What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-04 · 194 added, 98 removed, 215 unchanged (58% of the section changed)

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These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,” and similar expressions intended to identify forward-looking statements.

Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors.

In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the potential for eventual regulatory approval and commercialization of our product candidates and our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results or the ability to generate sales, income or cash flow, and the impact of the ongoing COVID-19 pandemic are forward-looking statements.

In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the potential for eventual regulatory approval and commercialization of our product candidates and our potential receipt of milestone payments and royalties under our collaboration agreements, the timing and amount of potential payments that we may be required to make to collaboration partners;

future operating results or the ability to generate sales, income or cash flow, and the impact of the ongoing COVID-19 pandemic are forward-looking statements.

They involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those discussed in Part II, Item 1A, of this Quarterly Report.

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in the United States and other jurisdictions.

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

We have multiple clinical assets derived from this platform in development for multiple indications.

We are a biopharmaceutical company with multiple peptide-based investigational new chemical entities in different stages of development, all derived from the Company's proprietary discovery technology platform.

Our clinical programs fall into two broad categories of diseases;

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Our Product Pipeline

*Subject to Covid-19 related delays

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

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In December 2020, we presented four posters and one oral presentation relating to rusfertide at the American Society for Hematology’s virtual annual meeting, including updated interim Phase 2 results for rusfertide in PV.

We believe these interim results provide evidence regarding the potential of rusfertide to eliminate the need for phlebotomy by controlling hematocrit levels below 45% on an individual patient basis.

In June 2021, we presented updated Phase 2 data supporting the long-term efficacy of rusfertide in PV during an oral presentation at the European Hematology Association (“EHA”) 2021 Virtual Congress.

We believe these interim results provide evidence regarding the potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency symptoms.

Rusfertide has a unique mechanism of action in the potential treatment of PV, which may enable it to decrease and maintain hematocrit levels within the range of recommended clinical guidelines without causing the iron deficiency that may occur with frequent phlebotomy.

We selected PV for potential pivotal study in rusfertide and completed patient enrollment in this ongoing Phase 2 clinical trial in April 2021.

In June 2020, the U.S.

Food and Drug Administration (“FDA”) granted orphan drug designation for rusfertide for the treatment of PV.

In October 2020, the European Medicines Agency granted orphan drug designation for rusfertide for the treatment of PV.

In December 2020, the FDA granted Fast Track designation for rusfertide for the treatment of PV.

Based on feedback provided by the FDA’s Division of Nonmalignant Hematology and written comments from the European Medicines Agency (“EMA”) received during the first quarter of 2021, we expect to initiate a global Phase 3 clinical trial of rusfertide in PV in early 2022.

We completed patient enrollment in the ongoing pivotal Phase 2 clinical trial of rusfertide in PV in April 2021.

Based on end of Phase 2 feedback provided by the FDA’s Division of Nonmalignant Hematology and written comments from the European Medicines Agency (“EMA”) received during the first quarter of 2021, we expect to initiate a global Phase 3 clinical trial of rusfertide in PV in early 2022.

During the first quarter of 2021, we initiated another Phase 2 study for rusfertide in up to 20 patients diagnosed with PV and with routinely elevated hematocrit levels (>48%).

In addition, we expect to disclose preliminary data from our Phase 2 POC study in HH, our second indication, in the second half of 2021.

Our clinical assets PTG-943 and PTG-200 are orally delivered investigational drugs currently in development for inflammatory bowel disease (“IBD”), a gastrointestinal (“GI”) disease consisting primarily of ulcerative colitis (“UC”) and Crohn’s disease (“CD”), that are designed to block biological pathways currently targeted by marketed injectable antibody drugs.

In addition, we completed enrollment for our Phase 2 POC study in HH, our second indication, in April 2021 and expect to disclose preliminary data from this study in the fourth quarter of 2021.

To date we have received the following designations for rusfertide in PV:

Food and Drug Administration (“FDA”) granted orphan drug designation for rusfertide for the treatment of PV in June 2020;

● The European Medicines Agency granted orphan drug designation for rusfertide for the treatment of PV in October 2020;

● The FDA granted Fast Track designation for rusfertide for the treatment of PV in December 2020;

● The FDA granted Breakthrough Therapy Designation for rusfertide for the treatment of PV in June 2021.

