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Item 5. Market for Registrant’s Common Equity

2021-03-10 compared with 2020-03-10 · 6 added, 486 removed, 9 unchanged (98% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock began trading on The Nasdaq Global Market on August 11, 2016 and trades under the symbol “PTGX.”

Prior to such time, there was no public market for our common stock.

Our common stock began trading on The Nasdaq Global Market on August 11, 2016 and trades under the symbol “PTGX.” Prior to such time, there was no public market for our common stock.

As of the close of business on February 26, 2021, there were 2 stockholders of record of our common stock.

The number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in “street names”

or persons, partnerships, associates, or corporations, or other entities identified in security listings maintained by depositories.

Dividend Policy

The number of stockholders of record is based upon the actual number of stockholders registered at such date and does not include holders of shares in “street names” or persons, partnerships, associates, or corporations, or other entities identified in security listings maintained by depositories.

We have never declared or paid any cash dividends.

1 unchanged sentence

Performance Graph

The following is not deemed “filed”

with the Securities and Exchange Commission and is not to be incorporated by reference into any filing we make under the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by reference language in such filing.

The following is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing we make under the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by reference language in such filing.

The graph below shows the cumulative total stockholder return assuming the investment on the date specified in each of our common stock, the Nasdaq Composite Index, the Nasdaq Biotechnology Index, and the Nasdaq Pharmaceutical Index.

The graph tracks the

performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from August 11, 2016 to December 31, 2019.

The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from August 11, 2016 to December 31, 2020.

Sale of Unregistered Securities

1 unchanged sentence

Selected Financial Data

The following selected consolidated statement of operations data for the years ended December 31, 2019, 2018, and 2017 and the consolidated balance sheet data as of December 31, 2019 and 2018 are derived from our audited consolidated financial statements that are included elsewhere in this report.

The selected consolidated statement of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data at December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements which are not included in this report.

The data set forth below is not necessarily indicative of results of future operations and should be read in conjunction with “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and “Item 8.

Financial Statements and Supplementary Data”

included in this Annual Report on Form 10‑K to fully understand factors that may affect the comparability of the information presented below:

Year Ended December 31,

(In thousands, except for share and per share data)

Consolidated Statement of Operations Data:

License and collaboration revenue - related party

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income

Interest expense

Other expense, net

Change in fair value of redeemable convertible preferred stock tranche and warrant liabilities (1)

Loss before income tax benefit

Income tax benefit

Net loss attributable to common stockholders (2)

Net loss per share attributable to common stockholders, basic and diluted

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

_______________________

(1) The change in fair value of redeemable convertible preferred stock tranche and warrant liabilities consists of the remeasurement of the fair value of financial liabilities related to our obligation to sell additional redeemable convertible preferred stock shares in subsequent closings contingent upon the achievement of certain development milestones or approval of investors and warrants for the purchase of redeemable convertible preferred stock.

The change of $4.7 million for the year ended December 31, 2016 was due to the settlement of Series C redeemable convertible preferred stock tranche liability in March 2016 and the fair value remeasurement of the outstanding warrant liability.

(2) Net loss attributable to common stockholders is calculated by adjusting our net loss for the accretion of redeemable convertible preferred common stock, if any.

(In thousands)

Consolidated Balance Sheet Data:

Cash, cash equivalents and marketable securities

Working capital

Deferred revenue - related party

Long-term debt

Redeemable convertible preferred stock tranche liability (1)

Redeemable convertible preferred stock warrant liability (2)

Redeemable convertible preferred stock (3)

Accumulated deficit

Total stockholders’

equity (deficit)

_______________________

(1) We determined that our obligation to issue additional shares of our redeemable convertible preferred stock represented a freestanding financial instrument, which was accounted for as a liability.

The freestanding redeemable convertible preferred stock tranche liability was initially recorded at fair value, with fair value changes recognized in the consolidated statements of operations.

At the time of the exercise or expiration of the option, the fair value of the redeemable convertible preferred stock tranche liability is reclassified to redeemable convertible preferred stock with no further remeasurement required.

