What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 258 added, 211 removed, 527 unchanged (47% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

26 unchanged sentences

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

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

47,671,654 and 43,745,465 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

License and collaboration revenue - related party

7 unchanged sentences

Loss on early repayment of debt

Other (expense) income, net

Other expense, net

Loss before income tax expense

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Unrealized gain (loss) on marketable securities

Unrealized loss on marketable securities

Comprehensive loss

5 unchanged sentences

Stockholders'

Three months ended June 30, 2021

Balance at March 31, 2021

Three months ended September 30, 2021

Balance at June 30, 2021

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

2 unchanged sentences

Other comprehensive loss

Balance at June 30, 2021

Balance at September 30, 2021

Comprehensive

Stockholders'

Three months ended June 30, 2020

Balance at March 31, 2020

Three months ended September 30, 2020

Balance at June 30, 2020

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

2 unchanged sentences

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2020

Other comprehensive gain

Balance at September 30, 2020

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

4 unchanged sentences

Stockholders'

Six months ended June 30, 2021

Nine months ended September 30, 2021

Balance at December 31, 2020

4 unchanged sentences

Other comprehensive loss

Balance at June 30, 2021

Balance at September 30, 2021

Comprehensive

Stockholders'

Six months ended June 30, 2020

Nine months ended September 30, 2020

Balance at December 31, 2019

4 unchanged sentences

Other comprehensive gain

Balance at June 30, 2020

Balance at September 30, 2020

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash Flows from Operating Activities

2 unchanged sentences

Operating lease right-of-use asset amortization

Depreciation and amortization

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

17 unchanged sentences

Purchases of property and equipment

Net cash provided by investing activities

Net cash used in investing activities

Cash Flows from Financing Activities

15 unchanged sentences

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

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

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

4 unchanged sentences

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

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

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

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

The Company manages its operations as a single operating segment.

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.

As of September 30, 2021, the Company had cash, cash equivalents and marketable securities of $ 352.5 million.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 372.5 million as of September 30, 2021.

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

21 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 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 results of operations for the three and nine months ended September 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.

3 unchanged sentences

Use of Estimates

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

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

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

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that management believes are of high credit quality.

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

Such financial instruments regularly exceed federally insured limits.

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

1 unchanged sentence

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 U.S 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 June 30, 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 September 30, 2021 pursuant to the terms of the Company’s May 2017 facility lease.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

1 unchanged sentence

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

September 30,

Cash and cash equivalents

12 unchanged sentences

Revenue Recognition

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:

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:

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

62 unchanged sentences

Stock-based Compensation Expense

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

The Company granted performance share units (“PSUs”) to certain executives of the Company.

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

10 unchanged sentences

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and must be applied on a retrospective basis.

The Company 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 June 30, 2021

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

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

In June 2016, the FASB issued ASU No.

8 unchanged sentences

effective for the Company for fiscal years and interim periods beginning after December 15, 2022.

The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and disclosures.

The Company is currently evaluating the impact of this new guidance on its condensed consolidated financial statements and disclosures.

License and Collaboration Agreement

Agreement Terms

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

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

The Restated Agreement amends and restates the License and Collaboration Agreement, dated May 26, 2017, by and between the Company and Janssen (as amended by the First Amendment thereto, effective May 7, 2019, the “Original Agreement”).

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

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

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

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

Under the Janssen License and Collaboration Agreement, the Company granted to Janssen an exclusive worldwide license to develop, manufacture and commercialize PTG-200 and related IL-23R antagonist compounds for all indications, including CD and UC.

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

Investigational New Drug application (“IND”).

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

Janssen submitted an IND for PTG-200 in CD during the second quarter of 2019, which took effect in July 2019.

Janssen and the Company initiated a Phase 2 clinical study for PTG-200 in CD in the fourth quarter of 2019.

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

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

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

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.

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

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

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

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

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

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

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

The Original Agreement became effective on July 13, 2017.

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

Upon the effectiveness of the First Amendment, the Company received a $ 25.0 million payment from Janssen in 2019.

The Company also received a $ 5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compounds”) during the first quarter of 2020.

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

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

PTG-200 is an oral IL-23 receptor antagonist in that was in Phase 2a development for the treatment of Crohn’s disease (“CD”).

