What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-15 compared with 2022-02-28 · 225 added, 316 removed, 732 unchanged (42% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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

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

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

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

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

Basis for Opinion

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

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

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

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

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

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

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

Accordingly we express no such opinion.

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

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

Critical Audit Matters

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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

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

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

Accrued clinical and research related expenses

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

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

Description of the Matter

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

(Janssen), which was amended during 2021.

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

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

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

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

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

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

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

How We Addressed the Matter in Our Audit

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

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

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

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

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

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2020.

Redwood City, California

February 28, 2022

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Protagonist Therapeutics, Inc.

Opinion on the Financial Statements

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

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

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

Basis for Opinion

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

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

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

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

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

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

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

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

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

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 28, 2022

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

San Mateo, California

March 15, 2023

PR OTAGONIST THERAPEUTICS, INC.

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Marketable securities

Restricted cash - current

Receivable from collaboration partner and contract asset - related party

Receivable from collaboration partner – related party

Research and development tax incentive receivable

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Total current assets

Marketable securities - noncurrent

Property and equipment, net

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Operating lease liability – noncurrent

Other liabilities

Total liabilities

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Additional paid-in capital

Accumulated other comprehensive (loss) gain

Accumulated other comprehensive loss

Accumulated deficit

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Other expense, net

Loss before income tax (expense) benefit

Income tax (expense) benefit

Loss before income tax expense

Income tax expense

Net loss per share, basic and diluted

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Loss (gain) on translation of foreign operations

Unrealized (loss) gain on marketable securities

Unrealized gain (loss) on marketable securities

Comprehensive loss

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Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(In thousands, except share data)

Comprehensive

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Balance at December 31, 2019

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

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

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

Issuance of common stock upon exercise of Exchange Warrants

Stock-based compensation expense

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

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

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

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

Stock-based compensation expense

Other comprehensive gain

Other comprehensive loss

Balance at December 31, 2021

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

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

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

Issuance of common stock upon exercise of Exchange Warrants

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

Stock-based compensation expense

Issuance costs related to prior period common stock offering

Other comprehensive loss

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Operating lease right-of-use asset amortization

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

Net amortization of (discount) premium on marketable securities

Depreciation and amortization

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Loss on early repayment of debt

Gain on disposal of property and equipment

Changes in operating assets and liabilities:

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Purchases of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash Flows from Financing Activities

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

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

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

Tax withholding payments related to net settlement of restricted stock units

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

Issuance costs related to prior period common stock offering

Early repayment of long-term debt

Issuance costs related to long-term debt

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

Net cash provided by financing activities

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

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

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

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

The Company is a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as PN - 235) in different stages of clinical development, all derived from the Company’s proprietary technology platform.

The Company’s clinical programs fall into two broad categories of diseases:

(i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases.

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

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

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

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

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

The Company’s Chief Executive Officer reviews financial information on an aggregate basis for the purposes of allocating and evaluating financial performance.

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

As of December 31, 2022, the Company had cash, cash equivalents and marketable securities of $ 237.4 million.

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

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

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 536.8 million as of December 31, 2022.

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

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

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

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

Risks and Uncertainties

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

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

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

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

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

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

The magnitude and overall effectiveness of these actions remains uncertain.

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

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

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

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

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

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

As of the date of issuance of

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

The Company is subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and emergent variants with increased transmissibility, even in those who are fully vaccinated.

The future impact on the Company’s activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments;

and new travel and other restrictions and public health measures.

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

The Company’s future results of operations and liquidity could be adversely impacted by further delays in existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities, supply chain disruptions, and the ongoing impact on its operating activities and employees.

In addition, a recession or market correction related to or amplified by COVID-19 could materially affect the Company’s business.

The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, including an ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment 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 the Company’s operating results.

The Company continues to monitor these events and the potential impact on its business.

Although the Company does not believe that inflation has had a material impact on its financial position or

results of operations to date, it 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 other factors, and such factors may lead to increases in the cost of manufacturing for and initiation of studies in the Company’s product candidates.

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Protagonist Australia, and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

All intercompany balances and transactions have been eliminated upon consolidation.

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

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

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

Due to the prolonged nature of the COVID-19 pandemic, military conflict between Ukraine and Russia, rising tensions between China and Taiwan and inflationary pressures, there has been uncertainty and disruption in the global economy and financial markets.

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

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

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

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

management believes are of high credit quality.

