 million (5.6%), R&D expenses rose by $12.3 million (20.8%), and SG&A by $20.1 million (39.0%) due to trials, compensation, and legal costs Net Product Sales (in thousands) | Product | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Bile acid products | $39,319 | $37,102 | +$2,217 | | Thiola | $44,958 | $42,667 | +$2,291 | | Total | $84,277 | $79,769 | +$4,508 | Operating Expense Changes (H1 2019 vs H1 2018, in thousands) | Expense Category | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Research and development | $71,377 | $59,096 | +$12,281 | | Selling, general and administrative | $71,639 | $51,568 | +$20,071 | - The increase in R&D expenses was due to increased clinical trial costs for the three ongoing Phase 3 studies: fosmetpantotenate in PKAN and sparsentan in FSGS and IgAN[136] - The increase in SG&A expenses was due to higher compensation costs from a larger employee base and increased legal expenses[138] Liquidity and Capital Resources As of June 30, 2019, the company held $75.7 million in cash and $350.2 million in marketable securities, with net working capital of $366.4 million, sufficient for 12 months of operations Liquidity Position (in thousands) | Metric | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash & Cash Equivalents | $75,657 | $102,873 | | Marketable securities | $350,243 | $368,668 | | Net Working Capital | $366,428 | $391,057 | - In May 2019, the remaining $22.6 million of 2019 Notes were converted into approximately 1.3 million shares of common stock[155] - The company's primary debt is $276.0 million in 2.50% Convertible Senior Notes due 2025, issued in September 2018[146] - Cash used in operating activities increased to $39.6 million in H1 2019 from $17.5 million in H1 2018, attributed to higher R&D and legal expenses[156] Quantitative and Qualitative Disclosures about Market Risk Primary market risk is interest rate exposure on investments, with a hypothetical 1% adverse change impacting marketable securities by $2.8 million - The company's main market risk is interest rate risk on its investment portfolio of cash and marketable securities[166] - A hypothetical 1% adverse move in interest rates would result in an approximate $2.8 million decrease in the value of the company's available-for-sale marketable securities[166] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[168] - No material changes to the company's internal control over financial reporting were identified during the quarter[169] PART II – OTHER INFORMATION Legal Proceedings The company settled disputes with former CEO Martin Shkreli in June 2019 and is defending an antitrust lawsuit from Spring Pharmaceuticals regarding Thiola® samples - The company and former CEO Martin Shkreli reached a comprehensive settlement in June 2019, dismissing all pending claims and counterclaims with prejudice[91] - Spring Pharmaceuticals filed a lawsuit in October 2018 alleging the company violated antitrust laws by refusing to sell samples of Thiola® for generic testing[92] Risk Factors The company faces significant risks including clinical trial failures, regulatory uncertainty, generic competition, pricing pressures, supply chain reliance, funding needs, litigation, and extensive government regulation Risks Related to Product Development and Commercialization Product development and commercialization risks include clinical trial failures, uncertain regulatory approval, generic competition, pricing pressures, and reliance on sole-source manufacturers - Clinical trials may fail to demonstrate safety and efficacy, which could prevent or delay regulatory approval for product candidates like fosmetpantotenate and sparsentan[172] - The company is subject to generic competition; it is currently in litigation with Spring Pharmaceuticals over access to Thiola samples and has received a civil investigative demand from the FTC regarding its marketing and pricing practices[198][200] - The company relies on sole-source third-party manufacturers for its products and a single third-party distributor, creating significant supply chain and commercialization risk[206][207] - The Special Protocol Assessment (SPA) for the fosmetpantotenate Phase 3 trial and the potential for accelerated approval (Subpart H) for sparsentan studies do not guarantee a favorable regulatory outcome[183][184] Risks Related to Business Operations and Financial Condition Business operations and financial risks include fluctuating results, uncertain profitability, need for additional funding, product liability, litigation, extensive government regulation, and potential limitations on NOL carryforwards - The company expects significant fluctuations in operating results and may need to raise substantial additional funding to support its development and commercialization efforts[255][260] - The company is subject to extensive and complex government regulations, including the Anti-Kickback statute, False Claims Act, and data privacy laws like HIPAA and the California Consumer Privacy Act (CCPA)[277][278][287] - The ability to use $36.5 million in federal NOL carryforwards to offset future taxable income may be subject to limitations under Section 382 of the Internal Revenue Code due to ownership changes[300] - The company faces potential product liability exposure and is involved in litigation matters that could result in substantial costs and divert management attention[237][272] Risks Related to Indebtedness The company's $276 million outstanding debt, primarily 2025 Convertible Notes, poses risks including cash flow impact, default risk, and potential dilution of existing stockholders upon conversion - As of June 30, 2019, the company had approximately $276 million of total debt outstanding, primarily related to its 2.50% Convertible Senior Notes due 2025[304] - The company may not have sufficient funds to repurchase the 2025 Notes for cash if required after a 'fundamental change' event, which would constitute a default[306][307] - Conversion of the 2025 Notes into common stock will dilute the ownership interests of existing stockholders[312][313] Other Information (Items 2, 3, 4, 5) The company reported no unregistered equity sales, no defaults on senior securities, and no other material disclosures for the period - There were no unregistered sales of equity securities or no defaults upon senior securities during the quarter[314][315]