Travere Therapeutics(TVTX) - 2020 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Financial statements reflect increased cash and equity from a June 2020 offering, alongside product sales growth and a narrowed net loss Condensed Consolidated Balance Sheets Total assets increased due to a substantial rise in cash from an equity offering, while liabilities decreased and equity grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $237,170 | $62,436 | | Total current assets | $505,562 | $429,064 | | Total assets | $678,694 | $604,800 | | Liabilities & Equity | | | | Total current liabilities | $69,933 | $95,449 | | Convertible debt | $210,009 | $204,861 | | Total liabilities | $360,049 | $383,604 | | Total stockholders' equity | $318,645 | $221,196 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net product sales increased, and net loss significantly narrowed for both the quarter and six-month period, aided by lower expenses and a tax benefit Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net product sales | $48,430 | $44,707 | $96,199 | $84,277 | | Research and development | $30,790 | $37,934 | $61,038 | $71,377 | | Selling, general and administrative | $34,971 | $38,970 | $68,110 | $71,639 | | Operating loss | ($23,111) | ($36,529) | ($38,176) | ($74,757) | | Net loss | ($26,068) | ($38,701) | ($25,260) | ($79,678) | | Basic and diluted net loss per share | ($0.58) | ($0.92) | ($0.57) | ($1.91) | - For the six months ended June 30, 2020, the company recorded an income tax benefit of $18.9 million, compared to an expense of $470 thousand in the prior year period[18] Condensed Consolidated Statements of Cash Flows Net cash increased significantly due to financing activities, primarily from common stock issuance, despite cash used in operations Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,608) | ($39,601) | | Net cash provided by investing activities | $107,353 | $13,818 | | Net cash provided by (used in) financing activities | $103,022 | ($1,434) | | Net change in cash and cash equivalents | $174,734 | ($27,216) | | Cash and cash equivalents, end of period | $237,170 | $75,657 | - The primary source of financing cash flow was $108.6 million in net proceeds from the issuance of common stock[21] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's biopharmaceutical focus, approved products, clinical programs, debt, and key financial events including a tax benefit and stock offering - The company is a biopharmaceutical firm focused on rare diseases with three approved products: Chenodal®, Cholbam®, and Thiola®/Thiola EC®[26][32] - Key clinical programs include two pivotal Phase 3 studies for sparsentan in FSGS and IgAN, and a Phase 3 study for Chenodal in CTX[28] Net Product Revenue by Category (in thousands) | Product Category | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Bile acid products | $21,573 | $20,929 | $43,854 | $39,319 | | Tiopronin products | $26,857 | $23,778 | $52,345 | $44,958 | | Total | $48,430 | $44,707 | $96,199 | $84,277 | - The company has $276.0 million in aggregate principal of 2.50% Convertible Senior Notes due 2025[78] - A discrete income tax benefit of $18.9 million was recorded in the first six months of 2020 due to the CARES Act, which allows for the carryback of net operating losses[106] - In June 2020, the company sold 7.5 million shares of common stock in a public offering, raising net proceeds of $108.6 million[114] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses rare disease focus, COVID-19 impact, increased net product sales, decreased operating expenses, and sufficient cash for future operations - The COVID-19 pandemic has the potential to impact business, including slowing the pace of enrollment in clinical trials, but did not have a material adverse effect on financial results for the first half of 2020[118] Net Product Sales Comparison (in thousands) | Product Line | Six Months 2020 | Six Months 2019 | Change | | :--- | :--- | :--- | :--- | | Bile acid products | $43,854 | $39,319 | $4,535 | | Tiopronin products | $52,345 | $44,958 | $7,387 | | Total | $96,199 | $84,277 | $11,922 | - R&D expenses decreased by $10.3 million for the first six months of 2020 compared to the same period in 2019, mainly due to the discontinuation of the fosmetpantotenate program in PKAN[139] - SG&A expenses decreased by $3.5 million for the first six months of 2020 compared to 2019, primarily due to lower legal expenses[141] - The company believes its available cash and short-term investments are sufficient to fund operations beyond the next 12 months[148] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to changes in interest rates on its portfolio of debt securities, with a hypothetical 1% adverse move decreasing value by approximately $1.1 million - The company's main market risk is interest rate risk on its portfolio of cash and debt securities[170] - A hypothetical 1% adverse change in interest rates would result in a decrease of approximately $1.1 million in the fair value of the company's available-for-sale debt securities[170] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no significant changes in internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarter[172] - No significant changes to internal control over financial reporting were identified during the quarter ended June 30, 2020[173] PART II – OTHER INFORMATION Legal Proceedings A lawsuit