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

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

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

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

The letter of credit balance decreased from $ 0.5 million at December 31, 2020 to $ 0.2 million at December 31, 2021 and 2022 pursuant to the terms of the facility lease.

Cash as Reported in Consolidated Statements of Cash Flows

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Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually).

The carrying amount of the Company’s financial instruments, including cash equivalents, receivable from collaboration partner, accounts payable, payable to collaboration partner and accrued expenses and other payables approximate fair value due to their short-term maturities.

The carrying amount of the Company’s financial instruments, including cash equivalents, receivables from its collaboration partner, accounts payable, payables to its collaboration partner and accrued expenses and other payables approximate fair value due to their short-term maturities.

to the Consolidated Financial Statements for additional information regarding the fair value of the Company’s other financial assets and liabilities.

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When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in operations in the period realized.

The Company adopted Accounting Standards Codification Topic 842, Leases, (“ASC 842”) effective January 1, 2019.

The Company determines if an arrangement is a lease at inception.

Pursuant to ASC 842, operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets.

Pursuant to Accounting Standards Codification Topic 842, Leases, (“ASC 842”), operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

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The Company records tenant improvement allowances as a reduction to the ROU asset with the impact of the decrease recognized prospectively over the remaining lease term.

The leasehold improvements will be amortized over the shorter of their useful life or the remaining term of the lease.

The leasehold improvements are amortized over the shorter of their useful life or the remaining term of the lease.

Impairment of Long-Lived Assets

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

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

the enactment date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Research and Development Costs

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

Research and development costs (“R&D”) are expensed as incurred, unless there is an alternate future use in other research and development projects or otherwise.

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

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated services provided

but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

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

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

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

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

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

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

However, the status and timing of actual services performed, the number of patients enrolled, the rate of patient enrollment and the number and location of sites activated may vary from the Company’s estimate and may result in adjustments to research and development expenses in future periods.

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

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

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

Federal income tax credit on qualifying clinical study expenditures.

Research and Development Tax Incentive

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

Small Business Innovation Research (“SBIR”) Grants

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

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

Stock-based Compensation

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Net Loss per Share

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

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

Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares of common stock and Exchange Warrants (as defined in Note 12.

Stockholders’ Equity below) outstanding during the period, without consideration of potentially dilutive securities.

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

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

Stockholders’ Equity for additional information regarding the Exchange Warrants.

Recently Adopted Accounting Pronouncements

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

2019-12, Income Taxes (Topic 740):

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

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

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

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

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326) , which is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date.

2016-13, Financial Instruments - Credit Losses (Topic 326) , which is intended to provide more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date.

The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses.

This guidance was originally effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for fiscal years and interim periods within those years beginning after December 15, 2018.

This guidance was originally effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for fiscal years and interim periods beginning after December 15, 2018.

In November 2019, the FASB issued ASU No.

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

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

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

License and Collaboration Agreement

Agreement Terms

On July 27, 2021, the Company entered into an amended and restated License and Collaboration Agreement (“Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”).

The Restated Agreement amends and restates the License and Collaboration Agreement, dated May 26, 2017, by and between the Company and Janssen (as amended by the First Amendment thereto, effective May 7, 2019, the “Original Agreement”).

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement (the “Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”) which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company (the “Original Agreement”), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”).

Janssen is a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of the Company, and Janssen are both subsidiaries of Johnson & Johnson.

The Original Agreement became effective on July 13, 2017.

Upon the effectiveness of the Original Agreement, the Company received a non-refundable, upfront cash payment of $ 50.0 million from Janssen.

Upon the effectiveness of the First Amendment, the Company received a $ 25.0 million payment from Janssen in 2019.

The Company also received a $ 5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first quarter of 2020 and a $ 7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021.

The Company received a $ 5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first quarter of 2020 and a $ 7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021.

The Company received a $ 25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound during the second quarter of 2022.

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

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

PTG-200 was an oral IL-23

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

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

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

The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly known as PN- 235).

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

During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile.