Our alpha-4-beta-7 (“α4β7”) antagonist PN-943 and our Interleukin-23 receptor (“IL-23R”) antagonist compounds, including PTG-200, PN-235 and PN-232, are orally delivered investigational drugs that are designed to block biological pathways currently targeted by marketed injectable antibody drugs.

Our orally stable peptide approach may offer targeted delivery to the GI tissue compartment.

We believe that, compared to antibody drugs, these product candidates have the potential to provide improved safety due to minimal exposure in the blood, increased convenience and compliance due to oral delivery, and the opportunity for the earlier introduction of targeted oral therapy.

As a result, if successfully developed and approved, we believe they may transform the existing treatment paradigm for IBD.

PN-943 is an investigational, orally delivered, gut-restricted alpha-4-beta-7 (“α4β7”) specific integrin antagonist for IBD.

PN-943 is an investigational, orally delivered, gut-restricted α4β7 specific integrin antagonist for IBD.

We submitted a U.S.

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During the second quarter of 2020 we initiated a 150-patient Phase 2 study evaluating the safety, tolerability and efficacy of PN-943 in patients with moderate to severe UC.

This ongoing study is expected to be completed in 2022, subject to delays related to the COVID-19 pandemic.

PTG-200 (also referenced as JNJ-67864238) is an investigational, orally delivered, gut-restricted Interleukin-23 receptor (“IL-23R”) antagonist for the treatment of IBD.

This ongoing study is expected to be completed in the second quarter of 2022, subject to delays related to the COVID-19 pandemic.

In May 2017, we entered into a worldwide license and collaboration agreement with Janssen Biotech, Inc.

(“Janssen”), a Johnson & Johnson company, to co-develop and co-detail PTG-200 and certain related compounds for all indications, including IBD.

(“Janssen”), a Johnson & Johnson company, to co-develop and co-detail our IL-23R antagonist compounds, including PTG-200 and certain related compounds for all indications, including IBD.

PTG-200 (also referenced as JNJ-67864238) is an investigational, orally delivered, IL-23R antagonist for the treatment of IBD.

The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL- 23R antagonists.

In January 2020, as part of the expanded research collaboration, we announced the identification and nomination of an orally delivered IL-23R antagonist peptide as a second-generation development candidate, triggering a $5.0 million milestone payment to us.

Janssen initiated a global Phase 2 POC clinical study for PTG-200 in moderate-to-severe CD in the fourth quarter of 2019.

Due to the uncertain effect on the timing of clinical trials caused by the COVID-19 pandemic, we have suspended guidance on a timeline for completion of the PTG-200 Phase 2 study.

Janssen initiated a global Phase 2 POC clinical study for PTG-200 in moderate-to-severe CD in the fourth quarter of 2019, and the study is currently in progress.

In October 2020, we announced the selection of two second-generation IL-R antagonists for advancement into clinical development, PN-235 (also referenced as JNJ-77242113) and PN-232 (also referenced as JNJ-75105186).

A Phase 1 study was initiated for PN-235 in December 2020 and is expected to be completed in 2021.

PN-232 is in the late preclinical stage and we expect to initiate and complete a Phase 1 study for PN-232 in 2021.

The advancement of three different oral co-development candidates provides us with several strategic options for development in multiple indications.

A Phase 1 study was initiated for PN-235 in December 2020 and is expected to be completed in the fourth quarter of 2021.

A Phase 1 study was initiated for PN-232 in May 2021 and is expected to be completed in the second quarter of 2022.

The current development plan contemplates parallel development of multiple collaboration compounds against multiple indications in the IL-23 pathway.

Our clinical assets are all derived from our proprietary discovery platform.

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We are continuing to closely monitor the impact of the COVID-19 pandemic on our business and have taken and continue to take proactive efforts to protect the health and safety of our patients, study investigators, clinical research staff and employees, and to maintain business continuity.

The extent of the impact of the COVID-19 pandemic on our activities is highly uncertain and difficult to predict, as the pandemic and the response to the pandemic continue to evolve.

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

The extent of the impact of the COVID-19 pandemic on our activities is uncertain and difficult to predict, as the pandemic and the response to the pandemic continue to evolve.

Capital markets and economies worldwide have been significantly impacted by the COVID-19 pandemic, and the pandemic has contributed

to a global economic recession.

