UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
x
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 001-35676
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PROTHENA CORPORATION PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
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Ireland
(State or other jurisdiction of
incorporation or organization)
98-1111119
(I.R.S. Employer
Identification No.)
77 Sir John Rogerson’s Quay, Block C
Grand Canal Docklands
Dublin 2, D02 T804, Ireland
(Address of principal executive offices, including Zip Code)
Registrant’s telephone number, including area code: 011-353-1-236-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Ordinary Shares, par value $0.01 per share
PRTA
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
______________________________________
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No x
Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or
an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
o
o
Accelerated filer
Smaller reporting company
Emerging growth company
x
x
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting
shares held by non-affiliates of the registrant was approximately $328.8 million, based on the last reported sale of the registrant’s ordinary shares on the
Nasdaq Global Market on such date.
39,911,413 of the Registrant’s ordinary shares, par value $0.01 per share, were outstanding as of February 21, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement to be delivered to shareholders in connection with the registrant’s Annual General Meeting of Shareholders
to be held on May 19, 2020, are incorporated by reference into Part III of this Form 10-K. The registrant intends to file its Proxy Statement within 120 days
after its fiscal year ended December 31, 2019.
PROTHENA CORPORATION PLC
Annual Report on Form 10-K
For the Year Ended December 31, 2019
TABLE OF CONTENTS
PART I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV.
Item 15. Exhibits, Financial Statement Schedules
EXHIBIT INDEX
SIGNATURES
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ITEM 1. BUSINESS
Overview
PART I
Prothena Corporation plc (“Prothena” or the “Company”) is a clinical-stage neuroscience company with expertise in protein misfolding, focused on the
discovery and development of novel therapies with the potential to fundamentally change the course of devastating diseases.
Fueled by our deep scientific expertise built over decades of research, we are advancing a pipeline of therapeutic candidates for a number of indications
and novel targets for which our ability to integrate scientific insights around neurological dysfunction and the biology of misfolded proteins can be leveraged.
Our partnered programs include prasinezumab (PRX002/RG7935), in collaboration with Roche for the potential treatment of Parkinson’s disease and other
related synucleinopathies, and programs that target tau, TDP-43 and an undisclosed target in collaboration with Bristol-Myers Squibb for the potential
treatment of Alzheimer’s disease, amyotrophic lateral sclerosis (ALS), frontotemporal dementia (FTD) or other neurodegenerative diseases. Our proprietary
programs include PRX004 for the potential treatment of ATTR amyloidosis, and programs that target Aβ (Amyloid beta) for the potential treatment of
Alzheimer’s disease.
We were formed on September 26, 2012, under the laws of Ireland and re-registered as an Irish public limited company on October 25, 2012. Our
ordinary shares began trading on The Nasdaq Global Market under the symbol “PRTA” on December 21, 2012, and currently trade on The Nasdaq Global
Select Market.
Our Strategy
Our goal is to be a leading neuroscience company focused on the discovery and development of novel therapies for the treatment of diseases caused by
neurological dysfunction and/or misfolded proteins. Key elements of our strategy to achieve this goal are to:
• Concentrate our discovery and development efforts in areas where we have decades of scientific expertise and experience.
We leverage our core scientific expertise and ability to integrate biological insights around brain function and targeting pathogenic forms of proteins to
develop innovative therapeutics for the potential treatment of a broad spectrum of diseases with major unmet medical needs. Misfolding and aggregation of
specific proteins into abnormal, toxic species such as soluble aggregates and amyloid deposits, are thought to underlie many neurological and peripheral
diseases such as Alzheimer’s disease, Parkinson’s disease and ATTR amyloidosis.
Our multifaceted pipeline has been advanced by a team with scientific expertise and a track record of discovering and developing innovative, and often
first-in-class programs. Our legacy includes significant discoveries that have advanced the understanding of the biology of Alzheimer’s disease and identified
and elucidated the role Aβ plays in Alzheimer’s disease pathology. These findings led to the development of a drug discovery and development organization
that generated first-in-class clinical candidates in Alzheimer’s disease and Parkinson’s disease.
We pursue programs that are based on genetically associated and biologically validated targets implicated in diseases. Our research activities focus on
novel neuroscience targets and we leverage our insights into diseases caused by misfolded proteins. Our approach to advancing new compounds from
discovery through clinical development that target misfolded proteins is based on a deep understanding of how to optimally target proteins, assess target
engagement and disease progression, and develop potential therapeutics that relevantly influence this biology. Once we formulate a novel hypothesis or
approach, we determine how to optimally intervene against a known target. For example, if we select an antibody approach, we generate antibodies against a
target, characterize specific and selective antibodies in vitro and then use them to test the initial hypothesis in vivo using animal models of disease. We also
leverage our biological expertise to pursue the development of novel therapeutics based on modalities such as small molecules and may also pursue
opportunities in gene and cell therapies. We believe a diverse portfolio would position us to make an impact on a broad spectrum of diseases.
We sometimes rely on the use of preclinical models that have been extensively developed by external laboratories. To establish early clinical proof of
concept for our programs, we leverage our insight of disease pathology and, when possible, employ biomarker endpoints as a way to detect signals of
biological activity. We may elect to start clinical testing in indications that have well-
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established endpoints in order to demonstrate proof of concept as a basis for further investment in clinical trials, either by us or potential partners.
• Focus on diseases that lack effective therapies.
We focus on the development of therapies for serious and/or life-threatening diseases that currently lack effective therapies or in areas where current
therapies have known limitations. Our efforts in Parkinson’s disease, Alzheimer’s disease, and other neurological or peripheral amyloid diseases are examples
of this.
In Parkinson’s disease, currently approved therapies focus on the alleviation of early motor symptoms without addressing the underlying cause of the
disease. We are focusing our efforts to develop a therapeutic with the potential to slow the progression of Parkinson’s disease by targeting α-synuclein protein.
Synucleins are a family of proteins, of which there are three known members: α-synuclein, β-synuclein, and γ-synuclein. The α- and β-synuclein proteins are
found primarily in brain tissue. There is genetic evidence that α-synuclein plays a fundamental role in Parkinson’s disease, and an increasing body of evidence
demonstrates that pathogenic forms of α-synuclein can be propagated and transmitted from cell to cell. Our scientists have developed prasinezumab
(PRX002/RG7935), an investigational monoclonal antibody targeting the pathogenic aggregated form of α-synuclein, that is designed to slow or reduce the
neurodegeneration associated with α-synuclein misfolding and/or its transmission. We are developing prasinezumab, in collaboration with Roche, for the
potential treatment of Parkinson’s disease and other related synucleinopathies.
Moving forward, we intend to advance new discovery-stage therapeutics for other diseases with unmet medical needs. Our discovery efforts targeting
tau, Aβ and TDP-43 for the potential treatment of Alzheimer’s disease (AD), frontotemporal dementia (FTD) and amyotropic lateral sclerosis (ALS) are
examples of this.
• Pursue strategic business development opportunities and collaborations and leverage external resources.
We rely on strategic business development and R&D collaborations as well as a combination of internal and external resources to advance our
objectives.
Our robust discovery engine generates new targets and compounds that have the potential to treat unmet medical needs. For investigational therapeutic
programs targeting broad patient populations that may require large clinical trials and development investment, we may seek to collaborate or license these
programs to pharmaceutical or biotechnology companies for development and/or commercialization. Our collaboration with Roche to develop prasinezumab
for the potential treatment of Parkinson’s disease and other related synucleinopathies and our global neuroscience R&D collaboration with BMS that is
focused on three proteins implicated in the pathogenesis of several neurodegenerative diseases are examples of this. Within these types of collaborations, we
will evaluate several strategic options for designing and operationalizing early to late-stage development programs. This includes evaluating the option of
designing and operationalizing clinical programs ourselves or with a partner.
We also consider opportunities to acquire or license rights to differentiated product candidates or technologies to complement our existing R&D
pipeline.
Although we rely on, and will expand as appropriate, strong internal talent with expertise in our core areas of focus, we also rely on external resources,
as needed, to execute efficiently on our clinical development and other business objectives. We engage and collaborate with consultants and advisors with
certain scientific, clinical or other functional and/or disease area expertise to help us execute specific activities related to our programs. This may include
activities such as testing and characterizing our potential therapeutic candidates and gaining feedback and guidance on our programs.
• Pursue commercialization strategies to maximize the value of our product candidates or future potential products.
As we move our drug candidates through development toward regulatory approval, we will evaluate several strategic options for commercialization.
These options include building our own internal sales force; forging partnerships with other pharmaceutical or biotechnology companies, whereby we jointly
sell and market the product; regional licensing for markets where we do not have expertise or infrastructure; and out-licensing our product, whereby another
pharmaceutical or biotechnology company sells and markets our product and pays us a royalty on sales. We evaluate options for each product based on a
number of factors including commercial synergies and expertise, capital necessary to execute on each option, size of the market to be addressed and the
expertise and terms of potential offers from other pharmaceutical and biotechnology companies. Our collaboration with Roche for the potential
commercialization of prasinezumab is an example of this strategy.
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Our Research and Development Pipeline
Our research and development pipeline includes two therapeutic antibody programs in clinical development: Prasinezumab, in collaboration with Roche,
for the potential treatment of Parkinson’s disease and other related synucleinopathies; and PRX004, for the potential treatment of ATTR amyloidosis.
In addition to our clinical development pipeline, we have a number of discovery- and preclinical-stage programs targeting proteins implicated in
neurological diseases including Aβ and tau for the potential treatment of Alzheimer’s disease and other neurodegenerative disorders and TDP-43 for the
potential treatment of amyotrophic lateral sclerosis and frontotemporal dementia. Tau, TDP-43 and a third undisclosed neurodegenerative target are the focus
of our collaboration with BMS.
The following table summarizes the status of our research and development pipeline:
Prasinezumab (PRX002/RG7935) for the Potential Treatment of Parkinson’s Disease and Other Synucleinopathies
Prasinezumab is an investigational monoclonal antibody targeting α-synuclein that is designed to slow the progressive neurodegeneration associated
with synuclein misfolding and/or the cell-to-cell transmission of the aggregated (pathogenic) forms of synuclein in Parkinson’s disease and other
synucleinopathies. Prasinezumab is the focus of our worldwide collaboration with Roche.
The protein α-synuclein is found extensively in neurons and is a major component of pathological inclusions that characterize several neurodegenerative
disorders, including Parkinson’s disease, dementia with Lewy bodies, and multiple system atrophy, which collectively are termed synucleinopathies. While
the normal function of α-synuclein is not well understood, the protein normally occurs in a soluble form. In synucleinopathies, the α-synuclein protein can
misfold and aggregate to form soluble aggregates and insoluble fibrils that contribute to the pathology of the disease.
There is genetic evidence for a causal role of α-synuclein in Parkinson’s disease. In rare cases of familial forms of Parkinson’s disease, there are
mutations in the synuclein protein sequence, or duplication and triplications of the relevant gene leading to overproduction of α-synuclein, which may cause
α-synuclein protein to aggregate and form amyloid-like fibrils that contribute to the disease. There is also increasing evidence that this disease-causing α-
synuclein can be propagated and transmitted from neuron to neuron, resulting in a spreading of neuronal death. Recent studies in cellular and animal models
suggest that the spread of α-synuclein-associated neurodegeneration can be disrupted by targeting aberrant forms of α-synuclein.
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Parkinson’s disease is a degenerative disorder of the central nervous system (CNS) that affects approximately one in 100 people over the age of 60, with
incidence increasing based on an aging population. With an estimated seven to 10 million people living with Parkinson’s disease worldwide today, it is the
second most common neurodegenerative disease after Alzheimer's. The disease is characterized by the neuronal accumulation of aggregated α-synuclein in
the CNS and peripheral nervous system that results in a wide spectrum of worsening progressive motor and non-motor symptoms. While diagnosis currently
relies on motor symptoms classically associated with Parkinson's disease, non-motor symptoms may present many years earlier. Current treatments for
Parkinson’s disease are symptomatic and only address a subset of symptoms such as motor impairment, dementia or psychosis. Symptomatic therapies do not
target the underlying cause of the disease and as the disease progresses and dopaminergic neurons continue to be lost, these drugs lose effectiveness, often
leading to debilitating side effects as the disease progresses. The goal of our approach is to slow the progressive neurodegenerative consequences of disease, a
current unmet need. Prasinezumab preferentially targets aggregated α-synuclein and may slow or reduce the neurodegeneration associated with synuclein
misfolding and/or transmission.
Clinical Development Program for Prasinezumab
Prior to initiating clinical trials, we tested the efficacy of prasinezumab in various cellular and animal models of α-synuclein-related disease. In
transgenic mouse models of Parkinson’s disease, passive immunization with 9E4, the murine version of prasinezumab, reduced the appearance of α-synuclein
pathology, protected synapses and improved performance by the mice in behavioral testing.
During 2014, together with Roche, we advanced prasinezumab into clinical development with the initiation of two Phase 1 studies. Results of the first
study, a Phase 1 double-blind, placebo-controlled, single ascending dose trial, were presented in June 2015 as part of the late breaking session at the 19th
International Congress of Parkinson's Disease and Movement Disorders and published in December 2016 in the journal Movement Disorders. The data
demonstrated that prasinezumab was safe and well-tolerated in healthy volunteers, meeting the primary objective of the study. Further, results from this study
showed that administration of prasinezumab led to a mean reduction of free serum α-synuclein levels of up to 96.5%. These overall results were statistically
significant (p < 0.0001). Reduction of free serum α-synuclein, a protein potentially involved in the onset and progression of Parkinson's disease and the target
of prasinezumab, was shown to be rapid, and dose- and time-dependent after a single dose. No serious adverse events or hypersensitivity reactions were
reported. Prasinezumab demonstrated favorable pharmacokinetic properties. The most common treatment emergent adverse events were headache, nausea,
vessel puncture site pain, viral infection, and viral upper respiratory tract infection. In this study, all prasinezumab-related adverse events were mild, no dose
limiting toxicities were observed and no anti-drug antibodies were detected.
Results of the second study, a Phase 1b double-blind, placebo-controlled, multiple ascending dose study of prasinezumab in 80 patients with Parkinson’s
disease that was designed to assess the safety, tolerability, pharmacokinetics and immunogenicity of prasinezumab, were presented by Dr. Joseph Jankovic of
Baylor College of Medicine in April 2017 in a late-breaking therapeutic strategies session at the 13th International Conference on Alzheimer’s and
Parkinson’s Disease (AD/PD).
The 80 patients with Parkinson’s disease in this study were randomized into six escalating dose cohorts to receive prasinezumab or placebo (2:1
randomization for 0.3, 1, 3 or 10 mg/kg, and 3:1 randomization for 30 or 60 mg/kg). In this six-month study, patients received three monthly doses
(intravenous infusion once every 28 days) of prasinezumab or placebo and were followed for an observational period of three months. All dose levels of
prasinezumab were found to have an acceptable safety and tolerability profile in patients with Parkinson’s disease, meeting the primary objective of the study.
CNS penetration was demonstrated by a dose-dependent increase in prasinezumab levels in cerebrospinal fluid (CSF), and a mean concentration of
prasinezumab in CSF of 0.3% relative to serum across all dose levels, which exceeded our expectations based on our preclinical experience. Data from the
study also demonstrated rapid, dose- and time-dependent mean reduction in levels of free serum α-synuclein of up to 97% after a single dose, which were
statistically significant (p < 0.0001), and maintained following two additional monthly doses. No serious or severe treatment emergent adverse events
(TEAEs) were reported in prasinezumab treated patients. No TEAEs were observed in ten percent or more of prasinezumab treated patients. TEAEs greater
than placebo in five percent or more of prasinezumab treated patients, regardless of relationship to prasinezumab, included constipation, infusion related
reactions (IRRs), diarrhoea, headache, peripheral oedema, post lumbar puncture syndrome and upper respiratory tract infection. Mild-to-moderate IRRs, that
all resolved, were limited to the 60 mg/kg dose cohort and were observed in four of 12 treated patients. No dose-limiting toxicities were observed.
Prasinezumab demonstrated acceptable pharmacokinetic properties.
In June 2018, we published results from the Phase 1b multiple ascending dose study of prasinezumab in patients with Parkinson’s disease in JAMA
Neurology. The paper is entitled “Safety and Tolerability of Multiple Ascending Doses of PRX002/RG7935, an Anti-α-Synuclein Monoclonal Antibody, in
Patients With Parkinson Disease: A Randomized Clinical Trial.”
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The results from this study further supported advancing prasinezumab into the Phase 2 study, PASADENA, which was initiated by Roche in the second
quarter of 2017 and was fully enrolled in the fourth quarter of 2018. PASADENA is a two-part Phase 2 clinical study in early Parkinson's disease patients that
is being conducted by Roche. Part 1 is a randomized, double-blind, placebo-controlled, three-arm study and enrolled 316 patients to evaluate the efficacy and
safety of prasinezumab in patients over 52 weeks. In part 1, patients were randomized on a 1:1:1 basis to receive one of two active doses (1500 mg or
depending on body weight either 3500 mg or 4500 mg) of prasinezumab or placebo via intravenous infusion once every 4 weeks. Patients enrolled in the
study must not have been on dopaminergic therapy and were not be expected to require dopaminergic therapy for at least 52 weeks. Part 2 of the study is a 52-
week blinded extension phase in which patients from the placebo arm of the study will be re-randomized onto one of two active doses on a 1:1 basis, so that
all participants will be on active treatment. Patients who were originally randomized to an active dose will continue at that dose level for the additional 52
weeks. In part 2, patients will be allowed to use concomitant dopaminergic therapy. Any patient who medically required initiation of dopaminergic therapy
during part 1 will have their subsequent data censored for the primary endpoint analysis.
The primary endpoint of the Phase 2 PASADENA study is the comparison of change from baseline in the Movement Disorder Society-Unified
Parkinson's Disease Rating Scale (MDS-UPDRS) total score (sections 1, 2 and 3) at the completion of part 1 (week 52) in each treatment group vs. the
placebo group. The study is designed with 80% power and a one-sided alpha of 0.10 to detect a 37.5% relative between group reduction from baseline to
week 52. A prespecified exploratory analysis will compare the results of the two pooled treatment arms vs. placebo. Key secondary endpoints include safety,
tolerability and DaT-SPECT imaging.
The last patient was dosed in the fourth quarter of 2019, and Roche is in the process assessing data from part 1 of the study.
For more information on the Phase 2 PASADENA study, please visit clinicaltrials.gov and search NCT #03100149.
License, Development, and Commercialization Agreement with Roche
In December 2013, we entered into the License Agreement with Roche to develop and commercialize certain antibodies that target α-synuclein,
including prasinezumab, which are referred to in this report collectively as “Licensed Products.” The License Agreement became effective on January 17,
2014, which triggered an upfront payment to us of $30.0 million from Roche, which we received in February 2014. In July 2017, we announced that the first
patient has been enrolled in PASADENA, a global Phase 2 study of prasinezumab in patients with early Parkinson’s disease. The start of the Phase 2
PASADENA study triggered a $30 million milestone payment from Roche to Prothena, which was earned in the second quarter of 2017.
Pursuant to the License Agreement, we are collaborating with Roche to research and develop antibody products targeting α-synuclein. Roche is
providing funding for this research, which is focused on optimizing early stage antibodies targeting α-synuclein, potentially including incorporation of
Roche’s proprietary Brain Shuttle™ technology to increase delivery of therapeutic antibodies to the brain. Roche is primarily responsible for developing,
obtaining and maintaining regulatory approval for, and commercializing Licensed Products under the collaboration, including prasinezumab. Roche is
responsible for the clinical and commercial manufacture and supply of Licensed Products within a defined time period following the effective date of the
License Agreement.
We have so far earned $75 million of a total $600 million in potential clinical, regulatory and sales milestones. In addition to the $30.0 million upfront
payment and clinical milestone payment of $15.0 million (both in 2014) and the clinical milestone payment of $30.0 million in 2017, Roche is also obligated
to pay:
•
•
•
up to $350.0 million upon the achievement of additional development, regulatory and various first commercial sales milestones;
up to an additional $175.0 million in ex-U.S. commercial sales milestones; and
tiered, high single-digit to high double-digit royalties in the teens on ex-U.S. annual net sales, subject to certain adjustments.
In the U.S., Prothena and Roche share all development and commercialization costs, as well as profits, all of which will be allocated 70% to Roche and
30% to us, for prasinezumab in the Parkinson’s disease indication, as well as any other licensed products and/or indications for which we opt in to co-develop
and co-fund. We may opt out of the co-development and cost and profit sharing on any co-developed licensed products and instead receive U.S. commercial
sales milestones totaling up to $155.0 million and tiered, single-digit to high double-digit royalties in the teens based on U.S. annual net sales, subject to
certain adjustments, with respect to the applicable licensed product. In addition, we have an option under the License Agreement to co-promote prasinezumab
in the U.S. in the Parkinson’s disease indication. If we exercise such option, we may also elect to co-
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promote additional licensed products in the U.S. approved for Parkinson’s disease or other indications calling on the same prescriber. Outside the U.S., Roche
has responsibility for developing and commercializing the licensed products.
Under the License Agreement with Roche, we granted to Roche an exclusive, worldwide license to develop, make, have made, use, sell, offer to sell,
import and export the Licensed Products. The License Agreement continues on a country-by-country basis until the expiration of all payment obligations
thereunder. The License Agreement may also be terminated (i) by Roche at will after the first anniversary of the effective date of the License Agreement,
either in its entirety or on a Licensed Product-by-Licensed Product basis, upon 90 days’ prior written notice to us prior to first commercial sale and 180 days’
prior written notice to us after first commercial sale, (ii) by either party, either in its entirety or on a Licensed Product-by-Licensed Product or region-by-
region basis, upon written notice in connection with a material breach uncured 90 days after initial written notice, and (iii) by either party, in its entirety, upon
insolvency of the other party. The License Agreement may be terminated by either party on a patent-by-patent and country-by-country basis if the other party
challenges a given patent in a given country. Our rights to co-develop licensed products under the License Agreement will terminate if we commence certain
studies for certain types of competitive products. Our rights to co-promote licensed products under the License Agreement will terminate if we commence a
Phase 3 study for such competitive products.
PRX004 for the Potential Treatment of ATTR Amyloidosis
PRX004 is an investigational antibody designed to deplete both the circulating and deposited non-native forms of TTR protein (misTTR) associated
with disease pathology that underlies both hereditary and wild type ATTR amyloidosis, without affecting the native, or normal tetrameric form of the protein.
ATTR amyloidosis is a rare, progressive and often fatal disease characterized by deposition of misTTR in vital organs. ATTR amyloidosis can be
hereditary (hATTR) when caused by a mutation in the TTR gene, or wild-type (wtATTR) when it occurs sporadically. In both forms of the disease, patients
can experience a spectrum of clinical manifestations affecting multiple organs, most commonly the heart and/or nervous system. The TTR protein is produced
primarily in the liver and in its normal tetrameric form serves as a carrier for thyroxin and retinol binding protein (a transporter for vitamin A) and is also
implicated in neuroprotective functions.
In hereditary ATTR amyloidosis, mutations in the TTR gene causes misTTR to accumulate and damage body organs and tissue, such as the peripheral
nerves and heart. This results in predominant symptoms of neuropathy (hereditary ATTR amyloidosis with polyneuropathy or hATTR-PN) and/or
cardiomyopathy (hereditary ATTR with cardiomyopathy or hATTR-CM), as well as other disease manifestations. It is estimated that there are approximately
50,000 patients with hATTR worldwide, with approximately 10,000 characterized as hATTR-PN and 40,000 characterized as hATTR-CM.
Wild-type ATTR (wtATTR) occurs sporadically and primarily involves cardiomyopathy. Wild-type ATTR is similar to hereditary ATTR except that the
misTTR protein that is deposited is the non-mutated transthyretin protein. The wild-type transthyretin protein is less prone to forming amyloid deposits than
the mutated form and patients usually develop the disease at 65 years of age or older. The prevalence of wild-type ATTR is uncertain, but many clinical
experts believe there are many multiples more wild-type than hereditary patients world-wide.
It is generally accepted that, at the time of diagnosis, affected organs in ATTR patients (both hATTR and wtATTR amyloidosis) contain extracellular
amyloid deposits. These deposits, together with prefibrillar species, are believed to cause organ dysfunction.
Recently, new therapeutics for ATTR amyloidosis have demonstrated benefit to patients by impacting the biological pathway leading to the formation of
amyloid deposits. These approaches are designed to either block or inhibit production of native forms of the TTR protein or bind to TTR and prevent tetramer
dissociation but do not target misTTR directly.
PRX004’s proposed mechanism of action is to deplete both circulating misTTR to prevent further deposition and deposited amyloid to improve organ
function. PRX004 has been shown in preclinical studies to inhibit amyloid fibril formation, neutralize soluble aggregate forms of misTTR, and promote
clearance of insoluble amyloid fibrils through antibody-mediated phagocytosis. This differentiated depleter mechanism of action could be developed as a
monotherapy approach to ATTR amyloidosis and might also complement existing therapeutic approaches which either stabilize or reduce production of the
native TTR tetramer.
Clinical Development Program for PRX004
We have generated monoclonal antibodies that selectively bind to misTTR and do not recognize the native, tetrameric form of TTR protein. Preclinical
data published in March 2016 in the journal Amyloid suggest that our antibodies have unique biological
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activity that may lead to the prevention of deposition, and enhancement of clearance, of ATTR in patients with both wtATTR and hATTR amyloidosis.
Additionally, we have developed a proprietary, high-sensitivity biomarker assay that specifically detects circulating hereditary misTTR in plasma and
can be used in clinical studies to monitor pharmacodynamic response (target engagement) to PRX004 in plasma.
In March 2018, we presented new research related to PRX004 for the potential treatment of ATTR amyloidosis at the 16th International Symposium on
Amyloidosis (ISA) including data on our proprietary misTTR assay that specifically detects circulating misTTR in plasma across multiple hereditary TTR
mutations using a TTR antibody that binds to an epitope uniquely exposed on misfolded TTR but hidden in the native tetramer. Additional preclinical
research was presented at ISA showing that conformation-specific antibodies target misTTR and induce immune mediated clearance through phagocytosis.
In May 2018, we announced the initiation of first-in-human dosing in a Phase 1 open-label, multicenter clinical study (NCT03336580) of PRX004 in
patients with hATTR amyloidosis with peripheral neuropathy who may also have cardiomyopathy. The Phase 1 study is designed to determine the safety,
tolerability, pharmacokinetic, pharmacodynamic and maximum tolerated dose of PRX004 in patients with hATTR amyloidosis to inform possible future
studies. The study includes the use of our proprietary assay as a pharmacodynamic measure (target engagement) of the levels of misTTR in plasma.
In the escalation phase of the Phase 1 study, patients receive PRX004 intravenously once every 28 days for up to 3 infusions. Six dose levels (0.1, 0.3,
1.0, 3.0, 10.0, and 30.0 mg/kg) are being evaluated. Eligible patients who complete the escalation or expansion phase can enroll in the long-term extension
(LTE) phase of the study and receive up to 15 additional infusions of PRX004 every 28 days.
In December 2019 we reported interim data from the Phase 1 study of PRX004 in patients with hATTR amyloidosis.
In the interim analysis, 15 patients in the dose escalation phase of the study each received 3 infusions in dose-level cohorts 1 through 5 representing 0.1,
0.3, 1.0, 3.0 and 10.0 mg/kg. PRX004 was found to be generally safe and well tolerated and demonstrated PK profiles consistent with that of an
immunoglobulin gamma 1 (IgG1) monoclonal antibody. Target engagement was demonstrated by a dose-dependent decrease in plasma levels of unbound
misTTR (misTTR not captured by PRX004), as measured by our proprietary misTTR biomarker assay. For the three patients in the 10.0 mg/kg dose-level
(the highest dose-level in the interim analysis), the maximum observed reductions in misTTR levels within 24 hours of the first infusion were 54%, 66% and
76%. As expected, because PRX004 was designed to recognize an epitope exposed only on the misTTR species, PRX004 did not appear to impact levels of
normal tetrameric TTR.
Of the 15 patients in the interim analysis (from cohorts 1 through 5), 12 patients were eligible for the LTE and were currently enrolled. Of the three
patients not enrolled in the LTE, 2 patients from cohort 1 were ineligible due to early termination during the escalation phase and 1 patient from cohort 2 was
ineligible based on the LTE screening criteria.
No dose-limiting toxicities were observed in the escalation phase interim analysis. In cohorts 1 through 5 of the escalation phase, one severe treatment
emergent adverse event (TEAE) was reported which was a worsening of a pre-existing condition, deemed unrelated to PRX004 by the investigator, and
subsequently resolved.
The Phase 1 study of PRX004 is ongoing.
Our Discovery and Preclinical Programs
We are also advancing several discovery- and preclinical-stage programs for neurological diseases with significant unmet medical needs such as
Alzheimer's disease (AD), frontotemporal dementia (FTD) and amyotrophic lateral sclerosis (ALS). Our discovery and pre-clinical pipeline includes our
proprietary Aβ programs as well as three programs (tau, TDP-43 and an undisclosed program) that are the focus of our collaboration with BMS.
If promising, we expect to advance our discovery programs into preclinical development. New target discovery will focus on areas where we can bring
potential new therapies to patients expeditiously through our internal expertise and resources. Existing late discovery-stage or preclinical-stage programs may
be partnered or out-licensed.
Targets in our preclinical pipeline include the following:
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• Aβ, or Amyloid Beta, a protein implicated in Alzheimer’s disease (AD). Our scientists have advanced the understanding of the biology of AD and
made particularly impactful and fundamental discoveries that elucidated the role amyloid plays in the disease. Today, we are advancing a new
approach to design a more potent anti-Aβ antibody.
• Tau, a protein implicated in diseases including AD, FTD, progressive supranuclear palsy (PSP), chronic traumatic encephalopathy (CTE) and other
tauopathies. We have identified antibodies targeting novel epitopes on the tau protein with the potential to block misfolded tau from binding to cells
and to inhibit cell-to-cell transmission, preventing downstream toxic functional effects. In the second quarter of 2019, we initiated cell line
development of a lead candidate in the tau program.
Master Collaboration Agreement with Bristol-Myers Squibb
In March 2018, we entered into the Master Collaboration Agreement (the “Collaboration Agreement”) with Celgene (which was acquired by BMS in
November 2019), under which Celgene (now BMS) may elect in its sole discretion to exclusively license rights to develop and commercialize antibodies
targeting Tau, TDP-43 and an undisclosed target. The Collaboration Agreement became effective on March 20, 2018, which triggered an upfront payment to
us of $100 million, as well as a further payment of approximately $50 million to subscribe for 1,174,536 of the Company’s ordinary shares at a price of
$42.57 per share, pursuant to a Share Subscription Agreement (the “SSA”) as described further below.
On a program-by-program basis, following Prothena’s filing of an investigational new drug (IND) application for any of our three collaboration
programs to BMS, BMS may elect in its sole discretion to exercise its right to receive an exclusive license to develop and commercialize antibodies targeting
the applicable Collaboration Target in the U.S. (the “US Rights”). If BMS exercises the US Rights for a collaboration program, it is obligated to pay Prothena
an exercise fee of approximately $80 million per program. Thereafter, BMS would have decision making authority over development activities, and all
regulatory, manufacturing and commercialization activities, for antibody products targeting the relevant Collaboration Target (the “Collaboration Products”)
in the U.S.
On a program-by-program basis, following completion of a Phase 1 clinical trial for a collaboration program for which BMS has previously exercised its
US Rights, BMS may elect in its sole discretion to exercise its right with respect to such collaboration program to receive a worldwide, exclusive license to
develop and commercialize antibodies targeting the applicable Collaboration Target (the “Global Rights”). If BMS exercises its Global Rights, BMS would be
obligated to pay Prothena an additional exercise fee of $55 million for such collaboration program. The Global Rights would then replace the US Rights for
that collaboration program, and BMS would have decision making authority over developing, obtaining and maintaining regulatory approval for,
manufacturing and commercializing the Collaboration Products worldwide.
After exercise of Global Rights for a collaboration program, Prothena is eligible to receive up to $562.5 million in regulatory and commercial milestones
per program. For obtaining either US Rights or Global Rights for such collaboration program, Prothena will also be eligible to receive tiered royalties on net
sales of Collaboration Products ranging from high single digit to high teen percentages, on a weighted average basis depending on the achieving of certain net
sales thresholds. Such exercise fees, milestones and royalty payments are subject to certain reductions as specified in the Collaboration Agreement, the
agreement for US Rights and the agreement for Global Rights.
BMS will continue to pay royalties on a Collaboration Product-by-Collaboration Product and country-by-country basis, until the latest of (i) expiration
of certain patents covering the Collaboration Product, (ii) expiration of all regulatory exclusivity for the Collaboration Product, and (iii) an agreed period of
time after the first commercial sale of the Collaboration Product in the applicable country (the “Royalty Term”).
The research term under the Collaboration Agreement continues for a period of six (6) years, which BMS may extend for up to two additional 12-month
periods by paying an extension fee of $10 million per extension period. The term of Collaboration Agreement continues until the last to occur of the
following: (i) expiration of the research term, (ii) expiration of all US Rights terms, and (iii) expiration of all Global Rights terms.
The term of any agreement for US Rights or Global Rights would continue on a Collaboration Product-by-Collaboration Product and country-by-
country basis until the expiration of all Royalty Terms under such agreement.
The Collaboration Agreement may be terminated (i) by either party on a program-by-program basis if the other party remains in material breach of the
Collaboration Agreement following a cure period to remedy the material breach, (ii) by BMS at will on a program-by-program basis or in its entirety, (iii) by
either party, in its entirety, upon insolvency of the other party, or (iv) by Prothena, in its entirety, if BMS challenges a patent licensed by Prothena to BMS
under the Collaboration Agreement.
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Under the SSA, BMS is subject to certain transfer and standstill restrictions, including a restriction on acquiring more than 9.9% of the Company’s share
capital for a specified period of time following the closing of the subscription of the Shares, or earlier upon announcement of the intent to consummate a
change of control of the Company by the Company or a third party, or expiration or termination of the Collaboration Agreement. In addition, BMS will be
entitled to request the registration of the Shares on Form S-3ASR or Form S-3 following termination of the transfer restrictions if the Shares cannot be resold
without restriction pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).
Regulation
We anticipate that if we commercialize any products, the U.S. market will ultimately be our most important market. For this reason, the laws and
regulations discussed below focus on the requirements applicable to biologic products in the U.S.
Government Regulation
Governmental authorities, including the FDA, the EMA and comparable regulatory authorities in other countries, regulate the development, testing, use,
labeling, manufacturing, storage, record-keeping, reporting, marketing, advertising, and promotion of pharmaceutical products. The FDA does so under the
U.S. Federal Food, Drug, and Cosmetic Act and its implementing regulations and guidance for industry, and the U.S. Public Health Service Act and its
implementing regulations. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product
seizures, import restrictions, injunctive actions and criminal prosecutions of both companies and individuals. In addition, administrative remedies can involve
requests to recall violative products; the refusal of the government to enter into supply contracts; or the refusal to approve pending applications for product
approval until manufacturing or other alleged deficiencies are brought into compliance. The FDA and other comparable regulatory authorities also have the
authority to cause the withdrawal of approval of a marketed product or to impose additional labeling restrictions.
The pricing of pharmaceutical products is regulated in many countries and the mechanism of price regulation varies. In the U.S., while there are limited
indirect federal government price controls over private sector purchases of drugs, it is not possible to predict future regulatory action or private sector
initiatives on the pricing of pharmaceutical products.
Product Approval
United States. In the U.S., our current drug candidates are regulated as biologic pharmaceuticals, or biologics. The FDA regulates biologics under the
U.S. Food, Drug, and Cosmetics Act, U.S. Public Health Service Act and its implementing regulations. Biologics are also subject to other federal, state and
local statutes and regulations. The process required by the FDA before biologic product candidates may be marketed in the U.S. generally involves, and is not
limited to, the following:
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submission to the FDA of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials may begin
and must be updated annually;
completion of extensive nonclinical laboratory tests and animal studies, performed in accordance with the FDA’s Good Laboratory Practice (“GLP”)
regulations;
performance of adequate and well-controlled human clinical trials to establish the efficacy and safety of the product for each proposed indication, all
performed in accordance with FDA’s current good clinical practices (“cGCP”) requirements;
completion of chemistry, manufacturing and control (“CMC”) processes and procedures to establish the safety and quality of the pharmaceutical
product in accordance with FDA’s current good manufacturing practices (“cGMP”) regulations;
submission to the FDA of a BLA for a new biologic, after completion of all required clinical trials;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the product is produced and tested to assess
compliance with regulatory requirements, including cGMP regulations; and
• FDA review and approval of a BLA for a new biologic, prior to any commercial marketing or sale of the product in the U.S.
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Nonclinical tests assess the potential safety and pharmacologic effects of a product candidate in in vitro and/or in vivo studies. The results of these
studies must be submitted to the FDA as part of an IND before human testing may proceed. An IND is a request for authorization from the FDA to
manufacture and administer an investigational drug or biologic product to humans. The IND includes the general investigational plan and the proposed
protocol(s) for human studies. The IND also includes results of nonclinical studies and other human studies, as appropriate, as well as manufacturing
information, analytical data and any other available data or literature to support the use of the investigational new drug. An IND must become effective before
human clinical trials may be initiated. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises
concerns or questions related to initiation of the proposed clinical trial(s). In such a case, the IND may be placed on clinical hold and the IND sponsor and the
FDA must resolve any outstanding concerns or questions before the clinical trial(s) may begin. Accordingly, submission of an IND may or may not result in
the FDA allowing a clinical trial(s) to commence.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance
with cGCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials
are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy
criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
Additionally, approval must also be obtained from each clinical trial site’s Institutional Review Board (“IRB”) before the trials may be initiated, and the IRB
must provide oversight of the trials until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to
public registries.
The clinical investigation of a pharmaceutical, including a biologic, is generally divided into three phases. Although the phases are usually conducted
sequentially, they may overlap or be combined. The three phases of an investigation are as follows:
• Phase 1. Phase 1 includes the initial introduction of an investigational product into humans. Phase 1 clinical trials are typically closely monitored
and may be conducted in patients with the target disease or condition or in healthy volunteers. These studies are designed to evaluate the safety,
appropriate dosage, metabolism and pharmacologic actions of the investigational product in humans, the side effects associated with increasing
doses, and if possible, to gain early evidence on effectiveness. During Phase 1 clinical trials, sufficient information about the investigational
product’s pharmacokinetics and pharmacological effects may be obtained to permit the design of well-controlled Phase 2 clinical trials. The total
number of participants included in Phase 1 clinical trials varies, but is generally in the range of 20 to 80;
• Phase 2. Phase 2 includes controlled clinical trials conducted to preliminarily or further evaluate the efficacy and safety of the investigational
product for a specific indication(s) in patients with the disease or condition under study, to determine dosage(s) for further studies, and to identify
possible adverse side effects and safety risks associated with the product. Phase 2 clinical trials are typically well-controlled, closely monitored, and
conducted in a limited patient population, usually involving no more than several hundred participants; and
• Phase 3. Phase 3 clinical trials are generally well controlled clinical trials conducted in an expanded patient population generally at geographically
dispersed clinical trial sites. They are performed after preliminary evidence suggesting effectiveness and safety of the product has been obtained, and
are intended to further evaluate efficacy and safety, to establish the overall benefit-risk relationship of the investigational product, and to provide an
adequate basis for product approval. Phase 3 clinical trials usually involve several hundred to several thousand participants.
The clinical trial process can take many years to complete, and there can be no assurance that the data collected will support FDA approval of the
product. The FDA may place clinical trials on hold at any point in this process if, among other reasons, it concludes that clinical subjects are being exposed to
an unacceptable health risk. Trials may also be terminated by IRBs, which must review and approve all research involving human subjects. Side effects or
adverse events that are reported during clinical trials can delay, impede or prevent further clinical testing and/or marketing authorization.
Information including the results of the nonclinical and clinical testing, and the chemistry, manufacturing and controls of the product are evaluated and,
if determined to be adequate, submitted to the FDA to support the proposed product labeling through a BLA. The application includes all relevant data
available from nonclinical and clinical trials, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed
labeling, among other required information. Data from company-sponsored clinical trials intended to test the efficacy and safety of a proposed use of a
product, and/or from alternative sources, including studies initiated by investigators may be included in a BLA.
