Business Context and Reporting Period
Prothena Corporation plc is an Ireland-incorporated, clinical-stage neuroscience company developing therapies for neurodegenerative diseases, including prasinezumab (PRX002/RG7935) for Parkinson’s disease and PRX004 for ATTR amyloidosis. The unaudited Form 10-Q covers the quarter and six months ended June 30, 2018. The company had 39.8 million ordinary shares outstanding as of July 20, 2018.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0.3 million, versus $26.8 million | $0.5 million, versus $27.1 million |
| Operating expenses | $63.3 million, versus $44.9 million | $112.3 million, versus $81.5 million |
| Loss from operations | $(63.1) million, versus $(18.1) million | $(111.8) million, versus $(54.4) million |
| Net loss | $(59.9) million, versus $(17.7) million | $(108.6) million, versus $(53.1) million |
| Net loss per share | $(1.50), versus $(0.46) | $(2.77), versus $(1.44) |
Revenue was almost entirely collaboration revenue. The sharp year-over-year decline reflects the absence of the $26.6 million portion of a $30.0 million Roche clinical milestone recognized in the second quarter of 2017. No Roche or Celgene clinical or regulatory milestones were achieved in the 2018 periods.
Research and development expense was $31.5 million in the quarter and $66.2 million year to date. General and administrative expense was $11.0 million and $25.2 million, respectively. Restructuring costs were $20.9 million in both the quarter and year-to-date periods. Reported operating and net margins were not meaningful because revenue was minimal relative to operating costs.
Net cash provided by operating activities was $26.5 million for the six months ended June 30, 2018, compared with $73.9 million of cash used in the prior-year period. The 2018 operating cash inflow was driven primarily by $110.2 million of deferred revenue from the Celgene transaction and a $15.9 million increase in the restructuring liability, rather than by operating profitability. Investing cash use was $0.3 million. Financing cash provided was $42.3 million, principally from Celgene’s $39.8 million share subscription proceeds and $4.5 million from option exercises.
Cash and cash equivalents were $486.2 million at June 30, 2018, compared with $417.6 million at December 31, 2017. Cash, cash equivalents and restricted cash totaled $490.3 million. Working capital was $447.9 million. Management believes available cash is sufficient to meet obligations for at least the next twelve months, but expects to require additional capital to continue development and eventual commercialization activities.
The filing does not disclose conventional interest-bearing debt. The balance sheet includes a $52.2 million build-to-suit lease obligation, consisting of $1.5 million current and $50.7 million non-current, and $18.4 million of current restructuring liabilities. Total liabilities increased to $207.3 million from $89.1 million, primarily because of $110.2 million in deferred revenue and the restructuring liability.
Material Changes Versus the Prior Comparable Period
- Revenue declined 99% in the quarter and 98% year to date because the prior-year periods included a significant Roche milestone.
- Quarterly net loss increased by $42.2 million, while six-month net loss increased by $55.5 million.
- Research and development expense decreased 8% in the quarter but increased 11% year to date, primarily reflecting greater PRX002/RG7935 spending, consulting and personnel costs.
- Operating expenses increased 41% in the quarter and 38% year to date, including $20.9 million of restructuring charges in 2018.
- Cash increased by $68.6 million during the first six months, supported by the Celgene upfront payment and equity subscription, partially offset by operating spending.
- The company adopted ASC 606 on January 1, 2018. The adoption did not change opening accumulated deficit; it moved $0.3 million of quarterly and $0.5 million of year-to-date Roche development-service reimbursements from an R&D offset into collaboration revenue.
Guidance, Outlook, Risks and Unusual Items
In March 2018, Prothena entered into a collaboration with Celgene covering Tau, TDP-43 and an undisclosed target. Celgene paid a $100.0 million upfront fee and subscribed for approximately $50.0 million of ordinary shares. The company recorded $110.2 million as deferred revenue, including the $10.2 million premium attributed to the share subscription, because no goods or services had yet been transferred. Celgene may later pay approximately $80.0 million per program for U.S. rights, an additional $55.0 million per program for global rights, and up to $562.5 million per program in regulatory and commercial milestones, plus royalties, subject to contractual conditions.
Prothena discontinued NEOD001 development in April 2018 after the Phase 2b PRONTO study failed to meet its primary and secondary endpoints and a futility analysis of the Phase 3 VITAL study. In May, the company initiated a reorganization expected to reduce its workforce by approximately 57%. The company incurred $20.9 million of restructuring charges and estimated total restructuring costs of $21.6 million; substantially all cash payments were expected by the end of the first quarter of 2019. A July 20, 2018 termination agreement reduced one supplier-related restructuring obligation by €3.7 million, to a final settlement of €4.1 million.
Prasinezumab remains in Roche’s Phase 2 PASADENA study. Prothena also announced first-in-human dosing of PRX004 in a Phase 1 ATTR amyloidosis study. No product candidates have received regulatory approval, and the company expects continuing operating losses and additional capital needs.
Two purported securities class actions filed after quarter-end remained pending as of the filing date, while two earlier actions were voluntarily dismissed. The pending complaints seek unspecified damages and allege misleading statements concerning NEOD001 clinical results and approval prospects. Because proceedings were at an early stage, the company could not estimate a reasonably possible loss.
Other significant risks include clinical and regulatory failure, reliance on Roche and Celgene, dependence on third-party manufacturers and clinical research providers, uncertain patent protection, foreign-exchange exposure, potential dilution from future financings and equity awards, and the possibility that available cash will be consumed faster than expected. The company had $16.6 million of restructuring obligations, $5.9 million of purchase commitments, $1.6 million of license obligations, $33.6 million of build-to-suit lease payments and $1.8 million of operating lease commitments outstanding under the disclosed contractual-obligation schedule.
Important Facts for Investors to Verify
- Whether Roche’s prasinezumab program advances successfully and whether Roche exercises or terminates relevant rights under the collaboration agreement.
- Celgene’s exercise decisions for U.S. or global rights, and the timing and accounting treatment of future option fees, milestones and royalties.
- Cash burn excluding the temporary benefit from Celgene’s upfront payment and deferred-revenue accounting.
- Actual restructuring cash payments, final supplier settlements and the extent of any additional restructuring costs.
- Progress, safety and efficacy results for the PRX004 Phase 1 study and the PRX002/RG7935 Phase 2 study.
- Developments, potential damages and insurance coverage relating to the pending securities class actions.
- Future financing requirements, dilution risk and the impact of approximately $88.4 million of unrecognized share-based compensation expected to be expensed through 2021.