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

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The severity of the impact of the COVID-19 pandemic on our 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 we, our suppliers and our manufacturers operate and areas where our clinical trial sites are located;

the development and spread of COVID-19 variants;

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

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

Our net loss was $24.0 million and $20.1 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, we had an accumulated deficit of $307.8 million.

Our net loss was $30.8 million and $54.8 million for the three and six months ended June 30, 2021, respectively.

Our net loss was $19.4 million and $39.5 million for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, we had an accumulated deficit of $338.7 million.

Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

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During the first quarter of 2020, we received a cash payment of $5.0 million upon the successful nomination of a second-generation development candidate.

See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information.

See Note 3 and Note 17 to the condensed consolidated financial statements included elsewhere in this report for additional information.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles.

The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and

the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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Expected volatility generally requires significant judgement to determine.

Prior to January 1, 2020, our 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, our 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 our own stock price since our initial public offering in August 2016.

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We recognize 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.

There have been no other material changes in our critical accounting policies during the three months ended March 31, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 10, 2021.

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

There have been no other material changes in our critical accounting policies during the three and six months ended June 30, 2021, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 10, 2021.

Components of Our Results of Operations

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Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates.

We recognize all research and development costs as they are incurred, unless

there is an alternative future use in other research and development projects or otherwise.

We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise.

Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made.

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

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Interest expense consists of interest recognized on borrowings under our term loan facility, which is comprised of contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees.

Other Income (Expense), Net

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

Loss on Early Repayment of Debt

Loss on early repayment of debt consists of prepayment and final payment fees paid upon the early repayment of our long-term debt.

Other Expense (Income), Net

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

Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2021 and 2020

Three Months Ended

(Dollars in thousands)

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Interest expense

Other expense, net

Loss on early repayment of debt

Other (expense) income, net

Loss before income tax expense

Income tax expense

(1) Includes $1.5 million and $1.0 million of non-cash stock-based compensation expense for the three months ended March 31, 2021 and 2020, respectively.

(2) Includes $1.2 million and $1.0 million of non-cash stock-based compensation expense for the three months ended March 31, 2021 and 2020, respectively.

(1) Includes $2.2 million and $1.0 million of non-cash stock-based compensation expense for the three months ended June 30, 2021 and 2020, respectively.

(2) Includes $1.8 million and $1.0 million of non-cash stock-based compensation expense for the three months ended June 30, 2021 and 2020, respectively.

License and Collaboration Revenue

License and collaboration revenue increased $2.5 million, or 70%, from $3.6 million for the three months ended March 31, 2020 to $6.2 million for the three months ended March 31, 2021, which was primarily related to services provided under the Janssen License and Collaboration Agreement recognized based on proportional performance.

We have determined that 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.

License and collaboration revenue decreased $4.0 million, or 64%, from $6.2 million for the three months ended June 30, 2020 to $2.3 million for the three months ended June 30, 2021, which was primarily related to a decrease in services provided under the Janssen License and Collaboration Agreement recognized based on proportional performance.

The level of services has decreased as the Company nears completion of its performance obligations delivered pursuant to the collaboration, including the anticipated completion of its ongoing PN-235 Phase 1 trial in the fourth quarter of 2021 and its ongoing PN-232 Phase 1 trial in the first half of 2022.

We have determined that 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.

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

We determined that the transaction price includes the $50.0 million upfront payment, the $25.0 million payment received upon the effectiveness of the First Amendment, the $5.0 million payment triggered by the successful nomination of a second-generation compound, $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 decrease in transaction price from December 31, 2020 to March 31, 2021 was due primarily to a decrease in the forecast of remaining services to be provided under the initial performance obligation.

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 decrease in transaction price from March 31, 2021 to June 30, 2021 was due primarily to a decrease in the forecast of cost reimbursements to Janssen for services performed.

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

Research and Development Expenses

Three Months Ended March 31,

Three Months Ended

(Dollars in thousands)

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Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

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Preclinical and drug discovery research expense

Grants and tax incentive expense reimbursement, net

Grants and tax incentives expense reimbursement, net

Total research and development expenses

Research and development expenses increased $5.5 million, or 29%, from $18.8 million for the three months ended March 31, 2020 to $24.2 million for the three months ended March 31, 2021.

*Percentage not meaningful

Research and development expenses increased $6.2 million, or 30%, from $20.3 million for the three months ended June 30, 2020 to $26.4 million for the three months ended June 30, 2021.

