What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-04 · 197 added, 96 removed, 541 unchanged (35% of the section changed)

20 unchanged sentences

Accrued expenses and other payables

Deferred revenue - related party - current

Deferred revenue - related party

Operating lease liability - current

8 unchanged sentences

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

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

47,525,560 and 43,745,465 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

7 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended March 31,

Three Months Ended

Six Months Ended

License and collaboration revenue - related party

6 unchanged sentences

Interest expense

Other expense, net

Loss on early repayment of debt

Other (expense) income, net

Loss before income tax expense

6 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Unrealized loss on marketable securities

Unrealized gain (loss) on marketable securities

Comprehensive loss

5 unchanged sentences

Stockholders'

Three months ended March 31, 2021

Three months ended June 30, 2021

Balance at March 31, 2021

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

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

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2021

Comprehensive

Stockholders'

Three months ended June 30, 2020

Balance at March 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

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2020

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

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

Comprehensive

Stockholders'

Six months ended June 30, 2021

Balance at December 31, 2020

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

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

2 unchanged sentences

Other comprehensive loss

Balance at March 31, 2021

Balance at June 30, 2021

Comprehensive

Stockholders'

Three months ended March 31, 2020

Six months ended June 30, 2020

Balance at December 31, 2019

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

1 unchanged sentence

Other comprehensive gain

Balance at March 31, 2020

Balance at June 30, 2020

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

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended

Cash Flows from Operating Activities

4 unchanged sentences

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

Loss on early repayment of debt

Amortization of debt issuance costs and accretion of debt discount

Foreign currency remeasurement loss

Change in deferred tax asset

8 unchanged sentences

Operating lease liability

Other liabilities

Net cash used in operating activities

3 unchanged sentences

Purchases of property and equipment

Net cash (used in) provided by investing activities

Net cash 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 upon exercise of stock options and purchases under employee stock purchase plan

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

Proceeds from at-the-market offering, 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 in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

3 unchanged sentences

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

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

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

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

7 unchanged sentences

The Company manages its operations as a single operating segment.

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

As of June 30, 2021, the Company had cash, cash equivalents and marketable securities of $ 380.4 million.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 338.7 million as of June 30, 2021.

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

10 unchanged sentences

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;

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

the development and spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 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.

8 unchanged sentences

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 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 results of operations for the three and six months ended June 30, 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.

19 unchanged sentences

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.

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

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

5 unchanged sentences

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.

The letter of credit balance decreased from $ 0.5 million at December 31, 2020 to $ 0.2 million at June 30, 2021 pursuant to the terms of the facility lease.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

10 unchanged sentences

Long-term marketable securities have maturities of 365 days or longer as of the balance sheet date.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss.

Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive gain or loss.

Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income.

2 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.

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

Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“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.

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

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

64 unchanged sentences

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.

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

Net Loss per Share

9 unchanged sentences

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

Recently Issued Accounting Pronouncements Not Yet Adopted as of June 30, 2021

In June 2016, the FASB issued ASU No.

25 unchanged sentences

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”).

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.

Two second-generation compounds, PN-232 and PN-235, have been nominated and are currently in Phase 1 clinical studies.

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 an agreed-upon period of time.

33 unchanged sentences

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

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.

The transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was $ 95.8 million as of June 30, 2021, a decrease of $ 0.5 million from the transaction price of $ 96.3 million as of March 31, 2021, 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 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 March 31, 2021 is not probable.

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

The transaction price as of June 30, 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 $ 9.6 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 June 30, 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.

11 unchanged sentences

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 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.

For the three and six months ended June 30, 2021, the Company recognized license and collaboration revenue of $ 2.1 million and $ 7.7 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 $ 0.2 million and $ 0.8 million in revenue for the three and six months ended June 30, 2021, respectively, related to additional services provided by the Company under the Janssen Collaboration Agreement.

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

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

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

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

Contract assets:

3 unchanged sentences

Payable to collaboration partner - related party

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Contract assets:

4 unchanged sentences

Payable to collaboration partner - related party

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.

During the three and six months ended June 30, 2021, the Company recognized revenue of $ 0.4 million and $ 1.5 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

During the three and six months ended June 30, 2020, the Company recognized revenue of $ 2.1 million and $ 3.3 million, respectively, for each period 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.

10 unchanged sentences

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

March 31, 2021

June 30, 2021

Money market funds

Commercial paper

Treasury and agency securities

Corporate debt securities

Treasury and agency securities

Supranational and sovereign government securities

3 unchanged sentences

Commercial paper

Treasury and agency securities

Corporate debt securities

Treasury and agency securities

Total financial assets

5 unchanged sentences

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

March 31, 2021

June 30, 2021

Gross Unrealized

1 unchanged sentence

Commercial paper

Treasury and agency securities

Corporate debt securities

Treasury and agency securities

Supranational and sovereign government securities

9 unchanged sentences

Commercial paper

Treasury and agency securities

Corporate debt securities

Treasury and agency securities

Total cash equivalents and marketable securities

4 unchanged sentences

Total cash equivalents and marketable securities

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 .

