What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-10 · 353 added, 311 removed, 695 unchanged (49% of the section changed)

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Audited Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm s

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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Opinion on the Financial Statements

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

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

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

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

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

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

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

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

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

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

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

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

Accordingly, we express no such opinion.

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

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

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

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

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

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

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrued clinical and research related expenses

Description of the Matter

At December 31, 2021, the Company has accrued $27.9 million of clinical and research related expenses.

As described in Note 2 to the consolidated financial statements, the Company records estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities, based upon the estimated amount of services provided but not yet invoiced.

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

Auditing management’s accounting for accrued clinical development cost is especially challenging because the evaluation is dependent on a high volume of data exchanged between third-party service providers, internal clinical personnel, and the Company’s finance department.

The accrued amounts are determined based on an evaluation of the unique terms and conditions set forth in each respective agreement.

Additionally, due to the duration of clinical trial activities and the timing of invoices received from third parties, the calculation of the accrual for services incurred requires management to determine that they have complete and accurate information from its vendors.

How We Addressed the Matter in Our Audit

To test accrued clinical development costs, our audit procedures included, among others, testing the accuracy and completeness of the inputs used in management’s analysis to determine costs incurred.

We also inspected terms and conditions for selected research and development contracts and change orders and compared these to the cost models management used in tracking progress of service agreements.

We met with the Company’s internal clinical personnel to understand the status of significant clinical activities.

We evaluated services incurred by third parties by understanding the terms and timeline of significant projects, and evaluating management’s determination of work performed, subjects enrolled, sites activated and costs incurred.

Further, we inspected selected invoices received from third parties after the balance sheet date and evaluated whether services performed prior to the balance sheet date had been properly included in costs accrued.

Accounting for related party revenue recognition under the Janssen License and Collaboration Agreement

Description of the Matter

As described in Note 3 to the consolidated financial statements, the Company is party to a License and Collaboration Agreement with Janssen Biotech, Inc.

(Janssen), which was amended during 2021.

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

The Company and Janssen make quarterly cost sharing payments to one another in amounts necessary to ensure that each party bears its contractual share of the overall shared costs incurred.

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

For the year ended December 31, 2021, the Company recorded $27.4 million of related party revenue under the License and Collaboration Agreement.

Auditing the Company’s revenue recognition for the Janssen agreement is complex due to the judgments made by management in the determination of the transaction price and the calculation of the cost-based input method.

The determination of the transaction price and the calculation of the cost-based input method involve subjective estimates of future development costs to be incurred by the Company and by Janssen.

Changes to these assumptions can have a material effect on the amount and timing of revenue recognized.

How We Addressed the Matter in Our Audit

Our audit procedures included, among others, evaluating the changes to estimated future development resulting from the 2021 amendment to the agreement.

We recomputed revenue recognized and tested the eligibility of research and development costs and appropriateness of FTE costs applied in the determination of the percentage completed under the revenue recognition model.

We evaluated the appropriateness of the transaction price based upon estimated payments to be received during the duration of the contract, net of remaining development costs expected to be reimbursed by the Company to Janssen.

We met with Company personnel to corroborate our understanding of collaboration developments and activities that have occurred to date.

We also tested a sample of cash payments and receipts exchanged between the two parties throughout the year.

/s/ Ernst & Young LLP

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Redwood City, California

March 10, 2021

February 28, 2022

Report of Independent Registered Public Accounting Firm

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Opinion on the Financial Statements

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

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

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

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

We have audited the consolidated statements of operation, comprehensive loss, changes in stockholders’ equity and cash flows of Protagonist Therapeutics, Inc.

and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

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

Basis for Opinion

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

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

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

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

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

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

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

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

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

We believe that our audits provide a reasonable basis for our opinion.