The increase was primarily due to an increase of $4.4 million in rusfertide clinical trial and development costs, including the ongoing Phase 2 trials in PV, which began in December 2019, and HH, which began in early 2020, and clinical and contract manufacturing activities in preparation for a planned global Phase 3 clinical trial of rusfertide in PV;

$1.4 million of Phase 1 clinical trial and development costs for PN-235;

an increase of $1.1 million in preclinical and drug discovery research expenses, including pre-clinical costs related to our research collaboration efforts with Janssen;

and an increase of $0.7 million in PN-943 clinical trial and development costs following the initiation of the Phase 2 trial in UC in 2020.

These increases were partially offset by a decrease of $0.9 million in PTG-200 clinical trial and development expenses under the Janssen License and Collaboration Agreement due to our delivery of substantially all agreed-upon services for the PTG-200 Phase 2 clinical trial, and a $0.4 million increase in grant and accrued refundable cash tax incentives.

an increase of $0.7 million in PN-943 clinical trial and development costs following the initiation of the Phase 2 trial in UC in 2020, and an increase of $0.3 million in preclinical and drug discovery research expenses.

These increases were partially offset by a decrease of $0.8 million increase in grant and accrued refundable cash tax incentives.

We had 81 and 52 full-time equivalent research and development employees as of June 30, 2021 and 2020, respectively.

General and Administrative Expenses

General and administrative expenses increased $1.4 million, or 30%, from $4.6 million for the three months ended March 31, 2020 to $6.0 million for the three months ended March 31, 2021 primarily due to an increase of $0.6 million in personnel expenses, $0.2 million in recruiting expenses and $0.2 million in market research expenses to support the growth of our operations, and a $0.4 million increase in legal fees due primarily to an arbitration matter with a former research and collaboration partner.

The increase in personnel expenses includes $0.3 million in wages and salaries and $0.2 million in stock-based compensation expense.

General and administrative expenses increased $2.5 million, or 61%, from $4.2 million for the three months ended June 30, 2020 to $6.7 million for the three months ended June 30, 2021 primarily due to an increase of $1.5 million in personnel expenses, a $0.4 million increase in market research expenses, and a $0.3 million increase in consulting fees to support the growth of our business, and a $0.2 million increase in legal fees.

The increase in personnel expenses was primarily due to increases of $0.8 million in stock-based compensation expense and $0.6 million in wages and benefits.

We had 20 and 17 full-time equivalent general and administrative employees as of June 30, 2021 and 2020, respectively.

Interest Income

Interest income decreased $0.4 million, or 81%, from $0.5 million for the three months ended March 31, 2020 to $0.1 million for the three months ended March 31, 2021.

Interest income decreased $0.1 million, or 53%, from $0.2 million for the three months ended June 30, 2020 to $0.1 million for the three months ended June 30, 2021.

This decrease was due primarily to the recent record low interest

rate environment and a change in the mix of marketable securities compared to the prior year period, despite higher interest-earning asset balances.

Interest Expense

Interest expense decreased $0.2 million, or 100%, from $0.2 million for the three months ended June 30, 2020 to zero for the three months ended June 30, 2021.

The decrease in interest expense was due to the prepayment of our outstanding long-term debt under our term credit facility during the second quarter of 2020.

We had no debt outstanding under our term loan facility during the three months ended June 30, 2021.

Loss on Early Repayment of Debt

Loss on early repayment of debt of $0.6 million for the three months ended June 30, 2020 reflects prepayment and final payment fees in connection with the early repayment of our term loan in June 2020.

We had no debt outstanding during the three months ended June 30, 2021.

Other (Expense) Income, Net

Other expense, net was $0.1 million for the three months ended June 30, 2021 compared to other income, net of $0.5 million for the three months ended June 30, 2020.

The change was due primarily to a $0.5 million foreign currency revaluation gain recorded for the three months ended June 30, 2020.

Income Tax Expense

Income tax expense decreased $1.1 million, or 100%, from $1.1 million for the three months ended June 30, 2020 to zero for the three months ended June 30, 2021.

Our effective income tax rate was 0% for the three months ended June 30, 2021 as compared to 6.2% for the three months ended June 30, 2020.

During the second quarter of 2020, our Australia subsidiary sold beneficial rights to discovery intellectual property to our U.S.

entity, and the U.S.

entity reimbursed the Australia subsidiary for certain direct development costs.