Marketable securities – current of $ 161.9 million and $ 188.5 million held at June 30, 2021 and December 31, 2020, respectively, had contractual maturities of less than one year .

Marketable securities – noncurrent of $ 26.1 million and $ 2.0 million held at June 30, 2021 and December 31, 2020 had contractual maturities of at least one year but less than two years .

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 at maturity.

9 unchanged sentences

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.

In October 2013, Zealand 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.

2 unchanged sentences

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 for the three months ended March 31, 2021 and 2020.

No research and development expense was recorded under the agreement for the three and six months ended June 30, 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:

5 unchanged sentences

Research and Development Tax Incentive

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.

During the three and six months ended June 30, 2021, the Company recognized AUD 1.3 million ($ 1.0 million) and AUD 2.3 million ($ 1.7 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

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

As of June 30, 2021 and December 31, 2020, the research and development cash tax incentive receivable was AUD 3.7 million ($ 2.8 million) and AUD 1.4 million ($ 1.1 million), respectively.

Small Business Innovation Research (“SBIR”) Grants

1 unchanged sentence

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

The Company recorded $ 0.1 million and $ 0.3 million as a reduction of research and development expenses for the three 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.

The Company recorded $ 0.1 million as a reduction of research and development expenses for the three and six months ended June 30, 2021.

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

The Company records a receivable 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.

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

There was no such receivable as of June 30, 2021 or December 31, 2020.

Term Loan Facility

4 unchanged sentences

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

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

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

At the Company’s option, the Company may prepay the

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

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

3 unchanged sentences

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

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.

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.

The Company had no outstanding balance as of June 30, 2021 or December 31, 2020 related to the Term Loan Credit Agreement.

As of June 30, 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

5 unchanged sentences

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.

On January 23, 2020, the Company initiated arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce against 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.

6 unchanged sentences

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 March 31, 2021.

Stockholders’ Equity

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 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”).

5 unchanged sentences

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.

As of June 30, 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.

4 unchanged sentences

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.

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

As of June 30, 2021, 400,000 of the Exchange Warrants remain unexercised.

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

3 unchanged sentences

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

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.

As of June 30, 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.

In June 2021, pursuant to Registration Statement No.

33-251254, the Company completed an underwritten public offering of 3,046,358 shares of its common stock at a public offering price of $ 37.75 per share and issued an additional 456,953 shares of common stock at a price of $ 37.75 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 $ 123.8 million.

4 unchanged sentences

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

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

As of June 30, 2021, 636,010 shares were available for issuance under the 2016 Plan.

Inducement Plan

3 unchanged sentences

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

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

As of June 30, 2021, 375,625 shares were available for issuance under the Amended and Restated 2018 Inducement Plan.

Stock Options

5 unchanged sentences

Options forfeited

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.

Balances at June 30, 2021

Options exercisable – June 30, 2021

Options vested and expected to vest – June 30, 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 June 30, 2021.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on June 30, 2021.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the six months ended June 30, 2021 was $ 19.79 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 March 31,

Three Months Ended

Six Months Ended

Expected term (in years)

2 unchanged sentences

74.3 % - 74.5 %

88.0 % - 90.2 %

72.1 % - 74.5 %

Risk-free interest rate

1 unchanged sentence

0.39 % - 0.42 %

0.11 % - 1.11 %

0.39 % - 1.44 %

Dividend yield

In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.

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

Each of these inputs is subjective and generally requires 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 — 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.

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.

Expected Volatility —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.

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Unvested at December 31, 2020

Unvested at March 31, 2021

Unvested at June 30, 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.

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 June 30, 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 PSUs will vest, if at all, upon certification by the Compensation Committee of the Company’s Board of Directors 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.

The total fair value of the PSUs granted in February 2021 was $ 2.6 million.

As of June 30, 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 June 30, 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 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.

During the six months ended June 30, 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 as of June 30, 2021.

Stock-Based Compensation

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Research and development

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Total stock-based compensation expense

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.

As of June 30, 2021, total unrecognized stock-based compensation expense was approximately $ 46.4 million, which the Company expects to recognize over a weighted-average period of approximately 3.0 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.

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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.

For the three and six months ended June 30, 2021, the Company plans to match 50 % of each employee’s contribution up to a maximum of $ 3,500 , and recognized expense of approximately zero and $ 0.2 million, respectively, relating to these contributions.

No contributions were made to the plan by the Company for the three and six months ended June 30, 2020.

No income tax expense was recorded by the Company during the three and six months ended June 30, 2021.

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

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 three and six months ended June 30, 2020 reflects this

sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset, establishing a valuation allowance and certain uncertain tax position liabilities.

The Company’s effective income tax rate differed 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.

