Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage neuroscience company developing therapies for neurological disorders. Key programs include prasinezumab for Parkinson’s disease and related synucleinopathies in collaboration with Roche, PRX004 for ATTR amyloidosis, and early-stage tau and TDP-43 programs in collaboration with Celgene. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, with comparisons to the corresponding 2018 periods.
Financial Performance and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Total revenue | $0.2 million, versus $0.3 million | $0.6 million, versus $0.8 million |
| Operating expenses | $21.2 million, versus $24.6 million | $63.0 million, versus $136.9 million |
| Loss from operations | $21.0 million, versus $24.3 million | $62.4 million, versus $136.1 million |
| Net loss | $19.4 million, versus $24.6 million | $56.1 million, versus $133.2 million |
| Net loss per share | $0.49, versus $0.62 | $1.41, versus $3.38 |
| Net cash used in operating activities | Not separately provided | $38.5 million, versus $7.0 million |
All revenue was collaboration revenue, primarily reimbursements from Roche for additional development services. Revenue declined 20% year over year in the quarter and 27% year to date. The company has no product revenue, and gross margin is not meaningful. Operating expenses substantially exceeded revenue, resulting in a significant operating loss.
- Research and development expense was $12.5 million in the quarter and $35.4 million year to date, down 33% and 58%, respectively, primarily because of lower costs following discontinuation of NEOD001, partially offset by higher PRX004 spending.
- General and administrative expense was $8.7 million in the quarter and $27.7 million year to date, down 6% and 20%, respectively.
- Interest income increased to $2.0 million in the quarter and $6.6 million year to date. The company recorded no interest expense in 2019 following adoption of ASC 842.
- Cash and cash equivalents were $390.3 million at September 30, 2019, compared with $427.7 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $393.0 million.
- Working capital was $377.4 million, compared with $416.5 million at year-end 2018. Total assets were $450.9 million and total liabilities were $161.7 million.
- The company reported no debt. Lease liabilities totaled $24.2 million, consisting of $5.0 million current and $19.2 million non-current.
- Shareholders’ equity was $289.2 million, compared with $323.0 million at December 31, 2018. There were 39.9 million ordinary shares outstanding at September 30, 2019.
Material Changes Versus the Prior Comparable Period
- Nine-month net loss improved by $77.1 million, primarily due to the 2018 NEOD001 discontinuation, lower research and development activity, lower general and administrative costs, and the absence of significant 2018 restructuring charges.
- Nine-month operating expenses declined by $73.9 million. Restructuring expense changed from a $17.7 million charge in 2018 to a $61,000 credit in 2019. The company stated that restructuring activities were complete and no additional costs were expected.
- Operating cash burn increased to $38.5 million from $7.0 million. The 2018 period benefited from $110.2 million of deferred revenue related largely to the Celgene upfront payment; no comparable benefit occurred in 2019.
- The company adopted ASC 842 on January 1, 2019. The adoption derecognized the prior build-to-suit asset and obligation, recognized operating lease right-of-use assets and liabilities, and increased opening accumulated deficit by $3.8 million.
- The company recorded a $15.75 million legal settlement provision and an equal litigation insurance recovery receivable. The settlement remained subject to final court approval.
Guidance, Outlook, Risks and Unusual Items
Management believes cash and cash equivalents at September 30, 2019 are sufficient to meet obligations for at least the next twelve months under current plans. However, the company expects to require additional capital to continue research, development and potential commercialization. Potential funding sources include cash, collaboration payments, equity or debt financings, loans and additional collaborative arrangements; financing may be unavailable or dilutive.
- The pipeline remains dependent on clinical and regulatory success. Prasinezumab development is primarily controlled by Roche, while PRX004 was in Phase 1 development. No drug candidate had received regulatory approval or generated product sales.
- Potential future Roche milestones, royalties and profit-sharing revenues are uncertain and subject to clinical, regulatory and commercialization outcomes. No Roche or Celgene clinical or regulatory milestones were achieved during the nine months ended September 30, 2019.
- Celgene’s collaboration provided a $100.0 million upfront payment and a $50.0 million equity investment in 2018, but future option fees, milestones and royalties depend on Celgene exercising rights and successful development. The announced pending acquisition of Celgene by Bristol-Myers Squibb was identified as a potential collaboration risk.
- Contractual obligations included $26.5 million of remaining operating lease payments, $0.5 million of supplier purchase commitments, $1.2 million of license obligations, and the $15.75 million legal settlement provision. Future Roche cost-sharing obligations could not be determined.
- The securities class action relating to disclosures about NEOD001 was preliminarily approved for settlement, with a settlement hearing scheduled for December 2, 2019. The company expected its insurers to fund the $15.75 million settlement.
- Important risks include continued operating losses, additional financing needs, clinical-trial failure or delay, regulatory uncertainty, reliance on Roche and Celgene, third-party manufacturing dependence, intellectual-property challenges, competition, reimbursement constraints, foreign-exchange exposure and share-price volatility.
Facts Investors Should Verify
- Whether cash consumption and research spending remain consistent with management’s forecast and whether additional financing will be required sooner than expected.
- Clinical progress, enrollment, safety and efficacy results for Roche’s prasinezumab Phase 2 program and Prothena’s PRX004 program.
- Roche’s continued commitment, development spending and potential milestone timing for prasinezumab.
- Celgene/Bristol-Myers Squibb’s treatment of the collaboration, including any option exercises, program changes or termination decisions.
- Final court approval and insurer funding of the $15.75 million securities-litigation settlement.
- The effect of ASC 842 lease accounting and the company’s remaining South San Francisco facility obligations.
- The dilution impact of future equity financing and the approximately 7.2 million outstanding stock options.