Protara Therapeutics, Inc. quarterly report, Q3 FY2016

Business context and reporting period

Issuer discrepancy: The supplied filing is for Proteon Therapeutics, Inc., not Protara Therapeutics, Inc. It is an unaudited Form 10-Q for the quarter ended September 30, 2016, filed November 7, 2016.

Proteon was a development-stage biopharmaceutical company developing vonapanitase for vascular access in patients with chronic kidney disease. It had no product sales and was dependent on external financing.

Financial results and liquidity

Amounts below are in millions of U.S. dollars except per-share data.

• Operating margins are not meaningful because the company had no product revenue. It reported no debt.
• At September 30, 2016, cash and cash equivalents were $26.678 million and available-for-sale investments were $20.296 million, totaling $46.974 million (approximately $47.0 million). Current liabilities were $4.942 million; total assets were $49.395 million and stockholders’ equity was $44.453 million.
• Operating cash used in the first nine months was $18.108 million, versus $12.380 million in the comparable 2015 period. Investing activities provided $4.588 million, and financing activities provided $0.161 million.
• Accumulated deficit was $152.815 million. The filing reported $2.499 million of stock-based compensation for the first nine months of 2016.

Material changes versus prior comparable periods

• Q3 net loss increased by $1.724 million year over year; nine-month net loss increased by $6.529 million.
• R&D expense rose $1.764 million in Q3 and $5.631 million for the nine-month period. Management attributed most of the increases to manufacturing pre-validation and validation, clinical trial activity, and personnel costs.
• G&A expense rose $0.320 million in Q3 and $1.525 million for the nine-month period, mainly due to additional overhead and personnel costs.
• Other income/expense improved year over year, largely reflecting changes in fair value of foreign-currency contracts and Swiss-franc balances; these contracts were not designated for hedge accounting and can add earnings volatility.
• Cash and cash equivalents declined from $40.031 million at December 31, 2015 to $26.678 million at September 30, 2016; cash plus available-for-sale investments declined from $65.263 million to $46.974 million.

Outlook, risks and unusual items

• Management expected available cash and investments to fund operations and capital expenditures into the fourth quarter of 2017, including PATENCY-1 results, enrollment in PATENCY-2 and CMC activities. The company cautioned that this estimate depended on assumptions and could prove shorter.
• PATENCY-1 enrollment was complete; top-line results were expected in December 2016. PATENCY-2 enrollment was expected to finish in the first quarter of 2017. The filing stated current resources were not expected to fund completion of PATENCY-2.
• Management said a sufficiently compelling PATENCY-1 result could prompt discussions with the FDA about a BLA supported by one Phase 3 trial; FDA acceptance or approval on that basis was uncertain. The filing also described two PAD Phase 1 trials initiated in Q4 2016.
• The company had no manufacturing facilities or sales organization and relied on third parties for manufacturing and clinical development. It had a Lonza purchase obligation of CHF 7.6 million for four API batches, due within one year; the filing estimated approximately $7.8 million at then-current exchange rates. The obligation is material relative to reported liquidity.
• A $40 million at-the-market equity program was available, but no shares had been sold under it as of September 30, 2016. Additional financing could be needed and could dilute shareholders; financing might not be available on acceptable terms.
• Key risks include Phase 3 efficacy and safety outcomes, regulatory requirements, enrollment delays, manufacturing and supplier dependence, foreign-exchange exposure, and the possibility that vonapanitase never gains approval or market acceptance. The filing noted the Phase 2 primary endpoint did not show statistically significant benefit for the 30-microgram dose versus placebo; favorable radiocephalic-AVF subgroup findings were not prespecified.
• No material subsequent events or material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.

Important facts for investors to verify

1. Confirm the issuer identity: this filing is Proteon Therapeutics, not Protara Therapeutics.
2. Check actual PATENCY-1 results and subsequent FDA feedback against the December 2016 data expectation and single-trial BLA possibility.
3. Track PATENCY-2 enrollment, total trial and CMC spending, and whether financing is required before the stated cash runway ends.
4. Review the timing and cash impact of the CHF 7.6 million Lonza commitment, including exchange-rate exposure.
5. Assess any ATM share sales or other financing for dilution and compare actual cash burn with management’s forecast.