2023-08-10 17:46:10 ET
Summary
- Rigel Pharmaceuticals shows growth in Q2 2023 earnings with increased revenues and reduced net loss, but concerns remain over financial stability.
- The company focuses on expanding hematology/oncology products, showing promise in growth strategies, but with underlying risks such as cash burn.
- Investment recommendation maintains a "Hold" rating on Rigel; investors must monitor key financial metrics and strategic developments before additional investment.
Introduction
Rigel Pharmaceuticals ( RIGL ) creates innovative small molecule drugs to improve life quality for those with blood disorders, cancer, and rare immune diseases. Two drugs, Tavalisse and Rezlidhia, have FDA approval for treating specific conditions in chronic immune thrombocytopenia and Acute Myeloid Leukemia.
In my previous analysis of Rigel Pharmaceuticals, I noted progress in their Q1 2023 earnings, particularly Tavalisse's robust growth and Rezlidhia's promising start. While maintaining a "Hold" rating, I expressed increasing optimism due to growth indicators, improved financial efficiency, and strategic financial management. I recommended that investors watch the company for potential positive developments that might warrant a rating upgrade.
The following article analyzes Rigel Pharmaceuticals' Q2 2023 earnings, highlighting the growth of Tavalisse and Rezlidhia, improved financial efficiency, and ongoing concerns about financial stability and cash burn rate.
Q2 2023 Earnings
In Q2, 2023, Rigel reported a net loss of $6.6 million, an improvement from a $13.5 million loss in 2022. Revenues reached $26.9 million, with $21.3 million from Tavalisse (a 15% increase from 2022) and other contributions from Rezlidhia, collaborations, and government contracts. Costs and expenses fell to $32.2 million due to decreased R&D costs. For the first half of 2023, Rigel reduced its net loss to $20.1 million from $40.9 million in 2022, with total revenues of $52.9 million, and costs and expenses of $70.9 million. Rigel's cash, cash equivalents and short-term investments stood at $64.4 million as of June 30, 2023.
Balance Sheet Checkup
Turning to their balance sheet , Rigel Pharmaceuticals holds total current assets of $100.93 million as of June 30, 2023, with cash and cash equivalents of $48.81 million and short-term investments of $15.55 million. The net loss for the first six months of 2023 is $20.14 million, indicating a monthly cash burn rate of approximately $3.36 million. Considering the total liquidity of $64.36 million (combining cash, cash equivalents, and short-term investments), the company has an estimated cash runway of roughly 19 months. My calculation assumes the existing burn rate remains constant and that short-term investments can be readily converted into cash. Rigel does have a $60.0 million term loan credit facility with MidCap Financial Trust, with agreements and amendments defining tranches and conditions. The loan matures on September 1, 2026, and is secured by Rigel's assets.
Valuation, Growth, & Momentum
Per Seeking Alpha data, ((RIGL)) demonstrates mixed signals in valuation, growth, and momentum. The valuation metrics show challenges, with negative earnings and a P/E that's not meaningful. The three-year revenue growth is modest at 3.89%, but projected increases in EPS and Sales for 2024 and 2025 signify a positive growth trajectory. Despite an improvement in year-over-year earnings, profitability remains a concern with negative margins. Momentum is inconsistent, with a one-year return of -21.48% against the SP500, but a significant 9-month growth of +60.25%.
Growth Initiatives
In their most recent earnings call , Rigel's management outlined growth initiatives that focus on expanding their hematology/oncology portfolio. The initiatives included continuous growth and demand for Tavalisse, for adult chronic immune thrombocytopenia ((CITP)), which achieved a 15% year-over-year increase in net sales in Q2 of 2023. The company also focused on the launch of Rezlidhia for adult relapsed or refractory IDH positive AML, concentrating on driving awareness and building relationships with new doctors. Highlights include engagement at the 2023 ASCO annual meeting and promising data presentations. Additionally, Rigel is progressing in the enrollment of a Phase 1b Study of R289 for lower-risk MDS and evaluating expansion opportunities in their hematology/oncology business. The RIPK1 program, in collaboration with Eli Lilly ( LLY ), has also advanced with the initiation of a Phase 2a trial in patients with rheumatoid arthritis. Efforts to grow awareness of Rezlidhia through promotional activities, scientific publications, hiring institutional business managers, and utilizing various channels were also emphasized, showcasing a multifaceted approach to growth in the second half of 2023.
My Analysis & Recommendation
To sum up, the financial results of Rigel for Q2 2023 reveal a complex image of a biotech in a state of transformation, highlighting both potential and obstacles. On the upside, there's consistent revenue growth from Tavalisse, and the launch of Rezlidhia has gotten off to an encouraging start. A 15% year-over-year growth in net sales, along with cost and expense reductions, indicates a distinct enhancement in financial competence. Rigel's attempts to broaden its hematology/oncology collection, together with partnerships like the RIPK1 project with Eli Lilly, emphasize the planned moves for expansion.
On the flip side, these positive aspects are balanced by genuine concerns. The reduced yet still existing net loss underlines the continuous financial uncertainty, which is also underscored by the irrelevant P/E ratio and negative profit margins. Uneven progress and only moderate revenue growth over three years raise doubts about Rigel's long-term growth path. Furthermore, Rigel's ability to pay off its debt, under existing terms and in the absence of profitability, remains in question.
Investors must also be acutely aware of the intrinsic risks tied to putting money into a microcap company such as Rigel, with a market capitalization near $200 million. Stocks in microcap businesses can be more erratic and might have less liquidity than larger corporations. Information may be more difficult to verify, and the stocks might be more open to manipulation. Worries about the rate at which cash is being used up, and the possible requirement for more funds, intensify the risks associated with Rigel.
In the future, investors would be wise to monitor Rigel's handling of its cash consumption, the success in boosting the sales of Tavalisse and Rezlidhia, and the advancements in collaborations and new pharmaceutical innovations. The capacity to turn growth tactics into enduring profitability will be vital for the company.
Considering these factors, I conclude that retaining the "Hold" rating on Rigel is appropriate at this time. While the company exhibits clear paths to growth and positive transformation, underlying risks and potential hurdles cannot be overlooked. Investors with a greater appetite for risk and a more extended outlook may see this as a favorable time, recognizing the possible benefits. Yet, a cautious strategy necessitates continuous observation of essential financial indicators and tactical advancements before making any further investment decisions.
For further details see:
Rigel: Incremental Progress, But Major Financial Risks Remain