What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-03 · 128 added, 269 removed, 159 unchanged (71% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 10, 2021.

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.

Forward-Looking Statements

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in the United States and other jurisdictions.

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

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

Our clinical programs fall into two broad categories of diseases;

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Rusfertide mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability.

We initiated Phase 2 proof of concept (“POC”) studies in the blood disorders polycythemia vera (“PV”) in the third quarter of 2019 and hereditary hemochromatosis (“HH”) in January 2020.

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

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

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

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

On September 16, 2021, the FDA orally informed us that a clinical hold would be placed on our rusfertide clinical studies.

We received formal written notice of the clinical hold on September 17, 2021.

We initiated REVIVE, a Phase 2 proof of concept (“POC”) trial in the blood disorder polycythemia vera (“PV”), in the third quarter of 2019.

We completed enrollment of patients in the ongoing REVIVE Phase 2 clinical trial of rusfertide in PV in the first quarter of 2022 with a target of approximately 50 patients to be enrolled through the end of the randomization portion of the trial.

We initiated a Phase 2 POC trial in hereditary hemochromatosis (“HH”) in January 2020, which was completed during the fourth quarter of 2021.

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

Data from these trials presented at medical conferences in 2021 provided evidence regarding the potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency symptoms.

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

On September 16, 2021, the U.S.

Food and Drug Administration (“FDA”) placed a clinical hold on our rusfertide clinical trials following our submission to the FDA of findings in a 26-week rasH2 transgenic mouse carcinogenicity study.

In October 2021, we submitted a Complete Response to the FDA related to the clinical hold, and the FDA removed the clinical hold on October 8, 2021.

The clinical hold was imposed following our submission to the FDA of findings in a 26-week rasH2 transgenic mouse carcinogenicity study.

In the rasH2 study, benign squamous cell papilloma were observed in six of 75 male mice and six of 75 female mice treated with doses of rusfertide ranging from 6.25 mg/kg to 25 mg/kg.

Malignant squamous cell carcinoma was also observed in one male mouse and one female mouse.

There were no findings in either the male or female control group.

The rasH2 finding prompted a re-examination of the four cases of cancer observed across all rusfertide clinical trials (involving 160 patients) through the date of the submission of the Complete Response.

All cases were initially assessed as unrelated to rusfertide treatment.

Upon re-examination in light of the rasH2 finding, two of the cases were re-classified as possibly related to rusfertide.

No additional cancer cases, and no other unexpected safety signals, surfaced in this process.

In our Complete Response, we provided the individual patient clinical safety reports the FDA requested for human cancers observed in rusfertide clinical trials, updated the investigator brochure and patient informed consent forms for ongoing rusfertide trials, proposed new safety and stopping rules in clinical study protocols of our ongoing rusfertide clinical trials, and performed a comprehensive review of our rusfertide safety database.

Dosing of patients in ongoing clinical trials with rusfertide is expected to resume in the fourth quarter of 2021.

We completed enrollment of 63 patients in the ongoing Phase 2 clinical trial of rusfertide in PV during the second quarter of 2021.

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

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

In addition, we completed enrollment for our Phase 2 POC study in HH, our second indication, in April 2021.

A n abstract highlighting preliminary data our Phase 2 study of rusfertide in HH has been selected for oral presentation at The Liver Meeting® 2021, hosted by the American Association for the Study of Liver Diseases (AASLD), taking place virtually in November 2021.

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

● The FDA granted orphan drug designation for rusfertide for the treatment of PV in June 2020;

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

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

In our Complete Response, we provided the individual patient clinical safety reports the FDA requested for human cancers observed in rusfertide clinical trials, updated the investigator brochure and patient informed consent forms for ongoing rusfertide trials, proposed new safety and stopping rules in trial protocols for our ongoing rusfertide clinical trials, and performed a comprehensive review of our rusfertide safety database.

Dosing of patients and enrollment in ongoing clinical trials with rusfertide resumed in the fourth quarter of 2021.

Based on ongoing end of Phase 2 feedback provided by the FDA’s Division of Nonmalignant Hematology and written comments from the European Medicines Agency (“EMA”), we activated sites and initiated patient screening for VERIFY, a global Phase 3 clinical trial of rusfertide in PV, in the first quarter of 2022.

Patient enrollment in VERIFY is expected to be completed in the first half of 2023.

The FDA granted orphan drug designation for rusfertide for the treatment of PV in June 2020, and Fast Track designation for rusfertide for the treatment of PV in December 2020.

The EMA granted orphan drug designation for rusfertide for treatment of PV in October 2020.

