PTC Therapeutics, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited consolidated results; amounts below are in millions of U.S. dollars unless stated otherwise.
Business context
PTC is a commercial-stage biopharmaceutical company focused on rare diseases. Its marketed products are Translarna for nonsense-mutation Duchenne muscular dystrophy (nmDMD), sold outside the U.S., and Emflaza for Duchenne muscular dystrophy, sold in the U.S. The quarter also included the August acquisition of Agilis Biotherapeutics, adding gene therapy programs led by PTC-AADC.
Key financial metrics
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenue | $53.6 | $41.9 | $178.4 | $116.4 |
| Net product revenue | $53.0 | $41.8 | $177.2 | $116.1 |
| Operating loss | $(48.2) | $(30.9) | $(70.5) | $(69.7) |
| Net loss | $(51.0) | $(33.7) | $(79.8) | $(80.3) |
| Net loss per share, diluted | $(1.06) | $(0.82) | $(1.76) | $(2.09) |
| Operating cash flow | — | $(12.5) | $(31.4) |
Q3 product revenue comprised $30.4 million from Translarna and $22.6 million from Emflaza. Cash and cash equivalents were $206.9 million and marketable securities were $42.5 million at September 30, totaling $249.4 million. Current assets were $313.3 million versus current liabilities of $114.9 million.
Balance-sheet debt was $150.9 million, comprising $6.7 million current and $144.3 million long-term carrying value. The company also reported $218.7 million contingent consideration and $38.2 million deferred consideration related to Agilis. Management stated available cash, securities, product cash flows and other funding sources were expected to fund operations for at least 12 months.
Changes versus comparable periods
- Q3 revenue rose 28% (reported by the company as 27%), primarily reflecting Emflaza’s continued U.S. launch and growth in existing Translarna markets. Nine-month product revenue increased 53%, with contributions from Translarna geographic expansion and Emflaza.
- Q3 R&D expense increased 81% to $54.4 million; SG&A rose 22% to $38.4 million. The resulting Q3 net loss widened to $51.0 million. Nine-month net loss was slightly lower than in 2017.
- Nine-month operating cash use decreased to $12.5 million from $31.4 million. Financing provided $127.8 million, mainly from the April equity offering, versus $42.4 million in 2017.
- Cash and securities increased from $191.2 million at December 31, 2017 to $249.4 million at September 30, 2018. Total assets rose to $1.03 billion, substantially reflecting Agilis acquisition accounting.
Outlook, risks and unusual items
- Management expected operating losses to continue in 2018, while anticipating future-period losses could decline versus prior periods. Expenses were expected to increase with commercialization, clinical development and regulatory work; the filing provides no numerical revenue or earnings guidance.
- PTC anticipated submitting U.S. and EU applications for PTC-AADC in 2019 and a Tegsedi marketing-authorization request in Brazil in the first half of 2019. These are plans, not assured outcomes.
- Translarna’s EEA authorization is subject to annual review and Study 041; the final study report is due by Q3 2021. The FDA had not approved Translarna in the U.S.; PTC planned additional dystrophin data to support a possible resubmission. The company disclosed that prior pivotal trials did not meet their primary efficacy endpoints at the prespecified statistical significance level.
- Agilis acquisition consideration was approximately $462.0 million, including $49.2 million cash, $155.9 million fair value of shares, $218.7 million estimated contingent consideration and $38.2 million deferred consideration. The company must pay $40.0 million by the second anniversary of closing whether or not specified milestones are achieved. Contingent payments also depend on development, regulatory and sales outcomes.
- The Agilis acquisition added $480.0 million of preliminary in-process R&D intangible assets, $100.3 million goodwill and a $115.2 million deferred tax liability. Purchase-price allocation remained preliminary and could change.
- Q3 R&D included a $12.0 million Akcea license payment, expensed as R&D; SG&A included approximately $1.5 million of Agilis acquisition costs. PTC also recorded a $1.6 million inventory write-down, primarily for labeling changes.
- Adoption of ASC 606 resulted in a $3.3 million opening accumulated-deficit adjustment and changed the timing of Emflaza revenue recognition. The filing’s nine-month 2018 revenue would have been $1.1 million lower without adoption; cash flow was unchanged.
- Key risks include Translarna renewal, trial and reimbursement outcomes; Emflaza pricing and coverage; clinical and regulatory execution; integration and valuation of Agilis; and the possibility that additional financing may be needed. Two shareholder lawsuits were settled and dismissed in 2018. Management reported effective disclosure controls and no material change in internal control during the quarter.
Most important facts for investors to verify
- Product-level revenue trends, access and reimbursement conditions, and the sustainability of Translarna and Emflaza sales growth.
- Study 041 enrollment, timing and results, the next Translarna EEA renewal, and progress toward the proposed U.S. dystrophin study and any NDA resubmission.
- PTC-AADC evidence, regulatory submission readiness and the assumptions supporting the Agilis intangible-asset and contingent-consideration valuations.
- Cash burn and financing runway, including the mandatory $40 million Agilis payment and debt service; confirm whether the remaining $20 million MidCap facility became available under its revenue condition.
- Expense growth and the effects of the Akcea upfront payment, inventory write-down, acquisition costs and revenue-recognition change on reported results.