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

Income tax expense for the three 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.

We maintained a full valuation allowance on our tax position as of June 30, 2021.

Comparison of the Six Months Ended June 30, 2021 and 2020

Six Months Ended

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Interest expense

Loss on early repayment of debt

Other (expense) income, net

Loss before income tax expense

Income tax expense

(1) Includes $3.6 million and $2.1 million of non-cash stock-based compensation expense for the six months ended June 30, 2021 and 2020, respectively.

(2) Includes $3.0 million and $2.0 million of non-cash stock-based compensation expense for the six months ended June 30, 2021 and 2020, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $1.4 million, or 14%, from $9.9 million for the six months ended June 30, 2020 to $8.5 million for the six months ended June 30, 2021, which was primarily related to a decrease in services provided under the Janssen License and Collaboration Agreement recognized based on proportional performance.

We have determined that 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 $2.8 million from the transaction price of $98.6 million as of December 31, 2020.

We determined that the transaction price includes the $50.0 million upfront payment, the $25.0 million payment received upon the effectiveness of the First Amendment, the $5.0 million payment triggered by the successful nomination of a second-generation compound, $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 decrease in transaction price from December 31, 2020 to June 30, 2021 was due primarily to a decrease in the forecast of remaining services to be provided under the initial performance obligation and an increase in the forecast for cost reimbursements to Janssen for services performed.

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

Research and Development Expenses

Six Months Ended

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Preclinical and discovery research expense

Grants and tax incentives expense reimbursement, net

Total research and development expenses

*Percentage not meaningful

Research and development expenses increased $11.7 million, or 30%, from $39.0 million for the six months ended June 30, 2020 to $50.7 million for the six months ended June 30, 2021.

The increase was primarily due to an increase of $7.7 million in rusfertide clinical trial and development costs, including the ongoing Phase 2 trials in PV, which began in December 2019, and HH, which began in early 2020, and clinical and contract manufacturing activities incurred in 2021 in preparation for a planned global Phase 3 clinical trial of rusfertide in PV;

$3.2 million of Phase 1 clinical trial and development costs for PN-235 beginning in December 2020;

an increase of $1.5 million in PN-943

clinical trial and development costs following the initiation of the Phase 2 trial in UC during the second quarter of 2020;

and an increase of $1.3 million in preclinical and drug discovery research expenses, including pre-clinical costs related to our research collaboration efforts with Janssen which were completed during the second quarter of 2021.

These increases were partially offset by a $1.2 million increase in grant and accrued refundable cash tax incentives and a decrease of $0.9 million in PTG-200 clinical trial and development expenses under the Janssen License and Collaboration Agreement due to our delivery of substantially all agreed-upon services for the PTG-200 Phase 2 clinical trial.

We had 81 and 52 full-time equivalent research and development employees as of June 30, 2021 and 2020, respectively.

General and Administrative Expenses

General and administrative expenses increased $3.9 million, or 45%, from $8.8 million for the six months ended June 30, 2020 to $12.7 million for the six months ended June 30, 2021 primarily due to an increase of $2.0 million in personnel expenses, $0.6 million in market research expenses, $0.4 million in consulting expenses, and $0.3 million in recruiting expenses to support the growth of our operations, and a $0.6 million increase in legal fees due primarily to an arbitration matter with a former research and collaboration partner.

The increase in personnel expenses was primarily due to increases of $1.0 million in stock-based compensation expense and $0.9 million in wages and salaries.

We had 20 and 17 full-time equivalent general and administrative employees as of June 30, 2021 and 2020, respectively.

Interest Income

Interest income decreased $0.5 million, or 73%, from $0.7 million for the six months ended June 30, 2020 to $0.2 million for the six months ended June 30, 2021.

This decrease was due primarily to the recent record low interest rate environment and a change in the mix of marketable securities compared to the prior year period, despite higher interest-earning asset balances.

Interest Expense

Interest expense decreased $0.2 million, or 100%, from $0.2 million for the three months ended March 31, 2020 to zero for the three months ended March 31, 2021.

Interest expense decreased $0.5 million, or 100%, from $0.5 million for the six months ended June 30, 2020 to zero for the six months ended June 30, 2021.

The decrease in interest expense was due to the prepayment of our outstanding long-term debt under our term credit facility during the second quarter of 2020.