Once the BLA submission has been accepted for filing, the FDA’s goal is to review applications within ten months from the 60 day filing date for
Standard Review (for a total of twelve months) or, in the case of Priority Review, six months from the
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60 day-filing date (for a total of eight months). The review process may be often significantly extended by FDA requests for additional information or
clarification. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and effective, which includes determining
whether it is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the
product’s identity, strength, quality, potency and purity. The FDA may refer the application to an advisory committee for evaluation and recommendation as to
whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such
recommendations.
The FDA has four expedited program designations for serious conditions - Fast Track, Breakthrough Therapy, Accelerated Approval and Priority
Review - to facilitate and expedite development and review of new drugs to address unmet medical needs or provide substantial improvements in the
treatment of serious or life-threatening conditions. The Fast Track designation provides pharmaceutical manufacturers with opportunities for frequent
interactions with FDA during the product’s development and for a rolling review of the BLA. A rolling review allows for completed portions of the
application to be submitted and reviewed by the FDA prior to submission of the complete application. The Breakthrough Therapy designation provides
sponsors with all of the features of Fast Track designation as well as intensive guidance on implementing an efficient development program for the product
and a commitment by the FDA to involve senior managers and experienced review staff in the review. The Accelerated Approval designation allows the FDA
to approve a product based on an effect on a surrogate or intermediate endpoint that is reasonably likely to predict a product’s clinical benefit and generally
requires the sponsor to conduct required post-approval confirmatory trials to verify the clinical benefit. The Priority Review designation signifies that the
FDA review clock for the BLA is six months, compared to ten months following the accepted-for-filing date under standard review.
After the FDA evaluates the BLA and conducts pre-approval inspections of manufacturing facilities where the candidate product and/or its active
pharmaceutical ingredient will be produced, of clinical sites and of the sponsor, if deemed necessary, it may issue an approval letter or a Complete Response
Letter. An approval letter authorizes commercial marketing of the biologic with specific prescribing information for specific indications. A Complete
Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter may
require additional clinical data and/or an additional Phase 3 clinical trial(s), and/or other significant, expensive and time-consuming requirements related to
clinical trials, nonclinical studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not
satisfy the criteria for approval. The FDA could approve the BLA with a Risk Evaluation and Mitigation Strategy (“REMS”) plan to mitigate risks, which
could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and
other risk minimization tools. The FDA also may impose conditions for approval including but not limited to, changes to proposed labeling, changes to
manufacturing controls and specifications, or a commitment or requirement to conduct one or more post-marketing studies or additional clinical trials. Such
post-marketing commitments or requirements may include Phase 4 clinical trials and surveillance to further assess and monitor the product’s safety and
effectiveness after commercialization.
European Union. In the EU, there are several pathways for marketing approval, depending on the type of product for which approval is sought. Under
the centralized procedure, a sponsor submits a single application to the EMA. The marketing application is similar to the BLA submitted to FDA in the U.S.
and is evaluated by the Committee for Medicinal Products for Human Use (the “CHMP”), the expert scientific committee of the EMA. If the CHMP
determines that the marketing application fulfills the requirements for efficacy, safety and quality (equivalent to chemistry, manufacturing and controls in the
US), it will submit a favorable opinion to the European Commission (the “EC”). The CHMP opinion is not binding, but is typically adopted by the EC. A
marketing application approved by the EC is valid in all EU member states.
In addition to the centralized procedure, the EC also has: (i) national authorization procedures, which requires a separate application in and approval
determination by each country; (ii) a decentralized procedure, whereby applicants submit identical applications to several countries and receive simultaneous
approval; and (iii) a mutual recognition procedure, where applicants submit an application to one country for review and approval, and other countries may
accept or reject the decision in the initial country. Regardless of the approval process employed, various regulatory authorities share responsibilities for the
monitoring, detection, and evaluation of adverse events post-approval, including national authorities, the EMA, the EC, and the marketing authorization
holder.
Post-Approval Requirements
Any products manufactured or distributed by us or on our behalf pursuant to FDA approvals are subject to continuing regulation by the FDA, including
requirements for record-keeping, reporting of adverse events, and submitting biological product deviation reports to notify the FDA of unanticipated changes
in distributed products. Additionally, any significant change in the approved product or in how it is manufactured, including changes in formulation or the site
of manufacture, generally require
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prior FDA approval. The packaging and labeling of all products developed by us are also subject to FDA approval and ongoing regulation.
Sponsors are required to register their facilities with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the
FDA and certain state agencies for compliance with cGMP standards, which impose certain quality processes, manufacturing controls and documentation
requirements upon us and our third-party manufacturers in order to ensure that the product is safe, has the identity and strength, and meets the quality, purity
and potency characteristics that it purports to have. Certain states also impose requirements on manufacturers and distributors to establish the pedigree of
product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing
product as it moves through the distribution chain. Noncompliance with cGMP or other requirements can result in issuance of warning letters, civil and
criminal penalties, seizures, and injunctive action.
FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation
requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers and sponsors must continue to expend time,
money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA and other federal and state agencies closely regulate the labeling, marketing and promotion of drugs. While doctors are free to prescribe any
product approved by the FDA for any use, a company can only make claims relating to safety and efficacy of a product that are consistent with FDA
approval, and the company is allowed to market a drug only for the particular use(s) approved by the FDA. In addition, any claims we make for our products
in advertising or promotion must be appropriately balanced with important safety information and otherwise be adequately substantiated. Failure to comply
with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions, potential civil and criminal penalties, criminal
prosecution, and agreements with governmental agencies that materially restrict the manner in which a company promotes or distributes drug products.
Government regulators, including the Department of Justice and the Office of the Inspector General of the Department of Health and Human Services, as well
as state authorities, have increased their scrutiny of the promotion and marketing of drugs.
The FDA also enforces the requirements of the U.S. Prescription Drug Marketing Act, which, among other things, imposes various requirements in
connection with the distribution of product samples to physicians. Sales, marketing and scientific/educational grant programs must comply with the U.S.
Anti-Kickback Statute, the U.S. False Claims Act, and similar state laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of
the U.S. Omnibus Budget Reconciliation Act. We may also be subject to the U.S. Physician Payment Sunshine Act (the “Sunshine Act”) which regulates
disclosure of payments to healthcare professionals and providers.
The U.S. Foreign Corrupt Practices Act (the “FCPA”), the Irish Criminal Justice (Corruption Offences) Act 2018 (the “Irish Corruption Act”) and the
U.K. Bribery Act prohibit companies and their representatives from offering, promising, authorizing or making payments to governmental officials (and
certain private individuals under the Irish Corruption Act and the U.K. Bribery Act) for the purpose of obtaining or retaining business abroad. In many
countries, the healthcare professionals we interact with may meet the definition of a government official for purposes of the FCPA. Failure to comply with
domestic or non-domestic laws could result in various adverse consequences, including possible delay in approval or refusal to approve a product, recalls,
seizures, withdrawal of an approved product from the market, the imposition of civil or criminal sanctions and the prosecution of executives overseeing our
international operations.
Orphan Drugs
Under the U.S. Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally
defined as a disease or condition that affects fewer than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting a BLA.
In the U.S., orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages,
and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first BLA
applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year
exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other
applications to market the same drug for the same orphan indication, except in limited circumstances, such as demonstration of clinical superiority to the
product with orphan exclusivity or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient
quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if one of our
drug candidates receives orphan exclusivity, the FDA can still approve other drugs that
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have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to
manufacture sufficient supply of our product.
Pharmaceutical Coverage, Pricing and Reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as federal, state and other
government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing
reimbursements for medical products, drugs and services. In addition, the U.S. government, state legislatures and other governments have continued
implementing cost containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.
Adoption of price controls and cost- containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures,
could further limit our net revenue and results. Decreases in third-party reimbursement for our drug candidates or a decision by a third-party payor to not
cover our drug candidates could reduce physician usage of our products once approved and have a material adverse effect on our sales, results of operations
and financial condition.
Other Healthcare Laws
Although we currently do not have any products on the market, if our drug candidates are approved and we begin commercialization, we may be subject
to additional healthcare regulation and enforcement by the federal government and by authorities in the states and other jurisdictions in which we conduct our
business. Such laws include, without limitation, anti-kickback, fraud and abuse, false claims, privacy and security and physician sunshine laws and
regulations. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to
penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from
participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and our
financial results.
Intellectual Property
We seek to protect our proprietary technology and other intellectual property that we believe is important to our business, including by seeking,
maintaining and defending patents. We also rely on trade secrets and know-how to protect our business. We seek licenses from others as appropriate to
enhance or maintain our competitive position.
Our intellectual property is primarily directed to immunological approaches to the treatment of diseases that involve amyloid or cell adhesion, and other
proprietary technologies and processes related to our lead product development candidates.
We own or hold exclusive licenses to a number of issued U.S. patents and pending U.S. patent applications, as well as issued non-U.S. patents and
pending Patent Cooperation Treaty applications and non-U.S. counterparts. As of December 31, 2019, our patent portfolio included the following patents or
patent applications that we own or have exclusively licensed from other parties:
• Approximately 17 patent families related to Parkinson’s disease and other synucleinopathies, including our prasinezumab program, including a
composition of matter patent expiring in 2032 (subject to potential increases or decreases in patent term as described below);
• Approximately 7 patent families related to ATTR amyloidosis, including our PRX004 program, including a composition of matter patent expiring in
2036 (subject to potential increases or decreases in patent term as described below); and
• Approximately 23 patent families related to other potential targets of intervention and diseases, including Aβ, tau, TDP-43, AL or AA (e.g.,
NEOD001), and MCAM (e.g., PRX003).
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file,
the patent term is 20 years from the date of filing the non-provisional application. In the U.S., a patent’s term may be lengthened by patent term adjustment,
which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if a patent is
terminally disclaimed over an earlier-filed patent.
The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S.
patent as compensation for the patent term lost during the FDA regulatory review process. The U.S. Hatch-Waxman Act permits a patent term extension of up
to five years beyond the expiration of the patent. The length of the
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patent term extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent
beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Moreover, a patent can
only be extended once, and thus, if a single patent is applicable to multiple products, it can only be extended based on one product. Similar provisions are
available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical
trials and other factors involved in the filing of a BLA, we expect to apply for patent term extensions for patents covering our product candidates and their
methods of use.
The patents referenced above have expiration dates ranging from 2024 through 2040 (excluding any available patent term extensions).
University of Tennessee License Agreement: Under a License Agreement with the University of Tennessee Research Foundation, we have exclusively
licensed from the University of Tennessee its joint ownership interest in certain patents jointly owned with us. Those patents relate to our program targeting
amyloidosis (NEOD001). Under that sublicensable, worldwide license, we are required to pay to the University of Tennessee an amount equal to 1% of net
sales of any product covered by any licensed patent, plus certain additional payments in the event that all or a portion of the license is sublicensed. To date,
we have not paid or incurred any royalties to the University of Tennessee under our agreement. The agreement is effective on a country-by-country basis for
the longer of (i) a period of twenty years from the effective date of the agreement, or (ii) in each country in which a valid claim for any licensed patent or
patent application exists, expiration of such valid claim. The agreement will terminate prior to the end of its term if we become insolvent unless the University
of Tennessee elects to allow the agreement to remain in effect. The University of Tennessee may terminate the agreement prior to the end of its term upon our
failure to make payment under the agreement within 120 days of notice of such failure or upon our material breach of the agreement, which breach has not
been cured within 60 days of written notice of such breach. We may terminate the agreement prior to the end of its term if we have paid all amounts due to the
University of Tennessee through the effective date of the termination and provide three months’ written notice to the University of Tennessee or upon material
breach of the agreement by the University of Tennessee, which breach has not been cured within 60 days of written notice of such breach.
University of California License Agreement: Under a License Agreement with The Regents of the University of California, we have exclusively licensed
from the University of California its joint ownership interest in certain patents jointly owned with us. Those patents relate to our program targeting
Parkinson’s disease and other synucleinopathies (prasinezumab). Under that sublicensable, worldwide license, we are required to pay to the University of
California an amount equal to 1% of net sales of any product covered by any licensed patent, plus certain additional payments for milestones achieved and
sublicense revenue. To date, we have not paid or incurred any royalties to the University of California under our agreement. The agreement is effective until
the expiration date of the last to expire licensed patent. The obligation to pay royalties continues on a country-by-country basis until the expiration of the last
to expire patent containing a valid claim covering the applicable product. The agreement will terminate prior to the end of its term without prior written notice
if (i) we, or third parties on our behalf or at our written urging, file a claim including an assertion that any portion of the licensed patents is invalid or
unenforceable, or (ii) upon the filing of a petition for relief under the U.S. Bankruptcy Code by or against us as a debtor or alleged debtor. The University of
California may terminate the agreement prior to the end of its term upon our default, if we fail to cure the default within 60 days of written notice of such
default. We may terminate the agreement prior to the end of its term upon a 90 day written notice to the University of California.
University Health Network License Agreement: Under a License Agreement with the University Health Network (“UHN”), we have exclusively
licensed its joint interest in certain patents jointly owned with us, as well as its entire interest in certain patents solely owned by UHN (“UHN Background
IP”). Those patents relate to our program targeting ATTR amyloidosis (PRX004). Under that sublicensable, worldwide license, we are required to pay to
UHN royalties on net sales of any diagnostic or therapeutic product covered by a licensed patent in the U.S. and outside of the U.S., plus certain additional
payments for milestones achieved and sublicense revenue. In addition, we are required to pay to UHN a royalty on net sales of any product that is not a
diagnostic or therapeutic product. To date, we have not paid or incurred any royalties to UHN under our agreement. The agreement is effective until the
expiration date of the last to expire licensed patent. The obligation to pay royalties continues on a country-by-country basis until the expiration of the last to
expire patent containing a valid claim covering the applicable product. The agreement will terminate prior to the end of its term without prior written notice
(i) upon the filing of a petition for relief under the U.S. Bankruptcy Code by or against us as a debtor or alleged debtor, (ii) upon the filing of a claim by us
challenging the validity of a patent within UHN Background IP, or (iii) by mutual written agreement of the parties. UHN may terminate the agreement prior to
the end of its term upon our default, if we fail to cure the default within 90 days of written notice of such default. We may terminate the agreement prior to the
end of its term upon a 90 day written notice to UHN.
Elan License Agreement: Under an Amended and Restated Intellectual Property License and Contribution Agreement with Elan and certain of its
affiliates, we have exclusively licensed from Elan and those affiliates certain patents and patent applications
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owned by them, and exclusively sublicensed from Elan and those affiliates certain patents and patent applications owned by Janssen Alzheimer
Immunotherapy. Those licenses are worldwide, fully paid, royalty-free, perpetual and irrevocable, and relate to our program targeting α-synuclein.
Subsequent to entering into this Agreement, Elan was acquired by Perrigo Company plc.
Competition
The pharmaceutical industry is highly competitive. Our principal competitors consist of major international companies, all of which are larger and have
greater financial resources, technical staff, manufacturing, R&D and marketing capabilities than we have. We also compete with smaller research companies
and generic drug and biosimilar manufacturers. The degree of competition varies for each of our programs.
A drug may be subject to competition from alternative therapies during the period of patent protection or regulatory exclusivity and thereafter it may be
subject to further competition from generic products or biosimilars. Governmental and other pressures toward the dispensing of generic products or
biosimilars may rapidly and significantly reduce, slow or reverse the growth, sales and profitability of any product not protected by patents or regulatory
exclusivity, and may adversely affect our future results and financial condition. If we successfully discover, develop and commercialize any products, the
launch of competitive products, including generic or biosimilar versions of any such products, may have a material adverse effect on our revenues and results
of operations.
Our competitive position depends in part upon our ability to discover and develop innovative and cost-effective new products. If we fail to discover and
develop new products, our business, financial condition and results of operations will be materially and adversely affected.
Manufacturing
We do not own or operate facilities for the manufacture, packaging, labeling, storage, testing or distribution of preclinical or clinical supplies of any of
our drug candidates. We instead contract with and rely on third-parties to manufacture, package, label, store, test and distribute all pre-clinical development
and clinical supplies of our drug candidates, and we plan to continue to do so for the foreseeable future. We also rely on third-party consultants to assist us
with managing these third-parties and with our manufacturing strategy.
Prasinezumab - Boehringer Ingelheim Biopharmaceuticals GmbH (“BI”) manufactured clinical supplies of our drug candidate prasinezumab for our
completed Phase 1a single ascending dose and Phase 1b multiple ascending dose clinical trials. Roche, with whom we are collaborating on development of
prasinezumab, is manufacturing clinical supplies for the ongoing Phase 2 and any subsequent clinical trials for prasinezumab. We are dependent on Roche to
manufacture these clinical supplies.
PRX004 - Rentschler Biopharma SE (formerly known as Rentschler Biotechnologie GmbH) (“Rentschler”) is our third-party manufacturer of clinical
supplies of our drug candidate PRX004. We are dependent on Rentschler to manufacture these clinical supplies for our ongoing Phase 1 and any subsequent
clinical trials for PRX004.
NEOD001 - BI manufactured clinical supplies of our drug candidate NEOD001 for all of its clinical trials.
Tau and Aβ- Catalent is our third-party manufacturer of clinical supplies of our drug candidate Tau. We are dependent on Catalent to manufacture these
clinical supplies for our upcoming Phase 1 and any subsequent clinical trials for tau and Aβ.
Research and Development
Our research and development expenses totaled $50.8 million, $101.2 million and $134.5 million in 2019, 2018 and 2017, respectively. For more
information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Employees
As of December 31, 2019, we had 51 employees, of whom 32 were engaged in research and development activities and the remainder were working in
general and administrative areas. The vast majority of these employees are in the U.S.
Information about Segment and Geographic Revenue
Information about segment and geographic revenue is set forth in Note 2 to the Consolidated Financial Statements included
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in this report.
Available information
Our principal executive office is at 77 Sir John Rogerson’s Quay, Block C, Grand Canal Docklands, Dublin 2, D02 T804, Ireland, and our telephone
number at that address is 011-353-1-236-2500. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith, file periodic reports, proxy statements and other information with the U.S. Securities and Exchange Commission
(the “SEC”). Such periodic reports, proxy statements and other information are available for inspection and copying at the SECs Public Reference Room at
100 F Street, NE., Washington, DC 20549 or may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at
www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. We also post on the
Investors page of our website, www.prothena.com, a link to our filings with the SEC, our Corporate Governance Guidelines and Code of Conduct, which
applies to all directors and employees, and the charters of the Audit, Compensation and Nominating and Corporate Governance Committees of our Board of
Directors. Our filings with the SEC are posted on our website and are available free of charge as soon as reasonably practical after they are filed electronically
with the SEC. Please note that information contained on our website is not incorporated by reference in, or considered to be a part of, this report. You can also
obtain copies of these documents free of charge by writing or telephoning us at: Prothena Corporation plc, 77 Sir John Rogerson’s Quay, Block C, Grand
Canal Docklands, Dublin 2, D02 T804, Ireland, 011-353-1-236-2500, or through the Investors page of our website.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below, together with all of the other information included in this Form 10-K, in considering our
business and prospects. Set forth below and elsewhere in this report and in other documents we file with the SEC are descriptions of certain risks,
uncertainties and other factors that could cause our actual results to differ materially from those anticipated. If any of the following risks, other unknown risks
or risks that we think are immaterial occur, our business, financial condition, results of operations, cash flows or growth prospects could be adversely
impacted, which could result in a complete loss on your investment.
Risks Relating to Our Financial Position, Our Need for Additional Capital and Our Business
We anticipate that we will incur losses for the foreseeable future and we may never sustain profitability.
We may not generate the cash that is necessary to finance our operations in the foreseeable future. We incurred net losses of $77.7 million, $155.6
million and $153.2 million for the years ended December 31, 2019, 2018, and 2017, respectively. We expect to continue to incur substantial losses for the
foreseeable future as we:
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support completion of the Phase 2 PASADENA clinical trial for prasinezumab (PRX002/RG7935) being conducted by Roche, conduct our Phase 1
clinical trial for PRX004 and possibly initiate additional clinical trials for these and other programs;
develop and possibly commercialize our product candidates, including prasinezumab and PRX004;
undertake nonclinical development of other product candidates and initiate clinical trials, if supported by nonclinical data; and
pursue our early stage research and seek to identify additional drug candidates; and
potentially acquire rights from third parties to drug candidates or technologies through licenses, acquisitions or other means.
We must generate significant revenue to achieve and maintain profitability. Even if we succeed in discovering, developing and commercializing one or
more drug candidates, we may not be able to generate sufficient revenue and we may never be able to achieve or sustain profitability.
We will require additional capital to fund our operations, and if we are unable to obtain such capital, we will be unable to successfully develop and
commercialize drug candidates.
As of December 31, 2019, we had cash and cash equivalents of $375.7 million. Although we believe, based on our current business plans, that our
existing cash and cash equivalents will be sufficient to meet our obligations for at least the next twelve months, we anticipate that we will require additional
capital in the future in order to continue the research and development, and
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eventual commercialization, of our drug candidates. Our future capital requirements will depend on many factors that are currently unknown to us, including,
without limitation:
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the timing of progress, results and costs of our clinical trials, including the Phase 2 clinical trial for prasinezumab and our Phase 1 clinical trial for
PRX004;
the timing, initiation, progress, results and costs of these and our other research, development and possible commercialization activities;
the results of our research, nonclinical and clinical studies;
the costs of manufacturing our drug candidates for clinical development as well as for future commercialization needs;
if and when appropriate, the costs of preparing for commercialization of our drug candidates;
the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
our ability to establish research, development, commercialization and/or strategic collaborations, licensing or other arrangements;
the timing, receipt and amount of any capital investments, cost-sharing contributions or reimbursements, milestone payments or royalties that we
might receive under current or potential future collaborations;
the costs to satisfy our obligations under current and potential future collaborations; and
the timing, receipt and amount of revenues or royalties, if any, from any approved drug candidates.
We have based our expectations relating to liquidity and capital resources on assumptions that may prove to be wrong, and we could use our available
capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of
our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the
development and commercialization of our current product candidates.
In the pharmaceutical industry, the research and development process is lengthy and involves a high degree of risk and uncertainty. This process is
conducted in various stages and, during each stage, there is substantial risk that product candidates in our research and development pipeline will experience
difficulties, delays or failures. This makes it difficult to estimate the total costs to complete our ongoing clinical trials and to estimate anticipated completion
dates with any degree of accuracy, which raises concerns that attempts to quantify costs and provide estimates of timing may be misleading by implying a
greater degree of certainty than actually exists.
In order to develop and obtain regulatory approval for our product candidates we will need to raise substantial additional funds. We expect to raise any
such additional funds through public or private equity or debt financings, collaborative agreements with corporate partners or other arrangements. We cannot
assure that additional funds will be available when we need them on terms that are acceptable to us, or at all. General market conditions may make it very
difficult for us to seek or obtain financing from the capital markets. If we raise additional funds by issuing equity securities, substantial dilution to existing
shareholders would result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as
well as covenants and specific financial ratios that may restrict our ability to operate our business. We may be required to relinquish rights to our technologies
or drug candidates or grant licenses on terms that are not favorable to us in order to raise additional funds through strategic alliances, joint ventures or
licensing arrangements.
If adequate funds are not available on a timely basis, we may be required to:
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terminate or delay clinical trials or other development activities for one or more of our drug candidates;
delay arrangements for activities that may be necessary to commercialize our drug candidates;
curtail or eliminate our drug research and development programs that are designed to identify new drug candidates; or
cease operations.
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In addition, if we do not meet our payment obligations to third parties as they come due, we may be subject to litigation claims. Even if we are
successful in defending against these claims, litigation could result in substantial costs and distract management, and may have unfavorable results that could
further adversely impact our financial condition.
The United Kingdom’s withdrawal from the European Union could have a negative effect on global economic conditions and financial markets,
European Union regulatory procedures and our business.
Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from
the European Union on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the
European Union relating to the future trading relationship between the parties. Significant political and economic uncertainty remains about whether the
terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called “no deal” separation will
occur if negotiations are not completed by the end of the transition period. These developments, or the perception that any of them could occur, have had and
may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce
global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic
activity and restrict access to capital, which could have a material adverse effect on our business, financial condition, results of operations and growth
prospects.
Our future success depends on our ability to retain key personnel and to attract, retain and motivate qualified personnel.
We are highly dependent on key personnel, including Dr. Gene G. Kinney, our President and Chief Executive Officer. There can be no assurance that
we will be able to retain Dr. Kinney or any of our key personnel. The loss of the services of Dr. Kinney or any other person on whom we are highly dependent
might impede the achievement of our research, development and commercial objectives.
Recruiting and retaining qualified scientific and other personnel are critical to our growth and future success. Competition for qualified personnel in our
industry is intense. We may not be able to attract and retain these personnel on acceptable terms given that competition. Failure to recruit and retain qualified
personnel could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Our collaborators, prospective collaborators and suppliers may need assurances that our financial resources and stability on a stand-alone basis are
sufficient to satisfy their requirements for doing or continuing to do business with us.
Some of our collaborators, prospective collaborators and suppliers may need assurances that our financial resources and stability on a stand-alone basis
are sufficient to satisfy their requirements for doing or continuing to do business with us. If our collaborators, prospective collaborators or suppliers are not
satisfied with our financial resources and stability, it could have a material adverse effect on our ability to develop our drug candidates, enter into licenses or
other agreements and on our business, financial condition or results of operations.
The agreements we entered into with Elan involve conflicts of interest and therefore may have materially disadvantageous terms to us.
We entered into certain agreements with Elan in connection with our separation from Elan, which set forth the main terms of the separation and
provided a framework for our initial relationship with Elan. These agreements may have terms that are materially disadvantageous to us or are otherwise not
as favorable as those that might be negotiated between unaffiliated third parties. In December 2013, Elan was acquired by Perrigo Company plc (“Perrigo”),
and in February 2014 Perrigo caused Elan to sell all of its shares of Prothena in an underwritten offering. As a result of the acquisition of Elan by Perrigo and
the subsequent sale of all of its shares of Prothena, Perrigo may be less willing to collaborate with us in connection with the agreements to which we and Elan
are a party and other matters.
We may be adversely affected by earthquakes or other natural disasters.
Our key facility and almost all of our operations are in the San Francisco Bay Area of Northern California, which in the past has experienced severe
earthquakes. If an earthquake, other natural disaster or similar event were to occur and prevent us from using all or a significant portion of those operations or
local critical infrastructure, or that otherwise disrupts our operations, it could be difficult or, in certain cases, impossible for us to continue our business for a
substantial period of time. We have disaster recovery and business continuity plans, but they may prove to be inadequate in the event of a natural disaster or
similar event. We may incur substantial expenses if our disaster recovery and business continuity plans prove to be inadequate. We do not carry earthquake
insurance. Furthermore, third parties upon which we are materially dependent upon may be vulnerable to natural
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disasters or similar events. Accordingly, such a natural disaster or similar event could have an adverse effect on our business, financial condition or results of
operations.
We may experience breaches or similar disruptions of our information technology systems or data.
Our business is increasingly dependent on critical, complex and interdependent information technology systems to support business processes as well as
internal and external communications. The size and complexity of those systems make them vulnerable to breakdown, malicious intrusion and computer
viruses. We have developed systems and processes that are designed to protect our information technology systems and prevent data loss and other security
breaches, including systems and processes designed to reduce the impact of a security breach. However, such measures cannot provide absolute security. Any
breakdown, malicious intrusion or computer virus could result in the impairment of key business processes or breach of data security, which could cause us to
lose trade secrets or other intellectual property or lead to unauthorized disclosure of personal data of our employees, third parties with which we do business,
clinical trial participants or others. Such an event could have an adverse effect on our business, financial condition or results of operations.
We are subject to increasingly complex data protection laws and regulations.
We are subject to various data protection laws and regulations, which are expanding and becoming more complex. In May 2018, the EU General Data
Protection Regulation (the “GDPR”) was adopted in the EU and superseded the previous EU data protection legislation. Under the GDPR, enhanced data
protection requirements as well as substantial fines for breaches of personal data apply and increase our obligations and potential liabilities for the personal
data that we process or control. We may be required to implement additional controls to facilitate compliance with the GDPR and other new or evolving data
protection laws and regulations. Ensuring our compliance with these laws and regulations involves substantial costs, and it is possible that governmental
authorities or third parties will assert that our business practices fail to comply with these laws and regulations. If our operations are found to be in violation
of any of such laws and regulations, we may be subject to significant civil, criminal and administrative damages, penalties and fines, as well as reputational
harm, which could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to the Discovery, Development and Regulatory Approval of Drug Candidates
Our success is largely dependent on the success of our research and development programs. Our drug candidates are in various stages of development
and we may not be able to successfully discover, develop, obtain regulatory approval for or commercialize any drug candidates.
The success of our business depends substantially upon our ability to discover, develop, obtain regulatory approval for and commercialize our drug
candidates successfully. Our research and development programs are prone to the significant and likely risks of failure inherent in drug development, which
can result from the failure of the drug candidate to be sufficiently effective, the safety profile of the drug candidate, a clinical trial that is not sufficiently
enrolled or powered or adequately designed to detect a drug effect, or other reasons. We intend to continue to invest most of our time and financial resources
in our research and development programs.
Although the Phase 2 clinical trial for prasinezumab is in the process of being completed and we have an ongoing Phase 1 clinical trial for PRX004,
there is no assurance that the results of these trials will support further development of these drug candidates. In addition, we currently do not, and may never,
have any other drug candidates in clinical trials and we have not identified drug candidates for many of our research programs.
Before obtaining regulatory approvals for the commercial sale of any drug candidate for a target indication, we must demonstrate with substantial
evidence gathered in adequate and well-controlled clinical trials that the drug candidate is safe and effective for use for that target indication. In the U.S., this
must be done to the satisfaction of the U.S. Food and Drug Administration (the “FDA”); in the EU this must be done to the satisfaction of the EMA; and in
other countries this must be done to the satisfaction of comparable regulatory authorities.
Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. Despite our efforts, our
drug candidates may not:
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offer improvement over existing treatment options;
be proven safe and effective in clinical trials; or
• meet applicable regulatory standards.
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Positive results in nonclinical studies of a drug candidate may not be predictive of similar results in humans during clinical trials, and promising results
from early clinical trials of a drug candidate may not be replicated in later clinical trials. Interim results of a clinical trial do not necessarily predict final
results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after
achieving promising results in early-stage development. Accordingly, the results from completed nonclinical studies and early clinical trials for our drug
candidates may not be predictive of the results we may obtain in later stage studies or trials. Our nonclinical studies or clinical trials may produce negative or
inconclusive results, and we may decide, or regulators may require us, to conduct additional nonclinical studies or clinical trials, or to discontinue clinical
trials altogether.
Furthermore, we have not marketed, distributed or sold any products. Our success will, in addition to the factors discussed above, depend on the
successful commercialization of our drug candidates, which may require:
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obtaining and maintaining commercial manufacturing arrangements with third-party manufacturers;
developing the marketing and sales capabilities, internal and/or in collaboration with pharmaceutical companies or contract sales organizations, to
market and sell any approved drug; and
acceptance of any approved drug in the medical community and by patients and third-party payers.
Many of these factors are beyond our control. We do not expect any of our drug candidates to be commercially available for several years and some or
all may never become commercially available. Accordingly, we may never generate revenues through the sale of products.
We have entered into collaborations and may enter into additional collaborations in the future, and we might not realize the anticipated benefits of such
collaborations.
Research, development, commercialization and/or strategic collaborations, including those that we have with Roche and Celgene (now part of Bristol-
Myers Squibb ("BMS")), are subject to numerous risks, which include the following:
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collaborators may have significant control or discretion in determining the efforts and resources that they will apply to a collaboration, and might not
commit sufficient efforts and resources or might misapply those efforts and resources;
• we may have limited influence or control over the approaches to research, development and/or commercialization of products candidates in the
territories in which our collaboration partners lead research, development and/or commercialization;
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collaborators might not pursue research, development and/or commercialization of collaboration product candidates or might elect not to continue or
renew research, development and/or commercialization programs based on nonclinical and/or clinical trial results, changes in their strategic focus
due to the acquisition of competing products, availability of funding or other factors, such as a business combination that diverts resources or creates
competing priorities;
collaborators might delay, provide insufficient resources to, or modify or stop research or clinical development for collaboration product candidates
or require a new formulation of a product candidate for clinical testing;
collaborators could develop or acquire products outside of the collaboration that compete directly or indirectly with our product candidates or require
a new formulation of a product candidate for nonclinical and/or clinical testing;
collaborators with sales, marketing and distribution rights to one or more product candidates might not commit sufficient resources to sales,
marketing and distribution or might otherwise fail to successfully commercialize those product candidates;
collaborators might not properly maintain or defend our intellectual property rights or might use our intellectual property improperly or in a way that
jeopardizes our intellectual property or exposes us to potential liability;
collaboration activities might result in the collaborator having intellectual property covering our activities or product candidates, which could limit
our rights or ability to research, develop and/or commercialize our product candidates;
collaborators might not be in compliance with laws applicable to their activities under the collaboration, which could impact the collaboration or us;
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disputes might arise between us and a collaborator that could cause a delay or termination of the collaboration or result in costly litigation that
diverts management attention and resources; and
collaborations might be terminated, which could result in a need for additional capital to pursue further research, development and/or
commercialization of our product candidates.
In addition, funding provided by a collaborator might not be sufficient to advance product candidates under the collaboration. For example, although
Celgene made a $100 million upfront payment to us and made a $50 million equity investment in us upon entering into the Collaboration Agreement, we
might need additional funding to advance product candidates prior to when BMS decides whether to exercise its license rights to those product candidates. We
also note that, on November 20, 2019, BMS acquired Celgene. BMS might take a different approach to our collaboration or determine not to continue that
collaboration.
If a collaborator terminates a collaboration or a program under a collaboration, including by failing to exercise a license or other option under the
collaboration, whether because we fail to meet a milestone or otherwise, any potential revenue from the collaboration would be significantly reduced or
eliminated. In addition, we will likely need to either secure other funding to advance research, development and/or commercialization of the relevant product
candidate or abandon that program, the development of the relevant product candidate could be significantly delayed, and our cash expenditures could
increase significantly if we are to continue research, development and/or commercialization of the relevant product candidates.
Any one or more of these risks, if realized, could reduce or eliminate future revenue from product candidates under our collaborations, and could have a
material adverse effect on our business, financial condition, results of operations and/or growth prospects.
If clinical trials of our drug candidates are prolonged, delayed, suspended or terminated, we may be unable to commercialize our drug candidates on a
timely basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product sales.
We cannot predict whether we will encounter problems with the Phase 2 clinical trial for prasinezumab, our Phase 1 clinical trial for PRX004 or any
other future clinical trials that will cause us or any regulatory authority to delay or suspend those clinical trials or delay the analysis of data derived from
them. A number of events, including any of the following, could delay the completion of our ongoing or planned clinical trials and negatively impact our
ability to obtain regulatory approval for, and to market and sell, a particular drug candidate:
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conditions imposed on us by the FDA, the EMA or other comparable regulatory authorities regarding the scope or design of our clinical trials;
delays in obtaining, or our inability to obtain, required approvals from institutional review boards (“IRBs”) or other reviewing entities at clinical sites
selected for participation in our clinical trials;
insufficient supply or deficient quality of our drug candidates or other materials necessary to conduct our clinical trials;
delays in obtaining regulatory authority agreement for the conduct of our clinical trials;
lower than anticipated enrollment and/or retention rate of subjects in our clinical trials, which can be impacted by a number of factors, including size
of patient population, design of trial protocol, trial length, eligibility criteria, perceived risks and benefits of the study drug, patient proximity to trial
sites, patient referral practices of physicians, availability of other treatments for the relevant disease and competition from other clinical trials;
slower than expected rates of events in trials with a composite primary endpoint that is event-based;
serious and unexpected drug-related side effects experienced by subjects in clinical trials; or
failure of our third-party contractors and collaborators to meet their contractual obligations to us or otherwise meet their development or other
objectives in a timely manner.
We are dependent upon Roche with respect to further development of prasinezumab. Under the terms of our collaboration with Roche, Roche is
responsible for that further development, including the conduct of the ongoing Phase 2 clinical trial and any future clinical trial of that drug candidate.
Clinical trials may also be delayed or terminated as a result of ambiguous or negative data or results. In addition, a clinical trial may be delayed,
suspended or terminated by us, the FDA, the EMA or other comparable regulatory authorities, the IRBs at
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the sites where the IRBs are overseeing a trial, or the safety oversight committee overseeing the clinical trial at issue due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
inspection of the clinical trial operations or trial sites by the FDA, the EMA or other regulatory authorities resulting in the imposition of a clinical
hold on or imposition of additional conditions for the conduct of the trial;
interpretation of data by the FDA, the EMA or other regulatory authorities;
requirement by the FDA, the EMA or other regulatory authorities to perform additional studies;
failure to achieve primary or secondary endpoints or other failure to demonstrate efficacy or adequate safety;
unforeseen safety issues; or
lack of adequate funding to continue the clinical trial.
Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes.
Amendments may require us to resubmit our clinical trial protocols to regulatory authorities and IRBs for reexamination, which may impact the cost, timing
or successful completion of a clinical trial.
We do not know whether our clinical trials will be conducted as planned, will need to be restructured or will be completed on schedule, if at all. Delays
in our clinical trials will result in increased development costs for our drug candidates. In addition, if we experience delays in the completion of, or if we
terminate, any of our clinical trials, the commercial prospects for our drug candidates may be delayed or harmed and our ability to generate product revenues
will be delayed or jeopardized. Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also
ultimately lead to the denial of regulatory approval of a drug candidate.
The regulatory approval processes of the FDA, the EMA and other comparable regulatory authorities are lengthy, time consuming and inherently
unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA, the EMA and other comparable regulatory authorities is inherently unpredictable but typically takes
many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory
authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a
drug candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any drug candidate and it is possible
that none of our existing drug candidates or any drug candidates we may seek to develop in the future will ever obtain regulatory approval.
Our drug candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA, the EMA or comparable regulatory authorities may disagree with the design, implementation or conduct of our clinical trials;
• we may be unable to demonstrate to the satisfaction of the FDA, the EMA or comparable regulatory authorities that a drug candidate is safe and
effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA or comparable regulatory authorities for
approval;
• we may be unable to demonstrate that a drug candidate’s clinical and other benefits outweigh its safety risks;
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the FDA, the EMA or comparable regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials;
the data collected from clinical trials of our drug candidates may not be sufficient to support the submission of a Biologic License Application
(“BLA”) to the FDA, a Marketing Authorization Application (“MAA”) to the EMA or similar applications to comparable regulatory authorities;
the FDA, the EMA or comparable regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers
with which we contract for clinical and commercial supplies; or
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the approval policies or regulations of the FDA, the EMA or comparable regulatory authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to
market our drug candidates, which would significantly harm our business, results of operations and prospects. In addition, even if we were to obtain approval,
regulatory authorities may approve any of our drug candidates for fewer or more limited indications than we request, may grant approval contingent on the
performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims necessary or
desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our
drug candidates.
Even if our drug candidates receive regulatory approval in one country or jurisdiction, we may never receive approval or commercialize our products in
other countries or jurisdictions.
In order to market drug candidates in a particular country or jurisdiction, we must establish and comply with numerous and varying regulatory
requirements of that country or jurisdiction, including with respect to safety and efficacy. Approval procedures vary among countries and can involve
additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required
to obtain, for example, FDA approval in the U.S. or EMA approval in the EU. The regulatory approval process in other countries may include all of the risks
detailed above regarding FDA approval in the U.S. and EMA approval in the EU as well as other risks. Regulatory approval in one country or jurisdiction
does not ensure regulatory approval in another country or jurisdiction, but a failure or delay in obtaining regulatory approval in one country may have a
negative effect on the regulatory process in others. Failure to obtain regulatory approval in one country or jurisdiction or any delay or setback in obtaining
such approval would impair our ability to develop other markets for that drug candidate.
Both before and after marketing approval, our drug candidates are subject to ongoing regulatory requirements and continued regulatory review, and if
we fail to comply with these continuing requirements, we could be subject to a variety of sanctions and the sale of any approved products could be
suspended.
