PTC Therapeutics, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016; filed August 4, 2016. PTC is a commercial-stage biopharmaceutical company whose product sales were solely Translarna (ataluren) for nonsense-mutation Duchenne muscular dystrophy (nmDMD), outside the United States.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $15.6m | $6.8m | $34.5m | $14.3m |
| Net product revenue | $15.4m | $6.2m | $34.3m | $11.2m |
| Operating expenses | $52.2m | $45.4m | $109.5m | $91.0m |
| Operating loss | $(36.6)m | $(38.6)m | $(75.0)m | $(76.7)m |
| Net loss | $(38.9)m | $(38.4)m | $(80.1)m | $(76.3)m |
| Basic and diluted loss per share | $(1.14) | $(1.14) | $(2.36) | $(2.29) |
- Q2 product revenue rose 150% year over year, and first-half product revenue rose 206%, primarily reflecting Translarna’s expanded commercial launch. Collaboration and grant revenue declined to $0.2m for the quarter and $0.2m for the half year, largely because the comparable 2015 periods included deferred Roche milestone revenue.
- First-half R&D expense increased 7% to $60.2m; SG&A increased 42% to $49.3m, driven by clinical, pipeline, supply-chain and commercial-launch costs. Q2 SG&A was $23.4m, up 36%.
- Cash and cash equivalents were $35.7m and marketable securities were $237.2m at June 30, totaling $272.9m, down from $338.9m at year-end 2015. Current assets were $297.4m versus current liabilities of $42.9m. Management said available resources and expected cash flows would fund operations and capital needs for at least the next 12 months, while cautioning that assumptions could prove wrong.
- Operating cash use was $66.2m in the first half, essentially unchanged year over year. Investing activities provided $43.1m, mainly from marketable-security sales and redemptions; financing provided $0.03m. Cash declined $22.4m to $35.7m.
- Convertible notes had $150.0m principal outstanding, 3.0% cash interest and an August 2022 maturity; their net balance-sheet carrying amount was $94.9m after discount and issuance costs. Cash interest is approximately $4.5m annually. The company reported a $673.1m accumulated deficit and no off-balance-sheet arrangements.
- PTC did not capitalize Translarna inventory amid regulatory uncertainty. It estimated inventory available for sale would have been about $1.2m if capitalized and stated that gross margin would have exceeded 90% if product costs were expensed as cost of sales; this is a hypothetical, not a reported margin.
Material developments, outlook and risks
- Regulatory concentration: PTC said its ability to generate revenue depended almost entirely on renewing its conditional European Economic Area (EEA) authorization for nmDMD. The EMA/CHMP review was delayed, with an outcome possible no earlier than late 2016. The CHMP raised a major objection and sought a feasible new clinical-trial proposal to address efficacy uncertainty; renewal could require a new trial or bring restrictions, suspension, withdrawal or non-renewal.
- United States: The FDA issued a Refuse to File letter for the nmDMD application in February 2016, citing concerns about the trial evidence and abuse-potential information. PTC filed a formal appeal in July; reversal, FDA review or eventual approval was uncertain, and additional studies or analyses could be costly.
- Clinical evidence: The Phase 3 ACT DMD primary endpoint was not statistically significant in the intent-to-treat population. PTC’s supportive analyses included retrospective, subgroup and nominal p-value analyses, which regulators may view as less persuasive. The company said CHMP also raised safety-monitoring concerns, including blood-pressure and lipid changes.
- Market access: NICE issued final guidance in July 2016 recommending Translarna in England under a five-year managed-access agreement with confidential financial terms and further data collection. In Germany, PTC delisted the product from the pharmacy ordering system effective April 1 after unsuccessful pricing negotiations; patients were accessing it through a reimbursed import pathway, with continuity and economics uncertain. Pricing negotiations elsewhere could delay launches, reduce prices or lead to rebates.
- Pipeline: PTC initiated a Phase 2 pediatric nmDMD study in June. ACT CF Phase 3 results were expected in early 2017; the company no longer expected a CHMP recommendation on the nmCF variation in 2016 and said ACT CF results might be required. Other programs included proof-of-concept studies in nmMPS I, aniridia and Dravet/CDKL5, and an ongoing Phase 1 cancer-stem-cell study. The SMA program faced delay: RG7800 dosing remained suspended after a nonclinical safety finding, while RG7916 was progressing toward a patient study.
- Costs and financing: Management expected significant ongoing losses and expenses for at least several years, including regulatory work, potential new trials, pipeline development and global commercialization. PTC said it would need substantial revenue to achieve profitability and might need additional financing; suitable funding might not be available. Quarterly product sales could fluctuate due to reimbursement timing, access and multi-month orders.
- Unusual items and contingencies: A March–June reorganization generated a one-time $2.5m workforce-reduction charge; $1.0m remained accrued at quarter-end. Wellcome Trust could receive up to $68.9m in development and regulatory milestones plus royalties if covered programs succeed; a first $0.8m milestone was paid in Q2. Three consolidated securities class actions filed in March alleged misleading statements relating to the FDA application and sought damages, fees and costs. No material subsequent event affecting the financial statements was reported in the notes.
Key facts for investors to verify
- EMA/European Commission decision on renewal, any label conditions, and the scope, feasibility, cost and timing of a required nmDMD trial.
- Outcome of the FDA appeal and whether additional evidence or trials will be required before the agency reviews or approves an nmDMD application.
- Translarna access, pricing, reimbursement and sales trends by territory, including England’s managed-access terms and the German import pathway.
- ACT CF results and regulatory requirements, alongside enrollment, safety and funding progress across other pipeline programs.
- Cash burn, remaining liquidity and financing needs relative to commercial expansion, clinical spending, debt service and litigation exposure.