Protagonist Therapeutics, Inc 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2020. Forward-Looking Statements This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the potential for eventual regulatory approval and commercialization of our product candidates and our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results or the ability to generate sales, income or cash flow, and the impact of the recent and evolving COVID-19 pandemic are forward-looking statements. They involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those discussed in Part II, Item 1A, of this Quarterly Report. While we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. “Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc. in the United States and other jurisdictions. Overview We are a clinical-stage biopharmaceutical company that utilizes a proprietary technology platform to discover and develop novel peptide-based drugs to address significant unmet medical needs and transform existing treatment paradigms for patients. We have three assets in various stages of clinical development derived from this platform. 26 Table of Contents Our Product Pipeline ​ Our most advanced clinical asset, PTG-300, is an injectable hepcidin mimetic in development for the potential treatment of erythrocytosis, iron overload and other blood disorders. Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells. PTG-300 mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability. We initiated a Phase 2 study in polycythemia vera (“PV”) in the third quarter of 2019 and a Phase 2 study in hereditary hemochromatosis (“HH”) in January 2020. Preliminary and early results from our initial Phase 2 PV efficacy data from a small number of patients demonstrates the ability of PTG-300 to eliminate the need for phlebotomy by controlling hematocrit levels below 45% on an individual patient basis. PTG-300 has a unique mechanism of action in the potential treatment of PV, which allows it to decrease and maintain hematocrit levels within the range of recommended clinical guidelines without causing the iron deficiency that may occur with frequent phlebotomy. We have announced the selection of PV as our first indication for a potential pivotal study to begin in 2021. In June 2020, the U.S. Food and Drug Administration granted orphan drug designation for PTG-300 for the treatment of PV. We are discontinuing development of PTG-300 for beta-thalassemia and myelodysplastic syndromes and will redirect the majority of our PTG-300 efforts to the PV indication, while also continuing our exploration of PTG-300 in HH. ​ Our clinical assets PTG-200 and PN-943 are orally delivered drugs currently in development for inflammatory bowel disease (“IBD”), a gastrointestinal (“GI”) disease consisting primarily of ulcerative colitis (“UC”) and Crohn’s disease (“CD”), that block biological pathways currently targeted by marketed injectable antibody drugs. Our orally stable peptide approach offers targeted delivery to the GI tissue compartment. We believe that, compared to antibody drugs, these product candidates have the potential to provide improved safety due to minimal exposure in the blood, increased convenience and compliance due to oral delivery, and the opportunity for the earlier introduction of targeted oral therapy. As a result, if approved, they may transform the existing treatment paradigm for IBD. PTG-200 (also referenced as JNJ-67864238) is an orally delivered gut-restricted Interleukin-23 receptor (“IL-23R”) antagonist for the treatment of IBD. In May 2017, we entered into a worldwide license and collaboration agreement with Janssen Biotech, Inc. (“Janssen”), a Johnson & Johnson company, to co-develop and co-detail PTG-200 and certain related compounds for all indications, including IBD. The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL-23R antagonists, triggering a 27 Table of Contents $25.0 million milestone payment to us. In January 2020, as part of the expanded research collaboration, we announced the identification and nomination of an orally delivered, gut-restricted IL-23R antagonist peptide as a second-generation development candidate, triggering a $5.0 million milestone payment to us. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information. Janssen initiated a global Phase 2 clinical study for PTG-200 in moderate-to-severe Crohn’s disease in the fourth quarter of 2019. Because of the COVID-19 pandemic, we have suspended guidance on a timeline for study completion. Joint research efforts are underway to identify second-generation oral IL-23 receptor antagonists for multiple indications. ​ PN-943 is an orally delivered, gut-restricted, alpha-4-beta-7 (“α4β7”) specific integrin antagonist. We developed PN-943 as a potentially more potent orally delivered, gut-restricted α4β7 backup compound to PTG-100, our first-generation orally delivered gut-restricted α4β7 inhibitor that was being developed for treatment of IBD. In 2019, we completed a Phase 1 single ascending dose (“SAD”) and multiple ascending dose (“MAD”) clinical study of PN-943 in healthy volunteers to evaluate safety, pharmacokinetics and pharmacodynamics. The pharmacodynamic results indicated that the administration of PN-943 was well tolerated with results of target engagement that were supportive of the higher potency of PN-943 as compared to PTG-100. We submitted a U.S. IND for PN-943 in December 2019, which took effect in January 2020, and anticipate initiating a Phase 2 proof of concept (“POC”) study in UC. In light of the COVID-19 pandemic, we are continuing to review all aspects of the planned Phase 2 study and are suspending guidance on a timeline for study initiation. We are maintaining readiness to initiate the study as soon as conditions allow for safe accrual of subjects for the study. Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer novel, structurally constrained peptides that retain key advantages of both orally delivered small molecules and injectable antibody drugs, while overcoming many of their limitations as therapeutic agents. Importantly, constrained peptides can be designed to alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to use our peptide technology platform to discover product candidates against targets in disease areas with significant unmet medical needs. Impact of COVID-19 on Our Business ​ We are subject to risks and uncertainties as a result of the COVID-19 pandemic. We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and have taken and continue to take proactive efforts to protect the health and safety of our patients, clinical research staff and employees, and to maintain business continuity. The extent of the impact of the COVID-19 pandemic on our activities is highly uncertain and difficult to predict, as the pandemic and the response to the pandemic continue to rapidly evolve. Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and the pandemic has contributed to a global economic recession. Such economic disruption could have a material adverse effect on our business. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain. ​ The severity of the impact of the COVID-19 pandemic on our activities will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on our existing and planned clinical trials and collaboration activities, all of which are uncertain and cannot be predicted. Our future results of operations and liquidity could be adversely impacted by delays in existing and planned clinical trials and collaboration activities, difficulty in recruiting patients for these clinical trials, supply chain disruptions, the impact on employees and the impact of any initiatives or programs that we may undertake to address financial and operational challenges. As of the date of issuance of this Quarterly Report on Form 10-Q, the extent to which the COVID-19 pandemic may materially impact our future financial condition, liquidity or results of operations is uncertain. Operations We have incurred net losses in each year since inception and we do not anticipate achieving sustained profitability in the foreseeable future. Our net loss was $19.4 million and $39.5 million for the three and six months ended June 30, 2020, respectively. Our net loss was $29.2 million and $43.3 million for the three and six months ended 28 Table of Contents June 30, 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $257.2 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant research, development and other expenses related to our ongoing operations and product development, including clinical development activities under our worldwide license and collaboration agreement with Janssen, and, as a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approval for, our product candidates. Janssen License and Collaboration Agreement On May 26, 2017, we and Janssen, one of the Janssen Pharmaceutical Companies of Johnson & Johnson, entered into an exclusive license and collaboration agreement for the clinical development, manufacture and potential commercialization of PTG-200 worldwide for the treatment of CD and UC (the “Janssen License and Collaboration Agreement”), which was subsequently amended effective May 7, 2019 (the “First Amendment”). Janssen is a related party to us as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. During the third quarter of 2017, we received a non-refundable, upfront cash payment of $50.0 million from Janssen. During the second quarter of 2019, we received a non-refundable cash payment of $25.0 million upon execution of the First Amendment. During the fourth quarter of 2019, we became eligible to receive a cash payment of $5.0 million upon the successful nomination of a second-generation development candidate, which we received during the first quarter of 2020. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information. Critical Accounting Polices and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. Use of Estimates Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We have taken into consideration any known COVD-19 impacts in our accounting estimates to date and are not aware of any additional specific events or circumstances that would require any additional updates to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. ​ Stock-Based Compensation We recognize compensation costs related to stock options accounted for under Accounting Standards Codification Topic 718 – “ Stock Compensation” based on the estimated fair value of the awards on the date of grant. We estimate the fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The estimated fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. 29 Table of Contents The Black-Scholes option-pricing model requires the use of subjective assumptions which determine the fair value of stock-based awards. Expected volatility generally requires significant judgement to determine. Prior to January 1, 2020, our expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. Beginning January 1, 2020, our expected volatility was estimated based upon a mix of 75% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25% of the volatility of our own stock price since our initial public offering in August 2016. The comparable companies were chosen based on their similar size, stage in the life cycle, or area of specialty. We will continue to apply this process until a longer period of historical information regarding the volatility of our own stock price becomes available. There have been no other material changes in our critical accounting policies during the three and six months ended June 30, 2020, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 10, 2020. Components of Our Results of Operations License and Collaboration Revenue Our license and collaboration revenue is derived from payments we receive under the Janssen License and Collaboration Agreement. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information. Research and Development Expenses Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made. In instances where we enter into agreements with third parties to provide research and development services to us, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service and may include upfront payments, monthly payments, and payments upon the completion of milestones or the receipt of deliverables. Research and development expenses consist primarily of the following: ● expenses incurred under agreements with clinical study sites that conduct research and development activities on our behalf; ● employee-related expenses, which include salaries, benefits and stock-based compensation; ● laboratory vendor expenses related to the preparation and conduct of pre-clinical, non-clinical, and clinical studies; ● costs related to production of clinical supplies and non-clinical materials, including fees paid to contract manufacturers; ● license fees and milestone payments under license and collaboration agreements; and ● facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies. 30 Table of Contents We recognize the funds from grants under government programs as a reduction of research and development expenses when the related research costs are incurred. In addition, we recognize the funds related to our Australian research and development tax incentive that are not subject to refund provisions as a reduction of research and development expenses. The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available. We may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive. We allocate direct costs and indirect costs incurred to product candidates when they enter clinical development. For product candidates in clinical development, direct costs consist primarily of clinical, pre-clinical, and drug discovery costs, costs of supplying drug substance and drug product for use in clinical and pre-clinical studies, including clinical manufacturing costs, contract research organization fees, and other contracted services pertaining to specific clinical and pre-clinical studies. Indirect costs allocated to our product candidates on a program specific basis include research and development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative support costs. Program-specific costs are unallocated when the clinical expenses are incurred for our early stage research and drug discovery projects, our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not provide financial information regarding the costs incurred for early stage pre-clinical and drug discovery programs on a program-specific basis prior to the clinical development stage. The following table summarizes our research and development expenses incurred during the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ ​ June 30, ​ June 30, ​ 2020 2019 2020 2019 ​ ​ (In thousands) Clinical and development expense — PN-943 ​ $ 7,002 ​ $ 6,032 ​ $ 14,020 ​ $ 10,240 Clinical and development expense — PTG-300 ​ ​ 7,753 ​ ​ 8,063 ​ ​ 14,559 ​ ​ 13,816 Clinical and development expense — PTG-200 ​ ​ 40 ​ ​ 2,774 ​ ​ 925 ​ ​ 3,853 Clinical and development expense — PTG-100 ​ ​ 12 ​ ​ 280 ​ ​ 193 ​ ​ 935 Pre-clinical and drug discovery research expense ​ ​ 5,633 ​ ​ 891 ​ ​ 9,916 ​ ​ 2,270 Grants and incentives (reimbursement) expense, net ​ (183) ​ 1,315 ​ (588) ​ 685 Total research and development expenses ​ $ 20,257 ​ $ 19,355 ​ $ 39,025 ​ $ 31,799 ​ We expect our clinical development expenses will increase as we progress our product candidates, including development activities under the Janssen License and Collaboration Agreement, advance our discovery research projects into the pre-clinical stage and continue our early stage research. The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval is costly and time intensive. We may never succeed in achieving marketing approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data, competition, manufacturing capability, market conditions and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources. General and Administrative Expenses General and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies. We expect to continue to incur expenses to support our continued operations as a public company, including expenses related to existing and future compliance with rules and regulations of the SEC and those of the national securities exchange on which our 31 Table of Contents securities are traded, insurance expenses, investor relations, professional services and general overhead and administrative costs. Interest Income Interest income consists of interest earned on our cash, cash equivalents, and marketable securities, which is comprised of contractual interest, premium amortization and discount accretion. Interest Expense Interest expense consists of interest recognized on our long-term debt, which is comprised of contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees. Loss on Early Repayment of Debt Loss on early repayment of debt consists of prepayment and final payment fees paid upon the early repayment of our long-term debt. Other Income (Expense), Net Other income (expense), net consists primarily of amounts related to foreign exchange gains and losses and related items. Results of Operations Comparison of the Three Months Ended June 30, 2020 and 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ June 30, ​ Dollar ​ % ​ 2020 2019 Change Change ​ ​ (Dollars in thousands) ​ ​ License and collaboration revenue - related party ​ $ 6,217 ​ $ (8,189) ​ $ 14,406 ​ 176 Operating expenses: ​ ​ ​ Research and development (1) ​ ​ 20,257 ​ ​ 19,355 ​ ​ 902 5 General and administrative (2) ​ 4,177 ​ 3,863 ​ 314 8 Total operating expenses ​ 24,434 ​ 23,218 ​ 1,216 5 Loss from operations ​ (18,217) ​ (31,407) ​ 13,190 (42) Interest income ​ 207 ​ 641 ​ (434) (68) Interest expense ​ ​ (209) ​ ​ — ​ ​ (209) ​ 100 Loss on early repayment of debt ​ ​ (585) ​ ​ — ​ ​ (585) ​ 100 Other income (expense), net ​ ​ 512 ​ ​ (37) ​ ​ 549 ​ 1,484 Loss before income tax (expense) benefit ​ ​ (18,292) ​ ​ (30,803) ​ ​ 12,511 ​ (41) Income tax (expense) benefit ​ ​ (1,129) ​ ​ 1,629 ​ ​ (2,758) ​ (169) Net loss ​ $ (19,421) ​ $ (29,174) ​ $ 9,753 (33) (1) Includes $1.0 million of non-cash stock-based compensation expense for both the three months ended June 30, 2020 and 2019. (2) Includes $1.0 million of non-cash stock-based compensation expense for both the three months ended June 30, 2020 and 2019. 32 Table of Contents ​ License and Collaboration Revenue License and collaboration revenue increased $14.4 million, or 176%, from ($8.2) million for the three months ended June 30, 2019 to $6.2 million for the three months ended June 30, 2020. The increase in license and collaboration revenue was primarily due to the previously reported 2019 one-time cumulative adjustment related to the application of revenue recognition principles following the May 2019 amendment of the Janssen License and Collaboration agreement that had reduced revenue by $9.4 million for the three months ended June 30, 2019. The contract modification resulted in an increase in the transaction price and additional deliverables under the initial performance obligation, leading to an overall corresponding decrease in the cumulative percentage of completion of our performance obligation for the Janssen License and Collaboration Agreement during the second quarter of 2019. In addition, revenue increased during the second quarter of 2020 due to an increase in services provided under the initial performance obligation, as well as additional services performed outside of the initial performance obligation. We concluded that the transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $113.9 million as of June 30, 2020, an increase of $0.3 million from the transaction price of $113.6 million as of March 31, 2020. In order to determine the transaction price, we evaluated all payments expected to be received during the duration of the contract, net of Phase 2 development costs reimbursement expected to be payable to Janssen. We determined that the transaction price of the initial performance obligation includes the $50.0 million upfront payment, the $25.0 million payment received upon the effectiveness of the First Amendment, the $5.0 million payment triggered by the successful nomination of a second-generation compound, $18.4 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for the initial year of second-generation compound research costs and other services, and $15.5 million of estimated variable consideration, which includes a $7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound. The increase in transaction price from March 31, 2020 to June 30, 2020 was due primarily to an increase in variable consideration related to additional expected services to be delivered. We re-evaluate the transaction price each reporting period and as uncertain events are resolved or other changes in circumstances occur. Research and Development Expenses Research and development expenses increased $0.9 million, or 5%, from $19.4 million for the three months ended June 30, 2019 to $20.3 million for the three months ended June 30, 2020. The increase was primarily due to an increase of $4.7 million in pre-clinical and discovery research expense, including costs related to our second generation research collaboration efforts with Janssen, and an increase of $1.0 million in PN-943 clinical trial and development costs including Phase 2 trial costs. These increases were partially offset by a decrease of $2.7 million in costs related to PTG-200 where Janssen is responsible for 80% of Phase 2 development costs, a $1.5 million increase in grant and incentive reimbursements, and a decrease of $0.3 million in PTG-300 clinical trial and development costs due primarily to the discontinuation of PTG-300 activities for beta-thalassemia. ​ General and Administrative Expenses General and administrative expenses increased $0.3 million, or 8%, from $3.9 million for the three months ended June 30, 2019 to $4.2 million for the three months ended June 30, 2020 primarily due to increases of $0.3 million in insurance costs and $0.2 million in salaries expense to support the growth of our operations, partially offset by a $0.1 million decrease in employee-related costs and other expenses. Interest Income Interest income decreased $0.4 million, or 68%, from $0.6 million for the three months ended June 30, 2019 to $0.2 million for the three months ended June 30, 2020. This decrease was due primarily to the declining interest rate environment and a change in the mix of marketable securities compared to the prior year period, despite higher interest-earning asset balances held during the latter part of the second quarter of 2020 from the investment of funds from our May 2020 public offering and ATM sales. 