Both before and after regulatory approval to market a particular drug candidate, adverse event reporting, manufacturing, labeling, packaging, storage,
distribution, advertising, promotion, record keeping and reporting related to the product are subject to extensive, ongoing regulatory requirements. These
requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with current good
manufacturing practice (“cGMP”) requirements and current good clinical practice (“cGCP”) requirements for any clinical trials that we conduct post-
approval. Any regulatory approvals that we receive for our drug candidates may also be subject to limitations on the approved indicated uses for which the
product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical
trials, and surveillance to monitor the safety and efficacy of the drug candidate. Later discovery of previously unknown problems with a product, including
adverse events of unanticipated severity or frequency, or not previously observed in clinical trials, or with our third-party manufacturers or manufacturing
processes, or failure to comply with the regulatory requirements of the FDA, the EMA and other comparable regulatory authorities could subject us to
administrative or judicially imposed sanctions, including:
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restrictions on the marketing of our products or their manufacturing processes;
• warning letters;
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civil or criminal penalties;
fines;
injunctions;
product seizures or detentions;
import or export bans;
voluntary or mandatory product recalls and related publicity requirements;
suspension or withdrawal of regulatory approvals;
total or partial suspension of production; and
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refusal to approve pending applications for marketing approval of new products or supplements to approved applications.
The FDA’s, the EMA’s or other comparable regulatory authorities’ policies may change and additional government regulations may be enacted that
could prevent, limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained,
which would adversely affect our business, prospects and ability to achieve or sustain profitability.
If side effects are identified during the time our drug candidates are in development or after they are approved and on the market, we may choose to or be
required to perform lengthy additional clinical trials, discontinue development of the affected drug candidate, change the labeling of any such products,
or withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.
Undesirable side effects caused by our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result
in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EMA or other comparable regulatory authorities. Drug-related side
effects could affect patient recruitment or the ability of enrolled patients to complete a trial or result in potential product liability claims. Any of these
occurrences may harm our business, financial condition and prospects significantly. Even if any of our drug candidates receives marketing approval, as
greater numbers of patients use a drug following its approval, an increase in the incidence or severity of side effects or the incidence of other post-approval
problems that were not seen or anticipated during pre-approval clinical trials could result in a number of potentially significant negative consequences,
including:
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•
regulatory authorities may withdraw their approval of the product;
regulatory authorities may require the addition of labeling statements, such as contraindications, warnings or precautions, or impose additional safety
monitoring or reporting requirements;
• we may be required to change the way the product is administered, conduct additional clinical trials;
• we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
Any of these events could substantially increase the costs and expenses of developing, commercializing and marketing any such drug candidates or
could harm or prevent sales of any approved products.
We deal with hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Some of our research and development activities involve the controlled storage, use, and disposal of hazardous materials. We are subject to U.S. federal,
state, local and other countries’ and jurisdictions’ laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous
materials. Although we believe that our safety procedures for the handling and disposing of these materials comply with the standards prescribed by these
laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state or federal
authorities may curtail our use of these materials, and we could be liable for any civil damages that result, which may exceed our financial resources and may
seriously harm our business. Because we believe that our laboratory and materials handling policies and practices sufficiently mitigate the likelihood of
materials liability or third-party claims, we currently carry no insurance covering such claims. An accident could damage, or force us to shut down, our
operations.
Risks Related to the Commercialization of Our Drug Candidates
Even if any of our drug candidates receives regulatory approval, if such approved product does not achieve broad market acceptance, the revenues that
we generate from sales of the product will be limited.
Even if any drug candidates we may develop or acquire in the future obtain regulatory approval, they may not gain broad market acceptance among
physicians, healthcare payers, patients and the medical community. The degree of market acceptance for any approved drug candidate will depend on a
number of factors, including:
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the indication and label for the product and the timing of introduction of competitive products;
demonstration of clinical safety and efficacy compared to other products;
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prevalence, frequency and severity of adverse side effects;
availability of coverage and adequate reimbursement from managed care plans and other third-party payers;
convenience and ease of administration;
cost-effectiveness;
other potential advantages of alternative treatment methods; and
the effectiveness of marketing and distribution support of the product.
Consequently, even if we discover, develop and commercialize a product, the product may fail to achieve broad market acceptance and we may not be
able to generate significant revenue from the product.
The success of prasinezumab in the United States is dependent upon the strength and performance of our collaboration with Roche. If we fail to maintain
our existing collaboration with Roche, such termination would likely have a material adverse effect on our ability to develop and commercialize
prasinezumab and our business. Furthermore, if we opt out of profit and loss sharing with Roche, our revenues from prasinezumab will be reduced.
The success of sales of prasinezumab in the U.S. will be dependent on the ability of Roche to successfully develop in collaboration with us, and launch
and commercialize prasinezumab, if approved by the FDA, pursuant to the License Agreement we entered into in December 2013. Our collaboration with
Roche is complex, particularly with respect to future U.S. commercialization of prasinezumab, with respect to financial provisions, allocations of
responsibilities, cost estimates and the respective rights of the parties in decision making. Accordingly, significant aspects of the development and
commercialization of prasinezumab require Roche to execute its responsibilities under the arrangement, or require Roche’s agreement or approval, prior to
implementation, which could cause significant delays that may materially impact the potential success of prasinezumab in the U.S. In addition, Roche may
under some circumstances independently develop products that compete with prasinezumab, or Roche may decide to not commit sufficient resources to the
development, commercialization, marketing and distribution of prasinezumab. If we are not able to collaborate effectively with Roche on plans and efforts to
develop and commercialize prasinezumab, our business could be materially adversely affected.
Furthermore, the terms of the License Agreement provide that Roche has the ability to terminate such arrangement for any reason after the first
anniversary of the License Agreement at any time upon 90 days’ notice (if prior to first commercial sale) or 180 days’ notice (if after first commercial sale).
For example, Roche may determine that the outcomes of clinical trials have made prasinezumab a less attractive commercial product and terminate our
collaboration. If the License Agreement is terminated, our business and our ability to generate revenue from sales of prasinezumab could be substantially
harmed as we will be required to develop, commercialize and build our own sales and marketing organization or enter into another strategic collaboration in
order to develop and commercialize prasinezumab in the U.S. Such efforts may not be successful and, even if successful, would require substantial time and
resources to carry out.
The manner in which Roche launches prasinezumab, including the timing of launch and potential pricing, will have a significant impact on the ultimate
success of prasinezumab in the U.S, and the success of the overall commercial arrangement with Roche. If launch of commercial sales of prasinezumab in the
U.S. by Roche is delayed or prevented, our revenue will suffer and our stock price may decline. Further, if launch and resulting sales by Roche are not
deemed successful, our business would be harmed and our stock price may decline. Any lesser effort by Roche in its prasinezumab sales and marketing
efforts may result in lower revenue and thus lower profits with respect to the U.S. The outcome of Roche’s commercialization efforts in the U.S. could also
have a negative effect on investors’ perception of potential sales of prasinezumab outside of the U.S., which could also cause a decline in our stock price.
Furthermore, pursuant to the License Agreement, we are responsible for 30% of all development and commercialization costs for prasinezumab for the
treatment of Parkinson’s disease in the U.S., and for any future Licensed Products and/or indications that we opt to co-develop, in each case unless we elect to
opt out of profit and loss sharing. If we elect to opt out of profit and loss sharing, we will instead receive sales milestones and royalties, and our revenue, if
any, from prasinezumab will be reduced.
Our right to co-develop prasinezumab and other Licensed Products under the License Agreement will terminate if we commence certain studies for a
competitive product that treats Parkinson’s disease or other indications that we opted to co-develop. In addition, our right to co-promote prasinezumab and
other Licensed Products will terminate if we commence a Phase 3 study for a competitive product that treats Parkinson’s disease.
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Moreover, under the terms of the License Agreement, we rely on Roche to provide us estimates of their costs, revenue and revenue adjustments and
royalties, which estimates we use in preparing our quarterly and annual financial reports. If the underlying assumptions on which Roche’s estimates were
based prove to be incorrect, actual results or revised estimates supplied by Roche that are materially different from the original estimates could require us to
adjust the estimates included in our reported financial results. If material, these adjustments could require us to restate previously reported financial results,
which could have a negative effect on our stock price.
Our ability to receive any significant revenue from prasinezumab will be dependent on Roche’s efforts and our participation in profit and loss sharing,
and may result in lower levels of income than if we marketed or developed our product candidates entirely on our own. Roche may not fulfill its obligations
or carry out marketing activities for prasinezumab as diligently as we would like. We could also become involved in disputes with Roche, which could lead to
delays in or termination of development or commercialization activities and time-consuming and expensive litigation or arbitration. If Roche terminates or
breaches the License Agreement, or otherwise decides not to complete its obligations in a timely manner, the chances of successfully developing,
commercializing or marketing prasinezumab would be materially and adversely affected.
Outside of the United States, we are solely dependent on the efforts and commitments of Roche, either directly or through third parties, to further develop
and commercialize prasinezumab. If Roche’s efforts are unsuccessful, our ability to generate future product sales from prasinezumab outside the United
States would be significantly reduced.
Under our License Agreement, outside of the U.S., Roche has responsibility for developing and commercializing prasinezumab and any future Licensed
Products targeting α-synuclein. As a consequence, any progress and commercial success outside of the U.S. is dependent solely on Roche’s efforts and
commitment to the program. For example, Roche may delay, reduce or terminate development efforts relating to prasinezumab outside of the U.S., or under
some circumstances independently develop products that compete with prasinezumab, or decide not to commit sufficient resources to the commercialization,
marketing and distribution of prasinezumab.
In the event that Roche does not diligently develop and commercialize prasinezumab, the License Agreement provides us the right to terminate the
License Agreement in connection with a material breach uncured for 90 days after notice thereof. However, our ability to enforce the provisions of the
License Agreement so as to obtain meaningful recourse within a reasonable timeframe is uncertain. Further, any decision to pursue available remedies
including termination would impact the potential success of prasinezumab, including inside the U.S., and we may choose not to terminate as we may not be
able to find another partner and any new collaboration likely will not provide comparable financial terms to those in our arrangement with Roche. In the event
of our termination, this may require us to develop and commercialize prasinezumab on our own, which is likely to result in significant additional expense and
delay. Significant changes in Roche’s business strategy, resource commitment and the willingness or ability of Roche to complete its obligations under our
arrangement could materially affect the potential success of the product. Furthermore, if Roche does not successfully develop and commercialize
prasinezumab outside of the U.S., our potential to generate future revenue outside of the U.S. would be significantly reduced.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell approved products, we may be
unable to generate product revenue.
We do not currently have a fully-scaled organization for the sales, marketing and distribution of pharmaceutical products. In order to market any
products that may be approved by the FDA, the EMA or other comparable regulatory authorities, we must build our sales, marketing, managerial and other
non-technical capabilities or make arrangements with third parties to perform these services.
We have entered into the License Agreement with Roche for the development of prasinezumab and may develop our own sales force and marketing
infrastructure to co-promote prasinezumab in the U.S. for the treatment of Parkinson’s disease and any future Licensed Products approved for Parkinson’s
disease in the U.S. If we exercise our co-promotion option and are unable to develop our own sales force and marketing infrastructure to effectively
commercialize prasinezumab or other Licensed Products, our ability to generate additional revenue from potential sales of prasinezumab or such products in
the U.S. may be harmed. In addition, our right to co-promote prasinezumab and other Licensed Products will terminate if we commence a Phase 3 study for a
competitive product that treats Parkinson’s disease.
For any other products that may be approved, if we are unable to establish adequate sales, marketing and distribution capabilities, whether
independently or with third parties, we may not be able to generate product revenue and may not become profitable.
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If government and third-party payers fail to provide coverage and adequate reimbursement rates for any of our drug candidates that receive regulatory
approval, our revenue and prospects for profitability will be harmed.
In both U.S. and non-U.S. markets, our sales of any future products will depend in part upon the availability of reimbursement from third-party payers.
Such third-party payers include government health programs such as Medicare, managed care providers, private health insurers, and other organizations.
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. Coverage and reimbursement may not be
available for any drug that we or our collaborators commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Third-
party payers often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Third-party payers are also
increasingly attempting to contain healthcare costs by demanding price discounts or rebates limiting both coverage and the amounts that they will pay for new
drugs, and, as a result, they may not cover or provide adequate payment for our drug candidates. We might need to conduct post-marketing studies in order to
demonstrate the cost-effectiveness of any future products to such payers’ satisfaction. Such studies might require us to commit a significant amount of
management time and financial and other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party
reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development. If
coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we or our collaborators may not be able to
successfully commercialize any product candidates for which marketing approval is obtained.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs vary widely from country to country. Current and
future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or
licensing approval is granted. In some countries, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. As a result, we or our collaborators might obtain marketing approval for a drug in a particular country, but then be subject to price
regulations that delay commercial launch of the drug, possibly for lengthy time periods, and negatively impact our ability to generate revenue from the sale of
the drug in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more drug candidates, even if our drug
candidates obtain marketing approval.
U.S. and other governments continue to propose and pass legislation designed to reduce the cost of healthcare. In the U.S., we expect that there will
continue to be federal and state proposals to implement similar governmental controls. In addition, recent changes in the Medicare program and increasing
emphasis on managed care in the U.S. will continue to put pressure on pharmaceutical product pricing. For example, in 2010, the U.S. Patient Protection and
Affordable Care Act, as amended by the U.S. Health Care and Education Reconciliation Act (collectively, the “Healthcare Reform Law”), was enacted. The
Healthcare Reform Law substantially changed the way healthcare is financed by both governmental and private insurers and significantly affects the
pharmaceutical industry. Among the provisions of the Healthcare Reform Law of importance to the pharmaceutical industry are the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among
these entities according to their market share in certain government healthcare programs;
an increase in the minimum rebates a manufacturer must pay under the U.S. Medicaid Drug Rebate Program to 23.1% and 13.0% of the average
manufacturer price for branded and generic drugs, respectively;
expansion of healthcare fraud and abuse laws, including the U.S. False Claims Act and the U.S. Anti-Kickback Statute, new government
investigative powers and enhanced penalties for non-compliance;
a new Medicare Part D coverage gap discount program, under which manufacturers must agree to offer 50 percent point-of-sale discounts off
negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient
drugs to be covered under Medicare Part D;
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals
and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturer’s Medicaid rebate liability;
a licensure framework for follow-on biologic products;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements under the federal Open Payments program and its implementing regulations;
a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along
with funding for such research.
In addition, other legislative changes have been proposed and adopted since the Healthcare Reform Law was enacted. These changes include aggregate
reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in 2013 and will stay in effect through 2024 unless
additional congressional action is taken. In 2013, the U.S. American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to
several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for
our drugs, if approved, and, accordingly, our financial operations.
We expect that the Healthcare Reform Law, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price that we receive for any approved drug. Legislation and regulations affecting the pricing of
pharmaceuticals might change before our drug candidates are approved for marketing. Any reduction in reimbursement from Medicare or other government
healthcare programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare
reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.
There can be no assurance that our drug candidates, if they are approved for sale in the U.S. or in other countries, will be considered medically
reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payers, that coverage or an adequate level of
reimbursement will be available, or that third-party payers’ reimbursement policies will not adversely affect our ability to sell our drug candidates profitably
if they are approved for sale.
The markets for our drug candidates are subject to intense competition. If we are unable to compete effectively, our drug candidates may be rendered
noncompetitive or obsolete.
The research, development and commercialization of new drugs is highly competitive. We will face competition with respect to all drug candidates we
may develop or commercialize in the future from pharmaceutical and biotechnology companies worldwide. The key factors affecting the success of any
approved product will be its indication, label, efficacy, safety profile, drug interactions, method of administration, pricing, coverage, reimbursement and level
of promotional activity relative to those of competing drugs.
Furthermore, many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private
research organizations are pursuing the development of novel drugs that target the same indications we are targeting with our research and development
program. We face, and expect to continue to face, intense and increasing competition as new products enter the market and advanced technologies become
available. Many of our competitors have:
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significantly greater financial, technical and human resources than we have and may be better equipped to discover, develop, manufacture and
commercialize drug candidates;
• more extensive experience in nonclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical
products;
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drug candidates that have been approved or are in late-stage clinical development; and/or
collaborative arrangements in our target markets with leading companies and research institutions.
Competitive products may render our research and development program obsolete or noncompetitive before we can recover the expenses of developing
and commercializing our drug candidates. Furthermore, the development of new treatment methods and/or the widespread adoption or increased utilization of
any vaccine or development of other products or treatments for the diseases we are targeting could render any of our drug candidates noncompetitive,
obsolete or uneconomical. If we successfully develop and obtain approval for a drug candidate, we will face competition based on the safety and effectiveness
of the approved product, the timing of its entry into the market in relation to competitive products in development, the availability and cost of supply,
marketing and sales capabilities, coverage, reimbursement, price, patent position and other factors. Even if we successfully develop drug candidates but those
drug candidates do not achieve and maintain market acceptance, our business will not be successful.
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Our drug candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
Our current drug candidates are regulated by the FDA as biologic products and we intend to seek approval for these products pursuant to the BLA
pathway. The U.S. Biologics Price Competition and Innovation Act of 2009 (the “BPCIA”) created an abbreviated pathway for the approval of biosimilar and
interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics,
including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application
for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and
is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is
uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on
the future commercial prospects for our biologic products.
We believe that any of our drug candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity. However,
there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our drug candidates to be
reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which
a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-
biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
We are subject to healthcare and other laws and regulations, including anti-bribery, anti-kickback, fraud and abuse, false claims, physician payment
transparency and health information privacy and security laws and regulations, which could expose us to criminal, civil and/or administrative sanctions
and penalties, exclusion from governmental healthcare programs or reimbursements, contractual damages and reputational harm.
Our operations and activities are directly, or indirectly through our service providers and collaborators, subject to numerous healthcare and other laws
and regulations, including, without limitation, those relating to anti-bribery, anti-kickback, fraud and abuse, false claims, physician payment transparency and
health information privacy and security, in the U.S., the EU and other countries and jurisdictions in which we conduct our business. These laws include:
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the U.S. Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase or
recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
• U.S. federal and state false claims laws, including the False Claims Act, which impose criminal and civil penalties, including civil whistleblower or
qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or
other third-party payers that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government;
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the U.S. Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for executing a scheme
to defraud any healthcare benefit program and making false statements in connection with the delivery of or payment for healthcare benefits, items
or services, and under the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) imposes obligations,
including mandatory contractual terms, on certain types of individuals and entities with respect to safeguarding the privacy, security and transmission
of individually identifiable health information and places restrictions on the use of such information for marketing communications;
the U.S. Physician Payment Sunshine Act, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the
Centers for Medicare & Medicaid Services (“CMS”) information related to “payments or other transfers of value” made to physicians and teaching
hospitals and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests
held by the physicians and their immediate family members;
laws and regulations that apply to sales or marketing arrangements; apply to healthcare items or services reimbursed by non-governmental third-
party payers, including private insurers; require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines; that restrict payments that may be made to healthcare providers; require drug manufacturers to report information related to payments
and other transfers of value to physicians and other healthcare providers or marketing expenditures; and
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similar and other laws and regulations in the U.S. (federal, state and local), in the EU (including member countries) and other countries and
jurisdictions.
Further, the Healthcare Reform Law, among other things, amended the intent requirements of the U.S. Anti-Kickback Statute and the criminal statutes
governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to
violate it. In addition, the Healthcare Reform Law provided that the government may assert that a claim including items or services resulting from a violation
of the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act.
Ensuring our compliance with applicable healthcare and other laws and regulations involves substantial costs, and it is possible that governmental
authorities or third parties will assert that our business practices fail to comply with these laws and regulations. If our operations are found to be in violation
of any of such laws and regulations, we may be subject to significant civil, criminal and administrative damages, penalties and fines, as well exclusion from
participation in government healthcare programs, curtailment or restructuring of our operations and reputational harm, any of which could have a material
adverse effect on our business, financial condition or results of operations.
If a successful product liability or clinical trial claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities,
we could incur substantial liability.
The use of our drug candidates in clinical trials and the sale of any products for which we obtain marketing approval will expose us to the risk of
product liability and clinical trial liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or
otherwise coming into contact with our products. Clinical trial liability claims may be filed against us for damages suffered by clinical trial subjects or their
families. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or
eventual outcome, product liability claims may result in:
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decreased demand for any approved drug candidates;
impairment of our business reputation;
• withdrawal of clinical trial participants;
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costs of related litigation;
distraction of management’s attention;
substantial monetary awards to patients or other claimants; and
loss of revenues; and the inability to successfully commercialize any approved drug candidates.
We currently have clinical trial liability insurance coverage for all of our clinical trials. However, our insurance coverage may not be sufficient to
reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be
able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing
approval for any of our drug candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable
to obtain this product liability insurance on commercially reasonable terms. On occasion, large judgments have been awarded in class action lawsuits based
on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our ordinary share price to
decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet established
deadlines for the completion of any such clinical trials.
We do not have the ability to independently conduct clinical trials for our drug candidates, and we rely on third parties, such as consultants, contract
research organizations, medical institutions and clinical investigators, to assist us with these activities. Our reliance on these third parties for clinical
development activities results in reduced control over these activities. Furthermore, these third parties may also have relationships with other entities, some of
which may be our competitors. Although we have and will enter into agreements with these third parties, we will be responsible for confirming that our
clinical trials are conducted in accordance with their general investigational plans and protocols. Moreover, the FDA, the EMA and other comparable
regulatory
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authorities require us to comply with regulations and standards, commonly referred to as cGCPs, for conducting, recording and reporting the results of clinical
trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does
not relieve us of these responsibilities and requirements. If we or any of our third-party contractors fail to comply with applicable cGCPs, the clinical data
generated in our clinical trials may be deemed unreliable and the FDA, the EMA or other comparable regulatory authorities may require us to perform
additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such
regulatory authority will determine that any of our clinical trials complies with cGCP regulations. In addition, our clinical trials must be conducted with
product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the
regulatory approval process.
To date, we believe our consultants, contract research organizations and other third parties with which we are working have performed well; however,
if these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with applicable regulations, we may be
required to replace them. Although we believe that there are a number of other third-party contractors we could engage to continue these activities, we may
not be able to enter into arrangements with alternative third-party contractors or to do so on commercially reasonable terms, which may result in a delay of
our planned clinical trials. Accordingly, we may be delayed in obtaining regulatory approvals for our drug candidates and may be delayed in our efforts to
successfully develop our drug candidates.
In addition, our third-party contractors are not our employees, and except for remedies available to us under our agreements with such third-party
contractors, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and nonclinical programs. If third-party
contractors do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or
accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our
clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our drug
candidates. As a result, our results of operations and the commercial prospects for our drug candidates would be harmed, our costs could increase and our
ability to generate revenues could be delayed.
If we do not establish additional strategic collaborations, we may have to alter our research, development and/or commercialization plans.
Research, development and potential commercialization of our drug candidates will require substantial additional cash to fund expenses. Our strategy
includes potentially collaborating with additional leading pharmaceutical and biotechnology companies to assist us in furthering research, development and/or
potential commercialization of some of our drug candidates, in some or all geographies. It may be difficult to enter into one or more of such collaborations in
the future. We face significant competition in seeking appropriate collaborators and these collaborations are complex and time-consuming to negotiate and
document. We may not be able to negotiate collaborations on acceptable terms, or at all, in which case we may have to curtail the development of a particular
drug candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or increase
our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development
or commercialization activities on our own, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do
not have sufficient funds, we will not be able to bring our drug candidates to market and generate product revenue.
We have no manufacturing capacity and depend on third-party manufacturers to supply us with nonclinical and clinical trial supplies of all of our drug
candidates, and we will depend on third-party manufacturers to supply us with any drug products for commercial sale if we obtain marketing approval
from the FDA, the EMA or any other comparable regulatory authority for any of our drug candidates.
We do not own or operate facilities for the manufacture, packaging, labeling, storage, testing or distribution of nonclinical or clinical supplies of any of
our drug candidates. We instead contract with and rely on third parties to manufacture, package, label, store, test and distribute nonclinical and clinical
supplies of our drug candidates, and we plan to continue to do so for the foreseeable future. We also rely on third-party consultants to assist us with managing
these third-parties and with our manufacturing strategy. If any of these third-parties fail to perform these activities for us, nonclinical or clinical development
of our drug candidates could be delayed, which could have an adverse effect on our business, financial condition, results of operations and growth prospects.
If the FDA, the EMA or any other comparable regulatory authority approves any of our drug candidates for commercial sale, we expect to continue to
rely, at least initially, on third-parties to manufacture, package, label, store, test and distribute commercial supplies of such approved drug product. Significant
scale-up of manufacturing may require additional comparability validation studies, which the FDA, the EMA or other comparable regulatory authorities must
review and approve. Our third-party manufacturers might not be able to successfully establish such comparability or increase their manufacturing capacity in
a timely
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or economic manner, or at all. If our third-party manufacturers are unable to successfully establish comparability or increase their manufacturing capacity for
any drug product, and we are unable to timely establish our own manufacturing capabilities, the commercial launch of that drug product could be delayed or
there could be a shortage in supply, which could have an adverse effect on our business, financial condition, results of operations and growth prospects.
Our third-party manufacturers’ facilities could be damaged by fire, power interruption, information system failure, natural disaster or other similar
event, which could cause a delay or shortage in supplies of our drug candidates, which could have an adverse effect on our business, financial condition,
results of operations and growth prospects.
Our drug candidates require, and any future drug product will require, precise, high quality manufacturing, packaging, labeling, storage and testing that
meet stringent cGMP, other regulatory requirements and other standards. Our third-party manufacturers are subject to ongoing periodic and unannounced
inspections by the FDA, the EMA and other comparable regulatory authorities to ensure compliance with these cGMPs, other regulatory requirements and
other standards. We do not have control over, and are dependent upon, our third-party manufacturers’ compliance with these cGMPs, regulations and
standards. Any failure by a third-party manufacturer to comply with these cGMPs, regulations or standards or that compromises the safety of any of our drug
candidates or any drug product could cause a delay or suspension of production of nonclinical or clinical supplies of our drug candidates or commercial
supplies of drug products, cause a delay or suspension of nonclinical or clinical development, product approval and commercialization of our drug candidates
or drug products, result in seizure or recall of clinical or commercial supplies, result in fines and civil penalties, result in liability for any patient injury or
death or otherwise increase our costs, any of which could have an adverse effect on our business, financial condition, results of operations and growth
prospects. If a third-party manufacturer cannot or fails to perform its contractual commitments, does not have sufficient capacity to meet our nonclinical,
clinical or eventual commercial requirements or fails to meet cGMPs, regulations or other standards, we may be required to replace it or qualify an additional
third-party manufacturer. Although we believe there are a number of potential alternative manufacturers, the number of manufacturers with the necessary
manufacturing and regulatory expertise and facilities to manufacture biologics like our antibodies is limited. In addition, we could incur significant additional
costs and delays in identifying and qualifying any new third-party manufacturer, due to the technology transfer to such new manufacturer and because the
FDA, the EMA and other comparable regulatory authorities must approve any new manufacturer prior to manufacturing our drug candidates. Such approval
would require successful technology transfer, comparability and other testing and compliance inspections. Transferring manufacturing to a new manufacturer
could therefore interrupt supply, delay our clinical trials and any commercial launch and/or increase our costs for our drug candidates, any of which could
have an adverse effect on our business, financial condition, results of operations and growth prospects.
Roche, with whom we are collaborating on development of prasinezumab, manufactured clinical supplies for the Phase 2 clinical trial for prasinezumab
and is expected to do so for any subsequent clinical trials of prasinezumab. We are dependent on Roche to continue to manufacture these clinical supplies.
Rentschler Biopharma SE (“Rentschler”) is our third-party manufacturer of clinical supplies of our drug candidate PRX004. We are dependent on
Rentschler to manufacture these clinical supplies in order to continue our ongoing Phase 1 clinical trial and initiate any other clinical trial for PRX004.
We depend on third-party suppliers for key raw materials used in our manufacturing processes, and the loss of these third-party suppliers or their
inability to supply us with adequate raw materials could harm our business.
We rely on third-party suppliers for the raw materials required for the production of our drug candidates. Our dependence on these third-party suppliers
and the challenges we may face in obtaining adequate supplies of raw materials involve several risks, including limited control over pricing, availability,
quality and delivery schedules. We cannot be certain that our suppliers will continue to provide us with the quantities of these raw materials that we require or
satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or sole sourced raw materials could materially harm our
ability to manufacture our products until a new source of supply, if any, could be identified and qualified. Although we believe there are currently several
other suppliers of these raw materials, we may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable
terms. Any performance failure on the part of our suppliers could delay the development and potential commercialization of our drug candidates, including
limiting supplies necessary for clinical trials and regulatory approvals, which would have a material adverse effect on our business.
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Risks Related to Our Intellectual Property
If we are unable to adequately protect or enforce the intellectual property relating to our drug candidates our ability to successfully commercialize our
drug candidates will be harmed.
Our success depends in part on our ability to obtain patent protection both in the U.S. and in other countries for our drug candidates. Our ability to
protect our drug candidates from unauthorized or infringing use by third parties depends in substantial part on our ability to obtain and maintain valid and
enforceable patents. Due to evolving legal standards relating to the patentability, validity and enforceability of patents covering pharmaceutical inventions and
the scope of claims made under these patents, our ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual
questions. Accordingly, rights under any issued patents may not provide us with sufficient protection for our drug candidates or provide sufficient protection
to afford us a commercial advantage against competitive products or processes. Additionally, our ability to obtain patent protection for our drug candidates
also depends on our collaborators, partners, contractors, and employees involved in the generation of intellectual property to carry out their contractual duties,
including those to assign relevant intellectual property rights developed on our behalf to us.
In addition, we cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us or our affiliates.
Even if patents have issued or will issue, we cannot guarantee that the claims of these patents are or will be valid or enforceable or will provide us with any
significant protection against competitive products or otherwise be commercially valuable to us. Patent applications in the U.S. are maintained in confidence
for up to 18 months after their filing. In some cases, however, patent applications remain confidential in the U.S. Patent and Trademark Office (the “USPTO”)
for the entire time prior to issuance as a U.S. patent. Similarly, publication of discoveries in the scientific or patent literature often lags behind actual
discoveries. Consequently, we cannot be certain that we or our licensors or co-owners were the first to invent, or the first to file patent applications on, our
drug candidates or their use as drugs. In the event that a third party has also filed a U.S. patent application relating to our drug candidates or a similar
invention, we may have to participate in interference or derivation proceedings declared by the USPTO to determine priority of invention in the U.S. The
costs of these proceedings could be substantial and it is possible that our efforts would be unsuccessful, resulting in a loss of our U.S. patent position.
Furthermore, we may not have identified all U.S. and non-U.S. patents or published applications that affect our business either by blocking our ability to
commercialize our drugs or by covering similar technologies. Composition-of-matter patents on the biological or chemical active pharmaceutical ingredient
are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection without
regard to any method of use. We cannot be certain that the claims in our patent applications covering composition-of-matter of our product candidates will be
considered patentable by the USPTO and courts in the U.S. or by the patent offices and courts in other countries, nor can we be certain that the claims in our
issued composition-of-matter patents will not be found invalid or unenforceable if challenged. Method-of-use patents protect the use of a product for the
specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that
is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may
prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is
common and such infringement is difficult to prevent or prosecute.
The 2011 patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents. In 2011, the U.S. Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law. The Leahy-Smith Act
includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art,
may affect patent litigation, and switch the U.S. patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system,
assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention
regardless of whether another inventor had made the invention earlier. The USPTO subsequently developed new regulations and procedures to govern
administration of the Leahy-Smith Act, but many of the substantive changes to patent law associated with the Leahy-Smith Act continue to be the subject of
litigation and USPTO rule changes. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However,
the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
We may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter
partes review, post-grant review, or other patent office proceedings or litigation, in the U.S. or elsewhere, challenging our patent rights or the patent rights of
others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third
parties to commercialize our technology or
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products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-
party patent rights.
We may not be able to protect our intellectual property rights throughout the world.
The laws of some jurisdictions do not protect intellectual property rights to the same extent as in the U.S. and many companies have encountered
significant difficulties in protecting and defending such rights in other jurisdictions. If we encounter such difficulties in protecting or are otherwise precluded
from effectively protecting our intellectual property rights in other jurisdictions, our business prospects could be substantially harmed.
We license patent rights from third-party owners. Such licenses may be subject to early termination if we fail to comply with our obligations in our
licenses with third parties, which could result in the loss of rights or technology that are material to our business.
We are a party to licenses that give us rights to third-party intellectual property that is necessary or useful for our business, and we may enter into
additional licenses in the future. Under these license agreements we are obligated to pay the licensor fees, which may include annual license fees, milestone
payments, royalties, a percentage of revenues associated with the licensed technology and a percentage of sublicensing revenue. In addition, under certain of
such agreements, we are required to diligently pursue the development of products using the licensed technology. If we fail to comply with these obligations
and fail to cure our breach within a specified period of time, the licensor may have the right to terminate the applicable license, in which event we could lose
valuable rights and technology that are material to our business.
If the licensor retains control of prosecution of the patents and patent applications licensed to us, we may have limited or no control over the manner in
which the licensor chooses to prosecute or maintain its patents and patent applications and have limited or no right to continue to prosecute any patents or
patent applications that the licensor elects to abandon.
Litigation regarding patents, patent applications and other proprietary rights may be expensive and time consuming. If we are involved in such litigation,
it could cause delays in bringing drug candidates to market and harm our ability to operate.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Although we are not currently aware
of any litigation or other proceedings or third-party claims of intellectual property infringement related to our drug candidates, the pharmaceutical industry is
characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may hold or obtain patents in the future and allege
that the use of our technologies infringes these patent claims or that we are employing their proprietary technology without authorization.
In addition, third parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or those
of others could result in adverse decisions regarding:
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the patentability of our inventions relating to our drug candidates; and/or
the enforceability, validity or scope of protection offered by our patents relating to our drug candidates.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings,
which could have a material adverse effect on us.
If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the
validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful
conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have
infringed patents declared invalid, we may:
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incur substantial monetary damages;
encounter significant delays in bringing our drug candidates to market; and/or
be precluded from participating in the manufacture, use or sale of our drug candidates or methods of treatment requiring licenses.
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If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our
business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing
on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners
or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we
may not be able to compete effectively and our business may be adversely affected.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable;
however, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators,
sponsored researchers, and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent
disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In
addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business
position.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees were previously employed at universities, Elan or Elan subsidiaries, or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or
other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in
defending against such claims, litigation could result in substantial costs and be a distraction to management.
The market price of our ordinary shares may fluctuate widely.
Risks Related to Our Ordinary Shares
Our ordinary shares commenced trading on The Nasdaq Global Market on December 21, 2012 and currently trade on The Nasdaq Global Select
Market. We cannot predict the prices at which our ordinary shares may trade. The market price of our ordinary shares may fluctuate widely, depending upon
many factors, some of which may be beyond our control, including:
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our ability to obtain financing as needed;
progress in and results from our ongoing or future nonclinical research and clinical trials;
our collaborations with third parties, including with Roche and Celgene;
failure or delays in advancing our nonclinical drug candidates or other drug candidates we may develop in the future into clinical trials;
results of clinical trials conducted by others, including on drugs that would compete with our drug candidates;
issues in manufacturing our drug candidates;
regulatory developments or enforcement in the U.S. and other countries;
developments or disputes concerning patents or other proprietary rights;
introduction of technological innovations or new commercial products by our competitors;
changes in estimates or recommendations by securities analysts, if any, who cover our company;
public concern over our drug candidates;
litigation;
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future sales of our ordinary shares by us or by existing shareholders;
general market conditions;
changes in the structure of healthcare payment systems;
failure of any of our drug candidates, if approved, to achieve commercial success;
economic and other external factors or other disasters or crises;
period-to-period fluctuations in our financial results;
overall fluctuations in U.S. equity markets;
our quarterly or annual results, or those of other companies in our industry;
announcements by us or our competitors of significant acquisitions or dispositions;
the operating and ordinary share price performance of other comparable companies;
investor perception of our company and the drug development industry;
natural or environmental disasters that investors believe may affect us;
changes in tax laws or regulations applicable to our business or the interpretations of those tax laws and regulations by taxing authorities; or
fluctuations in the budgets of federal, state and local governmental entities around the world.
These and other external factors may cause the market price and demand for our ordinary shares to fluctuate substantially, which may limit or prevent
investors from readily selling their ordinary shares and may otherwise negatively affect the liquidity of our ordinary shares. In particular, stock markets in
general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may
adversely affect the trading price of our ordinary shares. Some companies that experienced volatility in the trading price of their stock have been the subject
of securities class action litigation.
Your percentage ownership in Prothena may be diluted in the future.
As with any publicly traded company, your percentage ownership in us may be diluted in the future because of equity issuances for acquisitions, capital
raising transactions or otherwise. We may need to raise additional capital in the future. If we are able to raise additional capital, we may issue equity or
convertible debt instruments, which may severely dilute your ownership interest in us. In addition, we intend to continue to grant option awards to our
directors, officers and employees, which would dilute your ownership stake in us. As of December 31, 2019, the number of ordinary shares available for
issuance pursuant to outstanding and future equity awards under our equity plan was 8,227,236.
If we are unable to maintain effective internal controls, our business could be adversely affected.
We are subject to the reporting and other obligations under the U.S. Securities Exchange Act of 1934, as amended, including the requirements of
Section 404 of the U.S. Sarbanes-Oxley Act, which require annual management assessments of the effectiveness of our internal control over financial
reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require
significant documentation, testing and possible remediation to meet the detailed standards under the rules. During the course of its testing, our management
may identify material weaknesses or deficiencies which may not be remedied in time to meet the deadline imposed by the Sarbanes-Oxley Act. These
reporting and other obligations place significant demands on our management and administrative and operational resources, including accounting resources.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements
for external purposes in accordance with accounting principles generally accepted in the U.S. During the course of our review and testing of our internal
controls, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material
weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be
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materially misstated. We or our independent registered public accounting firm, when required, may not be able to conclude on an ongoing basis that we have
effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial
information and cause the trading price of our stock to fall.
We cannot provide assurance that a material weakness will not occur in the future, or that we will be able to conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with Section 404 and the related rules and regulations of the SEC when required. A material
weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of a company’s annual or interim consolidated financial statements will not be prevented or
detected on a timely basis by the company’s internal controls. If we cannot in the future favorably assess, or our independent registered public accounting
firm, when required, is unable to provide an unqualified attestation report on, the effectiveness of our internal controls over financial reporting, investor
confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our share price. In addition, any
failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the Nasdaq Global Select
Market or other adverse consequences that would have an adverse effect on our business, financial position and results of operations.
If we were treated as a passive foreign investment company for U.S. federal income tax purposes, it could result in adverse U.S. federal income tax
consequences to United States holders of our ordinary shares.
Significant potential adverse U.S. federal income tax implications generally apply to U.S. investors owning shares of a passive foreign investment
company (“PFIC”), directly or indirectly. In general, we would be a PFIC for a taxable year if either (i) 75% or more of our income constitutes passive
income (the “income test”), or (ii) 50% or more of our assets produce passive income (the “asset test”). Changes in the composition of our active or passive
income, passive assets or fair market value may cause us to become a PFIC. A separate determination must be made each taxable year as to whether we are a
PFIC (after the close of each taxable year).
We do not believe we were a PFIC for U.S. federal income tax purposes for our taxable year- ended December 31, 2019, or any prior year. However, the
application of the PFIC rules is subject to uncertainties in a number of respects, and we cannot assure that the U.S. Internal Revenue Service (the “IRS”) will
not take a contrary position. We also cannot assure that we will not be a PFIC for U.S. federal income tax purposes for any future taxable year.
We may not be able to successfully maintain our tax rates, which could adversely affect our business and financial condition, results of operations and
growth prospects.
