Prothena Corporation plc — Q2 2020 Form 10-Q Summary
Business Context and Reporting Period
Prothena is an Ireland-incorporated, clinical-stage neuroscience company developing investigational therapies for neurodegenerative and rare peripheral amyloid diseases. Key partnered programs include prasinezumab with Roche and tau, TDP-43 and undisclosed-target programs with Bristol-Myers Squibb. Proprietary programs include PRX004 and Aβ-targeting programs. This report covers the three and six months ended June 30, 2020; the financial statements are unaudited.
Financial Performance and Position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $0.2 million | $0.2 million | $0.3 million | $0.4 million |
| Operating expenses | $26.9 million | $18.7 million | $51.9 million | $41.8 million |
| Loss from operations | $26.7 million | $18.5 million | $51.6 million | $41.5 million |
| Net loss | $26.3 million | $15.8 million | $49.9 million | $36.7 million |
| Basic and diluted loss per share | $0.66 | $0.40 | $1.25 | $0.92 |
| Net cash used in operating activities | Not separately reported | Not separately reported | $41.9 million | $29.5 million |
- Q2 revenue increased 17% year over year to $195,000, including $145,000 of Roche collaboration revenue and $50,000 of license revenue. Six-month revenue declined 5% to $336,000.
- R&D expense increased 80% in Q2 and 42% for the first six months, primarily because of higher Roche cost-sharing payments for prasinezumab and higher manufacturing costs for tau, Aβ and PRX004 programs. Roche-related R&D payments were $4.5 million in Q2 and $8.5 million year to date.
- General and administrative expense increased 6% in Q2 and 2% year to date, primarily due to higher director and officer insurance, legal and accounting costs, partly offset by lower personnel and share-based compensation costs.
- Operating and net-loss margins were deeply negative because the company generated minimal revenue relative to its research and development spending. A conventional gross margin was not presented and is not meaningful for this clinical-stage business.
- Cash and cash equivalents were $333.9 million at June 30, 2020, compared with $375.7 million at December 31, 2019. Including $2.7 million of restricted cash, total cash, cash equivalents and restricted cash were $336.6 million.
- Working capital was $322.6 million, down from $360.7 million at year-end 2019. Total assets were $378.9 million and total liabilities were $144.5 million.
- The filing does not report conventional funded debt. Liabilities primarily comprise $110.2 million of non-current deferred revenue, $20.5 million of operating lease liabilities and current operating liabilities.
- Shareholders’ equity was $234.4 million, down from $272.9 million at December 31, 2019. Accumulated deficit was $721.7 million.
- Share-based compensation was $11.2 million for the first six months, and $41.8 million of unearned compensation was expected to be recognized through 2024.
Material Changes Versus the Prior Comparable Period
- Q2 net loss increased 66% year over year, while the six-month net loss increased 36%.
- R&D spending was the principal driver of higher losses, reflecting increased investment in neuroscience programs and higher prasinezumab cost sharing.
- Interest income fell 92% in Q2 and 71% year to date because of lower cash balances and substantially lower interest rates.
- Cash used in operating activities increased to $41.9 million from $29.5 million in the prior-year period, while capital expenditures remained limited at $68,000.
- The company issued 12,852 ordinary shares from option exercises during the first six months and ended the period with 39,911,413 shares outstanding.
- In May 2020, shareholders approved an additional 1.5 million shares for the 2018 Long Term Incentive Plan. The company granted 1.7 million options during the first six months.
- Roche reported that Part 1 of the Phase 2 PASADENA study of prasinezumab did not meet its primary objective, although signals of efficacy appeared on multiple secondary and exploratory endpoints. Part 2 remained ongoing, and Roche was evaluating next steps.
Guidance, Outlook, Risks and Unusual Items
- Management expects 2020 R&D expense to increase versus 2019, primarily due to investment in neuroscience programs, and expects G&A expense to increase, primarily because of higher director and officer insurance premiums.
- Management believes cash and cash equivalents at June 30, 2020 are sufficient to meet obligations for at least the next twelve months. Management also expects to require additional capital to continue research, development and potential commercialization activities.
- Potential future funding sources include existing cash, collaboration payments, equity or debt financings, loans and additional strategic or licensing arrangements. Future financing may be unavailable or dilutive.
- COVID-19 could delay or interrupt clinical trials, manufacturing, supply chains, regulatory interactions and collaboration activities, and could adversely affect liquidity and access to capital.
- Prothena remains dependent on Roche for further development of prasinezumab and on third parties for clinical-trial execution and manufacturing. BMS may elect whether to exercise U.S. or global rights under its collaboration agreement.
- The company has no approved commercial products and expects continuing losses. Drug candidates may fail in clinical development, encounter regulatory delays, or never generate product revenue.
- Remaining contractual obligations at June 30, 2020 totaled $27.1 million, consisting of $22.1 million of operating leases, $4.0 million of purchase commitments and $1.1 million of license-related obligations. Future Roche cost-sharing obligations are excluded because they cannot be determined.
- The company had no material legal proceedings and no off-balance-sheet arrangements reported. Disclosure controls and procedures were considered effective as of June 30, 2020.
Important Facts for Investors to Verify
- Roche’s decisions and updated results for the PASADENA study, including the ongoing Part 2 and the future development path for prasinezumab.
- The pace of cash consumption relative to the $333.9 million cash balance and the timing and terms of any future financing.
- R&D spending trends, particularly Roche cost sharing and manufacturing costs for the company’s proprietary and partnered programs.
- Whether BMS exercises any U.S. or global license rights and whether related milestones, option fees or royalties become payable.
- Potential operational and clinical delays arising from COVID-19, third-party manufacturing dependence and reliance on collaborators.
- The dilution implications of outstanding options for 8.7 million shares, additional equity awards and any future capital raises.