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

Pursuant to the Restated Agreement, the parties:

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

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

● limited the Company’s further development and related expense obligations under the Restated Agreement to the PTG-200 Phase 2a trial and the ongoing Phase 1 trials in PN-232 and JNJ-2113;

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

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The Company’s development cost obligations in the Original Agreement for the period following the effective date of the Original Agreement were as follows:

(a) up to $ 20.0 million of costs related to up to three Phase 1 studies of second-generation compounds;

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

(b) up to $ 20.0 million of costs related to Phase 2a and 2b costs for PTG-200 (i.e., 20 % of the first $ 100.0 million in costs);

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

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

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

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

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

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

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

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

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

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

(b) the Company was responsible for 50 % of agreed-upon costs related to the Phase 1 trial evaluating JNJ- 2113 incurred through January 4, 2021;

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

Certain of the Company’s previous development cost obligations under the Original Agreement were limited or eliminated as follows:

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

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

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

One milestone for second-generation Phase 2 development was reduced from $ 50.0 million to $ 25.0 million in the Restated Agreement;

otherwise, t he various milestone payment amounts in the Restated Agreement remain substantially the same as in the Original Agreement.

To reflect parallel development of multiple indications in the IL-23 pathway, milestone payments under the Restated Agreement generally now correspond to the achievement of specified milestones in:

otherwise, the various milestone payment amounts in the Restated Agreement remain substantially the same as in the Original Agreement.

To reflect parallel development of multiple indications in the IL-23 pathway, milestone payments under the Restated Agreement generally correspond to the achievement of specified milestones in:

(a) any initial indication (rather than CD, as in the Original Agreement);

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and (c) any third indication.

With respect to second-generation compounds, milestone payments for second and third indications could be triggered by any second-generation compound (i.e., not necessarily the second-generation compound that triggered the initial payment for any indication, or the payment for a second indication).

With respect to second-generation compounds, milestone payments for second and third indications may be triggered by any second-generation compound (i.e., not necessarily the second-generation compound that triggered the initial payment for any indication, or the payment for a second indication).

In addition, the opt-in payments contemplated by the Original Agreement related to the scope of Janssen’s license rights have been converted into development milestones in the Restated Agreement.

Upcoming potential development milestones for second-generation compounds include:

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

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

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

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

● $ 115.0 million for a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint.

● $ 10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e., an indication different than the indication which triggered the $ 25.0 million milestone received during the first quarter of 2022 described above);

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

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

● $ 115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint.

Development milestones for PTG-200 were unchanged under the Restated Amendment, except that milestone achievement is generally no longer indication-specific.

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The Restated Agreement contains a single performance obligation for the development license;

Phase 1 development services for PTG-200, PN-232 and PN-235;

Phase 1 development services for PTG-200, PN-232 and JNJ-2113 (formerly known as PN-235);

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

the initial year of second-generation compound research services;

and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and PN-235 through Phase 1.

Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and PN-235 beyond Phase 1 are no longer required.

and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and JNJ-2113 through Phase 1.

Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and JNJ-2113 beyond Phase 1 are no longer required.

The Company determined that the license was not distinct from the revised development services within the context of the agreement because the revised development services did not change the utility of the intellectual property.

Company also concluded that the remaining development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the Restated Agreement of the development license and PTG-200, PN-232 and PN-235 services, including compound supply and other services.

The Company also concluded that the remaining development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the Restated Agreement of the development license and PTG-200, PN- 232 and JNJ-2113 services, including compound supply and other services.

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

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

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

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

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

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

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

For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and ended upon the completion of Phase 1 clinical trials for PN-232 and JNJ-2113.

Final activities related to these trials were completed as of June 30, 2022.

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

Variable consideration after the effective date of the Restated Agreement consisted of future milestone payments and cost sharing payments for agreed-upon services offset by development cost reimbursable to Janssen.

Cost sharing payments from Janssen relate to the agreed upon services for development activities that the Company performs within the duration of the contract and are included in the transaction price at the Company’s share of estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third-party contract costs.

Cost sharing payments from Janssen relate to the agreed-upon services for development activities that the Company performs within the duration of the contract and are included in the transaction price at the Company’s share of estimated budgeted costs

for these activities, including primarily internal full-time equivalent effort and third-party contract costs.

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

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

The transaction price of the initial performance obligation under the Restated Agreement was $ 106.5 million as of December 31, 2021, an increase of $ 7.9 million from the transaction price of $ 98.6 million at December 31, 2020 under the Original Agreement and a decrease of $ 6.4 million from the transaction price of $ 112.9 million at December 31, 2019 under the Original Agreement.

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

The transaction price as of December 31, 2021 includes $ 87.5 million of nonrefundable payments received to date, $ 17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and estimated variable consideration consisting of $ 8.2 million of development cost reimbursement receivable from Janssen, partially offset by $ 7.1 million of net cost reimbursement due to Janssen for services performed.

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

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

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

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

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

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

In applying the cost-based input method of revenue recognition, the Company uses actual costs incurred relative to expected costs to fulfill the combined performance obligation.

