What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-10 compared with 2020-03-10 · 407 added, 348 removed, 599 unchanged (56% of the section changed)

3 unchanged sentences

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm s

Consolidated Balance Sheets

1 unchanged sentence

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Supplementary Financial Data (unaudited)

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Protagonist Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Protagonist Therapeutics, Inc.

(the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2020.

Redwood City, California

March 10, 2021

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Protagonist Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Protagonist Therapeutics, Inc.

and its subsidiary (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive loss, stockholders’

equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We have audited the consolidated balance sheet of Protagonist Therapeutics, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

1 unchanged sentence

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company ’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

5 unchanged sentences

March 10, 2020

We have served as the Company’s auditor since 2015.

PROTAGONIST THERAPEUTICS, INC.

We served as the Company's auditor from 2015 to 2019.

PR OTAGONIST THERAPEUTICS, INC.

Consolidated Balance Sheets

5 unchanged sentences

Receivable from collaboration partner and contract asset - related party

Research and development tax incentive receivable, net

Research and development tax incentive receivable

Prepaid expenses and other current assets

Total current assets

Marketable securities - noncurrent

Property and equipment, net

2 unchanged sentences

Deferred tax asset

Liabilities and Stockholders’

Liabilities and Stockholders’ Equity

Current liabilities:

8 unchanged sentences

Operating lease liability - noncurrent

Deferred rent

Other liabilities

Total liabilities

Commitments and contingencies (Note 11)

Stockholders’

Stockholders’ equity:

Preferred stock, $ 0.00001 par value, 10,000,000 shares authorized;

3 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive gain (loss)

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

11 unchanged sentences

Interest expense

Loss on early repayment of debt

Other expense, net

Loss before income tax benefit

Income tax benefit

Loss before income tax (expense) benefit

Income tax (expense) benefit

Net loss per share, basic and diluted

6 unchanged sentences

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Unrealized gain (loss) on marketable securities

Gain (loss) on translation of foreign operations

Unrealized (loss) gain on marketable securities

Comprehensive loss

1 unchanged sentence

PROTAGONIST THERAPEUTICS, INC.

Consolidated Statements of Stockholders’

Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

Comprehensive

Stockholders’

Balance at December 31, 2016

Issuance of common stock upon public offering, net of issuance costs

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

Stock-based compensation expense

Other comprehensive gain

Stockholders’

Balance at December 31, 2017

Issuance of common stock and warrants upon private placement, net of issuance costs

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

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

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

Retirement of common stock in exchange for common stock warrant

( 1,000,000 )

Issuance of common stock warrant in exchange for retirement of common stock

8 unchanged sentences

Balance at December 31, 2019

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

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

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

Stock-based compensation expense

Other comprehensive gain

Balance at December 31, 2020

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

4 unchanged sentences

Cash Flows from Operating Activities

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

1 unchanged sentence

Depreciation and amortization

Amortization of issuance costs and accretion of final payment fee for long-term debt

Gain (loss) on disposal of property and equipment

Net (accretion of discount) amortization of premium on marketable securities

Loss on early repayment of debt

Net amortization of premium (accretion of discount) on marketable securities

Amortization of debt issuance costs and accretion of debt discount

Gain on disposal of property and equipment

Change in deferred tax asset

Changes in operating assets and liabilities:

Research and development tax incentive receivable, net

Research and development tax incentive receivable

Receivable from collaboration partner - related party

5 unchanged sentences

Operating lease liability

Net cash (used in) provided by operating activities

Other liability

Net cash used in operating activities

Cash Flows from Investing Activities

1 unchanged sentence

Proceeds from maturities of marketable securities

Purchases of property and equipment, net

Purchases of property and equipment

Net cash (used in) provided by investing activities

Cash Flows from Financing Activities

Proceeds from public offering of common stock, net of issuance costs

Proceeds from issuance of common stock and warrants in private placement, net of issuance costs

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

Proceeds from issuance of long-term debt, net of issuance costs

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

Proceeds from issuance of common stock and warrants in private placement, net of

issuance costs

Proceeds from issuance of long-term debt, net of issuance costs

Issuance costs related to long-term debt

Early repayment of long-term debt

Net cash provided by financing activities

Effect of exchange rate changes on cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING INFORMATION:

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

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

Purchases of property and equipment in accounts payable and accrued liabilities

Deferred offering costs in accounts payable and accrued liabilities

Fair value of common stock retired in exchange for issuance of common stock warrant

Acquisition of new equipment upon trade-in for existing equipment

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

3 unchanged sentences

Protagonist Therapeutics, Inc.

(the “Company”) was incorporated in the state of Delaware on August 22, 2006 and is headquartered in Newark, California.

The Company is a clinical-stage biopharmaceutical company that utilizes a proprietary technology platform to discover and develop novel peptide-based drugs to transform existing treatment paradigms for patients with significant unmet medical needs.

Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is located in Brisbane, Queensland, Australia.

(the “Company”) is headquartered in Newark, California.

The Company is a clinical-stage biopharmaceutical company that utilizes a proprietary technology platform to discover and develop novel peptide-based therapeutics to address significant unmet medical needs and transform existing treatment paradigms for patients.

Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is located in Brisbane, Queensland, Australia.

Protagonist Australia was incorporated in Australia in September 2001.

1 unchanged sentence

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 283.8 million as of December 31, 2020.

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

The Company expects to incur additional losses in the future and anticipates the need to raise additional capital to continue to execute its long-range business plan.

Since the Company’s initial public offering in August 2016, it has financed its operations through offerings of common stock, payments received under a license and collaboration agreement and proceeds received from long-term debt.

Since the Company’s initial public offering in August 2016, it has financed its operations primarily through offerings of common stock and payments received under a license and collaboration agreement.

Risks and Uncertainties

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

The Company is continuing to closely monitor the impact of the COVID-19 pandemic on its business and has taken and continues to take proactive efforts to protect the health and safety of its patients, clinical research staff and employees, and to maintain business continuity.

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, 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, manufacturing, collaboration activities and operations, is uncertain and cannot be fully 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, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities, supply chain disruptions, the ongoing 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 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 remains uncertain.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Protagonist Australia, and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

All intercompany balances and transactions have been eliminated upon consolidation.

Certain prior period amounts have been reclassified to conform to the current year presentation.

There was no effect on net loss or stockholders’

equity related to these reclassifications.

The financial statements of Protagonist Australia use the Australian dollar as the functional currency since the majority of expense transactions occur in such currency.

5 unchanged sentences

The consolidated statements of operations have been translated at the weighted average exchange rates in effect during each year.

Foreign currency translation gains and losses are reported as a component of stockholders’

equity in accumulated other comprehensive loss on the consolidated balance sheets.

Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated other comprehensive loss on the consolidated balance sheets.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, research and development tax incentives, marketable securities and leases.

Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration agreements.

Management bases these estimates on historical and anticipated results, trends and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events.

Actual results may differ significantly from those estimates.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets.

The Company has taken into consideration any known COVID-19 impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K.

These estimates may change as new events occur and additional information is obtained.

Actual results could differ materially from these estimates under different assumptions or conditions.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities.

Substantially all of the Company’s cash is held by two financial institutions that management believes are of high credit quality.

Such deposits may, at times, exceed federally insured limits.