33 Table of Contents Interest Expense Interest expense of $0.2 million for the three months ended June 30, 2020 reflects contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees on our term loan that funded in October 2019 and was repaid in full in June 2020. We had no debt outstanding during the three months ended June 30, 2019. Loss on Early Repayment of Debt Loss on early repayment of debt of $0.6 million for the three months ended June 30, 2020 reflects prepayment and final payment fees paid in connection with the repayment of our term loan that was funded in October 2019 and was repaid in full in June 2020. We had no debt outstanding during the three months ended June 30, 2019. Other Income (Expense), Net Other income (expense), net of $0.5 million for the three months ended June 30, 2020 reflects a foreign currency revaluation gain. Income Tax Expense Income tax expense increased $2.8 million, or 169%, from a tax benefit of $1.6 million for the three months ended June 30, 2019 to income tax expense of $1.1 million for the three months ended June 30, 2020. Our effective income tax rate was 6.2% for the three months ended June 30, 2020 as compared to (5.3)% for the three months ended June 30, 2019. During the second quarter of 2020, our Australia subsidiary sold beneficial rights to discovery intellectual property to our U.S. entity, and the U.S. entity reimbursed the Australia subsidiary for certain direct development costs. Upon completion of the sale, we analyzed tax planning strategies and future income and concluded that a valuation allowance is necessary for our Australia subsidiary. Income tax expense for the three and six months ended June 30, 2020 reflects this sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset, establishing valuation allowance and certain uncertain tax position liabilities. Income tax benefit for the three months ended June 30, 2019 included a discrete tax benefit of approximately $1.1 million for the 2017 Australia refundable R&D tax offset. Comparison of the Six Months Ended June 30, 2020 and 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ ​ ​ ​ ​ June 30, ​ Dollar ​ % ​ 2020 2019 Change Change ​ ​ (Dollars in thousands) ​ ​ License and collaboration revenue - related party ​ $ 9,864 ​ $ (6,629) ​ $ 16,493 ​ 249 Operating expenses: ​ ​ ​ Research and development (1) ​ ​ 39,025 ​ ​ 31,799 ​ ​ 7,226 23 General and administrative (2) ​ 8,753 ​ 7,627 ​ 1,126 15 Total operating expenses ​ 47,778 ​ 39,426 ​ 8,352 21 Loss from operations ​ (37,914) ​ (46,055) ​ 8,141 (18) Interest income ​ 733 ​ 1,372 ​ (639) (47) Interest expense ​ ​ (452) ​ ​ — ​ ​ (452) ​ 100 Loss on early repayment of debt ​ ​ (585) ​ ​ — ​ ​ (585) ​ 100 Other income (expense), net ​ ​ 22 ​ ​ (39) ​ ​ 61 ​ 156 Loss before income tax (expense) benefit ​ ​ (38,196) ​ ​ (44,722) ​ ​ 6,526 ​ (15) Income tax (expense) benefit ​ ​ (1,305) ​ ​ 1,445 ​ ​ (2,750) ​ (190) Net loss ​ $ (39,501) ​ $ (43,277) ​ $ 3,776 (9) (1) Includes $2.1 million and $1.0 million of non-cash stock-based compensation expense for the six months ended June 30, 2020 and 2019, respectively. 34 Table of Contents (2) Includes $2.0 million and $1.0 million of non-cash stock-based compensation expense for the six months ended June 30, 2020 and 2019, respectively. ​ License and Collaboration Revenue License and collaboration revenue increased $16.5 million, or 249%, from ($6.6) million for the six months ended June 30, 2019 to $9.9 million for the six months ended June 30, 2020. The increase in license and collaboration revenue was primarily due to the previously reported 2019 one-time cumulative adjustment related to the application of revenue recognition principles following the May 2019 amendment of the Janssen License and Collaboration agreement that had reduced revenue by $9.4 million for the six months ended June 30, 2019. he contract modification resulted in an increase in the transaction price and additional deliverables under the initial performance obligation, leading to an overall corresponding decrease in the cumulative in percentage of completion of our performance obligation for the Janssen License and Collaboration Agreement during the second quarter of 2019. In addition, revenue increased during the six months ended June 30, 2020 due to an increase in services provided under the initial performance obligation, as well as additional services performed outside of the initial performance obligation. We concluded that the transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $113.9 million as of June 30, 2020, an increase of $1.0 million from the transaction price of $112.9 million as of December 31, 2019. In order to determine the transaction price, we evaluated all payments expected to be received during the duration of the contract, net of Phase 2 development costs reimbursement expected to be payable to Janssen. We determined that the transaction price of the initial performance obligation includes the $50.0 million upfront payment, the $25.0 million payment received upon the effectiveness of the First Amendment, the $5.0 million payment triggered by the successful nomination of a second-generation compound, $18.4 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for the initial year of second-generation compound research costs and other services, and $15.5 million of estimated variable consideration, which includes a $7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound. The increase in transaction price from December 31, 2019 to June 30, 2020 was due primarily to an increase in variable consideration related to additional expected services to be delivered. We re-evaluate the transaction price each reporting period and as uncertain events are resolved or other changes in circumstances occur. Research and Development Expenses Research and development expenses increased $7.2 million, or 23%, from $31.8 million for the six months ended June 30, 2019 to $39.0 million for the six months ended June 30, 2020. The increase was primarily due to an increase of $7.6 million in pre-clinical and discovery research expense, including costs related to our second generation research collaboration efforts with Janssen, an increase of $3.7 million in PN-943 