Business context and reporting period
PTC Therapeutics, Inc. is a global biopharmaceutical company focused on rare diseases and oncology. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2017. Its commercial products were Translarna (ataluren), sold for nmDMD outside the U.S., and EMFLAZA (deflazacort), approved for DMD in the U.S. and launched in May 2017.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $41.9 million | $23.0 million | $116.4 million | $57.5 million |
| Net product revenue | $41.8 million | $22.0 million | $116.1 million | $56.3 million |
| Operating loss | $30.9 million | $32.1 million | $69.7 million | $107.1 million |
| Net loss | $33.7 million | $35.2 million | $80.3 million | $115.3 million |
| Net loss per share, diluted | $0.82 | $1.03 | $2.09 | $3.39 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(31.4) million | $(90.2) million |
- Q3 product sales comprised $32.0 million of Translarna and $9.8 million of EMFLAZA.
- Q3 cost of product sales was $1.6 million, excluding $9.7 million of EMFLAZA intangible amortization. Product costs and reported gross margins are not necessarily representative of future periods; much of Translarna’s manufacturing cost had previously been expensed as R&D.
- Q3 R&D was $30.0 million, down 4% year over year; selling, general and administrative expense was $31.4 million, up 33%, mainly reflecting EMFLAZA commercialization. Nine-month R&D was $88.2 million and SG&A was $85.8 million.
- At September 30, cash and cash equivalents were $141.8 million and marketable securities were $27.5 million, totaling $169.3 million. Total assets were $367.7 million; current assets were $221.3 million and current liabilities $71.9 million.
- Long-term debt was $143.1 million: $103.5 million carrying value of $150 million principal convertible notes due 2022, plus the secured term loan. The company drew $40 million of a $60 million facility; another $20 million is conditional on a trailing-12-month revenue threshold. Management reported covenant compliance.
Material changes versus prior comparable periods
- Q3 revenue rose 82% year over year and nine-month revenue more than doubled, driven by Translarna growth and geographic expansion and the new U.S. EMFLAZA launch.
- Net losses narrowed year over year in both periods, although Q3 operating expenses included $9.7 million of acquired-intangible amortization and SG&A rose with commercialization investment.
- Nine-month operating cash use declined to $31.4 million from $90.2 million. Cash increased by $83.5 million, reflecting financing proceeds, investment-security maturities and foreign-exchange effects, partly offset by the $77.2 million EMFLAZA acquisition cash outlay.
- EMFLAZA acquisition consideration included $75.0 million cash and 6,683,598 shares, valued at $75.2 million, plus acquisition costs. Additional sales-based contingent payments may be owed from 2018, including a possible $50 million milestone.
Outlook, commentary and risks
- Management expected operating losses to continue in 2017, while anticipating future losses would decline versus prior periods. It believed available cash, securities, product receipts and financing sources would fund operating and capital needs for at least 12 months, subject to assumptions and uncertainty. No specific revenue or earnings guidance was provided.
- In October 2017, after quarter-end, the FDA issued a complete response letter for the Translarna nmDMD NDA, requiring at minimum evidence from an additional adequate, well-controlled clinical trial. PTC filed a formal dispute resolution request and was addressing other nonclinical and CMC matters; U.S. approval and timing remained uncertain.
- Translarna’s EEA conditional authorization was renewed in June 2017 through August 5, 2018, subject to annual review and Study 041, with results due by the end of Q3 2021. The primary efficacy endpoint was not achieved in the Phase 2b or ACT DMD trials, increasing regulatory and renewal risk.
- ACT CF missed its primary and secondary endpoints; PTC discontinued nmCF development and withdrew its related EMA submission. The company also stopped enrolling and began winding down its nmMPS I study due to difficulty identifying eligible patients.
- PTC expected increased commercialization and development costs, including EMFLAZA launch and post-marketing studies, Translarna Study 041, and other clinical programs. Key risks include reimbursement and pricing, patient access and launch execution, clinical outcomes, manufacturing and distribution dependence, debt covenants, and the need for additional capital.
- In October 2017, Sunfish advanced to its pivotal second part, triggering a $20 million Roche milestone recorded as collaboration revenue at achievement; it was not included in reported Q3 revenue. PTC anticipated Firefish could advance to its pivotal phase in the following months.
- The company disclosed securities class-action and derivative litigation concerning statements about the Translarna NDA. The class-action motion to dismiss was granted in part and denied in part; the company intended to defend the matters. Management concluded disclosure controls were effective as of September 30, 2017.
Important facts for investors to verify
- Progress and FDA response to the formal dispute resolution request, and whether additional Translarna trials or studies will be required.
- Study 041 enrollment, execution, results and implications for annual EEA authorization renewal and Translarna sales.
- EMFLAZA prescription growth, payer coverage, reimbursement, launch costs, supply continuity and post-marketing obligations.
- Cash burn, product-sales collections, liquidity assumptions, debt covenant compliance and whether the additional $20 million loan tranche can be accessed.
- Potential EMFLAZA contingent payments, litigation developments and the impact of share issuance or future financing on dilution.