Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage biotechnology company developing antibody therapies for neuroscience and orphan diseases. The unaudited Form 10-Q covers the three months ended March 31, 2018, with comparison to the same period in 2017. The company had 39.8 million ordinary shares outstanding as of April 20, 2018.
Key programs included PRX002/RG7935 for Parkinson’s disease, PRX004 for ATTR amyloidosis, and discovery programs targeting tau, Aβ, TDP-43 and an undisclosed target. In April 2018, after the quarter end, Prothena discontinued NEOD001 development following unfavorable PRONTO results and a futility recommendation for the Phase 3 VITAL study.
Financial Results and Position
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Total revenue | $0.2 million | $0.3 million | Down 12% |
| Research and development expense | $34.7 million | $25.7 million | Up 35% |
| General and administrative expense | $14.2 million | $10.8 million | Up 31% |
| Total operating expenses | $48.9 million | $36.5 million | Up 34% |
| Loss from operations | $(48.7) million | $(36.3) million | Loss widened |
| Net loss | $(48.7) million | $(35.4) million | Loss widened |
| Basic and diluted loss per share | $(1.26) | $(0.99) | Loss per share increased |
| Net cash used in operating activities | $(31.6) million | $(37.8) million | Use decreased |
- Cash and cash equivalents were $429.0 million at March 31, 2018, compared with $417.6 million at December 31, 2017. Cash, cash equivalents and restricted cash totaled $433.1 million.
- Working capital increased to $501.6 million from $389.0 million, primarily reflecting a $100.0 million Celgene upfront-payment receivable and the Celgene equity proceeds.
- Total assets were $606.6 million and total liabilities were $197.1 million. Shareholders’ equity was $409.5 million.
- Deferred revenue was $110.2 million, comprising the $100.0 million Celgene upfront payment and a $10.2 million premium associated with Celgene’s share subscription. The company disclosed that the $100.0 million cash payment was received in April 2018, after quarter end.
- Financing cash inflow was $43.2 million, including $39.8 million from Celgene’s share subscription and $4.4 million from option exercises. There were no public-offering proceeds in the quarter.
- R&D expense included $25.6 million for NEOD001, $2.6 million for PRX002/RG7935, $0.2 million for PRX003 and $6.3 million for other R&D. The company also paid Roche $2.4 million for its share of development expenses.
- Share-based compensation was $6.9 million in the quarter, and unearned compensation expected to be recognized through 2021 was $77.8 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined modestly, while operating expenses increased substantially, primarily because of higher R&D consulting and personnel costs, greater PRX002/RG7935 costs and higher G&A personnel and legal expenses.
- The net loss increased by $13.4 million, and loss per share rose from $0.99 to $1.26.
- Operating cash burn improved by $6.3 million, although the reported cash flow benefited from a $110.2 million increase in deferred revenue and was reduced by the $99.8 million increase in the Celgene receivable.
- The March 20, 2018 Celgene collaboration added a $100.0 million upfront payment, a $50.0 million equity investment and potential program exercise fees, milestones and royalties. The upfront consideration was deferred because no goods or services had yet been transferred.
- Prothena adopted ASC 606 on January 1, 2018. The adoption increased Q1 2018 collaboration revenue by approximately $0.2 million because Roche development reimbursements were presented as revenue rather than as an R&D offset. There was no opening accumulated-deficit adjustment.
- The company discontinued PRX003 advancement into mid-stage development based on prior Phase 1b results and discontinued NEOD001 after quarter end.
Outlook, Commentary, Risks and Unusual Items
Management stated that cash and cash equivalents at March 31, 2018 were sufficient to meet obligations for at least the next twelve months based on current plans. However, Prothena expects to require additional capital to continue development and eventual commercialization. Future financing could involve equity dilution, debt obligations or unfavorable licensing and collaboration terms.
Following the NEOD001 discontinuation, management was assessing resources, developing a reorganization plan and expected to provide an update on restructuring plans and 2018 financial guidance during the second quarter. The filing does not provide a clear quantitative 2018 expense or cash-burn forecast.
- Development and regulatory outcomes remain uncertain. Prothena has no approved products and continues to depend on clinical-trial success, regulatory approval, third-party manufacturing and reimbursement.
- Roche controls further development and commercialization of PRX002/RG7935 outside the United States and bears primary responsibility for the program. Roche may terminate its agreement under specified circumstances, and Prothena may owe a share of U.S. development and commercialization costs if it remains in the profit-sharing arrangement.
- Celgene may elect U.S. and global licenses on a program-by-program basis. Future option fees, milestones and royalties are contingent and were excluded from the initial transaction price because of revenue-reversal risk.
- Contractual obligations included $34.7 million of remaining build-to-suit lease payments, $2.0 million of operating leases, $43.4 million of supplier purchase commitments and $1.7 million of license-related obligations. The MD&A table reports purchase obligations of $20.3 million, creating an apparent inconsistency with the Note 7 disclosure that should be reconciled.
- The company had a $4.1 million standby letter of credit collateralized by restricted cash; none had been drawn.
- Tax accounting for the U.S. Tax Cuts and Jobs Act remained provisional and could change the tax provision and effective tax rate. Foreign-exchange losses were approximately $0.3 million.
- The company reported no material legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of March 31, 2018.
Most Important Facts for Investors to Verify
- Confirm receipt and cash-flow timing of the $100.0 million Celgene upfront payment, which was recorded as a receivable at quarter end and received in April 2018.
- Assess the financial and operational effects of discontinuing NEOD001, including restructuring actions, potential cost reductions and any related charges.
- Track Celgene’s decisions regarding U.S. and global license options and the associated exercise fees, milestones and royalty economics.
- Monitor PRX004 Phase 1 progress, PRX002/RG7935 clinical results and Roche’s continued commitment to development and commercialization.
- Reconcile the differing purchase-obligation amounts disclosed in Note 7 and the MD&A contractual-obligations table.
- Evaluate cash runway against the company’s stated need for future capital, ongoing losses, clinical commitments and possible shareholder dilution.