What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-03 · 154 added, 410 removed, 375 unchanged (60% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Marketable securities

Restricted cash - current

Receivable from collaboration partner and contract asset - related party

2 unchanged sentences

Total current assets

Marketable securities - noncurrent

Property and equipment, net

10 unchanged sentences

Operating lease liability - noncurrent

Other liabilities

Total liabilities

3 unchanged sentences

no shares issued and outstanding

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

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

Common stock, $ 0.00001 par value, 90,000,000 shares authorized 48,552,102 and 47,838,330 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Accumulated other comprehensive (loss) gain

Accumulated other comprehensive loss

Accumulated deficit

5 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

License and collaboration revenue - related party

5 unchanged sentences

Interest income

Interest expense

Loss on early repayment of debt

Other expense, net

Loss before income tax expense

Income tax expense

Other income (expense), net

Net loss per share, basic and diluted

4 unchanged sentences

(In thousands)

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Gain (loss) on translation of foreign operations

Unrealized loss on marketable securities

6 unchanged sentences

Stockholders’

Three months ended September 30, 2021

Balance at June 30, 2021

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

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

Stock-based compensation expense

Other comprehensive loss

Balance at September 30, 2021

Comprehensive

Stockholders'

Three months ended September 30, 2020

Balance at June 30, 2020

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

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

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

Stock-based compensation expense

Other comprehensive gain

Balance at September 30, 2020

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

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

Comprehensive

Stockholders'

Nine months ended September 30, 2021

Three months ended March 31, 2022

Balance at December 31, 2021

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

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

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

2 unchanged sentences

Other comprehensive loss

Balance at September 30, 2021

Balance at March 31, 2022

Comprehensive

Stockholders’

Nine months ended September 30, 2020

Three months ended March 31, 2021

Balance at December 31, 2020

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

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

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

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

Stock-based compensation expense

Other comprehensive gain

Balance at September 30, 2020

Other comprehensive loss

Balance at March 31, 2021

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

2 unchanged sentences

Operating lease right-of-use asset amortization

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

Loss on early repayment of debt

Amortization of debt issuance costs and accretion of debt discount

Change in deferred tax asset

Net amortization of premium on marketable securities

Changes in operating assets and liabilities:

7 unchanged sentences

Operating lease liability

Other liabilities

Net cash used in operating activities

5 unchanged sentences

Cash Flows from Financing Activities

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

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

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

Tax withholding payments related to net settlement of restricted stock units

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

Issuance costs related to long-term debt

Early repayment of long-term debt

Issuance costs related to prior common stock offering

Net cash provided by financing activities

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

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

3 unchanged sentences

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

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

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

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

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

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

4 unchanged sentences

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

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

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

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

The Company manages its operations as a single operating segment.

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

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

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

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.

As of March 31, 2022, the Company had cash, cash equivalents and marketable securities of $ 305.3 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 430.3 million as of March 31, 2022.

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

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

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

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

Risks and Uncertainties

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

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

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

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

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

Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole.

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 impact of the COVID-19 pandemic on the Company's activities depends 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 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.

and new or continuing travel and other restrictions and public health measures.

The Company has experienced delays in its existing and planned clinical trials due to the worldwide impacts of the pandemic.

The Company's future results of operations and liquidity could be adversely impacted by further delays in existing and planned clinical trials, 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.

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, and the ongoing impact on its operating activities and employees.

The extent of the impact of the COVID-19 pandemic remains difficult to predict as this event is ongoing and information continues to evolve.

Capital markets and economies worldwide have been negatively impacted and may be further impacted in the future.

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

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

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

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

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

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other interim period or for any other future year.

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

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

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 28, 2022.

Principles of Consolidation

6 unchanged sentences

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

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

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

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

The Company has taken into consideration any known 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 report.

These estimates may change as new events occur and additional information is obtained.

Actual results could differ materially from these estimates under different assumptions or conditions.

Concentrations of Credit Risk

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.

Such financial instruments regularly exceed federally insured limits.

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

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 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, highly rated corporate debt obligations and money market funds, and highly rated supranational and sovereign government securities.

Cash Equivalents

Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value.