The primary focus of the Company’s investment strategy is to preserve capital and to meet liquidity requirements.

The Company’s cash equivalents and marketable securities are managed by external managers within the guidelines of the Company’s investment policy.

The Company’s investment policy addresses the level of credit exposure by limiting concentration in any one corporate issuer and establishing a minimum allowable credit rating.

The primary focus of the Company’s investment strategy is to preserve capital and to meet liquidity requirements.

The Company’s cash equivalents and marketable securities are managed by external managers within the guidelines of the Company’s investment policy.

The Company’s investment policy addresses the level of credit exposure by limiting concentration in

any one corporate issuer and establishing a minimum allowable credit rating.

To manage its credit risk exposure, the Company maintains its portfolio of cash equivalents and marketable securities in fixed income securities denominated and payable in U.S.

5 unchanged sentences

Restricted Cash

Restricted cash consists of cash balances primarily held as security in connection with a letter of credit related to the Company’s facility lease entered into in March 2017 and the Company’s corporate credit card.

Cash as Reported in Consolidated Statements of Cash Flows

4 unchanged sentences

Restricted cash - noncurrent

Cash balance in consolidated statements of cash flows

Total cash, cash equivalent and restricted cash in consolidated statements of cash flows

Marketable Securities

All marketable securities have been classified as “available-for-sale”

and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities.

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities.

Management determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date.

7 unchanged sentences

Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually).

The carrying amount of the Company’s financial instruments, including cash equivalents, receivable from collaboration partner, accounts payable, payable to collaboration partner and accrued expenses and other payables approximate fair value due to their short-term maturities.

to the Consolidated Financial Statements for additional information regarding the fair value of the Company’s other financial assets and liabilities.

Property and Equipment

4 unchanged sentences

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in operations in the period realized.

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

The Company determines 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 the Company’s leases do not provide an implicit rate, the Company uses its 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.

11 unchanged sentences

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’

equity that result from transactions and economic events other than those from stockholders.

The Company’s foreign currency translation and unrealized gains and losses on available-for-sale securities represent the only components of other comprehensive loss that are excluded from reported net loss and that are presented in the consolidated statements of comprehensive loss.

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those from stockholders.

The Company uses the asset and liability method to account for income taxes in accordance with the authoritative guidance for income taxes.

Under this method, deferred tax assets and liabilities are determined based on future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and tax loss and credit carryforwards.

and their respective tax bases, and tax loss and credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.

7 unchanged sentences

Revenue Recognition

The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

5 unchanged sentences

and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company applies the five-step model to contracts when it is probable that the Company will collect the

consideration it is entitled to in exchange for the goods or services it transfers to the customer.

The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

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 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.

Licenses of intellectual property:

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes 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, the Company utilizes 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.

13 unchanged sentences

The Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price.

At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any

related constraint, and if necessary, adjusts its 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.

1 unchanged sentence

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 the Company performs its obligations under these arrangements.

Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

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

6 unchanged sentences

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.

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 the Company transfers control of promised goods or services and when the Company receives payment is expected to be one year or less, and that expectation is consistent with the Company’s historical experience.

Upfront payment contract liabilities resulting from the Company’s 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 the Company.

The period between when the Company transfers control of promised goods or services and when the Company receives payment is expected to be one year or less, which is consistent with the Company’s historical experience.

As such, the Company does not adjust its revenues for the effects of a significant financing component.

3 unchanged sentences

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated services provided but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

The Company records the estimated costs of research and development activities based upon the estimated services provided

but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers.

1 unchanged sentence

The Company has not experienced any material differences between accrued liabilities and actual costs incurred.

However, the status and timing of actual services performed, number of patients enrolled, the rate of patient enrollment and number and location of sites activated may vary from the Company’s estimates, resulting in adjustments to expense in future periods.

Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

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

Food and Drug Administration (“FDA”) for its clinical asset rusfertide (generic name for 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.

Research and Development Tax Incentive

The Company is eligible under the AusIndustry research and development tax incentive program to obtain either a refundable cash tax incentive or a taxable credit in the form of a non-cash tax incentive from the Australian Taxation Office (“ATO”).

The refundable cash tax incentive is available to the Company on the basis of specific criteria with which the Company must comply.

3 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.

The Company has received Small Business Innovation Research (“SBIR”) grants from the National Institutes of Health (“NIH”) in support of its research activities.

Small Business Innovation Research (“SBIR”) Grants

The Company has received SBIR grants from the National Institutes of Health (“NIH”) in support of its research activities.

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

Stock-based Compensation

The Company measures its stock-based awards made to employees based on the estimated fair values of the awards as of the grant date.

The Company measures its stock-based awards made to its equity plan participants based on the estimated fair values of the awards as of the grant date.

For stock option awards, the Company uses the Black-Scholes option-pricing model to estimate fair values.

1 unchanged sentence

Stock-based compensation expense is recognized over the requisite service period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.

The Company adopted Accounting Standards Update No.

2016-09, Compensation-Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) effective January 1, 2017 and has elected to recognize forfeitures of stock-based awards as they occur on a prospective basis.

The Company recognizes forfeitures of stock-based awards as they occur.

Net Loss per Share

Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares of common stock and Exchange Warrants outstanding during the period, without consideration of potentially dilutive securities.

In accordance with Accounting Standards Codification Topic 260, Earnings Per Share , the Exchange Warrants are included in the computation of basic net loss per share because the exercise price is negligible and they are fully vested and exercisable after the original issuance date.

1 unchanged sentence

Stockholders' Equity for additional information regarding the Exchange Warrants.

Recently Issued Accounting Pronouncements Adopted During the Year Ended December 31, 2019

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016‑02, Leases (Topic 842).

In July 2018, the FASB issued ASU No.

2018-10, Codification Improvements to Topic 842, Leases , which provides clarification to ASU 2016-02.

These ASUs (collectively, the new lease standard) require an entity to recognize a lease liability and a ROU asset on the balance sheet for leases with lease terms of more than twelve months.

Lessor accounting is largely unchanged, while lessees are no longer provided with a source of off-balance sheet financing.

In July 2018, the FASB issued ASU No.

2018-11, Leases (Topic 842) - Targeted Improvements, which allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoption rather than in the earliest period presented.

The Company adopted the new lease standard using the modified retrospective approach effective January 1, 2019 and elected the package of transitional practical expedients, such that, for leases existing prior to the adoption of ASC 842, the Company did not need to reassess whether contracts are leases, retained historical lease classification and historical initial direct costs classification.

The Company did not elect the hindsight practical expedient to determine the lease term for existing leases.

At January 1, 2019, the Company derecognized its deferred rent liability in the amount of $0.8 million and recognized a ROU asset and related lease liability in the amount of $7.5 million and $8.3 million, respectively.

In June 2018, the FASB issued ASU No.

2018-07, Compensation –

Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting , which is intended to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of Accounting Standards Codification Topic 718 –

Stock Compensation (“ASC 718”) include share-based payment transactions for acquiring goods and services from

nonemployees.

The Company adopted this guidance prospectively as of January 1, 2019.

The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or liquidity.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements and is intended to improve the effectiveness of disclosures, including the consideration of costs and benefits.

The Company adopted this guidance as of January 1, 2020.

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

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction Between Topic 808 and Topic 606 , which is intended to clarify the circumstances under which certain transactions in collaborative arrangements should be accounted for under the revenue recognition standard.

