What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-06 · 166 added, 116 removed, 563 unchanged (33% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

6 unchanged sentences

Total current assets

Marketable securities - noncurrent

Property and equipment, net

15 unchanged sentences

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 10)

Stockholders’ equity:

2 unchanged sentences

Common stock, $ 0.00001 par value, 90,000,000 shares authorized;

36,802,139 and 27,217,649 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

37,314,873 and 27,206,447 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

License and collaboration revenue - related party

7 unchanged sentences

Loss on early repayment of debt

Other income (expense), net

Loss before income tax (expense) benefit

Income tax (expense) benefit

Other expense, net

Loss before income tax benefit (expense)

Income tax benefit (expense)

Net loss per share, basic and diluted

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Gain (loss) on marketable securities

Gain on translation of foreign operations

(Loss) gain on marketable securities

Comprehensive loss

5 unchanged sentences

Stockholders'

Three months ended June 30, 2020

Balance at March 31, 2020

Three months ended September 30, 2020

Balance at June 30, 2020

Issuance of common stock pursuant to public offering, net of issuance costs

3 unchanged sentences

Other comprehensive gain (loss)

Balance at June 30, 2020

Balance at September 30, 2020

Comprehensive

Stockholders'

Three months ended June 30, 2019

Balance at March 31, 2019

Three months ended September 30, 2019

Balance at June 30, 2019

Issuance of common stock pursuant to at-the-market offering, net of issuance costs

Issuance of common stock pursuant to exercise of Exchange Warrants

Issuance of common stock under equity incentive and employee stock purchase plans

1 unchanged sentence

Other comprehensive gain (loss)

Balance at June 30, 2019

Balance at September 30, 2019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4 unchanged sentences

Stockholders'

Six months ended June 30, 2020

Nine months ended September 30, 2020

Balance at December 31, 2019

4 unchanged sentences

Other comprehensive gain (loss)

Balance at June 30, 2020

Balance at September 30, 2020

Comprehensive

Stockholders'

Six months ended June 30, 2019

Nine months ended September 30, 2019

Balance at December 31, 2018

4 unchanged sentences

Other comprehensive gain (loss)

Balance at June 30, 2019

Balance at September 30, 2019

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

22 unchanged sentences

Purchases of property and equipment

Net cash provided by (used) in investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

1 unchanged sentence

Proceeds from at-the-market offering, net of issuance costs

Proceeds from issuance of common stock upon under equity incentive and employee stock purchase plans

Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan

Issuance costs related to long-term debt

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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING INFORMATION:

Issuance costs related to public offering of common stock included in accrued liabilities and other payables

Issuance costs related to at-the-market offering of common stock included in prepaid expenses and other assets at the end of the previous year

1 unchanged sentence

Purchases of property and equipment in accounts payable and accrued liabilities

Tenant improvement allowance reimbursement

Issuance costs related to public offering of common stock included in accrued liabilities and other payables

Issuance costs related to at-the-market offering of common stock included in accrued liabilities and other payables

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8 unchanged sentences

The Company manages its operations as a single operating segment.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 257.2 million as of June 30, 2020.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 264.9 million as of September 30, 2020.

The Company’s ultimate success depends on the outcome of its research and development and collaboration activities.

3 unchanged sentences

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on the Company's activities is highly uncertain and difficult to predict, as the response to the pandemic is in its early stages and information is rapidly evolving.

Capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, which has contributed to the current global economic recession.

Such economic disruption could have a material adverse effect on our business.

The extent of the impact of the COVID-19 pandemic on the Company's activities is highly uncertain and difficult to predict, as the response to the pandemic is ongoing and information continues to evolve.

Capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic, which has contributed to the current global economic recession.

Such economic disruption could have a material adverse effect on the Company’s 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 the Company's 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 the Company's existing and planned clinical trials and collaboration activities and operations, all of which are uncertain and cannot be predicted.