PN-232 and PN-235 are second-generation products currently in Phase 1 studies.

Janssen is primarily responsible for the conduct of the PTG-200 Phase 2a 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:

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

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

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

● 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 Restated Agreement enables Janssen to develop collaboration compounds for multiple indications.

Under the Restated Agreement, Janssen is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

The Company’s development cost obligations in the Original Agreement for the period following the effective date of the Original Agreement were as follows:

(a) up to $ 20.0 million of costs related to up to three Phase 1 studies of second-generation compounds;

(b) up to $ 20.0 million of costs related to Phase 2a and 2b costs for PTG-200 (i.e., 20 % of the first $ 100.0 million in costs);

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 Phase 2a study evaluating PTG-200 for the treatment of CD (subject to a $ 20.0 million cap);

(b) the Company is responsible for 50 % of agreed-upon costs related to the

ongoing Phase 1 study evaluating PN-235 incurred 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 compound 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 Phase 2a study in CD.

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 ulcerative colitis (“UC”), as in the Original Agreement);

and (c) any third indication.

With respect to second-generation compounds, milestone payments for second and third indications may be triggered by any second-generation compound (i.e., not necessarily the second-generation compound 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.

Upcoming potential development milestones for second-generation compounds include:

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

● $ 25.0 million for dosing of the 3rd patient in the first Phase 2 clinical trial for any second-generation compound for any indication;

● $ 10.0 million for dosing of the 3rd patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e., an indication different than the indication which triggered the $ 25.0 million milestone described above);

● $ 50.0 million for dosing of the 3rd patient in a Phase 3 clinical trial for a second-generation compound for any indication;

● $ 15.0 million for dosing of the 3rd patient in a Phase 3 clinical trial for a second-generation compound for a second indication;

● $ 115.0 million for a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint.

Development milestones for PTG-200 were unchanged under the Restated Amendment, except that milestone achievement is generally no longer indication-specific.

Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.

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

Pursuant to both the Original and Restated Agreements, payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities.

Janssen bills the Company for its share of the Phase 2 development costs as expenses are incurred by Janssen.

Milestone payments are received after the related milestones are achieved.

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

The next 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”).

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

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

Under the terms of the First Amendment, the Company is eligible to receive up to $ 1.0 billion in research, development, regulatory and sales milestones.

The Janssen License and Collaboration Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier.

Upon a termination of the Janssen License and Collaboration Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Janssen retains exclusive, worldwide rights to develop and commercialize IL-23 receptor antagonist compounds derived from the research collaboration conducted under the Original Agreement, or Janssen’s further research under the Restated Agreement.

Any further research and development will be conducted by Janssen.

The Company will have the right to co-detail (for CD and UC indications) up to two of the IL-23 receptor antagonist compounds under the collaboration in the U.S.

The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier.

Upon a termination of the Restated Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Revenue Recognition

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

second-generation compound research services;

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

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

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

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

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

The Restated Agreement contains a single performance obligation for the development license;

Phase 1 development services for PTG-200, PN-232 and PN-235;

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

the initial year of second-generation compound research services;

and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and PN-235 through Phase 1.

Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and PN-235 beyond Phase 1 are no longer required.

The Company determined that the license was not distinct from the revised development services within the context of the agreement because the revised development services did not change the utility of the intellectual property.

The Company also concluded that the remaining development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the Restated Agreement of the development license and PTG-200, PN-232 and PN-235 services, including compound supply and other services.

Therefore, the Restated Agreement is treated as if it were part of the Original Agreement.

The Restated Agreement will be accounted for as if it were a modification of services under the Original Agreement by applying a cumulative catch-up adjustment to revenue.

As of the effective date of the Restated Agreement, the Company calculated the adjusted cumulative revenue under the Restated Agreement with primary updates to the transaction price, including the release of and update of prior constraints and fewer remaining services to be provided, resulting in a cumulative adjustment that increased revenue by $ 8.0 million.

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

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

For revenue recognition purposes, the duration of the Restated Agreement began on the Original Agreement effective date of July 13, 2017 and ends upon the later of the end of Phase 2a for PTG-200 in CD or the completion of a Phase 1 clinical trial for either PN-232 or PN-235.

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

Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services offset by development costs reimbursement payable to Janssen.

Variable consideration after the effective date of the Restated Agreement consists of future milestone payments and cost sharing payments for agreed upon services offset by development costs reimbursable to Janssen.

Cost sharing payments from Janssen relate to the agreed upon services for development activities that the Company performs within the duration of the contract are included in the transaction price at the Company’s share of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third party contract costs.

Cost sharing payments to Janssen relate to agreed-upon services for Phase 2 activities that Janssen performs within the duration of the contract are not a distinct service that Janssen transfers to the Company.

Cost sharing payments to Janssen related to agreed-upon services for activities that Janssen performs within the duration of the contract are not a distinct service that Janssen transfers to the Company.

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

The 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.

The transaction price of the initial performance obligation under the Restated Agreement was $ 105.7 million as of September 30, 2021, an increase of $ 9.9 million from the transaction price of $ 95.8 million as of June 30, 2021, under the Original Agreement.

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 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 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 June 30, 2021 is not probable.

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.

The transaction price as of September 30, 2021 includes the $ 80.0 million of nonrefundable payments received to date, $ 17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and estimated variable consideration consisting of a $ 7.5 million milestone payment subject to

completion of the clinical data collection for Phase 1 activities for PN-235 and $ 8.4 million of development cost reimbursement receivable from Janssen, partially offset by $ 8.1 million of net cost reimbursement due to Janssen for services performed.

The Company concluded that the variable consideration constraint is appropriately reflected in the estimated transaction price as of September 30, 2021.

Janssen has also opted in for certain additional services to be performed by the Company that are outside the initial performance obligation, revenue is recognized as these services are performed.

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

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

These costs consist primarily of internal full-time equivalent effort and third-party contract costs.

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

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

For the three and 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.

For the three months ended September 30, 2021, the Company recorded a cumulative catch-up adjustment increasing license and collaboration revenue by $ 8.0 million, and also recorded $ 2.3 million of license and collaboration revenue following the contract modification for the Restated Agreement.

For the three months ended September 30, 2020, the Company recognized license and collaboration revenue of $ 12.6 million.

In addition, the Company recorded zero and $ 0.5 million in revenue for the three months ended September 30, 2021 and 2020, respectively, related to additional services provided by the Company under the agreement.

For the nine months ended September 30, 2021, the Company recorded a cumulative catch-up adjustment increasing license and collaboration revenue by $ 8.0 million, and also recorded $ 9.9 million of license and collaboration revenue following the contract modification for the Restated Agreement.

For the nine months ended September 30, 2020, the Company recognized license and collaboration revenue of $ 22.0 million.

In addition, the Company recorded $ 0.8 million and $ 1.0 million in revenue for the nine months ended September 30, 2021 and 2020, respectively, related to additional services provided by the Company under the agreement.

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

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Contract assets:

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Payable to collaboration partner - related party

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Contract assets:

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Payable to collaboration partner - related party

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.

During the three and nine months ended September 30, 2021, the Company recognized revenue of $ 0.2 million and $ 1.7 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

During the three and nine months ended September 30, 2020, the Company recognized revenue of $ 8.5 million and $ 11.8 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.

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

June 30, 2021

September 30, 2021

Money market funds

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

June 30, 2021

September 30, 2021

Gross Unrealized

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Total cash equivalents and marketable securities

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.

Marketable securities – current of $ 193.8 million and $ 188.5 million held at September 30, 2021 and December 31, 2020, respectively, had contractual maturities of less than one year .

Marketable securities – noncurrent of $ 38.2 million and $ 2.0 million held at September 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 not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity.

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

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

September 30,

Accrued clinical and research related expenses

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Accrued professional service fees

Accrued collaboration payments

Total accrued expenses and other payables

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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 Commitments and Contingencies – Legal Proceedings below.

However, upon reevaluation, the Company concluded in 2019 that rusfertide is not a compound requiring post-termination payments under the agreement and initiated an

arbitration proceeding in January 2020.

On August 4, 2021, the Company and Zealand agreed to resolve the dispute and entered into an Arbitration Resolution Agreement.