Certain transactions between collaboration arrangement participants should be accounted for as revenue under ASC Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019.

The Company adopted this guidance as of January 1, 2020.

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 December 31, 2020

4 unchanged sentences

In November 2019, the FASB issued ASU No.

2019-10, Financial Instruments –

Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

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.

Based on the Company’s status as a smaller reporting company as of November 15, 2019, ASU 2016-13 is effective for the Company for 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.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) –

Disclosure Framework –

Changes to the Disclosure Requirements for Fair Value Measurement , which modifies the disclosure requirements on fair value measurements and is intended to improve the effectiveness of disclosures, including the consideration of costs and benefits.

The guidance is effective for the fiscal years and interim periods within those years beginning after January 1, 2020.

Early adoption is permitted, and an entity is permitted to early adopt any removed or modified disclosures and delay adoption of additional disclosures until their effective date.

The Company does not expect this new guidance to impact its consolidated financial statements and is currently evaluating the impact on its disclosures.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020.

Early adoption is permitted.

The Company is in the process of assessing the impact of this new guidance on its consolidated financial statements and disclosures.

In December 2019, the FASB issued ASU No.

2 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 in the process of assessing 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

Agreement Terms

On May 26, 2017, the Company and Janssen Biotech, Inc., (“Janssen”), one of the Janssen Pharmaceutical Companies of Johnson & Johnson, entered into an exclusive license and collaboration agreement (the “Janssen License and Collaboration Agreement”) for the development, manufacture and potential commercialization of PTG-200 worldwide for the treatment of Crohn’s disease (“CD”) and ulcerative colitis (“UC”).

Janssen is a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of the Company, and Janssen are both subsidiaries of Johnson & Johnson.

PTG-200 is the Company’s orally delivered gut-restricted Interleukin 23 receptor (“IL 23R”) antagonist drug candidate currently in development.

The Janssen License and Collaboration Agreement

became effective on July 13, 2017.

PTG-200 is the Company’s orally delivered gut-restricted Interleukin 23 receptor (“IL-23R”) antagonist drug candidate currently in development.

The Janssen License and Collaboration Agreement became effective on July 13, 2017.

Upon the effectiveness of the agreement, the Company received a non-refundable, upfront cash payment of $ 50.0 million from Janssen.

1 unchanged sentence

The Company was responsible, at its own expense, for the conduct of the Phase 1 clinical trial for PTG-200, and Janssen is responsible for the conduct of the Phase 2 clinical trial for PTG-200 in CD, including filing the U.S.

Investigational New Drug application (“IND”).

Development costs for the Phase 2 clinical trial are shared between the parties on an 80 / 20 basis, with Janssen assuming the larger share.

1 unchanged sentence

The Company initiated a Phase 2 clinical study for PTG-200 in CD with Janssen 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.

The First Amendment builds upon the Company’s ongoing development collaboration with Janssen for PTG-200 and, upon the effectiveness of the First Amendment, the Company became eligible to receive a $25.0 million payment from Janssen, which was received during the second quarter of 2019.

The First Amendment expanded the scope of the Janssen License and Collaboration Agreement by supporting research efforts towards identifying and developing second-generation IL-23R antagonists (“second-generation compounds”).

As part of the services added in the First Amendment, Janssen will pay certain costs and milestones related to advancing pre-clinical candidates from the second-generation research program through Phase 1 studies, including funding of a certain number of full-time equivalent employees (“FTEs”) at the Company for a set period of time.

The Company will pay 100% of the costs for the Phase 1 studies for the first second-generation compound, and 50% of the costs of the Phase 1 studies for the second and third second-generation compounds;

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

The First Amendment builds upon the Company’s ongoing development collaboration with Janssen for PTG-200 and, upon the effectiveness of the First Amendment, the Company became eligible to receive a $ 25.0 million payment from Janssen, which was received during the second quarter of 2019.

Two second-generation IL-23R compounds have been nominated and are currently in development:

PN-235, in a Phase 1 clinical study, and PN-232, in preclinical studies.

The Company will pay 100 % of the costs for the preclinical studies and Phase 1 studies for the first second-generation compound, and 50 % of the costs of the Phase 1 studies for the second and third second-generation compounds;

thereafter Janssen will pay 100 % of any further Phase 1 development costs.

Development costs for the Phase 2 clinical trials for second-generation compounds are shared between the parties on an 80 / 20 basis, with Janssen assuming the larger share.

The Company’s Phase 1 and Phase 2 development costs are also limited by overall spending caps.

In December 2019, the Company became eligible to receive a $5.0 million payment trigged by the successful nomination of a second-generation development compound.

The Company’s Phase 1 and Phase 2 development costs are also limited by overall spending caps.

In December 2019, the Company became eligible to receive a $ 5.0 million payment trigged by the successful nomination of a second-generation development compound, which was received during the first quarter of 2020.

The Company will be eligible to receive a $ 7.5 million milestone payment at the completion of a Phase 1 study for the first second-generation compound.

Prior to the effectiveness of the First Amendment, the Company had been eligible to receive a $25.0 million milestone payment upon Janssen’s filing of the IND.

Prior to the effectiveness of the First Amendment, the Company had been eligible to receive a $ 25.0 million milestone payment upon Janssen’s filing of the IND.

This amount had been considered constrained until a time at which the Company would have become eligible to receive the $ 25.0 million payment from Janssen.

2 unchanged sentences

Milestone payments are received after the related milestones are achieved.

Pursuant to the First Amendment, the Company will be eligible to receive clinical development, regulatory and sales milestones, if and as achieved, and/or payments relating to Janssen’s elections to maintain or expand its license rights.

The next such payment is a $50.0 million payment based on Phase 2a clinical trial results, as follows:

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 (the “Second-Generation Phase 2b Milestone”).

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”).

Formerly, the first and second opt-in payments were $125.0 million and $200.0 million, respectively.

If Janssen does not make the Amended Second Opt-in Election, with

respect to either PTG-200 or a second-generation compound, the Janssen License and Collaboration Agreement would terminate.

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.

The next possible milestone or opt-in election events based on a Phase 2 clinical trial in CD are as follows:

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 the 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”).

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 will be eligible to receive up to an aggregate $ 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 has concluded that the amended Janssen License and Collaboration Agreement continues 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 including the development license;

second-generation compound research services;

Phase 1 development services for PTG-200 and potential second-generation compounds;

the Company’s services associated with Phase 2 development for PTG-200 until Phase 2a;

the Company’s services associated with Phase 2 development for a second-generation product until the dosing of the third patient in Phase 2b;

and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200, second-generation research services, or the development of a second-generation compound.

the Company’s services associated with Phase 2 development for PTG-200 until Phase 2a;

the Company’s services associated with Phase 2 development for second-generation products until the dosing of the third patient in Phase 2b in CD or UC, or Phase 2 in an additional indication;

The Company concluded that the Amended First Opt-in Election and the Amended Second Opt-in Election options are not considered to be material rights.

5 unchanged sentences

The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations.

For revenue recognition purposes, the Company determined that the duration of the Janssen License and Collaboration Agreement, as amended, began on the effective date of July 13, 2017 and ends upon the later of end of Phase 2a for PTG-200 or upon dosing of the third patient in Phase 2b for a second-generation compound.