Net Loss per Share

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.

As the Company had net losses for the three and six months ended June 30, 2021 and 2020, all potential dilutive 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 March 31,

Three Months Ended

Six Months Ended

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

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

Three Months Ended March 31,

Six Months Ended

Options to purchase common stock

2 unchanged sentences

Performance 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 Events

Restated Janssen License and Collaboration Agreement

On July 27, 2021, the Company entered into an amended and restated License and Collaboration Agreement (the “Restated Agreement”) with Janssen.

The Restated Agreement amends and restates the License and Collaboration Agreement, dated May 27, 2017, by and between the Company and Janssen (as amended by Amendment No.

1 thereto, effective May 7, 2019, the “Original Agreement”).

The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates.

The candidates currently in development pursuant to the Restated Agreement include PTG-200, PN-232 and PN-235.

PTG-200 is an oral, IL-23 receptor antagonist in Phase 2a development for the treatment of CD.

PN-235 and PN-232 are second-generation oral IL-23 receptor antagonist candidates currently in

Phase 1 studies.

Janssen is primarily responsible for the conduct of the PTG-200 trial and the Company is primarily responsible for the conduct of the PN-232 and PN-235 Phase 1 studies.

Pursuant to the Restated Agreement, the parties have:

(a) amended development milestones to reflect Janssen’s expected development of collaboration compounds for multiple indications in the IL-23 pathway;

(b) limited the Company’s further development and related expense obligations under the Restated Agreement to the ongoing PTG-200 Phase 2a study, and the ongoing Phase 1 studies in PN-232 and PN-235 described in the preceding paragraph;

Janssen is responsible for all other future development and related expenses under the Restated Agreement;

(c) concluded the parties’ two-year research collaboration, while enabling Janssen to continue conducting additional research through July 2024 on compounds developed pursuant to the Original Agreement.

The Company’s continuing development expense obligations under the Restated Agreement are as follows:

(a) the Company will continue to fund 20 % of the costs related to the ongoing Phase 2a study evaluating PTG-200 for the treatment of CD (subject to a $ 20.0 million cap on costs related to Phase 2a and 2b costs for PTG 200);

(b) the Company is responsible for 50 % of agreed-upon costs related to the ongoing Phase 1 study evaluating PN-235 incurred under the Original Agreement through January 4, 2021;

Certain of the Company’s previous development expense obligations under the Original Agreement have been limited or eliminated as follows:

(a) the Company’s previous $ 25.0 million obligation for 20 % of costs related to Phase 2 studies for Second Generation Products has been eliminated;

(b) the Company’s previous $ 5.0 million obligation for 50 % of the costs of a potential third Phase 1 study evaluating a Second Generation Product has been eliminated;

and (c) the Company has no obligation to fund any portion of any Phase 2b or other study evaluating PTG-200 beyond the ongoing Phase 2a study.

One milestone for Second Generation Phase 2 development was reduced from $ 50.0 million to $ 25.0 million in the Restated Agreement;

otherwise, t he various milestone payment amounts in the Restated Agreement remain substantially the same as in the Original Agreement.

To reflect parallel development of multiple indications in the IL-23 pathway, milestone payments under the Restated Agreement generally now correspond to the achievement of specified milestones in:

(a) any initial indication (rather than CD, as in the Original Agreement);

(b) any second indication (rather than UC, as in the Original Agreement);

and (c) any third indication.

With respect to Second Generation Products, milestone payments for second and third indications may be triggered by any Second Generation Product (i.e., not necessarily the Second Generation Product that triggered the initial payment for any indication, or the payment for a second indication).

In addition, the opt-in payments contemplated by the Original Agreement related to the scope of Janssen’s license rights have been converted into development milestones in the Restated Agreement.

The mid-single digit to ten percent tiered royalty rates payable pursuant to the Original Agreement remain the same in the Restated Agreement.

The sales milestone payments in the Original Agreement also remain the same in the Restated Agreement.

Following completion of the ongoing Phase 2a study for PTG-200 and the ongoing Phase 1 studies for PN-232 and PN-235, the Company has no further collaborative development obligations under the Restated Agreement.

Any further research and development will be conducted by Janssen.

Janssen retains exclusive, worldwide rights to develop and commercialize PTG-200 and any second-generation compounds derived from the research collaboration conducted under the Original Agreement, or Janssen’s further research under the Restated Agreement.

Lease Amendment

On July 2, 2021, the Company entered into an amendment (the “Second Lease Amendment”) to its facility lease agreement dated as of March 6, 2017, as amended, to lease approximately 15,000 square feet of additional office space in Newark, California.

The Company expects to commence operations in the additional space in the third quarter of 2021.

Under the Second Lease Amendment, the Company expects to pay additional base rent of approximately $ 1.5 million over the lease term, which expires in May 2024.

The Company will be responsible for its proportional share of operating expenses and tax obligations.

No additional security deposit is required.

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