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

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

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

In April 2022, we received a letter from the FDA indicating the FDA’s intent to rescind Breakthrough Therapy Designation for rusfertide in PV.

We submitted a meeting request to the FDA, along with a briefing document articulating why we believe rusfertide continues to warrant Breakthrough Therapy Designation.

The FDA letter does not relate to the rusfertide Fast Track Designation, which remains active.

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

Our orally stable peptide approach may offer a targeted therapeutic approach for GI and systemic compartments as needed.

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

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Investigational New Drug application with the FDA for PN-943 in December 2019, which took effect in January 2020.

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

This study includes a 12-week induction period and a 40-week open label extension.

Topline data from the 12-week induction period is expected in the second quarter of 2022.

During the second quarter of 2020 we initiated IDEAL, a 159 patient Phase 2 trial evaluating the safety, tolerability and efficacy of PN-943 in patients with moderate to severe UC.

This trial includes a 12-week induction period and a 40-week extended treatment period.

Enrollment in IDEAL was completed during the first quarter of 2022.

Patients were randomized to either twice daily (“BID”) with 150 mg or 450 mg PN-943, or placebo, for 12 weeks and analyzed for outcome measures.

Topline data from the 12-week induction period reported in April 2022 demonstrated that while the higher 450 mg BID dose arm did not meet the prespecified primary endpoint, the lower 150 mg BID dose arm achieved 27.5% clinical remission with a delta of 13% versus placebo, with strong concordance across several key proxies including histological and endoscopic endpoints for efficacy.

Consistent with the goals of a Phase 2 study and based on the safety and efficacy data from the 150 mg BID arm, IDEAL achieved clinical POC and validation for an oral, gut-restricted approach for UC via blockade of the α4β7 pathway.

We are currently finalizing the study design for a registrational Phase 3 trial anchored around the 150 mg BID dose of PN-943, pending regulatory guidance.

We intend to pursue further clinical development in collaboration with a large pharmaceutical partner or through a structured financing arrangement.

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

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

PTG-200 was an investigational, orally delivered, IL-23R antagonist for the treatment of IBD.

(“Janssen”), a Johnson & Johnson company, to co-develop and co-detail our IL-23R antagonist compounds, including PTG-200 (JNJ-67864238) and certain related compounds for all indications, including IBD.

PTG-200 was a first-generation investigational, orally delivered, IL-23R antagonist for the treatment of IBD.

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

and in July 2021 to, among other things, enable Janssen to develop collaboration compounds for multiple indications and further align our financial interests around potential multiple compound development for multiple indications in the IL-23 pathway.

Following a pre-specified interim analysis criteria, a portfolio decision was made to stop further development of first generation IL-23R antagonist candidate PTG-200 (JNJ-67864238), in favor of continued development of two second-generation candidates PN-235 (JNJ-77242113) and PN-232 (JNJ-75105186) with superior product profiles.

In particular:

● The Phase 1 study of PN-235 is completed, and a Phase 2 study in psoriasis is anticipated to initiate in early 2022.

● The Phase 1 study with PN-232 is under progress with study completion expected by mid-2022.

● Additional development in IBD is expected to initiate in 2022.

In October 2021, we became eligible to receive a $7.5 million milestone payment from Janssen triggered by the completion of data collection for PN-235 Phase 1 activities.

We will earn a $25.0 million milestone in connection with the initiation of the first Phase 2 study of a second-generation candidate, and a $10.0 million milestone in connection with the initiation of the second Phase 2 study of a second-generation candidate.

We remain eligible for up to approximately $900.0 million in development-related milestone payments, in addition to the $87.5M in milestones already earned.

and in July 2021 to, among other things, enable Janssen to independently research and develop collaboration compounds for multiple indications in the IL-23 pathway and further align our financial interests.

In October 2020, we and Janssen announced the selection of two second-generation IL23-R antagonists for advancement into clinical development, PN-232 (JNJ-75105186) and PN-235 (JNJ-77242113).

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 favor of advancing PN-235, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile.

A PN-235 Phase 1 trial was completed in the fourth quarter of 2021.

Janssen initiated FRONTIER 1, a 240-patient Phase 2b clinical trial of PN-235 in moderate-to-severe plaque psoriasis, in February 2022 and is expected to initiate a separate Phase 2 trial of PN-235 in IBD in 2023 .

During the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by the completion of data collection for PN-235 Phase 1 activities.

In March 2022, we became eligible to receive a $25.0

million milestone payment in connection with the dosing of a third patient in FRONTIER 1, which we received in April 2022.

We will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the second Phase 2 trial of a second-generation candidate.

We remain eligible for up to approximately $875.0 million in development-related milestone payments, in addition to the $112.5 million in milestone payments already earned.

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

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We are subject to risks and uncertainties as a result of the ongoing COVID-19 pandemic.

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

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

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

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

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 our activities will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, including the severity of any additional periods of increases or spikes in the number of cases in the areas we, our suppliers and our manufacturers operate and areas where our clinical trial sites are located;

the development and spread of COVID-19 variants;

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

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 our existing and planned clinical trials, manufacturing, collaboration activities and operations is uncertain and cannot be fully predicted.

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

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

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

We have experienced delays in our existing and planned clinical trials due to the worldwide impacts of the pandemic.

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

As of the date of issuance of this Quarterly Report on Form 10-Q, the extent to which the COVID-19 pandemic may materially impact our future financial condition, liquidity or results of operations is uncertain.

Our 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 our 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 our business.

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

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

Our net loss was $33.8 million and $88.6 million for the three and nine months ended September 30, 2021, respectively.

Our net loss was $7.8 million and $47.3 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $372.5 million.

Our net loss was $20.9 million and $24.0 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $430.3 million.

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

We expect to continue to incur significant research, development, commercialization and other expenses related to our ongoing operations and product

development, including clinical development activities under our worldwide license and collaboration agreement with Janssen, and, as a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approval for, our product candidates.

We expect to continue to incur significant research, development and other expenses related to our ongoing operations, product development, and pre-commercialization activities.

As a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approval for, our product candidates.

Janssen License and Collaboration Agreement

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We also received a $5.0 million payment triggered by the successful nomination of a second-generation IL-23R antagonist development compound during the first quarter of 2020.

In October 2021, we became eligible to receive a $7.5 million milestone payment from Janssen triggered by completion of the data collection for PN-235 Phase 1 activities.

Following a pre-established interim analysis criteria, a portfolio decision was made to discontinue further development of first generation candidate PTG-200, in favor of further development of two second-generation candidates PN-235 and PN-232 with superior product profiles.

fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by completion of the data collection for PN-235 Phase 1 activities.

In April 2022, we received a $25.0 million milestone payment in connection with the initiation of the first Phase 2 trial of a second-generation candidate.

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

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

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

In making estimates and judgments, management employs critical accounting policies.

Use of Estimates

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

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

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.

Stock-Based Compensation

We recognize compensation costs related to stock options accounted for under Accounting Standards Codification Topic 718 – “ Stock Compensation” based on the estimated fair value of the awards on the date of grant.

We estimate the fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model.

The estimated fair value of the stock-based awards is generally recognized over the requisite service period, which is generally the vesting period of the respective awards.

The Black-Scholes option-pricing model requires the use of subjective assumptions which determine the fair value of stock-based awards.

Expected volatility generally requires significant judgement to determine.

For the year ended December 31, 2020, our expected volatility was estimated based upon a mix of 75% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25% of the volatility of our own stock price since our initial public offering in August 2016.

Beginning January 1, 2021, our 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 our own stock price since our initial public offering in August 2016.

These comparable companies are chosen based on their similar size, stage in the life cycle, or area of specialty.

We will continue to apply this process until a longer period of historical information regarding the volatility of our own stock price becomes available.

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

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

We recognize compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance obligation becomes probable.

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

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

There have been no material changes to our critical accounting policies during the three months ended March 31, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

Components of Our Results of Operations

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Research and development expenses consist primarily of the following:

● expenses incurred under agreements with clinical study sites that conduct research and development activities on our behalf;

● expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;

● employee-related expenses, which include salaries, benefits and stock-based compensation;

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-235

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Clinical and development expense — PTG-100

Preclinical and drug discovery research expense

Milestone payment obligation to former collaboration partner

Pre-clinical and drug discovery research expense

Grants and tax incentives expense reimbursement, net

Total research and development expenses

We expect our research and development expenses will increase as we progress our product candidates into later stage clinical trials, expand the number of ongoing clinical trials, advance development activities under the Janssen License and Collaboration Agreement, advance our discovery research projects into the pre-clinical stage and continue our early-stage research.

The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval is costly and time intensive.

We expect our research and development expenses will increase as we progress our product candidates into later stage clinical trials, add to the number of ongoing clinical trials, advance our discovery research projects into the pre-clinical stage and continue our early-stage research and prepare for the commercialization of our product candidates.

The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval and commencing pre-commercialization activities is costly and time intensive.

We may never succeed in achieving marketing approval for our product candidates regardless of our costs and efforts.

conditions, and our ability to successfully commercialize our products if they are approved for marketing.

As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

The probability of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data, competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory approvals, market conditions, and our ability to successfully commercialize our products if they are approved for marketing.

As a result, we are unable to determine the duration and completion costs

of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services, and pre-commercial selling and marketing costs.

Personnel costs consist of salaries, benefits and stock-based compensation.

Allocated expenses consist of expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies.

We expect to continue to incur expenses to support our continued operations, including expenses related to existing and future compliance with rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations, professional services and general overhead and administrative costs.

We expect to continue to incur expenses to support our continued operations as a public company, including expenses related to existing and future compliance with rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations, audit fees, professional services and general overhead and administrative costs.

Interest Income

Interest income consists of interest earned on our cash, cash equivalents and marketable securities, which is comprised of contractual interest, premium amortization and discount accretion.

Interest Expense

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

Loss on Early Repayment of Debt

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

Other Expense, Net

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

Other Income (Expense), Net

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

Results of Operations

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

Three Months Ended

September 30,

Comparison of the Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

(Dollars in thousands)

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Interest income

Interest expense

Other expense, net

Loss before income tax expense

Income tax expense

(1) Includes $2.6 million and $1.0 million of non-cash stock-based compensation expense for the three months ended September 30, 2021 and 2020, respectively.

(2) Includes $2.2 million and $0.9 million of non-cash stock-based compensation expense for the three months ended September 30, 2021 and 2020, respectively.

Other income (expense), net

(1) Includes $3.3 million and $1.5 million of non-cash stock-based compensation expense for the three months ended March 31, 2022 and 2021, respectively.

(2) Includes $2.6 million and $1.2 million of non-cash stock-based compensation expense for the three months ended March 31, 2022 and 2021, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $2.8 million, or 22%, from $13.1 million for the three months ended September 30, 2020 to $10.3 million for the three months ended September 30, 2021.

We recognized $8.0 million as a cumulative catch-up amount during the three months ended September 30, 2021, following the amendment of our collaboration agreement for the development of IL23R assets with Janssen.

This cumulative catch-up was primarily the result of an acceleration of our cumulative performance completed under our obligation, following the amendment to the collaboration which reduced the remaining services that we are responsible to provide We are nearing completion of our remaining services to be provided to Janssen under the collaboration, in particular, both the Phase 1 trials in PN-235 & PN-232, which are expected to be completed in the fourth quarter of 2021 and second quarter 2022, respectively.

Revenue for the prior year’s third quarter of 2020 also included an estimate update for services completed versus remaining services to be performed under the Janssen collaboration agreement which accelerated revenue recognition.

We have determined that the transaction price of the initial performance obligation under the Restated Janssen License and Collaboration Agreement was $105.7 million as of September 30, 2021, an increase of $9.9 million from the transaction price of $95.8 million as of June 30, 2021 under the Original Agreement.

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

We determined that the transaction price includes $80.0 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23R antagonist compound research costs and other services, and estimated variable consideration consisting of a $7.5 million milestone payment subject to the completion of the clinical data collection 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 increase in transaction price from June 30, 2021 to September 30, 2021 was primarily due to changes related to the Second Amendment to the Janssen License and Collaboration Agreement.

License and collaboration revenue increased $19.5 million, or 316%, from $6.2 million for the three months ended March 31, 2021 to $25.7 million for the three months ended March 31, 2022.

The increase in revenue was primarily due to an increase in transaction price and proportional performance resulting from the $25.0 million milestone payment we became eligible to receive in March 2022 upon the dosing of the third patient in the Janssen Phase 2b FRONTIER 1 trial of PN-235 for moderate-to-severe plaque psoriasis.

We determined that the transaction price of the initial performance obligation under the Restated Janssen License and Collaboration 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, we evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen.

The transaction price as of March 31, 2022 includes $87.5 million of nonrefundable payments received to date, the $25.0 million milestone payment receivable following the dosing of the third patient in the Phase 2b FRONTIER 1 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 increase in transaction price from December 31, 2021 to March 31, 2022 was due primarily to the $25.0 million milestone payment we became eligible to receive in March 2022 upon the dosing of the third patient in the Janssen Phase 2b FRONTIER 1 trial for moderate-to-severe plaque psoriasis.

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

Research and Development Expenses

Three Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Preclinical and drug discovery research expense

Milestone payment obligation to former collaboration partner

Grants and tax incentives expense reimbursement, net

Total research and development expenses

*Percentage not meaningful

Research and development expenses increased $21.0 million, or 131%, from $16.0 million for the three months ended September 30, 2020 to $37.0 million for the three months ended September 30, 2021.

The increase was primarily due to an increase of $7.1 million in PN-943 clinical trial and development costs following the initiation of the Phase 2 trial in UC in 2020;

an increase of $6.6 million in rusfertide clinical trial and development costs, including the ongoing Phase 2 trials in PV, which began in December 2019 and the first quarter of 2021, respectively, and HH, which began in early 2020, and clinical and contract manufacturing activities in preparation for a planned global Phase 3 clinical trial of rusfertide in PV;

$4.0 million of expenses related to milestone payments and obligations under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration;

an increase of $2.3 million in preclinical and drug discovery research expenses;

$0.8 million of Phase 1 clinical trial and development costs for PN-232;

and $0.6 million of Phase 1 clinical trial and development costs for PN-235.

We had 92 and 57 full-time equivalent research and development employees as of September 30, 2021 and 2020, respectively.

Research and development expenses for the three months ended September 30, 2021 included increases $1.6 million in stock-based compensation expense and $1.6 million of other personnel related expenses compared to the three months ended September 30, 2020.

General and Administrative Expenses

General and administrative expenses increased $2.4 million, or 48%, from $4.9 million for the three months ended September 30, 2020 to $7.3 million for the three months ended September 30, 2021 primarily due to an increase of $1.6 million in personnel expenses, a $1.0 million increase in consulting fees to support the growth of our business, and a $0.2 million increase in insurance costs, partially offset by a $0.4 million decrease in legal fees.

The increase in personnel expenses was primarily due to increases of $1.3 million in stock-based compensation expense and $0.2 million in wages and benefits.

We had 24 and 19 full-time equivalent general and administrative employees as of September 30, 2021 and 2020, respectively.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Nine Months Ended

September 30,

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Interest expense

Loss on early repayment of debt

Other expense, net

Loss before income tax expense

Income tax expense

(1) Includes $6.3 million and $3.1 million of non-cash stock-based compensation expense for the nine months ended September 30, 2021 and 2020, respectively.

(2) Includes $5.1 million and $2.8 million of non-cash stock-based compensation expense for the nine months ended September 30, 2021 and 2020, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $4.2 million, or 18%, from $23.0 million for the nine months ended September 30, 2020 to $18.7 million for the nine months ended September 30, 2021, which was primarily related to a decrease in services provided under the Janssen License and Collaboration Agreement recognized based on proportional performance partially offset by an $8.0 million cumulative catch-up amount recognized during the nine months ended September 30, 2021, following the amendment of our collaboration agreement for the development of IL23R assets with Janssen.

This cumulative catch-up was primarily the result of an acceleration of our cumulative performance completed under our obligation, following the amendment to the collaboration which reduced the remaining services that we are responsible to provide Revenue for the nine months ended September 30, 2020 included an update in the amounts forecast for future services remaining to be performed under the Janssen License and Collaboration Agreement, which correspondingly increased our overall cumulative percentage of completion of our performance obligation during the third quarter of 2020, coupled with continued performance and delivery of services under the ongoing Janssen License and Collaboration Agreement.

We are nearing completion of our remaining services to be provided to Janssen under the collaboration, in particular, both the Phase 1 trials in PN-235 & PN-232, which are expected to be completed in the fourth quarter of 2021 and second quarter 2022, respectively.

We have determined that the transaction price of the initial performance obligation under the Restated Janssen License and Collaboration Agreement was $105.7 million as of September 30, 2021, an increase of $7.1 million from the transaction price of $98.6 million as of December 31, 2020 under the Original Agreement.

The increase in transaction price from December 30, 2020 to September 30, 2021 was due primarily to changes related to the Second Amendment to the

Janssen License and Collaboration Agreement.

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

Research and Development Expenses

Nine Months Ended

September 30,

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

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Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Preclinical and discovery research expense

Milestone payment obligation to former collaboration partner

Pre-clinical and drug discovery research expense

Grants and tax incentives expense reimbursement, net

1 unchanged sentence

*Percentage not meaningful

Research and development expenses increased $32.6 million, or 59%, from $55.0 million for the nine months ended September 30, 2020 to $87.6 million for the nine months ended September 30, 2021.

The increase was primarily due to an increase of $14.2 million in rusfertide clinical trial and development costs as the clinical trials have enrolled and progressed, including the ongoing Phase 2 trials in PV, which began in December 2019 and the first quarter of 2021, respectively, and HH, which began in early 2020, and clinical and contract manufacturing activities incurred in 2021 in preparation for the ongoing Phase 2 trials and a planned global Phase 3 clinical trial of rusfertide in PV;

$8.5 million in PN-943 clinical trial and development costs following the initiation of the Phase 2 trial in UC during the second quarter of 2020 and related contract manufacturing activities incurred in 2021;

$4.0 million of expenses related to milestone payments and obligations under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration;

$3.8 million of Phase 1 clinical trial and development costs for PN-235 beginning in December 2020, an increase of $3.7 million in preclinical and drug discovery research expenses, and $0.9 million of Phase 1 clinical trial and development costs for PN-232 initiated in May 2021.

These increases were partially offset by a $1.4 million increase in grant and accrued refundable cash tax incentives and a decrease of $1.1 million in PTG-200 clinical trial and development expenses under the Janssen License and Collaboration Agreement due to our delivery of substantially all agreed-upon services for the PTG-200 Phase 2 clinical trial.

We had 92 and 57 full-time equivalent research and development employees as of September 30, 2021 and 2020, respectively.

Research and development expenses for the nine months ended September 30, 2021 included increases of $3.1 million in stock-based compensation expense and $3.1 million of other personnel-related expenses compared to the nine months ended September 30, 2020.

Research and development expenses increased $12.1 million, or 50%, from $24.2 million for the three months ended March 31, 2021 to $36.3 million for the three months ended March 31, 2022.

The increase was primarily due to an increase of $8.0 million in PN-943 contract manufacturing costs and clinical expenses related to the Phase 2 IDEAL trial in UC initiated in 2020, an increase of $3.3 million in rusfertide clinical and contract manufacturing expenses for VERIFY, the global Phase 3 clinical trial in PV initiated in the first quarter of 2022, an increase of $1.4 million in pre-clinical and drug discovery research expenses, and a decrease of $0.8 million in Australia research and tax incentive expense reimbursement.

These increases were partially offset by a decrease of $1.6 million in clinical and development expenses for the PN-235 Phase 1 trial under the Janssen License and Collaboration agreement, which was completed in the fourth quarter of 2021.

We had 97 and 63 full-time equivalent research and development employees as of March 31, 2022 and 2021, respectively.

General and Administrative Expenses

General and administrative expenses increased $6.3 million, or 46%, from $13.6 million for the nine months ended September 30, 2020 to $19.9 million for the nine months ended September 30, 2021 primarily due to an increase of $3.5 million in personnel expenses, $1.4 million in consulting expenses, $0.7 million in market research expenses, and $0.5 million in recruiting expenses to support the growth of our operations, and a $0.2 million increase in legal fees.

The increase in personnel expenses was primarily due to increases of $2.3 million in stock-based compensation expense and $1.2 million in wages and salaries.

We had 24 and 19 full-time equivalent general and administrative employees as of September 30, 2021 and 2020, respectively.

General and administrative expenses increased $4.6 million, or 76%, from $6.0 million for the three months ended March 31, 2021 to $10.5 million for the three months ended March 31, 2022 primarily due to increases of $2.1 million in personnel expenses and $2.5 million in expenses to support the growth of our business and other costs.

The increase in personnel expenses was primarily due to increases of $1.4 million in stock-based compensation expense and $0.7 million in wages and benefits.

We had 25 and 20 full-time equivalent general and administrative employees as of March 31, 2022 and 2021, respectively.

Interest Income

Interest income decreased $0.5 million, or 61%, from $0.8 million for the nine months ended September 30, 2020 to $0.3 million for the nine months ended September 30, 2021.

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

Interest Expense

Interest expense of $0.5 million for the nine months ended September 30, 2020 reflects interest expense on our long-term debt under our term credit facility.

We prepaid our outstanding long-term debt under our term credit facility during the second quarter of 2020.

We executed a payoff letter to release all obligations under the term credit facility during the third quarter of 2021.

Loss on Early Repayment of Debt

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

We had no debt outstanding as of September 30, 2021.

Other Expense, Net

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

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

Income Tax Expense

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

Our effective income tax rate was 0% for the nine months ended September 30, 2021 as compared to 2.8% for the nine months ended September 30, 2020.

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

entity, and the U.S.

entity reimbursed the Australia subsidiary for certain direct development costs.

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

Income tax expense for the 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.

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

Interest income increased $0.1 million, or 65%, from $0.1 million for the three months ended March 31, 2021 to $0.2 million for the three months ended March 31, 2022.

This increase was due primarily to higher yields on invested balances during a period of increasing interest rates compared to the prior year period.

Liquidity and Capital Resources

Sources of Liquidity

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

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

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

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

In June 2021, pursuant to Registration Statement No.

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

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

This Form S-3ASR expires in December 2023.

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

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

1 unchanged sentence

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 we entered into on November 27, 2019 (the “2019 Sales Agreement”).

In May 2020, we completed an underwritten public offering of 7,000,000 shares of common stock at a public offering price of $14.00 per share, and we issued an additional 1,050,000 shares of our 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 us, were $105.3 million.

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

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

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 January 2022, we issued 422,367 shares of our common stock under our ATM financing facility for net proceeds of $14.6 million, after deducting issuance costs.

As of March 31, 2022, 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.

This Form S-3 expires in October 2022.

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

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

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

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

This Form S-3ASR expires in December 2023.

We have received $112.5 million in non-refundable payments from Janssen since the inception of the Janssen License and Collaboration Agreement in 2017 through the date of this report as follows:

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

1 unchanged sentence

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

In October 2021, we became eligible to receive a $7.5 million milestone payment from Janssen triggered by completion of the data collection for PN-235 Phase 1 activities.

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

● In October 2021, we became eligible to receive a $7.5 million milestone payment triggered by completion of the data collection for PN-235 Phase 1 activities, which was received during the fourth quarter of 2021;

● In March 2022, we became eligible to receive a $25.0 million milestone payment in connection with the dosing of the third patient in the Phase 2b clinical trial of PN-235 in moderate-to-severe plaque psoriasis, which we received in April 2022.

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

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

Upcoming potential development milestones for second-generation products include:

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

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

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

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

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

Capital Requirements

As of September 30, 2021, we had $352.5 million of cash, cash equivalents and marketable securities and an accumulated deficit of $372.5 million.

Our capital expenditures for nine months ended September 30, 2021 were $0.9 million.

As of March 31, 2022, we had $305.3 million of cash, cash equivalents and marketable securities and an accumulated deficit of $430.3 million.

Our capital expenditures for the three months ended March 31, 2022 were $0.5 million.

Our capital expenditures for the years ended December 31, 2021 and 2020 were $1.1 million and $0.5 million, respectively.

3 unchanged sentences

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

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

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

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

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

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

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

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

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

1 unchanged sentence

● the selling and marketing costs associated with our current product candidates and any other product candidates we may identify and develop, including the cost and timing of expanding our sales and marketing capabilities;

● the achievement of development, regulatory and sales milestones resulting in payments to us from Janssen under the Janssen License and Collaboration Agreement or other such arrangements that we may enter into, and the timing of receipt of such payments, if any;

● the achievement of development, regulatory and sales milestones resulting in payments to us from Janssen under the Janssen License and Collaboration Agreement, as amended, or other such arrangements that we may enter into, and the timing of receipt of such payments, if any;

● the timing, receipt and amount of royalties under the Janssen License and Collaboration Agreement on worldwide net sales of IL-23 receptor antagonist compounds, upon regulatory approval or clearance, if any;

● the amount and timing of sales and other revenues from our current product candidates and any other product candidates we may identify and develop, including the sales price and the availability of adequate third-party reimbursement;

● the timing, payment and amount of potential milestones and royalties due under our collaboration agreements;

● the cash requirements of any future acquisitions or discovery of product candidates;

3 unchanged sentences

● the costs of maintaining, expanding and protecting our intellectual property portfolio;

● the costs of ongoing general and administrative activities to support the growth or our business.

● the costs of ongoing general and administrative activities to support the growth of our business.

Adequate additional funding may not be available to us on acceptable terms, or at all.

4 unchanged sentences

Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to fully estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.

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

Nine Months Ended

September 30,

The following table summarizes our cash flows for the periods indicated:

Three Months Ended March 31,

Condensed Consolidated Statements of Cash Flows Data:

(Dollars in thousands)

Cash used in operating activities

1 unchanged sentence

Cash provided by financing activities

Stock-based compensation

Receivable from collaboration partner - related party

Decrease in deferred revenue - related party

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2021 was $80.9 million, consisting of our net loss of $88.6 million and a net change of $6.9 million in net operating assets and liabilities, partially offset by $14.6 million in non-cash charges.

Non-cash charges were primarily comprised of $11.4 million of stock-based compensation, $1.4 million of operating lease right-of-use asset amortization, $1.3 million of net amortization of discount on marketable securities, and $0.6 million of depreciation.

The change in net operating assets and liabilities was primarily due to a decrease of $12.2 million in deferred revenue related to the Janssen License and Collaboration Agreement, an increase of $0.2 million in receivable from collaboration partner, an increase of $0.9 million in research and development tax incentive receivable, an increase in prepaid expenses and other assets of $2.6 million, a decrease of $1.5 million in operating lease liability, a decrease of $1.6 million in payable to collaboration partner, a decrease of $2.3 million in accounts payable and partially offset by an increase of $14.4 million in accrued expenses and other payables.

Cash used in operating activities for the nine months ended September 30, 2020 was $53.6 million, consisting of our net loss of $47.3 million and a net change of $16.0 million in net operating assets, partially offset by $9.7 million in non-cash charges.

Non-cash charges were primarily comprised of $5.9 million of stock-based compensation, a $1.4 million change in net deferred tax asset, $1.3 million of operating lease right-of-use asset amortization, a $0.6 million loss on early prepayment of long-term debt and $0.6 million of depreciation and amortization, partially offset by $0.2 million of net accretion of discount on marketable securities.

The change in net operating assets and liabilities was primarily due to a decrease of $20.7 million in deferred revenue related to the Janssen License and Collaboration Agreement, a $1.6 million decrease in prepaid expenses and other assets, a $1.5 million decrease in operating lease liability, and a $0.5 million increase in Australia research and development incentive receivable, partially offset by a decrease of $4.0 million in receivable from collaboration partner, an increase of $3.1 million in accrued expenses and other payables, an increase of $0.8 million in payable to collaboration partner, and an increase of $0.2 million in other liability.

Cash used in operating activities for the three months ended March 31, 2022 was $37.7 million, consisting of our net loss of $20.9 million and a net change of $23.9 million in net operating assets and liabilities, partially offset by certain non-cash items, including $5.9 million of stock-based compensation expense.

The $8.9 million increase in cash flow used in operating activities during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to a $22.0 million increase in receivables from a collaboration partner related to the $25.0 million milestone we became eligible to receive upon the dosing of the third patient in the Janssen Phase 2

FRONTIER 1 trial of PN-943 in UC.

This increase was partially offset by a $7.9 million change in decrease in deferred revenue, a $3.3 million increase in stock-based compensation expense, and a $3.1 million decrease in our net loss.

Cash Flows from Investing Activities

Cash used in investing activities for the nine months ended September 30, 2021 was $43.7 million, consisting of proceeds from maturities of marketable securities of $213.1 million, offset by purchases of marketable securities of $255.9 million and purchases of property and equipment of $0.9 million.

Cash used in investing activities for the nine months ended September 30, 2020 was $16.6 million, consisting of proceeds from maturities of marketable securities of $131.4 million, partially offset by purchases of marketable securities of $147.6 million and purchases of property and equipment of $0.3 million.

Cash used in investing activities for the three months ended March 31, 2022 was $4.5 million, consisting of purchases of marketable securities of $55.8 million and purchases of property and equipment of $0.3 million, partially offset by proceeds from maturities of marketable securities of $51.6 million.

The $2.3 million decrease in cash used in investing activities for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily related to a decrease of $31.3 million in purchases of marketable securities, partially offset by a decrease of $28.9 million in proceeds from maturities of marketable securities.

Purchases of property and equipment were primarily related to purchases of laboratory and computer equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2021 was $127.8 million, consisting of $124.0 million of cash proceeds from our public offering of common stock and $3.9 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan, partially offset by $0.2 million of tax withholding payments related to net settlement of restricted stock units.

Cash provided by financing activities for the nine months ended September 30, 2020 was $120.6 million, consisting primarily of cash proceeds from our public offering of common stock of $105.5 million, cash proceeds from ATM sales of $23.2 million, and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $2.5 million, partially offset by early repayment of long-term debt of $10.5 million.

Cash provided by financing activities for the three months ended March 31, 2022 was $16.9 million, consisting primarily of net cash proceeds from ATM sales of $14.6 million and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $2.6 million.

The $15.9 million increase in cash provided by financing activities for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to a $14.6 million increase in net cash proceeds from ATM sales, and a $1.2 million increase in proceeds from issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

Contractual Obligations and Other Commitments

Our contractual obligations include minimum lease payments under our operating lease obligations.

On July 2, 2021, we entered into an amendment to our facility lease agreement dated as of March 2017, as amended, to lease approximately 15,000 square feet of additional office space in Newark, California.

See Note 10 to the condensed consolidated financial statements elsewhere in this Quarterly Report on Form 10-Q for additional information.

Under the Janssen License and Collaboration Agreement, we share with Janssen certain development, regulatory and compound supply costs.

The actual amounts that we pay Janssen or that Janssen pays us will depend on numerous factors, some of which are outside of our control and some of which are contingent upon the success of certain development and regulatory activities.

On July 27, 2021, we 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”).

See Note 3 to the condensed consolidated financial statements elsewhere in the Quarterly Report on Form 10-Q for additional information.

On January 23, 2020, we initiated arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce against Zealand Pharma related to a collaboration agreement we 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 we elect to further develop and meet specified conditions.

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

See Note 11 to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.

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

During the three months ended March 31, 2022, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis