Prothena Corporation plc: Q1 2015 Form 10-Q Summary
Business context and reporting period
Prothena is an Ireland-based late-stage clinical biotechnology company developing antibody-based immunotherapies for amyloidosis, Parkinson’s disease and related synucleinopathies, psoriasis and other inflammatory diseases. The filing covers the unaudited three months ended March 31, 2015, compared with the three months ended March 31, 2014.
- Key programs: NEOD001, PRX002 and PRX003.
- Ordinary shares outstanding as of April 24, 2015: 31.3 million.
- The company has no approved or commercialized products and remains dependent on collaboration funding and external capital.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $0.6 million | $32.2 million | Down 98% |
| Research and development expense | $10.6 million | $9.3 million | Up 13% |
| General and administrative expense | $5.0 million | $4.9 million | Up 4% |
| Total operating expenses | $15.6 million | $14.2 million | Up 10% |
| Operating loss | $15.0 million | Operating income of $18.0 million | Material decline |
| Net income (loss) | $(15.2) million | $17.9 million | Material decline |
| Basic and diluted earnings (loss) per share | $(0.55) | $0.82 basic; $0.78 diluted | Material decline |
| Net cash used in operating activities | $(14.7) million | $17.9 million provided | Material decline |
Revenue was almost entirely collaboration revenue from Roche. Q1 2014 included a $30.0 million Roche upfront payment; no comparable upfront payment was recognized in Q1 2015. Q1 2015 collaboration revenue included $0.2 million of development reimbursement recognized as license revenue and $0.4 million of research-service reimbursement. Future Roche development reimbursements are expected to be recorded primarily as an offset to R&D expense after the company recognized the full $35.6 million allocated license consideration.
- Cash and cash equivalents at March 31, 2015: $279.9 million, including $248.2 million in money market funds.
- Working capital: $274.9 million, compared with $287.2 million at December 31, 2014.
- Total assets: $289.6 million; total liabilities: $12.2 million; shareholders’ equity: $277.4 million.
- Accumulated deficit: $63.7 million.
- No debt is disclosed; the balance sheet primarily reflects operating liabilities and lease-related obligations.
- Cash declined by $13.7 million during the quarter, ending at $279.9 million.
- Share-based compensation expense was $1.7 million, with approximately $28.8 million of unearned expense expected to be recognized through 2018.
- Reported operating and net margins were approximately negative 2,534% and negative 2,563%, respectively; these ratios are distorted by the very low quarterly revenue and the absence of the prior-year Roche upfront payment.
Material changes versus the prior comparable period
- Revenue fell $31.6 million because Q1 2014 included the $30.0 million Roche upfront payment and higher license revenue from development reimbursements.
- R&D expense increased $1.2 million, primarily because of higher NEOD001 clinical trial costs, personnel and share-based compensation, and Roche development payments, partly offset by Roche reimbursements and lower manufacturing costs.
- NEOD001 R&D expense increased to $4.9 million from $1.5 million as the company advanced its Phase 3 program.
- PRX002 R&D expense decreased to $2.0 million from $2.6 million, although the company continued cost-sharing activities with Roche.
- Cash flow shifted from $17.9 million of operating cash generation in Q1 2014 to $14.7 million of operating cash usage in Q1 2015.
- The Elan research and development services agreement expired in December 2014; related-party revenue therefore declined from $0.1 million in Q1 2014 to zero.
- The company recorded a $0.4 million loss related to subleasing part of its facility.
Guidance, outlook, commentary and risks
- Management expects R&D expense to increase in 2015, primarily because of the NEOD001 Phase 3 trial and, to a lesser extent, PRX002 development and manufacturing activities.
- G&A expense is expected to increase moderately in 2015 due to personnel, legal and administrative costs associated with operating as a growing public company.
- Management believes cash on hand at March 31, 2015 was sufficient to fund obligations for at least the next twelve months, but expects to require additional capital to continue development and eventual commercialization.
- In April 2015, after quarter-end, Prothena completed a public offering of 3.795 million ordinary shares at $37 per share and received approximately $131.4 million of net proceeds.
- The Phase 3 VITAL Amyloidosis Study for NEOD001 was initiated in December 2014 and is designed to enroll approximately 230 treatment-naive patients with cardiac dysfunction.
- Prothena reported positive Phase 1 PRX002 results, including up to a 96% mean reduction in free serum alpha-synuclein, with statistical significance reported at p<0.00001. A multiple-ascending-dose Parkinson’s disease study was ongoing, with results expected in the first half of 2016.
- Roche and Prothena share development and commercialization costs and profits for PRX002 in the United States, with economics generally allocated 70% to Roche and 30% to Prothena. Roche remains central to development and commercialization outside the United States.
- Material risks include continuing losses, uncertain clinical and regulatory outcomes, the need for additional financing, possible shareholder dilution, dependence on Roche, reliance on third-party clinical and manufacturing providers, patent and intellectual-property uncertainty, reimbursement risk and competition.
- Prothena depends on Boehringer Ingelheim for manufacturing clinical supplies. Supply or quality problems could delay clinical development.
- As of March 31, 2015, contractual obligations included $11.7 million of operating leases, $1.2 million of supplier purchase commitments and $1.4 million under license agreements. Future Roche cost-sharing obligations were not determinable.
- The company reported no material legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of March 31, 2015.
Most important facts for investors to verify
- Whether NEOD001 Phase 3 enrollment, execution and interim-analysis milestones remain on schedule.
- Whether subsequent PRX002 clinical data confirm the reported Phase 1 biomarker results and support continued development.
- The expected rate of cash use after the April 2015 financing and the resulting cash runway.
- The scope and timing of future Roche reimbursements, cost-sharing payments, milestones and potential termination rights.
- Whether clinical manufacturing capacity and third-party suppliers can support the development programs.
- The extent of dilution from the April 2015 offering, outstanding options and future equity financings.
- Whether future clinical, regulatory, intellectual-property or reimbursement developments could materially delay or prevent commercialization.