PTC Therapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial amounts below are in millions of dollars unless stated otherwise. The interim financial statements are unaudited.
Business context
PTC is a rare-disease biopharmaceutical company. Its principal commercial products are Translarna for nonsense-mutation Duchenne muscular dystrophy (nmDMD), sold outside the United States, and Emflaza for Duchenne muscular dystrophy (DMD), sold in the United States. The company is also developing gene therapy, splicing and oncology programs and holds Latin American and Caribbean commercialization rights for Tegsedi and Waylivra.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $85.5 | $68.7 | $139.1 | $124.8 |
| Net product revenue | $85.5 | $68.2 | $138.5 | $124.2 |
| Research and development expense | $60.0 | $32.6 | $112.5 | $64.0 |
| Selling, general and administrative expense | $49.2 | $33.5 | $89.8 | $66.5 |
| Operating loss | $(38.8) | $(5.6) | $(107.9) | $(22.3) |
| Net loss | $(41.8) | $(9.5) | $(113.9) | $(28.8) |
| Net loss per share, diluted | $(0.75) | $(0.21) | $(1.99) | $(0.62) |
- Q2 net product revenue increased 25%; management attributed growth to higher sales in existing Translarna markets, geographic expansion and a $7.3 million increase in Emflaza sales. Q2 U.S. product sales, consisting solely of Emflaza, were $27.6 million; sales outside the U.S., consisting of Translarna and Tegsedi, were $57.8 million.
- Costs rose faster than revenue, particularly R&D, reflecting investment in gene therapy, research programs and clinical pipeline advancement. SG&A increased with support for the expanding commercial portfolio.
- The six-month operating cash outflow was $72.9 million, compared with $15.9 million in the prior-year period. Investing activities used $188.7 million, mainly reflecting net purchases of marketable securities; financing provided $228.6 million, largely from the January equity offering.
- At June 30, cash and cash equivalents were $136.1 million and marketable securities were $227.4 million, totaling $363.5 million. Current assets were $475.0 million and current liabilities $174.0 million.
- Debt carrying value totaled approximately $155.7 million: $20.0 million current and $135.7 million long-term. The company also reported $150.0 million principal amount of 3.0% convertible notes due 2022 and a MidCap secured loan facility with a May 2021 maturity. The company said it was in compliance with the facility’s covenants.
- Stockholders’ equity was $488.7 million and accumulated deficit was $1,052.8 million. The January 2019 public offering raised $224.5 million net and issued 7.56 million shares; shares outstanding were 58.7 million at June 30 versus 50.6 million at year-end 2018.
Material changes and unusual items
- Six-month revenue increased 11.5%, while net loss widened substantially year over year. R&D rose $48.6 million and SG&A rose $23.2 million compared with the first half of 2018.
- A $26.5 million six-month expense from the fair-value change in deferred and contingent consideration related to the Agilis acquisition contributed to the increased loss; the Q2 expense was $5.3 million. The related consideration is subject to significant estimation uncertainty.
- In June 2019, the FDA expanded Emflaza’s approved age range to patients aged two to five. In July, after quarter-end, the European Commission renewed Translarna’s EEA authorization through August 5, 2020, subject to annual reassessment and Study 041 obligations.
- PTC reported a negative EMA committee opinion on its request to extend Translarna’s label to non-ambulatory patients and requested re-examination. The outcome remained uncertain.
- In May, PTC paid Akcea a $6.0 million Waylivra approval milestone, capitalized as an intangible asset. The company also invested $4.0 million in MRI Interventions shares.
- After quarter-end, PTC signed a lease for approximately 185,000 square feet in New Jersey, with an estimated July 2020 start, a 15-year initial term and approximately $88.0 million aggregate rent over that term. A $7.5 million letter of credit or cash deposit is required.
Outlook, risks and contingencies
- Management expected operating losses to continue in 2019, while stating that losses in future periods should decline versus prior periods. It said cash, cash equivalents, marketable securities, product cash flows and other expected funding would be sufficient for at least the next 12 months; this depends on assumptions that could prove inaccurate.
- PTC anticipated submitting a U.S. BLA for PTC-AADC in Q4 2019, with a potential U.S. launch in 2020 subject to approval. It expected a European application to follow. Roche anticipated submitting risdiplam applications to the FDA in the second half of 2019 and the EMA in the first half of 2020.
- Translarna’s EEA authorization requires annual renewal and completion of Study 041, with the final report due by the end of Q3 2022. Earlier Translarna trials did not meet their primary efficacy endpoints at the prespecified statistical significance level. PTC expected a possible U.S. NDA resubmission in 2020, dependent on dystrophin data from Study 045 and FDA requirements.
- Key risks include regulatory renewal and trial outcomes, pricing and reimbursement, product uptake, manufacturing and development execution, and the need for additional financing if cash needs exceed expectations. PTC stated it had never been profitable and might never achieve profitability.
- Agilis consideration includes a required $40.0 million development payment by the second anniversary of the August 2018 acquisition, regardless of milestone achievement, plus other potential development, regulatory and sales-based payments and royalties. PTC reported no material legal proceedings known to it and no material changes to the risk factors in its 2018 Form 10-K.
Most important facts for investors to verify
- Whether product revenue growth can keep pace with rising R&D, commercial and administrative expenses.
- Translarna’s annual EEA renewal, Study 041 progress and results, and the outcome of the non-ambulatory label re-examination and any U.S. resubmission pathway.
- Timing, regulatory outcomes and commercial prospects for PTC-AADC, Tegsedi, Waylivra and risdiplam.
- Cash burn, financing needs, debt service and the impact of contingent Agilis obligations and the new long-term lease.
- How fair-value assumptions for contingent consideration and variable product discounts, rebates and reimbursement affect reported results and cash generation.