Prothena Corporation plc — Form 10-Q Summary
Business context and reporting period
Prothena is an Ireland-incorporated, clinical-stage neuroscience company developing therapies for neurodegenerative diseases, including prasinezumab (PRX002/RG7935) for Parkinson’s disease and related synucleinopathies, PRX004 for ATTR amyloidosis, and earlier-stage programs targeting tau, beta amyloid and TDP-43. The filing covers the three and nine months ended September 30, 2018. The company had 39.9 million ordinary shares outstanding as of October 26, 2018.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $0.3 million | $0.2 million | $0.8 million | $27.3 million |
| Research and development expense | $18.5 million | $41.3 million | $84.7 million | $101.0 million |
| General and administrative expense | $9.2 million | $12.4 million | $34.5 million | $34.2 million |
| Restructuring costs | $(3.2) million | — | $17.7 million | — |
| Net loss | $24.6 million | $52.4 million | $133.2 million | $105.5 million |
| Basic and diluted loss per share | $0.62 | $1.37 | $3.38 | $2.82 |
Operating loss was $24.3 million in Q3 and $136.1 million for the first nine months. Net other income was $0.7 million in Q3 and $1.9 million for the nine-month period, primarily reflecting higher interest income. The company recorded an income-tax provision of $1.0 million in Q3 and a tax benefit of $1.0 million for the first nine months.
- Cash and cash equivalents were $451.5 million at September 30, 2018, compared with $417.6 million at December 31, 2017.
- Cash, cash equivalents and restricted cash totaled $455.6 million at September 30, 2018.
- Working capital was $433.3 million, compared with $389.0 million at year-end 2017.
- Net cash used in operating activities was $7.0 million for the first nine months, versus $91.7 million in the prior-year period. The improvement primarily reflected $110.2 million of deferred revenue from the Celgene upfront payment.
- Net cash used in investing activities was $0.4 million, mainly for property and equipment.
- Net cash provided by financing activities was $41.3 million, including $39.8 million from Celgene’s share subscription and $4.7 million from option exercises.
- Total liabilities increased to $185.0 million from $89.1 million at December 31, 2017, primarily due to $110.2 million of deferred revenue related to Celgene and restructuring liabilities.
- The company had no conventional debt reported, but had a $51.9 million build-to-suit lease obligation, including $50.3 million classified as non-current.
Material changes versus the prior comparable period
- Nine-month revenue declined 97% because the prior-year period included $26.6 million of revenue recognized from a $30.0 million Roche clinical milestone. No Roche clinical or regulatory milestone was achieved in 2018.
- Q3 R&D expense declined 55%, and nine-month R&D expense declined 16%, primarily because of lower manufacturing and NEOD001-related clinical costs, partly offset by increased PRX002/RG7935 spending.
- Prothena discontinued development of NEOD001 in April 2018 and commenced a restructuring plan in May. Nine-month restructuring charges were $17.7 million, with substantially all related cash payments expected by the end of the first quarter of 2019.
- In March 2018, Prothena entered into a Celgene collaboration covering tau, TDP-43 and an undisclosed target. Celgene paid a $100.0 million upfront amount and subscribed for 1.17 million shares for approximately $50.0 million. The upfront consideration and the premium attributed to the share subscription were recorded as deferred revenue totaling $110.2 million; it is not recognized as revenue until related goods or services are transferred or the agreement terminates.
- The company adopted ASC 606 on January 1, 2018. The adoption increased reported collaboration revenue by $0.3 million in Q3 and $0.8 million for the first nine months because Roche reimbursements for development services are now presented as revenue rather than as an offset to R&D expense.
- Prothena entered into a sub-sublease with Assembly Biosciences for approximately 46,641 square feet of its South San Francisco facility. The sub-sublease became effective September 24, 2018, has a term through December 15, 2023, and provides for initial annual base rent of approximately $2.7 million.
Guidance, outlook, commentary and risks
Management believes existing cash and cash equivalents are sufficient to meet obligations for at least the next twelve months based on current plans. However, the company expects to require additional capital to continue research, development and potential commercialization activities. Future financing could involve equity dilution, debt obligations or additional strategic collaborations, and may not be available on acceptable terms.
Key operating risks include the clinical and regulatory uncertainty of PRX002/RG7935, PRX004 and earlier-stage programs; reliance on Roche for further development and commercialization of PRX002/RG7935; Celgene’s discretion over whether to exercise U.S. or global license rights; dependence on third-party manufacturers and clinical research organizations; patent and intellectual-property risks; competition; reimbursement and healthcare-policy changes; foreign-exchange exposure; and the possibility of continued operating losses.
The company is subject to a purported securities class action in the Southern District of New York concerning alleged false or misleading statements about the NEOD001 program. Earlier related cases were voluntarily dismissed. The company stated that it could not reasonably estimate any potential loss. The filing also identifies approximately $41.3 million of contractual obligations, including $32.3 million under the build-to-suit lease, $4.5 million under the restructuring plan, $1.7 million of operating leases, $1.6 million of purchase obligations and $1.3 million under license agreements. Future Roche cost-sharing obligations are excluded because the amounts cannot be determined.
The company expects to adopt ASC 842 lease accounting on January 1, 2019. It anticipates recognizing additional lease assets and liabilities and expects to derecognize the existing build-to-suit asset and related obligation, subject to final evaluation. Management reported that disclosure controls and procedures were effective as of September 30, 2018, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Roche’s PRX002/RG7935 program advances successfully and whether any future milestones, royalties or U.S. profit-sharing revenue are achieved.
- Whether Celgene exercises U.S. or global rights for any collaboration program and the timing of related license fees and milestones.
- The pace and cash cost of post-NEOD001 restructuring and whether additional restructuring charges arise.
- The company’s cash runway under updated clinical-development plans and the timing and terms of any future financing.
- The status, potential exposure and insurance coverage related to the remaining securities litigation.
- The accounting impact of ASC 842 adoption and the company’s continuing obligations under its South San Francisco facility.
- Clinical, regulatory and manufacturing developments for PRX004 and other pipeline candidates, given the company’s reliance on third parties and lack of internal manufacturing capacity.