alleging antitrust violations against the company was voluntarily dismissed in April 2020, with no other material adverse proceedings identified - Information on legal proceedings is incorporated by reference from Note 12 of the financial statements[174] - A lawsuit by Spring Pharmaceuticals alleging antitrust violations was voluntarily dismissed in April 2020[99] Risk Factors The company outlines significant risks including clinical trial failures, commercialization challenges, lack of patent protection, convertible debt, and extensive regulatory compliance Risks Related to the Development of our Product Candidates Risks include potential clinical trial failures for product candidates like sparsentan, exacerbated by COVID-19, and uncertainty regarding regulatory acceptance of surrogate endpoints - Clinical trials for product candidates like sparsentan may fail to demonstrate safety and efficacy, which could prevent or delay regulatory approval[176] - The COVID-19 pandemic has amplified risks and may delay clinical trial timelines due to slower patient enrollment and other disruptions[180][193][269] - There is no guarantee that the FDA or EMA will accept proteinuria as a surrogate endpoint for accelerated or conditional approval for sparsentan, despite prior feedback[189][190] - The company relies on independent investigators and CROs, whose performance may be substandard or impacted by competing interests, a risk heightened by the introduction of new home health providers due to COVID-19[201] Risks Related to the Commercialization of Our Products Commercialization risks include generic competition, changes in reimbursement practices, and supply chain vulnerability due to reliance on sole-source third-party manufacturers and distributors - The company is subject to generic competition for products like Thiola, and recent legislative changes like the CREATES Act are designed to encourage such competition[205][206][207] - Changes in reimbursement policies from government and private payers, and potential loss of insurance coverage by patients due to unemployment, could adversely affect demand and pricing[211][212][214] - The company has no manufacturing capabilities and relies on sole-source third-party manufacturers and a single third-party distributor for its products[216][217] Risks Related to our Products and Product Candidates Key product risks include lack of patent protection for commercial products, potential product liability, and dependence on third-party manufacturers for regulatory compliance and supply - The company does not have patent protection for its commercial products Thiola, Chenodal, or Cholbam[233][236] - The product candidate sparsentan is covered by use patents expiring in 2030, but its composition of matter patent expired in 2019[237] - The company faces potential product liability exposure in excess of its insurance coverage, which is $10 million per occurrence and $25 million in aggregate for clinical trials[256] - The company is entirely dependent on third-party manufacturers, which entails risks related to regulatory compliance (cGMP), supply capacity, and quality control[260][261][262] Risks Related to Our Business Business risks include COVID-19 disruptions, uncertain profitability, extensive government regulation, potential need for additional funding, and vulnerability to cyber-attacks - The COVID-19 pandemic could materially adversely affect business by disrupting clinical trials, the supply chain, and access to capital markets[268] - The company is subject to extensive and complex federal and state regulations, including the Anti-Kickback statute, False Claims Act, and data privacy laws like HIPAA and CCPA, with significant penalties for non-compliance[297][298][308] - The company may need substantial additional funding for its development programs and commercialization, and access to capital may be difficult[281] - Internal computer systems are vulnerable to security breaches and cyber-attacks, which could result in data loss, liability, and disruption of development programs[322][323] Risks Related to our Indebtedness and Investments Significant risks relate to the $276 million convertible senior notes, including cash flow requirements, potential inability to repurchase notes, and dilution of existing stockholders upon conversion - The company has approximately $276 million of total debt outstanding from its 2025 Convertible Senior Notes, which could adversely affect its financial condition and limit flexibility[333][334] - The company may be unable to raise the funds necessary to repurchase the notes upon a 'fundamental change' or to pay cash amounts due upon conversion, which would constitute a default[335][336] - Conversion of the notes into common stock will dilute the ownership interests of existing stockholders[341] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[342] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[343] Mine Safety Disclosures This item is not applicable to the company - Not applicable[344] Other Information The company reported no other information required to be disclosed in this item - None[345] Exhibits This section lists various exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance and debt agreements - Lists various exhibits filed with the report, including indentures for convertible notes, equity incentive plans, and CEO/CFO certifications[347]