Prothena Corporation plc — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2017; filed November 7, 2017. Prothena is an Ireland-incorporated, late-stage clinical biotechnology company focused on antibody-based treatments for amyloid and inflammatory diseases. Key programs include NEOD001, PRX002/RG7935 with Roche, and PRX004.
Financial Performance and Position
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Collaboration revenue | $0.2 million | $0.3 million | $27.3 million | $0.9 million |
| Research and development expense | $41.3 million | $26.8 million | $101.0 million | $79.7 million |
| General and administrative expense | $12.4 million | $16.1 million | $34.2 million | $31.5 million |
| Loss from operations | $(53.5) million | $(42.7) million | $(107.9) million | $(110.3) million |
| Net loss | $(52.4) million | $(43.2) million | $(105.5) million | $(111.2) million |
| Net loss per share | $(1.37) | $(1.26) | $(2.82) | $(3.25) |
- Revenue was almost entirely collaboration-related and included a $26.6 million portion of a $30.0 million Roche clinical milestone recognized during the first nine months. The remaining milestone allocation, $3.4 million, reduced research and development expense.
- Operating expenses increased 25% year over year in the third quarter and 22% in the first nine months. R&D expense increased primarily because of NEOD001 manufacturing, clinical-trial activity and personnel costs.
- The company remains loss-making, with an accumulated deficit of $394.6 million at September 30, 2017. Meaningful operating or profit margins are not applicable because revenue is primarily milestone- and reimbursement-based and the company has no commercial products.
- Net cash used in operating activities was $91.7 million for the first nine months, compared with $82.4 million in the prior-year period. Investing cash use was $3.1 million, primarily for property and equipment.
- Financing activities provided $163.9 million, including $150.3 million of net proceeds from a March 2017 public offering and $15.4 million from stock-option exercises. Cash, cash equivalents and restricted cash increased by $69.1 million to $460.1 million.
- Cash and cash equivalents were $456.1 million at September 30, 2017, compared with $386.9 million at December 31, 2016. Working capital was $429.8 million.
- Total liabilities were $91.4 million, including a $52.3 million build-to-suit lease obligation, of which $51.9 million was non-current. The filing does not report conventional interest-bearing debt apart from this lease-related financing obligation.
Material Changes Versus the Prior Comparable Period
- Nine-month collaboration revenue increased by $26.4 million, primarily because of the Roche milestone; third-quarter revenue declined modestly to $0.2 million from $0.3 million.
- Nine-month R&D expense increased $21.4 million, or 27%, with NEOD001 program spending rising to $76.0 million from $53.3 million.
- Nine-month G&A expense increased 9%, while third-quarter G&A declined 23%. The prior-year quarter included $6.5 million of accelerated stock-based compensation related to the former CEO’s death.
- Net loss improved for the first nine months by $5.7 million, largely because of the Roche milestone and a $4.7 million income-tax benefit in 2017. The tax benefit included $5.4 million of excess tax benefits from stock-option exercises under newly adopted accounting guidance.
- In September 2017, Prothena announced that it would not advance PRX003 into mid-stage development for psoriasis or psoriatic arthritis because Phase 1b results did not establish a sufficiently defined relationship between biological activity and meaningful clinical effects.
- Roche initiated the global Phase 2 PASADENA study of PRX002/RG7935 in early Parkinson’s disease. The study was designed to enroll approximately 300 patients in a 52-week randomized portion followed by a blinded extension.
Outlook, Liquidity, Risks and Unusual Items
Management stated that cash and cash equivalents at September 30, 2017 were sufficient to meet obligations for at least the next twelve months based on current plans. The company expects to require additional capital in the future to fund clinical development and potential commercialization. Additional financing may be obtained through equity, debt, collaborations or other arrangements, but may be unavailable or dilutive.
- Management expected 2017 R&D expense to increase from 2016, primarily because of the NEOD001 Phase 3 VITAL and Phase 2b PRONTO studies. G&A expense was also expected to increase because of personnel, legal, consulting and commercial-planning activities.
- Contractual obligations totaled $82.6 million, comprising $36.8 million of build-to-suit lease payments, $2.0 million of operating leases, $42.0 million of purchase obligations and $1.8 million of license obligations. Future cost-sharing obligations under the Roche agreement were not determinable and are excluded.
- Roche collaboration exposure is material. Prothena records Roche reimbursements and shares certain development costs; for U.S. Parkinson’s disease development and commercialization, the stated allocation is 70% to Roche and 30% to Prothena unless Prothena opts out.
- The company has no manufacturing facilities and relies on third parties for clinical and potential commercial supplies. Manufacturing capacity, comparability, supply interruptions and regulatory compliance could delay development.
- Primary risks include clinical-trial failure or delay, regulatory non-approval, dependence on Roche, additional capital requirements, dilution, uncertain intellectual-property protection, third-party manufacturing dependence, foreign-exchange losses and inability to commercialize candidates.
- The company reported no material legal proceedings, no defaults upon senior securities and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2017.
- Adoption of the new revenue standard was expected on January 1, 2018 using a cumulative-effect transition method. Management did not expect a material overall impact, although the timing of milestone revenue recognition could change.
Important Facts for Investors to Verify
- Progress, safety and efficacy results from the NEOD001 VITAL and PRONTO studies and the Roche-led PASADENA study.
- Whether additional Roche milestones, reimbursements or cost-sharing obligations will materially affect future revenue and R&D expense.
- The company’s cash runway relative to projected clinical, manufacturing and commercialization spending, including the timing and terms of any future financing.
- The financial effect of discontinuing PRX003 and the development status and funding requirements of PRX004 and other discovery programs.
- Third-party manufacturing capacity and regulatory readiness for NEOD001, PRX002/RG7935 and PRX004.
- Future revenue recognition under ASC 606 and the potential variability of tax benefits from stock-option exercises.