clinical trial and development costs including Phase 2 trial costs, and an increase of $0.7 million in PTG-300 clinical trial and development costs. These increases were partially offset by a decrease of $2.9 million in costs related to PTG-200 where Jansen is responsible for 80% of Phase 2 development costs, a $1.3 million increase in grant and incentive reimbursements and a decrease of $0.7 million in PTG-100 clinical trial and development costs as we moved our development efforts to PN-943, our more potent backup compound to PTG-100. ​ General and Administrative Expenses General and administrative expenses increased $1.1 million, or 15%, from $7.6 million for the six months ended June 30, 2019 to $8.8 million for the six months ended June 30, 2020 primarily due to increases of $0.5 million in insurance costs, $0.4 million in salaries expense to support the growth of our operations and $0.2 million in legal fees and other expenses. Interest Income Interest income decreased $0.6 million, or 47%, from $1.4 million for the six months ended June 30, 2019 to $0.7 million for the six months ended June 30, 2020. This decrease was due primarily to the declining interest rate environment and a change in the mix of marketable securities compared to the prior year period, despite higher interest- 35 Table of Contents earning asset balances held during the latter part of the second quarter of 2020 from the investment of funds from our May 2020 public offering and ATM sales. Interest Expense Interest expense of $0.5 million for the six months ended June 30, 2020 reflects contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees on our term loan that funded in October 2019 and was repaid in full in June 2020. We had no debt outstanding during the six months ended June 30, 2019. Loss on Early Repayment of Debt Loss on early repayment of debt of $0.6 million for the six months ended June 30, 2020 reflects prepayment and final payment fees paid incurred in connection with the repayment of our term loan that was funded in October 2019 and was repaid in full in June 2020. We had no debt outstanding during the six months ended June 30, 2019. Income Tax Expense Income tax expense increased $2.8 million, or 190%, from an income tax benefit of $1.4 million for the six months ended June 30, 2019 to income tax expense of $1.3 million for the six months ended June 30, 2020. Our effective interest rate was 3.4% for the six months ended June 30, 2020 as compared to (5.3)% for the six months ended June 30, 2019. During the second quarter of 2020, our Australia subsidiary sold beneficial rights to discovery intellectual property to our U.S. entity, and the U.S. entity reimbursed the Australia subsidiary for certain direct development costs. Upon completion of the sale, we analyzed tax planning strategies and future income and concluded that a valuation allowance is necessary for our Australia subsidiary. Income tax expense for the three and six months ended June 30, 2020 reflects this sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset, establishing a valuation allowance and certain uncertain tax position liabilities. Income tax benefit for the six months ended June 30, 2019 included a discrete tax benefit of approximately $1.1 million for the 2017 Australia refundable R&D tax offset. Liquidity and Capital Resources As of June 30, 2020, we had $208.7 million of cash, cash equivalents and marketable securities and an accumulated deficit of $257.2 million. Our operations have been financed by net proceeds from the sale of shares of our common stock, payments under the Janssen License and Collaboration Agreement and proceeds from our long-term debt. During the third quarter of 2017 we received a non-refundable, upfront payment of $50.0 million from Janssen. During the second quarter of 2019, we received a nonrefundable $25.0 million payment from Janssen upon execution of the First Amendment. During the first quarter of 2020, we received a nonrefundable $5.0 million payment from Janssen. ​ In 2017, we filed a registration statement on Form S-3 with the Securities and Exchange Commission (File No. 333-220314) that was declared effective as of October 5, 2017 and permits the offering, issuance, and sale by us of up to a maximum aggregate offering price of $200.0 million of our common stock, preferred stock and certain debt securities (the “2017 Form S-3”). Up to a maximum of $50.0 million of the maximum aggregate offering price of $200.0 million may be issued and sold pursuant to an ATM financing facility under a sales agreement (the “2017 Sales Agreement”). The 2017 Sales Agreement was terminated in 2019. We sold 921,684 shares of our common stock pursuant to the 2017 Sales Agreement during the three and six months ended June 30, 2019 for net proceeds of $10.5 million, after deducting issuance costs. No shares of common stock were sold under the 2017 Sales Agreement during the three months ended March 31, 2019. As of June 30, 2020, $72.0 million of common stock remained available for sale under the 2017 Form S-3, which expires in October 2020. In August 2018, we entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which we sold an aggregate of 2,750,000 shares of our common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering 36 Table of Contents expenses payable by us. In a concurrent private placement, we issued the Investors warrants to purchase an aggregate of 2,750,000 shares of our common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant is exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of our common stock have an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of our common stock have an exercise price of $15.00 per share. The exercise price and number of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. Under