We are incorporated in Ireland and maintain subsidiaries or offices in Ireland and the U.S. We are able to achieve a low average tax rate through the
performance of certain functions and ownership of certain assets in tax-efficient jurisdictions, together with intra-group service agreements. However,
changes in tax laws in any of these jurisdictions could adversely affect our ability to do so in the future. Taxing authorities, such as the IRS, actively audit and
otherwise challenge these types of arrangements, and have done so in our industry. We are subject to reviews and audits by the IRS and other taxing
authorities from time to time, and the IRS or other taxing authority may challenge our structure and inter-group arrangements. Responding to or defending
against challenges from taxing authorities could be expensive and time consuming, and could divert management’s time and focus away from operating our
business. We cannot predict whether and when taxing authorities will conduct an audit, challenge our tax structure or the cost involved in responding to any
such audit or challenge. If we are unsuccessful, we may be required to pay taxes for prior periods, interest, fines or penalties, and may be obligated to pay
increased taxes in the future, all of which could have an adverse effect on our business, financial condition, results of operations or growth prospects.
Future changes to the tax laws relating to multinational corporations could adversely affect us.
Under current law, we are treated as a foreign corporation for U.S. federal tax purposes. However, changes to the U.S. Internal Revenue Code, U.S.
Treasury Regulations or other IRS guidance thereunder could adversely affect our status as a foreign corporation or otherwise affect our effective tax rate. In
addition, the U.S. Congress, the IRS, the Organization for Economic Co-operation and Development and other governments and agencies in jurisdictions
where we do business have recently focused on issues related to the taxation of multinational corporations, and specifically in the area of “base erosion and
profit shifting,” where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax
laws in the U.S. and other countries in which we do business could change on a prospective or retroactive basis, and any such changes could have an adverse
effect on our business, financial condition, results of operations or growth prospects.
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our ordinary shares.
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It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or
state securities laws. In addition, there is uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against
us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those persons
based on those laws. We have been advised that the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and
enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court
based on civil liability, whether or not based solely on federal or state securities laws, would not automatically be enforceable in Ireland.
As an Irish incorporated company, we are governed by the Irish Companies Act 2014 (the “Companies Act”), which differs in some material respects
from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer
transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only.
Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of
action on behalf of the company only in limited circumstances. Accordingly, holders of our ordinary shares may have more difficulty protecting their interests
than would holders of securities of a corporation incorporated in a jurisdiction of the U.S.
Irish law differs from the laws in effect in the United States with respect to defending unwanted takeover proposals and may give our board of directors
less ability to control negotiations with hostile offerors.
We are subject to the Irish Takeover Panel Act, 1997, Takeover Rules, 2013. Under those Irish Takeover Rules, our Board is not permitted to take any
action that might frustrate an offer for our ordinary shares once our Board has received an approach that may lead to an offer or has reason to believe that
such an offer is or may be imminent, subject to certain exceptions. Potentially frustrating actions such as (i) the issue of ordinary shares, options or
convertible securities, (ii) material acquisitions or disposals, (iii) entering into contracts other than in the ordinary course of business, or (iv) any action, other
than seeking alternative offers, which may result in frustration of an offer, are prohibited during the course of an offer or at any earlier time during which our
Board has reason to believe an offer is or may be imminent. These provisions may give our Board less ability to control negotiations with hostile offerors and
protect the interests of holders of ordinary shares than would be the case for a corporation incorporated in a jurisdiction of the U.S.
Irish law requires that our shareholders renew every five years the authority of our Board of Directors to issue shares and to do so for cash without
applying the statutory pre-emption right, and if our shareholders do not renew these authorizations by May 17, 2022 (or any renewal is subject to
limitations), our ability to raise additional capital to fund our operations would be limited.
As an Irish incorporated company, we are governed by the Companies Act. The Companies Act requires that every five years our shareholders renew
the separate authorities of our Board to (a) allot and issue shares, and (b) opt out of the statutory pre-emption right that otherwise applies to share issuances
for cash (which pre-emption right would require that shares issued for cash be offered to our existing shareholders on a pro rata basis before the shares may be
issued to new shareholders). At our shareholders' annual general meeting held on May 17, 2017, our shareholders authorized our Board to issue ordinary
shares up to the amount of our authorized share capital, and to opt out of the statutory pre-emption right for such issuances. Under Irish law, these
authorizations will expire on May 17, 2022, five years after our shareholders last renewed these authorizations. Irish law requires that our shareholders renew
the authority for our Board to issue ordinary shares by a resolution approved by not less than 50% of the votes cast at a general meeting of our shareholders.
Irish law requires that our shareholders renew the authority of our Board to opt out of the statutory pre-emption right in share issuances for cash by a
resolution approved by not less than 75% of the votes cast at a general meeting of our shareholders. If these authorizations are not renewed before May 17,
2022, or are renewed with limitations, our Board would be limited in its ability to issue shares, which would limit our ability to raise additional capital to fund
our operations, including the research, development and potential commercialization of our product candidates.
Transfers of our ordinary shares may be subject to Irish stamp duty.
Irish stamp duty may be payable in respect of transfers of our ordinary shares (currently at the rate of 1% of the price paid or the market value of the
shares acquired, if greater).
Under the Irish Stamp Duties Consolidation Act, 1999 (the “Stamp Duties Act”), a transfer of our ordinary shares from a seller who holds shares
through DTC to a buyer who holds the acquired shares through DTC should not be subject to Irish stamp duty. Shareholders may also transfer their shares
into or out of DTC without giving rise to Irish stamp duty provided that there is no change in the beneficial ownership of such shares and the transfer into or
out of DTC is not effected in contemplation of a subsequent sale of such shares to a third party; in order to benefit from this exemption from Irish stamp duty,
the seller must
38
confirm to us that there is no change in the ultimate beneficial ownership of the shares as a result of the transfer and there is no agreement for the sale of the
shares by the beneficial owner to a third party being contemplated.
A transfer of our ordinary shares (i) by a seller who holds shares outside of DTC to any buyer, or (ii) by a seller who holds the shares through DTC to a
buyer who holds the acquired shares outside of DTC, may be subject to Irish stamp duty. Payment of any Irish stamp duty is generally a legal obligation of
the transferee.
Any Irish stamp duty payable on transfers of our ordinary shares could adversely affect the price of those shares.
We do not anticipate paying cash dividends, and accordingly, shareholders must rely on ordinary share appreciation for any return on their investment.
We anticipate losing money for the foreseeable future and, even if we do ever turn a profit, we intend to retain future earnings, if any, for the
development, operation and expansion of our business. Thus, we do not anticipate declaring or paying any cash dividends for the foreseeable future.
Therefore, the success of an investment in our ordinary shares will depend upon appreciation in their value and in order to receive any income or realize a
return on your investment, you will need to sell your Prothena ordinary shares. There can be no assurance that our ordinary shares will maintain their price or
appreciate in value.
Dividends paid by us may be subject to Irish dividend withholding tax.
Although we do not currently anticipate paying cash dividends, if we were to do so in the future, a dividend withholding tax (currently at a rate of 25%)
may arise. A number of exemptions from dividend withholding tax exist such that shareholders resident in the U.S. and shareholders resident in other
countries that have entered into a double taxation treaty with Ireland may be entitled to exemptions from dividend withholding tax subject to the completion
of certain dividend withholding tax declaration forms.
Shareholders entitled to an exemption from Irish dividend withholding tax on any dividends received from us will not be subject to Irish income tax in
respect of those dividends, unless they have some connection with Ireland other than their shareholding (for example, they are resident in Ireland).
Shareholders who receive dividends subject to Irish dividend withholding tax will generally have no further liability to Irish income tax on those dividends.
Prothena ordinary shares received by means of a gift or inheritance could be subject to Irish capital acquisitions tax.
Irish capital acquisitions tax (“CAT”) could apply to a gift or inheritance of our ordinary shares irrespective of the place of residence, ordinary residence
or domicile of the parties. This is because our ordinary shares will be regarded as property situated in Ireland. The person who receives the gift or inheritance
has primary liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. It is recommended that each shareholder consult his or
her own tax advisor as to the tax consequences of holding our ordinary shares or receiving dividends from us.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
Our corporate registered address and office is in Dublin, Ireland and our U.S. operations are in South San Francisco, California.
In Dublin, Ireland, we occupy approximately 133 square feet of office under a lease which expires on November 30, 2020.
In South San Francisco, California, we occupy approximately 82,000 square feet of office and laboratory space under a lease which expires in
December 2023.
We believe that our facilities are sufficient to meet our current needs.
ITEM 3. LEGAL PROCEEDINGS
We may at times be party to ordinary routine litigation incidental to our business. When appropriate in management’s estimation, we may record
reserves in our financial statements for pending legal proceedings.
39
On July 16, 2018, a purported class action lawsuit entitled Granite Point Capital v. Prothena Corporation plc, et al., Civil Action No. 18-cv-06425, was
filed in the U.S. District Court for the Southern District of New York against the Company and certain of its current and former officers. The plaintiff sought
compensatory damages, costs and expenses in an unspecified amount on behalf of a putative class of persons who purchased the Company’s ordinary shares
between October 15, 2015, and April 20, 2018, inclusive. The complaint alleged that the defendants violated federal securities laws by allegedly making false
and misleading statements and omitting certain material facts in certain public statements and in the Company’s filings with the U.S. Securities and Exchange
Commission during the putative class period, regarding the clinical trial results and prospects for approval of the Company’s NEOD001 drug development
program. On October 31, 2018, the Court issued an order naming Granite Point Capital and Simon James, an individual, as the lead plaintiffs in the purported
class action, which was then entitled In re Prothena Corporation plc Securities Litigation. On August 26, 2019, the parties entered into a Stipulation and
Agreement of Settlement and the lead plaintiffs filed an Unopposed Motion for Preliminary Approval of Proposed Class Action Settlement for an aggregate
settlement amount of $15.75 million, to be paid by the Company’s directors and officers insurance carriers. On December 4, 2019, the Court approved that
settlement and entered judgment, resolving, as to all settlement class members, all of the claims that were or could have been brought in the lawsuit. There
were no objections to the settlement and no purported class members opted out of the settlement. The Company did not admit to any claims and continues to
believe that the claims in the lawsuit were without merit.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
40
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
PART II
EQUITY SECURITIES.
Market Information for Ordinary Shares
Our ordinary shares commenced trading on The Nasdaq Global Market under the symbol “PRTA” on December 21, 2012 and currently trade on The
Nasdaq Global Select Market.
Holders
There were approximately 1,147 shareholders of record of our ordinary shares as of February 21, 2020. Because many of our shares are held by brokers
and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.
Dividend Policy
We have not paid dividends in the past and do not anticipate paying dividends in the foreseeable future. Any future determination to pay dividends will
be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other
factors as the Board of Directors deems relevant.
Under Irish law, dividends and distributions may only be made from distributable reserves. Distributable reserves generally means accumulated realized
profits, to the extent not previously utilized by distribution or capitalization, less accumulated realized losses, to the extent not previously written off in a
reduction or re-organization of capital. In addition, no distribution or dividend may be made unless the net assets of Prothena are equal to, or in excess of, the
aggregate of our called up share capital plus undistributable reserves and the distribution does not reduce our net assets below such aggregate. Undistributable
reserves include undenominated capital, the share premium account, the capital redemption reserve fund and the amount by which Prothena’s accumulated
unrealized profits, so far as not previously utilized by any capitalization, exceed our accumulated unrealized losses, so far as not previously written off in a
reduction or reorganization of capital.
The determination as to whether or not we have sufficient distributable reserves to fund a dividend must be made by reference to the “relevant financial
statements” of Prothena. The “relevant financial statements” are either the last set of unconsolidated annual audited financial statements or other financial
statements properly prepared in accordance with the Irish Companies Act 2014, which give a “true and fair view” of our unconsolidated financial position and
accord with accepted accounting practice. The relevant financial statements must be filed in the Companies Registration Office (the official public registry for
companies in Ireland).
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 of Part III of this Form 10-K regarding information about securities authorized for issuance under our equity compensation plans.
Performance Graph(1)
The following graph shows a comparison from December 31, 2014, through December 31, 2019, of cumulative total return on assumed investment of
$100.00 in cash in our ordinary shares, the Nasdaq Composite Index and the Nasdaq Biotechnology Index. Such returns are based on historical results and are
not intended to suggest future performance. Points on the graph represent the performance as of end of each business day.
41
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
Among Prothena Corporation plc, the Nasdaq Composite Index, and the Nasdaq Biotechnology Index
Cumulative Total Return as of
Prothena Corporation plc
Nasdaq Composite Index
Nasdaq Biotechnology Index
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
$100
$100
$100
$
$
$
328 $
106 $
111 $
237 $
114 $
87 $
181 $
146 $
106 $
50 $
140 $
96 $
76
189
119
(1) The information under the heading “Performance Graph” shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed
incorporated by reference into any filing of Prothena Corporation plc under the Securities Act of 1933, as amended.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Irish Law Matters
As we are an Irish public limited company, the following matters of Irish law are relevant to the holders of our ordinary shares.
Irish Restrictions on Import and Export of Capital
Except as indicated below, there are no restrictions on non-residents of Ireland dealing in Irish domestic securities, which includes ordinary shares of
Irish companies. Dividends and redemption proceeds also continue to be freely transferable to non-resident holders of such securities. The Irish Financial
Transfers Act, 1992 (the “Transfers Act”) gives power to the Minister for Finance of Ireland to restrict financial transfers between Ireland and other countries
and persons. Financial transfers are broadly defined and include all transfers that would be movements of capital or payments within the meaning of the
treaties governing the member states of the European Union. The acquisition or disposal of interests in shares issued by an Irish incorporated company and
associated payments falls within this definition. In addition, dividends or payments on redemption or purchase of shares and payments on a liquidation of an
Irish incorporated company would fall within this definition. At present, the Transfers Act prohibits financial transfers involving the late Slobodan Milosevic
and associated persons, Burma (Myanmar), Belarus, certain persons indicted by the International Criminal Tribunal for the former Yugoslavia, the late Osama
bin Laden, Al-Qaida, the Taliban of Afghanistan, Democratic Republic of Congo, Democratic People’s Republic of Korea (North Korea), Iran, Iraq,
42
Côte d’Ivoire, Lebanon, Liberia, Zimbabwe, Sudan, Somalia, Republic of Guinea, Afghanistan, Egypt, Eritrea, Libya, Syria, Tunisia, Ukraine, certain known
terrorists and terrorist groups, and countries that harbor certain terrorist groups, without the prior permission of the Central Bank of Ireland.
Irish Taxes Applicable to U.S. Holders
Withholding Tax on Dividends
While we have no current plans to pay dividends, dividends on our ordinary shares would generally be subject to Irish Dividend Withholding Tax
(“DWT”) at the standard rate of income tax (currently 25%), unless an exemption applies.
Dividends on our ordinary shares that are owned by residents of the U.S. and held beneficially through the Depositary Trust Company (“DTC”) will not
be subject to DWT provided that the address of the beneficial owner of the ordinary shares in the records of the broker is in the U.S.
Dividends on our ordinary shares that are owned by residents of the U.S. and held directly (outside of DTC) will not be subject to DWT provided that
the shareholder has completed the appropriate Irish DWT form and this form remains valid. Such shareholders must provide the appropriate Irish DWT form
to our transfer agent at least seven business days before the record date for the first dividend payment to which they are entitled.
If any shareholder who is resident in the U.S. receives a dividend subject to DWT, he or she should generally be able to make an application for a refund
from the Irish Revenue Commissioners on the prescribed form.
While the U.S./Ireland Double Tax Treaty contains provisions regarding withholding, due to the wide scope of the exemptions from DWT available
under Irish domestic law, it would generally be unnecessary for a U.S. resident shareholder to rely on the treaty provisions.
Income Tax on Dividends
A shareholder who is neither resident nor ordinarily resident in Ireland and who is entitled to an exemption from DWT generally has no additional
liability to Irish income tax or to the universal social charge on a dividend from us unless that shareholder holds their ordinary shares in connection with a
trade or business carried on by such shareholder in Ireland through a branch or agency.
A shareholder who is neither resident nor ordinarily resident in Ireland and who is not entitled to an exemption from DWT generally has no additional
liability to Irish income tax or to the universal social charge on a dividend from us. The DWT deducted by us discharges the liability to Irish income tax and
to the universal social charge. This however is not the case where the shareholder holds their ordinary shares in connection with a trade or business carried on
by such shareholder in Ireland through a branch or agency.
Irish Tax on Capital Gains
A shareholder who is neither resident nor ordinarily resident in Ireland and does not hold their shares in connection with a trade or business carried on
by such shareholder in Ireland through a branch or agency should not be within the charge to Irish tax on capital on a disposal of our shares.
Capital Acquisitions Tax
Irish Capital Acquisitions Tax (“CAT”) is comprised principally of gift tax and inheritance tax. CAT could apply to a gift or inheritance of our ordinary
shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because our ordinary shares are regarded as property
situated in Ireland as our share register must be held in Ireland. The person who receives the gift or inheritance has primary liability for CAT.
CAT is currently levied at a rate of 33% above certain tax-free thresholds. The appropriate tax-free threshold is dependent upon (i) the relationship
between the donor and the donee and (ii) the aggregation of the values of previous gifts and inheritances received by the donee from persons within the same
category of relationship for CAT purposes. Gifts and inheritances passing between spouses are exempt from CAT. Our shareholders should consult their own
tax advisers as to whether CAT is creditable or deductible in computing any domestic tax liabilities.
Stamp Duty
Irish stamp duty may be payable in respect of transfers of our ordinary shares (currently at the rate of 1% of the price paid or the market value of the
shares acquired, if greater). Payment of any Irish stamp duty is generally a legal obligation of the transferee.
43
A transfer of our ordinary shares from a seller who holds shares through DTC to a buyer who holds the acquired shares through DTC should not be
subject to Irish stamp duty. A transfer of our ordinary shares (i) by a seller who holds shares outside of DTC to any buyer, or (ii) by a seller who holds the
shares through DTC to a buyer who holds the acquired shares outside of DTC, may be subject to Irish stamp duty. Shareholders wishing to transfer their
shares into or out of DTC may do so without giving rise to Irish stamp duty provided that there is no change in the beneficial ownership of such shares and
the transfer into or out of DTC is not effected in contemplation of a subsequent sale of such shares to a third party. In order to benefit from this exemption
from Irish stamp duty, the seller must confirm to us that there is no change in the ultimate beneficial ownership of the shares as a result of the transfer and
there is no agreement for the sale of the shares by the beneficial owner to a third party being contemplated.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial information has been derived from our audited consolidated financial statements. The information set
forth below is not necessarily indicative of results of future operations and should not be relied upon as an indicator of our future performance. The selected
consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the Consolidated Financial Statements and notes thereto included in Item 8 of this Form 10-K in order to fully understand factors that may
affect the comparability of the information presented below.
The following tables set forth our selected consolidated financial data for the periods indicated below (amounts in thousands except for per share
amounts).
44
Consolidated Statement of Operations Data:
Collaboration revenue
Total revenue
Operating expenses:
Research and development
General and administrative
Restructuring and related impairment charges (credits)
Total operating expenses
Loss from operations
Other income (expense):
Interest income (expense), net
Other income (expense), net
Total other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Basic and diluted net loss per share
Year Ended December 31,
2019
2018
2017
2016
2015
$
814 $
814
955 $
955
27,519 $
1,055 $
27,519
1,055
50,836
35,736
(61)
101,183
42,482
16,145
134,547
48,226
—
119,534
41,056
—
1,607
1,607
58,439
23,105
—
86,511
159,810
182,773
160,590
81,544
(85,697)
(158,855)
(155,254)
(159,535)
(79,937)
8,203
196
8,399
2,692
48
2,740
(142)
(2,207)
(2,349)
556
15
571
196
(170)
26
(77,298)
(156,115)
(157,603)
(158,964)
(79,911)
379
(470)
(4,366)
1,144
701
(77,677) $
(155,645) $
(153,237) $
(160,108) $ (80,612)
(1.95) $
(3.93) $
(4.07) $
(4.66) $
(2.66)
$
$
Shares used to compute basic and diluted net loss per share
39,882
39,559
37,654
34,351
30,326
2019
2018
2017
2016
2015
Year Ended December 31,
Consolidated Balance Sheet Data:
Cash and cash equivalents and restricted cash
$
378,427 $
431,715 $
421,676 $
390,979 $ 370,586
Total assets
Other non-current liabilities
Total liabilities
Shareholders’ equity
419,268
128,633
146,347
272,921
498,796
160,872
175,798
322,998
496,329
459,976
385,236
51,769
89,140
53,498
94,573
2,351
24,567
407,189
365,403
360,669
45
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K, including under Item 1- Business and in this Management’s Discussion and Analysis of Financial Condition and
Results of Operations, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to, among other things, our focus on the discovery and development of novel therapies with the potential to fundamentally change the course
of devastating diseases; our goal of advancing a pipeline of therapeutic candidates for a number of potential indications and novel targets; our ability to
integrate scientific insights around neurological dysfunction and the biology of misfolded proteins; ; the treatment potential and proposed mechanisms of
action of prasinezumab and PRX004; our efforts to advance our preclinical candidates including Tau, and Amyloid Beta, as well as our discovery programs
including TDP-40, vaccines for Alzheimers, and other candidates; the potential to receive future milestones and royalties under the Roche collaboration; the
potential to receive future exercise payments, milestones and royalties under the Celgene collaboration; our plans to collaborate or engage in other business
development activities with other third parties; the expected terms of our patents; our expected research and development (“R&D”) and general and
administrative (“G&A”) expenses in 2020; the sufficiency of our cash and cash equivalents to meet our obligations; our anticipated need for additional
capital; our current intention not to repatriate funds to Ireland; and our estimates of certain future contractual obligations. Forward-looking statements may
include words such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,”
“objective” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or
indicate future events and future trends, or the negative of these terms or other comparable terminology. Forward-looking statements may include words such
as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,”
“predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events
and future trends, or the negative of these terms or other comparable terminology. Forward-looking statements are subject to risks and uncertainties, and
actual events or results may differ materially. Factors that could cause our actual results to differ materially include, but are not limited to, the risks and
uncertainties listed below as well as those discussed under Item 1A - Risk Factors of this Form 10-K.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our ability to obtain additional financing in future offerings and/or obtain funding from future collaborations;
our operating losses;
our ability to successfully complete research and development of our drug candidates;
our ability to develop, manufacture and commercialize products;
our collaborations with third parties, including Roche and Bristol-Myers Squibb (which acquired Celgene);
our ability to protect our patents and other intellectual property;
our ability to hire and retain key employees;
tax treatment of our separation from Elan and subsequent distribution of our ordinary shares;
our ability to maintain financial flexibility and sufficient cash, cash equivalents and investments and other assets capable of being monetized to meet
our liquidity requirements;
potential disruptions in the U.S. and global capital and credit markets;
government regulation of our industry;
the volatility of our ordinary share price;
business disruptions; and
the other risks and uncertainties described in Item 1A - Risk Factors of this Form 10-K.
We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that arises after the date of this
report.
This discussion should be read in conjunction with the Consolidated Financial Statements and Notes presented in Item 8 of this Form 10-K.
Overview
46
Prothena Corporation plc (“Prothena” or the “Company”) is a clinical-stage neuroscience company with expertise in protein misfolding, focused on the
discovery and development of novel therapies with the potential to fundamentally change the course of devastating diseases.
Fueled by our deep scientific expertise built over decades of research, we are advancing a pipeline of therapeutic candidates for a number of indications
and novel targets for which our ability to integrate scientific insights around neurological dysfunction and the biology of misfolded proteins can be leveraged.
Our partnered programs include prasinezumab (PRX002/RG7935), in collaboration with Roche for the potential treatment of Parkinson’s disease and other
related synucleinopathies, and programs that target tau, TDP-43 and an undisclosed target in collaboration with Bristol-Myers Squibb for the potential
treatment of Alzheimer’s disease, amyotrophic lateral sclerosis (ALS), frontotemporal dementia (FTD) or other neurodegenerative diseases. Our proprietary
programs include PRX004 for the potential treatment of ATTR amyloidosis, and programs that target Aβ (Amyloid beta) for the potential treatment of
Alzheimer’s disease.
We were formed on September 26, 2012, under the laws of Ireland and re-registered as an Irish public limited company on October 25, 2012. Our
ordinary shares began trading on The Nasdaq Global Market under the symbol “PRTA” on December 21, 2012, and currently trade on The Nasdaq Global
Select Market.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have
been prepared in accordance with the accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these consolidated financial
statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We
believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Revenue is recognized only when we satisfy an identified performance obligation by transferring a promised good or service to a customer.
Contracts with Multiple Performance Obligations
Our License Agreement with Roche contains multiple performance obligations. We account for the individual performance obligations separately if they
are distinct. Factors considered in the determination of whether the license performance obligations are distinct included, among other things, the research and
development capabilities of Roche and Roche’s sublicense rights, and for the remaining performance obligations the fact that they are not proprietary and can
be and have been provided by other vendors. The transaction price is allocated to the separate performance obligation on a relative standalone selling price
basis.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii)
contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Collaboration Revenue
Upon adoption of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 606 on January 1, 2018, we
recognize research and development (“R&D”) reimbursements as collaboration revenue earned over time as services are performed. Prior to adoption of ASC
606, we recorded research reimbursement as collaboration revenue and development reimbursement as an offset to R&D expense once the license revenue
cap was met.
Milestone Revenue
We generally classify each of its milestones into one of three categories: (i) clinical milestones; (ii) regulatory and development milestones; and (iii)
commercial milestones. Clinical milestones are typically achieved when a product candidate advances into or completes a defined phase of clinical research.
For example, a milestone payment may be due to us upon the initiation of a clinical trial for a new indication. Regulatory and development milestones are
typically achieved upon acceptance of the submission for marketing approval of a product candidate or upon approval to market the product candidate by the
U.S. Food and Drug Administration (the “FDA”) or other regulatory authorities. For example, a milestone payment may be due to us upon submission for
marketing approval of a product candidate by the FDA. Commercial milestones are typically achieved when an approved product reaches certain defined
levels of net royalty sales by the licensee of a specified amount within a specified period.
47
In general, we consider such milestone payments as variable consideration with constraint and therefore we recognize the revenue from such milestone
payments as collaboration revenue at point in time when we can conclude it is probable that a significant revenue reversal will not occur in future periods.
Research and Development
We expense R&D costs as incurred. R&D expenses include, but are not limited to, salary and benefits, share-based compensation, clinical trial
activities, drug development and manufacturing prior to FDA approval and third-party service fees, including clinical research organizations and investigative
sites. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using
data such as patient enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred. The objective of our
accrual policy is to match the recording of the expenses in our Consolidated Financial Statements to the actual services we have received and efforts we have
expended. As such, expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the events specified in the
specific clinical study or trial contract. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern
of costs incurred, and are reflected in our Consolidated Financial Statements as prepaid or accrued research and development. Amounts due may be fixed fee,
fee for service, and may include upfront payments, monthly payments, and payments upon the completion of milestones or receipt of deliverables.
The information contained in Note 2 to the Consolidated Financial Statements under the heading “Recent Accounting Pronouncements” is hereby
incorporated by reference into this Part II, Item 7.
Results of Operations
Comparison of Years Ended December 31, 2019, 2018 and 2017
Revenue
Collaboration revenue
Total revenue
Year Ended December 31,
Percentage Change
2019
2018
2017
2019/2018
2018/2017
(Dollars in thousands)
955 $
814 $
27,519
814 $
955 $
27,519
$
$
(15)%
(15)%
(97)%
(97)%
Total revenue was $0.8 million, $1.0 million, and $27.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Collaboration revenue includes reimbursements under our License Agreement with Roche. For the year ended December 31, 2017, collaboration
revenue recognized also included $26.6 million of a $30.0 million clinical milestone from Roche. See Note 7, “Significant Agreements” to the Consolidated
Financial Statements regarding the Roche License Agreement for more information.
Operating Expenses
Research and development
General and administrative
Restructuring and related impairment charges
(credits)
Total operating expenses
_________________________
nm = not meaningful
Year Ended December 31,
Percentage Change
2019
2018
2017
2019/2018
2018/2017
(Dollars in thousands)
101,183 $
50,836 $
$
35,736
42,482
134,547
48,226
(50)%
(16)%
(25)%
(12)%
(61)
16,145
—
(100)%
nm
$
86,511 $
159,810 $
182,773
(46)%
(13)%
Total operating expenses consist of R&D expenses, general and administrative (“G&A”) expenses and restructuring and related impairment charges.
Our operating expenses were $86.5 million, $159.8 million and $182.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
48
Our R&D expenses primarily consist of personnel costs and related expenses, including share-based compensation and external costs associated with
nonclinical activities and drug development related to our drug programs, including NEOD001, prasinezumab, PRX004 and our discovery programs.
Pursuant to our License Agreement with Roche, we make payments to Roche for our share of the development expenses incurred by Roche the related to the
prasinezumab program, which is included in our R&D expense. Prior to January 1, 2018, we recorded reimbursements from Roche for development as an
offset to R&D expense.
Our G&A expenses primarily consist of professional service expenses and personnel costs and related expenses, including share-based compensation.
Research and Development Expenses
Our R&D expense decreased by $50.3 million, or 50%, for the year ended December 31, 2019, compared to the prior year. The decrease for year ended
December 31, 2019, was primarily due to lower clinical costs (primarily associated with the discontinuation of the NEOD001 program partially offset by
higher costs for the PRX004 program), lower personnel costs (including share-based compensation expense), lower consulting costs and lower manufacturing
costs (primarily associated with the discontinuation of the NEOD001 program and to a lesser extent to declines from the PRX004 program, offset in part by
increase in costs for the tau program).
For the year ended December 31, 2018, our R&D expenses decreased by $33.4 million, or 25%, compared to the prior year. The decrease for the year
ended December 31, 2018, was primarily due to lower manufacturing and clinical costs associated primarily with NEOD001 and PRX003 programs, lower
personnel costs (including share-based compensation expense) and lower consulting expenses, offset in part by higher expense associated with prasinezumab.
Our research activities are aimed at developing new drug products. Our development activities involve the translation of our research into potential new
drugs. R&D expenses include personnel costs and related expenses, external expenses associated with nonclinical and drug development and materials,
equipment and facilities costs that are allocated to clearly related R&D activities.
The following table sets forth the R&D expenses for our major programs (specifically, any program with successful first dosing in a Phase 1 clinical
trial, which were NEOD001, prasinezumab, PRX003 and PRX004) and other R&D expenses for the years ended December 31, 2019, 2018 and 2017, and the
cumulative amounts to date (in thousands):
NEOD001 (1)
Prasinezumab (PRX002/RG7935)(2)
PRX003 (3)
PRX004 (4)
Other R&D (5)
Year Ended December 31,
Cumulative to
2019
2018
2017
Date
$
1,632 $
56,436 $
101,492 $
310,276
13,872
157
16,928
18,247
14,782
336
16,515
13,114
6,412
9,234
13,218
4,191
79,402
59,167
63,608
$
50,836 $
101,183 $
134,547
(1) Cumulative R&D costs to date for NEOD001 include the costs incurred from the date when the program has been separately tracked in preclinical
development. Expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount. In
April 2018, we announced that we were discontinuing development of NEOD001. Since that date we have incurred costs associated with the close out of
our Phase 2b PRONTO, Phase 3 VITAL as well as the open label extension studies of NEOD001.
(2) Cumulative R&D costs to date for prasinezumab and related antibodies include the costs incurred from the date when the program was separately
tracked in nonclinical development. Expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this
cumulative amount. Prasinezumab costs include payments to Roche for our share of the development expenses incurred by Roche related to
prasinezumab programs and, through December 31, 2017, is net of reimbursements from Roche for development and supply services recorded as an
offset to R&D expense. For the years ended December 31, 2019, and 2018, respectively, $0.8 million and $1.0 million of reimbursements from Roche for
development services were recorded as part of collaboration revenue as a result of the adoption of new revenue standard. For the year ended December
31, 2017, $5.1 million was recorded as an offset to R&D expenses including $3.4 million (for a portion of the $30.0 million milestone payment received
from Roche in the year ended December 31, 2017).
(3) Cumulative R&D costs to date for PRX003 include the costs incurred from the date when the program has been separately tracked in nonclinical
development. Expenditures in the early discovery stage are not tracked by program and accordingly
49
have been excluded from this cumulative amount. Based on the Phase 1b multiple ascending dose study results announced in September 2017, we
announced that we will not advance PRX003 into mid-stage clinical development for psoriasis or psoriatic arthritis as previously planned.
(4) Cumulative R&D costs to date for PRX004 include the costs incurred from the date when the program was separately tracked in nonclinical
development. Expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount.
(5) Other R&D is comprised of preclinical development and discovery programs that have not progressed to first patient dosing in a Phase 1 clinical trial.
We expect our R&D expenses to increase in 2020 over the prior year, primarily due to investments in our neuroscience programs.
General and Administrative Expenses
Our G&A expenses decreased by $6.7 million, or 16%, for the year ended December 31, 2019, compared to the prior year. The decrease for the year
ended December 31, 2019, compared to the prior year, was primarily due to lower personnel costs (including share-based compensation expense), receipt of
sublease rental income from Sub-Sublease of Current SSF Facility, lower legal and accounting fees, and lower depreciation and other expenses, which was
offset in part by higher lease costs recorded as operating expenses due to the adoption of ASC 842.
For the year ended December 31, 2018, our G&A expenses decreased by $5.7 million, or 12%, compared to the prior year. The decrease for the year
ended December 31, 2018, was primarily due to lower consulting expenses, lower personnel costs and lower marketing research services as a result of the
discontinuation of NEOD001 program, offset in part by a gain recognized from the assignment of an operating lease in 2017 with no corresponding amount in
2018 and higher legal and accounting fees.
We expect our G&A expenses to increase in 2020 compared to the prior year, primarily related to increases in our director and officer insurance
premiums.
Restructuring and Impairment Related Charges
In May 2018, we commenced a reorganization plan to reduce our operating costs and better align our workforce with the needs of our business
following our decision in April 2018 to discontinue further development of NEOD001. For the year ended December 31, 2019, we recorded a restructuring
credit of approximately $61,000 primarily due to an adjustment in previously recorded employee termination benefits.
We have completed all of our restructuring activities and do not expect to incur additional costs associated with the restructuring. The cumulative
amount incurred to date is $16.1 million as of December 31, 2019. See Note 11, “Restructuring” to the Consolidated Financial Statements for more
information.
Restructuring charges incurred under this plan primarily consisted of employee termination benefit and contract termination costs (including costs
associated with the termination of our Commercial Supply Contract with Rentschler Biopharma SE). Employee termination benefits include severance costs,
employee-related benefits, supplemental one-time termination payments and non-cash share-based compensation expense related to the acceleration of stock
options. All of the cash payments were paid out by the end of the first quarter of 2019.
Impairment charges in 2018 were related to the write off of approximately $0.5 million of long-lived assets surrendered to the landlord as part of the
full and final settlement of our office lease in Dún Laoghaire, Ireland. We entered into a surrender agreement for our office space in Dún Laoghaire, Ireland in
October 2018.
Other Income (Expense)
50
Interest income
Interest expense
Interest income (expense), net
Other income (expense), net
Total Other Income (Expense), net
Year Ended December 31,
Percentage Change
2019
2018
2017
2019/2018
2018/2017
(Dollars in thousands)
6,389 $
8,203 $
$
3,546
28 %
—
(3,697)
(3,688)
(100)%
8,203
2,692
(142)
196
48
(2,207)
$
8,399 $
2,740 $ (2,349)
205 %
308 %
207 %
80 %
— %
(1,996)%
(102)%
(217)%
Interest income (expense), net increased by $5.5 million, or 205%, for the year ended December 31, 2019, compared to the prior year, primarily due to
higher interest income in our cash and money market accounts associated with higher interest rates and no recorded interest expense associated with the build-
to-suit accounting upon the adoption of ASC 842 in 2019. Other income (expense), net for the year ended December 31, 2019, was primarily foreign
exchange gains from transactions with vendors denominated in Euros.
Interest income (expense), net increased by $2.8 million, or 1,996%, for the year ended December 31, 2018, compared to the prior year, primarily due to
$2.8 million higher interest income associated with higher interest rates and higher balances in our cash and money market accounts. Other income, net for
the year ended December 31, 2018, was primarily foreign exchange gains from transactions with vendors denominated in Euros.
Provision for (benefit from) Income Taxes
Year Ended December 31,
2019
2018
2017
Percentage Change
2019/2018 2018/2017
(Dollars in thousands)
Provision for (benefit from) income taxes
$
379 $
(470) $ (4,366)
(181)%
(89)%
The provision for (benefit from) income taxes were $0.4 million, $(0.5) million and $(4.4) million for the years ended December 31, 2019, 2018 and
2017, respectively. The provision for income taxes increased by $0.8 million for the year ended December 31, 2019. The change in provision for (benefit
from) income taxes for the year ended December 31, 2019 as compared to the same period in the prior year was primarily due to an increase in stock option
cancellations for which we wrote off the associated deferred tax assets and an increase in the amount disallowed as tax deduction related to compensation of
certain executives during the year.
The benefit from income taxes decreased by $3.9 million for the year ended December 31, 2018, compared to the prior year, primarily due to lower
excess tax benefits in the year ended December 31, 2018.
The tax provisions for all periods presented primarily reflect U.S. federal taxes associated with recurring profits attributable to intercompany services
that our U.S. subsidiary performs for the Company, and to a lesser extent 2018 and 2017 also include Swiss taxes associated with intercompany services that
our Swiss subsidiary performed for the Company. No tax benefit has been recorded related to tax losses recognized in Ireland and any deferred tax assets for
those losses are offset by a valuation allowance.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “TCJA”) was signed into law. The TCJA was effective in the first quarter of 2018 and,
among other things, lowered our U.S. federal income tax rate from 34% to 21%. We recorded a tax benefit of $0.4 million during the year ended December
31, 2017 related to the remeasurement of its U.S. deferred tax assets to reflect the lower statutory tax rate.
Liquidity and Capital Resources
Overview
51
Working capital
Cash and cash equivalents
Total assets
Total liabilities
Total shareholders’ equity
December 31,
2019
2018
$
360,661 $
375,723
419,268
146,347
272,921
416,464
427,659
498,796
175,798
322,998
Working capital was $360.7 million as of December 31, 2019, a decrease of $55.8 million from working capital of $416.5 million as of December 31,
2018. This decrease in working capital during the year ended December 31, 2019, was primarily due to cash use of $86.5 million for operating expenses
(adjusted to exclude non-cash charges).
As of December 31, 2019, we had $375.7 million in cash and cash equivalents. Although we believe, based on our current business plans, that our
existing cash and cash equivalents will be sufficient to meet our obligations for at least the next twelve months, we anticipate that we will require additional
capital in the future in order to continue the research and development of our drug candidates. As of December 31, 2019, $123.3 million of our outstanding
cash and cash equivalents related to U.S. operations are considered permanently reinvested. We do not intend to repatriate these funds. However, if these
funds were repatriated back to Ireland we would incur a withholding tax from the dividend distribution.
We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to
estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our product candidates. Our future
capital requirements will depend on numerous factors, including, without limitation, the timing of initiation, progress, results and costs of our clinical trials;
the results of our research and nonclinical studies; the costs of clinical manufacturing and of establishing commercial manufacturing arrangements; the costs
of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; the costs and timing of
capital asset purchases; our ability to establish research collaborations, strategic collaborations, licensing or other arrangements; the costs to satisfy our
obligations under current and potential future collaborations; the costs of any in-licensing transactions; and the timing, receipt, and amount of revenues or
royalties, if any, from any approved drug candidates. Pursuant to the License Agreement with Roche, in the U.S., we and Roche share all development and
commercialization costs, as well as profits, all of which will be allocated 70% to Roche and 30% to us, for prasinezumab, as well as any other Licensed
Products and/or indications for which we opt in to co-develop and co-fund. Pursuant to the Collaboration Agreement with Celgene the Company is eligible to
receive payments for commercial and regulatory milestones and royalties on net sales of Collaboration Products. In order to develop and obtain regulatory
approval for our potential products we will need to raise substantial additional funds. We expect to raise any such additional funds through public or private
equity or debt financings, collaborative agreements with corporate partners or other arrangements. We cannot assume that such additional financings will be
available on acceptable terms, if at all, and such financings may only be available on terms dilutive to our shareholders.