For revenue recognition purposes, the Company determined that the duration of the Janssen License and Collaboration Agreement, as amended, began on the effective date of July 13, 2017 and is estimated to end upon the later of end of Phase 2a for PTG-200 or upon dosing of the third patient in Phase 2b for a second-generation compound.

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.

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.

Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services, offset by development cost reimbursements 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 and are included in the transaction price at the Company’s share of 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 and 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 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 and $59.0 million from the transaction price of $53.9 million at December 31, 2017.

The Company concluded that the transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $ 98.6 million as of December 31, 2020, a decrease of $ 14.3 million from the transaction price of $ 112.9 million at December 31, 2019 and an increase of $ 37.9 million from the transaction price of $ 60.7 million at December 31, 2018.

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 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 Company determined that the transaction price of the initial performance obligation as of December 31, 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, $ 17.9 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research and development 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, partially offset by $ 6.8 million of net cost reimbursement to Janssen for services performed.

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 December 31, 2020 is not probable.

The Company concluded that the variable consideration constraint does not further decrease the estimated transaction price as of December 31, 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.

The increase in transaction price following the effectiveness of the First Amendment was primarily due to the collection of the $25.0 million payment, the $5.0 million payment receivable as of December 31, 2019, the $7.5 million milestone payment for the successful completion of a Phase 1 study for a second- generation compound and increases in reimbursable costs related to new and extended research and development services, offset by Phase 2 development costs reimbursement payable to Janssen.

The additional potential development, regulatory and sales milestone payments after the completion of Phase 2a activities in UC and CD 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.

Janssen has also opted in for certain additional services to be performed by the Company that are outside the initial performance obligation;

revenue is recognized as these services are performed.

The Company re-evaluates the transaction price, including variable consideration, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

1 unchanged sentence

The Company utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize.

In applying the cost-based input methods of revenue recognition, the Company uses actual costs incurred relative to expected costs to fulfill the combined performance obligation.

In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to expected costs to fulfill the combined performance obligation.

These costs consist primarily of internal FTE effort and third-party contract costs.

Revenue will be recognized based on actual costs incurred as a percentage of total estimated costs as the Company completes its performance obligations.

A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations.

The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Janssen.

In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates.

The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated.

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 year ended December 31, 2020, the Company recognized $ 28.6 million of license and collaboration revenue.

This amount included a $9.4 million cumulative catchup adjustment as a reduction of revenue, offset by $8.0 million of license and collaboration revenue recognized following the contract modification for the First Amendment and $1.6 million of collaboration revenue recognized during the first quarter of 2019 under the original Janssen License and Collaboration Agreement prior to the effectiveness of the First Amendment.

This amount included $ 27.1 million of the transaction price based on proportional performance and an update in forecasted amounts for future services remaining to be performed and recognized under the Janssen License and Collaboration Agreement.

In addition, the Company recorded $ 1.5 million of revenue for the year ended December 31, 2020 related to additional services provided by the Company under the Janssen License and Collaboration Agreement.

For the year ended December 31, 2019, the Company recognized $ 0.2 million of license and collaboration revenue.

This amount included $30.8 million of the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance, and $0.1 million, net, for other services related to Phase 2

activities performed by the Company on behalf of Janssen that were not included in the performance obligations identified under the Janssen License and Collaboration Agreement.

This amount included a $ 9.4 million cumulative catchup adjustment as a reduction of revenue, offset by $ 8.0 million of license and collaboration revenue recognized following the contract modification for the First Amendment and $ 1.6 million of collaboration revenue recognized during the first quarter of 2019 under the original Janssen License and Collaboration Agreement prior to the effectiveness of the First Amendment.

No revenue for additional services was recognized for the year ended December 31, 2019.

For the year ended December 31, 2018, the Company recognized $ 30.9 million of license and collaboration revenue.

This amount included $19.0 million of the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance, and $1.1 million for other services related to Phase 2 activities performed by the Company on behalf of Janssen that were not included in the performance obligations identified under the Janssen License and Collaboration Agreement.

The following table presents changes in the Company’s contract assets and liabilities for the years ended December 31, 2019 and 2018 (in thousands):

This amount included $ 30.8 million of the transaction price for the Janssen License and Collaboration

Agreement recognized based on proportional performance, and $ 0.1 million, net, for other services related to Phase 2 activities performed by the Company on behalf of Janssen that were not included in the performance obligations identified under the Janssen License and Collaboration Agreement.

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

Year Ended December 31, 2020

12 unchanged sentences

Payable to collaboration partner - related party

During the year ended December 31, 2019, the Company recognized $1.6 million in revenue from the deferred revenue contract liability balance at the beginning of the year, which represents the revenue recognized during the first quarter of 2019 prior to the effectiveness of the First Amendment.

During the year ended December 31, 2020, the Company recognized revenue of $ 14.1 million from amounts included in the deferred revenue contract liability balance at the beginning of the year.

During the year ended December 31, 2019, the Company recognized revenue of $ 1.6 million from amounts included in the deferred revenue contract liability balance at the beginning of the year, which represents the revenue recognized during the first quarter of 2019 prior to the effectiveness of the First Amendment.

During the year ended December 31, 2018, the Company recognized $ 23.5 million in revenue from the deferred revenue contract liability balance at the beginning of the year.

During the year ended December 31, 2017, the Company did not recognize any revenue from amounts included in the contract asset and the contract liability balances at the beginning of the year or from performance obligations satisfied in previous periods.

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

4 unchanged sentences

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.

Level 2—

Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 —Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

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

Level 2— Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 —Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

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

December 31, 2020

10 unchanged sentences

Total financial assets

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.

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

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.

Fair Value of Other Financial Instruments

The carrying value of long-term debt approximates fair value because the Term Loan bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and there is no significant change in the credit worthiness of the Company.

Balance Sheet Components

The carrying value of long-term debt as of December 31, 2019 approximated fair value because the Term Loan bore interest at a rate that approximated prevailing market rates for instruments with similar characteristics and there was no significant change in the credit worthiness of the Company.

The Company had no long-term debt balance as of December 31, 2020.

Cash Equivalents and Marketable Securities

9 unchanged sentences

Cash equivalents

Marketable securities

Marketable securities - current

Marketable securities - noncurrent

Total cash equivalents and marketable securities

8 unchanged sentences

Cash equivalents

Marketable securities

Marketable securities - current

Total cash equivalents and marketable securities

All marketable securities held as of December 31, 2019 and 2018 had contractual maturities of less than one year.

There were no material realized gains or realized losses from sales of marketable securities for the periods presented.

Marketable securities – current of $ 188.5 million and $ 100.0 million held at December 31, 2020 and December 31, 2019, respectively, had contractual maturities of less than one year .

Marketable securities – noncurrent of $ 2.0 million held at December 31, 2020 had contractual maturities of at least one year but less than two years .

The Company did not hold any marketable securities – noncurrent at December 31, 2019.

The Company has not experienced any material credit losses on its investments.

The Company does not intend to sell its securities that are in an unrealized loss position, and it is unlikely that the Company will be required to sell its securities before recovery of their amortized cost basis at maturity.

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

Factors considered in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the amortized cost basis and whether the Company intends to sell the security or whether it is more likely than not that the Company would be required to sell the security before recovery of the amortized cost basis.

