Protagonist Therapeutics, Inc. — Q2 2017 Form 10-Q Summary
Reporting period: Quarterly report for the three and six months ended June 30, 2017; filed August 8, 2017. Protagonist is a clinical-stage biopharmaceutical company developing peptide-based therapies. Its principal programs were PTG-100 for ulcerative colitis, PTG-200 for inflammatory bowel disease, and PTG-300 for rare blood disorders. The company had no approved products and no product revenue.
Financial highlights
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $12.0 million | $5.7 million | $23.3 million | $11.3 million |
| General and administrative expense | $3.1 million | $1.4 million | $6.1 million | $2.8 million |
| Total operating expenses | $15.1 million | $7.1 million | $29.4 million | $14.1 million |
| Net loss | $15.0 million | $7.1 million | $29.1 million | $18.8 million |
| Net loss per share | $0.89 | $19.07 | $1.73 | $56.90 |
| Operating cash flow | Not separately provided | Not separately provided | $(22.7) million | $(13.3) million |
Because the company had no revenue and remained loss-making, gross and operating margins were not meaningful. Interest income was $152,000 in the quarter and $324,000 for the six-month period. The prior-year six-month results included a $4.7 million non-cash charge related to preferred-stock tranche and warrant liabilities; no comparable charge occurred in 2017.
At June 30, 2017, cash and cash equivalents were $10.4 million, restricted cash was $460,000, and available-for-sale securities were $54.1 million, for total cash, cash equivalents, restricted cash and marketable securities of approximately $64.5 million. Total assets were $70.5 million, total liabilities were $9.4 million, and stockholders’ equity was $61.0 million. The company had no outstanding debt or credit facility.
Material changes versus the prior comparable period
- Second-quarter R&D expense increased 111% to $12.0 million, primarily due to higher PTG-100 Phase 2b clinical activity, increased development work on other candidates, PTG-300 Phase 1 costs, and a $250,000 milestone payment to a former collaboration partner.
- Six-month R&D expense increased 106% to $23.3 million. PTG-100 clinical and development expense increased by $6.2 million year over year.
- Second-quarter G&A expense increased 124% to $3.1 million, reflecting higher headcount, consulting, professional services and public-company costs.
- Six-month operating cash use increased to $22.7 million from $13.3 million, consistent with increased development spending.
- Financing cash inflow fell to $461,000 from $21.9 million because the prior-year period included $22.5 million of preferred-stock financing.
- Net loss increased 54% for the six-month period, although the 2016 period included the $4.7 million non-cash preferred-stock liability remeasurement charge.
- Cash, cash equivalents and marketable securities declined from approximately $87.7 million at December 31, 2016 to $64.5 million at June 30, 2017.
Development, outlook and unusual items
- PTG-100 was in a global Phase 2b trial for moderate-to-severe ulcerative colitis, with completion anticipated in the second half of 2018.
- PTG-200 was in preclinical development and expected to enter Phase 1 studies in the second half of 2017.
- PTG-300 entered a Phase 1 clinical trial during the second quarter of 2017.
- On May 26, 2017, the company entered into an exclusive worldwide PTG-200 collaboration with Janssen. The agreement became effective July 13, 2017, after the balance-sheet date. The company became eligible for a non-refundable $50.0 million upfront payment, expected in the third quarter of 2017.
- The Janssen agreement also provides potential $125 million and $200 million opt-in payments, up to $615 million of development, regulatory and sales milestones, and tiered royalties ranging from 10% to the mid-teens. These payments are contingent on future development, regulatory and commercial outcomes and are not assured.
- The company expects continued operating losses and negative cash flows and anticipates requiring additional capital. Management stated that existing cash, cash equivalents and available-for-sale securities were expected to fund operations and capital expenditures for at least the next 12 months, based on current plans.
- The company entered into a new Newark, California facility lease with total minimum payments of $13.4 million and pledged $450,000 of restricted cash as collateral for a letter of credit.
- The company received a $1.3 million Phase 2 NIH SBIR grant, covering May 2017 through April 2019, and recorded grant and Australian tax-incentive reimbursements as reductions of R&D expense.
- Disclosure controls and procedures were not effective at the end of the period because two previously identified material weaknesses remained outstanding: controls over complex equity transactions and review and approval of manual journal entries. Remediation efforts were ongoing.
Key risks and contingencies
- The company has never generated product revenue, has incurred losses since inception, and may never achieve profitability.
- Clinical trials may fail, be delayed, experience enrollment or manufacturing problems, or produce results insufficient for regulatory approval.
- Janssen may elect not to continue PTG-200 development or may terminate the collaboration, which could eliminate future milestone and royalty opportunities and return significant development obligations to Protagonist.
- Additional equity or debt financing may be required and could be unavailable, restrictive or dilutive.
- The company relies on contract research organizations and third-party manufacturers for clinical development and supply.
- Competition, regulatory changes, safety findings, reimbursement limits and intellectual-property disputes could materially affect development or commercialization prospects.
- No material legal proceedings were reported.
Investor verification checklist
- Confirm receipt, timing and accounting treatment of the $50.0 million Janssen upfront payment after July 13, 2017.
- Track PTG-100 Phase 2b enrollment, timing and clinical results, and confirm the status of PTG-200 Phase 1 and PTG-300 Phase 1 programs.
- Assess cash burn, marketable-securities balances and the timing and terms of any additional financing.
- Monitor whether Janssen makes the contractual opt-in elections and whether future milestones or royalties become probable or payable.
- Review remediation of the material weaknesses in internal control over financial reporting.
- Evaluate the effect of the new facility lease and other contractual obligations on future liquidity.