Things finally appeared to be looking up for Rigel Pharmaceuticals (RIGL +4.55%). After limping through a tumultuous 2018, the business reported a solid end of the year driven by a surge in net sales for Tavalisse, a treatment for chronic immune thrombocytopenia (ITP) and the company's sole drug product. While shares rose on that business update in March, they promptly reversed course and have since slid to multiyear lows.
In that time, the company reported first-quarter 2019 operating results showing continued growth in product revenue, an important phase 3 trial began enrolling patients, and the business appears to have enough cash to fund operations into the second half of 2020. Does that mean Rigel Pharmaceuticals is a buy?
Image source: Getty Images.
By the numbers
Wall Street wasn't pleased with a slow market launch for Tavalisse a little over a year ago, but it appears to be on a more promising trajectory now. Rigel Pharmaceuticals sold approximately 1,800 bottles in all of 2018 and then followed that up by selling slightly over 1,000 bottles in Q1 2019. That resulted in quarter-over-quarter growth of 10%, which isn't as high as investors might expect.
Nonetheless, keeping a double-digit growth rate in product revenue would put the business on track to deliver roughly $40 million in net product sales in 2019. That's a far cry from analyst expectations for up to $300 million in peak annual sales, but the future could be bright. The U.S. market opportunity in ITP treatments is estimated at $1 billion, while core international markets represent another $800 million opportunity. That's a lucrative bounty -- and Rigel Pharmaceuticals is spending heavily to capture it.
That might be part of the problem. The business reported operating expenses of $31 million in Q1 2019, compared with just $8 million in net product revenue. Investors should expect a large gap between those numbers, given the early-stage status of Tavalisse, but as operating losses pile up, the cash balance dwindles.
|
Metric |
Q1 2019 |
Q4 2018 |
Quarter-Over-Quarter Change |
|---|---|---|---|
|
Net product revenue |
$8.0 million |
$7.3 million |
10% |
|
Collaboration revenue |
$4.6 million |
$30.6 million |
(85%) |
|
Total revenue |
$12.6 million |
$37.9 million |
(67%) |
|
Costs and operating expenses |
$31.0 million |
$35.3 million |
(12%) |
|
Operating income |
($18.4 million) |
$2.5 million |
N/A |
Data source: press releases.
The large quarter-over-quarter difference in collaboration revenue was driven entirely by the timing of a $30 million upfront payment from Grifols, which inked a deal to market Tavalisse in Europe and Turkey. The $16 billion pharma leader will provide tiered royalties on sales and up to $297 million in milestone payments, including a $20 million milestone payment should Tavalisse earn marketing approval for ITP.
That regulatory decision -- and potential payment -- is expected in Q4 2019. However, if Grifols turns down the option to market the drug, or the drug fails to earn marketing approval, then Rigel Pharmaceuticals would have to pay back $20 million to regain the rights in Europe. It's important to note that the yet-to-be-received milestone payment is included in the company's prediction that cash on hand can fund operations into the second half of 2020. Therefore, failing to gain marketing approval in Europe would result in a $40 million negative swing for the cash runway.
A risky pharma stock with upside
While the business exited March with $129 million in cash on hand, Wall Street has pegged the company to a market cap of just $350 million. That's likely due to the relatively slow growth of Tavalisse and uncertainty relating to the Grifols partnership, although it could be a little too pessimistic, depending on how events unfold throughout the remainder of 2019. If the pace of net product revenue growth accelerates, and the drug earns marketing approval in Europe, then Rigel Pharmaceuticals would have significantly less uncertainty hanging overhead. That said, investors are probably better off waiting on the sidelines until Tavalisse demonstrates a few more quarters of solid -- and perhaps improved -- revenue growth.
