Prothena Corporation plc 2016 Form 10-K Summary
Business context and reporting period
Prothena is an Ireland-incorporated, clinical-stage biotechnology company focused on antibody-based therapies for diseases involving protein misfolding and cell adhesion. This Form 10-K covers the year ended December 31, 2016; fourth-quarter figures are included where disclosed. The pipeline comprised NEOD001 for AL amyloidosis, PRX002 for Parkinson’s disease and related synucleinopathies in collaboration with Roche, PRX003 for inflammatory diseases, and preclinical PRX004 for ATTR amyloidosis.
Financial performance and liquidity
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Total revenue | $1.1 million | $1.6 million | Down 34% |
| Research and development expense | $119.5 million | $58.4 million | Up 105% |
| General and administrative expense | $41.1 million | $23.1 million | Up 78% |
| Total operating expenses | $160.6 million | $81.5 million | Up 97% |
| Loss from operations | $(159.5) million | $(79.9) million | Loss increased |
| Net loss | $(160.1) million | $(80.6) million | Loss increased 99% |
| Basic and diluted loss per share | $(4.66) | $(2.66) | Loss per share increased |
| Net cash used in operating activities | $(117.3) million | $(62.5) million | Use increased |
| Cash and cash equivalents | $386.9 million | $370.6 million | Up $16.3 million |
Revenue consisted of $1.1 million of Roche research-service reimbursement. Prothena has no marketed products and remains dependent on collaboration funding and equity financing. The company reported $390.98 million of cash, cash equivalents and restricted cash, including $4.1 million of restricted cash. Working capital was $350.3 million, total assets were $460.0 million, and shareholders’ equity was $365.4 million.
The company disclosed no traditional borrowings, but recorded a $51.3 million non-current build-to-suit lease obligation. Contractual obligations totaled $73.7 million, including $39.0 million of build-to-suit lease payments, $22.9 million of purchase commitments, $10.2 million of operating leases and $1.5 million under license agreements. No off-balance-sheet arrangements were reported.
Fourth-quarter 2016 results
Fourth-quarter revenue was $171,000, operating expenses were $49.4 million, net loss was $48.9 million, and basic and diluted loss per share was $1.41. Quarterly operating expenses and net losses increased through the year, reflecting intensified clinical development and manufacturing activity.
Material changes versus the prior comparable period
- R&D expense increased primarily because of NEOD001 manufacturing and clinical-trial costs, with additional spending on PRX003 and PRX004.
- G&A expense increased due to higher personnel, consulting and professional costs. 2016 included approximately $8.7 million of expense associated with accelerated option vesting and payments related to former executives.
- Cash used in operations increased by $54.8 million as development spending accelerated.
- In January 2016, Prothena issued 2,587,500 ordinary shares at $53.00 per share and received approximately $128.6 million in net proceeds.
- Property and equipment increased to $56.5 million from $3.9 million, primarily because of the new South San Francisco facility and build-to-suit accounting.
- The company vacated its former South San Francisco facility in December 2016. The lease was assigned to Merck in January 2017, expected to reduce lease commitments by approximately $8.4 million and produce an approximately $2.3 million gain.
Pipeline, outlook and management commentary
- NEOD001’s Phase 1/2 study reported responses in 53% of cardiac-evaluable patients, 64% of renal-evaluable patients and 82% of patients in the peripheral-neuropathy cohort. These were single-arm or historical-comparator results and do not establish regulatory efficacy.
- NEOD001 was being evaluated in the Phase 3 VITAL study and Phase 2b PRONTO study. Management expected R&D expense to increase in 2017 primarily because of these trials.
- PRX002 Phase 1b data showed acceptable tolerability, cerebrospinal-fluid penetration and up to a 97% reduction in free serum alpha-synuclein. The company planned to advance the program into Phase 2 with Roche.
- Under the Roche agreement, Roche may pay up to $380.0 million in development, regulatory and first-commercial-sale milestones, up to $175.0 million in ex-U.S. sales milestones, and royalties. U.S. development and commercialization costs and profits are generally allocated 70% to Roche and 30% to Prothena unless Prothena opts out.
- PRX003 entered a Phase 1b psoriasis study, and management disclosed a strategy to pursue Phase 2 development in psoriatic arthritis if specified criteria were met.
- PRX004 remained preclinical. The company relied on third-party manufacturers for all clinical supplies and had no internal manufacturing facilities.
Management believed existing cash and cash equivalents would fund obligations for at least twelve months from December 31, 2016, but stated that additional capital would be required to continue development and prepare for commercialization. No product candidate had received regulatory approval, and the company expected continuing losses.
Key risks, contingencies and unusual items
- Clinical, regulatory and manufacturing outcomes remain uncertain; positive early-stage or interim data may not predict later-stage results.
- Prothena depends heavily on Roche for PRX002 development, manufacturing, regulatory submissions and commercialization outside the United States. Roche may terminate the agreement under specified conditions, including at will with notice.
- The company relies on third-party manufacturers, including Boehringer Ingelheim and Rentschler, creating supply, comparability and capacity risks.
- Additional financing may be required and could dilute shareholders or impose debt obligations. The company does not anticipate paying dividends.
- Major commitments include clinical and research purchase obligations, license obligations, lease payments and the build-to-suit financing obligation. Future Roche cost-sharing obligations were not determinable.
- The company reported an accumulated deficit of $289.2 million and expects losses for the foreseeable future.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification checklist
- Verify the enrollment, endpoint definitions, statistical powering and final results of the VITAL and PRONTO NEOD001 studies.
- Confirm the timing, design and funding responsibilities for the planned PRX002 Phase 2 program with Roche.
- Assess cash runway using current operating burn, expected 2017 R&D growth and $73.7 million of disclosed contractual obligations.
- Review the Roche agreement for milestone probability, opt-out provisions, cost-sharing exposure and termination rights.
- Evaluate manufacturing readiness and comparability between clinical and prospective commercial supplies of NEOD001.
- Reconcile the January 2017 facility assignment, related gain and reduction in future lease commitments in subsequent filings.
- Monitor dilution from future equity offerings and the 4.1 million outstanding stock options at December 31, 2016.