PTC THERAPEUTICS, INC. quarterly report, Q2 FY2017

PTC Therapeutics, Inc. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2017. Unaudited consolidated results. PTC is a global biopharmaceutical company commercializing Translarna outside the U.S. and, following an April 2017 acquisition, launching EMFLAZA in the U.S.

Key financial metrics

Metric	Q2 2017	Q2 2016	First half 2017	First half 2016
Total revenue	$48.0 million	$15.6 million	$74.5 million	$34.5 million
Net product revenue	$47.9 million	$15.4 million	$74.3 million	$34.3 million
Operating expenses	$60.5 million	$52.2 million	$113.4 million	$109.5 million
Operating loss	$12.5 million	$36.6 million	$38.9 million	$75.0 million
Net loss	$17.5 million	$38.9 million	$46.5 million	$80.1 million
Net loss per share	$0.44	$1.14	$1.26	$2.36

• Q2 product sales included $45.8 million of Translarna and $2.1 million of EMFLAZA. EMFLAZA U.S. sales began in May; revenue is recognized on a sell-through basis until PTC can reliably estimate distributor-channel items such as returns.
• Q2 cost of product sales was $0.8 million. Reported cost and gross margin are not necessarily representative of future periods: much of the Translarna production cost for 2017 sales had been expensed as R&D before inventory capitalization began in January 2017.
• First-half operating cash use was $15.6 million, versus $66.2 million a year earlier. Investing activities provided $47.9 million, including marketable-security redemptions and partially offset by the EMFLAZA acquisition; financing provided $40.7 million, principally from a new term loan.
• At June 30, cash and cash equivalents were $133.0 million and marketable securities were $48.1 million, totaling $181.1 million. Current assets were $227.0 million and current liabilities $68.0 million.
• Total liabilities were $213.3 million. Long-term debt was $141.2 million, including a $101.7 million net carrying amount for the 3.0% convertible notes due 2022 and $39.6 million net carrying amount for the new secured loan. The loan facility totals $60 million; $40 million was drawn, with the remaining $20 million conditional on revenue performance.

Material changes versus prior period

• Q2 revenue rose 207% year over year; first-half revenue rose 116%. Management attributed growth to increased Translarna sales in existing markets, geographic expansion, and initial EMFLAZA sales.
• Q2 R&D increased 7% to $30.8 million, reflecting clinical start-up and regulatory activity, partly offset by completion of the cystic-fibrosis program. First-half R&D decreased 3% to $58.2 million, primarily due to completion of that program.
• Q2 selling, general and administrative expense increased 24% to $28.9 million; first-half expense increased 10% to $54.4 million, primarily reflecting expansion of the U.S. commercial team for EMFLAZA.
• The EMFLAZA asset acquisition cost $75.0 million cash, 6,683,598 shares valued at $75.2 million, and $2.2 million of acquisition costs. PTC recorded $148.4 million of EMFLAZA rights as an intangible asset. Additional sales-based contingent payments begin in 2018, including a possible $50 million milestone.
• Shares issued and outstanding increased to 41.3 million at June 30 from 34.2 million at year-end, largely reflecting the acquisition issuance.

Outlook, commentary and principal risks

• Management expects operating losses to continue in 2017, while anticipating lower losses in future periods. It stated that available resources and expected funding sources should cover operating and capital needs for at least 12 months, subject to assumptions that could prove wrong. No specific revenue or earnings guidance was provided.
• Translarna’s EEA conditional marketing authorization was renewed in June 2017 through August 5, 2018, subject to further annual review and Study 041. Study 041 results are due to the EMA by the end of Q3 2021. The prior Phase 2b and Phase 3 ACT DMD trials did not achieve their primary efficacy endpoints at the prespecified statistical significance level.
• The FDA accepted PTC’s Translarna NDA over protest for standard review, with a target date of October 24, 2017 and an advisory committee meeting tentatively scheduled for September 28, 2017. Approval remains uncertain; FDA previously issued a Refuse to File letter and disputed the company’s interpretation of efficacy evidence.
• ACT CF failed to meet primary and secondary endpoints. PTC discontinued current Translarna development for nmCF, began closing extension studies, and withdrew its related EMA variation application. PTC also planned to stop its nmMPS I study due to difficulty identifying eligible patients.
• EMFLAZA launch success depends on reimbursement, prescription processing, patient access, supply and completion of FDA post-marketing requirements. Management reported more than 1,200 patients receiving EMFLAZA through commercial and bridge programs; coverage decisions may take weeks to months. PTC relies on non-patent U.S. exclusivity and third-party manufacturing and distribution.
• Other risks include pricing pressure, reliance on Translarna EEA authorization and reimbursement, clinical-trial enrollment and outcomes, foreign-exchange losses, secured-loan covenants and revenue tests, potential need for additional capital, and competition. The $40 million secured loan bears interest at LIBOR (minimum 1%) plus 6.15%; principal amortization begins in May 2019. PTC reported compliance with required covenants at June 30.
• A consolidated securities class action concerning statements about the Translarna NDA was pending; defendants had moved to dismiss. PTC reported no material change in contractual obligations other than disclosed items. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.

Important facts for investors to verify

• Subsequent FDA review developments for the Translarna NDA, including the advisory committee and whether additional studies or analyses are required.
• Progress, enrollment, cost and results of Study 041, and the next annual EEA authorization renewal and reimbursement outcomes.
• EMFLAZA prescription conversion, payer coverage, realized net sales, launch costs, manufacturing capacity and post-marketing obligations.
• Cash burn and liquidity relative to management’s 12-month funding assessment; loan revenue covenants and availability of the conditional $20 million tranche.
• Future acquisition-related contingent payments, royalties, dilution and the effect of share-based compensation; also monitor the securities litigation and any material outcome.