PTC Therapeutics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Unaudited consolidated results. PTC is a commercial-stage biopharmaceutical company focused on rare disorders, with Translarna and Emflaza as its principal marketed products.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $71.4 million | $53.6 million | $210.5 million | $178.4 million |
| Net product revenue | $71.4 million | $53.0 million | $209.9 million | $177.2 million |
| Research and development | $63.1 million | $54.4 million | $175.6 million | $118.3 million |
| Selling, general and administrative | $49.3 million | $38.4 million | $139.0 million | $104.9 million |
| Operating loss | $60.5 million | $48.2 million | $168.4 million | $70.5 million |
| Net loss | $60.0 million | $51.0 million | $173.9 million | $79.8 million |
| Basic and diluted loss per share | $1.06 | $1.06 | $3.01 | $1.76 |
- Q3 product sales rose 35% year over year; nine-month product sales rose 18%. Management attributed growth to Translarna sales in existing markets and geographic expansion, and to higher Emflaza sales over the nine-month period.
- Q3 sales comprised $48.5 million outside the U.S. (Translarna and Tegsedi) and $22.9 million in the U.S. (Emflaza). For the first nine months, the respective amounts were $141.6 million and $68.3 million.
- Operating costs increased faster than revenue. Nine-month R&D rose 48%, including higher gene-therapy investment; SG&A rose 33%, reflecting commercial expansion. The company also recorded $36.0 million of expense for increased fair value of deferred and contingent Agilis consideration, including $9.5 million in Q3.
- Other income included a $2.5 million unrealized gain on PTC’s MRI Interventions investment for the nine-month period. This is not product revenue or operating cash flow.
Cash, liquidity and debt
- At September 30, cash and cash equivalents were $523.6 million and marketable securities were $185.1 million; together, $708.6 million. An additional $7.5 million was restricted under a lease-related letter of credit.
- Nine-month operating cash use was $88.4 million, compared with $12.5 million in 2018. Investing activities used $158.2 million, principally reflecting net purchases of marketable securities. Financing activities provided $610.9 million, mainly from equity offerings and convertible notes.
- Current assets were $806.9 million and current liabilities $183.5 million. Total debt carrying value was approximately $313.1 million, including $20.0 million current debt. PTC also had $437.5 million principal amount of convertible notes outstanding: $150 million of 3.0% notes due 2022 and $287.5 million of 1.5% notes due 2026. The 2026 notes generated $279.3 million net proceeds and have an initial conversion price of about $52.52 per share.
- The MidCap senior secured facility matures in May 2021; principal amortization began in May 2019. PTC reported compliance with its financial covenants at quarter-end.
- Management said existing cash, cash equivalents, marketable securities and expected product cash flows should fund operations for at least 12 months, while noting that the estimate depends on assumptions. PTC has never been profitable and expects operating losses to continue in 2019.
Material changes and business developments
- PTC raised capital in 2019 through January and September common-stock offerings, limited ATM sales through September, and the September 2026 convertible-note offering. Shares outstanding increased to 61.6 million at September 30 from 50.6 million at December 31, 2018.
- Research and development investment expanded, particularly in gene therapy: nine-month gene-therapy expense was $44.4 million versus $1.9 million in 2018. Total R&D increased by $57.3 million.
- PTC adopted the lease accounting standard in January 2019, recording an $11.3 million operating lease asset and liability at adoption. A separate Hopewell, New Jersey facility lease is expected to commence in July 2020, with an initial 15-year term and approximately $88.1 million aggregate rent.
Outlook, risks and contingencies
- PTC expected to submit a U.S. BLA for PTC-AADC in late 2019, followed by an EU application; a U.S. commercial launch was anticipated in 2020, subject to approval. The company also expected an IND submission for its Friedreich ataxia gene-therapy program in mid-2020.
- For Translarna, the EEA authorization was renewed in July 2019 through August 5, 2020, subject to further annual review and Study 041. The final Study 041 report is due to the EMA by the end of Q3 2022. A potential U.S. NDA resubmission was expected in 2020, dependent on data from Study 045. FDA had previously issued a Complete Response Letter, and the appeal was denied.
- The EMA’s negative opinion on extending Translarna’s label to non-ambulatory patients was affirmed in October 2019. PTC warned that loss or restriction of the EEA authorization, failure of Study 041, or unsuccessful pricing and reimbursement negotiations could materially reduce Translarna revenue.
- Material risks include clinical-trial and regulatory uncertainty, product reimbursement and market access, product acceptance, manufacturing and commercialization execution, and the need for additional capital if cash needs exceed expectations. Management anticipates higher commercialization and development spending, although it expects future operating losses to decline versus prior periods.
- Agilis consideration includes a required $40 million development payment by August 2020 regardless of milestone achievement, plus contingent development, regulatory and sales payments. Fair-value estimates are sensitive to unobservable assumptions.
- After quarter-end, PTC completed its BioElectron asset acquisition on October 25, 2019. Upfront consideration was $10 million, subject to specified deductions, and potential additional regulatory and sales milestones total up to $200 million, plus low-single-digit sales royalties. Tegsedi also received Brazilian authorization in October 2019.
- PTC reported no material legal proceedings known to it and no material changes to risk factors since its 2018 Form 10-K. Management concluded disclosure controls were effective as of September 30, 2019.
Most important facts for investors to verify
- Whether product-sales growth, especially Translarna access and reimbursement, can continue and support the expanding cost base.
- Progress, enrollment and results for Study 041 and Study 045, and the timing and requirements for Translarna’s annual EEA renewal and any U.S. resubmission.
- Regulatory progress and spending for PTC-AADC, and whether the anticipated filing and launch timelines remain achievable.
- Cash burn and financing needs relative to the $708.6 million cash-and-securities balance, including potential dilution and debt obligations.
- Changes in Agilis contingent-consideration estimates and the timing of required payments, as well as BioElectron’s future milestone and royalty exposure.
- Execution and financial commitments associated with the Hopewell facility lease and PTC’s broader commercialization expansion.