What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-04 · 189 added, 281 removed, 448 unchanged (51% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

10 unchanged sentences

Operating lease right-of-use asset

Deferred tax asset

Liabilities and Stockholders’ Equity

6 unchanged sentences

Total current liabilities

Long-term debt, net

Deferred revenue - related party - noncurrent

Operating lease liability - noncurrent

Other liability - noncurrent

Other liabilities

Total liabilities

Commitments and contingencies (Note 10)

Commitments and contingencies

Stockholders’ equity:

2 unchanged sentences

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

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

43,939,246 and 43,745,465 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive (loss) gain

Accumulated deficit

5 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

License and collaboration revenue - related party

6 unchanged sentences

Interest expense

Loss on early repayment of debt

Other expense, net

Loss before income tax benefit (expense)

Income tax benefit (expense)

Loss before income tax expense

Income tax expense

Net loss per share, basic and diluted

4 unchanged sentences

(In thousands)

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Other comprehensive loss:

Gain on translation of foreign operations

(Loss) gain on marketable securities

(Loss) gain on translation of foreign operations

Unrealized loss on marketable securities

Comprehensive loss

5 unchanged sentences

Stockholders'

Three months ended September 30, 2020

Balance at June 30, 2020

Issuance of common stock pursuant to public offering, 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 (loss)

Balance at September 30, 2020

Comprehensive

Stockholders'

Three months ended September 30, 2019

Balance at June 30, 2019

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

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

Stock-based compensation expense

Other comprehensive gain (loss)

Balance at September 30, 2019

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

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (continued)

(In thousands, except share data)

Comprehensive

Stockholders'

Nine months ended September 30, 2020

Three months ended March 31, 2021

Balance at December 31, 2020

Issuance of common stock pursuant to public offering, 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

Shares withheld for net settlement of tax withholding upon vesting of restricted stock units

Stock-based compensation expense

Other comprehensive gain (loss)

Balance at September 30, 2020

Other comprehensive loss

Balance at March 31, 2021

Comprehensive

Stockholders'

Nine months ended September 30, 2019

Three months ended March 31, 2020

Balance at December 31, 2019

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

Issuance of common stock pursuant to exercise of Exchange Warrants

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

Stock-based compensation expense

Other comprehensive gain (loss)

Balance at September 30, 2019

Other comprehensive gain

Balance at March 31, 2020

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

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

1 unchanged sentence

Stock-based compensation

Change in deferred tax asset

Operating lease right-of-use asset amortization

Loss on early repayment of debt

Depreciation and amortization

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

Amortization of debt issuance costs and accretion of debt discount

Accretion of discount on marketable securities, net of premium amortization

Foreign currency remeasurement loss

Change in deferred tax asset

Changes in operating assets and liabilities:

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Operating lease liability

Other liability

Net cash used in operating activities

Cash Flows from Investing Activities

Proceeds from maturities of marketable securities

Purchase of marketable securities

Proceeds from maturities of marketable securities

Purchases of property and equipment

Net cash used in investing activities

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 at-the-market offering, net of issuance costs

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

Issuance costs related to long-term debt

Early repayment of long-term debt

Tax withholding payments related to net settlement of restricted stock units

Issuance costs related to common stock offering

Issuance costs related to issuance of long-term debt

Net cash provided by financing activities

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

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

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

Cash, cash equivalents and restricted cash, beginning of period

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Supplemental Disclosure of Non-Cash Financing and Investing Information:

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

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

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

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

Issuance costs related to common stock offering included in accrued liabilities and other payables at the end of the previous year

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

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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.

(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 drugs 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.

The Company manages its operations as a single operating segment.

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

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 307.8 million as of March 31, 2021.

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 primarily through offerings of common stock, payments received under license and collaboration agreements 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 license and collaboration agreements.

Risks and Uncertainties

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

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

The Company is subject to risks and uncertainties as a result of the ongoing 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 remains 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.

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

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

the timing, extent, effectiveness and durability of vaccine programs or other treatments;

and new or continuing travel and other restrictions and public health measures, such as social distancing, business closures or disruptions.

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 and collaboration activities, continued difficulty in recruiting patients for these clinical trials, supply chain disruptions, the ongoing effect of the impact on its operating activities and employees, and the ongoing impact of any initiatives or programs that the Company may undertake to address financial and operational challenges.

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

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.

Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of December 31, 2020 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements.

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

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

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 10, 2021.

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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.

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

Due to the ongoing 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 Quarterly Report on Form 10-Q.

3 unchanged sentences

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.

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.

4 unchanged sentences

Permissible investments of fixed income securities include obligations of the U.S.