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

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 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:

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

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

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

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

$ 4.0 million in research and development expense was recorded under the agreement for the three and nine months ended September 30, 2021.

No research and development expense was recorded under the Zealand collaboration agreement for the three and nine months ended September 2020.

Government Programs

Research and Development Tax Incentive

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.

During the three and nine months ended September 30, 2021, the Company recognized AUD 0.6 million ($ 0.5 million) and AUD 2.9 million ($ 2.2 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 nine months ended September 30, 2020, the Company recognized AUD 0.4 million ($ 0.3 million) and AUD 0.8 million ($ 0.5 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

As of September 30, 2021 and December 31, 2020, the research and development cash tax incentive receivable was AUD 2.6 million ($ 1.9 million) and AUD 1.4 million ($ 1.1 million), respectively.

Small Business Innovation Research (“SBIR”) Grants

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

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

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

No such amounts were recorded during the three months ended September 30, 2021 and 2020.

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 June 30, 2021 or December 31, 2020.

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

Term Loan Facility

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

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

The Company intends to use any proceeds from drawdowns on the Term Loans for general corporate purposes.

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

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

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

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

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

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

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

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

The Company used proceeds from drawdowns on the Term Loans for general corporate purposes.

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

At the Company’s option, the Company could 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 occurred through and including the first anniversary of the Closing Date, 2.0 % of the amount prepaid if the prepayment occurred 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 was due upon prepayment or repayment of the Term Loans.

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

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

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

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

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

Accordingly, the company accelerated amortization of $ 0.1 million related to capitalized and unamortized debt issuance costs, which is included as part of the $ 0.6 million loss on early repayment of debt.

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.

In September 2021, the Company executed a payoff letter to release all obligations under the Term Loan Credit Agreement.

As a result, the Company had no outstanding balance and no obligations related to the Term Loan Credit Agreement as of September 30, 2021.

The Company applies ASC 842, to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet.

The Company has elected to account for each separate lease component and non-lease components as one single component for all lease assets.

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

The Company has one operating lease agreement entered into in March 2017 for approximately 42,900 square feet of laboratory and office space located in Newark, California.

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

The security deposit for the lease was later reduced to $ 225,000 in March 2021.

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

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

The Company commenced operations in the additional space in September 2021.

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

As a result of this amendment, the Company recorded an additional right-of-use asset and the related liability of $ 1.4 million as of September 30, 2021.

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

No additional security deposit was required pursuant to the Second Amendment.

The following table provides balance sheet information related to operating leases is as follows (in thousands):

September 30,

Operating Leases:

Operating lease right-of-use asset

Operating lease liability - current

Operating lease liability - noncurrent

Total operating lease liabilities

Weighted-average remaining lease term (years)

Weighted-average discount rate

Other information related to the Company’s operating leases is as follows (in thousands):

Nine Months Ended September 30,

Operating lease cost

sublease income

Total lease expense

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

Nine Months Ended September 30,

Operating cash flow used by operating leases

New operating lease asset obtained in exchange for operating lease liability

Future lease payments required under lease obligations as of September 30, 2021 are as follows (in thousands):

Year Ending December 31:

Remainder of 2021

Total future minimum lease payments

imputed interest

Present value of lease liabilities

Commitments and Contingencies

Legal Proceedings

The Company is a party to the legal action described below.

The Company recognizes accruals for such actions to the extent that it concludes that a loss is both probable and reasonably estimable.

The Company recognizes accruals for legal actions to the extent that it concludes that a loss is both probable and reasonably estimable.

The Company accrues for the best estimate of a loss within a range;

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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 related to a collaboration agreement the Company and Zealand entered into in 2012 and terminated in 2014.

Zealand entered into in 2012 and terminated in 2014.

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

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

The Company is also seeking repayment of $ 1.0 million in milestone payments it has made, as well as its costs, fees, and expenses of the proceeding.

Zealand disputes the Company’s claims and has filed counterclaims for payment of a development milestone Zealand claims is due, as well as payment of their arbitration costs, fees and expenses .

The arbitration is pending.

If Zealand prevails in the arbitration, the Company could be required to reimburse Zealand’s arbitration costs, fees and expenses, and make contractual payments to Zealand described in its prior periodic reports filed with the SEC.

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

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

Although the Company cannot predict with certainty the ultimate outcome of these arbitration proceedings, it has concluded that the probability of any related loss is remote and therefore no related accruals were recognized as of June 30, 2021.

On August 4, 2021, the Company and Zealand agreed to resolve the dispute and reached an Arbitration Resolution Agreement.

Under the Arbitration Resolution Agreement, (1) the Company is required to make an additional payment of $ 1.5 million to Zealand in August 2022 with respect to rusfertide, (2) all development milestones with respect of rusfertide have been reduced by 50 %, except that the Company agreed to pay in full within two (2) business days after the effective date of the Agreement (and timely paid):

(i) a $ 1.0 million milestone for initiation of a Phase 2b clinical trial;

and (ii) a $ 1.5 million milestone for initiation of a Phase 3 clinical trial;

(3) the royalty rate payable by the Company on net sales of rusfertide has been reduced by 50 %;

(4) all sales milestone payments on net sales of rusfertide have been reduced by 50 %;

(5) the parties agreed that each party will retain all payments previously made by the other party in connection with the original collaboration agreement;

and (6) the parties have released claims related to the original collaboration agreement, the abandonment agreement and the arbitration.

In addition to the payments specified in items (1) and (2) above, the Company may also be required to pay Zealand up to $ 2.75 million in future development milestone payments relating to rusfertide.

Those payments include up to $ 1.0 million in the aggregate for registrational proposals and up to $ 1.75 million in the aggregate for commercial launch in the three geographic territories specified in the original collaboration agreement.

The Company considered the outcome of these arbitration proceedings as being related to its research and development project;

therefore, payments or milestone payments were recorded as research and development expenses.

As a result, no related legal accruals were recognized as of September 30, 2021.

Stockholders’ Equity

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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 June 30, 2021, none of the Warrants have been exercised.

As of September 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.

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The Exchange Warrants are exercisable at any time prior to expiration except that the Exchange Warrants cannot be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99 % of the Company’s common stock, subject to certain exceptions.

In accordance with Accounting Standards Codification Topic 505, Equity , the Company recorded the retirement of the common stock exchanged as a reduction of common stock shares outstanding and a corresponding debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date.

issuance date.

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

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

As of September 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.

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

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.

As of September 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.

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.

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

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

As of September 30, 2021, 524,762 shares were available for issuance under the 2016 Plan.

Inducement Plan

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

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

As of September 30, 2021, 243,125 shares were available for issuance under the Amended and Restated 2018 Inducement Plan.

Stock Options

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Options forfeited

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.

Balances at September 30, 2021

Options exercisable – September 30, 2021

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

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

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the nine months ended September 30, 2021 was $ 21.92 per share.

Stock Options Valuation Assumptions

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Expected term (in years)

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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.

Beginning January 1, 2021, the Company’s expected volatility is estimated based upon a mix of 50 % of the average volatility for comparable publicly traded biopharmaceutical

companies over a period equal to the expected term of the stock option grants and 50 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

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

Unvested at December 31, 2020

Unvested at June 30, 2021

Unvested RSUs at December 31, 2020

Unvested RSUs at September 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 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.

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

Unvested PSUs at December 31, 2020

Unvested PSUs at September 30, 2021

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.

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 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.

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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.

As of September 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 September 30, 2021.

Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (“2016 ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15 % of their eligible compensation.

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

During the 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.

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 nine months ended September 30, 2021, a total of 43,648 shares of common stock were issued under the 2016 ESPP, and 1,013,999 shares remain available for issuance as of September 30, 2021.

Stock-Based Compensation

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Research and development

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Total stock-based compensation expense

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.

As of September 30, 2021, total unrecognized stock-based compensation expense was approximately $ 51.5 million, which the Company expects to recognize over a weighted-average period of approximately 2.9 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 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.

For the three and nine months ended September 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 $ 0.1 million and $ 0.3 million, respectively, relating to these contributions.

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

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

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

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

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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.

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

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

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Net Loss per Share

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.

As the Company had net losses for the three and nine months ended September 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

Six Months Ended

Nine Months Ended

September 30,

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:

Six Months Ended

Nine Months Ended

September 30,

Options to purchase common stock

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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