(2) We accounted for freestanding warrants to purchase shares of our redeemable convertible preferred stock as liabilities at fair value upon issuance.

At the end of each reporting period, changes in estimated fair value during the period were recorded in the consolidated statements of operations.

We continued to adjust the warrant liability for changes in fair value until the earlier of the exercise of the warrants or expiration on May 10, 2016, and no further remeasurement was required .

(3) Following the closing of our initial public offering in August 2016, all outstanding shares of redeemable preferred stock converted to common stock and the related carrying value was reclassified to common stock and additional paid-in capital.

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 “Item 6.

Selected Financial Data”

and the consolidated financial statements and related notes included elsewhere in this Annual Report.

This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in “Item 1A.

Risk Factors”

and in other parts of this Annual Report.

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, and we expect to report results from six different Phase 2 studies by the end of 2021.

Our most advanced clinical asset, PTG-300, is an injectable hepcidin mimetic in development for the potential treatment of iron overload and other blood disorders.

PTG-300 mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability.

Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells.

We are currently developing PTG-300 for the treatment of ineffective erythropoiesis, chronic anemia and iron overload, with an initial focus on beta-thalassemia non-transfusion dependent (“NTD”) and transfusion dependent (“TD”) patients where the primary endpoints are hemoglobin increases and transfusion burden reductions, respectively.

PTG-300 has received an orphan drug designation from the U.S.

Food and Drug Administration (“FDA”) and European Union (“EU”) regulatory authorities for the treatment of beta-thalassemia.

The FDA has granted Fast Track designation to PTG-300 for the treatment of beta-thalassemia.

In the first quarter of 2019, we began dosing patients in a global Phase 2 study of PTG-300 in beta-thalassemia.

Preliminary results from this Phase 2 study reported in the fourth quarter of 2019 suggest that the dose related pharmacodynamic responses in lowering serum iron and transferrin saturation (“TSAT”) warrant continued evaluation at higher and/or more frequent doses which will be required to evaluate the rate and durability of clinical response in order to reach definitive conclusions.

We expect to report clinical efficacy results from this Phase 2 study in 2020.

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.

We are working toward the initiation of an investigator-sponsored study (“IST”) of PTG-300 in patients with myelodysplastic syndromes (“MDS”) in the first half of 2020.

Assuming PTG-300 shows clinical efficacy in one or more of the above indications, we intend to select our first indication in 2020 for a potential pivotal study to begin in 2021.

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 any second-generation 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 $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 Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.

In 2018, we completed a Phase 1 clinical study to evaluate the safety, pharmacokinetics and pharmacodynamics of PTG-200 in healthy

Janssen submitted a U.S.

Investigational New Drug application (“IND”) for PTG-200 in CD during the second quarter of 2019, which took effect in July 2019.

In collaboration with Janssen, we initiated a Phase 2 clinical study for PTG-200 in CD in the fourth quarter of 2019, with results expected in the first half of 2021.

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 UC.

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.

We reported results of the SAD part of the study during the second quarter of 2019 and the MAD part of the study during the third quarter of 2019.

The pharmacodynamic results indicated that the administration of PN-943 was well tolerated, and results of target engagement 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.

We anticipate initiating a Phase 2 proof of concept (“POC”) study in UC in the second quarter of 2020, with topline data expected in the second half of 2021.

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.

We have incurred net losses in each year since inception and we do not anticipate achieving sustained profitability in the foreseeable future.

Our net losses were $77.2 million, $38.9 million and $37.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.

As of December 31, 2019, we had an accumulated deficit of $217.7 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.

See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K 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 consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

The preparation of these 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 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.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

We adopted Accounting Standards Codification Topic 842, Leases, (“ASC 842”) effective January 1, 2019.

We determine if an arrangement is a lease at inception.

Pursuant to ASC 842, operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

If our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

Lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We record tenant improvement allowances as a reduction to the ROU asset with the impact of the decrease recognized prospectively over the remaining lease term.

The leasehold improvements will be amortized over the shorter of their useful life or the remaining term of the lease.

Revenue Recognition

We follow Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy a performance obligation.

We apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

At contract inception, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct.

