Prothena Corporation plc — 2020 Q1 Form 10-Q Summary
Business context and reporting period
Prothena is a clinical-stage neuroscience company focused on therapies for neurodegenerative and protein-misfolding diseases. Its partnered programs include prasinezumab with Roche and antibody programs targeting tau, TDP-43 and an undisclosed target with Bristol-Myers Squibb. Proprietary programs include PRX004 for ATTR amyloidosis and amyloid-beta programs for Alzheimer’s disease. The filing covers the three months ended March 31, 2020, with comparative results for the three months ended March 31, 2019.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Collaboration revenue | $0.1 million | $0.2 million | Down 24% |
| Research and development expense | $15.2 million | $13.3 million | Up 15% |
| General and administrative expense | $9.7 million | $9.9 million | Down 2% |
| Total operating expenses | $25.0 million | $23.1 million | Up 8% |
| Loss from operations | $(24.8) million | $(23.0) million | Higher loss |
| Net loss | $(23.6) million | $(20.9) million | Higher loss |
| Basic and diluted loss per share | $(0.59) | $(0.52) | Higher loss per share |
| Net cash used in operating activities | $(23.2) million | $(17.4) million | Higher cash burn |
Revenue was immaterial relative to expenses; therefore, operating and net profit margins were deeply negative and are not economically meaningful for comparison. Interest income was $1.1 million, down from $2.3 million, primarily because of lower cash balances and lower interest rates.
Cash and cash equivalents were $352.7 million at March 31, 2020, compared with $375.7 million at December 31, 2019. Including $2.7 million of non-current restricted cash, total cash, cash equivalents and restricted cash were $355.4 million. Working capital was $342.6 million, down from $360.7 million at year-end 2019. Total assets were $399.4 million and total liabilities were $144.4 million. The filing does not report conventional borrowings or debt; liabilities primarily included $110.2 million of deferred revenue and $21.7 million of operating lease liabilities.
Cash used in investing activities was $22 thousand, while financing activities provided $151 thousand from stock-option exercises. Share-based compensation was $5.5 million in Q1 2020, with $45.6 million of unearned compensation expected to be recognized through 2024.
Material changes versus the prior comparable period
- Revenue declined 24% to $0.1 million, reflecting Roche development-service reimbursements.
- R&D expense increased $2.0 million, primarily from higher Roche collaboration costs, manufacturing costs for tau and amyloid-beta programs, and clinical costs for PRX004.
- Total operating expenses increased 8%; the prior-year period included a $61 thousand restructuring credit that did not recur.
- Net loss increased by $2.7 million, and loss per share increased from $0.52 to $0.59.
- Operating cash burn increased $5.7 million year over year.
- Cash declined $23.0 million during the quarter, compared with a $17.6 million decline in Q1 2019.
- R&D spending on prasinezumab increased to $4.3 million from $3.4 million; PRX004 spending was $3.8 million versus $4.3 million.
Guidance, outlook, commentary and risks
Management expects R&D and G&A expenses to increase in 2020, primarily because of continued investment in neuroscience programs and higher director and officer insurance costs. Management believes existing cash and cash equivalents are sufficient to meet obligations for at least the next twelve months, but expects additional capital will be required to continue development and potential commercialization. Potential funding sources include existing cash, collaboration funding, equity or debt offerings, loans and other strategic arrangements.
In April 2020, Roche reported that Part 1 of the Phase 2 PASADENA study of prasinezumab did not meet its primary objective but showed signals of efficacy on multiple prespecified secondary and exploratory endpoints. Part 2 remained ongoing, and Roche was evaluating next steps. The filing states that prasinezumab was generally well tolerated with a favorable safety profile.
COVID-19 was identified as a material risk to clinical trials, preclinical activities, manufacturing and shipment of drug supplies, regulatory timelines, personnel availability, collaboration activities, capital-market access and liquidity. Additional key risks include continued operating losses, the need for additional financing, dependence on Roche and BMS, clinical and regulatory failure, reliance on third-party manufacturers and clinical-service providers, intellectual-property uncertainty, foreign-exchange exposure and potential dilution from future financing or equity awards.
The company had no material legal proceedings and reported no off-balance-sheet arrangements. Contractual obligations totaled approximately $29.0 million, including $23.6 million of operating leases, $4.5 million of purchase commitments and $1.0 million of license obligations. Future Roche cost-sharing obligations were excluded because the amounts could not be determined.
Most important facts for investors to verify
- Whether Roche advances prasinezumab after the failed primary endpoint in PASADENA Part 1 and the implications for future milestone, royalty and cost-sharing revenue.
- The pace of cash burn and the timing, structure and potential dilution of required additional financing.
- Progress, cost and clinical results for PRX004 and the company’s tau, TDP-43 and amyloid-beta programs.
- The effect of COVID-19 on trial enrollment, site operations, manufacturing, supply chains and regulatory timelines.
- The company’s reliance on Roche and BMS, including their rights to terminate collaborations or decline license options.
- Outstanding lease, purchase and license commitments, as well as currently unquantifiable Roche cost-sharing obligations.
- Potential dilution from 8.4 million outstanding stock options and future equity awards.