The Company's future results of operations and liquidity could be adversely impacted by further and extended delays in existing and planned clinical trials and collaboration activities, difficulty in recruiting patients for these clinical trials, supply chain disruptions, the effect of the impact on employees, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges.

The severity of the impact of the COVID-19 pandemic on the Company's activities will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, including the severity of any additional periods of increases or spikes in the number of cases in the areas the Company and its suppliers operate and areas where the Company’s clinical trial sites are located.

Accordingly, the extent and severity of the impact on the Company's existing and planned clinical trials and collaboration activities and operations, all of which are uncertain and cannot be predicted.

The Company has experienced delays in its existing and planned clinical trials due to the worldwide impacts of the pandemic.

The Company's future results of operations and liquidity could be adversely impacted by further delays in existing and planned clinical trials and collaboration activities, continued difficulty in recruiting patients for these clinical trials, supply chain disruptions, the ongoing effect of the impact on its operating activities and employees, and the ongoing impact of any initiatives or programs that the Company may undertake to address financial and operational challenges.

As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's future financial condition, liquidity or results of operations is uncertain.

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting.

As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of December 31, 2019 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of

management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s consolidated financial statements.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or for any other future year.

consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements.

These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s consolidated financial statements.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending September 30, 2020 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 10, 2020.

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government and its agencies, money market instruments including commercial paper and negotiable certificates of deposit, and highly rated corporate debt obligations and money market funds.

As of the date of issuance of these condensed consolidated financial statements, the COVID-19 pandemic has not had a material impact on the Company’s credit exposure, and the extent to which the COVID-19 pandemic may materially impact the Company's future level of credit exposure is uncertain.

As of the date of issuance of these

condensed consolidated financial statements, the COVID-19 pandemic has not had a material impact on the Company’s credit exposure, and the extent to which the COVID-19 pandemic may materially impact the Company's future level of credit exposure is uncertain.

Cash Equivalents

6 unchanged sentences

Cash as reported in the condensed consolidated statements of cash flows consists of (in thousands):

September 30,

Cash and cash equivalents

22 unchanged sentences

At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations are satisfied.

The Company then recognizes

as revenue the amount of the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations are satisfied.

The Company constrains its estimate of the transaction price up to the amount (the “variable consideration constraint”) that a significant reversal of recognized revenue is not probable.

26 unchanged sentences

Contract modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations.

When contract modifications create new performance obligations and the increase in consideration approximates the standalone selling price for goods and services related to such new performance obligations as adjusted for specific facts and circumstances of the contract, the modification is considered to be a separate contract.

If a contract modification is not accounted for as a separate contract, the Company accounts for the promised goods or services not yet transferred at the date of the contract modification (the remaining promised goods or services) prospectively, as if it were a termination of the existing contract and the creation of a new contract, if the remaining goods or services are

distinct from the goods or services transferred on or before the date of the contract modification.

facts and circumstances of the contract, the modification is considered to be a separate contract.

The Company accounts for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification.

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The Company has received orphan drug designation from the U.S.

Food and Drug Administration (“FDA”) for its clinical asset PTG-300 for the treatment of polycythemia vera and beta-thalassemia and may qualify for a 25% U.S.

Food and Drug Administration (“FDA”) for its clinical asset PTG-300 for the treatment of polycythemia vera and beta-thalassemia and may qualify for a related 25% U.S.

Federal income tax credit on qualifying clinical study expenditures.

6 unchanged sentences

dollars as of each reporting date.

The Company may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive in years when the annual turnover exceeds the limit.

The Company may alternatively be eligible for a taxable credit

in the form of a non-cash tax incentive in years when the annual turnover exceeds the limit.

The Company evaluates its eligibility under tax incentive programs as of each balance sheet date and makes accrual and related adjustments based on the most current and relevant data available.

16 unchanged sentences

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted as of June 30, 2020

Recently Issued Accounting Pronouncements Not Yet Adopted as of September 30, 2020

In June 2016, the FASB issued ASU No.

5 unchanged sentences

Effective Dates , which amended the mandatory effective date of ASU No.