These costs consist primarily of internal FTE effort and third-party contract costs.

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

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

performance obligations.

The transaction price of the initial performance obligation under the Restated Agreement was $ 131.7 million as of December 31, 2022, an increase of $ 25.2 million from the transaction price of $ 106.5 million at December 31, 2021 under the Restated Agreement and an increase of $ 33.1 million from the transaction price of $ 98.6 million at December 31, 2020 under the Original Agreement.

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

The transaction price as of December 31, 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 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 Company concluded that the variable consideration constraint is appropriately reflected in the transaction price as of December 31, 2022, and that the achievement of future milestones is subject to additional development and/or regulatory uncertainty and therefore it is not probable at December 31, 2022 that a material reversal of such revenues will not occur.

Janssen also opted in for certain additional services to be performed by the Company that were outside the initial performance obligation.

Revenue for these additional services was recognized as these services were performed.

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

In applying the cost-based input method of revenue recognition, the Company used actual costs incurred relative to expected costs to fulfill the combined performance obligation.

These costs consist primarily of internal full-time equivalent effort and third-party contract costs.

Revenue was recognized based on actual costs incurred as a percentage of total estimated costs as the Company completed its performance obligations.

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

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

In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates.

The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated.

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

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

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

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

For the year ended December 31, 2022, the Company recognized $ 26.6 million of license and collaboration revenue, which was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

The Company completed its performance obligation under the collaboration as of June 30 , 2022.

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

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

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

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

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

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

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

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

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

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

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

Year Ended December 31, 2022

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Receivable from collaboration partner - related party

Contract asset - related party

Contract liabilities:

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In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

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

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

December 31, 2022

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Treasury and agency securities

Supranational and sovereign government securities

Total financial assets

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Treasury and agency securities

Supranational and sovereign government securities

Total financial assets

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Treasury and agency securities, including U.S.

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

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

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

Cash Equivalents and Marketable Securities

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Treasury and agency securities

Supranational and sovereign government securities

Total cash equivalents and marketable securities

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Cash equivalents

Marketable securities - current

Marketable securities - noncurrent

Marketable securities

Total cash equivalents and marketable securities

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Treasury and agency securities

Supranational and sovereign government securities

Total cash equivalents and marketable securities

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Cash equivalents

Marketable securities - current

Marketable securities - noncurrent

Marketable securities

Total cash equivalents and marketable securities

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

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

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

Marketable securities of $ 111.6 million and $ 203.2 million held as of December 31, 2022 and 2021, respectively, had contractual maturities of less than one year .

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

There were no realized gains or realized losses on marketable securities for the periods presented.

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

There were no realized gains or realized losses on marketable securities for the periods presented.

Balance Sheet Components

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Accrued professional service fees

Accrued collaboration payments

Accrued payment to former collaboration partner

Total accrued expenses and other payables

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The Company has the right, but not the obligation, to further develop and commercialize such compounds.

The agreement provides for payments to Zealand for the

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

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

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

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

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

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

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

No research and development expense was recorded under this agreement for the years ended December 31, 2022 or 2020.

Government Programs

Research and Development Tax Incentive

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

During the years ended December 31, 2021 and 2020, the Company recognized AUD 4.2 million ($ 3.1 million) and AUD 1.4 million ($ 1.0 million), respectively, as a reduction of research and development expenses in connection with the research and development cash tax incentive from the ATO.

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

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

Small Business Innovation Research (“SBIR”) Grants

In May 2017, the Company was awarded a Phase 2 SBIR grant from the National Institute of Diabetes and Digestive and Kidney Diseases of the NIH in support of research aimed at developing biomarkers that define IL-23R target engagement by orally delivered peptide antagonists and the effects of that engagement of downstream signaling.

The total grant award was $ 1.3 million and was originally for the period from May 2017 to April 2019.

During the year ended December 31, 2019, the Company requested and received an extension of this grant through April 2020.

In September 2018, the Company was awarded a Phase 2 SBIR Grant from the National Heart, Lungs and Blood Institute of the NIH in support of research aimed at developing the Company’s novel hepcidin mimetic rusfertide for the potential treatment of chronic anemia and iron overload in rare blood disorders, including beta-thalassemia.

The total grant award was $ 1.5 million and was originally for the period from September 2018 to August 2020.

During the year ended December 31, 2020, the Company requested an extension of this grant through July 2021, which was received in February 2021.

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

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

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

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

There was no cash tax incentive receivable balance as of December 31, 2022.