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

As of the date of issuance of these

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

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

Cash Equivalents

2 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.

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

The letter of credit balance decreased from $ 0.5 million at December 31, 2020 to $ 0.2 million at March 31, 2021 pursuant to the terms of the facility lease.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

1 unchanged sentence

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

September 30,

Cash and cash equivalents

1 unchanged sentence

Restricted cash - noncurrent

Cash balance in consolidated statements of cash flows

Total cash reported on condensed consolidated statements of cash flows

Marketable Securities

9 unchanged sentences

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.

goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

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

The Company then recognizes

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

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

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

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

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

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

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

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

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

4 unchanged sentences

The refundable cash tax incentive is recognized as a reduction to research and development expense when the right to receive has been attained and funds are considered to be collectible.

The tax incentive is denominated in Australian dollars and, therefore, the related receivable is remeasured into U.S.

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.

Stock-based Compensation Expense

In February 2021, the Company granted performance share units (“PSUs) to certain executives of the Company.

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

The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance obligation becomes probable.

Net Loss per Share

4 unchanged sentences

Recently Adopted Accounting Pronouncements

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 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 September 30, 2020

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which removes certain exceptions and amends certain requirements in the existing income tax guidance to ease accounting requirements.

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 adopted this guidance effective January 1, 2021 and there was no impact on its consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted as of March 31, 2021

In June 2016, the FASB issued ASU No.

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

2016-13 for smaller reporting companies 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 December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which removes certain exceptions and amends certain requirements in the existing income tax guidance to ease accounting requirements.

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

License and Collaboration Agreement

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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.

Two second-generation IL23-R 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 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;

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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.

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.

Payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities.

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

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”);

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Revenue Recognition

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

The amended Janssen License and Collaboration Agreement is accounted for as containing a single performance obligation for the development license;

second-generation compound research services;

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

The Company determined that the license was not distinct from the added research and development services within the context of the agreement because the added research and development services significantly increase the utility of the intellectual property.

The Company also determined that the remaining research and development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the First Amendment of the development license and PTG-200 services, including compound supply and other services.

Therefore, the First Amendment is treated as if it were part of the original Janssen License and Collaboration Agreement.

The First Amendment was accounted for as if it were an extension of services under the initial Janssen License and Collaboration Agreement by applying a cumulative catch-up adjustment to revenue.

As of the effective date of the First Amendment, the Company calculated the adjusted cumulative revenue under the amended Janssen License and Collaboration Agreement by updating the transaction price for the incremental consideration to be received, net of the incremental development cost reimbursement to be paid to Janssen, and an updated percentage complete, which resulted in a cumulative adjustment recorded during the year ended December 31, 2019 that reduced revenue by $ 9.4 million.

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

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

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 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.

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

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

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

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

The Company determined that the transaction price of the initial performance obligation as of September 30, 2020 includes the $ 50.0 million upfront payment, the $ 25.0 million payment received upon the effectiveness of the First Amendment, the $ 5.0 million payment triggered by the successful nomination of a second-generation compound, $ 18.4 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research costs and other services, and estimated variable consideration consisting of a $ 7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound, offset by $ 6.5 million of net cost reimbursement to Janssen for services performed.

The Company 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 September 30, 2020 is not probable.

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

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

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 delivered.

The transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $ 96.3 million as of March 31, 2021, a decrease of $ 2.3 million from the transaction price of $ 98.6 million as of December 31, 2020, following an update to the estimate for remaining services to be performed under the performance obligation.

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

The transaction price as of March 31, 2021 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 costs and other services, and estimated variable consideration consisting of a $ 7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound, offset by $ 9.1 million of net cost reimbursement to Janssen for services performed.

The Company concluded that the variable consideration constraint is appropriately reflected in the estimated transaction price as of March 31, 2021.

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

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

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

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

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

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

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

For the three months ended March 31, 2021 and 2020, the Company recognized license and collaboration revenue of $ 5.6 million and $ 3.6 million, respectively, which was primarily related to the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance.

In addition, the Company recorded $ 0.6 million in revenue for the three months ended March 31, 2021 related to additional services provided by the Company under the Janssen Collaboration Agreement.

No revenue for additional services was recognized for the three months ended March 31, 2020.

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

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Contract assets:

Receivable from collaboration partner - related party

Contract asset - related party

Contract liabilities:

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Payable to collaboration partner - related party

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Contract assets:

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Payable to collaboration partner - related party

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

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

During the three months ended March 31, 2021 and 2020, the Company recognized revenue of $ 1.1 million and $ 1.2 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

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

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

The accounting guidance

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

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

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

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

September 30, 2020

March 31, 2021

Money market funds

Commercial paper

Corporate debt securities

Treasury and agency securities

Corporate debt securities

Supranational and sovereign government securities

Total financial assets

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Commercial paper

Corporate debt securities

Treasury and agency securities

Corporate debt securities

Total financial assets

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

The Company’s commercial paper, U.S.

Treasury and agency securities, corporate debt securities, 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.

Treasury bills, and supranational and sovereign government 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.

Cash Equivalents and Marketable Securities

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

September 30, 2020

March 31, 2021

Gross Unrealized

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Commercial paper

Corporate debt securities

Treasury and agency securities

Corporate debt securities

Supranational and sovereign government securities

Total cash equivalents and marketable securities

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Commercial paper

Corporate debt securities

Treasury and agency securities

Corporate debt securities

Total cash equivalents and marketable securities

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Marketable securities - current

Marketable securities - noncurrent

Total cash equivalents and marketable securities

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

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

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

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, which may be maturity.

Marketable securities – current of $ 190.5 million and $ 188.5 million held at March 31, 2021 and December 31, 2020, respectively, had contractual maturities of less than one year .

Marketable securities – noncurrent of $ 6.3 million and $ 2.0 million held at March 31, 2021 and December 31, 2020 had contractual maturities of at least one year but less than two years .

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.

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

September 30,

Accrued clinical and research related expenses

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Accrued professional service fees

Accrued interest payable

Total accrued expenses and other payables

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 pursuant to the terms of the agreement between the Company and the former collaboration partner.

The Company and Zealand Pharma A/S (“Zealand”) 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 previously 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, upon reevaluation, the Company concluded in 2019 that rusfertide is not a compound requiring post-termination payments under the agreement, and initiated the arbitration proceeding described in Note 10 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 the agreement between the Company and the former collaboration partner for the three and nine months ended September 30, 2020 and 2019.

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

No research and development expense was recorded under the agreement for the three months ended March 31, 2021 and 2020.

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 such 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

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

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

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

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

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

During the three months ended March 31, 2021 and 2020, respectively, the Company recognized AUD 1.0 million ($ 0.8 million) and AUD 0.3 million ($ 0.2 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

As of March 31, 2021 and December 31, 2020, the research and development cash tax incentive receivable was AUD 2.4 million ($ 1.8 million) and AUD 1.4 million ($ 1.1 million), respectively.

Small Business Innovation Research (“SBIR”) Grants

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

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

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

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

The Company recorded a receivable for $ 0.3 million as of

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

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

The Company recorded $ 0.1 million and $ 0.3 million as a reduction of research and development expenses for the three months ended March 31, 2021 and 2020, respectively.

The Company recorded a receivable for $ 0.1 million as of March 31, 2021 to reflect the eligible costs incurred under the grants that are contractually due to the Company.

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

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

Term Loan Facility

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”) (such agreement, 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”).

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

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

anniversary of the closing date, and 1.0 % of any amount prepaid after the second anniversary of the closing date and prior to October 1, 2023.

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

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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 the 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.

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

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

September 30,

Interest Rate

Term loan (matures October 1, 2023)

Debt issuance costs, net of amortization

Accrued final payment fee

Long-term debt, net

The Company had no outstanding balance as of March 31, 2021 or December 31, 2020 related to the Term Loan Credit Agreement.

As of March 31, 2021, 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.

Commitments and Contingencies

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

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

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 an additional future milestone, as well as payment of their arbitration costs, fees and expenses .

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 make contractual payments to Zealand described in its prior periodic reports filed with the SEC.

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

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

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.

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 ATM financing facility under a sales agreement (the “2017 Sales Agreement”).

The 2017 Sales Agreement was terminated in 2019.

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

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

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

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”).

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

The common stock and warrants are classified as equity in accordance with Accounting Standards Codification Topic 480 , Distinguishing Liabilities from Equity (“ASC 480”) , and the net proceeds from the transaction were recorded as a credit to additional paid-in capital.

As of March 31, 2021, none of the Warrants have been exercised.

In December 2018, the Company entered into an exchange agreement (the “Exchange Agreement”) with an Investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,000,000 shares of the Company’s common stock, par value $ 0.00001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $ 0.00001 per share.

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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.

During the second quarter of 2019, Exchange Warrants to purchase 600,000 shares were net exercised, resulting in the issuance of 599,997 shares of common stock.

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

As of March 31, 2021, 400,000 of the Exchange Warrants remain unexercised.

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

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

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

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

As of March 31, 2021, 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 it completed an underwritten public offering of 4,761,904 shares of the Company’s common stock at a public offering price of $ 21.00 per share and issued an additional 714,285 shares of 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.