2016-13 to fiscal years and interim periods beginning after December 15, 2022.

2016-13 for smaller reporting companies to fiscal years and interim periods beginning after December 15, 2022.

The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

3 unchanged sentences

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and must be applied on a retrospective basis.

The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and disclosures.

License and Collaboration Agreement

10 unchanged sentences

Janssen submitted an IND for PTG-200 in CD during the second quarter of 2019, which took effect in July 2019.

The Company initiated a Phase 2 clinical study for PTG-200 in CD with Janssen in the fourth quarter of 2019.

Janssen and the Company initiated a Phase 2 clinical study for PTG-200 in CD in the fourth quarter of 2019.

The Company entered into an amendment (the “First Amendment”) to the Janssen License and Collaboration Agreement effective May 7, 2019.

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● Janssen can elect to advance PTG-200 into Phase 2b following receipt of the top line results of the CD Phase 2a clinical trial for PTG-200 by paying a $ 50.0 million maintenance fee (the “Amended First Opt-in Election”);

● Janssen would make a $ 50.0 million milestone payment following dosing of the third patient in first Phase 2b clinical trial for CD for a second-generation product.

Janssen can also then elect to receive exclusive, world-wide commercial rights for both PTG-200 and second-generation products following the Phase 2b completion date for PTG-200 or a second-generation product by paying a $ 50.0 million payment (the “Amended Second Opt-in Election”).

● Janssen would make a $ 50.0 million milestone payment following dosing of the third patient in the first Phase 2b clinical trial for CD for a second-generation product.

Janssen can also then elect to receive exclusive, worldwide commercial rights for both PTG-200 and second-generation products following the Phase 2b completion date for PTG-200 or a second-generation product by paying a $ 50.0 million payment (the “Amended Second Opt-in Election”).

The Company will also be eligible for certain additional milestone payments including a potential payment of either $ 100.0 million upon a Phase 3 CD clinical trial meeting a primary clinical endpoint with respect to PTG-200 or $ 115.0 million upon a Phase 3 CD clinical trial meeting a primary clinical endpoint with respect to a second-generation compound.

Pursuant to the First Amendment, the Company will be eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.

Under the terms of the First Amendment, the Company will be eligible to receive up to $ 1.0 billion in research, development, regulatory and sales milestones.

Under the terms of the First Amendment, the Company is eligible to receive up to $ 1.0 billion in research, development, regulatory and sales milestones.

The Janssen License and Collaboration Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier.

1 unchanged sentence

Revenue Recognition

The Company concluded that the amended Janssen License and Collaboration Agreement continued to contain a single performance obligation including the development license;

The Company concluded that the amended Janssen License and Collaboration Agreement continued to contain a single performance obligation for the development license;

second-generation compound research services;

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The Company uses the most likely amount method to estimate variable consideration included in the transaction price.

Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services offset by Phase 2 development costs reimbursement payable to Janssen.

Cost sharing payments from Janssen relate to the agreed upon services for Phase 2 activities that the Company performs within the duration of the contract are included in the transaction price at an amount equal to 80 % of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third party contract costs.

Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services offset by development costs reimbursement payable to Janssen.

Cost sharing payments from Janssen relate to the agreed upon services for development activities that the Company performs within the duration of the contract are included in the transaction price at the Company’s share of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third party contract costs.

Cost sharing payments to Janssen relate to agreed-upon services for Phase 2 activities that Janssen performs within the duration of the contract are not a distinct service that Janssen transfers to the Company.

Therefore, the consideration payable to Janssen is accounted for as a reduction in the transaction price.

The Company 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.

The Company concluded that the transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $ 99.4 million as of September 30, 2020, a decrease of $ 14.5 million from the transaction price of $ 113.9 million as of June 30, 2020, following an update to the estimate for remaining services to be performed under the performance obligation.

In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of Phase 2 development costs reimbursement expected to be payable to Janssen.