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

We constrain our estimate of the transaction price up to the amount (the “variable consideration constraint”) that a significant reversal of recognized revenue is not probable.

Licenses of intellectual property:

If a license to our intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, upfront fees.

We evaluate the measure of proportional performance each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone payments:

At the inception of each arrangement or amendment that includes development, regulatory or commercial milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price.

ASC 606 suggests two alternatives to use when estimating the amount of variable consideration:

the expected value method and the most likely amount method.

expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts.

Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts.

Whichever method is used, it should be consistently applied throughout the life of the contract;

however, it is not necessary for us to use the same approach for all contracts.

We expect to use the most likely amount method for development and regulatory milestone payments.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within our control or the control of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

If there is more than one performance obligation, the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis.

We recognize revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, we re-evaluate the probability or achievement of each such milestone and any related constraint, and if necessary, adjust our estimates of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements.

Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional.

Amounts payable to us and not yet billed to the collaboration partner are recorded as contract assets.

We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Contractual cost sharing payments made to a customer or collaboration partner are accounted for as a reduction to the transaction price if such payments are not related to distinct goods or services received from the customer or collaboration partner.

Contracts may be amended to account for changes in contract specifications and requirements.

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 and revenue is recognized prospectively.

If a contract modification is not accounted for as a separate contract, we account 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.

We account 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.

In such case the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

The period between when we transfer control of promised goods or services and when we receive payment is expected to be one year or less, and that expectation is consistent with our historical experience.

Upfront payment contract liabilities resulting from our license and collaboration agreements do not represent a financing component as the payment is not financing the transfer of goods and services, and the technology underlying the licenses granted reflects research and development expenses already incurred by us.

As such, we do not adjust our revenues for the effects of a significant financing component.

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.

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.

Our expected volatility is 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.

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 sufficient amount of historical information regarding the volatility of our own stock price becomes available.

We use the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

We assess the likelihood that the resulting deferred tax assets will be realized.

A valuation allowance is provided when it is more likely than not that all or some portion of a deferred tax asset will not be realized.

At December 31, 2019, our total gross deferred tax assets were $55.2 million and our gross deferred tax liabilities were $1.3 million.

Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, our U.S.

net deferred tax assets have been offset by a valuation allowance of $52.5 million.

The deferred tax assets were primarily comprised of federal and state tax net operating loss and tax credit carryforwards.

At December 31, 2019, we had $164.1 million of federal net operating loss carryforwards and $151.1 million of state net operating loss carryforwards.

$78.7 million of the federal net operating loss carryforwards will begin to expire in 2033, if not utilized, and the remaining $85.4 million have not expiration date.

The state net operating loss carryforwards will begin to expire in 2035, if not utilized.

As of December 31, 2019, we also had accumulated Australian tax losses of AUD 13.1 million ($9.2 million) available for carry forward against future earnings, which under relevant tax laws do not expire but may not be available under certain circumstances.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code (the “Code”), and similar state provisions.

These ownership change limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively.

In general, an “ownership change”

as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points (by value) of the outstanding stock of a company by certain stockholders.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements applicable to us is included in Note 2 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

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 Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K 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;

facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies.

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.

We currently have three clinical assets in various stages of clinical development.

We initiated a Phase 1 clinical study of PTG-300 during the second quarter of 2017.

We have presented separately in the table below costs associated

with the PTG-300 program beginning in June 2017.

We initiated a Phase 1 clinical study of PTG-200 during the fourth quarter of 2017.

We have presented separately in the table below costs associated with the PTG-200 program beginning in December 2017.

Our development and compound supply expenses incurred under the Janssen License and Collaboration Agreement prior to December 2017 are included in pre-clinical and drug discovery research expense.

During 2018, we elected to halt further development of PTG-100 and concurrently elected to replace further development of PTG-100 with PN-943 based on an assessment of pre-clinical data from PN-943.

We continued to experience expenses and credits related to winding down the development and trials for PTG-100 in 2019.

We initiated a Phase 1 study of PN-943 during the fourth quarter of 2018.

We have presented separately in the table below costs associated with the PN-943 program beginning in December 2018.