Term Loan Facility

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

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

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

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

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

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

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

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

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

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

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

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

The Company did not exercise its option to borrow the $ 20.0 million second tranche of Term Loans, which expired on December 31, 2020.

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

As a result, the Company had no outstanding balance and no obligations related to the Term Loan Credit Agreement as of December 31, 2021.

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

No interest expense related to the Term Loans was recognized during the year ended December 31, 2021.

The Company had no outstanding balance as of December 31, 2022, 2021 or 2020 related to the Term Loan Credit Agreement.

The Company recognized $ 0.6 million in interest expense related to the Term Loans during the year ended December 31, 2020.

No interest expense related to the Term Loans was recognized during the years ended December 31, 2022 and 2021.

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

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

The Company has elected to account for each separate lease component and non-lease components

as one single component for all lease assets.

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

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

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

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

On July 2, 2021, the Company entered into a second amendment to its original facility lease agreement, as amended, for 15,000 square feet of additional office space in Newark, California (the “Second Amendment”).

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

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Contract Service Providers

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

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

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

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The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable.

The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by California corporate law.

The Company carries a directors’ and officers’ insurance policy.

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

Under the Arbitration Resolution Agreement, (1) the Company is required to make an additional payment of $ 1.5 million to Zealand in August 2022 with respect to rusfertide, (2) all development milestones with respect of

rusfertide have been reduced by 50 %, except that the Company agreed to pay in full within two (2) business days after the effective date of the Agreement (and timely paid):

Under the Arbitration Resolution Agreement, (1) the Company was required to make an additional payment of $ 1.5 million to Zealand in August 2022 with respect to rusfertide;

(2) all development milestones with respect of rusfertide were reduced by 50 %, except that the Company agreed to pay in full within two business days after the effective date of the Arbitration Resolution Agreement (and timely paid):

(i) a $ 1.0 million milestone for initiation of a Phase 2b clinical trial;

and (ii) a $ 1.5 million milestone for initiation of a Phase 3 clinical trial;

(3) the royalty rate payable by the Company on net sales of rusfertide has been reduced by 50 %;

(4) all sales milestone payments on net sales of rusfertide have been reduced by 50 %;

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

(4) all sales milestone payments on net sales of rusfertide were reduced by 50 %;

(5) the parties agreed that each party will retain all payments previously made by the other party in connection with the original collaboration agreement;

and (6) the parties have released claims related to the original collaboration agreement, the abandonment agreement and the arbitration.

and (6) the parties released claims related to the original collaboration agreement, the abandonment agreement and the arbitration.

In addition to the payments specified in items (1) and (2) above, the Company may also be required to pay Zealand up to $ 2.75 million in future development milestone payments relating to rusfertide.

Those payments include up to $ 1.0 million in the aggregate for registrational proposals and up to $ 1.75 million in the aggregate for commercial launch in the three geographic territories specified in the original collaboration agreement.

The Company considered the outcome of these arbitration proceedings as being related to research and development project;

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

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

The Company considered the outcome of these arbitration proceedings as being related to its research and development project;

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

Stockholders’ Equity

In September 2017, the Company filed a registration statement on Form S-3 with the Securities and Exchange Commission (File No.

333-220314) that was declared effective as of October 5, 2017 and permitted the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 200.0 million of its common stock, preferred stock and certain debt securities (the “2017 Form S-3”).

Up to a maximum of $ 50.0 million of the maximum aggregate offering price of $ 200.0 million could be issued and sold pursuant to an at-the-market (“ATM”) financing facility under a sales agreement (the “2017 Sales Agreement”).

The 2017 Sales Agreement was terminated in 2019.

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

The 2017 Form S-3 expired in October 2020.

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $ 8.00 per share, for aggregate net proceeds of $ 21.7 million, after deducting offering expenses payable by the Company.

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Each Warrant is exercisable from August 8, 2018 through August 8, 2023 .

Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $ 10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $ 15.00 per share.

Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $ 10.00 per share and Warrants to purchase 1,375,000 shares of the

Company’s common stock have an exercise price of $ 15.00 per share.

The exercise price and number of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants.

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

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

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

to certain exceptions.

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

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

In accordance with Accounting Standards Codification Topic 505, Equity , the Company recorded the retirement of the common stock exchanged as a reduction of common stock shares outstanding and a corresponding debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date.

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

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

During the year ended December 31, 2019, Exchange Warrants to purchase 600,000 shares were net exercised, resulting in the issuance of 599,997 shares of common stock.