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

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

The letter of credit balance decreased from $ 0.5 million at December 31, 2020 to $ 0.2 million at September 30, 2021 pursuant to the terms of the Company’s May 2017 facility lease.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

1 unchanged sentence

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

September 30,

Cash and cash equivalents

Restricted cash - current

Restricted cash - noncurrent

Total cash reported on condensed consolidated statements of cash flows

Marketable Securities

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities.

Management determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date.

Short-term marketable securities have maturities greater than three months but no longer than 365 days as of the balance sheet date.

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

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

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

The cost of securities sold is based on the specific-identification method.

Interest on marketable securities is included in interest income.

Revenue Recognition

Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that

reflects the consideration which the Company expects to receive in exchange for those goods or services.

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

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

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

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

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

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

Licenses of intellectual property:

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, upfront fees.

The Company evaluates the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone payments:

At the inception of each arrangement or amendment that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price.

ASC 606 suggests two alternatives to use when estimating the amount of variable consideration:

the expected value method and the most likely amount method.

Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts.

Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts.

Whichever method is used, it should be consistently applied throughout the life of the contract;

however, it is not necessary for the Company to use the same approach for all contracts.

The Company expects to use the most likely amount method for development and regulatory milestone payments.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

If there is more than one performance obligation, the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis.

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.

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

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).

Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements.

Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Amounts payable to the Company and not yet billed to the collaboration partner are recorded as contract assets.

The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Contractual cost sharing payments made to a customer or collaboration partner are accounted for as a reduction to the transaction price if such payments are not related to distinct goods or services received from the customer or collaboration partner.

Contracts may be amended to account for changes in contract specifications and requirements.

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

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

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

The Company accounts for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification.

In such case the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

The period between when the Company transfers control of promised goods or services and when the Company receives payment is expected to be one year or less, and that expectation is consistent with the Company’s historical experience.

Upfront payment contract liabilities resulting from the Company’s license and collaboration agreements do not represent a financing component as the payment is not financing the transfer of goods and services, and the technology underlying the licenses granted reflects research and development expenses already incurred by the Company.

As such, the Company does not adjust its revenues for the effects of a significant financing component .

Research and Development Costs

Research and development costs are expensed as incurred unless there is an alternate future use in other research and development projects or otherwise.

Research and development costs include salaries and benefits, stock-based compensation expense, laboratory supplies and facility-related overhead, outside contracted services including clinical trial costs, manufacturing and process development costs for both clinical and pre-clinical materials, research costs, development milestone payments under license and collaboration agreements, and other consulting services.

The Company accrues for 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.

The Company records the estimated costs of research and development activities based upon the estimated services provided but not yet invoiced and includes these costs in accrued expenses and other payables in the condensed consolidated balance sheets and within research and development expense in the condensed consolidated statements of operations.

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.

As actual costs become known, the Company adjusts its accrued liabilities.

The Company has not experienced any material differences between accrued liabilities and actual costs incurred.

However, the status and timing of actual services performed, number of patients enrolled, the rate of patient enrollment and number of locations of sites activated may vary from the Company’s estimates, resulting in adjustments to expense in future periods.

Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

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

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

federal income tax credit on qualifying clinical study expenditures.

Research and Development Tax Incentive

The Company is eligible under the AusIndustry research and development tax incentive program to obtain either a refundable cash tax incentive or a taxable credit in the form of a non-cash tax incentive from the Australian Taxation Office (“ATO”).

The refundable cash tax incentive is available to the Company on the basis of specific criteria with which the Company must comply.

Specifically, the Company must have annual turnover of less than AUD 20.0 million and cannot be controlled by income tax exempt entities.

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

The Company evaluates its eligibility under tax incentive programs as of each balance sheet date and makes accrual and related adjustments based on the most current and relevant data available.

Stock-based Compensation Expense

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

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

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

Net Loss per Share

Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares of common stock and Exchange Warrants outstanding during the period, without consideration of potentially dilutive securities.

In accordance with Accounting Standards Codification Topic 260, Earnings Per Share , the Exchange Warrants are included in the computation of basic net loss per share because the exercise price is negligible, and they are fully vested and exercisable after the original issuance date.

Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company in each period.

Stockholder’s Equity for additional information regarding the Exchange Warrants.

Recently Adopted Accounting Pronouncements

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 condensed consolidated financial statements and disclosures.

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

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2022 as compared to those disclosed in Note 2.

Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Recently Issued Accounting Pronouncements Not Yet Adopted as of March 31, 2022

In June 2016, the FASB issued ASU No.

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2016-13 for smaller reporting companies.

Based on the Company’s status as a smaller reporting company as of November 15, 2019, ASU 2016-13 is

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

Based on the Company’s status as a smaller reporting company as of November 15, 2019, ASU 2016-13 is effective for the Company for fiscal years and interim periods beginning after December 15, 2022.

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

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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.

In March 2022, the Company became eligible to receive a $ 25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound.

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

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

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

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

Janssen is primarily responsible for the conduct of the PTG-200 Phase 2a trial and the Company is primarily responsible for the conduct of the PN-232 and PN-235 Phase 1 studies.

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

PTG-200 is an oral IL-23 receptor antagonist 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 trials.

Pursuant to the Restated Agreement, the parties have:

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

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

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

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

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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;

(a) up to $ 20.0 million of costs related to up to three Phase 1 trials 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);

and (c) up to $ 25.0 million in costs related to up to two Phase 2 trials evaluating second-generation compounds.

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

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

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

ongoing Phase 1 study evaluating PN-235 incurred through January 4, 2021;

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

(a) the Company’s previous $ 25.0 million obligation for 20 % of costs related to Phase 2 studies for second-generation products has been eliminated;

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

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

(a) the Company funded 20 % of the costs related to the Phase 2a trial 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 ongoing Phase 1 trial evaluating PN-235 incurred through January 4, 2021;

and (c) the Company was responsible for 100 % of agreed-upon costs related to the Phase 1 trial evaluating PN-232.

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 trials 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 trial evaluating a second-generation compound was eliminated;

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

otherwise, the 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:

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Upcoming potential development milestones for second-generation compounds include:

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

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

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

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

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

● $ 10.0 million for dosing of the third 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 third patient in a Phase 3 clinical trial for a second-generation compound for any indication;

● $ 15.0 million for dosing of the third 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.

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

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

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.

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

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

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

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

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

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

For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and will end 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 these trials are expected to be completed in 2022.

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

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

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

The transaction price of the initial performance obligation under the Restated Agreement was $ 131.5 million as of March 31, 2022, an increase of $ 25.0 million from the transaction price of $ 106.5 million as of December 31, 2021.

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

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

The Company evaluated whether the variable component of the transaction price should be constrained to ensure that a significant reversal of revenue recognized on a cumulative basis as of September 30, 2021 is not probable.

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

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

The transaction price as of March 31, 2022 includes $ 87.5 million of nonrefundable payments received to date, the $ 25.0 million milestone payment receivable following dosing of the third patient in the Phase 2b clinical trial of PN-235, $ 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 concluded that the variable consideration constraint is appropriately reflected in the estimated transaction as of March 31, 2022, and that the achievement of future milestones is subject to additional development and/or regulatory uncertainty and therefore it is not probable at March 31, 2022 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 for these additional services is recognized as these services are performed.

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

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

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

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

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

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

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

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

For the three months ended March 31, 2022 and 2021, the Company recognized license and collaboration revenue of $ 25.7 million and $ 5.6 million, respectively, which was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

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

No such revenue related to additional services provided by the Company was recognized for the three months ended March 31, 2022.

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

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Contract assets:

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Payable to collaboration partner - related party

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Contract assets:

Receivable from collaboration partner - related party

Contract asset - related party

Contract liabilities:

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Payable to collaboration partner - related party

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

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

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

During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $ 13,000 and $ 1.1 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

Fair Value Measurements

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

September 30, 2021

March 31, 2022

Money market funds

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Supranational and sovereign government securities

Total financial assets

Total financial assets carried at fair value

December 31, 2021

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Treasury and agency securities

Total financial assets

The Company’s commercial paper, U.S.

Treasury and agency securities, corporate debt securities, U.S.

Supranational and sovereign government securities

Total financial assets carried at fair value

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

Treasury and agency securities, including U.S.

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

The carrying amount of our remaining financial assets and liabilities, including cash, receivables and payables, approximates their fair value due to their short-term nature.

Cash Equivalents and Marketable Securities

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

September 30, 2021

March 31, 2022

Gross Unrealized

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Marketable securities - current

Marketable securities - noncurrent

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

Marketable securities – noncurrent of $ 38.2 million and $ 2.0 million held at September 30, 2021 and December 31, 2020 had contractual maturities of at least one year but less than two years .

Marketable securities – current of $ 206.8 million and $ 203.2 million held at March 31, 2022 and December 31, 2021, respectively, had contractual maturities of less than one year .

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.

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Factors considered in determining whether a loss is temporary include the length of time and extent to which the fair value has been less than the amortized cost basis and whether the Company intends to sell the security or whether it is more likely than not that the Company would be required to sell the security before recovery of the amortized cost basis.

Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

Prepaid clinical and research related expenses

Prepaid insurance

Other prepaid expenses

Other receivable

Prepaid expenses and other current assets

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

Laboratory equipment

Furniture and computer equipment

Leasehold improvements

Total property and equipment

accumulated depreciation

Property and equipment, net

Accrued Expenses and Other Payables

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

September 30,

Accrued clinical and research related expenses

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

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

arbitration proceeding in January 2020.

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.

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

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

Government Programs

Milestone payments to collaboration partners are recorded as research and development expense in the period that the expense is incurred.

No research and development expense was recorded under the Zealand collaboration agreement for the three months ended March 31, 2022 or March 31, 2021.

Research and Development Tax Incentive

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

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

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

Small Business Innovation Research (“SBIR”) Grants

The Company has received SBIR grants from the National Institutes of Health (“NIH”) in support of research aimed at its product candidates.

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

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

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

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

The Company records a receivable to reflect the eligible costs incurred under the grants that are contractually due to the Company.

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

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

Term Loan Facility

On October 30, 2019, the Company entered into a Credit and Security Agreement, dated as of October 30, 2019 (the “Closing Date”) by and among the Company, MidCap Financial Trust, as a lender, Silicon Valley Bank, as a lender, the other lenders party thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”) (such agreement, the “Term Loan Credit Agreement”), which 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 used proceeds from drawdowns on the Term Loans for general corporate purposes.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

September 30,

Operating Leases:

Operating lease right-of-use asset

Operating lease liability - current

Operating lease liability - noncurrent

Total operating lease liabilities

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

Nine Months Ended September 30,

Operating lease cost

sublease income

Total lease expense

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

Nine Months Ended September 30,

Operating cash flow used by operating leases

New operating lease asset obtained in exchange for operating lease liability

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

Year Ending December 31:

Remainder of 2021

Total future minimum lease payments

imputed interest

Present value of lease liabilities

The Company did no t recognize any research and development cash tax incentive from Australian Tax Office (“ATO”) during the three months ended March 31, 2022.

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

As of March 31, 2022 and December 31, 2021, the research and development cash tax incentive receivable was AUD 3.8 million ($ 2.9 million) and AUD 3.8 million ($ 2.8 million), respectively.

Commitments and Contingencies

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If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, it discloses the possible loss.

On January 23, 2020, the Company initiated arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce against Zealand related to a collaboration agreement the Company and

Zealand entered into in 2012 and terminated in 2014.

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.

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):

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 were 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 %;

(3) the royalty rates payable by the Company on net sales of rusfertide were reduced by 50 %;

(4) all sales milestone payments on net sales of rusfertide were 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.

and (6) the parties 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.

2 unchanged sentences

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

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

As a result, no related legal accruals were recognized as of March 31, 2022.

Stockholders’ Equity

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

As of September 30, 2021, none of the Warrants have been exercised.

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

As of March 31, 2022, none of the Warrants have been exercised.

reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $ 0.00001 per share.

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.

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.

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

The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants.

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

As of March 31, 2022, 400,000 of the Exchange Warrants remain unexercised.

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

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.

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

As of September 30, 2021, a total of $ 94.2 million of common stock remained available for sale under the 2019 Form S-3, $ 31.9 million of which remained available for sale under the ATM financing facility.

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

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

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

In June 2021, pursuant to Registration Statement No.

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

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 at-the market (“ATM”) financing facility under a sales agreement entered into by the Company on November 27, 2019 (the “2019 Sales Agreement”).

In January 2022, the Company sold 422,367 shares of its common stock under its ATM financing facility pursuant to the 2019 Sales Agreement for net proceeds of $ 14.6 million, after deducting issuance costs.

As of March 31, 2022, a total of $ 79.3 million of securities remained available for sale under the 2019 Form S-3, $ 17.0 million of which remained available for sale under the ATM financing facility.

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.

In June 2021, pursuant to this Form S-3ASR, the Company completed an underwritten public offering of 3,046,358 shares of its common stock at a public offering price of $ 37.75 per share and issued an additional 456,953 shares of common stock at a price of $ 37.75 per share following the underwriters’ exercise of their option to purchase additional shares.

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

4 unchanged sentences

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

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

As of March 31, 2022, 1,095,340 shares were available for issuance under the 2016 Plan.

Inducement Plan

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

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

As of March 31, 2022, 743,125 shares were available for issuance under the Amended and Restated 2018 Inducement Plan.

Stock Options

5 unchanged sentences

Options forfeited

Balances at September 30, 2021

Options exercisable – September 30, 2021

Options vested and expected to vest – September 30, 2021

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on September 30, 2021.

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

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

Balances at March 31, 2022

Options exercisable – March 31, 2022

Options vested and expected to vest – March 31, 2022

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on March 31, 2022.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2022.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the three months ended March 31, 2022 was $ 22.56 per share.

Stock Options Valuation Assumptions

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Expected term (in years)

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89.8 % - 90.2 %

87.4 % - 90.2 %

72.1 % - 85.1 %

Risk-free interest rate

1 unchanged sentence

0.11 % - 0.97 %

0.11 % - 1.16 %

0.23 % - 1.44 %

Dividend yield

2 unchanged sentences

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

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

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

Expected Volatility —For the year ended December 31, 2021, the Company’s expected volatility was estimated based upon a mix of 50 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 50 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

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

Beginning January 1, 2022, the Company’s expected volatility is estimated based upon a mix of 25 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 75 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

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Unvested RSUs at December 31, 2021

Unvested RSUs at September 30, 2021

Unvested RSUs at March 31, 2022

Performance Stock Units

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

Performance stock unit (“PSU”) activity under the Company’s equity incentive plans is set forth below:

Unvested PSUs at December 31, 2021

Unvested PSUs at September 30, 2021

During the first quarter of 2021, the Company granted 110,500 PSUs to certain executives of the Company pursuant to the terms of the 2016 Plan.

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

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

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

Unvested PSUs at March 31, 2022

The terms of the unvested 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 on February 28, 2026 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.

1 unchanged sentence

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 the PSUs granted in February 2021 was $ 2.6 million.

As of September 30, 2021, the achievement of the related performance objective was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of September 30, 2021.

The total fair value of outstanding PSUs as of March 31, 2022 was $ 2.5 million.

As of March 31, 2022, the achievement of the related performance objective was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of March 31, 2022.

Employee Stock Purchase Plan

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

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

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

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

During the three months ended March 31, 2022, a total of 28,931 shares of common stock were issued under the 2016 ESPP, and 1,285,068 shares remain available for issuance as of March 31, 2022.

Stock-Based Compensation

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Research and development

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Total stock-based compensation expense

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

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

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

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

For the three and nine months ended September 30, 2021, the Company plans to match 50 % of each employee’s contribution up to a maximum of $ 3,500 , and recognized expense of approximately $ 0.1 million and $ 0.3 million, respectively, relating to these contributions.

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

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

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

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

entity, and the U.S.

entity reimbursed the Australia subsidiary for certain direct development costs.

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

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

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

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

As of March 31, 2022, total unrecognized stock-based compensation expense was approximately $ 73.6 million, which the Company expects to recognize over a weighted-average period of approximately 2.9 years.

Net Loss per Share

As the Company had net losses for the three and nine months ended September 30, 2021 and 2020, all potential dilutive common shares were determined to be anti-dilutive.

As the Company had net losses for the three months ended March 31, 2022 and 2021, 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):

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

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

1 unchanged sentence

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:

Nine Months Ended

September 30,

Options to purchase common stock

2 unchanged sentences

Performance stock units

Restructuring

On May 7, 2020, the Company approved a limited reduction in force plan affecting approximately 12 % of the Company’s employee base and informed the affected employees.

The reduction-in-force plan was completed by the end of the second quarter of 2020.

Total cash expenditures for the reduction in force plan were $ 0.3 million, substantially all of which were related to employee severance and benefits costs.

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

What changed 10-Q

Item 1. Financial Statements