Prothena Corporation plc — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2017; filed August 8, 2017. Prothena is an Ireland-incorporated, late-stage clinical biotechnology company developing antibody-based candidates for amyloidosis, Parkinson’s disease and inflammatory disorders. The company has no approved products or product sales and operates in one segment.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $26.8 million | $27.1 million |
| Research and development expense | $34.0 million | $59.7 million |
| General and administrative expense | $10.9 million | $21.7 million |
| Loss from operations | $18.1 million | $54.4 million |
| Net loss | $17.7 million | $53.1 million |
| Basic and diluted net loss per share | $0.46 | $1.44 |
Revenue consisted entirely of collaboration revenue. The company recognized $26.6 million of a $30.0 million Roche clinical milestone as revenue and $3.4 million as an offset to research and development expense; the remaining revenue was research-service reimbursement. Reported operating margins were approximately negative 68% for the quarter and negative 201% for the six-month period, although both periods were materially affected by the Roche milestone and related accounting allocation.
Six-month net cash used in operating activities was $73.9 million, compared with $52.4 million in the prior-year period. Investing cash use was $2.6 million, primarily for property and equipment. Financing provided $161.3 million, including $150.3 million of net proceeds from a March 2017 public offering and $12.0 million from stock-option exercises. Cash, cash equivalents and restricted cash increased by $84.8 million to $475.8 million, including $471.7 million of cash and cash equivalents at June 30, 2017.
Working capital was $472.1 million, compared with $350.3 million at December 31, 2016. Total liabilities were $92.0 million, including a $52.1 million build-to-suit lease obligation. The filing does not report conventional bank debt. Restricted cash of $4.1 million collateralized a standby letter of credit for the South San Francisco facility.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue increased from $0.3 million to $26.8 million; six-month revenue increased from $0.6 million to $27.1 million, primarily because of the Roche milestone.
- Quarterly net loss improved from $40.4 million to $17.7 million, and six-month net loss improved from $68.0 million to $53.1 million, despite higher operating expenses.
- Research and development expense increased 5% for the quarter and 13% for the six months, driven primarily by higher NEOD001 clinical-trial and personnel costs.
- General and administrative expense increased 34% for the quarter and 42% for the six months, primarily from higher personnel, share-based compensation, consulting and commercial-planning costs.
- Cash increased substantially following the March equity offering. Ordinary shares outstanding increased to 38.2 million at July 21, 2017, from 34.8 million at December 31, 2016, before considering additional dilution from options.
- The company adopted ASU 2016-09 for share-based payment accounting, recording $3.4 million of excess tax benefits in the six-month income-tax benefit.
Guidance, Outlook, Risks and Unusual Items
Management expects R&D expense to increase in 2017, primarily because of the NEOD001 Phase 3 VITAL and Phase 2b PRONTO studies. G&A expense is also expected to increase to support R&D growth, additional personnel, legal costs and commercial planning. Management believes existing cash and cash equivalents are sufficient to meet obligations for at least the next twelve months, but expects to require additional capital to continue development and prepare for commercialization.
In May 2017, the company completed enrollment in the Phase 3 VITAL study of NEOD001 with 260 patients. The Phase 2 PASADENA study of PRX002/RG7935, conducted with Roche, was announced as initiated in July 2017. The filing identifies no approved products, recurring product revenue or established profitability.
Key risks include clinical-trial failure or delay, regulatory non-approval, reliance on Roche and other third parties, dependence on contract manufacturers, uncertain intellectual-property protection, competition, foreign-exchange exposure, and the need for additional financing that could dilute shareholders. Contractual obligations totaled $86.3 million, comprising $37.8 million of build-to-suit lease payments, $44.9 million of purchase commitments and $1.7 million of license obligations; Roche cost-sharing obligations were excluded because the amount could not be determined. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Investor Verification Points
- Confirm that the $26.6 million Roche milestone revenue and $3.4 million R&D offset are non-recurring and understand their effect on quarterly comparability.
- Assess cash consumption against the $471.7 million cash balance, the $73.9 million six-month operating cash burn and management’s additional-capital expectations.
- Review clinical timing, enrollment, safety and efficacy updates for NEOD001 and PRX002/RG7935, including Roche’s obligations and cost-sharing terms.
- Evaluate the $52.1 million build-to-suit lease obligation and the $44.9 million of purchase commitments relative to projected operating needs.
- Review potential dilution from the March offering, stock-option exercises and 4.6 million outstanding options, as well as $73.8 million of unrecognized share-based compensation.
- Verify the effect of future accounting adoption, including revenue recognition under ASC 606 and lease accounting under ASC 842.