We had no debt outstanding under our term loan facility as of March 31, 2021.

We had no debt outstanding under our term loan facility during the six months ended June 30, 2021.

Loss on Early Repayment of Debt

Loss on early repayment of debt of $0.6 million for the six months ended June 30, 2020 reflects prepayment and final payment fees paid in connection with the early repayment of our term loan in June 2020.

We had no debt outstanding during the six months ended June 30, 2021.

Other (Expense) Income, Net

Other expense, net was $0.1 million for the six months ended June 30, 2021 compared to zero for the six months ended June 30, 2020.

The change was due primarily to an increase in foreign exchange losses.

Income Tax Expense

Income tax expense decreased $0.2 million, or 100%, from $0.2 million for the three months ended March 31, 2020 to zero for the three months ended March 31, 2021.

Our effective income tax rate was 0% for the three months ended March 31, 2021 as compared to (0.9)% for the three months ended March 31, 2020.

During the second quarter of

2020, our Australia subsidiary sold beneficial rights to discovery intellectual property to our U.S.

Income tax expense decreased $1.3 million, or 100%, from $1.3 million for the six months ended June 30, 2020 to zero for the six months ended June 30, 2021.

Our effective income tax rate was 0% for the six months ended June 30, 2021 as compared to 3.4% for the six months ended June 30, 2020.

During the second quarter of 2020, our

Australia subsidiary sold beneficial rights to discovery intellectual property to our U.S.

entity, and the U.S.

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

We maintained a full valuation allowance on our tax position as of March 31, 2021.

Income tax expense for the 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.

We maintained a full valuation allowance on our tax position as of June 30, 2021.

Liquidity and Capital Resources

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Historically, we have funded our operations primarily from net proceeds from the sale of shares of our common stock and payments under collaboration agreements.

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

333-251254), pursuant to which we completed an underwritten public offering of 4,761,904 shares of common stock at a public offering price of $21.00 per share and issued an additional 714,285 shares of our 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 us, were $107.6 million.

In June 2021, pursuant to Registration Statement No.

333-251254, we completed an underwritten public offering of 3,046,358 shares of common stock at a public offering price of $37.75 per share and issued an additional 456,953 shares of common stock at a public offering price of $37.75 per share following the underwriters’ exercise of their option to purchase additional shares.

Net proceeds, after deducting underwriting commission and offering costs paid by us, were $123.8 million.

This Form S-3ASR expires in December 2023.

In October 2019, we filed a registration statement on Form S-3 (File no.

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During the year ended December 31, 2020, we issued 2,483,719 shares under our ATM facility for net proceeds of $41.9 million.

No shares were issued under the ATM facility during the three months ended March 31, 2021.

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, we filed an automatic registration statement on Form S-3ASR and an accompanying prospectus (Registration Statement No.

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

This Form S-3ASR expires in December 2023.

We have received $80.0 million in non-refundable payments from Janssen since the inception of the Janssen License and Collaboration Agreement in 2017 through March 31, 2021, as follows:

No shares were issued under the ATM facility during the three and six months ended June 30, 2021.

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.

This Form S-3 expires in October 2022.

We have received $80.0 million in non-refundable payments from Janssen since the inception of the Janssen License and Collaboration Agreement in 2017 through June 30, 2021, as follows:

● Upon effectiveness of the agreement, we received a non-refundable, upfront cash payment of $50.0 million from Janssen;

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We also receive payments for services provided under the collaboration agreement and in-kind reimburses Janssen for certain costs they have incurred based on the cost sharing terms of the agreement.

Pursuant to the First Amendment, we 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 possible milestone or opt-in election events based on a Phase 2 clinical trial in CD are as follows:

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

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

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

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

We 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.

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

Pursuant to the amended and restated License and Collaboration Agreement with Janssen executed July 27, 2021 (the “Restated Agreement”), we will be eligible to receive clinical development, regulatory and sales milestones, if and as achieved.

Upcoming potential development milestones for second-generation products include:

● $7.5 million for completion of the first Phase 1 clinical trial of a second-generation product;

● $25.0 million for dosing of the third patient in the first Phase 2 clinical trial for any second-generation product for any indication;

● $10.0 million for dosing of the third patient in the first Phase 2 clinical trial for any second-generation product for a second indication (i.e.

an indication different than the indication which triggered the $25.0 million milestone described directly above).