The Company determined that the transaction price of the initial performance obligation as of June 30, 2020 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 Company evaluated whether the variable component of the transaction price should be constrained to ensure that a significant reversal of revenue recognized on a cumulative basis as of June 30, 2020 is not probable.

The Company concluded that the variable consideration constraint does not further decrease the estimated transaction price as of June 30, 2020.

The Company determined that the transaction price of the initial performance obligation as of September 30, 2020 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 second-generation compound research costs and other services, and estimated variable consideration consisting of a $ 7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound, offset by $ 6.5 million of net cost reimbursement to Janssen for services performed.

The Company concluded that the variable consideration constraint does not further decrease the estimated transaction price as of September 30, 2020.

The additional potential development, regulatory and sales milestone payments after the completion of Phase 2b activities that the Company would be eligible to receive are currently outside the contract term as defined for revenue recognition purposes and as such have been excluded from the transaction price.

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A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

For the three and six months ended June 30, 2020, the Company recognized license and collaboration revenue of $ 5.7 million and $ 9.4 million, respectively, which was primarily related to the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance.

In addition, the Company recorded $ 0.5 million in revenue for the three and six months ended June 30, 2020 related to additional services provided by the Company under the Janssen Collaboration Agreement.

For the three months ended June 30, 2019, the Company recorded a $ 9.4 million cumulative catchup adjustment reducing license and collaboration revenue, partially offset by $ 1.2 million of license and collaboration revenue following the contract modification for the First Amendment.

For the three and nine months ended September 30, 2020, the Company recognized license and collaboration revenue of $ 12.6 million and $ 22.0 million, respectively, which was primarily related to an update in the amounts forecast for future services remaining to be performed under the Janssen License and Collaboration Agreement and recognized based on proportional performance.

In addition, the Company recorded $ 0.5 million and $ 1.0 million in revenue for the three and nine months ended September 30, 2020 related to additional services provided by the Company under the Janssen Collaboration Agreement.

For the three months ended September 30, 2019, the Company recorded $ 4.1 million of license and collaboration revenue following the contract modification for the First Amendment.

For the nine months ended September 30, 2019, the Company recorded a $ 9.4 million cumulative catchup adjustment reducing license and collaboration revenue, partially offset $ 5.3 million of license and collaboration revenue following the contract modification for the First Amendment and $ 1.6 million of license and collaboration revenue recognized during the first quarter of 2019 under the original Janssen license and collaboration agreement.

No revenue for additional services was recognized for the three and six months ended June 30, 2019.

For the six months ended June 30, 2019, the Company recorded a $ 9.4 million cumulative catchup adjustment reducing license and collaboration revenue, partially offset $ 1.2 million of license and collaboration revenue following the contract modification for the First Amendment and $ 1.6 million of license and collaboration revenue recognized during the first quarter of 2019 under the original Janssen license and collaboration agreement.

The following tables present changes in the Company’s contract assets and liabilities during the periods presented (in thousands):

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Contract assets:

4 unchanged sentences

Payable to collaboration partner - related party

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Contract assets:

4 unchanged sentences

Payable to collaboration partner - related party

During the three and six months ended June 30, 2020, the Company recognized revenue of $ 2.1 million and $ 3.3 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

During the three and six months ended June 30, 2019, the Company recognized revenue of $ 1.6 million for each period from amounts included in the deferred revenue contract liability balance at the beginning of each period.

During the three and nine months ended September 30, 2020, the Company recognized revenue of $ 8.5 million and $ 11.8 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

During the three and nine months ended September 30, 2019, the Company recognized revenue of $ 2.9 million and $ 4.5 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

None of the costs to obtain or fulfill the contract were capitalized.

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

The accounting guidance

establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 —Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

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The following table presents the fair value of the Company’s financial assets determined using the inputs defined above (in thousands).

June 30, 2020

September 30, 2020

Money market funds

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The Company’s commercial paper, corporate debt securities and U.S.

Treasury and agency securities are classified as Level 2 as they were valued based upon quoted market 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 corroborated by observable market data for substantially the full term of the assets.

