Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage biotechnology company focused on antibody-based therapies for neuroscience and orphan diseases involving protein misfolding. This Form 10-K covers the year ended December 31, 2017, including fourth-quarter results. The company had no approved or commercial products and generated revenue primarily from its Roche collaboration.
- Pipeline: NEOD001 for AL amyloidosis; PRX002/RG7935 for Parkinson’s disease and related synucleinopathies in collaboration with Roche; PRX004 for ATTR amyloidosis in late-stage preclinical development; and discovery programs targeting tau, Aβ, ALECT2 and other proteins.
- 2017 development status: NEOD001 remained in Phase 2b PRONTO and Phase 3 VITAL studies. Roche initiated the Phase 2 PASADENA study for PRX002/RG7935.
Financial Performance and Position
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $27.5 million | $1.1 million | +$26.5 million |
| Research and development expense | $134.5 million | $119.5 million | +13% |
| General and administrative expense | $48.2 million | $41.1 million | +17% |
| Total operating expenses | $182.8 million | $160.6 million | +14% |
| Loss from operations | $(155.3) million | $(159.5) million | Improved by $4.3 million |
| Net loss | $(153.2) million | $(160.1) million | Improved by $6.9 million |
| Basic and diluted loss per share | $(4.07) | $(4.66) | Improved |
| Net cash used in operating activities | $(131.2) million | $(116.3) million | Use increased by $14.9 million |
| Cash and cash equivalents | $417.6 million | $386.9 million | +$30.7 million |
| Working capital | $389.0 million | $350.3 million | +$38.7 million |
- 2017 collaboration revenue included $26.6 million recognized from a $30.0 million Roche clinical milestone related to initiation of PASADENA and $0.9 million of research reimbursement. The remaining $3.4 million of the milestone reduced R&D expense.
- Operating expenses substantially exceeded revenue. Approximate operating margin was negative 564%, and approximate net margin was negative 557%.
- Financing activities provided $165.4 million, primarily from $150.3 million of net proceeds from a March 2017 public offering and $17.8 million from stock-option exercises.
- Investing activities used $3.5 million, primarily for property and equipment.
- Total assets were $496.3 million and shareholders’ equity was $407.2 million at year-end. Total liabilities were $89.1 million.
- The company reported a $52.2 million build-to-suit lease obligation, including $0.7 million current and $51.5 million non-current. The filing does not identify conventional funded debt as a material financing source.
- Share-based compensation expense was $26.8 million, with approximately $65.8 million of unearned expense expected to be recognized through 2020.
Material Changes Versus the Prior Comparable Period
- Revenue increased sharply because of the $30.0 million Roche clinical milestone; 2016 revenue consisted primarily of research reimbursement.
- R&D expense rose 13%, driven mainly by higher personnel costs, NEOD001 clinical activity, consulting and PRX002/RG7935 costs, partly offset by lower manufacturing costs.
- G&A expense rose 17%, principally from higher personnel, consulting and other costs. The comparison benefited from 2016 expenses associated with accelerated option vesting and payments related to former executives.
- Net loss narrowed despite higher spending, helped by the Roche milestone and a $4.4 million income-tax benefit. The tax benefit included $5.3 million of excess tax benefits from stock compensation following adoption of ASU 2016-09.
- Cash increased despite operating cash burn because of the March 2017 equity offering and option exercises. Outstanding shares increased to 38.5 million at year-end from 34.8 million at year-end 2016.
- Prothena announced that PRX003 would not advance into mid-stage clinical development for psoriasis or psoriatic arthritis.
- The fourth quarter produced $0.2 million of revenue, $47.5 million of operating expenses and a $47.8 million net loss; revenue was concentrated in the second quarter because of the Roche milestone.
Guidance, Outlook, Commentary and Risks
- Management stated that year-end cash and cash equivalents were expected to fund obligations for at least the next twelve months based on current plans, but additional capital will be required for continued development and potential commercialization.
- Assuming positive PRONTO results, management expected 2018 R&D expense to increase, primarily for NEOD001. G&A expense was also expected to increase for personnel, legal, regulatory and commercial preparation activities.
- Roche is responsible for leading development and commercialization of PRX002/RG7935 outside the United States. In the United States, Prothena may share development and commercialization costs and profits on a 30%/70% basis, subject to its opt-out rights.
- Roche may terminate the license agreement at will after the applicable notice period. Prothena’s future economics depend substantially on Roche’s development, regulatory and commercialization decisions.
- Key risks include clinical-trial failure or delay, regulatory non-approval, adverse safety findings, slower enrollment or event rates, manufacturing and supply dependence, intellectual-property challenges, competition, reimbursement uncertainty and the need for future financing.
- The company relies entirely on third-party manufacturers, including Boehringer Ingelheim, Rentschler and Roche, for clinical and potential commercial supplies.
- Contractual obligations totaled approximately $80.2 million at December 31, 2017, including $40.9 million of purchase obligations, $35.7 million of build-to-suit lease payments, $2.0 million of operating leases and $1.6 million of license obligations. Future Roche cost-sharing obligations were not determinable.
- The company recorded a provisional tax benefit related to the U.S. Tax Cuts and Jobs Act and had not completed its accounting for the law as of year-end; subsequent adjustments could materially affect tax expense and the effective tax rate.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Clinical outcomes and regulatory progression for the PRONTO and VITAL NEOD001 studies.
- Enrollment, safety, efficacy and endpoint progress in Roche’s PASADENA Phase 2 study.
- The timing and probability of additional Roche development, regulatory and commercial milestones.
- Cash burn, remaining cash runway and the timing, terms and dilution risk of future financing.
- The company’s ability to transition from collaboration and milestone revenue to recurring product, profit-share or royalty revenue.
- Manufacturing readiness, comparability validation and supply continuity for NEOD001 and PRX004.
- Outstanding lease, purchase and license commitments, including currently undetermined Roche cost-sharing obligations.
- Revisions to the provisional TCJA tax accounting and the realizability of deferred tax assets.