Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage neuroscience company developing therapies for Parkinson’s disease and related synucleinopathies, ATTR amyloidosis, tau-related diseases and TDP-43-related disorders. The Form 10-Q covers the unaudited three months ended March 31, 2019, with comparison to the three months ended March 31, 2018. Its ordinary shares trade on Nasdaq under PRTA; 39,864,561 shares were outstanding as of April 30, 2019.
Financial Highlights
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Collaboration revenue | $0.2 million | $0.2 million | Down 18% |
| Research and development expense | $13.3 million | $34.7 million | Down 62% |
| General and administrative expense | $9.9 million | $14.2 million | Down 30% |
| Total operating expenses | $23.1 million | $48.9 million | Down 53% |
| Loss from operations | $23.0 million | $48.7 million | Improved |
| Net loss | $20.9 million | $48.7 million | Improved 57% |
| Basic and diluted loss per share | $0.52 | $1.26 | Improved |
| Net cash used in operating activities | $17.4 million | $31.6 million | Improved |
The company has no product sales and remains dependent on collaboration revenue, principally reimbursements from Roche for additional development services. Revenue was not sufficient to cover operating expenses, resulting in a substantial operating loss and negative operating margin.
Cash, cash equivalents and restricted cash totaled $414.2 million at March 31, 2019, including $410.1 million of cash and cash equivalents. Cash and cash equivalents were $427.7 million at December 31, 2018. Working capital was $400.3 million, compared with $416.5 million at year-end 2018. The company reported no debt, although it had $26.5 million of operating lease liabilities and $110.2 million of deferred revenue.
Investing cash use was $0.1 million. Financing activities provided $5,000, principally from stock-option exercises, compared with $43.2 million in Q1 2018, when the company received proceeds from the Celgene share subscription and option exercises.
Material Changes Versus the Prior Comparable Period
- R&D expense declined by $21.4 million, primarily because of lower clinical, manufacturing, consulting and personnel costs following discontinuation of NEOD001 development in 2018.
- G&A expense declined by $4.3 million, primarily because of lower personnel and consulting costs associated with the restructuring and NEOD001 discontinuation.
- Net loss improved by $27.9 million, while loss per share improved from $1.26 to $0.52.
- Interest income increased to $2.3 million from $0.2 million, supported by higher cash and money-market balances. Q1 2018 included $0.9 million of interest expense related to the former build-to-suit lease; no comparable interest expense was recorded in Q1 2019.
- The company adopted ASC 842, Leases, on January 1, 2019. This resulted in a $3.8 million cumulative increase to opening accumulated deficit, derecognition of the $47.9 million build-to-suit asset and related obligations, and recognition of a $28.5 million operating lease right-of-use asset.
- R&D spending in Q1 2019 included $3.4 million for prasinezumab and $4.3 million for PRX004. NEOD001 spending declined to $0.6 million from $25.6 million.
- The 2018 Celgene financing did not recur in Q1 2019. Deferred revenue related to the Celgene collaboration remained $110.2 million, and no clinical or regulatory milestones were achieved under either the Roche or Celgene arrangements during the quarter.
Guidance, Outlook, Risks and Unusual Items
Management expects R&D and G&A expenses to decrease in 2019 compared with 2018 as a result of the NEOD001 discontinuation and restructuring. The company expects continued operating losses and states that additional capital will be required in the future to fund research, development and potential commercialization. Management believes existing cash and cash equivalents are sufficient to meet obligations for at least the next twelve months, but the filing does not provide a specific cash runway beyond that period.
Key pipeline activities include Roche-led Phase 2 development of prasinezumab and Prothena’s Phase 1 development of PRX004. The company reported final results from the discontinued Phase 3 VITAL study of NEOD001: the primary composite endpoint was not statistically significant, although post hoc analyses suggested a potential survival benefit in the highest-risk subgroup. The company stated that it was exploring potential business-development opportunities for NEOD001.
- Future funding may come from existing cash, Roche and Celgene collaborations, equity or debt financings, or other strategic arrangements. Additional financing may be unavailable or dilutive.
- Collaboration economics and future payments depend on Roche’s continued development of prasinezumab and Celgene’s future exercise of license options. Celgene’s announced pending acquisition by Bristol-Myers Squibb could affect the collaboration’s future direction.
- The company relies on third parties, including Roche and contract manufacturers, research organizations and suppliers, for clinical development and manufacturing.
- Drug candidates remain subject to substantial clinical, regulatory, manufacturing, intellectual-property, reimbursement and commercialization risks; none had received marketing approval.
- A purported securities class action concerning disclosures about NEOD001 clinical results and approval prospects remained pending. The company stated it could not estimate a reasonably possible loss or range of loss.
- Operating lease commitments totaled $29.4 million, purchase obligations totaled $1.2 million and license-related contractual obligations totaled $1.2 million. Future Roche cost-sharing obligations were not determinable.
- Restructuring activities were completed by March 31, 2019. The company recorded a $61,000 restructuring credit in the quarter and reported cumulative restructuring costs of $16.1 million.
Important Facts for Investors to Verify
- Whether cash consumption remains consistent with management’s liquidity assessment and when additional financing may be required.
- Progress, safety and efficacy results from the prasinezumab Phase 2 program and the PRX004 Phase 1 program.
- Roche’s development commitment and the potential effect of Roche termination, opt-out provisions or changes in cost-sharing economics.
- Celgene/Bristol-Myers Squibb actions regarding the collaboration, including any license-option exercises, termination or revised development strategy.
- The outcome and potential financial exposure from the NEOD001-related securities litigation.
- The impact of ASC 842 and the company’s remaining lease obligations, including the South San Francisco facility and sub-sublease income.
- The extent of dilution from 7.3 million outstanding stock options, future equity awards and any future capital raises.