PTC Therapeutics, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited results; financial statement amounts below are in U.S. dollars. The filing was signed August 7, 2018.
Business context
PTC is a commercial-stage rare-disease biotechnology company. Its products are Translarna (ataluren), marketed for nonsense mutation Duchenne muscular dystrophy (nmDMD) outside the U.S., and Emflaza (deflazacort), approved for Duchenne muscular dystrophy (DMD) in the U.S. The company also invests in clinical and preclinical programs, including spinal muscular atrophy (SMA) in collaboration with Roche and the SMA Foundation.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $68.7 million | $48.0 million | $124.8 million | $74.5 million |
| Net product revenue | $68.2 million | $47.9 million | $124.2 million | $74.3 million |
| Operating loss | $5.6 million | $12.5 million | $22.3 million | $38.9 million |
| Net loss | $9.5 million | $17.5 million | $28.8 million | $46.5 million |
| Net loss per share, diluted | $0.21 | $0.44 | $0.62 | $1.26 |
| Operating cash used | Not separately provided | Not separately provided | $15.9 million | $15.6 million |
Q2 product revenue comprised $47.8 million of Translarna sales outside the U.S. and $20.3 million of Emflaza sales in the U.S. Management attributed revenue growth to increased sales in existing Translarna markets, expansion into additional territories, and Emflaza sales. Q2 operating expenses were $74.3 million, including $32.6 million in R&D, $33.5 million in selling, general and administrative expense, and $5.6 million in acquired-intangible amortization. Total revenue less cost of product sales and intangible amortization was approximately 88% of revenue in Q2; this is not directly comparable with 2017 because Emflaza intangible amortization began following the 2017 acquisition.
At June 30, cash and cash equivalents were $223.8 million and marketable securities were $72.3 million, for combined liquidity of $296.1 million. Total assets were $511.8 million; stockholders’ equity was $267.4 million. Long-term debt carrying value was $147.2 million, plus $1.7 million current portion. Debt includes $150 million principal of 3.0% convertible notes due 2022 and a $40 million secured term loan drawn in 2017; the notes’ carrying value was $109.1 million after discount and issuance costs. The term loan bears interest at LIBOR (1% floor) plus 6.15%; the company reported covenant compliance.
Changes versus prior comparable periods
- Revenue increased 42% in Q2 and 67% for the first six months year over year. Net losses narrowed in both periods, though the company remained loss-making.
- Six-month R&D expense rose 10% to $64.0 million and SG&A rose 22% to $66.5 million, reflecting pipeline and commercial investment.
- Product cost excluding intangible amortization rose to $5.6 million for six months, from $0.8 million, partly because 2017 Translarna manufacturing costs had largely been expensed as R&D in earlier periods. Emflaza intangible amortization added $11.0 million in the 2018 half year.
- Operating cash use was broadly stable year over year. April’s public offering generated $117.9 million net proceeds; financing cash inflow for the half year was $122.8 million.
- PTC adopted ASC 606 in January 2018 using the modified retrospective method. A $3.3 million transition adjustment affected opening accumulated deficit; prior-year periods were not restated. The company disclosed that adoption changed reported product revenue and loss modestly for 2018 periods.
Outlook, developments and risks
- Management expects continued operating losses in 2018, while anticipating that losses in future periods should decline versus prior periods. It expects cash flows from product sales and available cash and marketable securities to fund operations for at least the next 12 months, but notes this estimate depends on assumptions and capital could be used sooner. No revenue or earnings guidance was provided.
- PTC expects continued investment in commercialization, clinical programs and regulatory requirements. Key planned work includes Study 041 for Translarna, studies in aniridia and Dravet syndrome/CDKL5, and Emflaza post-marketing requirements.
- Translarna’s EEA authorization was renewed in July 2018 through August 5, 2019, subject to further annual review and Study 041; the label was extended to ambulatory patients aged two and older. Study 041 results are due to the EMA by the end of Q3 2021. Failure to renew authorization, obtain reimbursement, or achieve supportive trial results could materially affect revenue.
- The FDA declined PTC’s appeal of the Translarna complete response letter in February 2018. The FDA suggested a potential accelerated-approval path requiring new dystrophin data; PTC expected to initiate a study by year-end 2018. The filing cautions that the data may not support approval.
- After quarter-end, PTC agreed to acquire Agilis for $50 million cash and approximately $150 million in stock, subject to a share cap and potential cash substitution, plus contingent milestone and royalty payments. The transaction remained subject to closing conditions. PTC also advanced Agilis a $10 million bridge loan in July and could be required to advance another $10 million if the merger did not close by September 2, 2018.
- On August 1, 2018, PTC entered an Akcea agreement for Latin American and Caribbean commercialization rights to Tegsedi and Waylivra. Terms include an $18 million upfront license fee, potential regulatory milestones, and royalties in the mid-20% range. Neither product was then approved for marketing in PTC’s territory.
- Material risks include dependence on pricing, reimbursement and market access; clinical and regulatory uncertainty; product supply and commercialization execution; future funding needs and potential dilution; and integration, financing and approval risks related to the Agilis transaction. Securities class-action litigation had a settlement in principle pending court approval; the derivative litigation settlement was approved and the case dismissed in July 2018.
Important facts for investors to verify
- Translarna and Emflaza sales trends, geographic access, reimbursement terms, and the extent to which revenue growth converts to cash.
- Enrollment, timing and outcomes for Study 041 and the planned FDA dystrophin study, as well as annual renewal of the EEA authorization.
- Agilis closing status, total cash and dilution impact, contingent consideration, and the bridge loan’s repayment or additional advance.
- Regulatory approvals, launch timing, commercial prospects and royalty economics for Tegsedi and Waylivra in PTC’s territory.
- Cash burn, debt service and covenant headroom, and whether available liquidity remains sufficient as development and commercialization spending increases.