Cash Flows for the Year Ended December 31, 2019, 2018 and 2017
The following table summarizes, for the periods indicated, selected items in our Consolidated Statements of Cash Flows (in thousands):
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash Used in Operating Activities
Year Ended December 31,
2019
2018
(52,969) $
(28,276) $
(547)
228
(1,729)
40,044
(53,288) $
10,039 $
$
$
2017
(131,183)
(3,521)
165,401
30,697
Net cash used in operating activities was $53.0 million for the year ended December 31, 2019, primarily due to use of $86.5 million for operating
expense (adjusted to exclude non-cash charges).
Net cash used in operating activities was $28.3 million for the year ended December 31, 2018, primarily due to use of $159.8 million for operating
expense (adjusted to exclude non-cash charges) and a decrease in account payables and accrued liabilities,
52
which were partially offset by $110.2 million in deferred revenue related largely to the upfront payment from the Celgene Collaboration Agreement and
reduction in prepaid and other assets.
Net cash used in operating activities was $131.2 million for the year ended December 31, 2017, primarily due to use of $182.8 million for operating
expenses (adjusted to exclude non-cash charges) and an increase in prepaid expenses and other assets.
Cash Used in Investing Activities
Net cash used in investing activities was $0.5 million, $1.7 million and $3.5 million for the years ended December 31, 2019, 2018 and 2017,
respectively. Net cash used in investing activities for the years ended December 31, 2019, 2018 and 2017 primarily related to purchases of property and
equipment.
Cash Provided by Financing Activities
Net cash provided by financing activities was $0.2 million for the year ended December 31, 2019, which were proceeds from issuances of ordinary
shares upon exercises of stock options.
Net cash provided by financing activities was $40.0 million for the year ended December 31, 2018, primarily from the $39.8 million proceeds from
Celgene’s subscription of ordinary shares at market value and, to a lesser extent, from the $4.7 million proceeds from issuances of ordinary shares upon
exercises of stock options, which were partially offset by cash payments of $4.4 million related to a build-to-suit lease obligation.
Net cash provided by financing activities was $165.4 million for the year ended December 31, 2017, primarily from the $150.3 million net proceeds
from our March 2017 public offering and $17.8 million from issuances of ordinary shares upon exercises of stock options, which were partially offset by cash
payments of $2.8 million related to a build-to-suit lease obligation.
Off-Balance Sheet Arrangements
At December 31, 2019, we were not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect
on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Contractual Obligations
Our contractual obligations as of December 31, 2019, consisted of minimum cash payments under operating leases of $25.1 million, purchase
obligations of $2.8 million (of which $0.3 million is included in accrued current liabilities), and contractual obligations under license agreements of $1.0
million (of which $0.1 million is included in accrued current liabilities). Purchase obligations consist of non-cancelable purchase commitments to suppliers.
Operating leases represent our future minimum rental commitments under our non-cancelable operating leases.
In March 2016, we entered into a noncancelable operating sublease to lease 128,751 square feet of office and laboratory space in South San Francisco,
California. We are obligated to make lease payments totaling approximately $39.2 million over the lease term. Of this obligation, approximately $25.0 million
remains outstanding as of December 31, 2019.
In September 2018, we entered into an agreement to lease an office space in Dublin, Ireland. The initial lease term expired in November 2019. We
renewed the Dublin Lease in August 2019 for one year and expires on November 30, 2020. As of December 31, 2019, we are obligated to make lease
payments over the remaining term of the lease of approximately €22,000, or $25,000 as converted using an exchange rate as of December 31, 2019.
The following is a summary of our contractual obligations as of December 31, 2019 (in thousands):
Operating leases (1)
Purchase obligations
Contractual obligations under
license agreements (2)
Total
$ 25,054 $
2020
6,004 $
2,795
2,795
970
180
2021
2022
2023
2024
6,165 $
6,350 $
6,535 $
Thereafter
—
— $
—
95
—
80
—
80
—
70
70 $
—
465
465
Total
$ 28,819 $
8,979 $
6,260 $
6,430 $
6,615 $
53
(1) See Note 6, “Commitments and Contingencies” to our consolidated financial statements.
(2) Excludes future obligations pursuant to the cost-sharing arrangement under our License Agreement with Roche. Amounts of such obligations, if any, cannot be
determined at this time.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
Our business is primarily conducted in U.S. dollars except for our agreements with contract manufacturers for drug supplies which are denominated in
Euros. We recorded a gain on foreign currency exchange rate differences of approximately $196,000 and $49,000 during the years ended December 31, 2019,
and 2018, respectively compared to a loss of approximately $2.2 million during the year ended December 31, 2017. If we increase our business activities that
require the use of foreign currencies, we may be exposed to losses if the Euro and other such currencies continue to strengthen against the U.S. dollar.
Interest Rate Risk
Our exposure to interest rate risk is limited to our cash equivalents, which consist of accounts maintained in money market funds. We have assessed that
there is no material exposure to interest rate risk given the nature of money market funds. In general, money market funds are not subject to interest rate risk
because the interest paid on such funds fluctuates with the prevailing interest rate. Accordingly, our interest income fluctuates with short-term market
conditions.
In the future, we anticipate that our exposure to interest rate risk will primarily be related to our investment portfolio. We intend to invest any surplus
funds in accordance with a policy approved by our board of directors which will specify the categories, allocations, and ratings of securities we may consider
for investment. The primary objectives of our investment policy are to preserve principal and maintain proper liquidity to meet our operating requirements.
Our investment policy also specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of
investment.
Credit Risk
Our receivable from Roche are amounts due from Roche entities located in Switzerland under the License Agreement with Roche.
Financial instruments that potentially subject us to concentration of credit risk consist of cash and cash equivalents and accounts receivable. We place
our cash and cash equivalents with high credit quality financial institutions and pursuant to our investment policy, we limit the amount of credit exposure with
any one financial institution. Deposits held with banks may exceed the amount of insurance provided on such deposits. We have not experienced any losses
on our deposits of cash and cash equivalents.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Notes to the Consolidated Financial Statements
Page
56
58
59
60
62
63
55
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Prothena Corporation plc:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Prothena Corporation plc and subsidiaries (the Company) as of December 31, 2019 and
2018, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 3, 2020 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the
adoption of Financial Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012
San Francisco, California
March 3, 2020
56
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Prothena Corporation plc:
Opinion on Internal Control Over Financial Reporting
We have audited Prothena Corporation plc and subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, shareholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report
dated March 3, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying “Item 9A, Management's Report on Internal Control over Financial Reporting.” Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ KPMG LLP
San Francisco, California
March 3, 2020
57
Prothena Corporation plc and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2019
2018
Assets
Current assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Non-current assets:
Property and equipment, net
Operating lease right-of-use assets
Deferred tax assets
Restricted cash, non-current
Other non-current assets
Total non-current assets
Total assets
Current liabilities:
Accounts payable
Liabilities and Shareholders’ Equity
Accrued research and development
Income taxes payable, current
Lease liability, current
Build-to-suit lease obligation, current
Restructuring liability
Other current liabilities
Total current liabilities
Non-current liabilities:
Deferred revenue
Deferred rent
Lease liability, non-current
Build-to-suit lease obligation, non-current
Other liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 6)
Shareholders’ equity:
Euro deferred shares, €22 nominal value:
Authorized shares — 10,000 at December 31, 2019, and 2018
Issued and outstanding shares — none at December 31, 2019 and 2018
Ordinary shares, $0.01 par value:
Authorized shares — 100,000,000 at December 31, 2019, and 2018
Issued and outstanding shares — 39,898,561 and 39,863,711 at December 31, 2019, and 2018,
respectively
Additional paid-in capital
Accumulated deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements.
58
$
375,723 $
$
$
2,652
378,375
3,874
23,274
9,956
2,704
1,085
40,893
419,268 $
1,242 $
5,826
5
5,101
—
—
5,540
17,714
110,242
—
17,838
—
553
128,633
146,347
—
399
427,659
3,731
431,390
52,835
—
9,702
4,056
813
67,406
498,796
1,470
5,370
54
—
1,645
461
5,926
14,926
110,242
176
—
49,901
553
160,872
175,798
—
399
944,407
(671,885)
272,921
$
419,268 $
920,594
(597,995)
322,998
498,796
Prothena Corporation plc and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Collaboration revenue
Total revenue
Operating expenses:
Research and development
General and administrative
Restructuring and related impairment charges (credits)
Total operating expenses
Loss from operations
Other income (expense):
Interest income (expense), net
Other income (expense), net
Other income (expense), net
Loss before income taxes
Provision for (benefit from) income taxes
Net loss
Basic and diluted net loss per share
Shares used to compute basic and diluted net loss per share
Year Ended December 31,
2019
2018
2017
$
814
814
955
955
50,836
35,736
(61)
101,183
42,482
16,145
27,519
27,519
134,547
48,226
—
86,511
159,810
182,773
(85,697)
(158,855)
(155,254)
8,203
196
8,399
2,692
48
2,740
(142)
(2,207)
(2,349)
(77,298)
(156,115)
(157,603)
379
(470)
(4,366)
(77,677) $
(155,645) $
(153,237)
(1.95) $
(3.93) $
39,882
39,559
(4.07)
37,654
$
$
See accompanying Notes to Consolidated Financial Statements.
59
Prothena Corporation plc and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization
Share-based compensation
Restructuring share-based compensation
Deferred income taxes
Interest expense under build-to-suit lease obligation
Amortization of right-of-use assets
Gain from early lease retirement
Loss (gain) from disposal of fixed assets
Changes in operating assets and liabilities:
Prepaid and other assets
Deferred revenue
Accounts payable, accruals and other liabilities
Restructuring liability
Operating lease liabilities
Net cash used in operating activities
Investing activities
Purchases of property and equipment
Proceeds from disposal of fixed assets
Net cash used in investing activities
Financing activities
Proceeds from issuance of ordinary shares in public offering, net
Proceeds from subscription of ordinary shares
Proceeds from issuance of ordinary shares upon exercise of stock options
Reduction of build-to-suit lease obligation
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of the year
Cash, cash equivalents and restricted cash, end of the period
Supplemental disclosures of cash flow information
Cash paid (refunds received) for income taxes, net
Supplemental disclosures of non-cash investing and financing activities
Acquisition of property and equipment included in accounts payable and accrued liabilities
Right-of-use assets recorded upon adoption of ASC 842
Reduction of build-to-suit lease obligation upon adoption of ASC 842
Reduction of amounts capitalized under build-to-suit lease upon adoption of ASC 842
Reduction of capitalized interest under build-to-suit lease upon adoption of ASC 842
See accompanying Notes to Consolidated Financial Statements.
60
Year Ended December 31,
2019
2018
2017
$
(77,677) $ (155,645) $ (153,237)
1,564
23,585
—
(1,248)
—
5,256
—
—
807
—
(78)
(461)
(4,717)
3,216
26,062
948
(1,589)
3,696
—
—
584
3,067
26,764
—
(2,200)
3,688
—
(2,096)
(5)
9,377
(7,311)
110,242
(25,628)
461
—
—
147
—
—
(52,969)
(28,276)
(131,183)
(555)
(1,768)
(3,626)
8
39
105
(547)
(1,729)
(3,521)
—
—
228
—
228
(53,288)
—
150,323
39,758
4,686
(4,400)
40,044
10,039
—
17,838
(2,760)
165,401
30,697
431,715
421,676
390,979
$
378,427 $
431,715 $
421,676
$
$
$
$
$
$
1,580 $
(995) $
294
5 $
28,530 $
(51,546) $
(46,760) $
(1,099) $
90 $
— $
— $
— $
— $
175
—
—
—
—
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of financial position that sum to the
total of the same such amounts shown in the Consolidated Statements of Cash Flows.
Cash and cash equivalents
Restricted cash, non-current
Total cash, cash equivalents and restricted cash, end of the period
61
Year Ended December 31,
2019
375,723 $
2018
427,659 $
2,704
4,056
378,427 $
431,715
2017
417,620
4,056
421,676
$
$
Prothena Corporation plc and Subsidiaries
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
Balances at December 31, 2016
34,752,116
348
654,266
(289,211)
365,403
Ordinary Shares
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Shareholders'
Equity
Issuance of ordinary shares in public offering, net of issuance
costs of $4.9 million
Share-based compensation
2,700,000
—
Issuance of ordinary shares upon exercise of stock options
1,030,648
Cumulative adjustment to accumulated deficit upon adoption
—
—
38,482,764
1,174,536
—
—
206,411
—
of ASU 2016-09
Net loss
Balances at December 31, 2017
Issuance of ordinary shares under share subscription
agreement with Celgene
Share-based compensation
Restructuring share-based compensation
Issuance of ordinary shares upon exercise of stock options
Net loss
Balances at December 31, 2018
Cumulative adjustment to accumulated deficit upon adoption
of ASC-842
Share-based compensation
Issuance of ordinary shares upon exercise of stock options
Net loss
Balances at December 31, 2019
27
—
10
—
—
385
12
—
—
2
—
150,296
26,764
17,828
—
—
849,154
39,746
26,062
948
4,684
—
—
—
—
98
(153,237)
(442,350)
—
—
—
—
(155,645)
150,323
26,764
17,838
98
(153,237)
407,189
39,758
26,062
948
4,686
(155,645)
322,998
3,787
23,585
228
(77,677)
272,921
39,863,711 $
399 $
920,594 $
(597,995) $
—
—
34,850
—
—
—
—
—
—
23,585
228
—
39,898,561
399
944,407
3,787
—
—
(77,677)
(671,885)
See accompanying Notes to Consolidated Financial Statements.
62
1. Organization
Description of Business
Notes to the Consolidated Financial Statements
Prothena Corporation plc (“Prothena” or the “Company”) is a clinical-stage neuroscience company with expertise in protein misfolding, focused on the
discovery and development of novel therapies with the potential to fundamentally change the course of devastating diseases.
Fueled by our deep scientific expertise built over decades of research, the Company is advancing a pipeline of therapeutic candidates for a number of
indications and novel targets for which our ability to integrate scientific insights around neurological dysfunction and the biology of misfolded proteins can be
leveraged. Our partnered programs include prasinezumab (PRX002/RG7935), in collaboration with Roche for the potential treatment of Parkinson’s disease
and other related synucleinopathies, and programs that target tau, TDP-43 and an undisclosed target in collaboration with Bristol-Myers Squibb for the
potential treatment of Alzheimer’s disease, amyotrophic lateral sclerosis (ALS), frontotemporal dementia (FTD) or other neurodegenerative diseases. Our
proprietary programs include PRX004 for the potential treatment of ATTR amyloidosis, and programs that target Aβ (Amyloid beta) for the potential
treatment of Alzheimer’s disease.
The Company was formed on September 26, 2012, under the laws of Ireland and re-registered as an Irish public limited company on October 25, 2012.
The Company's ordinary shares began trading on The Nasdaq Global Market under the symbol “PRTA” on December 21, 2012, and currently trade on The
Nasdaq Global Select Market.
Liquidity and Business Risks
As of December 31, 2019, the Company had an accumulated deficit of $671.9 million and cash and cash equivalents of $375.7 million.
Based on the Company's business plans, management believes that the Company’s cash and cash equivalents at December 31, 2019 are sufficient to
meet its obligations for at least the next twelve months. To operate beyond such period, or if the Company elects to increase its spending on research and
development programs significantly above current long-term plans or enters into potential licenses and or other acquisitions of complementary technologies,
products or companies, the Company may need additional capital. The Company expects to continue to finance future cash needs that exceed its cash from
operating activities primarily through its current cash and cash equivalents, its collaborations with Roche and Celgene, and to the extent necessary, through
proceeds from public or private equity or debt financings, loans and other collaborative agreements with corporate partners or other arrangements.
The Company is subject to a number of risks, including but not limited to: the uncertainty of the Company’s research and development (“R&D”) efforts
resulting in future successful commercial products; obtaining regulatory approval for its product candidates; its ability to successfully commercialize its
product candidates, if approved; significant competition from larger organizations; reliance on the proprietary technology of others; dependence on key
personnel; uncertain patent protection; dependence on corporate partners and collaborators; and possible restrictions on reimbursement from governmental
agencies and healthcare organizations, as well as other changes in the healthcare industry.
2. Summary of Significant Accounting Policies
Basis of Preparation and Presentation of Financial Information
These Consolidated Financial Statements have been prepared in accordance with the accounting principles generally accepted in the U.S. (“GAAP”)
and with the instructions for Form 10-K and Regulations S-X statements. The Consolidated Financial Statements of Prothena Corporation plc are presented in
U.S. dollars, which is the functional currency of the Company. These Consolidated Financial Statements include the accounts of the Company and its
consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the Consolidated Financial
Statements have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an ongoing basis, management evaluates
its estimates, including critical accounting policies or estimates related to revenue recognition, share-based compensation, research and development expenses
and leases. The Company bases its estimates on
63
historical experience and on various other market specific and other relevant assumptions that management believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Because of the uncertainties inherent in such estimates, actual results may differ materially from these estimates.
Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments held at financial institutions, such as commercial paper, money market funds, and other money
market securities with original maturities of three months or less at date of purchase to be cash equivalents.
Restricted Cash
Cash accounts that are restricted to withdrawal or usage are presented as restricted cash. As of December 31, 2019, the Company had $2.7 million of
restricted cash held by a bank in a certificate of deposit as collateral to a standby letter of credit under an operating lease. This amount is classified as a non-
current asset in the Company's Consolidated Balance Sheet. See Note 6, "Commitments and Contingencies" for additional information regarding our
operating lease.
Property and Equipment, net
Property and equipment, net are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred, and improvements and
betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and
any resulting gain or loss is reflected in operations in the period realized. Depreciation and amortization periods for the Company’s property, plant and
equipment are as follows:
Machinery and equipment
Leasehold improvements
Purchased computer software
Impairment of Long-lived Assets
Useful Life
4-7 years
Shorter of expected useful life or lease term
4 years
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable or the estimated useful life is no longer appropriate. If circumstances require that a long-lived asset be tested for possible impairment, the
Company compares the undiscounted cash flows expected to be generated by the asset to the carrying amount of the asset. If the carrying amount of the long-
lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.
The Company determines fair value using the income approach based on the present value of expected future cash flows. The Company’s cash flow
assumptions consider historical and forecasted revenue and operating costs and other relevant factors.
On October 30, 2018, the Company entered into a surrender agreement for its office space in Dún Laoghaire, Ireland. The Company paid €270,000, or
$309,000 as converted using an exchange rate as of November 28, 2018, as full and final settlement of outstanding contractual obligations of $1.6 million in
exchange for surrender and assignment to the landlord including surrender of approximately $0.5 million of long-lived assets, which was recorded as an asset
impairment in the year ended December 31, 2018. There were no impairment charges recorded during the years ended December 31, 2019, and 2017.
Leases
At the inception, the Company determines if an arrangement is a lease. If so, the Company evaluates the lease agreement to determine whether the lease
is an operating or capital using the criteria in ASC 842. The Company does not recognize right-of-use assets and lease liabilities that arise from short-term
leases for any class of underlying assets.
When lease agreements also require the Company to make additional payments for taxes, insurance and other operating expenses incurred during the
lease period, such payments are expensed as incurred. See Note 6, “Commitments and Contingencies,” which provides additional details on the Company's
current lease arrangements.
Operating Leases
Operating leases are included in the operating lease right-of-use assets, lease liability, current and lease liability, non-current in the Company's
Consolidated Balance Sheets. Operating lease right-of-use assets represent the Company’s right to use
64
an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease
right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term.
In determining the present value of lease payments, the Company uses its incremental borrowing rate based on information available at the lease
commencement date. The operating lease right-of-use assets also include any lease prepayments made and exclude lease incentives including rent abatements
and/or concessions and rent holidays. Tenant improvements made by the Company as a lessee in which they are deemed to be owned by the lessor is viewed
as lease prepayments by the Company and included in the operating lease right-of-use assets. Lease expense is recognized on a straight-line basis over the
expected lease term. For lease agreements entered after the adoption of ASC 842 that include lease and non-lease components, such components are generally
accounted separately.
Revenue Recognition
Revenue is recognized only when the Company satisfies an identified performance obligation by transferring a promised good or service to a customer.
Contracts with Multiple Performance Obligations
The Company’s License Agreement with Roche contains multiple performance obligations. The Company accounts for the individual performance
obligations separately if they are distinct. Factors considered in the determination of whether the license performance obligations are distinct included, among
other things, the research and development capabilities of Roche and Roche’s sublicense rights, and for the remaining performance obligations the fact that
they are not proprietary and can be and have been provided by other vendors. The transaction price is allocated to the separate performance obligation on a
relative standalone selling price basis.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less
and (ii) contracts for which the Company recognize revenue at the amount to which the Company has the right to invoice for services performed.
Collaboration Revenue
Upon adoption of ASC 606, the Company recognizes research and development reimbursements as collaboration revenue earned over time as services
are performed. Prior to adoption of ASC 606, the Company recorded research reimbursement as collaboration revenue and development reimbursement as an
offset to R&D expense once the license revenue cap was met.
Milestone Revenue
The Company generally classifies each of its milestones into one of three categories: (i) clinical milestones; (ii) regulatory and development milestones;
and (iii) commercial milestones. Clinical milestones are typically achieved when a product candidate advances into or completes a defined phase of clinical
research. For example, a milestone payment may be due to the Company upon the initiation of a clinical trial for a new indication. Regulatory and
development milestones are typically achieved upon acceptance of the submission for marketing approval of a product candidate or upon approval to market
the product candidate by the FDA or other regulatory authorities. For example, a milestone payment may be due to the Company upon submission for
marketing approval of a product candidate by the FDA. Commercial milestones are typically achieved when an approved product reaches certain defined
levels of net royalty sales by the licensee of a specified amount within a specified period.
In general, the Company considers such milestone payments as variable consideration with constraint and therefore recognizes the revenue from such
milestone payments as collaboration revenue at point in time when the Company can conclude it is probable that a significant revenue reversal will not occur
in future periods.
Profit Share Revenue
For agreements, with profit sharing arrangements, the Company will record its share of the pre-tax commercial profit as collaboration revenue when the
profit sharing can be reasonably estimated and that a significant revenue reversal will not occur in future periods.
65
Royalty Revenue
The Company will recognize revenue from royalties based on licensees' sales of the Company's products or products using the Company's technologies.
Royalties are recognized as earned in accordance with the contract terms when royalties from licensees can be reasonably estimated and that a significant
revenue reversal will not occur in future periods. There were no royalties earned during the years ended December 31, 2019, 2018 and 2017.
Taxes, Shipping and Handling
The Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction and collected by the Company from a customer (e.g., sales, use, value added, some excise taxes). In
addition, the Company accounts for shipping and handling as activities that are performed after its customers obtain control of the goods as activities to fulfill
our performance obligation to transfer the goods.
Incremental Costs to Obtain or Fulfill a Contract
For costs to obtain a contract, the Company will capitalize such amounts if they are incremental and expected to be recovered. Sales commissions
directly related to obtaining new contracts will be capitalized unless the amortization period is one year or less, at which these costs will be recorded within
selling and general administrative expenses. As of December 31, 2019, the Company does not have such costs capitalized in its Consolidated Balance Sheet.
Research and Development
Research and development costs are expensed as incurred and include, but are not limited to, salary and benefits, share-based compensation, clinical
trial activities, drug development and manufacturing prior to FDA and other regulatory approval and third-party service fees, including clinical research
organizations and investigative sites. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to
completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their
actual costs incurred. The objective of the Company’s accrual policy is to match the recording of the expenses in its Consolidated Financial Statements to the
actual services received and efforts expended. As such, expense accruals related to clinical trials are recognized based on its estimate of the degree of
completion of the events specified in the specific clinical study or trial contract. Payments for these activities are based on the terms of the individual
arrangements, which may differ from the pattern of costs incurred, and are reflected in the Consolidated Financial Statements as prepaid or accrued research
and development. Amounts due may be fixed fee, fee for service, and may include upfront payments, monthly payments, and payments upon the completion
of milestones or receipt of deliverables.
Acquired In-Process Research and Development Expense
The Company has acquired and may continue to acquire the rights to develop and commercialize new drug candidates from third parties. The upfront
payments to acquire license, product or rights, as well as any future milestone payments, are immediately expensed as research and development provided
that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use.
Restructuring Charges
The Company recognizes restructuring charges related to its reorganization plan. In connection with these activities, the Company records restructuring
charges for contractual employee termination benefits, one-time employee termination benefits and contract termination costs. The Company accounts for its
restructuring charges as a liability when the obligations are incurred and records such charges at fair value.
The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of
costs associated with the planned reorganization plan. To the extent the Company’s actual results differ from its estimates and assumptions, the Company may
be required to revise the estimates of future liabilities, requiring the recognition of additional restructuring charges or the reduction of liabilities already
recognized. Such changes to previously estimated amounts may be material to the Consolidated Financial Statements. Changes in the estimates of the
restructuring charges are recorded in the period the change is determined.
At the end of each reporting period, the Company evaluates the remaining accrued balances to ensure that no excess accruals are retained and the
utilization of the provisions are for their intended purpose in accordance with developed restructuring plans. See Note 11, “Restructuring” for additional
information regarding restructuring charges.
66
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. The Company's accruals for losses are based on management's judgment of all possible
outcomes and their financial effect, the probability of losses, and where applicable, the consideration of opinions of the Company's legal counsel. The
Company’s accounting policy for legal costs related to loss contingencies is to accrue for the probable fees that can be reasonably estimated and expensed as
incurred. Additionally, the Company records insurance recovery receivable from third party insurers when recovery has been determined to be probable.
Share-based Compensation
To determine the fair value of share-based payment awards, the Company uses the Black-Scholes option-pricing model. The determination of fair value
using the Black-Scholes option-pricing model is affected by the Company’s share price as well as assumptions regarding a number of complex and subjective
variables. Judgment is required in determining the proper assumptions used in these models. The assumptions used include the risk-free interest rate, expected
term, expected volatility and expected dividend yield. Share-based awards, including stock options, are measured at fair value as of the grant date and share-
based compensation expense is recognized on a straight-line basis over the requisite service period for each award. Further, share-based compensation
expense recognized in the Consolidated Statements of Operations is based on awards expected to vest and therefore the amount of expense has been reduced
for estimated forfeitures. Forfeitures are estimated based on historical experience. If actual forfeitures differ from estimates at the time of grant they will be
revised in subsequent periods. The Company uses its historical volatility for the Company's stock to estimate expected volatility. Through December 31,
2017, the expected volatility was based on a combination of historical volatility for the Company's stock and the historical volatilities of several of the
Company's publicly traded comparable companies. If factors change and different assumptions are employed in determining the fair value of share-based
awards, the share-based compensation expense recorded in future periods may differ significantly from what was recorded in the current period (see Note 9,
"Share-Based Compensation" for further information).
The Company records any excess tax benefits or tax shortfalls from its equity awards in its Consolidated Statements of Operations in the reporting
periods in which stock options are exercised.
Income Taxes
The Company files its own U.S. and foreign income tax returns and income taxes are presented in the Consolidated Financial Statements using the asset
and liability method prescribed by the accounting guidance for income taxes. Deferred tax assets (“DTAs”) and liabilities are determined based on the
difference between the financial statement and tax basis of assets and liabilities using the enacted tax rates projected to be in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are recorded to the extent the Company believes that these assets will more likely than not be
realized. In making such determination, all available positive and negative evidence is considered, including scheduled reversals of deferred tax liabilities,
recent cumulative earnings/losses by taxing jurisdiction, projected future taxable income, tax planning strategies and recent financial operations. Actual
operating results in future years could differ from our current assumptions, judgments and estimates.
Our significant tax jurisdictions are Ireland and the United States. Estimates are required in determining the Company’s provision for income taxes.
Some of these estimates are based on management’s interpretations of jurisdiction-specific tax laws or regulations. Various internal and external factors may
have favorable or unfavorable effects on the future effective income tax rate of the business. These factors include, but are not limited to, changes in tax laws,
regulations and/or rates, changing interpretations of existing tax laws or regulations, changes in estimates of prior years’ items, past and future levels of R&D
spending, the impact of accounting for share-based compensation, and changes in overall levels of income before taxes.
The Company did not recognize certain tax benefits from uncertain tax positions within the provision for income taxes. The tax benefit from an
uncertain tax position is recognized only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that
has a greater than 50% likelihood of being realized upon settlement. Changes in recognition or measurement are reflected in the period in which the change in
judgment occurs. Interest and penalties related to unrecognized tax benefits are accounted for in income tax expense.
Net Income (Loss) per Ordinary Share
Basic net income (loss) per ordinary share is computed by dividing net income (loss) attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the period. Diluted net income per ordinary share is computed by giving effect to all dilutive potential ordinary
shares including options. However, potentially issuable ordinary shares are not used in computing diluted net loss per ordinary share as their effect would be
anti-dilutive due to the loss recorded. In this case, diluted net loss per share is equal to basic net loss per share.
67
Comprehensive Loss
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). The Company has no components of other
comprehensive income (loss). Therefore net income (loss) equals comprehensive income (loss) for all periods presented and, accordingly, the Consolidated
Statements of Comprehensive Income (Loss) is not presented in a separate statement.
Segment and Concentration of Risks
The Company operates in one segment. The Company’s chief operating decision maker (the “CODM”), its Chief Executive Officer, manages the
Company’s operations on a consolidated basis for purposes of allocating resources. When evaluating the Company’s financial performance, the CODM
reviews all financial information on a consolidated basis.
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and accounts receivable.
The Company places its cash equivalents with high credit quality financial institutions and by policy, limits the amount of credit exposure with any one
financial institution. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses
on its deposits of cash and cash equivalents and its credit risk exposure is up to the extent recorded on the Company's Consolidated Balance Sheet.
The receivable from Roche recorded in prepaid expenses and other current assets in the Consolidated Balance Sheet are amounts due from a Roche
entity located in Switzerland under the License Agreement that became effective January 22, 2014. Revenue recorded in the Consolidated Statements of
Operations consists of reimbursement from Roche for research and development services. The Company's credit risk exposure is up to the extent recorded on
the Company's Consolidated Balance Sheet.
As of December 31, 2019, $3.9 million of the Company’s property and equipment, net were held in the U.S. and none were in Ireland. As of
December 31, 2018, $52.8 million of the Company's property and equipment, net were held in the U.S. and none were in Ireland. The December 31, 2018,
balance included building recorded under build to suit accounting that was derecognized upon the adoption of ASC 842 in 2019.
The Company does not own or operate facilities for the manufacture, packaging, labeling, storage, testing or distribution of nonclinical or clinical
supplies of any of its drug candidates. The Company instead contracts with and relies on third-parties to manufacture, package, label, store, test and distribute
all preclinical development and clinical supplies of our drug candidates, and it plans to continue to do so for the foreseeable future. The Company also relies
on third-party consultants to assist in managing these third-parties and assist with its manufacturing strategy.
Recently Adopted Accounting Pronouncement
In August 2018, the SEC issued Final Rule 33-10532, which updates and simplifies certain disclosure requirements. The rule was effective for filings
on or after November 5, 2018. However, the SEC released guidance advising it will not object to a registrant adopting the requirement to include changes in
stockholders' equity in the Form 10-Q for the first quarter beginning after the effective date of the rule (e.g. for a calendar year-end company, the first quarter
of fiscal year 2019). The following amendments from the Final Rule 33-10532 are applicable to the Company: (1) an analysis of changes in stockholders'
equity will now be required for the current and comparative year-to-date interim periods; and (2) for market price information, a registrant will disclose the
ticker symbol of its common equity instead of disclosure of the high and low trading prices of an entity's common stock for specified quarterly periods. The
Company's disclosure reflects the applicable amendments.
In February 2016, the FASB issued Accounting Standards Update 2016-02 Topic 842, Leases ("ASC 842"), which requires lessees to recognize assets
and liabilities for leases with lease terms of more than 12 months and disclose key information about leasing arrangements. ASC 842 was subsequently
amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases;
ASU 2018-11, Targeted Improvements; ASU 2018-20, Narrow-Scope Improvements for Lessors; and ASU 2019-01, Codification Improvements. Under the
new standard, a lessee will recognize liabilities on the balance sheet, initially measured at the present value of the lease payments, and right-of-use (ROU)
assets representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less at the commencement date, a lessee is
permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The new standard also eliminates the previous build-to-suit
lease accounting guidance, which results in the derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the
construction period. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its
classification as a finance or operating lease. The new guidance requires both types of leases to be recognized on the balance sheet. The Company adopted the
new standard on January 1, 2019, using the modified retrospective transition method wherein the effective date is its date of initial application. Consequently,
prior period amounts are not adjusted and continue to be reported in accordance with the
68
Company’s historical accounting under ASC 840. The new standard provides a number of optional practical expedients in transition. The Company elected
the "package of practical expedients", which permitted the Company not to reassess under the new standard its prior conclusions about lease identification,
lease classification and initial direct cost. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter
not being applicable to the Company. For the Company's build-to-suit lease, Prothena has historically excluded executory costs, when part of the fixed
payments in a lease contract, as part of the minimum rental payment disclosed in its financial statements footnote for the Current SSF Facility lease under
ASC 840. Executory cost of a lease includes costs of taxes, insurance and maintenance (including common area maintenance). With the selection of practical
expedient, the Company believes it is appropriate to continue applying the same accounting policy with its transition to ASC 842 (i.e. exclude the executory
cost in determining the minimum rental payment).
As of January 1, 2019, the Company recorded $3.8 million change to the opening balance of the accumulated deficit for the cumulative effect of
applying ASC 842, which included a reduction of $1.0 million in deferred tax assets. See Note 6, “Commitments and Contingencies,” which provides
additional details on the Company's current lease arrangements. The impact of the adoption of ASC 842 on the accompanying Consolidated Balance Sheet as
of January 1, 2019 was as follows (in thousands):
Property and equipment, net
Operating lease right-of-use assets
Deferred tax assets
Lease liability, current
Other current liabilities (1)
Build-to-suit lease obligation, current
Lease liability, non-current
Build-to-suit lease obligation, non-current
Deferred rent, non-current
Accumulated deficit
December 31,
2018
Adjustments due
to the Adoption of
Topic 842
January 1,
2019
$
$
$
$
$
$
$
$
$
$
52,835 $
— $
9,702 $
— $
5,926 $
1,645 $
— $
49,901 $
176 $
(597,995) $
(47,859) $
28,530 $
(994) $
4,717 $
(44) $
(1,645) $
22,939 $
(49,901) $
(176) $
4,976
28,530
8,708
4,717
5,882
—
22,939
—
—
3,787 $
(594,208)
__________________
(1) Amount as of December 31, 2018, included deferred rent, current.
The adjustments due to the adoption of ASC 842 relate to (1) the change in classification of build-to-suit lease under ASC 840 for the Company's
current facility in South San Francisco, California to an operating lease under ASC 842 and as a result the Company derecognized its build-to-suit asset of
$47.9 million under property and equipment, net as of December 31, 2018 and related liability of $51.5 million, and (2) recognized an operating lease right-
of-use asset of $28.5 million and operating lease liability of $27.7 million on the Consolidated Balance Sheet for the Company's operating lease. The right-of-
use asset includes tenant improvements added by the Company wherein the lessor was deemed the accounting owner, net of tenant improvement allowance
paid by the lessor. The Company has no debt and has not had an established incremental borrowing rate. For the purpose of estimating the incremental
borrowing rate in the adoption of ASC 842, the Company inquired with banks that had business relationship with the Company to determine the Company's
collateralized incremental borrowing rate. The discount rate used to determine the lease liability was 4.25%. There is no change in the accounting of the Sub-
Sublease of the Current SSF Facility upon adoption of ASC 842. Further, the Company's operating lease at Dublin is not included in the lease liability and
right-of-use asset recorded due to its nominal amount.
For the purpose of the adoption of ASC 842, the Company also performed an evaluation of its other contracts with customers and suppliers in
accordance with ASC 842 and determined that, except for the office leases described in Note 6, “Commitments and Contingencies” (a nominal operating
lease for medical monitoring equipment and a nominal operating lease for office equipment), none of the Company’s contracts contain a lease.
Recent Accounting Pronouncements
In November 2018, the FASB issued Accounting Standards Update 2018-18 ("ASU 2018-18"), Collaborative Arrangements: Clarifying the Interaction
between Topic 808 and Topic 606, which clarifies when transactions between collaborative arrangement participants are in the scope of ASC 606 and
provides some guidance on presentation of transactions not in the scope of ASC 606. This ASU is effective for public business entities for annual and interim
periods in fiscal years beginning after December 15, 2019.
69
Early adoption is permitted as long as entities have already adopted the guidance in ASC 606. The Company does not expect the adoption of ASU 2018-18 to
have an impact on its consolidated financial statements. The Company will continue to evaluate the impact of ASU 2018-18 on its consolidated financial
statements in connection with Roche License Agreement and Celgene Collaboration Agreement.
On December 18, 2019 the FASB issued Accounting Standards Update 2019-12 ("ASU 2019-12"), Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes, which simplifies the accounting for income taxes as part of the Board’s overall initiative to reduce complexity in accounting
standards. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes , and simplification in several other areas
such as accounting for a franchise tax (or similar tax) that is partially based on income. While not required to be adopted until 2021 for most calendar year
public business entities (and 2022 for other entities), early adoption is permitted for any financial statements. The Company does not expect the adoption of
ASU 2019-12 to have a significant impact on its consolidated financial statements. The Company will continue to evaluate the impact of ASU 2019-12 on its
consolidated financial statements.
3. Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents. Fair value is an exit price,
representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such,
fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring
fair value:
Level 1 — Observable inputs such as quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Include other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the
market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future
amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Level 3 — Unobservable inputs that are supported by little or no market activities, which would require the Company to develop its own assumptions.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The carrying amounts of certain financial instruments, such as cash equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate fair value due to their relatively short maturities, and low market interest rates, if applicable.
Based on the fair value hierarchy, the Company classifies its cash equivalents within Level 1. This is because the Company values its cash equivalents
using quoted market prices. The Company’s Level 1 securities consisted of $338.2 million and $306.2 million in money market funds included in cash and
cash equivalents at December 31, 2019, and 2018, respectively.
4. Composition of Certain Balance Sheet Items
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Accounts receivable
Prepaid expenses and other
Prepaid expenses and other current assets
Property and Equipment, net
Property and equipment, net consisted of the following (in thousands):
70
December 31,
2019
2018
$
$
68 $
2,584
2,652 $
2
3,729
3,731
Machinery and equipment
Leasehold improvements
Purchased computer software
Build-to-suit property (1)
Less: accumulated depreciation and amortization
Property and equipment, net
______________________
December 31,
2019
2018
9,312 $
1,261
1,308
—
11,881
(8,007)
3,874 $
9,693
98
1,303
52,245
63,339
(10,504)
52,835
$
$
(1) The Company derecognized its build-to-suit asset for its current facility in South San Francisco, California on January 1, 2019 upon adoption of ASC
842 due to a change in classification of its build-to-suit lease under ASC 840 to an operating lease under ASC 842.
Depreciation expense was $1.6 million, $3.2 million, and $3.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
Payroll and related expenses
Professional services
Deferred rent
Other
Other current liabilities
5. Net Loss Per Ordinary Share
December 31,
2019
2018
4,818 $
400
—
322
5,540 $
4,507
1,097
44
278
5,926
$
$
Basic net income (loss) per ordinary share is calculated by dividing net income (loss) by the weighted-average number of ordinary shares outstanding
during the period. Shares used in diluted net income per ordinary share would include the dilutive effect of ordinary shares potentially issuable upon the
exercise of stock options outstanding. However, potentially issuable ordinary shares are not used in computing diluted net loss per ordinary share as their
effect would be anti-dilutive due to the loss recorded during the years ended December 31, 2019, 2018 and 2017, and therefore diluted net loss per share is
equal to basic net loss per share.