Balance Sheet Components

Prepaid Expenses and Other Current Assets

15 unchanged sentences

As of December 31, 2020, 2019 and 2018, $ 46,000 , $ 37,000 and $ 200 , respectively, of property and equipment, net, was located in Australia.

The remainder of the Company’s property and equipment is located in the United States.

Accrued Expenses and Other Payables

6 unchanged sentences

Research Collaboration and License Agreement

In October 2013, the Company’s former collaboration partner decided to abandon a collaboration program with the Company and, pursuant to the terms of the agreement between the Company and the former collaboration partner, the Company elected to assume responsibility for the development and commercialization of the product.

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.

The Company and Zealand Pharma A/S entered into a collaboration agreement in June 2012.

In October 2013, Zealand Pharma abandoned the collaboration and the collaboration agreement was terminated in 2014.

The agreement provides for certain post-termination payment obligations to Zealand with respect to compounds related to the collaboration that meet specified conditions set forth in the collaboration agreement and which the Company elects to further develop following Zealand’s abandonment of the collaboration.

The Company has the right, but not the obligation, to further develop and commercialize such compounds.

The agreement provides for payments to Zealand for the

achievement of certain development, regulatory and sales milestone events that occur prior to a partnering arrangement related to such compounds between the Company and a third party.

The Company initially determined that rusfertide is a compound for which the post-termination payments described above are required under the collaboration agreement and has made three development milestone payments for an aggregate amount of $ 1.0 million under the agreement.

However, the Company concluded in 2019 that rusfertide is not a compound with respect to which post-termination payments are required under the agreement, and initiated the arbitration proceeding described in Note 11 below.

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 year ended December 31, 2019.

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

No research and development expense was recorded under this agreement for the years ended December 31, 2020 or 2019.

For the year ended December 31, 2018, the Company recorded research and development expense of $ 500,000 under this agreement.

If the Company is required to continue to make payments with respect to rusfertide under the collaboration agreement, the next two milestones that would be due under the agreement include:

$ 1.0 million to $ 3.0 million for initiation of placebo-controlled Phase 2b clinical trial;

and $ 1.5 million to $ 4.5 million for initiation of a Phase 3 clinical trial.

The milestone amounts vary depending on the number of patients in the applicable clinical trial, and the Company expects the milestones would be the lowest amount within the specified range.

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

Government Programs

Research and Development Tax Incentive

The Company recognized AUD 1.9 million ($1.3 million) of research and development expenses during the year ended December 31, 2019 in connection with a reversal of previously recorded reductions to research and development expenses related to the research and development tax incentive from the ATO.

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.

The Company is eligible to apply for the taxable credit in the form of a non-cash

tax incentive from the ATO for the year ended December 31, 2019.

For the years ended December 31, 2018 and 2017, the Company recognized AUD 2.1 million ($1.6 million) and AUD 1.7 million ($1.3 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 years ended December 31, 2020 and 2018, the Company recognized AUD 1.4 million ($ 1.0 million) and AUD 2.1 million ($ 1.6 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 year ended December 31, 2019, the Company recognized AUD 1.9 million ($ 1.3 million) of research and development expenses 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 December 31, 2020, the research and development tax incentive receivable was AUD 1.4 million ($ 1.1 million).

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

In July 2016, the Company was awarded a Phase 1 SBIR grant from the National Heart, Lungs and Blood Institute (“NHLBI”) of the NIH in support of pre-clinical research aimed at discovering and optimizing lead molecules as novel peptide mimetics of the hepcidin hormone.

The total grant award was $219,000 and was for the period from August 2016 to January 2017.

Small Business Innovation Research (“SBIR”) Grants

In May 2017, the Company was awarded a Phase 2 SBIR grant from the National Institute of Diabetes and Digestive and Kidney Diseases of the NIH in support of research aimed at developing biomarkers that define IL-23R target engagement by orally delivered peptide antagonists and the effects of that engagement of downstream signaling.

1 unchanged sentence

During the year ended December 31, 2019, the Company requested and received an extension of this grant through April 2020.

In September 2018, the Company was awarded a Phase 2 SBIR Grant from the NHLBI of the NIH in support of research aimed at developing the Company’s novel hepcidin mimetic PTG-300 for the potential treatment of chronic anemia and iron overload in rare blood disorders, including beta-thalassemia.

The total grant award was $1.5 million and is for the period from September 2018 to August 2020.

In September 2018, the Company was awarded a Phase 2 SBIR Grant from the National Heart, Lungs and blood Institute of the NIH in support of research aimed at developing the Company’s novel hepcidin mimetic rusfertide for the potential treatment of chronic anemia and iron overload in rare blood disorders, including beta-thalassemia.

The total grant award was $ 1.5 million and was originally for the period from September 2018 to August 2020.

During the year ended December 31, 2020, the Company requested an extension of this grant through July 2021, which was received in February 2021.

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 $1.4 million, $663,000 and $182,000 as a reduction of research and development expenses for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company recorded a receivable for $304,000 and $309,000 as of December 31, 2019 and 2018, respectively, to reflect the eligible costs incurred under the grants that are contractually due to the Company.

The Company recorded $ 0.5 million, $ 1.4 million and $ 0.7 million, as a reduction of research and development expenses for the years ended December 31, 2020,

2019 and 2018, 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 were contractually due to the Company.

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

On October 30, 2019, the Company entered into a Credit and Security Agreement, dated as of October 30, 2019 (the “Closing Date”) by and among the Company, MidCap Financial Trust, as a lender, Silicon Valley Bank, as a lender, the other lenders party thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”) (the “Term Loan Credit Agreement”), which provides for a $50.0 million term loan facility.

The Term Loan Credit Agreement provides for (i) on the Closing Date, $10.0 million aggregate principal amount of term loans, (ii) at the Company’s option, until December 31, 2020, an additional $20.0 million term loan facility subject to the satisfaction of certain conditions, including clinical milestone achievement, and (iii) at the Company’s option, until September 30, 2021, an additional $20.0 million term loan facility subject to the satisfaction of certain conditions, including clinical milestone achievement, (collectively, the “Term Loans”).

The Company intends to use the proceeds of the Term Loans for general corporate purposes

There was no such receivable as of December 31, 2020.

On October 30, 2019, the Company entered into a Credit and Security Agreement, dated as of October 30, 2019 (the “Closing Date”) by and among the Company, MidCap Financial Trust, as a lender, Silicon Valley Bank, as a lender, the other lenders party thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”), (the “Term Loan Credit Agreement”), which provides for a $ 50.0 million term loan facility.

The Term Loan Credit Agreement provides for (i) on the Closing Date, $ 10.0 million aggregate principal amount of term loans, (ii) at the Company’s option, until December 31, 2020, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions, including clinical milestone achievement, and (iii) at the Company’s option, until September 30, 2021, an additional $ 20.0 million term loan facility subject to the satisfaction of certain conditions, including clinical milestone achievement, (collectively, the “Term Loans”).

The Company intends to use any proceeds of the Term Loans for general corporate purposes.

The Term Loans are subject to an origination fee of 0.25 % for each funded tranche under the Term Loan Credit Agreement and bear interest at an annual rate based on prime rate plus 2.91 %, subject to a prime rate floor of 4.94 %.

The Company will make interest-only payments on the Term Loans for 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.