Treasury and agency securities, including U.S.

Treasury bills, are classified as Level 2 as they were valued based upon quoted market 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 corroborated by observable market data for substantially the full term of the assets.

Cash Equivalents and Marketable Securities

Cash equivalents and marketable securities consisted of the following (in thousands):

June 30, 2020

September 30, 2020

Gross Unrealized

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Cash equivalents

Marketable securities

Marketable securities - current

Marketable securities - noncurrent

Total cash equivalents and marketable securities

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Cash equivalents

Marketable securities

Marketable securities - current

Total cash equivalents and marketable securities

All marketable securities held as of June 30, 2020 and December 31, 2019 had contractual maturities of less than one year.

Marketable securities – current of $ 110.3 million and $ 100.0 million held at September 30, 2020 and December 31, 2019, respectively, had contractual maturities of less than one year.

Marketable securities – noncurrent of $ 6.0 million held at September 30, 2020 had contractual maturities of at least one year but less than two years.

There were no material realized gains or realized losses on marketable securities for the periods presented.

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Accrued expenses and other payables consisted of the following (in thousands):

September 30,

Accrued clinical and research related expenses

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Upon the former collaboration partner’s abandonment, it assigned to the Company certain intellectual property that relates to the products arising from the collaboration.

The Company has the right, but not the obligation, to further develop and commercialize the product and, if the Company successfully develops and commercializes PTG-300 without a partner, the former collaboration partner could be eligible to receive up to an additional aggregate of $ 128.0 million for the achievement of certain development, regulatory and sales milestone events pursuant to the terms of the agreement between the Company and the former collaboration partner.

Milestone payments to collaboration partners are recorded as research and development expenses in the period that the expense is incurred.

No research and development expense was recorded under this agreement for the three and six months ended June 30, 2020 and 2019.

No research and development expense was recorded under the agreement between the Company and the former collaboration partner for the three and nine months ended September 30, 2020 and 2019.

Commitments and Contingencies – Legal Proceedings for additional information on arbitration proceedings related to this research collaboration and license agreement.

Government Programs

Research and Development Tax Incentive

During the three and six months ended June 30, 2020, the Company recognized AUD 0.2 million ($ 0.1 million) and AUD 0.4 million ($ 0.3 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

During the three and six months ended June 30, 2019, the Company recognized AUD 2.4 million ($ 1.7 million) and AUD 1.8 million ($ 1.2 million), respectively, of research and development expense in connection with the research and development tax incentive from the ATO because the Company determined that it had exceeded the annual turnover limit to claim such amounts following the receipt of certain payments under the Janssen License and Collaboration Agreement.

As of June 30, 2020, the research and development tax incentive receivable was AUD 0.4 million ($ 0.3 million).

There was no research and development tax incentive receivable as of December 31, 2019.

During the three and nine months ended September 30, 2020, the Company recognized AUD 0.4 million ($ 0.3 million) and AUD 0.8 million ($ 0.5 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

During the nine months ended September 30, 2019, the Company recognized AUD 1.8 million ($ 1.2 million) of research and development expense in connection with the research and development tax incentive from the ATO because the Company determined that it had exceeded the annual turnover limit to claim such amounts following the receipt of certain payments under the Janssen License and Collaboration Agreement.

No such amounts were recorded during the three months ended September 30, 2019.

As of September 30, 2020, the research and development cash tax incentive receivable was AUD 0.8 million ($ 0.5 million).

There was no research and development cash tax incentive receivable as of December 31, 2019.

Small Business Innovation Research (“SBIR”) Grants

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The Company recognizes a reduction to research and development expenses when expenses related to the grants have been incurred and the grant funds become contractually due from NIH.

The Company recorded $ 0.1 million and $ 0.3 million as a reduction of research and development expenses for the three and six months ended June 30, 2020, respectively.

The Company recorded $ 0 and $ 0.1 million as a reduction of research and development expenses for the three and six months ended June 30, 2019, respectively.