The Form S-3ASR expires in December 2023.

Equity Incentive Plan

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

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

As of March 31, 2021, 883,559 shares were available for issuance under the 2016 Plan.

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 up to 750,000 shares of the Company’s common stock in order to award options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering

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

In May 2018, the Company’s board of directors approved the 2018 Inducement Plan, as subsequently amended.

The 2018 Inducement Plan is a non-stockholder approved stock plan, under which the Company awards 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.

Awards granted under the 2018 Inducement Plan expire no later than ten years from the date of grant.

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

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

As of March 31, 2021, 449,375 shares were available for issuance under the Amended and Restated 2018 Inducement Plan.

Stock Options

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Options forfeited

Balances at September 30, 2020

Options exercisable – September 30, 2020

Options vested and expected to vest – September 30, 2020

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

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

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

Balances at March 31, 2021

Options exercisable – March 31, 2021

Options vested and expected to vest – March 31, 2021

(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 March 31, 2021.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2021.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the three months ended March 31, 2021 was $ 17.29 per share.

Stock Options Valuation Assumptions

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term (in years)

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72.1 % - 73.8 %

72.1 % - 85.1 %

61.0 % - 63.4 %

Risk-free interest rate

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0.59 % - 1.44 %

0.23 % - 1.44 %

1.42 % - 2.58 %

Dividend yield

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

The Company has limited historical information to develop reasonable

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

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

Expected Volatility — Prior to January 1, 2020, the Company’s expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants.

Beginning January 1, 2020, the Company’s expected volatility was estimated based upon a mix of 75 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

For the year ended December 31, 2020, the Company’s expected volatility was estimated based upon a mix of 75 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

Beginning January 1, 2021, the Company’s expected volatility is estimated based upon a mix of 50 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 50 % 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.

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Unvested at December 31, 2020

Unvested at September 30, 2020

Unvested at March 31, 2021

Performance Stock Units

During the first quarter of 2021, the Company granted 110,500 PSUs to certain executives of the Company pursuant to the terms of the 2016 Plan, all of which were outstanding at March 31, 2021.

The grant date fair value of the PSUs was $ 23.57 per share.

The terms of the PSUs provide for 100 % of shares to be earned based on the of achievement of certain pre-determined performance objectives, subject to the participant’s continued employment.

The PSUs will expire five years from the grant date if the performance objectives are not achieved.

The PSUs will vest, if at all, upon certification by the Compensation Committee of the Company’s Board of Directors, or the Committee, of the actual achievement of the performance objectives, subject to specified change of control exceptions.

The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance objective becomes probable.

As of March 31, 2021, the achievement of the related performance objective was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of March 31, 2021.

Employee Stock Purchase Plan

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

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

During the three months ended March 31, 2021, a total of 28,527 shares of common stock were issued under the 2016 ESPP, and 1,029,120 shares remain available for issuance.

Stock-Based Compensation

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Research and development

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Total stock-based compensation expense

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

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

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

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

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

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

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 valuation allowance is necessary for its Australia subsidiary.

Income tax expense for the nine months ended September 30, 2020 reflects this sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset, establishing a valuation allowance and certain uncertain tax position liabilities.

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

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

As of March 31, 2021, total unrecognized stock-based compensation expense was approximately $ 42.7 million, which the Company expects to recognize over a weighted-average period of approximately 3.1 years.

The Company has a retirement and savings plan under Section of 401(k) of Internal Revenue Code (“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 may make contributions to this plan at its discretion.

For the three months ended March 31, 2021, the Company plans to match 50 % of each employee’s contribution up to a maximum of $ 3,500 , and recognized expense of approximately $ 0.2 million relating to these contributions.

No contributions were made by the Company to the plan for the three months ended March 31, 2020.

The Company recorded income tax expense of $ 0.2 million for the three months ended March 31, 2020, representing an effective income tax rate of ( 0.9 )%.

No income tax expense was recorded for the three months ended March 31, 2021.

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

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

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 income tax provision for the three and nine months ended September 30, 2020.

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

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 expected 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.

Net Loss per Share

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

As the Company had net losses for the three months ended March 31, 2021 and 2020, respectively, all potential common shares were determined to be anti-dilutive.

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

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

Net loss per shares, basic and diluted

Net loss per share, basic and diluted

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

September 30,

Three Months Ended March 31,

Options to purchase common stock

1 unchanged sentence

Restricted stock units

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.

Subsequent Event

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

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

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

Performance stock units

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

What changed 10-Q

Item 1. Financial Statements