The Term Loan Credit Agreement requires the Company to maintain cash and cash equivalents of at least 35 % of the outstanding Term Loans at all times and is secured by a perfected security interest in all of the Company's assets except for intellectual property and certain other customary excluded property pursuant to the terms of the Term Loan Credit Agreement.

The Term Loan Credit Agreement contains other covenants that limit the Company’s ability and the ability of its subsidiaries to perform certain actions, including obligations to not pay dividends and to maintain unrestricted cash balance above certain threshold, non-occurrence of material adverse change, non-occurrence of change of control and other customary affirmative and negative covenants.

The Term Loan Credit Agreement contains other covenants that limit the Company’s ability and the ability of its subsidiaries to perform certain actions, including obligations to not pay dividends and to maintain unrestricted cash balances above certain threshold, non-occurrence of material adverse change, non-occurrence of change of control and other customary affirmative and negative covenants.

The violation of any provision of covenants will result in default for the Company.

The Term Loan Credit Agreement includes a clause which allows lenders to accelerate repayment upon the occurrence of certain events of default.

In June 2020, the Company prepaid its outstanding $ 10.0 million balance on the term loan as well as $ 0.6 million for related prepayment and exit fees.

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.

The Company did not exercise its option to borrow the $ 20.0 million second tranche of Term Loans, which expired on December 31, 2020, and therefore has no outstanding balance as of December 31, 2020 related to the Term Loan Credit Agreement.

As of December 31, 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 December 31, 2019, the Company’s long-term debt balance was as follows (dollars in thousands):

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

Interest Rate

December 31, 2020

December 31, 2019

Term loan (maturity date October 1, 2023)

Debt issuance costs, net of amortization

Accrued final payment fee

Accrued final payment fees

Long-term debt, net

The Company incurred $235,000 of issuance costs related to the Term Loan.

As of December 31, 2019, the carrying value of debt issuance costs was $222,000 and was presented as a direct deduction from the carrying amount of long-term debt.

For the year ended December 31, 2019, $13,000 of debt issuance costs were amortized and recognized as interest expense in the statement of operations.

In addition, $16,000 of accreted final payment fees were recognized as interest expense in the statement of operations and included in the carrying amount of long-term debt for the year ended December 31, 2019.

The effective interest rate on long-term debt was 9.81% for the year ended December 31, 2019.

The following table summarizes the Company’s minimum future debt payment obligations including principal and final payment fee as of December 31, 2019 (in thousands):

Year Ending December 31:

The effective interest rate on long-term debt was 9.85 % and 9.81 % for the years ended December 31, 2020 and 2019, respectively.

On January 1, 2019, the Company adopted ASC 842, which requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet.

Adoption of ASC 842 resulted in the recording of operating lease assets of $7.5 million and operating lease liabilities of $8.3 million.

The impact of the changes made

to the consolidated balance sheet as of January 1, 2019 as a result of adopting the new guidance was as follows (in thousands):

Balance Sheet:

Operating lease right-of-use asset - noncurrent

Operating lease liability - current

Operating lease liability - noncurrent

Deferred rent - noncurrent

Leases with terms of 12 months or less are not recorded on the balance sheet, and the related lease expenses are recognized on a straight-line basis over the lease term.

The Company has one operating lease agreement entered into in March 2017 for laboratory and office space located in Newark, California.

The Company provided the landlord with a $ 450,000 letter of credit collateralized by restricted cash as security deposit for the lease, which expires in May 2024.

During 2019, the Company received $469,000 from the landlord for eligible leasehold improvements made to the leased property.

Leases with terms of 12 months or less are not recorded on the balance sheet, and the related lease expenses are recognized on a straight-line basis over the lease term.

During the year ended December 31, 2019, the Company recognized $64,000 of sublease income.

The Company did not recognize any sublease income for the years ended December 31, 2018 and 2017.

Under the terms of the lease, we are responsible for certain taxes, insurance and maintenance expenses.

During the years ended December 31, 2020 and 2019, the Company recognized $ 89,400 and $ 64,000 of sublease income, respectively.

The Company did not recognize any sublease income for the year ended December 31, 2018.

Under the terms of the lease, the Company is responsible for certain taxes, insurance and maintenance expenses.

The weighted average lease term and discount rate are as follows:

2 unchanged sentences

Weighted-average discount rate

The following table summarizes the Company’s minimum lease payments and lease liability as of December 31, 2019 (in thousands):

The following table summarizes the Company’s minimum lease payments and lease liability as of December 31, 2020 (in thousands):

Year Ending December 31:

4 unchanged sentences

Operating lease liability - noncurrent

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum operating leases having initial or remaining noncancelable lease terms in excess of one year would have been as follows (in thousands):

Year Ending December 31:

Supplemental lease cost information is as follows (in thousands):

December 31, 2019

Year Ended December 31,

Operating lease cost

Supplemental balance sheet information is as follows (in thousands):

December 31, 2019

As of December 31,

Operating Leases:

Operating lease right-of-use asset, non-current

Operating lease right-of-use asset

Operating lease liability - current

2 unchanged sentences

Supplemental cash flow information is as follows (in thousands):

December 31, 2019

Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow used by operating leases

Prior to the adoption of ASC 842, the Company’s rent expense was $1.9 million and $1.4 million for the years ended December 31, 2018 and 2017, respectively.

Prior to the adoption of ASC 842, the Company’s rent expense was $ 1.9 million for the year ended December 31, 2018.

Rent expense was recognized on a straight-line basis over the term of the lease and accordingly, the Company recorded the difference between cash rent payments and the recognition of rent expense as a deferred rent liability.

5 unchanged sentences

The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or

service as directors or officers to the fullest extent permitted by California corporate law.

The Company carries a directors’

and officers’

insurance policy.

The Company carries a directors’ and officers’ insurance policy.

To date, the Company has not incurred material costs to defend lawsuits or settle claims related to the indemnification agreements.

The Company believes that the fair value of these indemnification agreements is minimal and has not accrued any amounts for the obligations.

Stockholders’

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 rusfertide because it 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 a development milestone Zealand claims is due, 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 reimburse Zealand’s arbitration costs, fees and expenses, and make contractual payments to Zealand described in its prior periodic reports filed with the SEC.

If we successfully develop and commercialize rusfertide without a partner, those payments could include up to an additional aggregate of $ 28.0 million for achievement of certain development and regulatory milestones, and up to $ 100.0 million for achievement of sales milestones.

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

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 December 31, 2020.

Stockholders’ Equity

In September 2017, the Company 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 the Company of up to a maximum aggregate offering price of $200.0 million of its 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”).

333-220314) that was declared effective as of October 5, 2017 and permitted the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 200.0 million of its 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 could 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.

1 unchanged sentence

The Company sold 151,273 shares of its 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, the Company completed an underwritten public offering of 3,530,000 shares of common stock at a public offering price of $17.00 per share.

In November 2017, the Company issued an additional 529,500 shares of its 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 the Company, were $64.5 million.

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.

In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant”

and, collectively, the “Warrants”).

The 2017 Form S-3 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.

In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its 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 the Company’s common stock have an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s 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”

Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $ 10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $ 15.00 per share.

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 December 31, 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.

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.

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 the Company’s common stock, subject to certain exceptions.

In accordance with Accounting Standards Codification Topic 505, Equity , the Company 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.

