2023-04-27 03:27:22 ET
Summary
- RIGL is set to report Q1'23 earnings on Tuesday, May 2, with the stock currently trading around year-to-date lows.
- RIGL is a two drug company nowadays, with the recent approval and launch of Rezlidhia, but Tavalisse is still a major story and Q1'23 earnings could see record sales.
- While there are some questions worth addressing on RIGL's cash balance, the company is pushing towards breakeven and potentially profitability.
When I last wrote about Rigel Pharmaceuticals ( RIGL ), I rated the name a strong buy for 2023, based on the potential of its newly-approved Rezlidhia to provide topline growth and the potential for fostamatinib to produce a positive result in a COVID clinical trial. While the Rezlidhia launch is in its early days, and results from the COVID trial are still ahead, this article takes a look at RIGL's push towards profitability, digesting March's Q4'22 earnings to make predictions about what investors might get from upcoming Q1'23 earnings.
Figure 1: Year-to-date trading of RIGL stock. Q4'22 earnings were met with a rally but didn't change the downward trend since late January.
Q4'22 Tavalisse sales and earnings call commentary bode well for Q1'23
RIGL reported full year and Q4'22 earnings on March 7, with Tavalisse net sales of $21.9M for the quarter, up from the quarter prior ($19.2M) and Q4'21 ($17.6M). The sales growth is supported by an increase in the number of bottles shipped to clinics, for example 2,196 bottles were shipped in Q4'22, representing a 23% increase vs Q4'21. Growth that isn't the result of price increases is a big positive for Tavalisse in the ITP indication.
Figure 2: Tavalisse quarterly sales. (RIGL Q4'22 earnings presentation.)
There was more good news on Tavalisse that was discussed on the earnings call.
Usually, we see a downward drag of Q1. We're seeing a small increase actually in patients -- bottles shipped to patients and clinics. Just to remind you, last quarter Q4 was our best quarter since launch, given that we are seeing some growth on top of that. Q1, oddly, Q1 is always challenging. This Q1 will be our best quarter since launch, not our best quarter first quarter, our best quarter since launch.
Raul Rodriguez, President and CEO of RIGL, March 7 earnings call .
RIGL has announced that it will report Q1'23 earnings on Tuesday, May 2, 2023, and so confirmation of the CEO's statements regarding Tavalisse might aid a reversal in the stock, which is trading around year-to-date lows.
It is early days for Rezlidhia
Rezlidhia (olutasidenib) was approved on December 1, 2022, in certain relapsed/refractory acute myeloid leukemia patients (r/r AML) with an IDH1 mutation, and only became commercially available on December 22, 2022. As such, Rezlidhia's net product sales of $0.9M in Q4'22 were never going to be huge. A total of 64 bottles were shipped to distributors, with two shipped on to patients and clinics in Q4'22.
The Chief Commercial Officer of RIGL, Dave Santos, also mentioned one of the challenges in marketing Rezlidhia, noting that half the potential prescribers are more difficult to access.
... as we've talked about, there are about a 1,000 AML prescribers that we've -- we're calling on as targets. About half of those are consistent with our TAVALISSE targets and about half of those are leukemia treaters, who really are specialized in leukemia. And those are the people that can be more difficult to access, and it's been a little bit more difficult for us...
Dave Santos, EVP and CCO of RIGL, March 7 earnings call.
Still the CCO did say the company was making progress in that regard and so with Q1'23 earnings we might expect some confirmation that the company has continued to make strides to reach the target prescribers. Further, the National Comprehensive Cancer Network (NCCN) updated its clinical practice guidelines on January 13 for AML with olutasidenib included as a recommended targeted therapy for r/r AML with an IDH1 mutation, which is another positive for the launch of Rezlidhia. Putting these things together, it wouldn't be hard for RIGL to come up with something positive regarding Rezlidhia with Q1'23 earnings.
Figure 3: Overview of patient types in r/r AML and addressable patient population for Rezlidhia. (RIGL March 2023 Corporate Presentation)
The road to breakeven and profitability
At year-end, 2022, RIGL had cash, cash equivalents and short-term investments of $58.2M. Although RIGL reported a net income of $1.4M for Q4'22, this was influenced by $26.5M in contract revenues from collaborations, such as a $20M payment from Kissei ( OTCPK:KSPHF ). While RIGL is discussing profitability and breakeven, there are still some concerns on the company's cash, indeed net cash used in operating activities was $73.8M in 2022.
So at the end of last year you had about $58 million in cash and cash you burn for this year since running higher than that. So can you talk about how you fund the operations for this year and beyond...
Eun Yang, Analyst at Jefferies, March 7 earnings call.
... So we ended 2022 with $58 million of cash, as you noted. Incrementally in January, we received $20 million from Kissei. So we're comfortable with our current cash position in the business that we've discussed today. We -- with respect to the path to profitability, we really do as a company, it is a priority for our business to achieve cash flow breakeven... We are reducing our operating expense from about $176 million in 2022, the numbers we just reported, down to what we expect to be about $160 million this year. I would note that over $10 million of the operating expenses I just described are non-cash, they are stock comp and depreciation.
