Prothena Corporation plc — Form 10-Q Summary
Business Context and Reporting Period
Prothena is an Ireland-incorporated, late-stage clinical biotechnology company developing antibody-based therapies for amyloid and inflammatory diseases. Its pipeline included NEOD001 for AL amyloidosis, PRX002 for Parkinson’s disease and related synucleinopathies under a Roche collaboration, PRX003 for inflammatory diseases, and PRX004 for ATTR amyloidosis. This unaudited Form 10-Q covers the three and nine months ended September 30, 2016, compared with the corresponding 2015 periods.
Financial Performance and Position
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Collaboration revenue | $0.3 million | $0.4 million | $0.9 million | $1.3 million |
| Research and development expense | $26.8 million | $17.2 million | $79.7 million | $40.5 million |
| General and administrative expense | $16.1 million | $5.9 million | $31.5 million | $16.5 million |
| Total operating expenses | $43.0 million | $23.1 million | $111.1 million | $57.0 million |
| Net loss | $43.2 million | $23.0 million | $111.2 million | $56.5 million |
| Net loss per share | $1.26 | $0.73 | $3.25 | $1.89 |
| Operating cash flow | Not separately provided | Not separately provided | $(83.3) million | $(42.8) million |
At September 30, 2016, cash and cash equivalents were $408.6 million, compared with $370.6 million at December 31, 2015. Working capital was $378.7 million, and total liabilities were $78.5 million, including a $39.4 million build-to-suit lease obligation. Shareholders’ equity was $401.1 million. The company had an accumulated deficit of $240.3 million.
Nine-month investing cash outflows were $13.6 million, primarily for $9.5 million of property and equipment purchases and $4.1 million of restricted cash securing a standby letter of credit. Financing cash inflows were $134.8 million, including approximately $128.6 million of net proceeds from a January 2016 offering of 2.6 million ordinary shares.
Material Changes Versus the Prior Comparable Period
- Revenue declined 33% in the quarter and 32% year to date, primarily because development-cost reimbursements from Roche were no longer recognized as collaboration revenue after the allocated license consideration had been fully recognized in 2015; subsequent reimbursements primarily offset R&D expense.
- R&D expense increased 56% in Q3 and 97% year to date, driven mainly by NEOD001 manufacturing and clinical-trial costs, as well as higher personnel and share-based compensation expense.
- G&A expense increased 173% in Q3 and 91% year to date. The 2016 expense included substantial share-based compensation related to accelerated vesting of options and payments associated with the former CEO’s death.
- Share-based compensation increased to $11.4 million in Q3 and $19.7 million year to date, versus $3.0 million and $7.1 million in the comparable 2015 periods.
- Property and equipment increased to $51.7 million from $3.9 million, reflecting construction of the new South San Francisco facility. A corresponding build-to-suit lease obligation was recorded.
- Cash increased despite operating losses because the January 2016 equity offering generated approximately $128.6 million of net proceeds.
Guidance, Outlook, Commentary, Risks, and Unusual Items
Management stated that existing cash and cash equivalents were expected to fund obligations for at least the next twelve months based on current plans, but additional capital will be required to continue development and prepare for commercialization. Future financing could involve equity dilution, debt obligations, or less favorable collaboration and licensing terms.
Management expected 2016 R&D expense to exceed the prior year, particularly because of the NEOD001 VITAL Phase 3 and PRONTO Phase 2b programs and, to a lesser extent, PRX004 development. G&A expense was also expected to increase to support expanded development activity and personnel, legal, and administrative needs.
During the quarter, Prothena reported interim NEOD001 data showing cardiac and renal response rates of 53% and 63%, respectively, in evaluable patients, and an 82% peripheral-neuropathy response rate in an expansion cohort. The company announced plans to advance PRX003 into a Phase 2 psoriatic-arthritis study, subject to prespecified criteria from an ongoing Phase 1b psoriasis study.
Key unusual or material items included the new facility build-to-suit accounting, a $4.1 million restricted-cash collateral requirement, accelerated depreciation of approximately $0.6 million in Q3 related to the planned departure from the current facility, and significant non-cash share-based compensation. The company agreed to assign its current facility lease to Merck, subject to completion conditions, in exchange for $0.5 million and $0.1 million for certain furniture, fixtures, and equipment.
Principal risks include continued substantial losses, uncertain clinical and regulatory outcomes, reliance on third-party manufacturers and clinical-trial providers, dependence on Roche for PRX002 development and commercialization, potential additional financing needs, intellectual-property uncertainty, foreign-exchange exposure, and the possibility that clinical candidates may never become commercial products. The company reported no material legal proceedings and stated that disclosure controls were effective as of September 30, 2016.
Important Facts for Investors to Verify
- Clinical progress, safety, and efficacy results for NEOD001, PRX002, PRX003, and PRX004, including the timing and outcomes of planned trials.
- The projected cash runway after incorporating ongoing clinical spending, manufacturing commitments, facility obligations, and potential Roche cost-sharing payments.
- The status and final accounting treatment of the new facility, the build-to-suit lease, and the planned assignment of the current facility lease to Merck.
- The extent to which future Roche reimbursements will offset R&D expense and whether any clinical or regulatory milestones are achieved.
- Potential dilution from future equity financings, stock-option exercises, and the company’s outstanding and available equity awards.
- Manufacturing capacity, supplier continuity, and regulatory compliance for clinical and potential commercial drug supplies.