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 the Company’s common stock, subject to certain exceptions.

The Exchange Warrants are classified as equity in accordance with ASC 480 , and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement.

The Company 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.

2 unchanged sentences

In October 2019, the Company 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 the Company of up to a maximum aggregate offering price of $250.0 million of its 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 entered into by the Company 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.

333-234414) that was declared effective as of November 22, 2019 and permits the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 250.0 million of its 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 entered into by the Company on November 27,

2019 (the “2019 Sales Agreement”).

In May 2020, the Company completed an underwritten public offering of 7,000,000 shares of common stock at a public offering price of $ 14.00 per share and issued an additional 1,050,000 shares of its common stock at a price of $ 14.00 per share following the underwriters’ exercise of their option to purchase additional shares.

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

The Company sold 2,483,719 shares of its common stock pursuant to the 2019 Sales Agreement during the year ended December 31, 2020 for net proceeds of $ 41.9 million, after deducting issuance costs.

As of December 31, 2020, 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.

In December 2020, the Company filed an automatic registration statement on Form S-3ASR and an accompanying prospectus (Registration Statement No.

333-251254), pursuant to which the Company completed an underwritten public offering of 4,761,904 shares of common stock at a public offering price of $ 21.00 per share and issued an additional 714,285 shares of its common stock at a price of $ 21.00 per share following the underwriters’ exercise of their option to purchase additional shares.

Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were $ 107.6 million.

Equity Incentive Plan

In May 2007, the Company established the 2007 Stock Option and Incentive Plan (“2007 Plan”) which provided for the granting of stock options to employees and consultants of the Company.

Options granted under the 2007 Plan were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”).

In May 2007, the Company established the 2007 Stock Option and Incentive Plan (“2007 Plan”) which provided for the granting of stock options to employees and consultants of the Company.

Options granted under the 2007 Plan were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”).

ISOs were granted only to Company employees (including officers and directors who are also employees).

NSOs were granted to Company employees and consultants.

Options under the 2007 Plan have a term of ten years and generally vest over a four-year period with one-year cliff vesting.

In July 2016, the Company’s board of directors and stockholders approved the 2016 Equity Incentive Plan (“2016 Plan”) to replace the 2007 Plan.

Under the 2016 Plan, 1,200,000 shares of the Company’s common stock were initially reserved for the issuance of stock options, restricted stock units and other awards to employees, directors and consultants.

Pursuant to the “evergreen”

provision contained in the 2016 Plan, the number of shares reserved for issuance under the 2016 Plan automatically increases on January 1 of each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding fiscal year, or a lesser number of shares determined by the Company’s board of directors.

Options under the 2007 Plan have a term of ten years and generally vest over a four-year period.

In July 2016, the Company’s board of directors and stockholders approved the 2016 Equity Incentive Plan (“2016 Plan”) to replace the 2007 Plan.

Pursuant to the “evergreen” provision contained in the 2016 Plan, the number of shares reserved for issuance under the 2016 Plan automatically increases on January 1 of each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026, by 4 % of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding fiscal year, or a lesser number of shares determined by the Company’s board of directors.

Upon adoption of the 2016 Plan, no additional stock awards were issued under the 2007 Plan.

6 unchanged sentences

Options may be granted to stockholders possessing more than 10% of the total combined voting power of all classes of stocks of the Company at an exercise price at least 110 % of the fair value of the common stock at the date of grant and the options are not exercisable after the expiration of 10 years from the date of grant.

Employee stock options generally vest 25% upon one year of continued service to the Company, with the remainder in monthly increments over three additional years.

Employee stock options generally vest over a period of approximately four years .

Non-employee director initial stock options generally vest monthly over a period of approximately three years , and non-employee director annual refresher stock options generally vest over a period of approximately one year .

Inducement Plan

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 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.

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.

2 unchanged sentences

Stock Options

Activity under the Company’s equity incentive plans is set forth below:

(in millions)

4 unchanged sentences

Balances at December 31, 2020

Options exercisable –

December 31, 2019

Options vested and expected to vest –

December 31, 2019

Options exercisable – December 31, 2020

Options vested and expected to vest – December 31, 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 December 31, 2019.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on December 31, 2019.

(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 December 31, 2020.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on December 31, 2020.

The aggregate intrinsic value of options exercised was $ 3.0 million, $ 2.6 million and $ 1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

15 unchanged sentences

Each of these inputs is subjective, and expected volatility generally requires significant judgment to determine.

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.

Expected Volatility —Since the Company does not have a long trading history for its common stock, the 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.

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

The Company has limited historical exercise 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 awards.

Beginning January 1, 2020, the Company’s expected volatility is based upon a blend of 75 % of the average volatility for comparable publicly traded biopharmaceutical companies and 25 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock.

Therefore, the Company used an expected dividend yield of zero.

1 unchanged sentence

The Company began issuing restricted stock units under the 2016 Plan during the year ended December 31, 2018.

A restricted stock unit is an agreement to issue shares of the Company’s common stock at the time of vesting.

Restricted stock unit annual refresher awards vest in four equal installments on approximately the first, second, third and fourth anniversaries of the grant date.

Restricted stock unit incentive awards granted during 2018 vest in three equal installments at six months intervals over a period of 18 months.

Restricted stock unit activity under the Company’s equity incentive plans is set forth below:

Restricted stock unit incentive awards granted during 2018 vested in three equal installments at six months intervals over a period of 18 months .

Restricted stock unit activity under the Company’s equity incentive plans is set forth below:

Unvested at December 31, 2019

Restricted grant units granted

Restricted grant units vested

Restricted grant units forfeited

Unvested at December 31, 2020

Stock-based compensation expense associated with restricted stock units is based on the fair value of the Company’s common stock on the grant date, which equals the closing market price of the Company’s common stock on the grant date.

For restricted stock units, the Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest.

Employee Stock Purchase Plan

In July 2016, the Company’s board of directors and stockholders approved the 2016 Employee Stock Purchase Plan (“2016 ESPP”).

The 2016 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is administered by the Company’s board of directors and the Compensation Committee of the board of directors.

Under the 2016 ESPP, 150,000 shares of the Company’s common stock were initially reserved for employee purchases of the Company’s common stock.

Pursuant to the “evergreen”

provision contained in the 2016 ESPP, the number of shares reserved for issuance automatically increases on January 1 of each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026 by the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding fiscal year (ii) 300,000

shares, or (iii) such other number of shares determined by the board of directors.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation.

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.

In July 2016, the Company’s board of directors and stockholders approved the 2016 Employee Stock Purchase Plan (“2016 ESPP”).

Under the 2016 ESPP, 150,000 shares of the Company’s common stock were initially reserved for employee purchases of the Company’s common stock.

Pursuant to the “evergreen” provision contained in the 2016 ESPP, the number of shares reserved for issuance automatically increases on January 1 of each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026 by the lesser of (i) 1 % of the total number of shares of common stock outstanding on December 31 of the preceding fiscal year (ii) 300,000 shares, or (iii) such other number of shares determined by the board of directors.

The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their eligible

compensation.

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 year ended December 31, 2020, 92,523 shares were issued under the ESPP.

