What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-05 · 134 added, 82 removed, 205 unchanged (51% of the section changed)

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

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

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

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

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

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in the United States and other jurisdictions.

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

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide, PN-943 and PN-235 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 REVIVE, a Phase 2 proof of concept (“POC”) trial in the blood disorder polycythemia vera (“PV”), in the third quarter of 2019.

Data from our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 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 the blood disorder polycythemia vera (“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.

Our rusfertide Phase 2 clinical trials include the following:

● REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated 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.

● PACIFIC, another Phase 2 trial for rusfertide patients diagnosed with PV and with routinely elevated hematocrit levels (>48%), was initiated during the first quarter of 2021.

● A Phase 2 POC trial in hereditary hemochromatosis (“HH”) was initiated in January 2020 and was completed during 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 for approximately 250 patients, in the first quarter of 2022.

It is our objective to complete enrollment in VERIFY by the end of the first half of 2023, notwithstanding a slower than

anticipated pace of initial enrollment.

We have activated 35 sites globally to date and continue to implement measures to increase patient recruitment, screening and enrollment.

On September 16, 2021, the U.S.

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

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.

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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.

In June 2022, we voluntarily withdrew our Breakthrough Therapy Designation following correspondence with FDA and based on our internal analysis of the relative utility of Breakthrough Therapy Designation for Phase 3 trials and beyond.

The FDA correspondence relating to the Breakthrough Therapy designation does not address 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.

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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.

We intend to pursue further clinical development in collaboration with a large pharmaceutical partner and have engaged an advisory firm to identify and evaluate such partnering opportunities.

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

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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 .

Janssen initiated FRONTIER 1, a 240-patient Phase 2b clinical trial of PN-235 in moderate-to-severe plaque psoriasis, in February 2022.

Other studies of PN-235 that Janssen has initiated or planned include the SUMMIT study of PN-235 for the treatment of moderate-to-severe plaque psoriasis, FRONTIER 2, a long-term extension study, and a Phase 1 study of PN-235 in healthy Japanese and Chinese volunteers.

Janssen 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.

In April 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER 1 during the first quarter of 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.

We remain eligible for up to approximately $855.0 million in future development and sales milestone payments, in addition to the $112.5 million in milestone payments already received.

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

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We continue to use our peptide technology platform to discover product candidates against targets in disease areas with significant unmet medical needs.

COVID-19 Business Impact

Business Update

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

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;

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, 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.

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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 are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability, an ongoing military conflict between Russia and Ukraine, and historically high domestic and global inflation.

In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally.

Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time.

Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results.

We continue to monitor these events and the potential impact on our business.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

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 $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.

Our net loss was $41.0 million and $62.0 million for the three and six months ended June 30, 2022, respectively.

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

As of June 30, 2022, we had an accumulated deficit of $471.3 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.

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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.

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.

In the 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 dosing of a third patient in FRONTIER 1 during the first quarter of 2022.

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.

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.

There have been no material changes to our critical accounting policies during the three and six months ended June 30, 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

License and Collaboration Revenue

Our license and collaboration revenue is derived from payments we receive under the Janssen License and Collaboration Agreement.

Our license and collaboration revenue is derived from payments we receive under the Restated Agreement with Janssen.

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

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in thousands)

Clinical and development expense — PN-943

Clinical and development expense — rusfertide (PTG-300)

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Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

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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, 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.

We expect our research and development expenses will increase as we progress our product candidates into later stage clinical trials 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.

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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.

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.

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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.

Other Income (Expense), Net

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

Other Expense, Net

Other 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 March 31, 2022 and 2021

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2022 and 2021

Three Months Ended

(Dollars in thousands)

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Interest income

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.

Other expense, net

(1) Includes $4.1 million and $2.2 million of non-cash stock-based compensation expense for the three months ended June 30, 2022 and 2021, respectively.

(2) Includes $2.7 million and $1.8 million of non-cash stock-based compensation expense for the three months ended June 30, 2022 and 2021, respectively.

License and Collaboration Revenue

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.

License and collaboration revenue decreased $1.4 million, or 62%, from $2.3 million for the three months ended June 30, 2021 to $0.9 million for the three months ended June 30, 2022.

The decrease was primarily related to a decrease in services provided under the Restated Agreement with Janssen, with associated revenue recognized based on proportional performance.

The level of services we provided has decreased as we completed our performance obligation pursuant to the collaboration as of June 30, 2022.

We determined that the transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, an increase of $0.2 million from the transaction price of $131.5 million as of March 31, 2022.

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.

The transaction price as of June 30, 2022 includes $112.5 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of $8.2 million of development cost reimbursement from Janssen, partially offset by $6.9 million of net cost reimbursement due to Janssen for services performed.

Research and Development Expenses

Three Months Ended March 31,

Three Months Ended

(Dollars in thousands)

Clinical and development expense — PN-943

Clinical and development expense — rusfertide (PTG-300)

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Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

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Total research and development expenses

Research and development expenses increased $8.2 million, or 31%, from $26.4 million for the three months ended June 30, 2021 to $34.6 million for the three months ended June 30, 2022.

The increase was primarily due to an increase of $5.9 million in PN-943 contract manufacturing costs and clinical expenses related to the Phase 2 IDEAL trial in UC initiated in 2020 and an increase of $2.0 million in rusfertide clinical and contract manufacturing expenses primarily for VERIFY, the global Phase 3 clinical trial in PV initiated in the first quarter of 2022.

We had 101 and 81 full-time equivalent research and development employees as of June 30, 2022 and 2021, respectively.

Research and development expenses for the three months ended June 30, 2022 included increases of $2.0 million in stock-based compensation expense and $1.6 million in other personnel-related expenses compared to the three months ended June 30, 2021.

General and Administrative Expenses

General and administrative expenses increased $1.0 million, or 15%, from $6.7 million for the three months ended June 30, 2021 to $7.7 million for the three months ended June 30, 2022 primarily due to an increase of $1.2 million in personnel expenses, partially offset by a $0.2 million decrease in legal and other expenses.

The increase in personnel expenses was primarily due to increases of $0.9 million in stock-based compensation expense and $0.3 million in wages and benefits.

We had 26 and 20 full-time equivalent general and administrative employees as of June 30, 2022 and 2021, respectively.

Interest Income

Interest income increased $0.4 million from $0.1 million for the three months ended June 30, 2021 to $0.5 million for the three months ended June 30, 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.

Comparison of the Six Months Ended June 30, 2022 and 2021

Six Months Ended

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Other expense, net

(1) Includes $7.4 million and $3.6 million of non-cash stock-based compensation expense for the six months ended June 30, 2022 and 2021, respectively.

(2) Includes $5.3 million and $3.0 million of non-cash stock-based compensation expense for the six months ended June 30, 2022 and 2021, respectively.

License and Collaboration Revenue

License and collaboration revenue increased $18.1 million, or 214%, from $8.5 million for the six months ended June 30, 2021 to $26.6 million for the six months ended June 30, 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 received in April 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 in March 2022.

We completed our performance obligation pursuant to the collaboration as of June 30, 2022.

We determined that the transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, an increase of $25.2 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 June 30, 2022 includes the $112.5 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of $8.2 million of development cost reimbursement from Janssen, partially offset by $6.9 million of net cost reimbursement due to Janssen for services performed.

The increase in transaction price from December 31, 2021 to June 30, 2022 was due primarily to the $25.0 million milestone payment we received in April 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 in March 2022.

Research and Development Expenses

Six Months Ended

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Preclinical and discovery research expense

Grants and tax incentives expense reimbursement, net

Total research and development expenses

*Percentage not meaningful

Research and development expenses increased $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.

Research and development expenses increased $20.3 million, or 40%, from $50.7 million for the six months ended June 30, 2021 to $70.9 million for the six months ended June 30, 2022.

The increase was primarily due to an increase of $13.9 million in PN-943 contract manufacturing costs and clinical expenses related to the Phase 2 IDEAL trial in UC initiated in 2020 and an increase of $5.3 million in rusfertide clinical and contract manufacturing expenses primarily for VERIFY.

We had 101 and 81 full-time equivalent research and development employees as of June 30, 2022 and 2021, respectively.

Research and development expenses for the six months ended June 30, 2022 included increases of $3.8 million in stock-based compensation expense and $4.2 million in other personnel-related expenses compared to the three months ended June 30, 2021.

General and Administrative Expenses

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.

General and administrative expenses increased $5.5 million, or 44%, from $12.7 million for the six months ended June 30, 2021 to $18.2 million for the six months ended June 30, 2022 due primarily to an increase of $3.3 million in personnel expenses and $2.2 million in expenses to support the growth of our business and other costs.

The increase in personnel expenses was primarily due to increases of $2.3 million in stock-based compensation expense and $0.9 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.

We had 26 and 20 full-time equivalent general and administrative employees as of June 30, 2022 and 2021, respectively.

Interest Income

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.

Interest income increased $0.5 million from $0.2 million for the six months ended June 30, 2021 to $0.7 million for the six months ended June 30, 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.

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In October 2019, we 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 us of up to a maximum aggregate offering price of $250.0 million of our 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 we entered into on November 27, 2019 (the “2019 Sales Agreement”).

333-234414) that was declared effective as of November 22, 2019 and permits the offering, issuance, and sale by us of up to a maximum aggregate

offering price of $250.0 million of our 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 at-the-market (“ATM”) financing facility under a sales agreement we entered into on November 27, 2019.

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.

As of June 30, 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.

The 2019 Form S-3 expires in October 2022.

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

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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:

The Form S-3ASR expires in December 2023.

We have received $112.5 million in non-refundable payments from Janssen since the inception of the Restated 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;

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● 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.

Pursuant to 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:

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● $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.

Capital Requirements

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.

As of June 30, 2022, we had $291.9 million of cash, cash equivalents and marketable securities and an accumulated deficit of $471.3 million.

Our capital expenditures for the six months ended June 30, 2022 were $0.7 million.

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

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

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

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

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

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 advance beyond the discovery stage.

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

We expect that our cash burn will approximate current levels for the remainder of the year but will reduce in 2023.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 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.

As has been widely reported, we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, and geopolitical instability.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur.

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

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● 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, 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 achievement of development, regulatory and sales milestones resulting in payments to us from Janssen under the Restated 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 Restated 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;

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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.

For additional information, see Part II – Item 1A – Risks Related to our Financial Position and Capital Requirements.

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

Three Months Ended March 31,

Six Months Ended

Condensed Consolidated Statements of Cash Flows Data:

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Cash used in operating activities

Cash used in investing activities

Cash provided by investing activities

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 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 used in operating activities for the six months ended June 30, 2022 was $51.3 million, consisting primarily of our net loss of $62.0 million and a net change of $4.2 million in net operating assets and liabilities, partially offset by certain non-cash items, including $12.7 million of stock-based compensation expense.

The $1.2 million decrease in cash flow used in operating activities during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $6.1 million increase in stock-based compensation expense and a $2.1 million increase related to change in net operating assets and liabilities, partially offset by a $7.1 million increase in our net loss.

Cash Flows from Investing Activities

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.

Cash provided by investing activities for the six months ended June 30, 2022 was $30.3 million, consisting of proceeds from maturities of marketable securities of $132.9 million, partially offset by purchases of marketable securities of $102.1 million and purchases of property and equipment of $0.6 million.

The $29.3 million increase in cash provided by investing activities for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily related to a decrease of $61.3 million in purchases of marketable securities, partially offset by a decrease of $32.1 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 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.

Cash provided by financing activities for the six months ended June 30, 2022 was $17.6 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 $3.2 million.

The $108.8 million decrease in cash provided by financing activities for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was primarily due to a $109.4 million decrease in net cash proceeds from ATM sales, partially offset by a $0.7 million increase in proceeds from issuances of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

Contractual Obligations and Other Commitments

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.

During the three and six months ended June 30, 2022, there were no material changes to our material cash requirements, including commitments for capital expenditures, 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