The next potential development milestone for initial product PTG-200 is $50.0 million for dosing of the third patient in a Phase 2b clinical trial for CD.

In October 2019, we entered into a credit and security agreement pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal amount of up to $50.0 million, at our option, until September 30, 2021.

$20.0 million remains available under this term loan facility subject to the satisfaction of certain conditions, including the achievement of certain clinical development milestones.

We had no outstanding debt balance as of March 31, 2021.

$20.0 million remains available under this term loan facility through September 30, 2021 subject to the satisfaction of certain conditions, including the achievement of certain clinical development milestones.

We had no outstanding debt balance as of June 30, 2021.

Additional information about this credit facility is presented in Note 9 to the condensed consolidated financial statements included elsewhere in this report.

Capital Requirements

As of March 31, 2021, we had $279.7 million of cash, cash equivalents and marketable securities and an accumulated deficit of $307.8 million.

As of June 30, 2021, we had $380.4 million of cash, cash equivalents and marketable securities and an accumulated deficit of $338.6 million.

Our capital expenditures for six months ended June 30, 2021 were $0.6 million.

Our capital expenditures for the years ended December 31, 2020 and 2019 were $0.5 million and $1.0 million, respectively.

Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures and pre-commercialization costs.

Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures, general and administrative costs and pre-commercialization costs.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses.

We believe, based on our current operating plan and expected expenditures, that our existing cash, cash equivalents and marketable securities and access to our term loan facility will be sufficient to meet our anticipated operating and capital expenditure requirements for at least the next 12 months from the date of this filing.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

If our planned pre-clinical and clinical trials are successful, or our other product candidates enter clinical trials or advance beyond the discovery stage, we will need to raise additional funding.

Such additional funding may come from raising additional capital, seeking access to additional debt, and additional collaborative or other arrangements with corporate sources, but such funding may not be available at terms acceptable to us, if at all.

We have based this estimate on assumptions that may prove to be wrong.

We could utilize our available capital resources sooner than we currently expect if our planned pre-clinical and clinical trials are successful, our product candidates enter new and more advanced stages of clinical development or our newer product clinical trials or advance beyond the discovery stage.

We expect to require additional financing to advance our product candidates through clinical development and toward potential regulatory approval and to develop, acquire or in-license other potential product candidates.

We anticipate that we will need to raise substantial additional funding, the requirements of which will depend on many factors, including:

● the progress, timing, scope, results and costs of our pre-clinical studies and clinical trials for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials;

● the progress, timing, scope, results and costs of advancing our clinical trials and pre-clinical studies for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials;

● the costs of and ability to obtain clinical and commercial supplies and any other product candidates we may identify and develop;

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The following table summarizes our cash flows for the periods indicated (in thousands):

Three Months Ended March 31,

(In thousands)

Six Months Ended

Cash used in operating activities

Cash (used in) provided by investing activities

Cash provided by investing activities

Cash provided by financing activities

Cash Flows from Operating Activities

Cash used in operating activities for the three months ended March 31, 2021 was $28.8 million, consisting of our net loss of $24.0 million and a net change of $8.4 million in net operating assets and liabilities, partially offset by $3.6 million in non-cash charges.

Cash used in operating activities for the six months ended June 30, 2021 was $52.5 million, consisting of our net loss of $54.8 million and a net change of $6.3 million in net operating assets and liabilities, partially offset by $8.7 million in non-cash charges.

Non-cash charges were primarily comprised of $6.6 million of stock-based compensation, $0.9 million of operating lease right-of-use asset amortization, $0.8 million of net amortization of discount on marketable securities, and $0.4 million of depreciation and amortization.

The change in net operating assets and liabilities was primarily due to a decrease of $8.7 million in deferred revenue related to the Janssen License and Collaboration Agreement, an increase of $1.6 million in receivable from collaboration partner, an increase of $0.8 million in research and development tax incentive receivable, a decrease of $0.7 million in accrued expenses and other payables, a decrease of $0.5 million in operating lease liability, and a decrease of $0.3 million in accounts payable, partially offset by an increase of $4.1 million in payable to collaboration partner.

Cash used in operating activities for the three months ended March 31, 2020 was $15.8 million, consisting of our net loss of $20.1 million, partially offset by $3.3 million in non-cash charges and a net change of $0.9 million in net operating assets.

