Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage neuroscience company focused on therapies for neurodegenerative and amyloidosis diseases. This Form 10-K covers the year ended December 31, 2018; quarterly data indicates fourth-quarter revenue of $0.2 million and a net loss of $22.5 million. The company had no approved commercial products.
- Clinical programs: prasinezumab (PRX002/RG7935) for Parkinson’s disease, partnered with Roche, and PRX004 for ATTR amyloidosis.
- Discovery programs target tau, Aβ, TDP-43 and other neurodegenerative disease proteins, including programs partnered with Celgene.
- NEOD001 development for AL amyloidosis was discontinued in April 2018 after the PRONTO Phase 2b study failed its endpoints and the Phase 3 VITAL study was recommended for discontinuation for futility.
Financial Performance and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Total revenue | $1.0 million | $27.5 million | Down 97% |
| Research and development expense | $101.2 million | $134.5 million | Down 25% |
| General and administrative expense | $42.5 million | $48.2 million | Down 12% |
| Restructuring and impairment charges | $16.1 million | — | New |
| Loss from operations | $158.9 million | $155.3 million | Loss increased |
| Net loss | $155.6 million | $153.2 million | Loss increased 2% |
| Basic and diluted loss per share | $3.93 | $4.07 | Loss per share improved |
| Net cash used in operating activities | $28.3 million | $131.2 million | Lower use |
| Cash and cash equivalents | $427.7 million | $417.6 million | Up $10.0 million |
| Total liabilities | $175.8 million | $89.1 million | Increased |
Revenue consisted primarily of Roche reimbursements; there were no royalties in 2018. Operating expenses substantially exceeded revenue, and the company remains loss-making with an accumulated deficit of $598.0 million. Cash, cash equivalents and restricted cash totaled $431.7 million at year-end, including $4.1 million of restricted cash. Management stated that cash and cash equivalents should fund obligations for at least the next twelve months, but additional capital will be required to continue development and potentially commercialize candidates.
Financing cash inflows were $40.0 million, primarily from Celgene’s $39.8 million share subscription proceeds and $4.7 million from stock-option exercises. The balance sheet included $110.2 million of deferred revenue related primarily to the Celgene collaboration and $51.5 million of build-to-suit lease obligations. The company reported no debt financing arrangements in the filing.
Material Changes Versus the Prior Comparable Period
- Revenue fell from $27.5 million to $1.0 million because 2017 included $26.6 million of a $30.0 million Roche clinical milestone; no comparable milestone was achieved in 2018.
- R&D expense declined following the discontinuation of NEOD001 and reduced spending on other programs, partly offset by higher prasinezumab costs.
- Prothena recorded $16.1 million of restructuring and impairment charges following the NEOD001 discontinuation and workforce reorganization. Substantially all related cash payments were expected by the end of the first quarter of 2019.
- In March 2018, Prothena entered into a Celgene collaboration covering tau, TDP-43 and an undisclosed target. It received a $100.0 million upfront payment and approximately $50.0 million for 1,174,536 ordinary shares. The upfront payment and the premium associated with the shares were recorded primarily as deferred revenue rather than 2018 revenue.
- In May 2018, Prothena initiated first-in-human dosing in a Phase 1 PRX004 study in patients with hereditary ATTR amyloidosis.
- Roche’s Phase 2 PASADENA study of prasinezumab was fully enrolled with 316 patients in Part 1 and remained the principal partnered clinical program.
- Shares outstanding increased from 38.5 million at December 31, 2017 to 39.9 million at December 31, 2018, primarily due to the Celgene subscription and option exercises.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2019 R&D and G&A expenses to decrease from 2018 levels following the restructuring and NEOD001 discontinuation.
- The company expects to continue incurring substantial losses and does not expect near-term profitability. Future funding may come from existing cash, collaborations, equity or debt financings, or other arrangements.
- Potential future economics are highly dependent on Roche and Celgene. Roche may terminate its agreement at will subject to notice provisions, while Celgene may terminate its collaboration program-by-program or in its entirety and has not yet exercised the disclosed license options.
- Roche is responsible for further development and manufacturing of prasinezumab, creating dependency on a single major collaborator and third-party supply arrangements.
- All clinical and commercial manufacturing is outsourced. Prothena depends on Roche, Rentschler Biopharma and other suppliers for clinical material and manufacturing capacity.
- The clinical pipeline remains exposed to trial failure, safety events, regulatory delays, manufacturing problems, reimbursement constraints and competition from larger companies.
- A purported securities class action, now titled In re Prothena Corporation plc Securities Litigation, alleges misleading statements concerning NEOD001 between October 15, 2015 and April 20, 2018. The company could not estimate a reasonably possible loss.
- Adoption of ASC 842 lease accounting on January 1, 2019 was expected to materially change the balance sheet, including derecognition of approximately $47.9 million of build-to-suit property and $51.5 million of related financing obligations and recognition of approximately $28.5 million of right-of-use assets and $27.7 million of lease liabilities.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Cash runway, quarterly cash burn and the timing and terms of any required future financing.
- Roche’s progress, safety and efficacy results for the PASADENA prasinezumab program, including the effect of any future clinical readout on milestone expectations.
- PRX004 Phase 1 enrollment, safety, pharmacodynamic results and subsequent development decisions.
- Whether Celgene exercises U.S. or global license rights and whether the collaboration remains intact following Bristol-Myers Squibb’s announced acquisition of Celgene.
- The final impact of ASC 842 adoption and ongoing lease commitments, including expected sublease receipts from Assembly Biosciences.
- Developments, potential loss exposure and insurance coverage related to the NEOD001 securities litigation.
- Program-level R&D spending, restructuring completion and the company’s ability to reduce expenses without impairing its remaining pipeline.