PTC Therapeutics

Moat: 3/5

Understandability: 4/5

Balance Sheet Health: 3/5

PTC Therapeutics is a global biopharmaceutical company focused on the discovery, development and commercialization of orally administered treatments for rare diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

PTC Therapeutics, Inc., is a pharmaceutical company that develops treatments for rare diseases. Their core platform revolves around utilizing its scientific expertise in RNA biology to create and commercialize treatments for patients with life-limiting diseases, emphasizing a long-term commitment to building sustainable value for all stakeholders.

Business Overview:

  • Revenue Streams: PTC’s revenue is largely derived from the sale of its commercial products, primarily Translarna (for Duchenne muscular dystrophy) and Evrysdi (for spinal muscular atrophy), both of which are prescription medications. Additionally, the company gains revenue through collaborations and royalty payments linked to the success of its clinical programs and partnerships. Notably, PTC has multiple revenue streams, including some which have been expanded internationally. As of the latest report, the company’s revenue streams are split between the US and ex-US markets with an almost equal contribution.

  • Industry Trends: The biopharmaceutical industry is marked by several trends that significantly impact a company’s operations and potential for long-term success. First, the approval process for new drugs can take years and involve high investments in research and clinical trials, during which there is always significant uncertainty over the final results. Second, regulatory changes, as well as the speed at which regulators approve treatments, can significantly influence a company’s economics. Third, the demand for specialized treatments, especially for rare diseases, is growing which is driving drug prices higher and increasing the profitability of innovative treatments.

  • Margins: PTC has struggled with consistent margins due to the high R&D spending and fluctuations in commercial revenue. While the business has shown a remarkable 20% growth in revenue year over year, it still reported a net loss, reflecting its inability to achieve profitability as of today. Even adjusted gross margins are in the 50-60% range. The company believes a higher mix of revenue from its more profitable products and improving operating margins will make the company profitable in the future.

  • Competitive Landscape: The pharmaceutical industry is intensely competitive with established giants having deep pockets to invest heavily in research and development, sales, and marketing. In addition, competition arises from the development of novel treatments which can steal market share from existing therapies. Generic drugs and biosimilars also represent a threat, eroding profitability of innovator drugs when their patents expire. PTC’s competitive advantage stems from its focus on specialized rare-disease treatments, which have less competition than mass-market diseases. They rely on strong clinical results, and patient outcomes for which their treatments are specifically designed. A robust pipeline also helps in mitigating the competitive threat and building a sustainable moat.

  • What Makes the Company Different: PTC distinguishes itself through a focus on oral, small-molecule therapies for rare diseases—a less invasive approach that contrasts with many injectables used to treat rare illnesses. This approach is not only more patient-friendly, but it gives PTC a niche area to explore, innovate, and commercialize treatments. In addition, the company has built a diversified pipeline, meaning they are less dependent on any one particular drug for their revenue. The company has a proprietary technology platform that provides a competitive advantage in the development of new drugs.

  • Other Relevant Factors: PTC also focuses on providing access to innovative therapies globally. A company’s ability to access different markets around the world, can help it increase total revenue. However, global expansion involves regulatory, currency and logistic risks. The company is also focused on building partnerships and collaborations to expand their reach and capabilities. In addition, the company is focusing on novel modalities like gene therapy, mRNA, and small molecules to stay on the leading edge of innovative science.

Financials In-Depth:

  • Revenues: PTC Therapeutics saw its total revenues jump to $973.2 million for the full year of 2023, an impressive growth of 20% year-over-year. This included product sales, royalties, and other revenue contributions. Product revenues increased from $517.2 million in 2022 to $616.1 million in 2023, while royalty revenue increased from $263.8 million to $314 million. PTC also generated collaboration revenue of $43.1 million. The recent approval of Translarna in Brazil will add to the company’s commercial sales in the future. The company’s most important drug, Evrysdi, is expected to generate robust growth in 2024, which will lead to increased sales.

  • Profitability: The company’s profitability remains a major area of concern for investors. For the year 2023, the company reported a net loss of $707.8 million, which is in-line with the previous year’s net loss of $710 million. The company is still spending a huge amount of money on R&D ($538.2 million in 2023, up from $500.3 million in the previous year). While gross margins are close to 60% for product sales, other revenues have much lower margins. The high research and development, as well as manufacturing and distribution, costs contribute to these losses.