Net loss per ordinary share was determined as follows (in thousands, except per share amounts):
Numerator:
Net loss
Denominator:
Weighted-average ordinary shares outstanding
Net loss per share:
Basic and diluted net loss per share
Year Ended December 31,
2019
2018
2017
$
(77,677) $
(155,645) $
(153,237)
39,882
39,559
37,654
$
(1.95) $
(3.93) $
(4.07)
The equivalent ordinary shares not included in diluted net loss per share because their effect would be anti-dilutive are as follows (in thousands):
71
Stock options to purchase ordinary shares
6. Commitments and Contingencies
Lease Commitments
Year Ended December 31,
2019
2018
2017
7,008
6,727
4,407
The Company adopted ASC 842 effective January 1, 2019. Prior period amounts have not been adjusted and continued to be reported in accordance
with the Company’s historical accounting under ASC 840. For lease arrangements entered prior to the adoption of ASC 842, right-of-use asset and lease
liability are determined based on the present value of minimum lease payments over the remaining lease term and the Company’s incremental borrowing rate
based on information available as of January 1, 2019. The right-of-use asset also includes any lease prepayments made and excludes unamortized lease
incentives including rent abatements and/or concessions and rent holidays. Tenant improvements made by the Company as a lessee in which they are deemed
to be owned by the lessor is viewed as lease prepayments by the Company and are included in the right-of-use asset. Lease expense is recognized on a
straight-line basis over the expected lease term. Total operating lease cost was $6.4 million for the year ended December 31, 2019. Total cash paid against the
operating lease liability was $5.8 million for the year ended December 31, 2019. See Note 2, “Summary of Significant Accounting Policies,” which provides
additional details on the Company's adoption of ASC 842.
Prior to the adoption of ASC 842, the Company recognized rent expense for its operating leases on a straight-line basis over the noncancelable lease
term and recorded the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Where leases contained
escalation clauses, rent abatements and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applied them in
the determination of straight-line rent expense over the lease term. The Company recorded the tenant improvement allowance for operating leases as deferred
rent and associated expenditures as leasehold improvements that were being amortized over the shorter of their estimated useful life or the term of the lease.
Rent expense was $0.7 million and $0.9 million for the years ended December 31, 2018 and 2017, respectively.
As of December 31, 2019, the Company performed an evaluation of its other contracts with customers and suppliers in accordance with ASC 842 and
have determined that, except for the leases described below, a nominal operating lease for medical monitoring equipment and a nominal operating lease for
office equipment, none of the Company’s contracts contain a lease.
Current SSF Facility
In March 2016, the Company entered into a noncancelable operating sublease (the “Lease”) to lease 128,751 square feet of office and laboratory space
in South San Francisco, California, U.S. (the “Current SSF Facility”). Subsequently, in April 2016, the Company took possession of the Current SSF Facility.
The Lease includes a free rent period and escalating rent payments and has a remaining lease term of 4.0 years that expires on December 31, 2023, unless
terminated earlier. The Company's obligation to pay rent commenced on August 1, 2016. The Company is obligated to make lease payments totaling
approximately $39.2 million over the lease term. The Lease further provides that the Company is obligated to pay to the sublandlord and master landlord
certain costs, including taxes and operating expenses. Prior to the adoption of ASC 842 on January 1, 2019, this Lease was considered a build-to-suit lease.
In connection with this Lease, the Company received a tenant improvement allowance of $14.2 million from the sublandlord and the master landlord,
for the costs associated with the design, development and construction of tenant improvements for the Current SSF Facility. The Company is obligated to
fund all costs incurred in excess of the tenant improvement allowance. The scope of the tenant improvements did not qualify as “normal tenant
improvements” under ASC 840. Accordingly, for accounting purposes, the Company was the deemed owner of the building during the construction period
under ASC 840 and the Company capitalized $36.5 million within property and equipment, net, including $1.2 million for capitalized interest and recognized
a corresponding build-to-suit obligation in other non-current liabilities in the Consolidated Balance Sheets as of December 31, 2018. The Company has also
recognized structural and non-structural tenant improvements totaling $15.8 million as of December 31, 2018 as an addition to the build-to-suit lease property
for amounts incurred by the Company during the construction period, of which $14.2 million were reimbursed by the landlord during the year ended
December 31, 2016 through the tenant improvement allowance. Under ASC 840, the Company increased its financing obligation for the additional building
costs reimbursements received from the landlord during the construction period. For the years ended December 31, 2018 and 2017, the Company recorded
rent expense associated with the ground lease of $0.5 million and $0.5 million, respectively, in the Consolidated Statements of Operations. Total interest
expense, which represents the cost of financing obligation under the Lease agreement, was $3.7
72
million and $3.7 million for the years ended December 31, 2018 and December 31, 2017, respectively, which was recognized in its Consolidated Statements
of Operations. No corresponding amounts were recorded for the year ended December 31, 2019 due to the adoption of ASC 842.
During the fourth quarter of 2016, construction on the build-to-suit lease property was substantially completed and the build-to-suit lease property was
placed in service. As such, the Company evaluated the Lease under ASC 840 to determine whether it had met the requirements for sale-leaseback accounting,
including evaluating whether all risks of ownership have been transferred back to the landlord, as evidenced by a lack of continuing involvement in the build-
to-suit lease property. The Company determined that the construction project did not qualify for sale-leaseback accounting and was accounted for under ASC
840 as a financing lease, given the Company’s expected continuing involvement after the conclusion of the construction period. Prior to the adoption of the
new lease guidance, ASC 842, the build-to-suit lease property was recorded on the Company’s Consolidated Balance Sheet as of December 31, 2018 at its
historical cost of $52.3 million and the total amount of the build-to-suit lease obligation as of December 31, 2018 was $51.5 million, of which $1.6 million
and $49.9 million were classified as current and non-current liability, respectively.
The Lease is considered to be an operating lease under ASC 842 as it does not meet the criteria of a capital lease under ASC 840 and the construction
was completed before the adoption of ASC 842. The Company derecognized the build-to-suit property and build-to-suit lease obligations upon adoption of
ASC 842 and as of December 31, 2019, the operating lease right-of-use asset and lease liability was $23.3 million and $22.9 million, respectively. The
discount rate used to determine the lease liability was 4.25%.
The Company obtained a standby letter of credit in April 2016 in the initial amount of $4.1 million, which may be drawn down by the sublandlord in
the event the Company fails to fully and faithfully perform all of its obligations under the Lease and to compensate the sublandlord for all losses and damages
the sublandlord may suffer as a result of the occurrence of any default on the part of Company not cured within the applicable cure period. This standby letter
of credit is collateralized by a certificate of deposit of the same amount which is classified as restricted cash. The Company was entitled to a $1.4 million
reduction in the face amount of the standby letter of credit on the third anniversary of the contractual rent commencement, which was received during the year
ended December 31, 2019, and another $1.4 million on the fifth anniversary of the contractual rent commencement. As a condition to the reduction of the
standby letter of credit amount, no uncured default by the Company shall then exist under the Lease. As of December 31, 2019, none of the standby letter of
credit amount of $2.7 million has been used.
Sub-Sublease of Current SSF Facility
On July 18, 2018, the Company entered into a Sub-Sublease Agreement (the “Sub-Sublease”) with Assembly Biosciences, Inc. (the “Sub-Subtenant”)
for Sub-Subtenant to sub-sublease from the Company approximately 46,641 square feet of office and laboratory space of the Company’s Current SSF Facility.
Prior to the adoption of ASC 842 on January 1, 2019, this Sub-Sublease was considered an operating lease. There is no change in the accounting of the Sub-
Sublease of the Current SSF Facility upon adoption of ASC 842. For the years ended December 31, 2019 and 2018, the Company recorded $2.9 million and
$0.8 million, respectively, for sub-lease rental income as an offset to its operating expenses.
The Sub-Sublease provides for initial annual base rent for the complete Sub-Subleased Premises of approximately $2.7 million, with increases of
approximately 3.5% in annual base rent on September 1, 2019 and each anniversary thereof. The Sub-Sublease rental income excludes reimbursements for
executory costs received from the Sub-Subtenant. The Sub-Sublease became effective on September 24, 2018 and has a term of 5.2 years which terminates on
December 15, 2023. The Sub-Sublease will terminate if the Master Lease or the Sublease terminates. The Company or the Sub-Subtenant may elect, subject
to limitations set forth in the Sub-Sublease, to terminate the Sub-Sublease following a material casualty or condemnation affecting the Subleased Premises.
The Company may terminate the Sub-Sublease following an event of default, which is defined in the Sub-Sublease to include, among other things, non-
payment of amounts owing by the Sub-Subtenant under the Sub-Sublease.
The Company is required under the Lease to pay to the sublandlord 50% of that portion of the cash sums and other economic consideration received
from the Sub-Subtenant that exceeds the base rent paid by the Company to the sublandlord after deducting certain of the Company’s costs.
Dublin
In October 2018, the Company entered into a surrender agreement for its office lease in Dún Laoghaire, Ireland. The Company paid €270,000, or
$309,000 as converted using an exchange rate as of November 28, 2018, as full and final settlement of outstanding contractual obligations of $1.6 million in
exchange for surrender and assignment to the landlord including surrender of approximately $0.5 million of long-lived assets. The expenses related to this
surrender agreement were accounted for as part of
73
the restructuring and impairment charges recognized in the year ended December 31, 2018. No additional expenses were incurred in the year ended December
31, 2019.
The Company leases a 133 square feet of office space in Dublin, Ireland. The lease has a term of one year and expires on November 30, 2020. The
Dublin Lease also has an automatic renewal clause, in which the agreement will be extended automatically for successive periods equal to the current term
but no less than three months, unless the agreement is cancelled by the Company. This operating lease is not included in the lease liability and operating lease
right-of-use asset recorded due to its nominal amount.
As of December 31, 2019, the Company is obligated to make lease payments over the remaining term of the lease of approximately €22,000, or $25,000
as converted using an exchange rate as of December 31, 2019.
Future minimum payments under the above-described noncancelable operating leases, including a reconciliation to the lease liabilities recognized in the
Consolidated Balance Sheets, and future minimum rentals to be received under the Sub-Sublease as of December 31, 2019 are as follows (in thousands):
Year Ended December 31,
Operating Leases
2020
2021
2022
2023
Total
Less: Present value adjustment
Nominal lease payments
Lease liability
Sub-Sublease Rental
2,843
6,004
2,944
3,047
3,019
11,853
6,165
6,350
6,535
25,054 $
(2,090)
(25)
22,939
$
Under ASC 840, future minimum payments under operating lease, build-to-suit lease obligation and future minimum rentals to be received under the
Sub-Sublease as of December 31, 2018 was as follows (in thousands):
Year Ended December 31,
2019
2020
2021
2022
2023
Total
Indemnity Obligations
Expected Cash
Payments Under
Build-To-Suit Lease
Obligation
Sub-Sublease
Rental
Operating Lease
$
23 $
—
—
—
—
5,803 $
5,979
6,165
6,350
6,535
2,746
2,843
2,944
3,047
3,019
$
23 $
30,832 $
14,599
The Company has entered into indemnification agreements with its current and former directors and officers and certain key employees. These
agreements contain provisions that may require the Company, among other things, to indemnify such persons against certain liabilities that may arise because
of their status or service and advance their expenses incurred as a result of any indemnifiable proceedings brought against them. The obligations of the
Company pursuant to the indemnification agreements continue during such time as the indemnified person serves the Company and continues thereafter until
such time as a claim can be brought. The maximum potential amount of future payments the Company could be required to make under these indemnification
agreements is unlimited; however, the Company has a director and officer liability insurance policy that limits its exposure and enables the Company to
recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these
indemnification agreements is minimal. Accordingly, the Company had no liabilities recorded for these agreements as of December 31, 2019, and 2018.
Other Commitments
In the normal course of business, the Company enters into various firm purchase commitments primarily related to research and development activities.
As of December 31, 2019, the Company had non-cancelable purchase commitments to suppliers for $2.8 million of which $0.3 million is included in accrued
current liabilities, and contractual obligations under license agreements
74
of $1.0 million of which $0.1 million is included in accrued current liabilities. The following is a summary of the Company's non-cancelable purchase
commitments and contractual obligations as of December 31, 2019 (in thousands):
Purchase Obligations (1)
Contractual obligations under license
agreements (2)
Total
Total
2,795 $
2020
2,795 $
$
2021
2022
2023
2024
— $
— $
— $
Thereafter
—
— $
970
180
$
3,765 $
2,975 $
95
95 $
80
80 $
80
80 $
70
70 $
465
465
________________
(1) Purchase obligations consist of non-cancelable purchase commitments to suppliers.
(2) Excludes future obligations pursuant to the cost-sharing arrangement under the Company's License Agreement with Roche. Amounts of such obligations, if any,
cannot be determined at this time.
Legal Proceedings
On July 16, 2018, a purported class action lawsuit entitled Granite Point Capital v. Prothena Corporation plc, et al., Civil Action No. 18-cv-06425, was
filed in the U.S. District Court for the Southern District of New York against the Company and certain of its current and former officers. The plaintiff sought
compensatory damages, costs and expenses in an unspecified amount on behalf of a putative class of persons who purchased the Company’s ordinary shares
between October 15, 2015, and April 20, 2018, inclusive. The complaint alleged that the defendants violated federal securities laws by allegedly making false
and misleading statements and omitting certain material facts in certain public statements and in the Company’s filings with the U.S. Securities and Exchange
Commission during the putative class period, regarding the clinical trial results and prospects for approval of the Company’s NEOD001 drug development
program. On October 31, 2018, the Court issued an order naming Granite Point Capital and Simon James, an individual, as the lead plaintiffs in the purported
class action, which was then entitled In re Prothena Corporation plc Securities Litigation.
On August 26, 2019, the parties entered into a Stipulation and Agreement of Settlement and the lead plaintiffs filed an Unopposed Motion for
Preliminary Approval of Proposed Class Action Settlement for an aggregate settlement amount of $15.75 million, to be paid by the Company’s directors and
officers insurance carriers. On December 4, 2019, the Court approved that settlement and entered judgment, resolving, as to all settlement class members, all
of the claims that were or could have been brought in the lawsuit. There were no objections to the settlement and no purported class members opted out of the
settlement. The Company did not admit to any claims and continues to believe that the claims in the lawsuit were without merit.
The Company maintains insurance for claims of this nature. As of December 31, 2019, the aggregate settlement amount of $15.75 million, has been
placed in escrow by the Company’s directors and officers insurance carriers and no additional liability is recorded in the Company's Balance Sheet as of
December 31, 2019.
7. Significant Agreements
Roche License Agreement
In December 2013, the Company through its wholly owned subsidiary Prothena Biosciences Limited and Prothena Biosciences Inc entered into a
License, Development, and Commercialization Agreement (the “License Agreement”) with F. Hoffmann-La Roche Ltd. and Hoffmann-La Roche Inc.
(together, “Roche”) to develop and commercialize certain antibodies that target α-synuclein, including prasinezumab, which are referred to collectively as
“Licensed Products.” Upon the effectiveness of the License Agreement in January 2014, the Company granted to Roche an exclusive, worldwide license to
develop, make, have made, use, sell, offer to sell, import and export the Licensed Products. The Company retained certain rights to conduct development of
the Licensed Products and an option to co-promote prasinezumab in the U.S. During the term of the License Agreement, the Company and Roche will work
exclusively with each other to research and develop antibody products targeting alpha-synuclein (or α-synuclein) potentially including incorporation of
Roche’s proprietary Brain Shuttle™ technology to potentially increase delivery of therapeutic antibodies to the brain. The License Agreement provided for
Roche making an upfront payment to the Company of $30.0 million, which was received in February 2014; making a clinical milestone payment of $15.0
million upon initiation of the Phase 1 study for prasinezumab, which was received in May 2014; and making a clinical milestone payment of $30.0 million
upon dosing of the first patient in the Phase 2 study for prasinezumab, which was achieved in June 2017.
For prasinezumab, Roche is also obligated to pay:
75
•
•
•
up to $350.0 million upon the achievement of development, regulatory and various first commercial sales milestones;
up to an additional $175.0 million upon achievement of ex-U.S. commercial sales milestones; and
tiered, high single-digit to high double-digit royalties in the teens on ex-U.S. annual net sales, subject to certain adjustments.
Roche bore 100% of the cost of conducting the research collaboration under the License Agreement during the research term, which expired December
31, 2017. In the U.S., the parties share all development and commercialization costs, as well as profits, all of which will be allocated 70% to Roche and 30%
to the Company, for prasinezumab in the Parkinson’s disease indication, as well as any other Licensed Products and/or indications for which the Company
opts in to participate in co-development and co-funding. After the completion of specific clinical trial activities, the Company may opt out of the co-
development and cost and profit sharing on any co-developed Licensed Products and instead receive U.S. commercial sales milestones totaling up to $155.0
million and tiered, single-digit to high double-digit royalties in the teens based on U.S. annual net sales, subject to certain adjustments, with respect to the
applicable Licensed Product.
The Company filed an Investigational New Drug Application (“IND”) with the FDA for prasinezumab and subsequently initiated a Phase 1 study in
2014. Following the Phase 1 studies, Roche became primarily responsible for developing, obtaining and maintaining regulatory approval for and
commercializing Licensed Products. Roche also became responsible for the clinical and commercial manufacture and supply of Licensed Products.
In addition, the Company has an option under the License Agreement to co-promote prasinezumab in the U.S. in the Parkinson’s disease indication. If
the Company exercises such option, it may also elect to co-promote additional Licensed Products in the U.S. approved for Parkinson’s disease. Outside the
U.S., Roche will have responsibility for developing and commercializing the Licensed Products. Roche bears all costs that are specifically related to obtaining
or maintaining regulatory approval outside the U.S. and will pay the Company a variable royalty based on annual net sales of the Licensed Products outside
the U.S.
While Roche will record product revenue from sales of the Licensed Products, the Company and Roche will share in the net profits and losses of sales
of the prasinezumab for the Parkinson's disease indication in the U.S. on a 70%/30% basis with the Company receiving 30% of the profit and losses provided
that the Company has not exercised its opt-out right.
The License Agreement continues on a country-by-country basis until the expiration of all payment obligations under the License Agreement. The
License Agreement may also be terminated (i) by Roche at will after the first anniversary of the effective date of the License Agreement, either in its entirety
or on a Licensed Product-by-Licensed Product basis, upon 90 days’ prior written notice to the Company prior to first commercial sale and 180 days’ prior
written notice to Prothena after first commercial sale, (ii) by either party, either in its entirety or on a Licensed Product-by-Licensed Product or region-by-
region basis, upon written notice in connection with a material breach uncured 90 days after initial written notice, and (iii) by either party, in its entirety, upon
insolvency of the other party. The License Agreement may be terminated by either party on a patent-by-patent and country-by-country basis if the other party
challenges a given patent in a given country. The Company’s rights to co-develop Licensed Products under the License Agreement will terminate if the
Company commences certain studies for certain types of competitive products. The Company’s rights to co-promote Licensed Products under the License
Agreement will terminate if the Company commences a Phase 3 study for such competitive products.
The License Agreement cannot be assigned by either party without the prior written consent of the other party, except to an affiliate of such party or in
the event of a merger or acquisition of such party, subject to certain conditions. The License Agreement also includes customary provisions regarding, among
other things, confidentiality, intellectual property ownership, patent prosecution, enforcement and defense, representations and warranties, indemnification,
insurance, and arbitration and dispute resolution.
Collaboration Accounting
The License Agreement was evaluated under ASC 808, Collaborative Agreements. At the outset of the License Agreement, the Company concluded
that it did not qualify as collaboration under ASC 808 because the Company does not share significant risks due to the net profit and loss split (under which
Roche incurs substantially more of the costs of the collaboration) and because of the Company’s opt-out provision. The Company believes that Roche will be
the principal in future sales transactions with third parties as Roche will be the primary obligor bearing inventory and credit risk. The Company will record its
share of pre-tax commercial profit generated from the collaboration as collaboration revenue once the Company can conclude it is probable that a significant
revenue reversal will not occur in future periods. Prior to commercialization of a Licensed Product, the Company’s portion of the expenses related to the
License Agreement reflected on its income statement will be limited to R&D expenses. After commercialization, if the Company opts-in to co-detail
commercialization, expenses related to commercial capabilities, including
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expenses related to the establishment of a field sales force and other activities to support the Company’s commercialization efforts, will be recorded as sales,
general and administrative (“SG&A”) expense and will be factored into the computation of the profit and loss share. The Company will record the receivable
related to commercialization activities as collaboration revenue once the Company can conclude it is probable that a significant revenue reversal will not
occur in future periods.
Adoption of ASC 606, Revenue from Contracts with Customers
The Company adopted ASC 606, Revenue from Contracts with Customers, as of January 1, 2018 using the modified retrospective transition method.
The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of the accumulated deficit as of
January 1, 2018.
As of January 1, 2018, the Company did not record any changes to the opening balance of the accumulated deficit since the cumulative effect of
applying the new revenue standard was the same as applying ASC 605. The impact of the adoption of ASC 606 to revenues for the year ended December 31,
2018 was an increase of $1.0 million, which represents the revenue recognized for the development services provided by the Company during the period that
is reimbursable by Roche. Historically, the Company recorded such reimbursement as an offset against its R&D expenses under ASC 605. Upon the adoption
of ASC 606, the reimbursement for development services is now included as part of the Company’s collaboration revenue.
Performance Obligations
The License Agreement was evaluated under ASC 606. The License Agreement includes the following distinct performance obligations: (1) the
Company’s grant of an exclusive royalty bearing license, with the right to sublicense to develop and commercialize certain antibodies that target α-synuclein,
including prasinezumab, and the initial know how transfer which was delivered at the effective date (the “Royalty Bearing License”); (2) the Company’s
obligation to supply clinical material as requested by Roche for a period up to twelve months (the “Clinical Product Supply Obligation”); (3) the Company’s
obligation to provide manufacturing related services to Roche for a period up to twelve months (the “Supply Services Obligation”); (4) the Company’s
obligation to prepare and file the IND (the “IND Obligation”); and (5) the Company’s obligation to provide development activities under the development
plan during Phase 1 clinical trials (the “Development Services Obligation”). Revenue allocated to the above performance obligations under the License
Agreement are recognized when the Company has satisfied its obligations either at a point in time or over a period of time.
The Company concluded that the Royalty Bearing License and the Clinical Product Supply Obligation were satisfied at a point in time. The Royalty
Bearing License is considered to be a functional intellectual property, in which the revenue would be recognized at the point in time since (a) the Company
concluded that the license to Roche has a significant stand-alone functionality, (b) the Company does not expect the functionality of the intellectual property
to be substantially changed during the license period as a result of activities of Prothena, and (c) Prothena’s activities transfer a good or service to Roche. The
Clinical Product Supply Obligation does not meet criteria for over time recognition; as such, the revenue related to such performance obligation was
recognized the point in time at which Roche obtained control of manufactured supplies, which occurred during the first quarter of 2014.
The Company concluded that the Supply Services Obligation, the IND Obligation and the Development Services Obligation were satisfied over time.
The Company utilized an input method measure of progress by basing the recognition period on the efforts or inputs towards satisfying the performance
obligation (i.e. costs incurred and the time elapsed to complete the related performance obligations). The Company determined that such input method
provides an appropriate measure of progress toward complete satisfaction of such performance obligations.
As of December 31, 2019 and 2018, there were no remaining performance obligations under License Agreement since the obligations related to research
and development activities were only for the Phase 1 clinical trial and the remaining obligations were delivered or performed.
Transaction Price
According to ASC 606-10-32-2, the transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring
promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised
in a contract with a customer may include fixed amounts, variable amounts, or both. Factors considered in the determination of the transaction price include,
among other things, estimated selling price of the license and costs for clinical supply and development costs.
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The initial transaction price under the License Agreement, pursuant to ASC 606, was $55.1 million, including $45.0 million for the Royalty Bearing
License, $9.1 million for the IND and Development Services Obligations, and $1.1 million for the Supply Services Obligation. The $45.0 million for the
Royalty Bearing License included the upfront payment of $30.0 million and the clinical milestone payment of $15.0 million upon initiation of the Phase 1
clinical trial of prasinezumab, both of which were made in 2014. The remaining transaction price amounts the Company expected to receive as
reimbursements were based on costs expected to be paid to third parties and other costs to be incurred by the Company in order to satisfy its performance
obligations. They are considered to be variable considerations not subject to constraint. The Company did not incur any incremental costs, such as
commissions, to obtain or fulfill the License Agreement.
Under ASC 606, the transaction price was allocated to the performance obligations as follows: $48.9 million to the Royalty Bearing License; $4.6
million to the IND and Development Services Obligations; $1.1 million to the Clinical Product Supply Obligation; and $0.6 million to the Supply Services
Obligation. As of December 31, 2019, the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied is $nil. Prior
to the adoption of ASC 606, the transaction price was allocated to the deliverables as follows: $35.6 million to the Royalty Bearing License; $3.3 million to
the IND and Development Services Obligations; $0.8 million to the Clinical Product Supply Obligation; and $0.4 million to the Supply Services Obligation.
The Company allocated the initial transaction price to the Royalty Bearing License and other performance obligations using the relative selling price
method based on its best estimate of selling price for the Royalty Bearing License and third party evidence for the remaining performance obligations. The
best estimate of selling price for the Royalty Bearing License was based on a discounted cash flow model. The key assumptions used in the discounted cash
flow model used to determine the best estimate of selling price for the Royalty Bearing License included the market opportunity for commercialization of
prasinezumab in the U.S. and the royalty territory (for licensed products that are jointly funded the royalty territory is worldwide except for the U.S., and for
all licensed products that are not jointly funded the Royalty Territory is worldwide), the probability of successfully developing and commercializing
prasinezumab, the estimated remaining development costs for prasinezumab, and the estimated time to commercialization of prasinezumab. The Company
concluded that a change in the assumptions used to determine the best estimate of selling price (“BESP”) of the license deliverable would not have a
significant effect on the allocation of arrangement consideration.
The Company’s discounted cash flow model included several market conditions and entity-specific inputs, including the likelihood that clinical trials for
prasinezumab will be successful, the likelihood that regulatory approval will be obtained and the product commercialized, the appropriate discount rate, the
market locations, size and potential market share of the product, the expected life of the product, and the competitive environment for the product. The market
assumptions were generated using a patient-based forecasting approach, with key epidemiological, market penetration, dosing, compliance, length of
treatment and pricing assumptions derived from primary and secondary market research, referenced from third-party sources.
Significant Payment Terms
Payments for development services are due within 45 days after receiving an invoice from the Company. Variable considerations related to clinical and
regulatory milestone payments are constrained due to high likelihood of a revenue reversal. The payment term for all milestone payments are due within 45
days after the achievement of the relevant milestone and receipt by Roche of an invoice for such an amount from the Company.
According to ASC 606-10-32-17, a significant financing component does not exist if a substantial amount of the consideration promised by the customer
is variable, and the amount or timing of that consideration varies on the basis of the occurrence or nonoccurrence of a future event that is not substantially
within the control of the customer or the entity. Since a “substantial amount of the consideration” promised by Roche to the Company is variable (i.e., is in the
form of either milestone payments or sales-based royalties) and the amount of such variable consideration varies based upon the occurrence or nonoccurrence
of future events that are not within the control of either Roche or the Company (i.e., are largely subject to regulatory approval), the License Agreement does
not have a significant financing component.
Optional Goods and Services
An option for additional goods or services exists when a customer has a present contractual right that allows it to choose the amount of additional
distinct goods or services that are purchased. Prior to the customer’s exercise of that right, the vendor is not presently obligated to provide those goods or
services. ASC 606-10-25-18(j) requires recognition of an option as a distinct performance obligation when the option provides a customer with a material
right.
In addition to the distinct performance obligations noted above, the Company was obligated to provide indeterminate research services for up to three
years ending in 2017 at rates that were not significantly discounted and fully reimbursable by Roche (the
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“Research Services”). The amount for any such Research Services was not fixed and determinable and was not at a significant incremental discount. There
were no refund rights, concessions or performance bonuses to consider.
The Company evaluated the obligation to perform Research Services under ASC 606-10-55-42 and 55-43 to determine whether it gave Roche a
“material right”. According to ASC 606-10-55-43, if a customer has the option to acquire an additional good or services at a price that would reflect the
standalone selling price for that good or service, that option does not provide the customer with a material right even if the option can be exercised only by
entering into a previous contract.
The Company concluded that Roche’s option to have the Company perform Research Services did not represent a “material right” to Roche that it
would not have received without entering into the License Agreement. As a result, Roche’s option to acquire additional Research Services was not considered
a performance obligation at the outset of the License Agreement under ASC 606. Accordingly, this deliverable will become new performance obligation for
Prothena when Roche asks Prothena to conduct such Research Services. As of December 31, 2019, there were no remaining Research Services performance
obligations. Prior to the adoption of ASC 606, the Company recognized Research Services as collaboration revenue as earned.
Post Contract Deliverables
Any development services provided by the Company after performance of the Development Service Obligation are not considered a contractual
performance obligation under the License Agreement, since the License Agreement does not require the Company to provide any development services after
completion of the Development Service Obligation. However, the collaboration’s Joint Steering Committee approved continued funding for additional
development services to be provided by the Company (the “Additional Development Services”). Under the License Agreement and upon the adoption of ASC
606, the Company recognizes the reimbursements for Additional Development Services as collaboration revenue as earned.
Revenue and Expense Recognition
The Company recognized $0.8 million and $1.0 million as collaboration revenue from Roche for the years ended December 31, 2019 and 2018,
respectively, for Additional Development Services as compared to $0.9 million of Research Services as collaboration revenue for the year ended December
31, 2017. The Company recorded $1.7 million of reimbursement for Additional Development Services from Roche for the year ended December 31, 2017 as
offset to R&D expenses. Cost sharing payments to Roche are recorded as R&D expenses. The Company recognized $11.4 million in R&D expenses for
payments made to Roche during the year ended December 31, 2019, as compared to $13.0 million and $7.2 million for the years ended December 31, 2018
and 2017, respectively. The Company had accounts receivable from Roche of $2,000 and $2,000 which were recorded in prepaid expenses and other current
assets at December 31, 2019 and 2018, respectively.
Milestone Accounting
Under the License Agreement, only if the U.S. and or global options are exercised, the Company is eligible to receive milestone payments upon the
achievement of development, regulatory and various first commercial sales milestones. Milestone payments are evaluated under ASC Topic 606. Factors
considered in this determination included scientific and regulatory risk that must be overcome to achieve each milestone, the level of effort and investment
required to achieve the milestone, and the monetary value attributed to the milestone. Accordingly, the Company estimates payments in the transaction price
based on the most likely approach, which considers the single most likely amount in a range of possible amounts related to the achievement of these
milestones. Additionally, milestone payments are included in the transaction price only when the Company can conclude it is probable that a significant
revenue reversal will not occur in future periods when the milestone is achieved.
The Company excludes the milestone payments and royalties in the initial transaction price calculation because such payments are considered to be
variable considerations with constraint. Such milestone payments and royalties will be recognized as revenue once the Company can conclude it is probable
that a significant revenue reversal will not occur in future periods.
The clinical and regulatory milestones under the License Agreement after the point at which the Company could opt-out are considered to be variable
considerations with constraint due to the fact that active participation in the development activities that generate the milestones is not required under the
License Agreement, and the Company can opt-out of these activities. There are no refunds or claw-back provisions and the milestones are uncertain of
occurrence even after the Company has opted out. Based on this determination, these milestones will be recognized when the Company can conclude it is
probable that a significant revenue reversal will not occur in future periods.
In June 2017, the Company achieved a $30.0 million clinical milestone under the License Agreement as a result of dosing of first patient in Phase 2
study for prasinezumab. The milestone was accounted for under ASC 605 and was allocated to the units of accounting based on the relative selling price
method for income statement classification purposes. As such, the Company
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recognized $26.6 million of the $30.0 million milestone as collaboration revenue and $3.4 million as an offset to R&D expenses in 2017. The Company did
not achieve any clinical and regulatory milestones under the License Agreement during the year ended December 31, 2019.
Collaboration Agreement with Bristol-Myers Squibb
Overview
On March 20, 2018, the Company, through its wholly owned subsidiary Prothena Biosciences Limited, entered into a Master Collaboration Agreement
(the “Collaboration Agreement”) with Celgene Switzerland LLC (“Celgene”), a subsidiary of Celgene Corporation (which was acquired by Bristol-Myers
Squibb ("BMS") in November 2019), pursuant to which Prothena granted to Celgene a right to elect in its sole discretion to exclusively license rights both in
the U.S. (the “US Rights”) and on a global basis (the “Global Rights”), with respect to the Company’s programs to develop and commercialize antibodies
targeting Tau, TDP-43 and an undisclosed target (the “Collaboration Targets”). For each such program, BMS may exercise its US Rights at the IND filing,
and if it so exercises such US Rights would also have a right to expand the license to Global Rights. If BMS exercises its US Rights for a program, then
following the first to occur of (a) completion by the Company, in its discretion and at its cost, of Phase 1 clinical trials for such program or (b) the date on
which BMS elects to assume responsibility for completing such Phase 1 clinical trials (at its cost), BMS would have decision making authority over
development activities and all regulatory, manufacturing and commercialization activities in the U.S.
The Collaboration Agreement provided for Celgene making an upfront payment to the Company of $100.0 million, which was received in April 2018,
plus future potential license exercise payments and regulatory and commercial milestones for each program under the Collaboration Agreement, as well as
royalties on net sales of any resulting marketed products. In connection with the Collaboration Agreement, the Company and Celgene entered into a Share
Subscription Agreement on March 20, 2018, under which Celgene subscribed to 1,174,536 of the Company’s ordinary shares for a price of $42.57 per share,
for a total of approximately $50.0 million.
BMS US and Global Rights and Licenses
On a program-by-program basis, beginning on the effective date of the Collaboration Agreement and ending on the date that the IND Option term
expires for such program (which generally occurs sixty days after the date on which Prothena delivers to BMS the first complete data package for an IND that
was filed for a lead candidate from the relevant program), BMS may elect in its sole discretion to exercise its US Rights to receive an exclusive license to
develop, manufacture and commercialize antibodies targeting the applicable Collaboration Target in the U.S. (the “US License”). If BMS exercises its US
Rights for a collaboration program, it is obligated to pay the Company an exercise fee of approximately $80.0 million per program. Thereafter, following the
first to occur of (a) completion by the Company, in its discretion and at its cost, of Phase 1 clinical trials for such program or (b) BMS’s election to assume
responsibility to complete such Phase 1 clinical trials (at its cost), BMS would have the sole right to develop, manufacture and commercialize antibody
products targeting the relevant Collaboration Target for such program (the “Collaboration Products”) in the U.S.
On a program-by-program basis, following completion of a Phase 1 clinical trial for a collaboration program for which BMS has previously exercised
its US Rights, BMS may elect in its sole discretion to exercise its Global Rights with respect to such collaboration program to receive a worldwide, exclusive
license to develop, manufacture and commercialize antibodies targeting the applicable Collaboration Target (the “Global License”). If BMS exercises its
Global Rights, BMS would be obligated to pay the Company an additional exercise fee of $55.0 million for such collaboration program. The Global Rights
would then replace the US Rights for that collaboration program, and BMS would have decision making authority over developing, obtaining and
maintaining regulatory approval for, manufacturing and commercializing the Collaboration Products worldwide.
After BMS’s exercise of Global Rights for a collaboration program, the Company is eligible to receive up to $562.5 million in regulatory and
commercial milestones per program. Following an exercise by BMS of either US Rights or Global Rights for such collaboration program, the Company will
also be eligible to receive tiered royalties on net sales of Collaboration Products ranging from high single digit to high teen percentages, on a weighted
average basis depending on the achievement of certain net sales thresholds. Such exercise fees, milestones and royalty payments are subject to certain
reductions as specified in the Collaboration Agreement, the agreement for US Rights and the agreement for Global Rights.
BMS will continue to pay royalties on a Collaboration Product-by-Collaboration Product and country-by-country basis, until the latest of (i) expiration
of certain patents covering the Collaboration Product, (ii) expiration of all regulatory exclusivity for the Collaboration Product, and (iii) an agreed period of
time after the first commercial sale of the Collaboration Product in the applicable country (the “Royalty Term”).
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Term and Termination
The research term under the Collaboration Agreement continues for a period of six years, which BMS may extend for up to two additional 12-month
periods by paying an extension fee of $10.0 million per extension period. The term of the Collaboration Agreement continues until the last to occur of the
following: (i) expiration of the research term; (ii) expiration of all US Rights terms; and (iii) expiration of all Global Rights terms.
The term of any US License or Global License would continue on a Licensed Product-by-Licensed Product and country-by-country basis until the
expiration of all Royalty Terms under such agreement.
The Collaboration Agreement may be terminated (i) by either party on a program-by-program basis if the other party remains in material breach of the
Collaboration Agreement following a cure period to remedy the material breach, (ii) by BMS at will on a program-by-program basis or in its entirety, (iii) by
either party, in its entirety, upon insolvency of the other party, or (iv) by Prothena, in its entirety, if BMS challenges a patent licensed by Prothena to BMS
under the Collaboration Agreement.
Share Subscription Agreement
Pursuant to the terms of the Collaboration Agreement, the Company entered into a Share Subscription Agreement (the “SSA”) with Celgene, pursuant
to which the Company issued, and Celgene subscribed for, 1,174,536 of the Company’s ordinary shares (the “Shares”) for an aggregate subscription price of
approximately $50.0 million, pursuant to the terms and conditions thereof.
Under the SSA, BMS formerly Celgene is subject to certain transfer restrictions. In addition, BMS will be entitled to request the registration of the
Shares with the U.S. Securities and Exchange Commission on Form S-3ASR or Form S-3 following termination of the transfer restrictions if the Shares
cannot be resold without restriction pursuant to Rule 144 promulgated under the U.S. Securities Act of 1933, as amended (the “Securities Act”).
Collaboration Accounting
The Collaboration Agreement was evaluated under ASC 808, Collaborative Agreements. At the outset of the Collaboration Agreement, the Company
concluded that it does not qualify as collaboration under ASC 808 because the Company does not share significant risks due to economics of the
collaboration.
Performance Obligations
The Company assessed the Collaboration Agreement and concluded that it represented a contract with a customer within the scope of ASC 606. Per
ASC 606, a performance obligation is defined as a promise to transfer a good or service or a series of distinct goods or services. At inception of the
Collaboration Agreement, the Company is not obligated to transfer the US License or Global License to BMS unless BMS exercises its US Rights or Global
Rights, respectively, and the Company is not obligated to perform development activities under the development plan during preclinical and Phase 1 clinical
trials including the regulatory filing of the IND.
The discovery, preclinical and clinical development activities performed by the Company are to be performed at the Company’s discretion and are not
promised goods or services and therefore are not considered performance obligations under ASC 606, unless and until the Company agrees to perform the
Phase 1 clinical studies (after the IND option exercise) that are determined to be performance obligations at the time the option is exercised. Per the terms of
the Collaboration Agreement, the Company may conduct discovery activities to characterize, identify and generate antibodies to become collaboration
candidates that target such Collaboration Target, and thereafter may pre-clinically develop collaboration candidates to identify lead candidates that target such
Collaboration Target and file an IND with the U.S. Food and Drug Administration (the “FDA”) for a Phase 1 clinical trial for such lead candidates. In the
event the Company agrees to be involved in a Phase 1 clinical study, the Company will further evaluate whether any such promise represents a performance
obligation at the time the option is exercised. If it is concluded that the Company has obligated itself to an additional performance obligation besides the
license granted at IND option exercise, then the effects of the changes in the arrangement will be evaluated under the modification guidance of ASC 606.
The Company is not obligated to perform manufacturing activities. Per the terms of the Collaboration Agreement, to the extent that the Company, at its
discretion, conducts a program, the Company shall be responsible for the manufacture of collaboration candidates and collaboration products for use in such
program, as well as the associated costs. Delivery of manufactured compound (clinical product supply) is not deemed a performance obligation under ASC
606 as the Company is not obligated to transfer supply of collaboration product to BMS unless BMS exercises its right to participate in the Phase 1
development.
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Compensation for the Company’s provision of inventory supply, to the extent requested by BMS would be paid to Prothena by BMS at a reasonable
stand-alone selling price for such supply. Given that (i) there is substantial uncertainty about the development of the programs, (ii) the pricing for the
inventory is at its standalone selling price and (iii) the manufacturing services require the entity to transfer additional goods or services that are incremental to
the goods and services provided prior to the resolution of the contingency, the Company’s supply of product is not a material right. Therefore, the inventory
supply is not considered a performance obligation unless and until, requested by BMS.
In addition to the grant of the US License after BMS exercises its US Rights for a program, BMS is entitled to receive certain ancillary development
services from the Company, such as technology transfer assistance, regulatory support, safety data reporting activities and transition supply, if requested by
BMS.
