Business Context and Reporting Period
Prothena Corporation plc is an Ireland-based late-stage clinical biotechnology company focused on protein dysregulation and investigational therapies for amyloid and neurodegenerative diseases. Key programs include birtamimab, PRX012, a dual Aβ-Tau vaccine, and partnered programs with Roche and Bristol Myers Squibb. The unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Financial Performance and Position
| Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 |
|---|---|---|---|---|
| Total revenue | $139.2 million | $0.2 million | $199.4 million | $0.5 million |
| Operating expenses | $29.9 million | $31.0 million | $94.3 million | $82.9 million |
| Income (loss) from operations | $109.2 million | $(30.8) million | $105.1 million | $(82.4) million |
| Net income (loss) | $109.2 million | $(30.6) million | $100.2 million | $(80.4) million |
| Diluted EPS | $2.13 | $(0.77) | $2.12 | $(2.02) |
| Net cash provided by operating activities | Not separately reported for the quarter | Not separately reported for the quarter | $115.1 million | $(61.3) million |
- Calculated operating and net margins were approximately 78.5% for Q3 2021 and 52.7% for the nine-month period. These margins were driven primarily by collaboration, license and intellectual-property transactions rather than product sales.
- Q3 collaboration revenue was $78.5 million, including $77.5 million from the BMS U.S. PRX005 license and $1.0 million of related development services. Nine-month collaboration revenue was $138.7 million, including a $60.0 million Roche milestone for first patient dosing in the PADOVA study.
- License and intellectual-property revenue was $60.7 million in Q3 and for the nine-month period, primarily reflecting the $60.0 million upfront payment and $0.7 million of related transition-service revenue from the sale of the ATTR amyloidosis business to Novo Nordisk.
- Research and development expense declined 17% year over year in Q3 to $18.0 million, but increased 11% for the nine-month period to $60.2 million. General and administrative expense increased 27% in Q3 to $12.0 million and 18% for the nine-month period to $34.1 million.
- Cash and cash equivalents were $600.1 million at September 30, 2021, compared with $295.4 million at December 31, 2020. Cash, cash equivalents and restricted cash totaled $601.5 million.
- Operating cash flow of $115.1 million was supplemented by $188.6 million of financing cash flow, including $78.0 million from a March public offering, $96.8 million from the ATM program and $13.7 million from stock-option exercises.
- Total liabilities were $142.2 million, including $13.8 million of operating lease liabilities and $111.8 million of current and non-current deferred revenue. The filing does not report conventional outstanding debt.
- Working capital was $578.3 million, compared with $273.4 million at December 31, 2020. Shareholders’ equity was $490.5 million, and 46.5 million ordinary shares were outstanding at September 30, 2021.
Material Changes Versus the Prior Comparable Period
- Revenue increased sharply from $0.2 million to $139.2 million in Q3 and from $0.5 million to $199.4 million for the nine-month period, primarily due to the BMS PRX005 license, the Roche PADOVA milestone and the Novo Nordisk transaction.
- The company changed its financial profile from operating and net losses in 2020 to substantial reported operating income and net income in 2021; the improvement is largely transaction-driven and may not be recurring.
- On July 30, 2021, BMS exercised U.S. rights for PRX005 and paid an $80.0 million option exercise fee. Prothena allocated $77.5 million to the license and $27.5 million to development services, with the latter recognized over an estimated 2021–2024 service period. Remaining deferred revenue related to the arrangement was $26.5 million at September 30, 2021.
- On July 8, 2021, Novo Nordisk acquired Prothena’s ATTR amyloidosis business and PRX004 rights for $60.0 million upfront, with potential additional development and sales milestones of up to $1.17 billion.
- Prothena opted out of U.S. profit-and-loss sharing with Roche for prasinezumab in May 2021 in exchange for potential U.S. commercial milestones and royalties. This reduced near-term Roche cost-sharing obligations.
- Shares outstanding increased from 39.9 million at December 31, 2020 to 46.5 million at September 30, 2021, reflecting equity offerings and option exercises.
Guidance, Outlook, Risks and Unusual Items
- Management expects existing cash and cash equivalents to fund obligations for at least the next twelve months, but expects additional capital will be needed to continue development and potential commercialization of its drug candidates.
- Management expects full-year 2021 R&D expense to exceed 2020 levels, primarily because of planned spending on the late-stage birtamimab program. G&A expense is also expected to increase because of personnel, share-based compensation and director-and-officer insurance costs.
- The principal development focus includes the Phase 3 AFFIRM-AL study of birtamimab, Phase 1 studies of PRX005 and PRX012, and partnered development of prasinezumab by Roche. An FDA Special Protocol Assessment for AFFIRM-AL does not guarantee approval.
- The company has no approved products and expects continuing operating losses over the longer term despite the reported 2021 profitability. Revenue is dependent on milestones, licenses, collaborations and asset transactions.
- Significant risks include clinical-trial failure or delay, regulatory non-approval, dependence on Roche, BMS and Novo Nordisk, third-party manufacturing and clinical-service providers, intellectual-property challenges, COVID-19 disruptions, the need for additional capital and potential shareholder dilution.
- Contractual obligations at September 30, 2021 totaled approximately $25.9 million, comprising $14.6 million of operating leases, $10.8 million of purchase commitments and $0.5 million of license obligations. The company also maintains a $1.4 million standby letter of credit collateralized by restricted cash.
- Share-based compensation expense was $6.1 million in Q3 and $17.8 million for the nine-month period; approximately $49.3 million of unearned compensation remained to be recognized through 2025.
- The company reported no material legal proceedings and stated that disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the large 2021 revenue and profit figures are sustainable after the BMS license, Roche milestone and Novo Nordisk asset sale are fully recognized.
- The timing, probability and economic value of future milestones and royalties from BMS, Roche and Novo Nordisk, including Novo Nordisk’s potential $1.17 billion of milestone payments.
- Clinical progress, enrollment, safety and efficacy results for AFFIRM-AL, PRX005, PRX012 and Roche’s prasinezumab programs.
- The expected cash-burn rate after nonrecurring transaction proceeds and the timing and terms of any future financing.
- The extent of future dilution from the ATM program, equity awards and approximately 8.65 million outstanding stock options.
- Potential effects of COVID-19, third-party manufacturing constraints, regulatory decisions and intellectual-property developments on clinical timelines and liquidity.