The following table summarizes our research and development expenses incurred during the periods indicated:

Year Ended December 31,

(Dollars in thousands)

Clinical and development expense —

Milestone payment obligation to former collaboration partner

Pre-clinical and drug discovery research expense

Grants and incentives reimbursement of expenses, net

Total research and development expenses

We expect our research and 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 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 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.

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.

Other Expense, Net

Other expense, net consists primarily of amounts related to foreign exchange gains and losses and related items.

Results of Operations

Comparison of the Year ended December 31, 2019 and 2018

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Interest expense

Other expense, net

Loss before income tax benefit

Income tax benefit

(1) Includes $4.4 million and $3.4 million of non-cash stock-based compensation expense for the year ended December 31, 2019 and 2018, respectively.

(2) Includes $4.0 million and $3.5 million of non-cash stock-based compensation expense for the year ended December 31, 2019 and 2018, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $30.7 million, or 99%, from $30.9 million for the year ended December 31, 2018 to $0.2 million for the year ended December 31, 2019.

The decrease in license and collaboration revenue was primarily due to a contract modification for the First Amendment to the Janssen License and Collaboration Agreement and the related cumulative catchup adjustment during the second quarter of 2019.

The contract modification resulted in an increase in the transaction price and additional deliverables under the 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.

We determined that the transaction price of the Janssen License and Collaboration Agreement was $112.9 million as of December 31, 2019, an increase of $52.2 million from the transaction price of $60.7 million at December 31, 2018.

In order to determine the transaction price, we 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.

We determined that the transaction price 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, $18.3 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research costs and other services, and $14.6 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, 2018 to December 31, 2019 was due to an increase in fixed and variable consideration related to the contract modification for First Amendment to the Janssen License and Collaboration Agreement effective May 7, 2019.

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 $5.5 million, or 9%, from $59.5 million for the year ended December 31, 2018 to $65.0 million for the year ended December 31, 2019.

The increase included $20.4 million of PN-943 clinical trial and development expenses, an increase of $16.0 million in PTG-300 clinical trial and development expenses and a $1.3 million reversal of previously recorded reductions to research and development expenses in connection with the tax incentive from Australia, partially offset by a decrease of $20.1 million in PTG-100 clinical trial and development expenses due to the halting of further development during 2018 and related credit adjustments, a decrease of $6.7 million for PTG-200 clinical trial and development expenses under the Janssen License and Collaboration Agreement due to timing of deliverables and a decrease of $5.7 million in pre-clinical and discovery research expenses.

Research and development expenses for the year ended December 31, 2019 included increased personnel costs due to an increase in research and development headcount from 49 employees at December 31, 2018 to 54 employees at December 31, 2019.

General and Administrative Expenses

General and administrative expenses increased $2.0 million, or 15%, from $13.7 million for the year ended December 31, 2018 to $15.7 million for the year ended December 31, 2019 primarily due to increases of $1.0 million in personnel costs to support the growth of our operations, $0.7 million in professional fees and $0.3 million in insurance expense.

The increase in personnel costs for the year ended December 31, 2019 reflected an increase in general and administrative headcount from 15 employees at December 31, 2018 to 19 employees at December 31, 2019.

Interest Income

Interest income increased $0.2 million, or 10%, from $2.6 million for the year ended December 31, 2018 to $2.8 million for the year ended December 31, 2019 primarily due to higher interest income related to an increase in marketable securities balances.

Income Tax Benefit

Income tax benefit decreased $0.1 million, or 14%, from $0.8 million for the year ended December 31, 2018, representing an effective income tax rate of 2.0%, to $0.7 million for the year ended December 31, 2019, representing an effective income tax rate of 0.9%.

Our effective income tax rate differs from our federal statutory rate of 21%, primarily because our U.S.

loss cannot be benefited due to the full valuation allowance position and reduced by foreign taxes.

Comparison of the Years ended December 31, 2018 and 2017

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Other expense, net

Loss before income tax benefit

Income tax benefit

(1) Includes $3.4 million and $2.0 million of non-cash stock-based compensation expense for the year ended December 31, 2018 and 2017, respectively.