certain circumstances, the Warrants may be exercisable on a “cashless” basis. In connection with the issuance and sale of the common stock and Warrants, we granted the Investors certain registration rights with respect to the Warrants and the Warrant Shares. The common stock and Warrants are classified as equity in accordance with Accounting Standards Codification Topic 480 , Distinguishing Liabilities from Equity (“ASC 480”) , and the net proceeds from the transaction were recorded as a credit to additional paid-in capital. As of June 30, 2020, none of the Warrants have been exercised. In December 2018, we entered into an exchange agreement (the “Exchange Agreement”) with an Investor and its affiliates (the “Exchanging Stockholders”), pursuant to which we exchanged an aggregate of 1,000,000 shares of our common stock, par value $0.00001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.00001 per share. The Exchange Warrants will expire ten years from the date of issuance. The Exchange Warrants are exercisable at any time prior to expiration except that the Exchange Warrants cannot be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99% of our common stock, subject to certain exceptions. In accordance with Accounting Standards Codification Topic 505, Equity , we recorded the retirement of the common stock exchanged as a reduction of common stock shares outstanding and a corresponding debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants are classified as equity in accordance with ASC 480 , and fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement. We determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants. During second quarter of 2019, Exchange Warrants to purchase 600,000 shares were net exercised, resulting in the issuance of 599,997 shares of common stock. As of June 30, 2020, 400,000 of the Exchange Warrants remain unexercised. In October 2019, we filed a registration statement on Form S-3 (File no. 333-234414) that was declared effective as of November 22, 2019 and permits the offering, issuance, and sale by us of up to a maximum aggregate offering price of $250.0 million of our common stock, preferred stock, debt securities and warrants (the “2019 Form S-3”). Up to a maximum of $75.0 million of the maximum aggregate offering price of $250.0 million may be issued and sold pursuant to an ATM financing facility under a sales agreement we entered into on November 27, 2019 (the “2019 Sales Agreement”). In May 2020, we completed an underwritten public offering of 7,000,000 shares of common stock at a public offering price of $14.00 per share, and issued an additional 1,050,000 shares of our common stock at a price of $14.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by us, were $105.3 million. We sold 1,232,793 shares of common stock pursuant to the 2019 Sales Agreement during the three and six months ended June 30, 2020 for net proceeds of $16.6 million, after deducting issuance costs. As of June 30, 2020, a total of $120.0 million of common stock remained available for sale under the 2019 Form S-3, $57.7 million of which remained available for sale under the ATM financing facility. In October 2019, we entered into a credit and security agreement pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal amount of up to $50.0 million, including a $10.0 million term loan which was funded at closing (October 30, 2019), with the ability to access the remaining $40.0 million in two additional tranches of $20.0 million, subject to specified availability periods, the achievement of certain clinical development milestones, minimum cash requirements and other customary conditions. During June 2020, the Company prepaid the outstanding $10.0 million balance on the term loan as well as $0.6 million for related prepayment and final payment fees. Additional information about this credit facility and our 37 Table of Contents long-term debt is presented in Note 9 to the condensed consolidated financial statements included elsewhere in this report. ​ Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We believe, based on our current operating plan and expected expenditures, that our existing cash, cash equivalents and marketable securities and access to our debt facility will be sufficient to meet our anticipated operating and capital expenditure requirements for at least the next 12 months from the date of this filing. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If our planned pre-clinical and clinical trials are successful, or our other product candidates enter clinical trials or advance beyond the discovery stage, we will need to raise additional capital as well as seek additional collaborative or other arrangements with corporate sources in order to further advance our product candidates towards potential regulatory approval. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing, but such financing may not be available at terms acceptable to us, if at all. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including: ● the progress, timing, scope, results and costs of our pre-clinical studies and clinical trials for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials; ● the costs of and ability to obtain clinical and commercial supplies and any other product candidates we may identify and develop; ● our ability to successfully commercialize the product candidates we may identify and develop; ● the selling and marketing costs associated with our current product candidates and any other product candidates we may identify and develop, including the cost and timing of expanding our sales and marketing capabilities; ● the achievement of development, regulatory and sales milestones resulting in payments to us from Janssen under the Janssen License and Collaboration Agreement, and the timing of receipt of such payments, if any; ● the timing, receipt and amount of royalties under the Janssen License and Collaboration Agreement on worldwide net sales of PTG-200, including any second-generation compounds, upon regulatory approval or clearance, if any; ● the amount and timing of sales and other revenues from our current product candidates and any other product candidates we may identify and develop, including the sales price and the availability of adequate third-party reimbursement; ● the cash requirements of any future acquisitions or discovery of product candidates; ● additional costs or delays we may incur related to the ongoing COVID-19 pandemic; ● the time and cost necessary to respond to technological and market developments; ● the extent to which we may acquire or in-license other product candidates and technologies; 38 Table of Contents ● costs necessary to attract, hire and retain qualified personnel; ● the costs of maintaining, expanding and protecting our intellectual property portfolio; and ● the costs of ongoing general and administrative activities to support the growth or our business. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. 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 expenditures associated with our current and anticipated product development programs. The following table summarizes our cash flows for the periods indicated (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2020 2019 ​ ​ (In thousands) Cash used in operating activities ​ $ (37,330) ​ $ (12,992) Cash used in investing activities ​ 37,559 ​ (9,117) Cash provided by financing activities ​ 112,976 ​ 11,020 ​ Cash Flows from Operating Activities Cash used in operating activities for the six months ended June 30, 2020 was $37.3 million, consisting of our net loss of $39.5 million and a net change of $5.0 million in net operating assets, partially offset by $7.1 million in non-cash charges. Non-cash charges were primarily comprised of $4.0 million of stock-based compensation, a $1.4 million change in net deferred tax asset, $0.9 million of operating lease ROU asset amortization, a $0.6 million loss on early prepayment of long-term debt and $0.4 million of depreciation and amortization., partially offset by $0.2 million of net accretion of discount on marketable securities. The change in net operating assets and liabilities was primarily due to a decrease of $7.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, a $1.0 million decrease in operating lease liability, a $0.3 million increase in Australia research and development incentive receivable, a $0.3 million decrease in payable to collaboration partner and a $0.3 million increase in prepaid expenses and other assets, partially offset by a decrease of $3.8 million in receivable from collaboration partner and an increase of $0.4 million in accrued expenses and other payables. Cash used in operating activities for the six months ended June 30, 2019 was $13.0 million, consisting of our net loss of $43.2 million, partially offset by a net change of $26.7 million in net operating assets and non-cash charges of $3.6 million. The change in net operating assets and liabilities was due primarily to a net increase of $33.3 million in deferred revenue related to the Janssen License and Collaboration Agreement, partially offset by a decrease of $3.0 million in accounts payable, an increase of $1.8 million in prepaid expenses and other current assets, a decrease of $0.9 million in operating lease liability, an increase of $0.3 million in receivable from collaboration partner, a decrease of $0.3 million in accrued expenses and other payables, and a decrease of $0.3 million in payable to collaboration partner. Non-cash charges were primarily comprised of $4.0 million of stock-based compensation, $0.9 million of operating lease ROU asset amortization and $0.3 million of depreciation and amortization, partially offset by $1.4 million of deferred tax benefit and $0.2 million of net accretion of discount on marketable securities. 39 Table of Contents Cash Flows from Investing Activities Cash provided by investing activities for the six months ended June 30, 2020 was $37.6 million, consisting of proceeds from maturities of marketable securities of $104.6 million, partially offset by purchases of marketable securities of $66.8 million and purchases of property and equipment of $0.3 million. Cash used in investing activities for the six months ended June 30, 2019 was $9.1 million, consisting of purchases of marketable securities of $52.4 million and purchases of property and equipment of $1.1 million, partially offset by proceeds from maturities of available for sale securities of $44.4 million. Cash Flows from Financing Activities Cash provided by financing activities for the six months ended June 30, 2020 was $113.0 million, consisting primarily of cash proceeds from our public offering of common stock of $105.7 million, cash proceeds from ATM sales of $16.8 million, and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $1.0 million, partially offset by early repayment of long-term debt of $10.5 million. Cash provided by financing activities for the six months ended June 30, 2019 was $11.0 million, consisting of $10.5 million of net proceeds from the sale of common stock under our ATM facility, and $0.5 million of net proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan. Contractual Obligations and Other Commitments During the three months ended June 30, 2020, with the exception of early repayment of debt, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 10, 2020. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements, as defined under SEC rules, including the use of structured finance, special purpose entities or variable interest entities.