PTC Therapeutics, Inc. — FY 2018 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2018. PTC is a global rare-disease biopharmaceutical company, with commercial sales from Translarna for nonsense-mutation Duchenne muscular dystrophy (nmDMD) outside the U.S. and Emflaza for DMD in the U.S. It acquired Agilis in August 2018, adding a gene-therapy platform led by PTC-AADC. Dollar amounts below are U.S. dollars.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $264.7 million | $194.4 million |
| Net product revenue | $263.0 million | $174.1 million |
| Operating loss | $115.7 million | $64.3 million |
| Net loss | $128.1 million | $79.0 million |
| Net loss per diluted share | $2.75 | $2.02 |
| Operating cash flow | $(27.6) million | $(10.1) million |
- Product sales comprised $171.0 million of Translarna and $92.0 million of Emflaza. Product revenue rose 51%; total revenue rose 36%.
- Reported gross profit was approximately $229.2 million, or 86.6% of total revenue, after product costs and acquired-intangible amortization. Operating margin was approximately negative 43.7%.
- Operating expenses increased to $380.4 million: R&D rose 46% to $172.0 million and SG&A rose 27% to $153.5 million. A $19.3 million charge reflected remeasurement of Agilis deferred and contingent consideration.
- Cash, cash equivalents and marketable securities totaled $227.6 million at year-end; working capital was $154.1 million. Total assets were $1.119 billion and total liabilities $768.5 million.
- Total debt was $153.0 million. The company had $150 million principal amount of 3.0% convertible notes due 2022 and a secured MidCap loan bearing interest at LIBOR plus 6.15%, maturing May 2021. Principal amortization on the loan began in May 2019.
- Financing activities provided $131.6 million in cash, including $117.9 million net proceeds from an April 2018 stock offering. A January 2019 offering raised a further $224.1 million net, after year-end.
Quarterly context
In Q4 2018, net product revenue was $85.8 million, operating loss was $45.1 million and net loss was $48.3 million. Q4 2017 included $20.1 million of collaboration and grant revenue, largely the Roche milestone, and reported net income of $1.3 million.
Material changes versus the prior period
- Revenue growth was driven by continued Translarna expansion and a full year of Emflaza sales; Emflaza contributed $92.0 million versus $28.8 million in 2017.
- Despite higher product revenue, net loss increased by $49.1 million as R&D, commercial spending, acquired-intangible amortization and Agilis-related consideration costs rose. Collaboration and grant revenue fell $18.6 million, mainly because the $20.0 million Roche milestone was recognized in 2017.
- The Agilis acquisition substantially expanded the balance sheet: year-end intangible assets were $701.0 million and goodwill was $82.3 million, versus $133.0 million and no goodwill in 2017. Agilis IPR&D was valued at $576.5 million.
- PTC adopted ASC 606 in 2018. The filing reports a $3.3 million opening accumulated-deficit transition adjustment; its comparison indicates 2018 revenue would have been $5.2 million lower and net loss $5.1 million higher without the new standard.
Outlook, commentary, risks and unusual items
- Management expected cash and anticipated cash flows to fund operations for at least the next 12 months, while cautioning that estimates depend on assumptions. It expected operating losses to continue through 2019 and significant expenses for commercialization and pipeline development.
- PTC anticipated submitting the PTC-AADC BLA in late 2019, followed by an EU application, and projected a possible U.S. launch in 2020. These were expectations, not approvals or guarantees.
- Translarna’s EEA authorization remained conditional, subject to annual renewal and Study 041. The primary endpoint was not statistically significant in the ACT DMD Phase 3 trial. Enrollment was slower than expected; PTC requested an extension of the Study 041 results deadline from Q3 2021 to Q3 2022. The request’s outcome was uncertain.
- The FDA had issued a Complete Response Letter for Translarna and denied PTC’s appeal. PTC initiated Study 045 in Q4 2018 to assess dystrophin production and said a possible U.S. NDA resubmission could occur in 2020; success and acceptance of the methods were uncertain.
- PTC submitted an Emflaza supplemental application for patients ages 2–5, with an FDA action date of July 4, 2019, and expected a launch before year-end 2019. Tegsedi and Waylivra were not yet approved in PTC’s Latin American and Caribbean territory; Waylivra had received an FDA CRL and a Canadian noncompliance withdrawal notice.
- Agilis consideration included $49.2 million cash and 3.5 million PTC shares, plus contingent payments. PTC was obligated to pay $40.0 million by August 2020 regardless of milestone achievement; the reported fair value of deferred and contingent consideration at year-end was $348.0 million combined.
- Other notable exposures include Emflaza sales-based payments to Marathon and a potential $50 million milestone; reliance on third-party manufacturers, including a sole qualified Emflaza drug-substance source; pricing and reimbursement pressure; and foreign-exchange exposure. No material legal proceedings were reported. The auditor gave an unqualified opinion, and management and the auditor reported effective internal controls.
Most important facts for investors to verify
- Progress, enrollment, endpoint results and regulatory acceptance for Study 041 and Study 045, including the EMA’s decision on the requested deadline extension and annual Translarna renewal.
- Actual Emflaza access, reimbursement, sales growth and the FDA decision on the younger-patient application; monitor sales-based payments and remaining exclusivity.
- Cash burn and liquidity after the 2019 equity offering, debt amortization, covenant compliance, and the required $40 million Agilis payment by August 2020.
- Agilis contingent-consideration assumptions and potential milestone, royalty and sales obligations, given the large Level 3 fair-value estimates.
- Revenue comparability under ASC 606 and the concentration of product sales in two medicines, alongside manufacturing, reimbursement and regulatory risks.