PTC Therapeutics, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial statements are unaudited; comparisons are with the three months ended March 31, 2018 unless otherwise noted. Dollar amounts below are in millions, except per-share data.
Business context
PTC is a commercial-stage biopharmaceutical company focused on rare disorders. Its marketed products were Translarna for nonsense-mutation Duchenne muscular dystrophy (nmDMD), primarily outside the U.S., and Emflaza for Duchenne muscular dystrophy (DMD) in the U.S. The company is also developing gene therapy, splicing, oncology, and other programs.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $53.6 | $56.1 |
| Net product revenue | $53.1 | $56.0 |
| Research and development expense | $52.6 | $31.4 |
| Selling, general and administrative expense | $40.5 | $33.0 |
| Operating loss | $(69.1) | $(16.7) |
| Net loss | $(72.1) | $(19.3) |
| Basic and diluted net loss per share | $(1.29) | $(0.46) |
| Net cash used in operating activities | $(42.4) | $(15.9) |
- Product revenue comprised Translarna sales of $35.3 million, down from $36.8 million, and Emflaza sales of $17.8 million, down from $19.2 million. Management attributed the decline to Latin American ordering patterns for Translarna and first-quarter seasonality for Emflaza.
- Cash, cash equivalents, and marketable securities totaled $407.2 million at quarter-end, compared with $227.6 million at December 31, 2018. Current assets were $479.1 million and current liabilities $143.0 million.
- Cash and cash equivalents were $201.1 million; marketable securities were $206.0 million. Net cash used in investing activities was $150.5 million, primarily reflecting net purchases of marketable securities. Financing provided $225.7 million, mainly from the January 2019 equity offering.
- Quarter-end debt on the balance sheet was approximately $155.1 million: $16.7 million current and $138.5 million long-term. This includes the MidCap facility and convertible notes. The MidCap facility had $40 million drawn, bears interest at LIBOR (subject to a 1% floor) plus 6.15%, and begins principal amortization in May 2019. The $150 million principal amount of 3.0% convertible notes is due in August 2022.
- The company issued 7.56 million shares in its January offering at $30.20 per share and received $224.4 million in net proceeds. Shares outstanding increased to 58.42 million at March 31 from 50.61 million at year-end.
Material changes and unusual items
- Operating expenses rose to $122.7 million from $72.8 million. R&D increased 68%, reflecting gene therapy and other pipeline investment; SG&A increased 23%, primarily to support commercial activities.
- A $21.2 million expense from changes in the fair value of deferred and contingent consideration related to the Agilis acquisition was recorded in Q1 2019; there was no comparable expense in Q1 2018. The valuation depends on significant estimates and unobservable assumptions.
- The company adopted the new lease standard on January 1, 2019, recognizing an $11.3 million operating lease right-of-use asset and corresponding liability. Management said adoption did not materially affect results or cash flows.
Outlook, commentary, and risks
- Management expects continued operating losses in 2019 and rising commercialization and R&D costs, but expects cash flows, cash, cash equivalents, and marketable securities to fund operations for at least the next 12 months. The estimate depends on assumptions that may prove incorrect; the company has never been profitable and may need additional financing.
- Translarna’s EEA authorization is subject to annual review; it was effective through August 5, 2019 unless extended. Study 041 enrollment was slower than expected. The company requested that the deadline to submit study results be extended from Q3 2021 to Q3 2022; the filing does not state that this request had been granted. The study is important to maintaining the authorization.
- Translarna is not approved in the U.S. The FDA had declined the prior NDA and suggested a possible accelerated-approval path requiring new dystrophin data. Study 045 began in Q4 2018, and the company said a potential NDA resubmission could occur in 2020. Prior Phase 2b and Phase 3 trials did not meet their primary efficacy endpoints at the prespecified statistical significance level.
- After quarter-end, in April 2019, Brazil approved Translarna for nmDMD. Emflaza’s supplemental application for patients aged two to five had been submitted, with an FDA action date of July 4, 2019; the company expected a potential launch in that age group before year-end, subject to approval.
- PTC anticipated submitting a U.S. BLA for PTC-AADC in late 2019 and a U.S. launch in 2020, subject to approval. Roche anticipated submitting U.S. and EU applications for risdiplam in the second half of 2019. PTC expected a Brazilian decision on Tegsedi by year-end; Waylivra remained under EU review.
- Agilis-related contingent consideration includes a required $40 million development-milestone payment by the second anniversary of the August 2018 acquisition, regardless of whether the applicable milestones are achieved. The company reported no material legal proceedings and no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Status and terms of the Translarna EEA authorization renewal and the EMA’s response to the requested Study 041 deadline extension.
- Study 041 enrollment and results, Study 045 progress, and whether Translarna can support a U.S. NDA resubmission.
- FDA decisions and timing for the Emflaza younger-patient application and PTC-AADC BLA, and progress on Tegsedi and Waylivra in PTC’s territories.
- Product sales trends, reimbursement access, operating cash burn, and the assumptions supporting management’s at-least-12-month liquidity estimate.
- Changes in Agilis contingent-consideration valuations and the timing and funding of contractual milestone payments.