Dean Schorno, EVP and CFO of RIGL, March 7 earnings call, emphasis mine.
RIGL has to make payments to Eli Lilly ( LLY ) as part of the RIPK1 inhibitor agreement. RIGL's agreement with LLY sees the company responsible for 20% of R552 development costs in the US, Europe and Japan up to a specified cap. LLY is expected to initiate a 100 patient, phase 2a trial in rheumatoid arthritis in H1'23 and so RIGL being billed for 20% of those costs should be on the cards. RIGL notes that through December 31, 2022, LLY has billed RIGL $15.1M . By comparison, through September 30, 2022, LLY had billed RIGL $12.4M . Based on those numbers, RIGL was being billed by LLY $2.6M per quarter, but I would expect that to pick up as LLY moves into a phase 2a study.
If RIGL opts out of further development of R552 prior to September 30, 2023, the company would then be required to pay 20% of costs based on development activities in the US, Europe and Japan up to a cap of $65M through April 1, 2024. As such I don't see RIGL opting out of this major opportunity with LLY to develop what could be a very big revenue source, when it wouldn't even have much of an effect on near-term costs (it wouldn't really start reducing costs until after April 1, 2024).
Beyond the commitment to LLY, milestones have been met with regards to Rezlidhia that will see RIGL needing to pay a further $15M to Forma Therapeutics, now part of Novo Nordisk ( NVO ), as part of their Rezlidhia agreement. Despite commitments to LLY and NVO, I see multiple strategies for RIGL to continue on the road to breakeven or profitability.
Strategy 1: Continue Sales Growth
The first thing to consider is continued Tavalisse growth. A $90M net sales run rate based on Q4 sales was mentioned by the CFO, which might be conservative given that Q1'23 is tracking better than expected. Secondly, with net revenues for Rezlidhia expected in 2023, that drug can make a contribution as well.
Strategy 2: Set up new partnership agreements
Outside of product sales there is the potential for an upfront payment from a partner if RIGL partners Rezlidhia, giving up ex-US revenues, or partners Rezlidhia in new indications outside of r/r AML.
We are having discussions with olutasidenib. As you know, as part of the license, we have global rights to olutasidenib, and the opportunities are attractive ex U.S. as well. So we are in discussions with potential partners regarding that.
Raul Rodriguez, CEO of RIGL, March 7 earnings call.
RIGL is also considering partnering R289, the company's IRAK1/4 inhibitor, which is currently in a trial in patients with myelodysplastic syndromes ((MDS)).
Strategy 3: Bring in milestone payments
Outside of sales of Tavalisse and Rezlidhia, or upfront payments from partnering Rezlidhia or R289, RIGL also has the potential to bring in milestone payments from its existing collaborators. For example, in 2022, RIGL brought in $39M in contract revenues from collaborations, so to consider only a potential payment to LLY and not think about it being potentially offset by milestones from RIGL's collaborations, ever growing revenues from Tavalisse, and new revenues from Rezlidhia is a bit conservative.
Figure 4: RIGL's pipeline includes multiple partner programs. (RIGL 10-K filed March 7)
Strategy 4: Further reductions in expenses
Even then, if RIGL expected no new milestone payments from collaborators in 2023, the company can reduce its expenses more aggressively. Firstly, RIGL could cut R&D expense by halting trials, such as the company's efforts with its IRAK1/4 inhibitor, R289, in myelodysplastic syndromes. I don't view cutting the sales force as ideal, but RIGL did previously see sales growth with Tavalisse with a smaller sales force, and if half the prescriber base for Rezlidhia overlaps with that, the company could still drive the launch of that drug if it had to reduce its sales team.
Conclusions
I think investors can hope for some more details on RIGL's expected expenses and revenues to get a clearer picture on RIGL's push towards breakeven and profitability with Q1'23 earnings. At the very least we'll have more clarity on revenue growth with Tavalisse (such as confirming the strong Q1'23 to which the CEO alluded), and the launch of Rezlidhia.
Results from the COVID-19 trial of fostamatinib are still possible in 2023, with the clinicaltrials.gov entry for the ACTIV-4 study being updated on February 23 with an estimated primary completion date of August 29, 2023.
I consider RIGL to be a strong buy based on Tavalisse revenue growth (that the market may not have priced in), expense reductions pushing the company towards breakeven, existing clinical catalysts (fostamatinib in COVID, R289 in MDS and olutasidenib in other indications) and Rezlidhia's potential to add to revenues. With RIGL at current prices you have a biotech with a market cap of ~$200M, net sales heading towards $100M annually, pushing to profitability with clinical catalysts ahead.
The risks of any long in RIGL are several fold, a few of which I'll mention here. Firstly, Rezlidhia sales could underwhelm even if there is growth quarter-over-quarter. Secondly, disappointing results in any of RIGL's clinical trials could see the stock trade down. Lastly, delays in reporting results from clinical trials could see the stock trade down even without disappointing data.
For further details see:
Rigel Pharmaceuticals Q1 Preview: A 2-Drug Company Pushing For Profitability