Non-cash charges were primarily comprised of $2.0 million of stock-based compensation, a $0.5 foreign currency measurement loss, $0.4 million of operating lease right-of-use asset amortization, $0.2 million of depreciation and amortization and a $0.2 million change in deferred tax asset, partially offset by $0.2 million of net accretion of discount on marketable securities.

The change in net operating assets and liabilities was primarily due to a decrease of $3.2 million in receivable from collaboration partner, an increase of $0.9 million in accounts payable and a decrease of $0.8 million in prepaid expenses and other current assets, partially offset by a decrease of $2.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, a decrease of $0.7 million in accrued expenses and other payables, a decrease of $0.5 million in operating lease liability, an increase of $0.2 million in research and development tax incentive receivable and a decrease of $0.1 million in payable to collaboration partner.

The change in net operating assets and liabilities was primarily due to a decrease of $12.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, an increase of $4.7 million in receivable from collaboration partner, an increase of $1.7 million in research and development tax incentive receivable, an increase in prepaid expenses and other assets of $1.4 million, and a decrease of $1.0 million in operating lease liability, partially offset by an increase of $8.7 million in payable to collaboration partner, an increase of $4.9 million in accounts payable and an increase of $1.4 million in accrued expenses and other payables.

Cash used in operating activities for the six months ended June 30, 2020 was $37.3 million, consisting of our net loss of $39.5 million and a net change of $5.0 million in net operating assets, partially offset by $7.1 million in non-cash charges.

Non-cash charges were primarily comprised of $4.0 million of stock-based compensation, a $1.4 million change in net deferred tax asset, $0.9 million of operating lease right-of-use asset amortization, a $0.6 million loss on early prepayment of long-term debt and $0.4 million of depreciation and amortization., partially offset by $0.2 million of net accretion of discount on marketable securities.

The change in net operating assets and liabilities was primarily due to a decrease of $7.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, a $1.0 million decrease in operating lease liability, a $0.3 million increase in Australia research and development incentive receivable, a $0.3 million decrease in payable to collaboration partner and a $0.3 million increase in prepaid expenses and other assets, partially offset by a decrease of $3.8 million in receivable from collaboration partner and an increase of $0.4 million in accrued expenses and other payables.

Cash Flows from Investing Activities

Cash used in investing activities for the three months ended March 31, 2021 was $6.8 million, consisting of purchases of marketable securities of $87.2 million and purchases of property and equipment of $0.1 million, partially offset by proceeds from maturities of marketable securities of $80.5 million.

Cash provided by investing activities for the three months ended March 31, 2020 was $42.7 million, consisting of proceeds from maturities of marketable securities of $63.8 million, partially offset by purchases of marketable securities of $20.9 million and purchases of property and equipment of $0.1 million.

Cash provided by investing activities for the six months ended June 30, 2021 was $1.0 million, consisting of proceeds from maturities of marketable securities of $165.1 million, offset by purchases of marketable securities of $163.5 million and purchases of property and equipment of $0.6 million.

Cash provided by investing activities for the six months ended June 30, 2020 was $37.6 million, consisting of proceeds from maturities of marketable securities of $104.6 million, partially offset by purchases of marketable securities of $66.8 million and purchases of property and equipment of $0.3 million.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended March 31, 2021 was $1.0 million, consisting of $1.3 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan, partially offset by $0.2 million tax withholding payments related to net settlement of restricted stock units and $0.1 million of offering costs.

Cash provided by financing activities for the three months ended March 31, 2020 was $0.4 million, consisting primarily of proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

Cash provided by financing activities for the six months ended June 30, 2021 was $126.4 million, consisting of $124.0 million of cash proceeds from our public offering of common stock and $2.6 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan, partially offset by $0.2 million of tax withholding payments related to net settlement of restricted stock units.

Cash provided by financing activities for the six months ended June 30, 2020 was $113.0 million, consisting primarily of cash proceeds from our public offering of common stock of $105.7 million, cash proceeds from ATM sales

of $16.8 million, and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $1.0 million, partially offset by early repayment of long-term debt of $10.5 million.

Contractual Obligations and Other Commitments

During the three months ended March 31, 2021, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 10, 2021.

During the three and six months ended June 30, 2021, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 10, 2021.

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 2. Management’s Discussion and Analysis