Prothena Corporation plc — Q2 2019 Form 10-Q Summary
Business context and reporting period
Prothena is an Ireland-incorporated, clinical-stage neuroscience company developing therapies for neurological disorders. Its pipeline includes prasinezumab for Parkinson’s disease and related synucleinopathies in collaboration with Roche, PRX004 for ATTR amyloidosis, and programs targeting tau and TDP-43 in collaboration with Celgene. The filing covers the three and six months ended June 30, 2019; comparative periods are the three and six months ended June 30, 2018.
The company had 39.9 million ordinary shares outstanding as of July 19, 2019. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Collaboration revenue | $0.2 million | $0.3 million | $0.4 million | $0.5 million |
| Research and development expense | $9.6 million | $31.5 million | $22.9 million | $66.2 million |
| General and administrative expense | $9.1 million | $11.0 million | $19.0 million | $25.2 million |
| Restructuring charges/(credits) | $0 | $20.9 million | $(0.1) million | $20.9 million |
| Loss from operations | $(18.5) million | $(63.1) million | $(41.5) million | $(111.8) million |
| Net loss | $(15.8) million | $(59.9) million | $(36.7) million | $(108.6) million |
| Net loss per share | $(0.40) | $(1.50) | $(0.92) | $(2.77) |
| Operating cash flow | Not separately provided | Not separately provided | $(29.5) million | $26.5 million |
Revenue consisted entirely of collaboration revenue and does not reflect product sales. The filing does not provide a meaningful gross margin because the company is clinical-stage and reports no product revenue or cost of product sales. Operating margins were deeply negative because operating expenses substantially exceeded revenue.
Cash and cash equivalents were $398.1 million at June 30, 2019, compared with $427.7 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $402.2 million at June 30, 2019. Working capital was $390.7 million, compared with $416.5 million at year-end 2018. The company reported no debt, but had $25.4 million of operating lease liabilities and approximately $28.0 million of remaining operating lease payments, primarily for its South San Francisco facility.
Net cash used in operating activities was $29.5 million in the first six months of 2019. Investing cash use was $0.2 million, and financing cash provided was $0.2 million, primarily from stock-option exercises. The comparable 2018 operating cash inflow of $26.5 million was substantially affected by the $110.2 million Celgene-related deferred revenue payment.
Material changes versus the prior comparable period
- Second-quarter revenue decreased 40% to $0.2 million; six-month revenue decreased 30% to $0.4 million.
- R&D expense declined 70% in the quarter and 65% year to date, principally because of the discontinuation and closeout of NEOD001, along with lower personnel, consulting and manufacturing costs. PRX004 spending increased, while prasinezumab spending declined.
- G&A expense decreased 17% in the quarter and 25% year to date, reflecting lower personnel and legal costs and sublease income, partly offset by lease costs under the new lease standard.
- The prior-year periods included $20.9 million of restructuring charges related to the NEOD001 discontinuation; 2019 included no quarterly charge and a $61,000 restructuring credit year to date. The company states that restructuring activities are complete.
- Net loss improved substantially from the prior year, but the company remained loss-making and generated negative operating cash flow.
- Interest income increased to $2.3 million in the quarter and $4.6 million year to date, reflecting the company’s cash and money-market balances. Interest expense associated with the former build-to-suit accounting was eliminated after adoption of ASC 842.
- Effective January 1, 2019, ASC 842 converted the South San Francisco facility from build-to-suit accounting to operating lease accounting. The adoption reduced property and equipment and recognized a right-of-use asset and lease liabilities; it also increased opening accumulated deficit by $3.8 million.
Guidance, outlook, risks and unusual items
Management believes existing cash and cash equivalents are sufficient to meet obligations for at least the next twelve months. The company expects R&D and G&A expenses to decrease in 2019 compared with 2018 following the restructuring and NEOD001 discontinuation. Management also expects to require additional capital in the future to continue development and potential commercialization activities. No specific revenue, earnings or cash-burn guidance was provided.
Roche is responsible for further development of prasinezumab, including the Phase 2 program, while Prothena shares certain U.S. development and commercialization costs if it remains in the profit-and-loss-sharing arrangement. Celgene holds program-by-program U.S. and global license options under its collaboration; no clinical or regulatory milestones were achieved under either collaboration during the first six months of 2019.
The company recorded a $15.75 million provision for settlement of a securities class action relating to disclosures concerning NEOD001. The proposed settlement remained subject to court approval. An equal $15.75 million insurance recovery receivable was recorded, representing expected payment by the company’s insurers.
Key risks include continuing operating losses and future financing needs; failure or delay of clinical development or regulatory approval; reliance on Roche, Celgene and third-party manufacturers and clinical-service providers; uncertainty regarding collaboration options, milestones and royalties; intellectual-property disputes; litigation; foreign-currency exposure; data protection and regulatory compliance; and potential dilution from future equity financing or equity compensation. Management reported that disclosure controls were effective as of June 30, 2019.
Important facts for investors to verify
- Whether existing cash remains sufficient as clinical spending and collaboration cost-sharing obligations evolve, and the timing and terms of any future financing.
- Progress, results and funding requirements for Roche’s prasinezumab Phase 2 program and Prothena’s PRX004 Phase 1 program.
- Status and court approval of the $15.75 million securities-litigation settlement and the related insurance recovery.
- Whether Celgene exercises any U.S. or global rights and whether the proposed Bristol Myers Squibb acquisition of Celgene affects the collaboration.
- Actual R&D spending after the NEOD001 discontinuation and whether management’s expected 2019 expense reductions are achieved.
- Future payments under the South San Francisco lease, license agreements and Roche cost-sharing arrangement, the latter of which the filing states cannot currently be quantified.
- Potential dilution from 7.2 million outstanding stock options, additional grants and any future equity financing.