PTC Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; balance-sheet comparisons are to December 31, 2015. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. PTC is a commercial-stage biopharmaceutical company whose revenue was primarily from Translarna (ataluren) for nonsense-mutation Duchenne muscular dystrophy (nmDMD) outside the United States.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $23.0 | $9.8 | $57.5 | $24.0 |
| Net product revenue | $22.0 | $9.8 | $56.3 | $21.0 |
| Research and development | $31.4 | $30.6 | $91.6 | $86.8 |
| Selling, general and administrative | $23.7 | $21.4 | $73.0 | $56.2 |
| Operating loss | $(32.1) | $(42.2) | $(107.1) | $(118.9) |
| Net loss | $(35.2) | $(43.2) | $(115.3) | $(119.5) |
| Net loss per share, diluted | $(1.03) | $(1.27) | $(3.39) | $(3.56) |
- Q3 net product revenue rose 125%; nine-month product revenue rose 168%, primarily from expanded commercial and reimbursed early-access availability of Translarna. Collaboration and grant revenue was $1.0 million in Q3, mainly from a grant-related development milestone; nine-month collaboration and grant revenue declined from 2015, when deferred Roche milestone revenue was recognized.
- Operating expenses were $55.1 million in Q3 and $164.6 million for the nine-month period. Nine-month SG&A increased 30%, mainly to support commercial expansion; R&D increased 6%, driven by clinical-trial, supply-chain and pipeline costs.
- Cash and cash equivalents were $50.3 million and marketable securities were $198.1 million at September 30, for combined liquidity of $248.3 million, versus $338.9 million at year-end 2015. Current assets were $280.6 million and current liabilities $48.9 million.
- Nine-month operating cash use was $90.2 million, compared with $94.0 million in 2015. Investing activities provided $81.4 million, primarily reflecting marketable-security maturities and sales; financing provided $0.9 million. Cash and cash equivalents declined $7.7 million during the period.
- Long-term debt had a carrying value of $96.6 million; the notes’ principal was $150 million. The 3.0% convertible senior notes mature in 2022, carry a stated cash coupon requiring about $4.5 million annually, and had an 11% effective interest rate. Debt discount and issuance costs reduce the reported carrying value.
- PTC did not capitalize Translarna inventory amid regulatory uncertainty. Management estimated that commercial-sale product on hand would have been about $1.3 million if capitalized and that gross margin, had product costs been expensed as cost of sales, would have exceeded 90%; this is not a reported gross margin.
Material changes and notable items
- Nine-month net loss narrowed by $4.2 million year over year, while revenue grew substantially; operating loss also narrowed. Higher commercial and research spending partly offset revenue growth.
- Net interest expense increased: nine-month 2016 expense was $6.1 million versus $0.2 million of net interest income in 2015, mainly reflecting the convertible notes.
- PTC completed a workforce reorganization in June 2016 and recorded a one-time charge of $2.5 million for the nine months.
- Share-based compensation was $26.6 million for the nine months, including $0.8 million expense for cash-settled stock appreciation rights. Unrecognized share-based compensation cost was approximately $70.8 million.
Outlook, management commentary and principal risks
- Management expected available cash, cash equivalents, marketable securities, product-sale cash flows and collaboration funding to cover operating and capital needs for at least the next 12 months. This estimate depends on assumptions that could prove incorrect; PTC expected significant losses and expenses to continue and may need additional financing to reach profitability.
- Translarna’s EEA conditional marketing authorization required annual renewal. At filing, the CHMP had not issued its opinion; following an October 2016 information request, PTC reported a major objection concerning efficacy, overall risk-benefit and the design and conduct of an additional nmDMD trial. Management expected an opinion by year-end 2016, but stated renewal was uncertain and could bring new trial obligations or label restrictions. Failure to renew or a material restriction could substantially impair product revenue.
- After quarter-end, in October 2016, the FDA denied PTC’s first appeal of its Refuse to File decision on the nmDMD NDA. PTC intended to pursue further appeals and estimated the process could conclude in the first half of 2017. The FDA could continue to reject the application or require additional trials or analyses, with significant cost and delay; U.S. approval timing was uncertain.
- For the confirmatory Phase 3 nmCF trial, PTC changed the primary endpoint to absolute change in percent-predicted FEV1 averaged at weeks 40 and 48, following regulator feedback. Top-line results were anticipated toward the end of Q1 2017. The EMA had raised major objections on the separate nmCF variation request, and PTC no longer expected its resolution in 2016. The FDA said persuasive results across primary and key secondary measures would be important.
- Other pipeline developments included initiation of the RG7916 Phase 2 Sunfish study in SMA; its pivotal second part was expected to begin in 2017 and trigger a $20 million Roche milestone. The RG7800 Moonfish study, suspended over a nonclinical safety finding, was expected to be terminated in Q4 2016. PTC596 development was expected to continue during 2017.
- Commercial access and pricing remain uncertain. Translarna was available in over 20 countries commercially or through early-access programs; England access began under a five-year managed-access agreement. PTC delisted the product from Germany’s pharmacy ordering system in April 2016 after unsuccessful pricing negotiations; access continued for many patients through a reimbursed importation pathway. Quarterly sales may fluctuate with order timing, reimbursement, and country access.
- Other risks include reliance on one lead product and a small eligible patient population; prior nmDMD trials did not meet their primary efficacy endpoints in the intent-to-treat populations; safety monitoring and possible long-term cardiovascular concerns; clinical-trial execution and third-party manufacturing reliance; foreign-exchange and reimbursement exposure; and potential need for additional capital.
- Three securities class actions consolidated in New Jersey alleged misleading statements concerning the nmDMD NDA and sought damages and costs. The filing did not state a clear estimate of potential financial exposure. PTC reported no material subsequent events affecting the financial statements and no off-balance-sheet arrangements.
Investor verification priorities
- Verify the CHMP and European Commission decision on annual renewal, any label changes or trial requirements, and implications for commercial and early-access revenue.
- Track further FDA appeal outcomes, any alternative U.S. regulatory strategy, and whether new clinical or nonclinical work is required.
- Assess ACT CF results against the revised primary endpoint and key secondary measures, along with the EMA’s nmCF review.
- Monitor product revenue quality, country-level reimbursement and collections, including German importation access and any rebate or repayment adjustments.
- Reconcile cash burn and the stated 12-month funding outlook with future clinical, commercial and regulatory spending; monitor financing needs and convertible-note obligations.
- Follow the securities litigation and any changes in the estimated cost or potential exposure; the filing provides no clear quantified estimate.