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San Jose, California

March 10, 2020

February 28, 2022

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

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Operating lease right-of-use asset

Deferred tax asset

Liabilities and Stockholders’ Equity

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Accrued expenses and other payables

Deferred revenue - related party - current

Deferred revenue - related party

Operating lease liability - current

Total current liabilities

Long-term debt, net

Deferred revenue - related party - noncurrent

Operating lease liability - noncurrent

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Total liabilities

Commitments and contingencies (Note 11)

Commitments and contingencies

Stockholders’ equity:

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

43,745,465 and 27,217,649 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

47,838,330 and 43,745,465 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital

Accumulated other comprehensive gain (loss)

Accumulated other comprehensive (loss) gain

Accumulated deficit

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Other comprehensive loss:

Gain (loss) on translation of foreign operations

(Loss) gain on translation of foreign operations

Unrealized (loss) gain on marketable securities

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Balance at December 31, 2018

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

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

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

Retirement of common stock in exchange for common stock warrant

( 1,000,000 )

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

Issuance of common stock upon exercise of Exchange Warrants

Stock-based compensation expense

Other comprehensive loss

Other comprehensive gain

Balance at December 31, 2019

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

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

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

Issuance of common stock upon exercise of Exchange Warrants

Stock-based compensation expense

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

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

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

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

Stock-based compensation expense

Other comprehensive gain

Other comprehensive loss

Balance at December 31, 2021

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Operating lease right-of-use asset amortization

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

Depreciation and amortization

Change in deferred tax asset

Loss on early repayment of debt

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

Amortization of debt issuance costs and accretion of debt discount

Gain on disposal of property and equipment

Change in deferred tax asset

Changes in operating assets and liabilities:

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Operating lease liability

Other liability

Other liabilities

Net cash used in operating activities

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Purchases of property and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash Flows from Financing Activities

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

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

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

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

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

Issuance costs related to long-term debt

Tax withholding payments related to net settlement of restricted stock units

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

Early repayment of long-term debt

Issuance costs related to long-term debt

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

Net cash provided by financing activities

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Supplemental Disclosure of Non-Cash Financing and Investing Information:

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

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

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

Purchases of property and equipment in accounts payable and accrued liabilities

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

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

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

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

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

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

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

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.

Protagonist Australia was incorporated in Australia in September 2001.

The Company manages its operations as a single operating segment.

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and assessing performance.

The Company operates and manages its business as one operating segment.

The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for allocating and evaluating financial performance.

Substantially all of the Company’s long-lived assets are maintained in the United States.

As of December 31, 2021, the Company had cash, cash equivalents and marketable securities of $ 326.9 million.

The Company has incurred net losses from operations since inception and has an accumulated deficit of $ 409.4 million as of December 31, 2021.

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

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

Risks and Uncertainties

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

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

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

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

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

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

Capital markets and economies worldwide have been negatively impacted by the COVID-19 pandemic and may be further impacted in the future.

Such economic disruption could have a material adverse effect on the Company’s business.

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The magnitude and overall effectiveness of these actions remains uncertain.

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

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

the development and spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments;

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

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

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The Company's future results of operations and liquidity could be adversely impacted by further delays in existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities, supply chain disruptions, the ongoing impact on its operating activities and employees, and the ongoing impact of any initiatives or programs that the Company may undertake to address financial and operational challenges.

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

As of the date of issuance of

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

Summary of Significant Accounting Policies

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Use of Estimates

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

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

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

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

Actual results may differ significantly from those estimates.

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

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

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

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

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

Substantially all of the Company’s cash is held by two financial institutions that

management believes are of high credit quality.

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

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

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

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

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

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.

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

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

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

Cash Equivalents

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Restricted Cash

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

Restricted cash consists primarily 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, as subsequently amended.

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

Cash as Reported in Consolidated Statements of Cash Flows

Cash as reported in the consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and the restricted cash as presented on the consolidated balance sheets.

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

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

Cash and cash equivalents

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Restricted cash - noncurrent

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

Total cash reported on consolidated statements of cash flows

Marketable Securities

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Impairment of Long-Lived Assets

The Company reviews long-lived assets, primarily comprised of property, equipment and operating lease right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company reviews long-lived assets, primarily comprised of property, equipment and operating lease ROU assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate.

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There have been no such impairments of long-lived assets for any of the periods presented.

Long Term Debt

The Company accounts for interest on its long-term debt under the effective interest method, with interest expense comprised of contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees.

Comprehensive Loss

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

Under this method, deferred tax assets and liabilities are determined based on future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities

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

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

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes

the enactment date.

A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

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Revenue Recognition

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

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

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.

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

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

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

related constraint, and if necessary, adjusts its estimates of the overall transaction price.

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

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Any potential milestone payments that the Company determines are not associated with performance obligations as defined under the contract are excluded from the transaction price and are recognized as the triggering event occurs.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

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

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

dollars as of each reporting date.

The Company may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive in years when the annual turnover exceeds the limit.

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

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

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

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

If stock-based awards are granted in contemplation of or shortly before a planned release of material nonpublic information, and such information is expected to result in a material increase in the Company’s share price, the Company considers whether an adjustment to the observable market price is required when estimating fair values.

Net Loss per Share

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Recently Adopted Accounting Pronouncements

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

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

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

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

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

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

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

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

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

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

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

2019-12, Income Taxes (Topic 740):

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

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

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

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

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

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

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

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

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

License and Collaboration Agreement

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 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Janssen bills the Company for its 20 % share of the Phase 2 development costs as expenses are incurred by Janssen.

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 compound”) during the first quarter of 2020 and a $ 7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021.

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

The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and PN-235 (JNJ-77242113).

PTG-200 was an oral IL-23

receptor antagonist in that was in Phase 2a development for the treatment of Crohn’s disease (“CD”).

During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing PN-235, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile.

Janssen is primarily responsible for the conduct of all future trials, including these anticipated Phase 2 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 studies.

Pursuant to the Restated Agreement, the parties:

● 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 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 were as follows:

(a) the Company funded 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 was responsible for 50 % of agreed-upon costs related to the Phase 1 study evaluating PN-235 incurred through January 4, 2021;

Certain of the Company’s previous development expense obligations under the Original Agreement were 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 was 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 was eliminated;

and (c) the Company had 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 could 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:

● $ 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 PTG-200 Phase 2a 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, world-wide commercial rights for both PTG-200 and second-generation products following the Phase 2b completion date for PTG-200 or a second-generation product by paying a $ 50.0 million payment (the “Amended Second Opt-in Election”).

The Company will also be eligible for certain additional milestone payments including a potential payment of either $ 100.0 million upon a Phase 3 CD clinical trial meeting a

primary clinical endpoint with respect to PTG-200 or $ 115.0 million upon a Phase 3 CD clinical trial meeting a primary clinical endpoint with respect to a second-generation compound.

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

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

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

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

second-generation compound research services;

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

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

the Company’s services associated with Phase 2 development for second-generation products 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 Company concluded that the Amended First Opt-in Election and the Amended Second Opt-in Election options are not considered to be material rights.

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

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

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

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

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

The 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.

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

For revenue recognition purposes, the Company determined that the duration of the Restated Agreement for the identified single initial performance obligation 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.

Final activities related to the PTG-200 Phase 2a trial, PN-235 Phase 1 trial and PN-232 Phase 1 trial are expected to be completed in early 2022.

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 cost reimbursements payable to Janssen.

Variable consideration after the effective date of the Restated Agreement consisted of future milestone payments and cost sharing payments for agreed upon services offset by development cost 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 and are included in the transaction price at the Company’s share of estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third-party contract costs.

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

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

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

The Company determined that the transaction price of the initial performance obligation as of December 31, 2020 includes the $ 50.0 million upfront payment, the $ 25.0 million payment received upon the effectiveness of the First Amendment, the $ 5.0 million payment triggered by the successful nomination of a second-generation compound, $ 17.9 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research and development costs and other services, and estimated variable consideration consisting of a $ 7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound, partially offset by $ 6.8 million of net cost reimbursement to Janssen for services performed.

The transaction price of the initial performance obligation under the Restated Agreement was $ 106.5 million as of December 31, 2021, an increase of $ 7.9 million from the transaction price of $ 98.6 million at December 31, 2020 under the Original Agreement and a decrease of $ 6.4 million from the transaction price of $ 112.9 million at December 31, 2019 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 December 31, 2021 includes $ 87.5 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 $ 8.2 million of development cost reimbursement receivable from Janssen, partially offset by $ 7.1 million of net cost reimbursement due to Janssen for services performed.

The Company evaluated whether the variable component of the transaction price should be constrained to ensure that a significant reversal of revenue recognized on a cumulative basis as of December 31, 2021 is not probable.

The Company concluded that the variable consideration constraint does not further decrease the estimated transaction price as of December 31, 2020.

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

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

revenue is recognized as these services are performed.

The Company concluded that the variable consideration constraint is appropriately reflected in the estimated transaction price as of December 31, 2021, and that the achievement of future milestones is subject to additional development and/or regulatory uncertainty and therefore it is not probable at December 31, 2021 that a material reversal of such revenues would not occur.

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

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

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

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

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

performance obligations.

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

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For the year ended December 31, 2021, the Company recognized $ 27.4 million of license and collaboration revenue.

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

This amount included a cumulative catch-up adjustment increasing license and collaboration revenue by $ 8.0 million, and $ 18.6 million of license and collaboration revenue based on proportional performance following the contract modification for the Restated Agreement.

In addition, the Company recorded $ 0.8 million of revenue related to additional services provided by the Company under the agreement.

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

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

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

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

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

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

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

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

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

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

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

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Receivable from collaboration partner - related party

Contract asset - related party

Contract liabilities:

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Payable to collaboration partner - related party

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

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

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

During the year ended December 31, 2021, the Company recognized revenue of $ 2.8 million from amounts included in the deferred revenue balance at the beginning of the year.

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

During the year ended December 31, 2019, the Company recognized $ 1.6 million from amounts included in the deferred revenue balance at the beginning of the year.

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

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Treasury and agency securities

Supranational and sovereign government securities

Total financial assets

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Total financial assets

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

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

Treasury and agency securities, including U.S.

Treasury bills, are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

Fair Value of Other Financial Instruments

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

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

Treasury bills, and supranational and sovereign government securities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

Cash Equivalents and Marketable Securities

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Treasury and agency securities

Supranational and sovereign government securities

Total cash equivalents and marketable securities

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Marketable securities - current

Marketable securities - noncurrent

Total cash equivalents and marketable securities

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

Marketable securities – current of $ 203.2 million and $ 188.5 million held at December 31, 2021 and 2020, respectively, had contractual maturities of less than one year .

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

The Company did not hold any marketable securities – noncurrent at December 31, 2021.

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

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

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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Total property and equipment

accumulated depreciation and amortization

accumulated depreciation

Property and equipment, net

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As of December 31, 2021, 2020 and 2019, $ 262,000 , $ 46,000 and $ 37,000 , respectively, of property and equipment, net, was located in Australia.

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

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

Accrued Expenses and Other Payables

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Accrued professional service fees

Accrued interest payable

Accrued collaboration payments

Total accrued expenses and other payables

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

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

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

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 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.

For the year ended December 31, 2021, the Company recorded research and development expense of $ 4.0 million under this agreement.

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

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

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

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

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

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

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

Government Programs

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During the year ended December 31, 2019, the Company recognized AUD 1.9 million ($ 1.3 million) of research and development expenses in connection with the research and development tax incentive from the ATO because the Company determined that it had exceeded the annual turnover limit to claim such amounts following the receipt of certain payments under the Janssen License and Collaboration Agreement.

As of December 31, 2020, the research and development tax incentive receivable was AUD 1.4 million ($ 1.1 million).

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

As of December 31, 2021 and 2020, the research and development tax incentive receivable was AUD 3.8 million ($ 2.8 million) and AUD 1.4 million ($ 1.1 million), respectively.

Small Business Innovation Research (“SBIR”) Grants

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

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

2019 and 2018, respectively.

The Company recorded a receivable for $ 0.3 million as of December 31, 2019 to reflect the eligible costs incurred under the grants that were contractually due to the Company.

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

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

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

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

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

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

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

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

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 balances above certain threshold, non-occurrence of material adverse change, non-occurrence of change of control and other customary affirmative and negative covenants.

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

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

The Company recorded $ 0.5 million and $ 1.4 million as a reduction of research and development expenses for the years ended December 31, 2020 and 2019, respectively.

No such amount was recorded during the year ended December 31, 2021.

As of December 31, 2021, the Company has received all grant funds contractually due from NIH for these completed SBIR grants.

Term Loan Facility

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

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 intended to use any proceeds of 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 %.

The Company would make interest-only payments on the Term Loans for 24 months , followed by 24 months of principal and interest payments.

At the Company’s option, the Company 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 limited the Company’s ability and the ability of its subsidiaries to perform certain actions, including obligations to not pay dividends and to maintain unrestricted cash balances above certain threshold, non-occurrence of material adverse change, non-occurrence of change of control and other customary affirmative and negative covenants.

The violation of any provision of covenants 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 its outstanding $ 10.0 million balance on the term loan as well as $ 0.6 million for related prepayment and exit fees.

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

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

As of December 31, 2020, the Company was in compliance with the debt covenants, no event of default occurred and the probability of occurrence of event of default was considered remote.

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

Interest Rate

December 31, 2020

December 31, 2019

Term loan (maturity date October 1, 2023)

Debt issuance costs, net of amortization

Accrued final payment fees

Long-term debt, net

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

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

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

In September 2021, the Company executed a payoff letter to release all obligations under the Term Loan Credit Agreement, ending 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 December 31, 2021.

The Company recognized $ 0.6 million and $ 0.2 million in interest expense related to the Term Loans during the years ended December 31, 2020 and 2019, respectively.

No interest expense related to the Term Loans was recognized during the year ended December 31, 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 laboratory and office space located in Newark, California.

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

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

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

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

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

Operating Lease Term and Discount Rate:

Weighted-average remaining lease term

Weighted-average discount rate

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

Year Ending December 31:

Total future minimum lease payments

imputed interest

Present value of future minimum lease payments

current portion of operating lease liability

Operating lease liability - noncurrent

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

Year Ended December 31,

Operating lease cost

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

As of December 31,

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

On July 2, 2021, the Company entered into an amendment (the “Second Amendment”) to its original facility lease agreement for 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 December 31, 2021.

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

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

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

Under the terms of the lease, as amended, the Company is responsible for its proportional share of operating expenses and tax obligations.

Balance sheet information related to operating leases is as follows for the periods presented (in thousands):

Operating Leases:

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Total operating lease liabilities

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

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

Year Ended December 31,

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

Operating lease cost

Sublease income

Total lease expense

Supplemental cash flow information is as follows for the periods presented (in thousands):

Year Ended December 31,

Operating cash flow used by operating leases

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

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

New operating lease asset obtained in exchange for operating lease liability

Future lease payments required under lease obligations as of December 31, 2021 are as follows (in thousands):

Year Ending December 31:

Total future minimum lease payments

imputed interest

Present value of lease liabilities

Commitments and Contingencies

Contract Service Providers

In the normal course of business, the Company enters into agreements with contract service providers to assist in the performance of its R&D and clinical and commercial manufacturing activities.

Subject to required notice periods and the Company’s obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time.

The Company expects to enter into additional clinical development, contract research, clinical and commercial manufacturing, supplier and collaborative research agreements in the future, which may require upfront payments and long-term commitments of capital resources.

Indemnification Agreements

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.

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

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

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

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

The arbitration is pending.

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

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

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

Although the Company cannot predict with certainty the ultimate outcome of these arbitration proceedings, it has concluded that the probability of any related loss is remote and therefore no related accruals were recognized as of December 31, 2020.

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 research and development project;

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

As a result, no accruals related to legal proceedings were recognized as of December 31, 2021.

Stockholders’ Equity

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During the year ended December 31, 2019, prior to the termination of the 2017 Sales Agreement, the Company sold 2,846,641 shares of its common stock for net proceeds of $ 34.5 million, after deducting issuance costs.

The Company sold 151,273 shares of its common stock pursuant to the 2017 Sales Agreement during the year ended December 31, 2018 for net proceeds of $ 1.5 million, after deducting issuance costs.

The 2017 Form S-3 expired in October 2020.

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The Exchange Warrants will expire ten years from the date of issuance.

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

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.

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333-234414) that was declared effective as of November 22, 2019 and permits the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 250.0 million of its common stock, preferred stock, debt securities and warrants (the “2019 Form S-3”).

Up to a maximum of $ 75.0 million of the maximum aggregate offering price of $ 250.0 million may be issued and sold pursuant to an ATM financing facility under a sales agreement entered into by the Company on November 27,

2019 (the “2019 Sales Agreement”).

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

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As of December 31, 2021, a total of $ 94.2 million of common stock remained available for sale under the 2019 Form S-3, $ 31.9 million of which remained available for sale under the ATM financing facility.

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

The 2019 Form S-3 expires in October 2022.

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

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

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

In June 2021, pursuant to the Form S-3ASR (File No.

33-251254), the Company completed an underwritten public offering of 3,046,358 shares of its common stock at a public offering price of $ 37.75 per share and issued an additional 456,953 shares of common stock at a price of $ 37.75 per share following the underwriters’ exercise of their option to purchase additional shares.

Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were $ 123.8 million.

The Form S-3ASR expires in December 2023.

Equity Incentive Plan

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

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

NSOs were granted to Company employees and consultants.

ISOs were granted only to Company employees.

NSOs were granted to Company employees, non-employee board directors and consultants.

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

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Options granted under the 2007 Plan that were outstanding on the date the 2016 Plan became effective remain subject to the terms of the 2007 Plan.

The number of options available for grant under the 2007 Plan was ceased and the number was added to the common stock reserved for issuance under the 2016 Plan.

number of options available for grant under the 2007 Plan was ceased and the number was added to the common stock reserved for issuance under the 2016 Plan.

As of December 31, 2021, approximately 564,189 shares of common stock were available for issuance under the 2016 Plan.

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Inducement Plan

In May 2018, the Company’s board of directors approved the 2018 Inducement Plan, a non-stockholder approved stock plan, under which it reserved and authorized 750,000 shares of the Company’s common stock in order to award

options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

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

The 2018 Inducement Plan is a non-stockholder approved stock plan, under which it reserved and authorized 750,000 shares of the Company’s common stock in order to award options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

The 2018 Inducement Plan is administered by the board of directors or the Compensation Committee of the board, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule.

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Stock Options

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

Stock option activity under the Company’s equity incentive and inducement plans is set forth below:

(in millions)

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During the years ended December 31, 2021, 2020 and 2019, the estimated weighted-average grant-date fair value of common stock underlying options granted was $ 21.94 , $ 7.76 and $ 5.45 per share, respectively.

Stock Options Valuation

The fair value of stock option awards accounted for under ASC 718 was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

For the years ended December 31, 2021, 2020 and 2019, the aggregate fair value of stock options that vested during the year was $ 11.3 million, $ 7.1 million and $ 7.3 million, respectively.

Stock Options Valuation Assumptions

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

Year Ended December 31,

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

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

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

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

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

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

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

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

Restricted stock unit awards granted to certain executives in 2021 vest 100 % on the third anniversary of the grant date.

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

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

Unvested at December 31, 2019

Unvested at December 31, 2020

Unvested RSUs at December 31, 2020

Unvested RSUs at December 31, 2021

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

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

For the years ended December 31, 2021, 2020 and 2019, the aggregate fair value of restricted stock units that vested during the year was $ 0.8 million, $ 1.2 million and $ 1.8 million, respectively.

Performance Stock Units

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

Unvested PSUs at December 31, 2020

Unvested PSUs at December 31, 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.

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

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

The total fair value of outstanding PSUs as of December 31, 2021 was $ 2.5 million.

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

Employee Stock Purchase Plan

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

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

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

compensation.

Pursuant to the “evergreen” provision contained in the 2016 ESPP, the number of shares reserved for issuance automatically increases on January 1 of

each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026 by the lesser of (i) 1 % of the total number of shares of common stock outstanding on December 31 of the preceding fiscal year (ii) 300,000 shares, or (iii) such other number of shares determined by the board of directors.

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

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

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

As of December 31, 2020, 757,647 shares are available for issuance.

During the year ended December 31, 2021, a total of 43,648 shares were issued under the 2016 ESPP, and 1,013,999 shares remain available for issuance as of December 31, 2021.

The fair value of the rights granted under the 2016 ESPP was calculated using the Black-Scholes option-pricing model with the following assumptions:

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1.89 % - 2.32 %

Dividend yield

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Total stock-based compensation expense

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

As of December 31, 2021, total unrecognized stock-based compensation expense was approximately $ 46.3 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

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

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

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

The Company may make contributions to this plan at its discretion.

For the year ended December 31, 2021, the Company matched 50 % of each employee’s contribution up to a maximum of $ 3,500 , resulting in recognized expense of approximately $ 0.3 million relating to these contributions.

No matching contributions were made to the plan by the Company for the years ended December 31, 2020 and 2019.

No income tax expense was recorded by the Company for the year ended December 31, 2021.

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

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

Income tax expense for the year ended December 31, 2020 reflects this sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset, establishing a valuation allowance and certain uncertain unrecognized tax benefits.

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

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

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

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

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

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

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

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Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain.

The Company has established a valuation allowance to offset U.S.

The Company established a valuation allowance to offset U.S.

deferred tax assets as of December 31, 2021, 2020 and 2019 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.

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

The Company also established a valuation allowance to offset Australian deferred tax assets as of December 31, 2021.

The valuation allowance increased by approximately $ 32.0 million, $ 19.4 million and $ 18.5 million during the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

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

Subsequent ownership changes may affect the limitation in future years.

At December 31, 2021, the Company had $ 347.7 million of federal net operating loss carryforwards and $ 336.2 million of state net operating loss carryforwards.

$ 78.7 million of the federal net operating loss carryforwards will begin to expire in 2033, if not utilized, and the remaining $ 144.1 million have no expiration.

$ 78.7 million of the federal net operating loss carryforwards will begin to expire in 2033, if not utilized, and the remaining $ 269.0 million have no expiration date.

The state net operating loss carryforwards will begin to expire in 2035, if not utilized.

At December 31, 2020, the Company also had accumulated Australian tax losses of AUD 3.7 million ($ 2.8 million) available for carry forward against future earnings which, under relevant tax laws, do not expire but may be limited under certain circumstances.

At December 31, 2021, the Company also had fully utilized the remaining Australian tax losses of AUD 3.1 million ($ 2.3 million) carryforward.

As of December 31, 2021, the Company had $ 19.2 million of federal and $ 7.9 million of state research and development tax credit carryforwards available to reduce future income taxes.

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Management determined that no accrual for interest or penalties was required as of December 31, 2021, 2020 and 2019.

The Company files income tax returns in the United States federal jurisdiction, the State of California and Australia.

The Company files income tax returns in the United States federal jurisdiction, the State of California, the state of Florida, and Australia.

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

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

2020 Tax Law Updates

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

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

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

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

The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic.

The Company evaluated the impact of the CARES Act and determined that there is no material impact to the for the year ended December 31, 2020.

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

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

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

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

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

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

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

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

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

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

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

Net Loss per Share

As the Company had a net loss for the years ended December 31, 2020, 2019 and 2018, all potential common shares were determined to be anti-dilutive.

As the Company had a net loss for the years ended December 31, 2021, 2020 and 2019, all potential weighted average 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):

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

Net loss per shares, basic and diluted

The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per share calculations for the years ended December 31, 2020, 2019 and 2018 because their inclusion would be anti-dilutive:

Year Ended December 31,

Net loss per share, basic and diluted

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

Options to purchase common stock

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Restricted stock units

Performance stock units

Restructuring

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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 Event

The Company sold 422,367 shares of its common stock under its ATM financing facility pursuant to the 2019 Sales Agreement during the period from January 1, 2022 through the date of issuance of this Annual Report on Form 10-K.

Net proceeds were $ 14.6 million, after deducting issuance costs.

As of the date of issuance of this Annual Report on Form 10-K, a total of $ 79.3 million of common stock remained available for sale under the 2019 Form S-3, $ 17.0 million of which remained available for sale under the ATM financing facility.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data