The Company recorded a receivable for $ 0.1 million and $ 0.3 million as of June 30, 2020 and December 31, 2019, respectively, to reflect the eligible costs incurred under the grants that are contractually due to the Company.

The Company recorded $ 0.3 million as a reduction of research and development expenses for the nine months ended September 30, 2020.

No such amounts were recorded during the three months ended September 30, 2020.

The Company recorded $ 0.6 million and $ 1.1 million as a reduction of research and development expenses for the three and nine months ended September 30, 2019, respectively.

The Company recorded a receivable for $ 0.3 million as of

December 31, 2019 to reflect the eligible costs incurred under the grants that are contractually due to the Company.

The Company recorded no such receivable as of September 30, 2020.

This receivable is included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

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The Company will make interest-only payments on the Term Loans outstanding during the initial 24 months , followed by 24 months of principal and interest payments.

At the Company’s option, the Company may prepay the outstanding principal balance of the Term Loans in whole or in part, subject to a prepayment premium of 3.0 % of any

amount prepaid if the prepayment occurs through and including the first anniversary of the Closing Date, 2.0 % of the amount prepaid if the prepayment occurs after the first anniversary of the closing date through and including the second anniversary of the closing date, and 1.0 % of any amount prepaid after the second anniversary of the closing date and prior to October 1, 2023.

At the Company’s option, the Company may prepay the outstanding principal balance of the Term Loans in whole or in part, subject to a prepayment premium of 3.0 % of any amount prepaid if the prepayment occurs through and including the first anniversary of the Closing Date, 2.0 % of the amount prepaid if the prepayment occurs after the first anniversary of the closing date through and including the second anniversary of the closing date, and 1.0 % of any amount prepaid after the second anniversary of the closing date and prior to October 1, 2023.

An additional fee of 2.85 % of the amount of Term Loans advanced by the Lenders will be due upon prepayment or repayment of the Term Loans.

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Accordingly, the company accelerated amortization of $ 0.1 million related to capitalized and unamortized debt issuance costs, which is included as part of the $ 0.6 million loss on early repayment of debt.

As of June 30, 2020, the Company was in compliance with the debt covenants, no event of default occurred and the probability of occurrence of event of default was considered remote.

As of September 30, 2020, the Company was in compliance with the debt covenants, no event of default occurred and the probability of occurrence of event of default was considered remote.

The Company’s long-term debt balance was as follows for the periods presented (dollars in thousands):

September 30,

Interest Rate

3 unchanged sentences

Long-term debt, net

Commitments and Contingencies

Legal Proceedings

The Company is a party to the legal action described below.

The Company recognizes accruals for such actions to the extent that it concludes that a loss is both probable and reasonably estimable.

The Company accrues for the best estimate of a loss within a range;

however, if no estimate in the range is better than any other, it accrues the minimum amount in the range.

If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, it discloses the possible loss.

On January 23, 2020, the Company initiated arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce against Zealand Pharma A/S (“Zealand”) related to a collaboration agreement the Company and Zealand entered into in 2012 and terminated in 2014.

The agreement provides for certain post-termination payment obligations to Zealand with respect to compounds related to the collaboration that the Company elects to further develop and meet specified conditions.

In the Company’s arbitration claim, it is seeking a declaration that the Company has no past, present or future milestone or royalty payment obligations under the agreement with respect to PTG-300 because PTG-300 is not a compound relating to the collaboration for which post-termination payments to Zealand apply.

The Company is also seeking repayment of $ 1.0 million in milestone payments it has made, as well as its costs, fees, and expenses of the proceeding.

Zealand disputes the Company’s claims and has filed counterclaims for payment of an additional future milestone, as well as payment of their arbitration costs, fees and expenses .

The arbitration is pending.

If Zealand prevails in the arbitration, the Company could be required to make contractual payments to Zealand described in its prior periodic reports filed with the SEC.

Those payments could include milestone payments for the achievement of certain development, regulatory and sales milestone events, and a low single digit royalty on worldwide net sales of PTG-300.

Although the Company cannot predict with certainty the ultimate outcome of these arbitration proceedings, it has concluded that the probability of any related loss is remote and therefore no related accruals were recognized as of September 30, 2020.

Stockholders’ Equity

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The 2017 Sales Agreement was terminated in 2019.

The Company sold 921,684 shares of its 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.

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.

The Company sold 1,924,957 and 2,846,641 shares of its common stock pursuant to the 2017 Sales Agreement during the three and nine months ended September 30, 2019, respectively, for net proceeds of $ 23.9 and $ 34.5 million, respectively, after deducting issuance costs.

As of September 30, 2020, $ 72.0 million of common stock remained available for sale under the 2017 Form S-3, which subsequently expired in October 2020.

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $ 8.00 per share, for aggregate net proceeds of $ 21.7 million, after deducting offering expenses payable by the Company.

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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”

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, the Company 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.

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 September 30, 2020, none of the Warrants have been exercised.

In December 2018, the Company entered into an exchange agreement (the “Exchange Agreement”) with an Investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,000,000 shares of the Company’s 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.

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During the 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

As of September 30, 2020, 400,000 of the Exchange Warrants remain unexercised

In October 2019, the Company filed a registration statement on Form S-3 (File No.

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Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were $ 105.3 million.

The Company sold 1,232,793 shares of its 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.

The Company sold 333,047 and 1,565,840 shares of its common stock pursuant to the 2019 Sales Agreement during the three and nine months ended September 30, 2020, respectively, for net proceeds of $ 6.4 million and $ 23.0 million, respectively, after deducting issuance costs.

As of September 30, 2020, a total of $ 113.5 million of common stock remained available for sale under the 2019 Form S-3, $ 51.2 million of which remained available for sale under the ATM financing facility.

Equity Incentive Plan

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Awards granted under the 2016 Plan expire no later than ten years from the date of grant.

As of June 30, 2020, 655,250 shares were available for issuance under the 2016 Plan.

As of September 30, 2020, 552,511 shares were available for issuance under the 2016 Plan.

Inducement Plan

order to award options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules.

In May 2018, the Company’s board of directors approved the 2018 Inducement Plan, a non-stockholder approved stock plan, under which it reserved and authorized up to 750,000 shares of the Company’s common stock in order to award options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering

into employment with the Company, within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules.

The 2018 Inducement Plan is administered by the board of directors or the Compensation Committee of the board, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule.

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On February 18, 2020, the Compensation Committee of the board approved the amendment and restatement of the 2018 Inducement Plan (the “Amended and Restated Inducement Plan”) to provide for the reservation of an additional 500,000 shares of the Company’s common stock for issuance under the Amended and Restated Inducement Plan.

As of June 30, 2020, 730,000 shares were available for issuance under the Amended and Restated Inducement Plan.

As of September 30, 2020, 630,000 shares were available for issuance under the Amended and Restated Inducement Plan.

Stock Options

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Options forfeited

Balances at June 30, 2020

Options exercisable – June 30, 2020

Options vested and expected to vest – June 30, 2020

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on June 30, 2020.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on June 30, 2020.

During the six months ended June 30, 2020, the estimated weighted-average grant-date fair value of common stock underlying options granted to employees was $ 5.46 per share.

Balances at September 30, 2020

Options exercisable – September 30, 2020

Options vested and expected to vest – September 30, 2020

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on September 30, 2020.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on September 30, 2020.

During the nine months ended September 30, 2020, the estimated weighted-average grant-date fair value of common stock underlying options granted to employees was $ 6.82 per share.

Stock Options Valuation Assumptions

The fair value of employee stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Expected term (in years)

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Expected Term —The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

The Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.

The Company has limited historical information to develop reasonable

expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.

Expected Volatility — Prior to January 1, 2020, the Company’s 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.

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Unvested at December 31, 2019

Unvested at June 30, 2020

Unvested at September 30, 2020

Employee Stock Purchase Plan

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At the end of each offering period, eligible employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period.

During the six months ended June 30, 2020, a total of 56,742 shares of common stock were issued under the 2016 ESPP, and 793,427 shares remain available for issuance.

During the three and nine months ended September 30, 2020, a total of 35,781 and 92,523 shares of common stock were issued under the 2016 ESPP, respectively, and 757,647 shares remain available for issuance.

Stock-Based Compensation

Total stock-based compensation expense was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended

Three Months Ended

Nine Months Ended

September 30,

Research and development

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Total stock-based compensation expense

As of June 30, 2020, total unrecognized stock-based compensation expense was approximately $ 14.7 million, which the Company expects to recognize over a weighted-average period of approximately 2.9 years.

The Company recorded income tax expense of $ 1.1 million and $ 1.3 million for the three and six months ending June 30, 2020, respectively, representing an effective income tax rate of 6.2 % and 3.4 %, respectively.

The Company recorded income tax benefit of $ 1.6 million and $ 1.4 million for the three and six months ending June 30, 2019, respectively, representing an effective income tax rate of ( 5.3 )% and ( 3.2 )%, respectively.

Income tax expense for all periods presented was primarily related to foreign income tax.

As of September 30, 2020, total unrecognized stock-based compensation expense was approximately $ 14.7 million, which the Company expects to recognize over a weighted-average period of approximately 2.8 years.

The Company recorded income tax expense of $ 1.3 million for the nine months ended September 30, 2020, representing an effective income tax rate of 2.8 %.

No income tax expense was recorded for the three months ended September 30, 2020.

The Company recorded income tax benefit of $ 0.1 million and $ 1.5 million for the three and nine months ending September 30, 2019, respectively, representing an effective income tax rate of ( 0.6 )% and ( 2.5 )%, respectively.

Income tax for all periods presented was primarily related to foreign income tax.

During the second quarter of 2020, the Company’s Australia subsidiary sold beneficial rights to discovery intellectual property to its U.S.

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Upon completion of the sale, the Company analyzed tax planning strategies and future income and concluded that a valuation allowance is necessary for its 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 three and six months ended June 30, 2019 included a discrete tax benefit of approximately $ 1.1 million for the 2017 Australia refundable research and development tax offset.

Income tax expense for the nine months ended September 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 nine months ended September 30, 2019 included a discrete tax benefit of approximately $ 1.1 million for the 2017 Australia refundable research and development tax offset.

The Company’s effective income tax rate for all periods presented differs from the Company’s federal statutory rate of 21 %, primarily because its U.S.

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The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic.

The Company evaluated the impact of the CARES Act and determined that there is no material impact to the income tax provision for the three and six months ended June 30, 2020.

The Company evaluated the impact of the CARES Act and determined that there is no material impact to the income tax provision for the three and nine months ended September 30, 2020.

On June 29, 2020, California Assembly Bill 85 was signed into law.

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Net Loss per Share

As the Company had net losses for the three and six months ended June 30, 2020 and 2019, respectively, all potential common shares were determined to be anti-dilutive.

As the Company had net losses for the three and nine months ended September 30, 2020 and 2019, respectively, all potential common shares were determined to be anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Weighted-average shares used to compute net loss per common share, basic and diluted

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The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per share computations for the periods presented because their inclusion would be anti-dilutive:

September 30,

Options to purchase common stock

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Total cash expenditures for the reduction in force plan were $ 0.3 million, substantially all of which were related to employee severance and benefits costs.

Subsequent Event

The Company sold 917,879 shares of its common stock under its ATM financing facility pursuant to the 2019 Sales Agreement during the period from October 1, 2020 through the date of issuance of this Quarterly Report on Form 10-Q.

Net proceeds were $ 18.9 million, after deducting issuance costs.

As of the date of issuance of this Quarterly Report on Form 10-Q, a total of $ 94.2 million of common stock remained available for sale under the 2019 Form S-3, $ 31.9 million of which remained available for sale under the ATM financing facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements