Item 2. Management’s Discussion and Analysis
ITEM 2. 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, 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
This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,” and similar expressions intended to identify forward-looking statements. 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 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. While we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. “Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc. in the United States and other jurisdictions.
23
Table of Contents
Overview
We are a biopharmaceutical company with peptide-based new chemical entities rusfertide 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; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases.
Our Product Pipeline
Rusfertide
Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an injectable hepcidin mimetic in development for the potential treatment of erythrocytosis, iron overload and other blood disorders. Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells. Rusfertide mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability. 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, which we expect to complete by January 2023.
● 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. Data from the PACIFIC study presented at the 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting demonstrate the effects of dosing interruption and resumption. Rusfertide dosing and interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood cells. Rusfertide restart restored therapeutic benefits.
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.
24
Table of Contents
While significant efforts have been taken toward the goal of full enrollment and a high degree of interest has been observed from physicians and patient communities, operational challenges, including site staff shortages, have continued to delay initial recruitment activities. We expect enrollment completion in the second half of 2023.
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. 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.
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. In April 2022, we received a letter from the FDA indicating the FDA’s intent to rescind Breakthrough Therapy Designation for rusfertide in PV. 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.
In keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease indications have been paused. This decision was influenced in part by the recent enactment of the Inflation Reduction Act in the United States and includes previously planned trials of rusfertide in the subset of hereditary hemochromatosis patients with chronic arthropathy.
PN-235
Our Interleukin-23 receptor (“IL-23R”) antagonist compound PN-235 is an orally delivered investigational drug that is 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, PN-235 has 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.
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 (JNJ-67864238) and certain related compounds for all indications, including inflammatory bowel disease (“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 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. In February 2022, Janssen initiated FRONTIER 1, a 240-patient Phase 2b clinical trial of PN-235 in moderate-to-severe plaque psoriasis expected to be completed in the first quarter of 2023. 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
25
Table of Contents
expected to be completed in the second quarter of 2023, 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 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, and a $50 million milestone upon dosing of a third patient in a Phase 3 trial for a second-generation compound for any indication . 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.
PN-943
PN-943 is an investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin antagonist for IBD. 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. Enrollment in IDEAL was completed during the first quarter of 2022. The trial includes a 12-week induction period, which has been completed, and a 40-week extended treatment period. With the exception of completing the 40-week extended treatment period for eligible patients in the IDEAL trial, expected to be completed in the first quarter of 2023, we do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program. We will continue to explore out-licensing opportunities globally. De-prioritization of our PN-943 clinical program and streamlining of certain discovery programs is part of our ongoing commitment to optimize and focus resources toward the rusfertide program in PV.
Discovery Platform
Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents. Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to use our peptide technology platform to discover product candidates against targets in disease areas with significant unmet medical needs.
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, 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, 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. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business. The extent of the impact of the COVID-19 pandemic remains difficult to predict as this event is ongoing and information continues to evolve. 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
26
Table of Contents
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. The U.S. 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.
Operations
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 $31.2 million and $93.2 million for the three and nine months ended September 30, 2022, respectively. Our net loss was $33.8 million and $88.6 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $502.6 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 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
On July 27, 2021, we entered into an amended and restated License and Collaboration Agreement (“Restated Agreement”) with Janssen. The Restated Agreement amends and restates the License and Collaboration Agreement, dated May 26, 2017, by and between us and Janssen (as amended by the First Amendment thereto, effective May 7, 2019, the “Original Agreement”). Janssen is a related party to us as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. The Original Agreement became effective on July 13, 2017. Upon the effectiveness of the Original Agreement, we received a non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the effectiveness of the First Amendment, we received a $25.0 million payment from Janssen in 2019. 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 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.
Critical Accounting Polices and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. 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.
27
Table of Contents
There have been no material changes to our critical accounting policies during the three and nine months ended September 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 Restated Agreement with Janssen. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information.
Research and Development Expenses
Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made. In instances where we enter into agreements with third parties to provide research and development services to us, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service and may include upfront payments, monthly payments, and payments upon the completion of milestones or the receipt of deliverables.
Research and development expenses consist primarily of the following:
● 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;
● laboratory vendor expenses related to the preparation and conduct of pre-clinical, non-clinical and clinical studies;
● costs related to production of clinical supplies and non-clinical materials, including fees paid to contract manufacturers;
● license fees and milestone payments under license and collaboration agreements; and
● facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies.
We recognize the funds from grants under government programs as a reduction of research and development expenses when the related research costs are incurred. In addition, we recognize the funds related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses. The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available. We may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive.
28
Table of Contents
We allocate direct costs and indirect costs incurred to product candidates when they enter clinical development. For product candidates in clinical development, direct costs consist primarily of clinical, pre-clinical, and drug discovery costs, costs of supplying drug substance and drug product for use in clinical and pre-clinical studies, including clinical manufacturing costs, contract research organization fees, and other contracted services pertaining to specific clinical and pre-clinical studies. Indirect costs allocated to our product candidates on a program specific basis include research and development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative support costs. Program-specific costs are unallocated when the clinical expenses are incurred for our early-stage research and drug discovery projects, our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not provide financial information regarding the costs incurred for early-stage pre-clinical and drug discovery programs on a program-specific basis prior to the clinical development stage.
The following table summarizes our research and development expenses incurred during the periods indicated:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
(Dollars in thousands)
Clinical and development expense — rusfertide (PTG-300)
$
15,828
$
14,881
$
43,378
$
37,128
Clinical and development expense — PN-943
4,282
10,919
33,642
26,394
Clinical and development expense — PN-235
2
567
237
3,799
Clinical and development expense — PN-232
(91)
831
354
870
Clinical and development expense — PTG-200
22
11
16
13
Clinical and development expense — PTG-100
—
88
386
338
Pre-clinical and drug discovery research expense
5,401
6,126
18,360
17,371
Milestone payment obligation to former collaboration partner
—
4,000
—
4,000
Grants and tax incentives expense reimbursement, net
(42)
(467)
(42)
(2,280)
Total research and development expenses
$
25,402
$
36,956
$
96,331
$
87,633
We expect our research and development expenses will increase as we progress our rusfertide program into later stage clinical trials and prepare for commercialization. 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. 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. Most recently, with the exception of completing the 40-week extended treatment period for eligible patients in the Phase 2 IDEAL trial, expected to be completed in the first quarter of 2023, we do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program. We will continue to explore out-licensing opportunities globally. De-prioritization of PN-943 and streamlining of certain discovery programs is part of our ongoing commitment to optimize and focus resources toward the rusfertide program in PV.
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-commercialization expenses, including 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 as a public company, including expenses related to existing and future compliance
29
Table of Contents
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.
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 September 30, 2022 and 2021
Three Months Ended
September 30,
Dollar
%
2022
2021
Change
Change
(Dollars in thousands)
License and collaboration revenue - related party
$
—
$
10,286
$
(10,286)
(100)
Operating expenses:
Research and development (1)
25,402
36,956
(11,554)
(31)
General and administrative (2)
6,901
7,256
(355)
(5)
Total operating expenses
32,303
44,212
(11,909)
(27)
Loss from operations
(32,303)
(33,926)
1,623
(5)
Interest income
1,157
122
1,035
*
Other expense, net
(86)
—
(86)
*
Net loss
$
(31,232)
$
(33,804)
$
2,572
(8)
*Percentage not meaningful
(1) Includes $3.9 million and $2.6 million of non-cash stock-based compensation expense for the three months ended September 30, 2022 and 2021, respectively.
(2) Includes $2.1 million and $2.2 million of non-cash stock-based compensation expense for the three months ended September 30, 2022 and 2021, respectively.
License and Collaboration Revenue
License and collaboration revenue decreased $10.3 million, or 100%, from $10.3 million for the three months ended September 30, 2021 to zero for the three months ended September 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, because we completed our performance obligation pursuant to the collaboration as of June 30, 2022.
We determined that the final transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 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 June 30, 2022 included $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.
30
Table of Contents
Research and Development Expenses
Three Months Ended
September 30,
Dollar
%
2022
2021
Change
Change
(Dollars in thousands)
Clinical and development expense — rusfertide (PTG-300)
$
15,828
$
14,881
$
947
6
Clinical and development expense — PN-943
4,282
10,919
(6,637)
(61)
Clinical and development expense — PN-235
2
567
(565)
(100)
Clinical and development expense — PN-232
(91)
831
(922)
(111)
Clinical and development expense — PTG-200
22
11
11
100
Clinical and development expense — PTG-100
—
88
(88)
(100)
Pre-clinical and drug discovery research expense
5,401
6,126
(725)
(12)
Milestone payment obligation to former collaboration partner
—
4,000
(4,000)
(100)
Grants and tax incentives expense reimbursement, net
(42)
(467)
425
(91)
Total research and development expenses
$
25,402
$
36,956
$
(11,554)
(31)
Research and development expenses decreased $11.6 million, or 31%, from $37.0 million for the three months ended September 30, 2021 to $25.4 million for the three months ended September 30, 2022. The decrease was primarily due to (i) a decrease of $6.6 million relating to the PN-943 program, which has been paused in order to optimize and focus resources toward our rusfertide program in PV, (ii) a decrease of $4.0 million in expenses related to milestone payments and obligations incurred under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration during the third quarter of 2021, and (iii) a decrease in expenses relating to PN 232 and PN-235 due to the completion of Phase 1 clinical trials that began in 2021.
We had 99 and 92 full-time equivalent research and development employees as of September 30, 2022 and 2021, respectively. Research and development expenses for the three months ended September 30, 2022 included increases of $1.2 million in stock-based compensation expense and $0.7 million in other personnel-related expenses compared to the three months ended September 30, 2021.
General and Administrative Expenses
General and administrative expenses decreased $0.4 million, or 5%, from $7.3 million for the three months ended September 30, 2021 to $6.9 million for the three months ended September 30, 2022 due primarily to a decrease of $0.1 million in personnel-related expenses and $0.2 million in consulting, legal and other costs.
We had 23 and 24 full-time equivalent general and administrative employees as of September 30, 2022 and 2021, respectively.
Interest Income
Interest income increased $1.0 million from $0.1 million for the three months ended September 30, 2021 to $1.2 million for the three months ended September 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.
31
Table of Contents
Comparison of the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended
September 30,
Dollar
%
2022
2021
Change
Change
(Dollars in thousands)
License and collaboration revenue - related party
$
26,581
$
18,740
$
7,841
42
Operating expenses:
Research and development (1)
96,331
87,633
8,698
10
General and administrative (2)
25,107
19,936
5,171
26
Total operating expenses
121,438
107,569
13,869
13
Loss from operations
(94,857)
(88,829)
(6,028)
7
Interest income
1,809
321
1,488
464
Other expense, net
(151)
(136)
(15)
11
Net loss
$
(93,199)
$
(88,644)
$
(4,555)
5
(1) Includes $11.3 million and $6.3 million of non-cash stock-based compensation expense for the nine months ended September 30, 2022 and 2021, respectively.
(2) Includes $7.4 million and $5.1 million of non-cash stock-based compensation expense for the nine months ended September 30, 2022 and 2021, respectively.
License and Collaboration Revenue
License and collaboration revenue increased $7.8 million, or 42%, from $18.7 million for the nine months ended September 30, 2021 to $26.6 million for the nine months ended September 30, 2022. The increase in revenue includes 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 final 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 included $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.
32
Table of Contents
Research and Development Expenses
Nine Months Ended
September 30,
Dollar
%
2022
2021
Change
Change
(Dollars in thousands)
Clinical and development expense — rusfertide (PTG-300)
$
43,378
$
37,128
$
6,250
17
Clinical and development expense — PN-943
33,642
26,394
7,248
27
Clinical and development expense — PN-235
237
3,799
(3,562)
(94)
Clinical and development expense — PN-232
354
870
(516)
(59)
Clinical and development expense — PTG-200
16
13
3
23
Clinical and development expense — PTG-100
386
338
48
14
Pre-clinical and discovery research expense
18,360
17,371
989
6
Milestone payment obligation to former collaboration partner
—
4,000
(4,000)
(100)
Grants and tax incentives expense reimbursement, net
(42)
(2,280)
2,238
(98)
Total research and development expenses
$
96,331
$
87,633
$
8,698
10
Research and development expenses increased $8.7 million, or 10%, from $87.6 million for the nine months ended September 30, 2021 to $96.3 million for the nine months ended September 30, 2022. The increase was primarily due to (i) an increase of $7.2 million in PN-943 contract manufacturing costs and clinical expenses related to the Phase 2 IDEAL trial for which we announced top line data in April 2022, (ii) an increase of $6.3 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial, and (iii) a decrease of $2.2 million in grant and tax incentives expense reimbursement. These increases were partially offset by a decrease of $4.0 million in expenses related to milestone payments and obligations under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration incurred during the third quarter of 2021 and decreases in PN-235 and PN-232 expenses related to the completion of Phase 1 clinical trials that began in 2021. We do not intend to dedicate further internal resources to clinical development or contract manufacturing expenses for our PN-943 clinical program as part of our ongoing commitment to optimize and focus resources toward our rusfertide program in PV.
We had 99 and 92 full-time equivalent research and development employees as of September 30, 2022 and 2021, respectively. Research and development expenses for the nine months ended September 30, 2022 included increases of $5.0 million in stock-based compensation expense and $4.9 million in other personnel-related expenses compared to the nine months ended September 30, 2021.
General and Administrative Expenses
General and administrative expenses increased $5.2 million, or 26%, from $19.9 million for the nine months ended September 30, 2021 to $25.1 million for the nine months ended September 30, 2022 due primarily to an increase of $3.2 million in personnel-related expenses and $2.0 million in expenses to support the growth of our business and other costs. The increase in personnel-related 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 23 and 24 full-time equivalent general and administrative employees as of September 30, 2022 and 2021, respectively.
Interest Income
Interest income increased $1.5 million from $0.3 million for the nine months ended September 30, 2021 to $1.8 million for the nine months ended September 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.
33
Table of Contents
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 the receipt of payments under collaboration agreements.
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 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 September 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 expired in October 2022.
In December 2020, we filed an automatic registration statement on Form S-3ASR and an accompanying prospectus (File No. 333-251254). 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. The Form S-3ASR expires in December 2023.
In August 2022, we filed a registration statement on Form S-3 (File No. 333-266595) that was declared effective as of August 16, 2022, and permits the offering, issuance, and sale by us of up to a maximum aggregate offering price of $300.0 million of its common stock, preferred stock, debt securities and warrants (the “2022 Form S-3”). Up to a maximum of $100.0 million of the maximum aggregate offering price of $300.0 million may be issued and sold pursuant to an at-the-market (“ATM”) financing facility under a sales agreement we entered into on August 5, 2022 (the “2022 Sales Agreement”). As of September 30, 2022, no offering, issuance or sale of common stock, preferred stock, debt securities or warrants was made under the 2022 Form S-3 or the 2022 Sales Agreement.
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;
● Upon effectiveness of the First Amendment, we became eligible to receive a $25.0 million payment from Janssen, which was received during the second quarter of 2019;
● 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 triggered by completion of the data collection for PN-235 Phase 1 activities, which was received during the fourth quarter of 2021; and
● 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 during the first quarter of 2022, which was received during the second quarter of 2022.
34
Table of Contents
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 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:
● $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;
● $15.0 million for dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication; and
● $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 September 30, 2022, we had $267.4 million of cash, cash equivalents and marketable securities and an accumulated deficit of $502.6 million. Our capital expenditures for the nine months ended September 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. Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures, general and administrative costs and pre-commercialization costs. 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 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, we experience significant delays or difficulties in commencing, enrolling or completing clinical studies, or our newer product clinical trials advance beyond the discovery stage. 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. A future recession or market correction resulting from the spread of COVID-19 or other significant geopolitical events could materially affect our business. 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:
● 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;
35
Table of Contents
● the costs of and ability to obtain clinical and commercial supplies and any other product candidates we may identify and develop;
● our ability to successfully commercialize the product candidates we may identify and develop;
● 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 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;
● the cash requirements of any future acquisitions or discovery of product candidates;
● the time and cost necessary to respond to technological and market developments;
● the extent to which we may acquire or in-license other product candidates and technologies;
● costs necessary to attract, hire and retain qualified personnel;
● the costs of maintaining, expanding and protecting our intellectual property portfolio; and
● 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. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials, other research and development activities and pre-commercialization costs. If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. 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.
36
Table of Contents
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended
September 30,
Condensed Consolidated Statements of Cash Flows Data:
2022
2021
(Dollars in thousands)
Cash used in operating activities
$
(76,502)
$
(80,926)
Cash provided by (used in) investing activities
$
87,533
$
(43,727)
Cash provided by financing activities
$
18,285
$
127,750
Stock-based compensation
$
18,690
$
11,371
Cash Flows from Operating Activities
Cash used in operating activities for the nine months ended September 30, 2022 was $76.5 million, consisting primarily of our net loss of $93.2 million and a net change of $4.9 million in net operating assets and liabilities, partially offset by certain non-cash items, including $18.7 million of stock-based compensation expense. The $4.4 million increase in cash flow used in operating activities during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to a $7.3 million increase in stock-based compensation expense and $2.0 million related to net change in net operating assets and liabilities, partially offset by a $4.6 million increase in our net loss.
Cash Flows from Investing Activities
Cash provided by investing activities for the nine months ended September 30, 2022 was $87.5 million, consisting of proceeds from maturities of marketable securities of $222.5 million, partially offset by purchases of marketable securities of $134.3 million and purchases of property and equipment of $0.7 million. The $131.3 million increase in cash provided by investing activities for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily related to a decrease of $121.6 million in purchases of marketable securities and an increase of $9.5 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, 2022 was $18.3 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 $3.9 million. The $109.5 million decrease in cash provided by financing activities for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to a $109.4 million decrease in net cash proceeds from ATM sales.
Contractual Obligations and Other Commitments
During the three and nine months ended September 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.