PTC Therapeutics, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Unaudited results are compared with the three months ended March 31, 2016. PTC is a biopharmaceutical company focused on rare diseases and oncology; Q1 product sales were from Translarna outside the United States.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $26.5 million | $18.9 million | +$7.7 million; product revenue increased 40% |
| Net product revenue | $26.4 million | $18.9 million | Growth from existing markets and geographic expansion |
| Operating expenses | $52.9 million | $57.3 million | Down $4.4 million |
| Operating loss | $(26.4) million | $(38.4) million | Improved $12.1 million |
| Net loss | $(29.1) million | $(41.2) million | Improved $12.2 million |
| Net loss per share, diluted | $(0.85) | $(1.22) | Improved $0.37 |
| Net cash used in operating activities | $(28.9) million | $(41.6) million | Lower cash use |
Research and development expense was $27.4 million, down 13%, mainly due to lower clinical-trial and manufacturing costs after completion of the ACT CF trial. Selling, general and administrative expense was $25.5 million, down 2%. Interest expense, net was $2.2 million. Product cost of sales was only $0.04 million, but this is not representative of prospective gross margin: most manufacturing costs for products sold had been expensed as R&D before inventory capitalization began in January 2017. Management expects Translarna gross margin above 90%.
At March 31, cash and cash equivalents were $54.1 million and marketable securities were $148.5 million, totaling $202.6 million. Current assets were $240.7 million versus current liabilities of $45.4 million. Long-term debt carrying value was $99.9 million, representing $150 million principal of 3.00% convertible notes due 2022, net of discount and issuance costs. Accumulated deficit was $764.2 million. Investing cash inflow of $24.4 million primarily reflected marketable-security maturities and sales; financing cash inflow was $0.7 million.
Material developments and comparison
- Translarna revenue rose 40% year over year, while operating and net losses narrowed, chiefly as R&D spending decreased.
- In March, PTC reported that ACT CF did not meet its primary or secondary endpoints; it discontinued current Translarna development for nonsense-mutation cystic fibrosis and withdrew its related European submission.
- The European Commission renewed Translarna’s conditional authorization in January 2017, subject to annual review and Study 041. In April, the EMA’s CHMP recommended another renewal; European Commission endorsement was pending at filing. PTC must submit Study 041 results by the end of Q3 2021.
- PTC filed its Translarna U.S. NDA over protest. FDA granted standard review with an October 24, 2017 target date; approval is uncertain, and FDA may require additional analyses or trials. Prior Phase 2b and ACT DMD primary efficacy endpoints were not statistically significant.
- After quarter-end, on April 20, PTC completed its EMFLAZA acquisition for approximately $140 million: $75 million cash and 6,683,598 common shares. Marathon may receive sales-based payments beginning in 2018, expected to average low-to-mid-20% of net sales, plus a potential $50 million milestone. PTC planned a U.S. launch in Q2, subject to regulatory and distribution arrangements.
- After quarter-end, on May 5, PTC entered a $60 million secured term-loan facility and drew $40 million. The additional $20 million is conditional on achieving trailing-12-month net product revenue of at least $120 million by December 31, 2018. The loan matures May 1, 2021, bears interest at LIBOR (minimum 1.00%) plus 6.15%, and includes revenue covenants.
Outlook, risks and unusual items
- Management expected operating losses to continue in 2017, although future losses were anticipated to decline versus prior periods. It expected higher commercialization, infrastructure, clinical, regulatory and post-marketing costs, partly offset by product revenue.
- Management stated that available resources, expected product and collaboration revenue, and financing were expected to fund operating and capital needs for at least the next 12 months; it cautioned that this estimate depends on assumptions and capital could be consumed sooner.
- Key risks include maintaining Translarna’s conditional European authorization and completing Study 041; uncertain U.S. NDA outcome; pricing, reimbursement and market access; EMFLAZA launch execution, exclusivity and post-marketing obligations; manufacturing and distribution dependence; and the need for additional financing. PTC reported no off-balance-sheet arrangements.
- A securities class action concerning statements about the Translarna NDA remained pending; defendants had moved to dismiss. PTC also disclosed that CFO Shane Kovacs had resigned, expected effective mid-May 2017, and that it was searching for a replacement.
Investor verification points
- Track Translarna NDA review and any FDA requests or decision relative to the October 24, 2017 target date.
- Verify European Commission action on the recommended Translarna renewal and progress, enrollment, cost and milestones for Study 041.
- Confirm EMFLAZA launch timing, prescription conversion, reimbursement coverage, realized sales and acquisition-related cash and share impacts.
- Monitor liquidity after the $75 million acquisition cash payment and $40 million loan draw, as well as compliance with the loan’s revenue covenants and conditions for the remaining $20 million.
- Assess whether revenue growth and expense trends support management’s expectation of narrowing future operating losses, accounting for the unusually low reported product cost in Q1.