(2) Includes $3.5 million and $2.2 million of non-cash stock-based compensation expense for the year ended December 31, 2018 and 2017, respectively.

License and Collaboration Revenue

License and collaboration revenue increased $10.8 million, or 54%, from $20.1 million for the year ended December 31, 2017 to $30.9 million for the year ended December 31, 2018.

The increase was primarily due to deferred revenue and cost sharing revenue recognized in connection with the completion of Phase 1 activities and delivery of compound supply services for Phase 2a activities under the Janssen License and Collaboration Agreement, which became effective in July 2017.

We determined that the transaction price of the Janssen License and Collaboration Agreement was $60.7 million as of December 31, 2018, an increase of $6.8 million from the transaction price of $53.9 million at December 31, 2017.

In order to determine the transaction price, we evaluated all payments to be received during the duration of the contract.

We determined that the $50.0 million upfront payment, the $25.0 million payment payable upon filing of the IND, which was fully constrained as of December 31, 2018, and $10.7 million of estimated variable consideration for cost-sharing payments from Janssen for agreed upon services related to Phase 2a activities as of December 31, 2018 constituted consideration to be included in the transaction price, which is to be allocated to the combined performance obligation.

The increase in transaction price was due to an increase in variable consideration related to compound supply services, which was recognized as a cumulative catch-up adjustment.

During the year ended December 31, 2018, this increased overall variable consideration by $6.8 million and extended our projected completion date into the first half of 2019.

We will re-evaluate the transaction price at each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Research and Development Expenses

Research and development expenses increased $13.3 million, or 29%, from $46.2 million for the year ended December 31, 2017 to $59.5 million for the year ended December 31, 2018.

The increase was primarily due to $14.0 million for PTG-200 Phase 1 clinical trial and development expenses, $10.1 million for PTG-300 Phase 1 clinical trial and development expenses, $0.5 million for PN-943 Phase 1 clinical trial and development expenses and an increase of $0.3 million in milestone payments to a former collaboration partner.

These increases were partially offset by a decrease of $5.5 million in pre-clinical and discovery research expense, including pre-clinical development activities for PTG-200, PTG-300 PN-943 and our other product candidates, a decrease of $5.4 million in PTG-100 Phase 1 clinical trial and development expenses and a decrease of $0.7 million in expense reimbursement under grants and incentives.

Research and development expenses for the year ended December 31, 2018 include an increase in personnel costs due to increased research and development headcount from 44 employees at December 31, 2017 to 49 employees at December 31, 2018.

General and Administrative Expenses

General and administrative expenses increased $1.9 million, or 16%, from $11.8 million for the year ended December 31, 2017, to $13.7 million for the year ended December 31, 2018.

The increase was primarily due to an increase of $2.4 million in personnel costs to support the growth of our operations, partially offset by a $0.5 million decrease in legal fees primarily related to the Janssen License and Collaboration Agreement.

The increase in personnel costs for the year ended December 31, 2018 reflected an increase in general and administrative headcount from 11 employees at December 31, 2017 to 15 employees at December 31, 2018 and included a $1.3 million increase in stock-based compensation expense.

Interest Income

Interest income increased $1.6 million, or 171%, from $0.9 million for the year ended December 31, 2017 to $2.5 million for the year ended December 31, 2018.

The increase in interest income was primarily due to the increasing interest rate environment during the year ended December 31, 2018.

Income Tax Benefit

Income tax benefit for the year ended December 31, 2018 was $0.8 million.

The income tax benefit was due primarily to the 2018 release of the valuation allowance related to Protagonist Australia.

We believe these deferred tax assets will be realized in the future due to expected profitability for this subsidiary.

No income tax provision was recorded for the year ended December 31, 2017.

Liquidity and Capital Resources

Liquidity and Capital Expenditures

As of December 31, 2019, we had $133.0 million of cash, cash equivalents and marketable securities and an accumulated deficit of $217.7 million.

Our operations have been financed by net proceeds from the sale of shares of our capital 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 fourth quarter of 2019, we became eligible to receive a nonrefundable $5.0 million payment from Janssen, which we received during the first quarter of 2020.

In September 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 at-the-market (“ATM”) financing facility under a sales agreement (the “2017 Sales Agreement”).

The 2017 Sales Agreement was terminated in 2019.

During the year ended December 31, 2019, prior to the termination of the 2017 Sales Agreement, we sold 2,846,641 shares of our common stock for net proceeds of $34.5 million, after deducting issuance costs.

We sold 151,273 shares of our common stock pursuant to the 2017 Sales Agreement during the year ended December 31, 2018 for net proceeds of $1.5 million, after deducting issuance costs.

As of December 31, 2019, $72.0 million of common stock remained available for sale under the 2017 Form S-3.

In October 2017, we completed an underwritten public offering of 3,530,000 shares of our common stock at a public offering price of $17.00 per share.

In November 2017, we issued an additional 529,500 shares of our common stock at a price of $17.00 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 $64.5 million.

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 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”

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 December 31, 2019, 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 the year ended December 31, 2019, Exchange Warrants to purchase 600,000 shares were net exercised, resulting in the issuance of 599,997 shares of common stock.

As of December 31, 2019, 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”).

As of December 31, 2019, no offering, issuance or sale of common stock, preferred stock, debt securities or warrants was made under the 2019 Form S-3 or the 2019 Sales Agreement.

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.

Additional information about this credit facility and our long-term debt is presented in Note 8 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Our primary uses of cash are to fund operating expenses, primarily 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;

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;

costs necessary to attract, hire and retain qualified personnel;

the costs of maintaining, expanding and protecting our intellectual property portfolio;

the costs of ongoing general and administrative activities to support the growth of 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’

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:

Year Ended December 31,

(In thousands)

Cash (used in) provided by operating activities

Cash (used in) provided by investing activities

Cash provided by financing activities

Cash Flows from Operating Activities

Cash used in operating activities for the year ended December 31, 2019 was $41.5 million, consisting of our net loss of $77.2 million, partially offset by a net change of $26.1 million in net operating assets and liabilities and non-cash charges of $9.5 million.

The change in net operating assets and liabilities was primarily due to a net increase of $33.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, a decrease of $1.4 million in research and development tax incentive receivable and an increase of $1.1 million in accrued expenses and other payables, partially offset by an decrease of $3.0 million in accounts payable, an increase of $2.8 million in prepaid expenses and other assets, an increase of $2.2 million in receivable from collaboration partner and a decrease of $1.9 million in operating lease liability.

Non-cash charges were primarily comprised of $8.4 million of stock-based compensation, $1.8 million of operating lease right-of-use asset amortization and $0.7 million of depreciation and amortization, partially offset by a $0.8 million increase in deferred tax assets and $0.6 million of net accretion of discount on marketable securities.

Cash used in operating activities for the year ended December 31, 2018 was $49.9 million, consisting of our net loss of $38.9 million and a net change of $18.0 million in net operating assets and liabilities, partially offset by non-cash charges of $7.0 million.

The change in net operating assets and liabilities was primarily due to a net decrease of $23.5 million in deferred revenue related to the Janssen License and Collaboration Agreement and an increase of $2.8 million in receivable from collaboration partner, partially offset by an increase of $4.4 million in accounts payable, an increase of $1.9 million in accrued expenses and other payables, an increase of $1.1 million in payable to collaboration partner and a decrease of $1.1 million in prepaid expenses and other assets.

Non-cash charges were primarily comprised of $6.9 million of stock-based compensation, $0.5 million of depreciation and amortization and $0.2 million of net amortization of premium on marketable securities, partially offset by a $0.7 million increase in deferred tax assets.

Cash provided by operating activities for the year ended December 31, 2017 was $3.9 million, consisting of a net change of $35.6 million in net operating assets and liabilities and non-cash charges of $5.3 million, partially offset by our net loss of $37.0 million.

The change in net operating assets and liabilities was due primarily to an increase of $31.8 million in deferred revenue related to the Janssen License and Collaboration Agreement, an increase of $4.8 million in accounts payable and accrued expenses related primarily to an increase in research and development activities and other general and administrative professional services and a decrease of $1.1 million in the Australian research and development tax incentive receivable, partially offset by an increase of $1.8 million in receivable from collaboration partner and an increase of $0.3 million in prepaid expenses and other assets.

The non-cash charges were primarily comprised of $4.2 million of stock-based compensation, $0.7 million of net amortization of premium on marketable securities and $0.4 million of depreciation and amortization.

Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2019 was $53.7 million, consisting of purchases of marketable securities of $166.9 million and purchases of property and equipment of $1.0 million, partially offset by proceeds from maturities of marketable securities of $114.2 million.

Purchases of property and equipment were primarily related to purchases of scientific equipment and leasehold improvements.

Cash provided by investing activities for the year ended December 31, 2018 was $2.2 million, consisting of proceeds from marketable securities of $73.8 million, partially offset by purchases of marketable securities of $71.1 million and purchases of property and equipment of $0.5 million.

Purchases of property and equipment were primarily related to purchases of scientific equipment.

Cash provided by investing activities for the year ended December 31, 2017 was $15.8 million, consisting of proceeds from maturities of marketable securities of $56.0 million, partially offset by purchases of marketable securities of $39.5 million and purchases of property and equipment of $0.7 million.

Purchases of property and equipment were primarily related to purchases of scientific equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2019 was $46.0 million, consisting of $34.5 million of net proceeds from sales of common stock through our ATM financing facility, $9.8 million of net proceeds from long-term debt and $1.8 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

Cash provided by financing activities for the year ended December 31, 2018 was $24.1 million, consisting of $21.7 million of net proceeds from issuance of our common stock and warrants in a private placement, $1.5 million of net proceeds from sales through our ATM financing facility and $0.9 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

Cash provided by financing activities for the year ended December 31, 2017 was $65.5 million, consisting of net proceeds of $64.5 million from our public offering of common stock and proceeds of $1.0 million 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

The following table summarizes our future minimum contractual obligations as of December 31, 2019.

Payments Due by Period

Contractual Obligations:

(In thousands)

Debt payment obligations (1)

Operating lease obligations (2)

Total contractual obligations

________________

(1) Represents principal and final payment fee on our long-term debt.

See Note 8 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.

(2) Represents minimum lease payments under our operating lease obligations.

See Note 9 to the consolidated financial statements elsewhere in this Annual Report on Form 10-K for additional information.

Potential Obligations Not Included in the Table Above

We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for pre-clinical studies and other services and products for operating purposes, which are cancelable at any time by us, generally upon 30 to 60 days prior written notice.

Future potential payments under these agreements are not included in the table above.

Under the Janssen License and Collaboration Agreement, we share with Janssen certain development, regulatory and compound supply costs.

The actual amounts that we pay Janssen or that Janssen pays us will depend on numerous factors, some of which are outside of our control and some of which are contingent upon the success of certain development and regulatory activities.

Future development and commercialization payments to Janssen are not included in the table above as the timing and amounts of such payments are not determinable.

In October 2013, the collaboration program under our Research Collaboration and License Agreement with Zealand Pharma A/S (Zealand) was abandoned by Zealand.

Pursuant to the terms of the agreement, we elected to assume the responsibility for the development and commercialization of the product candidate.

Upon Zealand’s abandonment,

Zealand assigned to us certain intellectual property arising from the collaboration and also granted us an exclusive license to certain background intellectual property rights of Zealand that relate to the products assumed by us.

We did not record any research and development expense under this agreement for the year ended December 31, 2019.

For the years ended December 31, 2018 and 2017, we recorded research and development expense of $500,000 and $250,000, respectively, under this agreement.

We have the right, but not the obligation, to further develop and commercialize the product candidate and, if we successfully develop and commercialize PTG‑300 without a partner, Zealand 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.

In addition, Zealand could be eligible to receive a low single digit royalty on worldwide net sales of the product.

Future development, regulatory and sales payments to Zealand are not included in the table above as the timing and amounts of such payments are not determinable.

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.

This item is no longer required as we have elected to early adopt the changes to Item 301 of Regulation S-K.

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-K

Item 5. Market for Registrant’s Common Equity