Prothena Corporation plc — Q3 2013 Form 10-Q Summary
Business context and reporting period
Prothena is an Ireland-based clinical-stage biotechnology company developing therapeutic antibodies for protein-misfolding and cell-adhesion diseases. Its principal programs were NEOD001 for amyloidosis, PRX002 for Parkinson’s disease and other synucleinopathies, and PRX003 for inflammatory diseases and cancers. The report covers the unaudited three and nine months ended September 30, 2013. Prothena separated from Elan on December 20, 2012; 2012 comparative results were prepared on a carve-out basis and may not represent standalone costs.
Financial highlights
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Related-party revenue | $0.2 million | $0.9 million | $0.5 million | $2.1 million |
| Research and development | $6.3 million | $7.5 million | $20.5 million | $24.3 million |
| General and administrative | $3.4 million | $2.1 million | $9.8 million | $7.0 million |
| Net loss | $9.7 million | $8.7 million | $29.9 million | $29.2 million |
| Basic and diluted loss per share | $0.55 | $0.60 | $1.69 | $2.01 |
| Operating cash flow | Not separately presented | Not separately presented | $(22.3) million | $(26.4) million |
Revenue consisted entirely of fees for research and development services provided to Elan. Gross margin is not presented because the filing does not report cost of revenue or gross profit. Operating loss was $9.6 million in Q3 and $29.7 million for the first nine months. Cash and cash equivalents were $101.9 million at September 30, 2013, including $78.6 million in money-market funds. Working capital was $95.2 million.
Total liabilities were $9.2 million, consisting primarily of current operating liabilities and $1.4 million of deferred rent. The filing does not report outstanding debt or debt-related interest expense. Shareholders’ equity was $98.8 million, versus $126.5 million at December 31, 2012, and accumulated deficit was $30.3 million.
Material changes versus the prior comparable period
- Revenue declined 82% in Q3 and 76% for the nine-month period, primarily because the scope of R&D services provided to Elan decreased.
- Q3 R&D expense decreased 16%, and nine-month R&D expense decreased 16%, primarily from lower NEOD001 spending and lower share-based compensation, partly offset by increased PRX002, PRX003 and personnel costs.
- G&A expense increased 63% in Q3 and 40% for the nine-month period as Prothena incurred standalone public-company and professional-service costs; 2012 included Elan-allocated expenses that may not be comparable.
- Net loss increased to $29.9 million for nine months despite lower operating expenses, partly reflecting the sharp reduction in related-party revenue and $0.3 million of income-tax expense.
- Cash decreased $23.0 million during the first nine months, primarily to fund operations. Operating cash usage improved from $26.4 million to $22.3 million, helped by increased accrued liabilities.
Outlook, liquidity, risks and unusual items
Management believed the September 30 cash balance was sufficient to meet obligations for at least the next twelve months under its current business plan. Prothena expects continuing operating losses and expects to require additional capital to develop its candidates. Future financing may involve equity dilution, debt obligations or unfavorable licensing and collaboration terms.
NEOD001 entered a Phase 1 trial in April 2013. Management planned Phase 1 trials for PRX002 in 2014 and PRX003 in 2015, subject to supporting data. The filing provides no specific revenue, earnings or cash-burn guidance and states that development timing and costs cannot be estimated reliably.
In October 2013, after the reporting date, Prothena issued 4,177,079 ordinary shares in an underwritten offering and received approximately $84.7 million of net proceeds. Janssen Pharmaceutical sold additional shares but Prothena received no proceeds from those sales. This financing materially strengthened liquidity but increased shares outstanding and potential dilution.
Key risks include clinical and regulatory failure, delays or inadequate patient enrollment, dependence on third parties for clinical trials and manufacturing, reliance on Elan-related arrangements and revenue, uncertain patent protection, dependence on key personnel, future financing needs, potential PFIC tax treatment for U.S. investors, and the possibility that the company will never achieve profitability. The company relies on Boehringer Ingelheim for clinical supplies. It reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls were effective at the reasonable-assurance level.
Facts investors should verify
- Whether NEOD001 Phase 1 enrollment, safety data and development milestones progressed as planned.
- The timing and status of planned PRX002 and PRX003 clinical trials.
- The actual post-offering share count, ownership changes and dilution from the October 2013 financing and equity awards.
- Cash burn, remaining runway and the timing and terms of any future financing.
- The continuing financial impact of operating as a standalone company after separation from Elan, including the expiration of transitional services.
- Manufacturing capacity and supply continuity with Boehringer Ingelheim and other third parties.
- Potential PFIC tax consequences and the company’s evolving tax position.