PTC Therapeutics, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Financial statement amounts below are in U.S. dollars; millions are rounded. The filing was signed November 9, 2015.
Business context
PTC is a biopharmaceutical company developing small-molecule therapies. Its lead product, Translarna (ataluren), had conditional European Economic Area authorization for ambulatory patients aged five and older with nonsense-mutation Duchenne muscular dystrophy (nmDMD). Commercial sales began in Germany in December 2014, with launches in several other European countries during 2015. The authorization remained subject to annual EMA review and additional clinical-data obligations.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $9.8 million | $1.7 million | $24.0 million | $12.6 million |
| Net product revenue | $9.8 million | $0.1 million | $21.0 million | $0.1 million |
| Research and development expense | $30.6 million | $18.8 million | $86.8 million | $53.0 million |
| Selling, general and administrative expense | $21.4 million | $10.5 million | $56.2 million | $26.8 million |
| Operating loss | $42.2 million | $27.6 million | $118.9 million | $67.2 million |
| Net loss | $43.2 million | $27.3 million | $119.5 million | $66.5 million |
| Net loss per share, diluted | $1.27 | $0.93 | $3.56 | $2.34 |
Product revenue reflects Translarna sales outside the U.S., including reimbursed early-access programs. Beginning in 2015, PTC recognized revenue when product shipped, having established a pattern of collectability; 2015 nine-month product revenue includes $1.4 million attributable to 2014 sales previously deferred. PTC did not capitalize Translarna inventory, and related manufacturing costs were recorded in R&D; therefore, the filing does not provide a directly comparable gross margin.
At September 30, 2015, cash and cash equivalents were $140.7 million and marketable securities were $230.8 million, or $371.5 million combined. Current assets were $384.2 million versus current liabilities of $31.7 million. Total assets were $396.1 million; stockholders’ equity was $269.2 million. Accumulated deficit was $542.1 million.
Operating cash use for the first nine months was $94.0 million, compared with $49.3 million in 2014. Investing activities provided $31.0 million, largely from net sales and redemptions of marketable securities; financing activities provided $154.0 million, principally from the convertible-note offering. Cash and cash equivalents increased $91.0 million to $140.7 million over the period.
PTC issued $150 million principal amount of 3.0% convertible senior notes due 2022, receiving $145.4 million net proceeds. The notes had a $93.2 million balance-sheet carrying value at quarter-end after a $56.8 million unamortized discount; the filing reports an 11.0% effective interest rate on the liability component. Long-term debt was $93.2 million, with no current debt reported.
Changes versus prior comparable periods
- Nine-month revenue more than doubled, primarily as Translarna product sales began to contribute; collaboration and grant revenue fell $9.5 million, mainly because the prior-year period included a non-recurring $7.5 million Roche milestone.
- Nine-month R&D expense rose 64% and SG&A rose 110%, reflecting clinical development, commercial-launch activity, and higher share-based compensation. The nine-month net loss widened by $53.0 million.
- Nine-month operating cash use increased by $44.7 million. Cash and securities together were $371.5 million at September 30, 2015, while the company also added convertible debt.
- Quarter-end long-term debt was newly reported following the August 2015 notes issuance. Deferred revenue declined to zero from $3.4 million at year-end 2014.
Outlook, significant developments, and risks
- nmDMD trial: In October 2015, PTC reported that the Phase 3 ACT DMD trial did not meet its primary endpoint in the overall intent-to-treat population: a 15-meter benefit in six-minute walk distance was not statistically significant (p=0.213). PTC highlighted a 47-meter benefit in the pre-specified 300–400-meter baseline subgroup and statistically significant findings in a pre-specified pooled meta-analysis. The company’s favorable interpretation is not assured acceptance by regulators; some subgroup findings were nominal, and a separate pooled subgroup analysis was post hoc.
- Regulatory and launch outlook: PTC planned to submit ACT DMD results to the EMA and complete its rolling U.S. NDA. It said a U.S. launch in the first half of 2016 was possible only if expedited review and approval were obtained. The EMA renewed Translarna’s EEA authorization in Q3, but it remained conditional and subject to ongoing review. European launches depended on pricing and reimbursement negotiations, which can take more than 18 months. UK draft guidance indicated it was minded to recommend against reimbursement, pending further review.
- Other programs: ACT CF enrollment was expected to complete by year-end 2015, with top-line results anticipated about a year later; an EMA variation seeking nmCF use had been submitted. A protocol change delayed the nmMPS I study, and data were no longer expected by year-end 2015. PTC submitted an IND for nonsense-mutation aniridia in Q4. RG7800 dosing in the SMA Phase 2 study remained suspended to assess an eye finding in a 39-week monkey toxicology study; clinical development was expected to resume in early 2016. PTC discontinued antibacterial candidate PTC672 after preclinical safety signals. PTC596 remained in a Phase 1 cancer study.
- Funding and risks: Management expected expenses to rise with commercialization, regulatory work, and clinical programs. It believed available resources and anticipated receipts would fund operating and capital needs for at least 12 months, while cautioning that assumptions could prove wrong. PTC expected ongoing losses and might require additional financing; risks include regulatory disagreement over ACT DMD, annual EMA renewal, reimbursement and pricing, clinical and safety outcomes, manufacturing dependence, and dilution or financing constraints. The company stated that it may never achieve or sustain profitability.
- The filing reports effective disclosure controls, no material change in internal control over financial reporting during the quarter, and no material legal proceedings. It states there were no material changes to previously disclosed contractual obligations or market-risk exposures.
Investor verification priorities
- Review the full ACT DMD data and subsequent FDA and EMA assessments, especially the distinction between the failed primary endpoint, pre-specified subgroup results, and post hoc analyses.
- Confirm the status and terms of EEA authorization renewal, the required ACT DMD submission, and U.S. NDA review; verify any changes to commercialization timing.
- Track country-level pricing and reimbursement decisions, including the UK process, and assess how they affect Translarna sales and cash receipts.
- Compare cash burn with management’s stated 12-month funding estimate, and monitor note interest, conversion, repurchase, and potential dilution obligations.
- Check ACT CF enrollment and results, and updates on the suspended SMA program, delayed nmMPS I study, aniridia development, and PTC672 discontinuation.