Prothena Corporation plc — Q3 2015 Form 10-Q Summary
Business context and reporting period
Prothena is an Ireland-based late-stage clinical biotechnology company developing protein immunotherapies for amyloidosis, Parkinson’s disease and related synucleinopathies, psoriasis and other inflammatory diseases. Key candidates are NEOD001, PRX002 and PRX003. This unaudited Form 10-Q covers the three and nine months ended September 30, 2015, compared with the comparable 2014 periods. The company had 31.5 million ordinary shares outstanding as of October 23, 2015.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Total revenue | $0.4 million | $1.5 million | $1.3 million | $48.8 million |
| Research and development expense | $17.2 million | $10.4 million | $40.5 million | $28.3 million |
| General and administrative expense | $5.9 million | $4.2 million | $16.5 million | $14.0 million |
| Net income (loss) | $(23.0) million | $(13.2) million | $(56.5) million | $6.0 million |
| Net loss per share, diluted | $(0.73) | $(0.48) | $(1.89) | $0.24 |
| Net cash from operating activities | Not provided | Not provided | $(42.8) million | $11.8 million |
At September 30, 2015, cash and cash equivalents were $387.8 million, including $348.1 million in money-market funds. Working capital was $375.0 million, total assets were $398.9 million and total liabilities were $21.0 million. The filing reports no debt or off-balance-sheet arrangements. Accumulated deficit was $104.9 million.
Financing activities generated $137.4 million in the first nine months, primarily from $131.5 million of net proceeds from the April 2015 public offering and $3.6 million from stock-option exercises. Capital expenditures were $0.4 million.
Material changes versus the prior comparable period
- Nine-month revenue declined 97%, primarily because 2014 included a $30.0 million Roche upfront payment and a $15.0 million Roche clinical milestone; no comparable milestone revenue was recognized in 2015.
- Roche-related development reimbursements reached the full $35.6 million allocated consideration for license revenue. Future development reimbursements will generally reduce R&D expense rather than be recognized as collaboration revenue.
- Nine-month R&D expense increased 43%, driven mainly by higher NEOD001 clinical-trial costs, personnel and share-based compensation, consulting costs and Roche payments.
- Nine-month G&A expense increased 17%, primarily due to higher personnel, share-based compensation and legal costs associated with operating as a public company.
- Operating cash flow shifted from $11.8 million provided in the first nine months of 2014 to $42.8 million used in the first nine months of 2015, reflecting the absence of the 2014 Roche payments and increased operating spending.
- Shares outstanding increased from 27.4 million at December 31, 2014 to 31.5 million at September 30, 2015, principally following the April 2015 offering and option exercises.
Guidance, outlook, risks and unusual items
Management believes existing cash is sufficient to meet obligations for at least the next twelve months, but expects to require additional capital to continue development and potential commercialization activities. Future financing may involve equity or debt, collaborations or licensing arrangements and could dilute shareholders or impose restrictive obligations.
Management expected R&D expense to increase in the fourth quarter of 2015 because of higher NEOD001 spending and additional PRX003 activity. G&A expense was also expected to rise due to increased personnel, legal and administrative costs. The filing does not provide formal revenue or earnings guidance.
NEOD001 enrollment in the Phase 1/2 expansion cohort increased to 42 patients and was complete. In October 2015, Prothena announced plans for PRONTO, a randomized Phase 2b trial expected to enroll approximately 100 patients with AL amyloidosis and persistent cardiac dysfunction. The filing’s MD&A also refers to an ongoing Phase 3 trial; investors should reconcile these descriptions against subsequent filings and clinical disclosures.
- Development and regulatory approval of drug candidates remain uncertain, and the company expects continuing losses.
- Prothena depends on Roche for PRX002 development and commercialization and is responsible for a share of development and commercialization costs under the arrangement.
- The company depends on third parties, including Boehringer Ingelheim, for clinical manufacturing and on contract organizations for clinical trials.
- As of September 30, 2015, contractual obligations included $13.1 million of operating leases, $3.0 million of purchase obligations and $1.6 million under license agreements. Future Roche cost-sharing obligations were not determinable.
- The company recognized a $0.4 million sublease loss during the first nine months and entered into a new Dublin office lease with approximately $2.3 million of payments over its term, based on the exchange rate at September 30, 2015.
- No material legal proceedings were reported. Foreign-exchange losses were approximately $0.1 million for the first nine months.
Most important facts for investors to verify
- Clinical progress, safety and efficacy data, enrollment and regulatory timing for NEOD001, PRX002 and PRX003.
- The status, economics and cost-sharing requirements of the Roche collaboration, including any future milestones, reimbursements or termination decisions.
- Cash runway under updated clinical-development spending plans and the timing and terms of any required financing.
- Whether the company’s description of NEOD001 trial stages is consistent across subsequent filings and clinical-trial disclosures.
- Manufacturing capacity, supply continuity and regulatory compliance of third-party manufacturers.
- Potential dilution from future financings, outstanding options and additional equity awards; 3.3 million options were outstanding at September 30, 2015.