In addition to the grant of the Global License after BMS exercises the Global Rights for a program, BMS is entitled to receive certain ancillary
development services from Prothena, such as ongoing clinical trial support upon request by BMS, transition supply, if requested by BMS, and regulatory
support for coordination of pharmacovigilance matters.
The Company evaluated the potential obligations to transfer the US Licenses and Global Licenses and performance of the ancillary development
services subsequent to exercise of the US Rights and Global Rights, if the options are exercised by BMS, under ASC 606-10-55-42 and 55-43 to determine
whether the US Rights or the Global Rights provided BMS a “material right” and concluded that BMS’s options to exercise its US Rights and Global Rights
represented “material rights” to BMS that it would not have received without entering into the Agreement.
There are a total of six options including US Rights and Global Rights to acquire a US License and a Global License, respectively, and rights to request
certain development services (following exercise of the US Rights and Global Rights, respectively) for each of the three programs. Per ASC 606, the US
Rights and Global Rights are material rights and therefore are performance obligations. The goods and services underlying the options are not accounted for
as separate performance obligations, but rather become performance obligations, if and when, an option is exercised.
Transaction Price
According to ASC 606-10-32-2, the transaction price is the amount of consideration to which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The
consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Factors considered in the determination of the
transaction price included, among other things, estimated selling price of the license and costs for clinical supply and development costs.
The initial transaction price under the Collaboration Agreement, pursuant to ASC 606, was $110.2 million, including the $100.0 million upfront
payment and $10.2 million premium on the ordinary shares purchased under the SSA. The Company expects that the initial transaction price will be allocated
across the US Rights and Global Rights for each program in a range of approximately $15-$25 million and $10-$18 million, respectively.
The Company did not include the option fees in the initial transaction price because such fees are contingent on the options to the US Rights and the
Global Rights being exercised. Upon the exercise of the US Rights and the Global Rights for a program, the Company will have the obligation to deliver the
US License and Global License and provide certain ancillary development services if requested by BMS, subsequent to its exercise of the US Rights and
Global Rights, respectively, for such program. The Company will include the option fees in the transaction price at the point in time a material right is
exercised. In addition, the Company did not include in the initial transaction price certain clinical and regulatory milestone payments since they relate to
licenses for which BMS has not yet exercised its option to obtain and these variable considerations are constrained due to the likelihood of a significant
revenue reversal.
At the inception of the Collaboration Agreement, the Company did not transfer any goods or services to BMS (formerly Celgene) that are material.
Accordingly, the Company has concluded that the initial transaction price will be recognized as contract liability and will be deferred until the Company
transfers control of goods or services to BMS (which would be when BMS exercises the US Right or Global Right and receives control of the US License or
Global License for at least one of the programs), or when the IND Option term expires if BMS does not exercise the US Right (which is generally sixty days
after the date on which Prothena delivers to BMS the first complete data package for an IND that was filed for a lead candidate from the relevant program), or
when the Phase 1 Option term expires if BMS does not exercise the Global Right (which is generally ninety days after the date on which Prothena delivers to
BMS the first complete data package for a Phase 1 clinical trial for a lead candidate from the relevant program) or at the termination of the Collaboration
Agreement, whichever occurs first. At such point that the Company transfers control of goods or services to BMS, or when the option expires, the Company
will recognize revenue as a continuation of the
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original contract. Under this approach, the Company will treat the consideration allocated to the material right as an addition to the consideration for the
goods or services underlying the contract option.
At inception of the Collaboration Agreement, the Company estimated the standalone selling price for each performance obligation (i.e., the US Rights
and Global Rights by program). The estimate of standalone selling price for the US Rights and Global Rights by program was based on the adjusted market
assessment approach using a discounted cash flow model. The key assumptions used in the discounted cash flow model included the market opportunity for
commercialization of each program in the U.S. or globally depending on the license, the probability of successfully developing and commercializing a given
program target, the estimated remaining development costs for the respective program, the estimated time to commercialization of the drug for that program
and a discount rate.
Significant Payment Terms
The upfront payment of $100.0 million was due within ten business days after the effective date of the Collaboration Agreement and was received in
April 2018, while all option fees and milestone payments are due within 30 days after the achievement of the relevant milestone by BMS or receipt by BMS
of an invoice for such an amount from the Company.
The Collaboration Agreement does not have a significant financing component since a substantial amount of consideration promised by BMS to the
Company is variable and the amount of such variable consideration varies based upon the occurrence or non-occurrence of future events that are not within
the control of either BMS or the Company. Variable considerations related to clinical and regulatory milestone payments and option fees are constrained due
to the likelihood of a significant revenue reversal.
Milestone and Royalties Accounting
The Company is eligible to receive milestone payments of up to $90.0 million per program upon the achievement of certain specified regulatory
milestones and milestone payments of up to $375.0 million per program upon the achievement of certain specified commercial sales milestones under the US
License for such program. The Company is also eligible to receive milestone payments of up to $187.5 million per program upon the achievement of certain
specified regulatory milestones and milestone payments of up $375.0 million per program upon the achievement of certain specified commercial sale
milestones under the Global License for such program. Milestone payments are evaluated under ASC Topic 606. Factors considered in this determination
included scientific and regulatory risk that must be overcome to achieve each milestone, the level of effort and investment required to achieve the milestone,
and the monetary value attributed to the milestone. Accordingly, the Company estimates payments in the transaction price based on the most likely approach,
which considers the single most likely amount in a range of possible amounts related to the achievement of these milestones. Additionally, milestone
payments are included in the transaction price only when the Company can conclude it is probable that a significant revenue reversal will not occur in future
periods.
The Company excluded the milestone payments and royalties in the initial transaction price because such payments are considered to be variable
considerations with constraint. Such milestone payments and royalties will be recognized as revenue at a point in time when the Company can conclude it is
probable that a significant revenue reversal will not occur in future periods.
The Company did not achieve any clinical and regulatory milestones under the Collaboration Agreement during the years ended December 31, 2019,
and 2018.
8. Shareholders' Equity
Ordinary Shares
As of December 31, 2019, the Company had 100,000,000 ordinary shares authorized for issuance with a par value of $0.01 per ordinary share and
39,898,561 ordinary shares issued and outstanding. Each ordinary share is entitled to one vote and, on a pro rata basis, to dividends when declared and the
remaining assets of the Company in the event of a winding up.
Euro Deferred Shares
As of December 31, 2019, the Company had 10,000 Euro Deferred Shares authorized for issuance with a nominal value of €22 per share. No Euro
Deferred Shares are outstanding at December 31, 2019. The rights and restrictions attaching to the Euro Deferred Shares rank pari passu with the ordinary
shares and are treated as a single class in all respects.
March 2017 Offering
83
In March 2017, the Company completed an underwritten public offering of an aggregate of 2,700,000 of its ordinary shares at a public offering price of
$57.50 per ordinary share. The Company received aggregate net proceeds of approximately $150.3 million, after deducting the underwriting discount and
offering costs.
Celgene Share Subscription Agreement
In connection with the Celgene Collaboration Agreement, the Company entered into a Share Subscription Agreement (the “SSA”) with Celgene,
pursuant to which the Company issued, and Celgene subscribed for, 1,174,536 of the Company’s ordinary shares (the “Shares”) for an aggregate subscription
price of approximately $50.0 million, of which the fair value of $39.8 million was recorded in shareholders' equity and the premium of $10.2 million was
recorded as deferred revenue from Celgene.
Under the SSA, Celgene (now part of Bristol-Myers Squibb) is subject to certain transfer restrictions. In addition, BMS will be entitled to request the
registration of the Shares with the SEC on Form S-3ASR or Form S-3 following termination of the transfer restrictions if the Shares cannot be resold without
restriction pursuant to Rule 144 promulgated under the Securities Act.
9. Share-Based Compensation
2018 Long Term Incentive Plan (“2018 LTIP”)
In May 2018, the Company’s shareholders approved the 2018 Long Term Incentive Plan (the “2018 LTIP”), which provides for the grant of ISOs,
NQSOs, SARs, restricted shares, RSUs, performance bonus awards, performance share units awards, dividend equivalents and other share or cash-based
awards to eligible individuals. Options under the 2018 LTIP may be granted for periods up to ten years. All options issued to date have had a ten year life.
Under the 2018 LTIP, the number of ordinary shares authorized for issuance under the 2018 LTIP is equal to the sum of (a) 1,800,000 shares, (b) 1,177,933
shares that were available for issuance under the 2012 LTIP as of the May 15, 2018, effective date of the 2018 LTIP, and (c) any shares subject to issued and
outstanding awards under the 2012 Long Term Incentive Plan (the “2012 LTIP”) that expire, are cancelled or otherwise terminate following the effective date
of the 2018 LTIP; provided, that no more than 2,500,000 shares may be issued pursuant to the exercise of ISOs.
Amended and Restated 2012 Long Term Incentive Plan
Prior to the effective date of the 2018 LTIP, employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the
Company’s Board of Directors, received equity awards under the 2012 LTIP. Options under the 2012 LTIP were granted for periods up to ten years. All
options issued to date have had a ten year life.
Shares Available for Grant
The Company granted 1,315,975, 4,140,800, and 1,566,800 options during the years ended December 31, 2019, 2018 and 2017, respectively, in
aggregate under the 2012 LTIP and the 2018 LTIP. The Company’s option awards generally vest over four years. As of December 31, 2019, 1,218,833
ordinary shares remained available for grant under the 2018 LTIP, and options to purchase 7,008,403 ordinary shares in aggregate under the 2012 LTIP and
the 2018 LTIP were outstanding with a weighted-average exercise price of approximately $23.34 per share.
Share-based Compensation Expense
The Company estimates the fair value of share-based compensation on the date of grant using an option-pricing model. The Company uses the Black-
Scholes model to value share-based compensation, excluding RSUs, which the Company values using the fair market value of its ordinary shares on the date
of grant. The Black-Scholes option-pricing model determines the fair value of share-based payment awards based on the share price on the date of grant and
is affected by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the Company’s share
price, volatility over the expected life of the awards and actual and projected employee stock option exercise behaviors. Since the Company does not have
sufficient historical employee share option exercise data, the simplified method has been used to estimate the expected life of all options. The Company uses
its historical volatility for the Company’s stock to estimate expected volatility starting January 1, 2018. Although the fair value of share options granted by the
Company is estimated by the Black-Scholes model, the estimated fair value may not be indicative of the fair value observed in a willing buyer and seller
market transaction.
84
As share-based compensation expense recognized in the Consolidated Financial Statements is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
estimates. Forfeitures were estimated based on estimated future turnover and historical experience.
Share-based compensation expense will continue to have an adverse impact on the Company’s results of operations, although it will have no impact on
its overall financial position. The amount of unearned share-based compensation currently estimated to be expensed from now through the year 2023 related
to unvested share-based payment awards at December 31, 2019 is $39.1 million. The weighted-average period over which the unearned share-based
compensation is expected to be recognized is 2.56 years. If there are any modifications or cancellations of the underlying unvested securities, the Company
may be required to accelerate and/or increase any remaining unearned share-based compensation expense. Future share-based compensation expense and
unearned share-based compensation will increase to the extent that the Company grants additional equity awards.
Share-based compensation expense recorded in these Consolidated Financial Statements for the years ended December 31, 2019, 2018 and 2017 was
based on awards granted under the 2012 LTIP and the 2018 LTIP. The following table summarizes share-based compensation expense for the periods
presented (in thousands):
Research and development
General and administrative
Restructuring costs (1)
Total share-based compensation expense
_________________
Year Ended December 31,
2019
2018
2017
$
$
8,109 $
9,830 $
15,476
—
16,232
948
10,914
15,850
—
23,585 $
27,010 $
26,764
(1) Restructuring costs for the year ended December 31, 2018, includes $0.9 million of share-based compensation expense related to the contractual
acceleration of vesting of certain stock options granted to executive officers.
For the years ended December 31, 2019, 2018 and 2017, the Company recognized tax benefits from share-based awards of $4.7 million, $4.7 million,
and $4.2 million, respectively.
The fair value of the options granted to employees and non-employee directors during the years ended December 31, 2019, 2018 and 2017 was
estimated as of the grant date using the Black-Scholes option-pricing model assuming the weighted-average assumptions listed in the following table:
Expected volatility
Risk-free interest rate
Expected dividend yield
Expected life (in years)
Weighted average grant date fair value
Year Ended December 31,
2018
79.5%
2.8%
—%
6.0
$13.70
2017
72.4%
2.0%
—%
6.0
$35.71
2019
81.4%
2.3%
—%
6.0
$8.55
The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period for each award. Each of the inputs
discussed above is subjective and generally requires significant management judgment to determine.
85
The following table summarizes the Company’s stock option activity during the year ended December 31, 2019:
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2019
Vested and expected to vest at December 31, 2019
Vested at December 31, 2019
Options
6,726,715 $
1,315,975
(34,850)
(509,215)
(490,222)
7,008,403 $
6,690,830 $
3,671,383 $
Weighted
Average
Exercise
Price
26.82
12.16
6.55
22.13
43.50
23.34
23.65
27.88
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
(in thousands)
7.39 $
2,169
7.24 $
7.17 $
6.01 $
11,901
11,282
5,801
The total intrinsic value of options exercised was $0.1 million, $2.4 million, and $39.9 million during the years ended December 31, 2019, 2018 and
2017, respectively, determined as of the date of exercise.
The following table summarizes information about the Company’s options outstanding as of December 31, 2019:
Range of Exercise Prices
Number of Options
Options Outstanding
Weighted -
Average
Remaining
Contractual Life
(Years)
Options Exercisable
Weighted Average
Exercise Price
Number of Options
Weighted Average
Exercise Price
$
6.41 $
10.11
13.53
15.04
16.42
34.04
50.72
59.76
63.27
67.64
10.02
13.05
13.53
15.04
33.10
49.60
56.23
60.45
63.27
67.64
735,215
386,500
778,650
2,279,975
1,308,319
715,870
756,374
7,500
25,000
15,000
4.83 $
8.75
9.16
8.29
6.15
6.02
6.72
6.92
7.75
5.59
$
6.41 $
67.64
7,008,403
7.24 $
7.22
10.71
13.53
15.04
29.16
37.65
54.43
59.90
63.27
67.64
23.34
537,215 $
23,666
—
887,408
960,871
642,020
585,912
5,750
13,541
15,000
3,671,383 $
6.51
11.99
—
15.04
28.15
37.48
54.48
59.87
63.27
67.64
27.88
10. Income Taxes
The Company files its U.S. and Irish income tax returns and income taxes are presented in the Consolidated Financial Statements using the asset and
liability method prescribed by the accounting guidance for income taxes.
Income (loss) before provision for income taxes by country for each of the fiscal periods presented is summarized as follows (in thousands):
Ireland
Switzerland
U.S.
Year Ended December 31,
2019
2018
2017
$
(84,706) $
(163,653) $
(162,865)
(17)
7,425
384
7,154
480
4,782
Loss before provision for income taxes
$
(77,298) $
(156,115) $
(157,603)
86
Components of the provision for income taxes for each of the fiscal periods presented consisted of the following (in thousands):
Current:
U.S. Federal
U.S. State
Switzerland
Ireland
Total current provision
Deferred:
U.S. Federal
U.S. State
Switzerland
Ireland
Total deferred benefit
Provision for (benefit from) income taxes
Year Ended December 31,
2019
2018
2017
$
1,622 $
1,320 $
(2,478)
1
5
—
1
(197)
(5)
1
306
5
1,628 $
1,119 $
(2,166)
(1,249) $
(1,589) $
(2,200)
—
—
—
—
—
—
(1,249)
379 $
(1,589) $
(470) $
—
—
—
(2,200)
(4,366)
$
$
$
The Company adopted ASU 2016-09 on January 1, 2017. Pursuant to the adoption of ASU 2016-09, tax attributes previously tracked off balance sheet
have been recorded as deferred tax assets, offset by a valuation allowance. Further, stock compensation excess tax benefits/tax shortfall have been recorded as
a benefit /expense to the tax provision for all periods presented. The Company recorded a net tax shortfall of $2.6 million, a net tax shortfall of $1.7 million,
and excess tax benefit of $5.3 million for the years ended December 31, 2019, 2018 and 2017, respectively, all of which were recorded as part of its income
tax provision in the Consolidated Statements of Operations. The Company’s income tax expense will continue to be impacted by fluctuations in stock price
between the grant dates and the exercise dates of its option awards.
The provision for income taxes differs from the statutory tax rate of 12.5% applicable to Ireland primarily due to Irish net operating losses for which a
tax provision benefit is not recognized, U.S. income taxed at different rates, and net tax benefit/shortfall from exercises/cancellations of stock options.
Following is a reconciliation between income taxes computed at the Irish statutory tax rate and the provision for income taxes for each of the fiscal periods
presented (in thousands):
Years Ended December 31,
2019
2018
2017
Taxes at the Irish statutory tax rate of 12.5%
$
(9,662) $
(19,514) $
(19,700)
Income tax at rates other than applicable statutory rate
Change in valuation allowance
Share-based payments
Tax credits
Other
Provision for (benefit from) income taxes
$
(1,202)
8,248
4,518
(1,470)
(53)
379 $
(458)
26,747
2,215
(10,351)
891
(470) $
678
28,967
(8,242)
(5,857)
(212)
(4,366)
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “TCJA”) was signed into law. It contains many significant changes to the U.S. income tax
laws. The TCJA was effective in the first quarter of 2018 and, among other things, lowered the Company’s U.S. federal income tax rate from 34% to 21%.
The Company recorded a tax benefit of $0.4 million during the year ended December 31, 2017 related to the remeasurement of its U.S. deferred tax assets to
reflect the lower statutory tax rate.
87
Significant components of the Company’s net deferred tax assets as of December 31, 2019, and 2018 are as follows (in thousands):
Deferred tax assets:
Net operating losses
Tax credits
Lease liability
Accruals
Share-based compensation
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liability:
Operating lease right-of-use assets
Fixed Assets
Net deferred tax assets
December 31,
2019
2018
$
101,897 $
16,434
5,319
2,501
11,186
137,337
(121,633)
15,704
(5,397)
(351)
$
9,956 $
88,626
22,339
—
1,521
9,322
121,808
(111,429)
10,379
—
(677)
9,702
On January 1, 2019, the Company adopted ASC 842, Leases and it recorded a reduction in deferred tax assets of $1.0 million as part of the $3.8 million
change in the opening balance of the accumulated deficit for the cumulative effect of applying ASC 842 (See Note 2, “Summary of Significant Accounting
Policies”).
The Company's deferred tax assets are composed primarily of its Irish subsidiaries' net operating loss carryforwards, state net operating loss
carryforwards available to reduce future taxable income of the Company's U.S. subsidiaries, federal and state tax credit carryforwards, share-based
compensation and other temporary differences. The Company maintains a valuation allowance against certain U.S. federal and state and Irish deferred tax
assets. Each reporting period, the Company evaluates the need for a valuation allowance on its deferred tax assets by jurisdiction.
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence,
especially the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company believes it is not yet more likely
than not that the deferred tax assets will be fully realizable. Accordingly, the Company has provided a valuation allowance of $121.6 million against its
deferred tax assets as of December 31, 2019, primarily in relation to deferred tax assets arising from tax credits and net operating losses. The deferred tax
assets recognized net of the valuation allowance, $10.0 million as of December 31, 2019, consist of U.S. federal temporary differences. Due to consistent U.S.
operating income, the Company expects to realize such deferred tax assets. The net increase of $10.2 million in the valuation allowance during the year ended
December 31, 2019, was primarily due to net operating losses of the Company and its Irish entities, and to a lesser extent from U.S. federal and state tax
credits.
As of December 31, 2019, certain of the Company’s Irish entities had trading loss carryovers of $748.2 million and non-trading loss carryovers of $12.0
million, each of which can be carried forward indefinitely but are limited to the same trade/trades. In addition, as of December 31, 2019, the Company had
state net operating loss carryforwards of approximately $60.9 million, which are available to reduce future taxable income, if any, for the Company’s U.S.
subsidiary. If not utilized, the state net operating loss carryforward begins expiring in 2032.
The Company also has federal and California research and development credit carryforwards of $12.0 million and $11.0 million, respectively, at
December 31, 2019. The federal research and development credit carryforwards will expire starting in 2037 if not utilized. The California tax credits can be
carried forward indefinitely.
Cumulative unremitted earnings of the Company’s U.S. and Swiss subsidiaries at December 31, 2019, total approximately $63.1 million and $0.1
million, respectively. The Company's U.S. subsidiary’s cash balances at December 31, 2019, are committed for its working capital needs. No provision for
income tax in Ireland has been recognized on undistributed earnings of the Company’s U.S. and Swiss subsidiaries. The Company considers the U.S. earnings
to be indefinitely reinvested. The Company's Swiss subsidiary, Prothena Switzerland GmbH (PSG) has ceased operations and the Company expects to finalize
the liquidation of PSG in 2020. Upon such a liquidation, the Company expects no incremental taxes to be due. In August 2019, the PSG paid out dividends
out of its capital reserves and retained earnings. Dividends paid by PSG are not subject to Swiss withholding taxes in the period
88
the dividends are paid. Unremitted earnings may be subject to withholding taxes (potentially at 5% in the U.S.) and Irish taxes (potentially at a rate of 12.5%)
if they were to be distributed as dividends. However, Ireland allows a credit against Irish taxes for U.S. taxes withheld, and as of December 31, 2019, the
Company's current year net operating losses in Ireland are sufficient to offset any potential dividend income received from its overseas subsidiaries.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
Gross Unrecognized Tax Benefits at January 1
Additions for tax positions taken in the current year
Additions for tax positions taken in the prior year
Reductions for tax positions taken in the prior year
Gross Unrecognized Tax Benefits at December 31
2019
2018
6,855 $
371
—
(625)
4,268
2,589
32
(34)
6,601 $
6,855
$
$
If recognized, none of the Company's unrecognized tax benefits as of December 31, 2019, would reduce its annual effective tax rate, primarily due to
corresponding adjustments to its deferred tax valuation allowance. As of December 31, 2019, the Company has not recorded a liability for potential interest or
penalties. The Company also does not expect its unrecognized tax benefits to change significantly over the next 12 months.
The tax years 2013 to 2019 remain subject to examination by the U.S taxing authorities and the tax years 2014 to 2019 remain subject to examination
by the Irish taxing authorities.
11. Restructuring
In May 2018, the Company commenced a reorganization plan to reduce its operating costs and better align its workforce with the needs of its business
following the Company’s April 23, 2018, announcement of its decision to discontinue further development of NEOD001. Restructuring charges incurred
under this plan primarily consisted of employee termination benefits and contract termination costs primarily associated with exit fees relating to third-party
manufacturers that the Company contracted with for NEOD001 clinical and commercial supplies.
Restructuring charges incurred under this plan primarily consisted of employee termination benefits and contract termination costs primarily associated
with exit fees relating to third-party manufacturers that the Company contracted with for NEOD001 clinical and commercial supplies. Employee termination
benefits included severance costs, employee-related benefits, supplemental one-time termination payments and non-cash share-based compensation expense
related to the acceleration of stock options. Charges and other costs related to the workforce reduction and structure realignment were presented as
restructuring costs in the Consolidated Statements of Operations. The Company recorded a restructuring credit of approximately $61,000 for the year ended
December 31, 2019, as compared to aggregate restructuring and impairment charges of approximately $16.1 million for the same period in the prior year. The
following table summarizes the restructuring charges (credits) recognized in the Consolidated Statements of Operations during the years ended December 31,
2019, and 2018 (in thousands):
Termination Benefits
Non-Cash Termination Benefits
Contract Termination Costs
Non-Cash Contract Termination Costs
Non-Cash Assets Impairment
Other
Total restructuring charges (credits)
Year Ended December 31,
2019
2018
2017
$
(61) $
8,187 $
—
—
—
—
—
948
5,922
(23)
498
613
$
(61) $
16,145 $
—
—
—
—
—
—
—
89
The following table summarizes the restructuring liability and utilization by cost type associated with the restructuring activities during the years ended
December 31, 2019, and 2018 (in thousands):
Termination
Benefits
Contract
Termination Costs
Assets Impairment
(1)
Other (2)
Total
Restructuring Liability
Balance at December 31, 2017
$
— $
— $
— $
— $
Restructuring charges
Non cash charges
Reduction in non cash charges
Reductions for cash payments
Foreign Exchange
Balance at December 31, 2018
Restructuring charges (credit)
Reductions for cash payments
Balance at December 31, 2019
8,187
948
(948)
(7,716)
(10)
461 $
(61)
(400)
— $
5,922
(23)
23
(5,655)
(267)
— $
—
—
— $
—
498
(498)
—
—
— $
—
—
— $
613
—
—
(613)
—
— $
—
—
— $
$
$
—
14,722
1,423
(1,423)
(13,984)
(277)
461
(61)
(400)
—
(1) Includes $0.5 million of long-lived assets surrendered to the landlord as part of the full and final settlement of our office lease in Dún Laoghaire,
Ireland as discussed in Note 6, "Commitments and Contingencies".
(2) Includes $0.6 million of costs incurred related to the sub-sublease of the Current SSF Facility as discussed in Note 6, “Commitments and
Contingencies”.
The Company has completed all of its restructuring activities and does not expect to incur additional costs associated with the restructuring. The
cumulative amount incurred to date is $16.1 million as of December 31, 2019.
12. Employee Retirement Plan
In the U.S., the Company provides a qualified retirement plan under section 401(k) of the Internal Revenue Code (the “IRC”) under which participants
may contribute up to 100% of their eligible compensation, subject to maximum deferral limits specified by the IRC. In addition, the Company contributes 3%
of each participating employee’s eligible compensation, subject to limits specified by the IRC, on a quarterly basis. Further, the Company may make an
annual discretionary matching and/or profit-sharing contribution as determined solely by the Company. The Company recorded total expense for matching
contributions of $0.5 million, $0.7 million, and $0.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
In Europe, the Company recorded total expense for employer contribution of $26,000, $247,000, and $352,000, in the years ended December 31, 2019,
2018 and 2017, respectively. In Ireland, the Company operates a defined contribution plan in which it contributes up to 7.5% of an employee's eligible
earnings.
13. Selected Quarterly Financial Information (Unaudited)
The following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period ended December 31,
2019. In the Company's opinion, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments
(consisting of only normal recurring adjustments) necessary for a fair statement of the financial information for the period presented. Net loss per share - basic
and diluted, for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during
each period (in thousands, except per share data):
Year Ended December 31, 2019
Revenues
Operating expenses
Net loss
Net loss per share - basic
Net loss per share - diluted
Year Ended December 31, 2018
Revenues
Operating expenses
Net income (loss)
Net income (loss) per share - basic
Net income (loss) per share - diluted
Quarter
First
Second
Third
Fourth
$
$
$
$
$
$
$
$
$
$
186 $
167 $
205 $
256
23,140 $
18,664 $
21,177 $
23,530
(20,865) $
(15,810) $
(19,448) $
(21,554)
(0.52) $
(0.52) $
(0.40) $
(0.40) $
(0.49) $
(0.49) $
(0.54)
(0.54)
227 $
279 $
255 $
194
48,935 $
63,348 $
24,578 $
22,949
(48,743) $
(59,882) $
(24,559) $
(22,461)
(1.26) $
(1.26) $
(1.50) $
(1.50) $
(0.62)
(0.62) $
(0.56)
(0.56)
90
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”) evaluated the effectiveness of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this Form 10-K. Based on this evaluation, our CEO and CFO concluded that, as of December 31, 2019, our disclosure controls and
procedures are designed and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the
Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of the assets of our
company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and
• Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material adverse effect on our financial statements.
Our management assessed our internal control over financial reporting as of December 31, 2019, the end of our fiscal year. Management based its
assessment on criteria established in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on management's assessment of our internal control over financial reporting, management concluded that, as of December 31, 2019, our
internal control over financial reporting was effective. The effectiveness of our internal control over financial reporting as of December 31, 2019, has been
audited by KPMG LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d)
of the Exchange Act during our fourth fiscal quarter ended December 31, 2019, that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be
circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or
detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints
and that management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
91
ITEM 9B. OTHER INFORMATION
None.
PART III
Certain information required by Part III is incorporated herein by reference from our definitive proxy statement relating to our Annual General Meeting
of Shareholders to be held on May 19, 2020 (our “Proxy Statement”).
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except for the information about our executive officers and Code of Conduct shown below, the information appearing in our Proxy Statement under the
following headings is incorporated herein by reference:
• Proposal No. 1 - Election of Directors
Executive Officers of the Registrant
Following is certain information regarding our executive officers.
Name
Gene G. Kinney
Carol D. Karp
Michael J. Malecek
Tran B. Nguyen
Brandon S. Smith
Radhika Tripuraneni
Karin L. Walker
Wagner M. Zago
Age
51
67
54
46
45
40
56
47
Position(s)
President and Chief Executive Officer, Director
Chief Regulatory Officer
Chief Legal Officer and Company Secretary
Chief Financial Officer
Chief Operating Officer
Chief Business Officer
Chief Development Officer
Chief Accounting Officer and Controller
Chief Scientific Officer
Since
2016
2016
2019
2013
2018
2020
2018
2013
2017
Gene G. Kinney, Ph.D., has served as our President and Chief Executive Officer as well as a member of our Board of Directors since 2016. Prior to
that, he was our Chief Operating Officer for part of 2016, and prior to that he was our Chief Scientific Officer and Head of Research and Development from
2012 to 2016. From 2009 to 2012, Dr. Kinney held various positions with Elan Pharmaceuticals, Inc.: Senior Vice President of Pharmacological Sciences
(from 2011 to 2012) and Vice President, Pharmacology (from 2009 to 2011) for Elan Pharmaceuticals, Inc; and while in those positions, he also served as
Head of Nonclinical Research for Janssen Alzheimer Immunotherapy R&D. From 2001 to 2009, Dr. Kinney was Senior Director, Head of Central
Pharmacology and acting lead for Bioanalytics & Pathology at the Merck Research Laboratories, where he contributed to the strategic direction and oversight
of drug discovery activities and led a number of non-clinical discovery and clinical development programs targeted for the treatment of neurodegenerative
and psychiatric conditions. Dr. Kinney also held positions at Bristol-Myers Squibb and was an Assistant Professor at the Emory University School of
Medicine, Department of Psychiatry and Behavioral Sciences. He earned his BA from Bloomsburg University and his MA and PhD from Florida Atlantic
University.
Carol D. Karp has served as our Chief Regulatory Officer since 2016. Prior to joining Prothena, she was an independent regulatory consultant to
biotechnology and pharmaceutical companies. From 2013 to 2014, Ms. Karp was Senior Vice President, Regulatory Affairs and Compliance at Esperion
Therapeutics, Inc. (a biotechnology company), and from 2010 to 2013, she was Vice President, Head of Global Regulatory Affairs, Pharmacovigilance &
Risk Management at Janssen Alzheimer Immunotherapy, a Johnson & Johnson Company (a biopharmaceutical company). Previously, Ms. Karp held senior
regulatory positions at Janssen Alzheimer Immunotherapy, CV Therapeutics, Inc., PowderJect Technologies, VIVUS, Inc., Cygnus, Inc. and Janssen
Pharmaceutica. She earned her BA in Biology from the University of Rochester, where she is a member of the Board of Trustees.
Michael J. Malecek has served as our Chief Legal Officer and as Company Secretary since July 2019. Prior to joining Prothena in 2019, he was Vice
President, Deputy General Counsel, Intellectual Property and Litigation of Snowflake (a data warehouse company) from 2018. From 2010 to 2018, he was a
Partner at Arnold & Porter Kaye Scholer LLP. From 2008 to 2010 Mr. Malecek was Partner at Dewey & LeBoeuf, LLP. From 2002-2008, he was Vice
President and Chief Advocacy Counsel at Affymetrix (a biotechnology company). Mr. Malecek earned his BA in American Studies from Yale University and
his JD (law degree) from the University of Virginia School of Law.
92
Tran B. Nguyen has served as our Chief Financial Officer since 2013 and as our Chief Operating Officer since 2018. Prior to joining Prothena in 2013,
he was Vice President, Chief Financial Officer (from 2010 to 2011) and then Senior Vice President, Chief Financial Officer of Somaxon Pharmaceuticals, Inc.
(a biopharmaceutical company), from 2011 until its sale in 2013. Mr. Nguyen was Vice President, Chief Financial Officer at Metabasis Therapeutics, Inc. (a
biopharmaceutical company) from 2009 until its sale in 2010. From 2007 to 2009, he was a Vice President in the Healthcare Investment Banking group at Citi
Global Markets, Inc., and from 2004 to 2007 he served in various capacities as a healthcare investment banker at Lehman Brothers, Inc. Mr. Nguyen serves
on the board of directors of Rain Therapeutics Inc. (a privately-held clinical-stage oncology company) and served on the board of directors of Sierra
Oncology, Inc. (a publicly-traded clinical-stage oncology company) from 2016 to 2019. He earned his BA in Economics and Psychology from Claremont
McKenna College and his MBA from the Anderson School of Management at the University of California, Los Angeles.
Brandon S. Smith has served as our Chief Business Officer since 2020. Prior to joining Prothena, he was Chief Operating Officer at Iconic Therapeutics
(a biopharmaceutical company) from 2017 to 2020. Before Iconic Therapeutics, Mr. Smith held senior positions at Impax Laboratories (a specialty
pharmaceutical company) between 2012 and 2017, including Senior Vice President, and Vice President of Corporate Development and Strategy. Mr. Smith
also held several positions of increasing responsibility at Amgen (a biopharmaceutical company) between 2005 and 2012, including Executive Director,
Biosimilars Strategy, Director, Strategy and Corporate Development and Director Operations Strategy. Mr. Smith was also a Consultant and Project Leader at
The Boston Consulting Group (a management consulting firm) between 2002 and 2005. Mr. Smith earned his BA in Chemical Engineering at the University
of Michigan and his MBA at The University of Texas at Austin McCombs Graduate School of Business.
Radhika Tripuraneni, M.D., M.P.H., has served as our Chief Development Officer since 2018. Prior to that, she was our Vice President, Medical
Affairs and Development Operations. Prior to joining Prothena in 2018, Dr. Tripuraneni was Vice President, Medical Affairs and Chief of Staff to the Chief
Medical Officer of MyoKardia Inc. (a biotechnology company), positions she held from 2017 to 2018. From 2012 to 2017, she was Vice President, Medical
Affairs at Synageva BioPharma Corp. (a biopharmaceutical company) and then Alexion Pharmaceuticals (a pharmaceutical company), which acquired
Synageva in 2015. Dr. Tripuraneni held various medical director positions at Gilead Sciences, Inc. and Genzyme Corporation (both biopharmaceutical
companies) from 2007 to 2012, and prior to that worked at Summer Street Research Partners (an equity research firm). She earned her BAs in business and
liberal arts and her MD from the University of Missouri, and her Master in Public Health from Harvard University. Dr. Tripuraneni did her clinical training in
general surgery at Harvard - Beth Israel Deaconess Medical Center.
Karin L. Walker has served as our Chief Accounting Officer and Controller since 2013. Prior to joining Prothena, she was Vice President, Finance and
Chief Accounting Officer of Affymax, Inc. (a biopharmaceutical company), a position she held from 2012 to 2013. From 2009 to 2012, Ms. Walker was Vice
President, Finance and Corporate Controller at Amyris Inc. (a biotechnology company). From 2006 to 2009, she was Vice President, Finance and Corporate
Controller for CV Therapeutics, Inc. (a biopharmaceutical company). Ms. Walker also held senior financial leadership positions at Knight Ridder Digital,
Accellion, Niku Corporation, Financial Engines, Inc. and NeoMagic Corporation. She earned her BS in business from the California State Polytechnic
University, San Luis Obispo, and is a certified public accountant.
Wagner M. Zago, Ph.D., has served as our Chief Scientific Officer since 2017. Prior to that, from 2015 to 2017, he was our Vice President, Head of
Research. From 2012 to 2015, Dr. Zago was our Head of Pharmacology and Neuropathology. From 2006 to 2012, he held various scientific positions at Elan
Pharmaceuticals, Inc, performing research aimed at developing new therapeutics for central nervous system disorders and inflammation. While in these
positions, from 2009 to 2013, Dr. Zago also served as a scientist at Janssen Alzheimer Immunotherapy, a Johnson & Johnson Company (a biopharmaceutical
company). He earned his BS in Biomedicine from the Universidade Federal de Sao Paulo (Escola Paulista de Medicina), Brazil, and his MS and PhD (both in
Pharmacology) from the Universidade de Sao Paulo, Brazil, and was a Post-Doctoral Researcher at the University of California, San Diego and the Burnham
Institute.
Code of Conduct
We have a Code of Conduct that applies to all of our directors, executive officers and employees, including our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar functions. Our Code of Conduct is available on the Company’s
website at http://ir.prothena.com. We will provide to any person without charge, upon request, a copy of that Code of Conduct; such a request may be made
by sending it to our Company Secretary, Prothena Corporation plc, 77 Sir John Rogerson’s Quay, Block C, Grand Canal Docklands, Dublin 2, D02 T804,
Ireland. If we make any amendment to, or waiver from, a provision of our Code of Conduct that we are required to disclose under SEC rules, we intend to
satisfy that disclosure requirement by posting such information to our website at http://ir.prothena.com.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in our Proxy Statement under the following headings is incorporated herein by reference:
• Executive Compensation
• Director Compensation
• Report of the Compensation Committee of the Board of Directors
93
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information appearing in our Proxy Statement under the following headings is incorporated herein by reference:
• Equity Compensation Plan Information
• Security Ownership of Certain Beneficial Owners and Management
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing in our Proxy Statement under the following headings is incorporated herein by reference:
• Transactions with Related Persons and Indemnification
• Proposal No. 1 - Election of Directors
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information appearing in our Proxy Statement under the following headings is incorporated herein by reference:
• Proposal No.2 - Ratification of Appointment of Independent Registered Public Accounting Firm - Fees Paid to KPMG
• Proposal No. 2 - Ratification of Appointment of Independent Registered Public Accounting Firm - Pre-Approval Policies and Procedures
With the exception of the information specifically incorporated by reference in Part III to this Form 10-K from our Proxy Statement, our Proxy
Statement shall not be deemed to be filed as part of this Form 10-K.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report on Form 10-K:
PART IV
(1) Financial Statements. Reference is made to the Index to the registrant’s Financial Statements under Item 8 in Part II of this Form 10-K.
(2) Financial Statement Schedules. Financial statement schedules have been omitted because the required information is not present or not present
in the amounts sufficient to require submission of the schedule or because the information is already included in the consolidated financial
statements or notes thereto.
(3) Exhibits. The exhibits listed on the accompanying index to exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference
into, this report on Form 10-K.
(b)
Exhibits.
The exhibits listed in the Exhibit Index hereto are incorporated or filed herewith.
94
Exhibit
No.
2.1
2.2(a)
2.2(b)
2.3
3.1
4.1
10.1(a)
10.1(b)
10.2
10.3(a)†
10.3(b)†
10.4†
10.5†
EXHIBIT INDEX
Description
Demerger Agreement, dated as of November 8, 2012, between Elan
Corporation, plc and Prothena Corporation plc
Amended and Restated Intellectual Property License and
Contribution Agreement, dated as of December 20, 2012, by and
among Neotope Biosciences Limited, Elan Pharma International
Limited, and Elan Pharmaceuticals, Inc.
Amendment Number One to the Amended and Restated Intellectual
Property License and Contribution Agreement, effective as of
December 20, 2012, among Neotope Biosciences Limited, Elan
Pharma International Limited, Elan Pharmaceuticals, LLC, Elan
Corporation, plc, and Crimagua Limited
Intellectual Property License and Conveyance Agreement, dated as
of December 20, 2012, among Neotope Biosciences Limited, Elan
Pharma International Limited and Elan Pharmaceuticals, Inc.
Previously Filed
File No.
Filing Date
Exhibit
Filed
Herewith
001-35676
11/30/2012
2.1
Form
10/A
8-K
001-35676
12/21/2012
2.1
S-1/A
333-191218
9/30/2013
2.2(b)
8-K
001-35676
12/21/2012
2.2
Amended and Restated Memorandum and Articles of Association
(Constitution) of Prothena Corporation plc
8-K
001-35676
5/25/2016
Amended and Restated Memorandum and Articles of Association
(Constitution) of Prothena Corporation plc
8-K
001-35676
5/25/2016
3.1
3.1
Tax Matters Agreement, dated as of December 20, 2012, between
Elan Corporation, plc and Prothena Corporation plc
8-K
001-35676
12/21/2012
10.1
Amendment No. 1 to Tax Matters Agreement, dated as of June 25,
2013, between Elan Corporation, plc and Prothena Corporation plc
10-Q
001-35676
8/13/2013
10.2
License Agreement, dated as of December 31, 2008, between the
University of Tennessee Research Foundation and Elan
Pharmaceuticals, Inc.
License Agreement, dated as of November 4, 2013, between The
Regents of the University of California and Neotope Biosciences
Limited
License Agreement Amendment Number One, dated as of January
15, 2014, to License Agreement dated as of November 4, 2013,
between The Regents of the University of California and Neotope
Biosciences Limited
10/A
001-35676
11/30/2012
10.14
10-Q/A
001-35676
8/17/2018
10.1(a)
10-Q/A
001-35676
8/17/2018
10.1(b)
Exclusive License Agreement, dated as of July 25, 2016, between
University Health Network and Prothena Biosciences Limited
10-Q/A
001-35676
8/17/2018
10.2
License, Development, and Commercialization Agreement, dated
as of December 11, 2013, among Neotope Biosciences Limited and
Prothena Biosciences Inc, F. Hoffmann-La Roche Ltd. and
Hoffmann-La Roche Inc.
10-K/A
001-35676
6/6/2014
10.4
95
Exhibit
No.
10.6†
10.7†
10.8
10.9†
10.11(a)
10.11(b)
10.12(a)
10.12(b)
Description
Form
File No.
Filing Date
Exhibit
Previously Filed
Amendment to License, Development, and Commercialization
Agreement, entered into on October 1, 2019, among Prothena
Biosciences Limited, Prothena Biosciences Inc, F. Hoffman-La
Roche Ltd and Hoffman-La Roche Inc.
Filed
Herewith
X
Master Collaboration Agreement, dated as of March 20, 2018,
between Prothena Biosciences Limited and Celgene Switzerland
LLC
10-Q/A
001-35676
8/17/2018
10.3
Share Subscription Agreement, dated as of March 20, 2018,
between Celgene Switzerland LLC and Prothena Corporation plc
10-Q
001-35676
5/9/2018
10.4
Master Process Development and Clinical Supply Agreement,
dated as of June 23, 2010, as amended August 1, 2011, among Elan
Pharma International Limited, Neotope Biosciences Limited and
Boehringer Ingelheim Pharma GmbH & Co. KG
10-Q
001-35676
8/13/2013
10.3
Sublease, dated as of March 22, 2016, between Prothena
Biosciences Inc and Amgen Inc.
10-Q
001-35676
5/4/2016
10.2(a)
Consent to Sublease Agreement, dated as of March 28, 2016,
among Prothena Biosciences Inc, Amgen Inc. and HCP BTC, LLC
10-Q
001-35676
5/4/2016
10.2(b)
Sub-Sublease, dated as of July 18, 2018, between Prothena
Biosciences Inc and Assembly Biosciences, Inc.
10-Q
001-35676
11/6/2018
10.2(a)
Consent to Sub-Sublease, dated as of September 19, 2018, among
Prothena Biosciences Inc, Assembly Biosciences, Inc., Amgen Inc.
and HCP BTC, LLC
10-Q
001-35676
11/6/2018
10.2(b)
10.13#
Prothena Corporation plc Amended and Restated 2012 Long Term
Incentive Plan
8-K
001-35676
5/23/2017
10.1
10.14#
Prothena Corporation plc 2018 Long Term Incentive Plan
8-K
001-35676
5/18/2018
10.15#
Prothena Corporation plc Amended and Restated Incentive
Compensation Plan
10-Q
001-35676
5/9/2017
10.1
10.1
10.1
10.1
8-K
8-K
001-35676
12/15/2015
001-35676
12/11/2014
S-8
333-196572
6/6/2014
99.2
10-Q
001-35676
8/7/2018
10.2
S-8
333-196572
6/6/2014
99.3
10.16#
Prothena Biosciences Inc Amended and Restated Severance Plan
10.17#
10.18#
10.19#
10.20#
Form of Deed of Indemnification between Prothena Corporation
plc and its Directors and Officers
Form of Option Award Agreement between Prothena Corporation
plc and its Non-Employee Directors under the Prothena
Corporation plc 2012 Long Term Incentive Plan (used beginning
January 29, 2013)
Form of Option Award Agreement between Prothena Corporation
plc and its Non-Employee Directors under the Prothena
Corporation plc 2018 Long Term Incentive Plan (used beginning
May 16, 2018)
Form of Option Award Agreement between Prothena Corporation
plc and its Named Executive Officers under the Prothena
Corporation plc 2012 Long Term Incentive Plan (used beginning
January 29, 2013 until February 4, 2014)
96
Exhibit
No.
10.21#
10.22#
10.23#
10.24#
10.25#
10.26#
10.27#
10.28#
10.29#
10.30#
10.31#
10.32#
10.33#
10.34#
10.35#
21.1
23.1
Description
Form of Option Award Agreement between Prothena Corporation
plc and its Named Executive Officers under the Prothena
Corporation plc 2012 Long Term Incentive Plan (used beginning
February 4, 2014)
Form of Option Award Agreement between Prothena Corporation
plc and its Named Executive Officers under the Prothena
Corporation plc 2018 Long Term Incentive Plan (used beginning
June 21, 2018)
Previously Filed
Form
10-K
File No.
001-35676
Filing Date
3/13/2015
Exhibit
10.11
Filed
Herewith
10-Q
001-35676
8/7/2018
10.3
Offer letter, dated March 20, 2013, between Prothena Biosciences
Inc and Tran B. Nguyen
8-K
001-35676
3/28/2013
10.1
Employment Agreement, dated September 30, 2016, between
Prothena Biosciences Inc and Gene G. Kinney
Offer letter, dated April 19, 2013, between Prothena Biosciences
Inc and Karin L. Walker
Offer letter, dated April 11, 2014, between Prothena Biosciences
Inc and A. W. Homan
Retirement transition letter, dated December 11, 2018, between
Prothena Biosciences Inc and A. W. Homan
Amended and restated retirement transition letter, dated July 1,
2019, between Prothena Biosciences Inc and A. W. Homan
Release Agreement, dated October 1, 2019, between Prothena
Biosciences Inc and A. W. Homan
Engagement Agreement, dated October 2, 2019, between Prothena
Biosciences Inc and A. W. Homan
8-K
001-35676
11/4/2016
10.1
8-K
001-35676
5/22/2013
10.1
10-Q
001-35676
8/5/2014
10.5
10-K
001-35676
3/15/2019
10.31
10-Q
001-35676
11/5/2019
10.1
Offer letter, dated December 5, 2016, between Prothena
Biosciences Inc and Carol D. Karp
10-K
001-35676
2/27/2017
10.28
Promotion letter, dated June 9, 2017, between Prothena Biosciences
Inc and Wagner M. Zago
10-Q
001-35676
8/9/2017
10.3
Promotion letter, dated December 11, 2018, between Prothena
Biosciences Inc and Radhika Tripuraneni
10-K
001-35676
3/15/2019
10.35
Offer letter, dated June 4, 2019, between Prothena Biosciences Inc
and Michael J. Malecek
10-Q
001-35676
8/6/2019
10.1
Consulting Agreement, dated July 1, 2019, between Prothena
Biosciences Inc and Dennis J. Selkoe
10-Q
001-35676
11/5/2019
10.2
List of Subsidiaries
Consent of KPMG LLP, independent registered public accounting
firm
97
X
X
X
X
Description
Form
File No.
Filing Date
Exhibit
Filed
Herewith
Previously Filed
Exhibit
No.
24.1
31.1
31.2
32.1*
Power of Attorney (see signature page hereto)
Certification of Principal Executive Officer pursuant to Rule 13a-
14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-
14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS+ XBRL Instance Document
101.SCH+ XBRL Taxonomy Extension Schema Document
101.CAL+ XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+ XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+ XBRL Taxonomy Extension Label Linkbase Document
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document
_______________
X
X
X
X
X
X
X
X
X
X
*
#
†
+
Exhibit 32.1 is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or
other document filed under the Securities Act of 1933, as amended, except as otherwise specifically stated in such filing.
Indicates management contract or compensatory plan or arrangement.
Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed
separately with the SEC.
XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, and Section 18 of the
Securities Exchange Act of 1934, as amended, and is not subject to liability under those sections, is not part of any registration statement or
prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other
document.
98
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Dated: March 3, 2020
Prothena Corporation plc
(Registrant)
/s/ Gene G. Kinney
Gene G. Kinney
President and Chief Executive Officer
/s/ Tran B. Nguyen
Tran B. Nguyen
Chief Operating Officer and Chief Financial Officer
99
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose individual signature appears below hereby authorizes and appoints Gene G.
Kinney and Tran B. Nguyen, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and
lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each
capacity stated below, and to file any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their
or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/Gene G. Kinney
Gene G. Kinney, Ph.D.
/s/Tran B. Nguyen
Tran B. Nguyen
/s/Karin L. Walker
Karin L. Walker
/s/Lars G. Ekman
Lars G. Ekman, M.D., Ph.D.
/s/Paula K. Cobb
Paula K. Cobb
/s/Richard T. Collier
Richard T. Collier
/s/Shane M. Cooke
Shane M. Cooke
/s/K. Anders O. Härfstrand
K. Anders O. Härfstrand, M.D., Ph.D.
/s/Christopher S. Henney
Christopher S. Henney, Ph.D., D.Sc.
/s/Oleg Nodelman
Oleg Nodelman
/s/Dennis J. Selkoe
Dennis J. Selkoe, M.D.
President and Chief Executive Officer
March 3, 2020
(Principal Executive Officer) and Director
Chief Operating Officer and Chief Financial Officer
March 3, 2020
(Principal Financial Officer)
Chief Accounting Officer and Controller
March 3, 2020
(Principal Accounting Officer)
Chairman of the Board
March 3, 2020
Director
Director
Director
Director
Director
Director
Director
100
March 3, 2020
March 3, 2020
March 3, 2020
March 3, 2020
March 3, 2020
March 3, 2020
March 3, 2020
Exhibit 10.6
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not
material and would likely cause competitive harm to the registrant if publicly disclosed.
AMENDMENT TO LICENSE, DEVELOPMENT, AND COMMERCIALIZATION AGREEMENT
This AMENDMENT TO LICENSE, DEVELOPMENT, AND COMMERCIALIZATION AGREEMENT (the
“Amendment”) is made effective June 6, 2018 (the “Amendment Effective Date”) hereby amends the and is to the LICENSE,
DEVELOPMENT, AND COMMERCIALIZATION AGREEMENT (the “Agreement”) December 11, 2013 by and between
NEOTOPE BIOSCIENCES LIMITED (as of January 5, 2015 PROTHENA BIOSCIENCES LIMITED, “Prothena Ireland”) with
respect to all rights and obligations under this Agreement outside of the United States, and PROTHENA BIOSCIENCES INC.
(“Prothena US”) with respect to all rights and obligations under this Agreement in the United States (Prothena US, together with
Prothena Ireland, “Prothena”), on the one hand, and F. HOFFMANN-LA ROCHE LTD (“Roche Basel”) with respect to all rights
and obligations under this Agreement outside of the United States, and HOFFMANN-LA ROCHE INC. (“Roche Nutley”) with
respect to all rights and obligations under this Agreement in the United States (Roche Nutley, together with Roche Basel, “Roche”),
on the other hand. All capitalized terms used herein shall have the meaning ascribed herein or in the Agreement.
RECITALS
WHEREAS, Roche [***];
WHEREAS, [***] as of the Amendment Effective Date;
WHEREAS, Prothena and Roche want to amend the Agreement to reflect this change.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the covenants and promises contained in this Amendment and
intending to be legally bound, the Parties agree as follows:
Sections 3.1 and 3.2 of the Agreement are hereby replaced as of the Amendment Effective Date with the following new
Sections 3.1 and 3.2 which read as follows:
3.1 Antibody Products targeting Alpha-Synuclein. During the Term, except as otherwise provided below, each
Party and its Affiliates, [***], shall work exclusively with the other Party and its Affiliates to research and develop
Antibody Products targeting Alpha-Synuclein. In particular, Prothena and its Affiliates will not conduct, participate in, or
fund,
-1-
directly or indirectly, alone or with a Third Party, research, development or commercialization activities specifically
directed to any Antibody Products targeting Alpha-Synuclein except pursuant to this Agreement, and Roche and its
Affiliates, [***], will not conduct, participate in, or fund, directly or indirectly, alone or with a Third Party, research,
development or commercialization activities specifically directed to any Antibody Product targeting Alpha-Synuclein
except pursuant to this Agreement. [***].
3.2 [***]. [***].
-2-
[***] Certain information in this document has been excluded pursuant to Regulation S-K, Item 601(b)(10). Such excluded information is not
material and would likely cause competitive harm to the registrant if publicly disclosed.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed effective as of the Amendment
Effective Date by their duly authorized representatives as set forth below.
PROTHENA BIOSCIENCES LIMITED PROTHENA BIOSCIENCES INC
By: /s/ Ashley Keating By: /s/ Karin Walker
Name: Ashley Keating Name: Karin Walker
F. HOFFMANN-LA ROCHE LTD HOFFMANN-LA ROCHE INC.
Title: VP Technical Operations Title: Chief Accounting Officer
By: /s/ Stefan Arnold By: /s/ John P. Parise
Name: Stefan Arnold Name: John P. Parise
Title: Head Legal Pharma Title: Authorized Signatory
By: /s/ Tim Steven
Name: Tim Steven
Title: Global Alliance and Asset Management Director
3
Exhibit 10.29
RELEASE AGREEMENT
This Release Agreement (this “Agreement”) by and between A.W. Homan (“Executive”) and Prothena Biosciences Inc, a
Delaware corporation (the “Company”) is made effective as of the eighth day following the date that the Company and Executive
sign this Agreement (the “Effective Date”), with reference to the following facts:
A. Executive and the Company previously entered into that certain Amended and Restated Retirement Transition Letter
Agreement, dated as of July 1, 2019 (the “Retirement Letter”).
B. Pursuant to the Retirement Letter, Executive’s status as an officer of its ultimate parent entity Prothena Corporation plc
(“Prothena”) and as an officer and/or director of Prothena’s subsidiaries ended on July 1, 2019 (the “Officer Resignation Date”),
and Executive’s status as an employee of the Company ended on October 1, 2019 (the “Separation Date”).
C. Executive and the Company want to end their relationship amicably and also to confirm the obligations of the parties
including, without limitation, all amounts due and owing to Executive.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1.
Separation Date. Executive acknowledges and agrees that (i) Executive’s status as an officer of Prothena and as an
officer and/or director of Prothena’s subsidiaries ended on the Officer Resignation Date and (ii) Executive’s status as an employee
of the Company ended on the Separation Date.
2.
Final Paycheck; Reimbursement of Expenses.
(a)
Final Paycheck. Executive acknowledges that on the Separation Date, the Company paid to Executive all
accrued but unpaid wages and all accrued and unused vacation earned through the Separation Date (subject to standard payroll
deductions and withholdings). Executive is entitled to retain these payments regardless of whether Executive executes this
Agreement.
(b)
Business Expenses. As soon as administratively practicable after the Separation Date, the Company will
reimburse Executive for all outstanding business expenses incurred by Executive prior to the Separation Date that are consistent
with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to
the Company’s standard procedures with respect to reporting and documenting such expenses. Executive is entitled to and will
receive these reimbursements regardless of whether Executive executes this Agreement.
3.
Separation Payments and Benefits. Without admission of any liability, fact or claim, the Company hereby agrees,
subject to the execution of this Agreement and Executive’s
performance of Executive’s continuing obligations pursuant to this Agreement and the Employee Proprietary Information and
Invention Assignment Agreement between Executive and the Company (the “Confidentiality Agreement”), to provide Executive
the following payments and benefits as consideration for Executive’s promises in this Agreement:
(a)
Payment in Lieu of Bonus. In accordance with and subject to the terms of the Retirement Letter, the
Company will pay to Executive a lump-sum payment in the amount of $94,774.12 (before applicable tax and other withholdings),
which represents Executive’s target bonus for 2019 based on Executive’s eligible earnings for 2019 (the “Bonus-Related
Payment”). The Company will pay the Bonus-Related Payment, less applicable withholdings, to Executive within ten (10) business
days after the Effective Date.
(b)
Stock Options. In accordance with the terms of the Retirement Letter, each of Executive’s options to
purchase ordinary shares of Prothena (collectively, the “Options”) that is vested as of the Separation Date shall remain exercisable
through the first anniversary of the Separation Date. Any vested Options not exercised during such period shall terminate
immediately following the first anniversary of the Separation Date. Each of Executive’s Options that is unvested as of the
Separation Date shall terminate and be forfeited as of the Separation Date. The agreements evidencing the Options (the “Option
Agreements”) shall be deemed amended to the extent necessary to reflect this Section 3(b).
All payments under this Agreement will be subject to applicable tax and other withholdings. To the extent any taxes may be
payable by Executive for the benefits provided to Executive under this Agreement beyond those taxes withheld by the Company,
Executive will pay them and indemnify and hold the Company and the other Releasees (defined below) harmless for and against
any tax claims or penalties, and associated attorneys’ fees and costs, resulting from any failure by Executive to make required
payments.
4.
Full Payment. Executive acknowledges that the payments and arrangements provided for herein shall constitute
full and complete satisfaction of any and all amounts properly due and owing to Executive as a result of Executive’s employment
with the Company and the termination thereof. Executive further acknowledges that, other than the Confidentiality Agreement, the
Option Agreements, the Deed of Indemnification by and between Prothena and Executive (the “Indemnification Agreement”) and
the Retirement Letter, this Agreement shall supersede each agreement entered into between Executive and the Company or
Prothena regarding Executive’s employment, including, without limitation, any offer letter, employment agreement, severance
and/or change in control agreement, and each such agreement shall be deemed terminated and of no further effect as of the
Separation Date.
5.
Executive’s Release of the Company. Executive understands that by agreeing to the release provided by this
Section 5, Executive is agreeing not to sue, or otherwise file any claim against, the Company or any of the other Releases (defined
below) for any reason whatsoever based on anything that has occurred as of the date Executive signs this Agreement.
(a)
On behalf of Executive and Executive’s heirs, assigns, executors, administrators, trusts, spouse and estate,
Executive hereby releases and forever discharges the “Releasees” hereunder, consisting of the Company, and each of its owners,
affiliates,
2
subsidiaries, predecessors, successors, assigns, agents, directors, officers, partners, employees, and insurers, and all persons acting
by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of
action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, loss, cost or
expense, of any nature whatsoever, known or unknown, fixed or contingent (“Claims”), which Executive now has or may hereafter
have against the Releasees, or any of them, by reason of any matter, cause, or thing whatsoever from the beginning of time to the
date hereof, including, without limiting the generality of the foregoing, any Claims arising out of, based upon, or relating to
Executive’s hire, employment, remuneration or resignation by the Releasees, or any of them, Claims arising under federal, state, or
local laws relating to employment, Claims of any kind that may be brought in any court or administrative agency, including any
Claims for:
any pay, compensation, or benefits (whether under the Fair Labor Standards Act or otherwise)
including bonuses, commissions, equity, expenses, incentives, insurance, paid/unpaid leave, profit sharing or separation or
severance pay/benefits;
(i)
(ii)
costs, interest or penalties;
any compensatory, emotional or distress damages, punitive or liquidated damages, attorneys’ fees,
(iii)
intellectual property or other proprietary rights;
any violation of express or implied employment contracts, covenants, promises or duties,
(iv)
any unlawful or tortious conduct such as assault or battery, background check violations,
defamation, detrimental reliance, fiduciary breach, fraud, indemnification, intentional or negligent infliction of emotional distress,
interference with contractual or other legal rights, invasion of privacy, loss of consortium, misrepresentation, negligence (including
negligent hiring, retention, or supervision), personal injury, promissory estoppel, public policy violation, retaliatory discharge,
safety violations, posting or records-related violations, wrongful discharge, or other federal, state or local statutory or common law
matters;
(v)
any discrimination based on age (including under the Age Discrimination in Employment Act (the
“ADEA”)), benefit entitlement, citizenship, color, concerted activity, disability, ethnicity, gender, genetic information, immigration
status, leave rights, military status, national origin, parental status, protected off-duty conduct, race, religion, retaliation, sexual
orientation, union activity, veteran status, whistleblower activity (including under the Sarbanes-Oxley, Dodd-Frank and False
Claims Acts), other legally protected status or activity, or any allegation that payment under this Agreement was affected by any
such discrimination;
(vi)
any participation in any class or collective action against the Company.
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(b)
Notwithstanding the generality of the foregoing, Executive does not release the following claims:
insurance benefits pursuant to the terms of applicable state law;
(i)
Claims that cannot be waived, such as for unemployment compensation or any state disability
compensation insurance policy or fund of the Company;
(ii)
Claims for workers’ compensation insurance benefits under the terms of any worker’s
terms and conditions of COBRA;
(iii)
Claims to continued participation in certain of the Company’s group benefit plans pursuant to the
pursuant to written terms of any Company employee benefit plan;
(iv)
Claims for any benefit entitlement vested as the date of Executive’s employment termination,
(v)
(vi)
Claims for breach of this Agreement; and
Claims for indemnification under the Indemnification Agreement, the Company’s Bylaws,
Prothena’s Constitution, California Labor Code Section 2802 or any other applicable law.
(c)
Rights with Respect to Administrative Agencies. Neither the release section(s) above nor anything else in
this Agreement limit Executive’s rights to file a charge with any administrative agency, such as the U.S. Equal Employment
Opportunity Commission (the “EEOC”) or a state fair employment practices agency, communicate directly with or provide
information to an agency, or otherwise participate in an agency investigation or other administrative proceeding. However,
Executive does give up all rights to any money or other individual relief based on any agency or judicial decision, including class
or collective action rulings; provided, however, that Executive may receive money properly awarded to Executive by the U.S.
Securities and Exchange Commission as a reward for providing information to that agency.
(d)
Whistleblower Protection; Trade Secrets. For the avoidance of doubt, nothing in this Agreement will be
construed to prohibit Executive from filing a charge with, reporting possible violations to, or participating or cooperating with any
governmental agency or entity, including but not limited to the EEOC, the U.S. Department of Justice, the U.S. Securities and
Exchange Commission, the U.S. Congress, or any federal agency Inspector General, or making other disclosures that are protected
under the whistleblower, anti-discrimination, or anti-retaliation provisions of federal, state or local law or regulation; provided,
however, that Executive may not disclose information of the Company or Prothena that is protected by the attorney-client privilege,
except as otherwise required by law. Executive does not need the prior authorization of the Company to make any such reports or
disclosures, and Executive is not required to notify the Company that Executive has made such reports or disclosures. Furthermore,
in accordance with 18 U.S.C. § 1833, notwithstanding anything to the contrary in this Agreement: (i) Executive shall not be in
breach of this Agreement, and shall
4
not be held criminally or civilly liable under any federal or state trade secret law (x) for the disclosure of a trade secret that is made
in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a
suspected violation of law, or (y) for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit
or other proceeding, if such filing is made under seal; and (ii) if Executive files a lawsuit for retaliation by the Company for
reporting a suspected violation of law, Executive may disclose the trade secret to Executive’s attorney, and may use the trade secret
information in the court proceeding, if Executive files any document containing the trade secret under seal, and does not disclose
the trade secret, except pursuant to court order.
(e)
been advised of the following:
Acknowledgement. In accordance with the Older Workers Benefit Protection Act of 1990, Executive has
(i)
Executive should consult with an attorney before signing this Release;
Executive has been given at least twenty-one (21) days to consider this Release and Executive
must sign and return this Release to the Company within that time period if Executive wants to receive the payments or benefits
provide for in this Release; and
(ii)
(iii)
Executive has seven (7) days after signing this Release to revoke it, and Executive will not
receive the severance benefits provided by Section 3 of the Separation Agreement unless and until such seven (7) day period has
expired. If Executive wishes to revoke this Release, Executive must deliver notice of Executive’s revocation in writing, no later
than 5:00 p.m. Pacific Time on the 7th day following Executive’s execution of this Release to Kevin Hickey, the Company’s Vice
President, Human Resources, in person or by fax to (650) 745-2698.
(f)
EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS BEEN ADVISED OF AND IS FAMILIAR
WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING
PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY
AFFECTED HIS OR HER SETTLEMENT WITH THE DEBOR OR RELEASED PARTY.”
BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS EXECUTIVE
MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF
SIMILAR EFFECT.
6.
Promise Not To Sue. A “promise not to sue” means Executive promises not to sue any Releasee in court. This is
different from the release in Section 5. In addition to releasing claims covered by that release, Executive agrees never to sue any
Releasee for any reason covered by that release; provided, however, that Executive may file a suit to enforce this Agreement or to
challenge its validity under the ADEA. If Executive sues a Releasee in violation
5
of this Agreement Executive will be required to pay that Releasee’s attorneys’ fees and other litigation costs incurred in defending
against Executive’s suit, or alternatively the Company can require Executive to return all but $1,000 of the payments and benefits
provided to Executive under this Agreement; in addition, the Company will be excused from any remaining obligations that exist
solely because of this Agreement. This Section 6 shall not affect the validity of this Agreement and any payment provided for in
this Section 6 shall not be deemed to be a penalty or forfeiture.
7.
Non-Admission. Neither the Company’s offer of this Agreement nor any payment or benefit provided for in this
Agreement are an admission that Executive has a viable claim against the Company or any other Releasee. Each Releasee denies all
liability to Executive.
8.
Non-Disparagement, Transition, Transfer of Company Property.
(a)
Non-Disparagement. Executive will not disparage, criticize or defame the Company or Prothena, or their
respective affiliates or their directors, officers, employees, agents, partners, shareholders or businesses, either publicly or privately.
Prothena’s current directors and officers will not disparage, criticize or defame Executive, either publicly or privately. Nothing in
this Section 8(a) shall have application to any evidence or testimony required by any court, arbitrator or government agency.
(b)
Transition. Each of the Company and Executive will use their respective reasonable efforts to cooperate
with each other in good faith to facilitate a smooth transition of Executive’s duties to other employees of the Company or its
affiliates.
(c)
Return of Company Property. Executive has turned over to the Company all files, memoranda, records
and other documents, and any other physical or personal property which are the property of the Company and which Executive had
in Executive’s possession, custody or control as of the Separation Date.
9.
Executive Representations. Executive warrants and represents that (a) Executive has not filed or authorized the
filing of any complaints, charges or lawsuits against the Company, Prothena or any affiliate of either with any governmental agency
or court, and that if, unbeknownst to Executive, such a complaint, charge or lawsuit has been filed on Executive’s behalf, Executive
will immediately cause it to be withdrawn and dismissed, (b) Executive has been paid all compensation, wages, paid time off,
bonuses, commissions and/or benefits to which Executive may be entitled and no other compensation, wages, paid time off,
bonuses, commissions and/or benefits are due to Executive, except as provided in this Agreement, (c) Executive has no known
workplace injuries or occupational diseases and has been provided and/or has not been denied any leave requested under the Family
and Medical Leave Act or any similar state law, (d) Executive has had the opportunity to negotiate this Agreement with the
Company, Executive has had the opportunity seek the advice of Executive’s attorney, Executive has relied on Executive’s own
informed judgment and/or that of Executive’s attorney in deciding whether to enter into this Agreement, Executive understands the
terms of this Agreement, Executive has not relied upon any promises or representations not set forth in this Agreement in deciding
to enter into this Agreement, and Executive is signing this Agreement knowingly and voluntarily, (e) the execution, delivery and
performance of this Agreement by Executive
6
does not and will not conflict with, breach, violate or cause a default under any agreement, contract or instrument to which
Executive is a party or any judgment, order or decree to which Executive is subject, and (f) upon the execution and delivery of this
Agreement by the Company and Executive, this Agreement will be a valid and binding obligation of Executive, enforceable in
accordance with its terms.
10.
Maintaining Confidential Information. Executive reaffirms Executive’s obligations under the Confidentiality
Agreement. Executive acknowledges and agrees that the payments provided for in Section 3 above shall be subject to Executive’s
continued compliance with Executive’s obligations under the Confidentiality Agreement.
11.
Executive’s Cooperation. After the Separation Date, Executive will cooperate with the Company, Prothena and
their respective affiliates, upon their reasonable request, with respect to any internal investigation or administrative, regulatory or
judicial proceeding involving matters within the scope of Executive’s duties and responsibilities to the Company, Prothena or their
respective affiliates during Executive’s employment with the Company (including, without limitation, Executive being available to
the Company upon reasonable notice for interviews and factual investigations, appearing at the Company’s reasonable request to
give testimony without requiring service of a subpoena or other legal process, and turning over to the Company all relevant
Company documents which are or may have come into Executive’s possession during Executive’s employment); provided,
however, that any such request by the Company shall not be unduly burdensome or interfere with Executive’s ability to engage in
gainful employment.
12.
SEC Requirements Under Section 16.
(a)
Section 16(a) Reporting. Executive hereby certifies that Executive has reported to the Company all
ownership of and transactions in Prothena securities (including any change in the nature of Executive’s ownership in such
securities, such as by moving such securities from direct ownership into a trust account) that are required to be reported on a Form
3, Form 4 and/or Form 5 pursuant Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(b)
Section 16(b) Short-Swing Profit Liability. Executive acknowledges that to the extent Executive engaged
in any transaction in Prothena securities during the six-month period prior to the Officer Resignation Date, Executive will have
continuing obligations under Section 16(b) of the Exchange Act to disgorge profits on any “matchable” transaction in Prothena
securities for up to six (6) months following the Officer Resignation Date. Executive will not undertake, directly or indirectly, any
such transaction in Prothena securities that would be “matchable” under Section 16(b) of the Exchange Act.
13.
Section 409A of the Code. This Agreement is intended, to the greatest extent permitted under applicable law, to
comply with the short-term deferral exemption and the separation pay exemption provided in Section 409A of the Internal Revenue
Code of 1986, as amended, and the regulations and other interpretative guidance issued thereunder (“Section 409A”) such that no
payments or benefits provided under this Agreement are subject to Section 409A. Notwithstanding anything herein to the contrary,
the timing of any payments under this
7
Agreement shall be made consistent with such exemption. Executive’s right to receive a series of installment payments under this
Agreement, if any, shall be treated as a right to receive a series of separate payments. To the extent applicable, this Agreement shall
be interpreted in accordance with Section 409A, including without limitation any such regulations or other guidance that may be
issued after the Separation Date. Notwithstanding any provision of this Agreement to the contrary, in the event that the Company
determines that any amounts payable hereunder may be subject to Section 409A, the Company may, to the extent permitted under
Section 409A cooperate in good faith to adopt such amendments to this Agreement or adopt other appropriate policies and
procedures, including amendments and policies with retroactive effect, that the Company determines are necessary or appropriate
to avoid the imposition of taxes under Section 409A; provided, however, that this Section 13 shall not create an obligation on the
part of the Company to adopt any such amendment, policy or procedure or take any such other action, nor shall the Company have
any liability for failing to do so. To the extent that any reimbursements payable pursuant to this Agreement are subject to the
provisions of Section 409A, such reimbursements shall be paid to Executive no later than December 31 of the year following the
year in which the expense was incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for
reimbursement in any subsequent year, and Executive’s right to reimbursement under this Agreement will not be subject to
liquidation or exchange for another benefit.
14.
No Assignment by Executive. Executive warrants and represents that no portion of any of the matters released
herein, and no portion of any recovery or settlement to which Executive might be entitled, has been assigned or transferred to any
other person, firm or corporation not a party to this Agreement, in any manner, including by way of subrogation or operation of law
or otherwise. If any claim, action, demand or suit should be made or instituted against the Company or any other Releasee because
of any actual assignment, subrogation or transfer by Executive, Executive will indemnify and hold harmless the Company and all
other Releasees against such claim, action, suit or demand, including necessary expenses of investigation, attorneys’ fees and costs.
In the event of Executive’s death, this Agreement will inure to the benefit of Executive and Executive’s executors, administrators,
heirs, distributees, devisees and legatees. None of Executive’s rights or obligations under this Agreement may be assigned or
transferred by Executive, other than Executive’s rights to payments hereunder, which may be transferred only upon Executive’s
death by will or operation of law.
15.
Company Assignment and Successors. The Company may assign its rights and obligations under this Agreement
to any successor to all or substantially all of the business or assets of the Company (by merger or otherwise). This Agreement shall
be binding upon and inure to the benefit of the Company and its affiliates, successors, assigns, personnel and legal representatives.
16.
Enforceability. If any court or arbitrator(s) determines that any part of this Agreement is invalid unenforceable,
(a) the application of such provision shall be interpreted so as best to effect the intent of the parties to this Agreement, (b) the
parties shall replace such provision with a valid and enforceable provision that will achieve, to the greatest extent possible, the
purposes of such provision, and (c) the remainder of this Agreement shall be enforceable.
8
17.
Injunctive Relief. Executive acknowledges that Executive’s breaches this Agreement would cause the Company
irreparable harm for which money would not be adequate compensation. Executive therefore agrees that, in the event of
Executive’s breach of this Agreement, the Company shall be entitled to preliminary and permanent injunctive relief, in addition to
any other relief determined to be appropriate, as well as recovery of attorneys’ fees and other costs incurred by the Company to
enforce this Agreement.
18.
Waivers. Any waiver by the Company or by the Executive of any of right under this Agreement must be in
writing and signed by both parties to this Agreement. No waiver by the Company or Executive of any right shall be construed as a
waiver of any other right. No waiver or indulgence by the Company of any failure by Executive to keep or perform any promise or
condition of this Agreement shall be a waiver of any preceding or succeeding breach of the same or any other promise or condition.
19.
Miscellaneous. This Agreement, together with the Confidentiality Agreement, the Option Agreements, the
Indemnification Agreement and the Retirement Letter, comprise the entire agreement between the parties with regard to the subject
matter hereof and supersedes, in their entirety, any other agreements between Executive and the Company or Prothena with regard
to the subject matter hereof, including without limitation, the Severance Plan and the Incentive Plan. Executive acknowledges and
agrees that there are no other agreements, written, oral or implied, and that Executive may not rely on any prior negotiations,
discussions, representations or agreements. This Agreement may be modified only in writing, and such writing must be signed by
both parties and recited that it is intended to modify this Agreement. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together constitute one and the same agreement.
20.
Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of California or, where applicable, United States federal law, in each case, without regard
to any conflicts of laws provisions or those of any state other than California.
[Signature Page Follows]
9
IN WITNESS WHEREOF, the undersigned have caused this Separation and Release Agreement to be duly executed and delivered
as of the date indicated next to their respective signatures below.
/s/ A. W. Homan October 1, 2019
A.W. Homan Date
PROTHENA BIOSCIENCES INC
By: /s/ Michael J. Malecek October 1, 2019
Name: Michael J. Malecek Date
Title: Secretary and CLO
10
A. W. Homan
Attorney
[address redacted]
Exhibit 10.30
October 2, 2019
Prothena Biosciences Inc
331 Oyster Point Boulevard
South San Francisco, CA 94080
Attention: Michael J. Malecek, Chief Legal Officer and Secretary
RE: Engagement Agreement
Dear Mike:
This confirms that I have been engaged to provide legal advice and assistance to Prothena Biosciences Inc and its affiliates
(individually and collectively, the “Company”), as such advice and assistance may be requested by the Company and agreed by me.
This letter and the attached Terms of Engagement, which is incorporated herein by reference (collectively, this “Engagement
Agreement”), sets forth the terms of and shall govern that engagement unless we agree in writing on different terms.
If the terms of this Engagement Agreement are acceptable, please indicate the Company’s agreement by signing below and
returning this letter to me.
Best regards,
/s/ A. W. Homan
A. W. Homan
Attachment
ACCEPTED AND AGREED:
Prothena Biosciences Inc
By: /s/ Michael J. Malecek
Name: Michael J. Malecek
Title: Chief Legal Officer and Secretary
Date: October 2, 2019
1
Terms of Engagement
1.
Scope. In all matters in which I advise and assist the Company under the Engagement Agreement, I will provide services only
of a strictly legal nature. It is understood that the Company will not be relying on me for business, investment, accounting or tax
advice. The Company understands that I will not and cannot make any guarantee regarding the outcome of any matter.
2.
Fees. My hourly rate is $500.
Expenses. The Company will reimburse me for reasonable out-of-pocket travel and other expenses, without commission or
3.
mark-up, actually incurred by me to perform my services under this Engagement Agreement.
4.
Estimates; Maximum Amount Payable. To the extent that the Company requests that I provide an estimate of future fees
and expenses associated with a particular matter or service, the Company understands that any such estimate is only an estimate
based on a number of uncertain factors, as to which information is generally incomplete and constantly changing, and that the
actual fees and expenses will be determined in accordance with the provisions of our Engagement Agreement and may vary
significantly from that estimate.
5.
Invoices. I will submit to the Company a monthly invoice for services actually performed and expenses actually incurred.
Each such invoice will include (a) a description of the services performed, by date, and the amount of time spent for each service,
(b) the compensation earned by me at the hourly rate set forth in Section 2 above, and (c) the reimbursable expenses incurred by me
in accordance with Section 3 above. The Company will pay all undisputed amounts no later than thirty (30) days from its receipt of
the applicable invoice.
Confidentiality. I have an ethical obligation to preserve the confidences of the Company as my client. This duty of
6.
confidentiality is owed to the Company, and not to its shareholders, officers, directors or employees.
Conflicts of Interest. I will not undertake any representation of another client if the other representation is related to a matter
7.
in which I have represented the Company, unless I first obtain the Company’s written consent.
8.
Termination. I and the Company each have the right to terminate my engagement at any time.
Disposition of Files. I have a practice of destroying client files at various times after the completion of matters. I will make
9.
reasonable efforts to notify the Company in writing at least 30 days before the scheduled destruction date of any of its files. The
Company will then have the option to take possession of the files.
10.
Insurance. I have disclosed and the Company understands that I do not have professional liability insurance.
2
11.
Independent Counsel. The Company acknowledges that it has been given a reasonable opportunity to seek the advice of
independent counsel of its choice with respect to this Engagement Agreement, and that the Company has availed itself of that
opportunity if and to the extent the Company deemed it appropriate to do so.
3
List of Subsidiaries
Exhibit 21.1
Subsidiary Name
Jurisdiction of Incorporation or Organization
Prothena Biosciences Limited
Prothena Biosciences Inc
Prothena Finance Inc
Neotope Neuroscience Limited
Ireland
Delaware
Delaware
Ireland
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Prothena Corporation plc:
We consent to the incorporation by reference in the registration statements (Nos. 333-226724, 333-218184, 333-211653, 333-196572 and 333-187726) on
Form S-8 and the registration statements (Nos. 333-231675, 333-223207, 333203258, 333-197006, 333-196965 and 333-193416) on Form S-3 of Prothena
Corporation plc of our reports dated March 3, 2020, with respect to the consolidated balance sheets of Prothena Corporation plc as of December 31, 2019 and
2018, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in
the December 31, 2019 annual report on Form 10‑K of Prothena Corporation plc.
Our report refers to a change in the Company’s method of accounting for leases as of January 1, 2019 due to the adoption of the Financial Accounting
Standards Board’s Accounting Standards Codification (ASC) Topic 842, Leases.
San Francisco, California
March 3, 2020
/s/ KPMG LLP
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Gene G. Kinney, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Prothena Corporation plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 3, 2020
/s/ Gene G. Kinney
Gene G. Kinney
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Tran B. Nguyen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Prothena Corporation plc;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 3, 2020
/s/ Tran B. Nguyen
Tran B. Nguyen
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Gene G. Kinney, President and Chief Executive Officer of Prothena Corporation plc (the
“Company”) and Tran B. Nguyen, Chief Financial Officer of the Company, each hereby certify that, to the best of his knowledge:
1. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, to which this Certification is attached as Exhibit 32.1 (the
“Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 3, 2020
/s/ Gene G. Kinney
Gene G. Kinney
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Tran B. Nguyen
Tran B. Nguyen
Chief Financial Officer
(Principal Financial Officer)
A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been
provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or
after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.