Prothena Corporation plc — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 3, 2020. Prothena is an Ireland-incorporated, clinical-stage neuroscience company focused on therapies for diseases involving protein misfolding. Its lead programs are prasinezumab with Roche for Parkinson’s disease and PRX004 for ATTR amyloidosis; discovery programs include tau, TDP-43 and Aβ programs, including collaborations with Bristol-Myers Squibb.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $0.8 million | $1.0 million | Down 15% |
| Research and development expense | $50.8 million | $101.2 million | Down 50% |
| General and administrative expense | $35.7 million | $42.5 million | Down 16% |
| Total operating expenses | $86.5 million | $159.8 million | Down 46% |
| Loss from operations | $(85.7) million | $(158.9) million | Improved $73.2 million |
| Net loss | $(77.7) million | $(155.6) million | Improved $78.0 million |
| Net loss per share | $(1.95) | $(3.93) | Improved |
| Net cash used in operating activities | $(53.0) million | $(28.3) million | Higher cash use |
| Cash and cash equivalents | $375.7 million | $427.7 million | Down $51.9 million |
Revenue was immaterial relative to operating costs, resulting in deeply negative operating and net margins; the filing does not present a meaningful positive margin measure. Cash, cash equivalents and restricted cash totaled $378.4 million at year-end. Working capital was $360.7 million, versus $416.5 million in 2018. The company reported no debt, although it had operating lease liabilities of $22.9 million and total contractual obligations of $28.8 million, including leases, purchase commitments and license obligations.
Shareholders’ equity was $272.9 million, down from $323.0 million, and accumulated deficit was $671.9 million. Share-based compensation was $23.6 million in 2019. The company had approximately 39.9 million ordinary shares outstanding at year-end and 7.0 million stock options outstanding.
Material changes versus the prior comparable period
- R&D spending declined primarily because of lower costs associated with the discontinued NEOD001 program, partially offset by increased PRX004 and tau investment.
- The company completed its restructuring related to the NEOD001 discontinuation. It recorded a $61,000 restructuring credit in 2019 versus $16.1 million of restructuring and impairment charges in 2018.
- Interest income increased to $8.2 million from $6.4 million, while interest expense fell to zero following adoption of the new lease accounting standard.
- The company adopted ASC 842 on January 1, 2019, recognizing operating lease right-of-use assets and liabilities and recording a $3.8 million cumulative adjustment to opening accumulated deficit. Prior-period amounts were not restated.
- Operating cash use increased despite the lower net loss, principally because 2018 operating cash flow benefited from recognition of approximately $110.2 million of deferred revenue related to the Celgene collaboration.
- Celgene was acquired by Bristol-Myers Squibb in November 2019. The BMS collaboration remained subject to BMS’s program-by-program licensing options and termination rights.
Pipeline, outlook and management commentary
- Roche’s Phase 2 PASADENA study of prasinezumab was fully enrolled in 2018, the last patient was dosed in the fourth quarter of 2019, and Roche was assessing Part 1 data at year-end. No clinical or regulatory milestone was achieved in 2019.
- Interim Phase 1 data for PRX004 showed generally favorable safety and dose-dependent target engagement. At 10 mg/kg, observed reductions in unbound misTTR ranged from 54% to 76% within 24 hours of the first infusion. The study remained ongoing.
- Management expected 2020 R&D expenses to increase, primarily due to investment in neuroscience programs, and G&A expenses to increase, primarily because of higher director and officer insurance premiums.
- Management stated that existing cash and cash equivalents were expected to fund obligations for at least the next twelve months, but additional capital would be required in the future to continue development and potential commercialization.
- Roche collaboration economics include potential additional milestones of up to $525 million, plus royalties and U.S. profit-and-loss sharing if Prothena remains opted in. BMS collaboration economics include potential option fees, milestones and royalties, but none were earned in 2019.
Risks, contingencies and unusual items
- Prothena has no approved or marketed products and expects continuing losses; successful clinical development, regulatory approval and commercialization remain uncertain.
- The company depends heavily on Roche for prasinezumab development, manufacturing and commercialization, and Roche may terminate the agreement at will subject to notice provisions.
- Clinical and regulatory outcomes for prasinezumab, PRX004 and discovery programs could be delayed, unsuccessful or require additional capital.
- The company relies entirely on third-party manufacturers for clinical supplies, including Roche for prasinezumab and Rentschler Biopharma for PRX004.
- A securities class action concerning the discontinued NEOD001 program was settled in December 2019 for $15.75 million, funded by directors’ and officers’ insurance carriers. Prothena recorded no additional liability and admitted no wrongdoing.
- Future Roche cost-sharing obligations are excluded from the disclosed $28.8 million contractual-obligation total because the amounts could not be determined.
- The company’s principal facility is in the San Francisco Bay Area, which exposes operations to earthquake and other natural-disaster risks. It also faces intellectual-property, data-security, regulatory, reimbursement, collaboration and financing risks.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded controls were effective as of December 31, 2019.
Important facts for investors to verify
- Roche’s results from the PASADENA Phase 2 study and any resulting milestone, licensing or development decisions.
- Progress, safety, target-engagement data and funding requirements for the PRX004 Phase 1 program.
- Whether BMS exercises U.S. or global rights for the tau, TDP-43 or undisclosed-target programs following future IND and Phase 1 milestones.
- Cash burn, the timing of additional financing and potential dilution, given the company’s continuing losses and expected increase in R&D spending.
- Actual Roche cost-sharing amounts and the effect of any decision to opt out of U.S. profit-and-loss sharing.
- Clinical, regulatory, manufacturing and intellectual-property developments that could affect the pipeline or collaboration agreements.