  • Balance Sheet: The balance sheet shows cash and cash equivalents of approximately $482 million as of December 31, 2023, a decrease from $550 million as of December 31, 2022. The company has a total debt outstanding of $602 million. The company’s current liabilities are less than current assets, but the company still has large operating losses.

  • Share Dilution: Management continues to make stock offerings, which dilute the value of ownership per share. While this is a method to raise more capital, and continue the research and development pipeline, shareholders might be negatively affected.

It’s important to note that most of the drugs PTC is developing are for small-patient populations with very few or no alternative treatments. Such drugs are often eligible for priority reviews and other similar incentives that can help reduce time to market. But because of the niche nature of the market, the revenue opportunity will likely be lower than that for drugs that address larger patient pools.

PTCT expects the SMA patient population to be 15,000 to 20,000 in the US over the coming years, with 10-20% of the patients being adults, and the rest being diagnosed at an early age. The company is focusing on increasing awareness of these patients with the physicians in the respective countries. For AADC deficiency, the company expects less than 500 patients in the US and around 1000 patients worldwide. For these diseases, PTC is the only company with a therapy approved for them. In a conference call, the management stated that the US market for Duchenne Muscular Dystrophy is approximately 12,000 patients, and only around 10% of the patients are currently taking treatment.

Moat Rating: 3 / 5

  • Justification: PTC’s competitive advantage stems from its proprietary drug platforms for developing treatments targeting rare diseases that few companies can. The company’s expertise in RNA biology and its ability to translate this expertise to develop practical treatments give it a certain degree of uniqueness. In addition, the company’s current drugs serve small patient populations that other companies are less motivated to enter, providing a niche advantage. However, the company is unable to make large enough profits, which indicates the lack of a wide moat.

Risks to Moat and Business Resilience:

  • Regulatory Risks: Changes in FDA (Food and Drug Administration) regulations or other health regulatory laws can significantly affect PTC’s ability to bring their drugs to the market.
  • Patent Expiry: As patents of its proprietary drugs expire, generic competitors can eat into market share. In addition, legal action might challenge the patents of the drugs, which can severely hurt the company. A lot of its value and market capitalization comes from its current drugs with very little revenue coming from new drugs.
  • Clinical Trial Failures: There is always risk that drugs in the pipeline won’t successfully translate from clinical trial results to actual commercial products.
  • Competition: Competitors can develop similar or more effective treatments. Companies with more resources or a wider R&D pipeline can quickly gain market share.
  • Dilution and Debt: In order to fund operations, the company may take further equity issuances, reducing the value of shareholder equity. Rising interest rates and large debts are a challenge for any company, but in particular for smaller drug companies, which often use debt and dilute equity. The company needs to become profitable so that it can self-sustain and reduce its reliance on outside funding.

  • Manufacturing: PTC relies on contract manufacturers for both active drug substance, and final fill and finish. The quality and timely delivery of finished products depend on maintaining a smooth supply chain, which can be subject to disruption from political or other factors.

  • Business Resilience: In terms of Business resilience, PTC has a very strong clinical expertise and a proven R&D process, which enables it to create novel treatments for different diseases. However, because they are still not consistently profitable, they are highly dependent on future sales growth and collaborations to continue their operations. They also focus on creating value in multiple areas, including new modalities and research areas, thus, giving it a wide range of opportunities to create a future-proof enterprise.

Understandability: 4 / 5

  • Justification: While the underlying science of rare disease treatments can be complex, the business model of selling specialty pharmaceutical products is relatively easy to grasp. However, the complexity of its financials due to its several revenue sources, various collaborations, and complicated research pipelines makes it slightly harder to understand the company’s performance fully.

Balance Sheet Health: 3 / 5

  • Justification: While the balance sheet has a reasonable amount of cash reserves, they also have quite a high debt to pay off. With large operating losses, and the company’s inability to become profitable, it gets a very weak rating. The company’s ability to manage its debt in the future is dependent on them becoming profitable. If their drugs don’t gain traction, the company may have liquidity issues.