4 unchanged sentences

Expected volatility

89.1 % - 120.4 %

58.9 % - 65.3 %

49.0 % - 63.4 %

Risk-free interest rate

0.12 % - 0.43 %

1.89 % - 2.32 %

Dividend yield

6 unchanged sentences

As of December 31, 2020, total unrecognized stock-based compensation expense was $ 16.0 million, which the Company expects to recognize over a period of approximately 2.7 years.

The Company has a retirement and savings plan under Section of 401(k) of Internal Revenue Code (the “401(k) Plan”) covering all U.S.

The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service.

The Company does not make matching contributions to the 401(k) Plan on behalf of participants.

For the years ended December 31, 2020, 2019 and 2018, the Company did not make matching contributions to the 401(k) Plan on behalf of participants.

The Company recorded income tax expense of $ 1.3 million for the year ended December 31, 2020.

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

entity, and the U.S.

entity reimbursed the Australia subsidiary for certain direct development costs.

Upon completion of the sale, the Company analyzed tax planning strategies and future income and concluded that a full valuation allowance is necessary for its Australia subsidiary.

Income tax expense for the year ended December 31, 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 unrecognized tax benefits.

The Company continues to maintain a full valuation allowance against its U.S.

net deferred tax assets due to the uncertainty surrounding the realization of such assets.

The Company recorded an income tax benefit of $ 0.7 million for the year ended December 31, 2019 primarily due to research and development tax credits and the recognition of deferred tax assets in Protagonist Australia.

The Company believes these deferred tax assets will be realized in the future due to expected profitability for this subsidiary.

The Company recorded an income tax benefit of $ 0.8 million for the year ended December 31, 2018 from the recognition of deferred tax assets in Protagonist Australia.

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

The Company had incurred net operating losses and did not reflect any benefit of operating loss carryforwards in the consolidated financial statements for the year ended December 31, 2017.

The Company continues to maintain a valuation allowance against its U.S.

deferred tax assets due to the uncertainty surrounding the realization of such assets.

The following table presents domestic and foreign components of net loss before income taxes (in thousands):

3 unchanged sentences

Year Ended December 31,

Total current tax expense

Total deferred tax benefit

Income tax benefit

Total current tax (benefit) expense

Total deferred tax expense (benefit)

Total income tax expense (benefit)

The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:

5 unchanged sentences

Change in valuation allowance

Change in tax law

Provision for income taxes

Provision (benefit) for income taxes

The components of the deferred tax assets are as follows (in thousands):

4 unchanged sentences

Operating lease liability

Research and development credits

Research and development and foreign credits

Total deferred tax assets

7 unchanged sentences

deferred tax assets as of December 31, 2020, 2019 and 2018 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

The Company has also established a valuation allowance to offset Australian deferred tax assets as of December 31, 2020.

The valuation allowance increased by approximately $ 19.4 million, $ 18.5 million and $ 8.2 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code.

As a result of such ownership changes, the Company’s ability to realize the potential future benefit of tax losses and tax credits that existed at the time of the ownership change may be significantly reduced.

Based on a review of the Company’s equity transactions since inception, the Company believes a portion of its net operating loss carryforwards and credit carryforwards may be limited due to certain of its equity financing transactions.

As a result of such ownership changes, the annual limitation may result in the expiration of net operating losses and credits before utilization.

The Company performed a Section 382 analysis through December 31, 2020.

The Company has experienced ownership changes in the past and in the current year.

The ownership changes will not result in a limitation that will materially reduce the total amount of net operation loss carryforwards and credits that can be utilized.

Subsequent ownership changes may affect the limitation in future years.

At December 31, 2020, the Company had $ 222.8 million of federal net operating loss carryforwards and $ 214.3 million of state net operating loss carryforwards.

10 unchanged sentences

Balance at beginning of year

Increase based on tax positions related to prior years

Increase based on tax positions related to current year

(Decreases) increases based on tax positions related to prior years

Increases based on tax positions related to current year

Balance at end of year

At December 31, 2019, the Company had unrecognized tax benefits of $16.6 million, of which $4.1 million would affect the effective tax rate if recognized and $12.5 million is subject to a valuation allowance and would not affect the effective tax rate if recognized.

At December 31, 2020, the Company had unrecognized tax benefits of $ 19.9 million, which are subject to a valuation allowance and would not affect the effective tax rate if recognized.

The Company does not anticipate that the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes, as necessary.

Management determined that no accrual for interest or penalties was required as of December 31, 2020, 2019 and 2018.

1 unchanged sentence

The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions.

The Company’s tax returns remain open for examination for all years.

The Company’s Australia subsidiary had an accumulated deficit at December 31, 2020 and, accordingly, no provision has been provided thereon for any unremitted earnings.

The Company has elected to recognize any potential global intangible low-taxed income (“GILTI”) obligation as an expense in the period it is incurred.

2020 Tax Law Updates

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic.

GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date.

The CARES Act includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act.

The tax relief measures for businesses include a five-year net operating loss carryback, suspension of the annual deduction limitation of 80 % of taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, technical corrections on net operating loss carryforwards for fiscal year taxpayers and allows accelerated deduction qualified improvement property.

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 for the year ended December 31, 2020.

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

The legislation suspends the California net operating loss deductions for 2020, 2021, and 2022 for certain taxpayers and imposes a limitation of certain California tax credits for 2020, 2021, and 2022.

The legislation disallows the use of California net operating loss deductions if the taxpayer recognizes business income and its adjusted gross income is greater than $ 1,000,000 .

The carryover periods for net operating loss deductions disallowed by this provision will be extended.

Additionally, any business credit will only offset a maximum of $ 5,000,000 of California tax.

Given the Company’s loss position in the current year, the new legislation will not impact the current year provision.

The Company will continue to monitor possible California net operating loss and credit limitations in future periods.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law, including further COVID-19 economic relief and the extension of certain expiring tax provisions.

The relief package includes a tax provision clarifying that businesses with forgiven Paycheck Protection Program loans can deduct regular business expenses that are paid for with the loan proceeds.

Additional pandemic relief tax measures include an expansion of the employee retention credit, enhanced charitable contribution deductions, and a temporary full deduction for business expenses for food and beverages provided by a restaurant.

The provisions are not impactful for the Company as it has not participated in previous COVID-19 economic relief measures.

Net Loss per Share

As the Company had net losses for the years ended December 31, 2019, 2018 and 2017, all potential common shares were determined to be anti-dilutive.

As the Company had a net loss for the years ended December 31, 2020, 2019 and 2018, 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):

7 unchanged sentences

Restricted stock units

Supplementary Financial Data (unaudited)

The following table presents the selected quarterly financial data for the years ended December 31, 2019 and 2018 (in thousands, except per share amounts):

Consolidated Statements of Operations

Quarter Ended

License and collaboration revenue - related party

Loss from operations

Net loss per share of common stock, basic and diluted (1)

License and collaboration revenue - related party

Loss from operations

Net loss per share of common stock, basic and diluted (1)

_________________

(1) Net loss per share amounts for the 2019 and 2018 quarters and full years have been computed separately.

Accordingly, quarterly amounts may not add to the annual amounts because of differences in the weighted average shares outstanding during each period .

Restructuring

On May 7, 2020, the Company approved a limited reduction in force plan affecting approximately 12 % of the Company’s employee base and informed the affected employees.

The reduction-in-force plan was completed by the end of the second quarter of 2020.

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data