Protagonist Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Protagonist Therapeutics is a clinical-stage biopharmaceutical company developing constrained peptide-based drug candidates for hematology and gastroenterology. The filing covers the three and nine months ended September 30, 2019, and was filed November 6, 2019. The company had 27,206,447 common shares outstanding as of October 31, 2019.
- PTG-300: Phase 2 development in beta-thalassemia; a Phase 2 polycythemia vera study began in the third quarter of 2019. Preliminary beta-thalassemia results were expected in the fourth quarter of 2019, with top-line results expected in 2020.
- PTG-200: Janssen submitted an IND for Crohn’s disease in the second quarter of 2019, which became effective in July 2019. A Janssen-supported Phase 2 Crohn’s disease study was initiated in the fourth quarter of 2019.
- PN-943: Phase 1 safety, pharmacokinetic and pharmacodynamic studies were completed; a Phase 2 ulcerative colitis proof-of-concept study was anticipated in the second quarter of 2020.
Financial results and key metrics
| Metric | Q3 2019 | Q3 2018 | First nine months 2019 | First nine months 2018 |
|---|---|---|---|---|
| License and collaboration revenue | $4.1 million | $6.1 million | $(2.5) million | $28.6 million |
| Research and development expense | $17.3 million | $12.1 million | $49.1 million | $45.2 million |
| General and administrative expense | $4.0 million | $3.4 million | $11.6 million | $10.2 million |
| Loss from operations | $(17.2) million | $(9.4) million | $(63.2) million | $(26.9) million |
| Net loss | $(16.4) million | $(8.7) million | $(59.7) million | $(25.1) million |
| Net loss per share | $(0.61) | $(0.38) | $(2.36) | $(1.15) |
| Cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $(27.2) million | $(39.8) million |
Revenue was entirely collaboration-related; the company had no product sales and no approved products. The nine-month 2019 revenue figure was negative because the May 2019 Janssen amendment produced a $9.4 million cumulative catch-up reduction, partially offset by $5.3 million of revenue under the amended arrangement and $1.6 million recognized under the original agreement.
At September 30, 2019, the company held $50.2 million of cash and cash equivalents, $87.5 million of available-for-sale securities and $0.5 million of restricted cash, or approximately $137.7 million of cash, cash equivalents and marketable securities. Total assets were $154.6 million, total liabilities were $59.3 million and stockholders’ equity was $95.4 million. The accumulated deficit was $200.2 million.
The company had no outstanding debt at September 30, 2019. Operating lease liabilities totaled $7.5 million following adoption of ASC 842. On October 30, 2019, after the reporting date, the company entered into a $50.0 million term loan facility, with $10.0 million funded at closing and up to $40.0 million available in two additional tranches.
Material changes versus the prior comparable period
- Q3 net loss increased 88% to $16.4 million, primarily because research and development spending increased 42% and collaboration revenue declined 32%.
- Nine-month net loss increased 138% to $59.7 million, reflecting the $9.4 million Janssen revenue catch-up reduction and higher operating expenses.
- Research and development spending shifted toward PTG-300 and PN-943. Nine-month PTG-300 costs increased to $23.4 million from $9.8 million, while PN-943 costs were $15.0 million compared with none in the prior-year period.
- PTG-100 development was halted in 2018; related nine-month 2019 expense was only $0.2 million compared with $16.9 million in the prior-year period, including credits related to the program wind-down.
- During the first nine months of 2019, the company raised $34.5 million net through its at-the-market offering and issued approximately 2.8 million shares under that facility. Shares outstanding increased from 23.2 million at December 31, 2018 to 27.2 million at September 30, 2019.
- Cash used in operations declined to $27.2 million from $39.8 million, largely because deferred revenue related to Janssen increased by $30.5 million.
Outlook, commentary, risks and unusual items
- Management expects continuing operating losses and significant research and development spending and does not anticipate sustained profitability in the foreseeable future.
- Management believed existing cash, cash equivalents and available-for-sale securities would fund anticipated requirements for at least 12 months from the filing date, but stated that substantial additional capital will be required to advance development programs and potentially initiate pivotal trials.
- Future financing may include equity, debt or collaborations and could result in dilution, restrictive covenants or the unfavorable licensing of product rights.
- The Janssen arrangement is a major source of expected funding and collaboration revenue. Future opt-in fees, milestones and royalties depend on clinical, regulatory and commercial progress and are not assured. Janssen may terminate the agreement under specified circumstances, including for convenience.
- The amended Janssen arrangement had an estimated transaction price of $110.8 million at September 30, 2019, including the $50.0 million upfront payment, the $25.0 million amendment payment, $18.4 million of estimated reimbursements and $17.4 million of estimated variable consideration. Revenue recognition remains dependent on cost estimates and percentage-of-completion judgments.
- The Australian research and development tax incentive resulted in a $1.2 million reversal of previously recorded expense reductions during the first nine months of 2019 because the company exceeded the applicable turnover limit. A $1.5 million income tax benefit was recorded, including an approximately $1.1 million discrete benefit related to the 2017 Australian tax offset.
- Key risks include clinical-trial failure or delay, patient enrollment, safety and efficacy uncertainty, regulatory approval, manufacturing and third-party dependence, intellectual-property challenges, competition, reliance on Janssen, and the need for additional financing.
- The company reported no material legal proceedings, no unregistered securities sales and no share repurchases. Management concluded that disclosure controls and procedures were effective at the end of the quarter.
Important facts for investors to verify
- Progress and results of PTG-300 Phase 2 studies, including beta-thalassemia and polycythemia vera.
- Timing, enrollment and clinical results for Janssen’s PTG-200 Crohn’s disease program and the development of second-generation IL-23 compounds.
- Initiation and results of the planned PN-943 Phase 2 ulcerative colitis study.
- Janssen’s future opt-in decisions, milestone payments, cost reimbursements and potential termination rights.
- Cash-burn trends, remaining cash runway and the availability and terms of additional financing.
- Terms and covenant compliance under the post-quarter-end term loan, including the 35% minimum cash requirement and security interest in substantially all assets other than intellectual property.
- Potential dilution from the ATM facility, outstanding warrants, stock options and other equity awards.
- Revenue-recognition estimates and the possibility of future cumulative catch-up adjustments under the Janssen agreement.