As of December 31, 2021, 400,000 of the Exchange Warrants remain unexercised.

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

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

Up to a maximum of $ 75.0 million of the maximum aggregate offering price of $ 250.0 million may be issued and sold pursuant to an ATM financing facility under a sales agreement entered into by the Company on November 27, 2019 (the “2019 Sales Agreement”).

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

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

During the year ended December 31, 2019, Exchange Warrants to purchase 600,000 shares of the Company’s common stock were net exercised, resulting in the issuance of 599,997 shares of common stock.

During the year ended December 31 2022, Exchange Warrants to purchase 400,000 shares of the Company’s common stock were net exercised, resulting in the issuance of 399,997 shares of common stock.

As of December 31, 2022, there were no outstanding Exchange Warrants.

In November 2019, the Company entered into an Open Market Sale Agreement SM (the “Prior Sales Agreement”), pursuant to which the Company could offer and sell up to $ 75.0 million of shares of common stock from time to time in “at-the-market” offerings (the “2019 ATM Facility”).

During the year ended December 31, 2020, the Company sold 2,483,719 shares of its common stock under the 2019 ATM Facility for net proceeds of $ 41.9 million, after deducting issuance costs.

No shares were sold under the 2019 ATM Facility during the year ended December 31, 2021.

During the year ended December 31, 2022, the Company sold 422,367 shares of its common stock under the 2019 ATM Facility for net proceeds of $ 14.6 million, after deducting issuance costs.

The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement in August 2022.

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

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

The Company sold 2,483,719 shares of its common stock pursuant to the 2019 Sales Agreement during the year ended December 31, 2020 for net proceeds of $ 41.9 million, after deducting issuance costs.

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

The 2019 Form S-3 expires in October 2022.

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

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

In December 2020, the Company completed an underwritten public offering of 4,761,904 shares of common stock at a public offering price of $ 21.00 per share and issued an additional 714,285 shares of its common stock at a price of $ 21.00 per share following the underwriters’ exercise of their option to purchase additional shares.

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

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

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

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

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

The Form S-3ASR expires in December 2023.

In August 2022, the Company entered into an Open Market Sale Agreement SM (the “Sales Agreement”), pursuant to which the Company may offer and sell up to $ 100.0 million of shares of its common stock from time to time in “at-the-market” offerings (the “2022 ATM Facility”).

As of December 31, 2022, no sales were made under the 2022 ATM Facility.

Equity Incentive Plan

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

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

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

As of December 31, 2022, approximately 1,350,793 shares of common stock were available for issuance under the 2016 Plan.

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

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

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

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

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

As of December 31, 2021, approximately 243,125 shares were available for issuance under the 2018 Inducement Plan.

As of December 31, 2022, approximately 574,772 shares of common stock were available for issuance under the 2018 Inducement Plan, as amended.

Stock Options

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

Expected Volatility — Prior to January 1, 2020, the Company’s expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the awards.

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

Beginning January 1, 2021, the Company’s expected volatility is estimated based upon a mix of 50 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 50 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

Expected Volatility —For the year ended December 31, 2020, the Company’s expected volatility was based upon a blend of 75 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25 % of the volatility of the Company’s stock price since its initial public

offering in August 2016.

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

For the year ended December 31, 2022, the Company’s expected volatility was estimated based upon a mix of 25 % of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 75 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

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Restricted Stock Units

The Company began issuing restricted stock units under the 2016 Plan during the year ended December 31, 2018.

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

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

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

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

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

A restricted stock unit award (“RSU”) is an agreement to issue shares of the Company’s common stock at the time of vesting.

RSUs generally vest annually in equal installments over three or four years on approximately the anniversary of the grant date.

RSUs granted to certain non-executive employees in 2022 vest 100 % annually on approximately the first anniversary of the grant date.

RSUs granted to certain executives in 2021 vest 100 % on the third anniversary of the grant date.

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

Unvested RSUs at December 31, 2021

Unvested RSUs at December 31, 2022

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

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

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

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

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

For the years ended December 31, 2022, 2021 and 2020, the aggregate fair value of RSUs that vested during the year was $ 1.7 million, $ 0.8 million and $ 1.2 million, respectively.

Performance Stock Units

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

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

Unvested PSUs at December 31, 2021

Unvested PSUs at December 31, 2022

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

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

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

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

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

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

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

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

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

The total fair value of grant date fair value of unvested PSUs outstanding as of December 31, 2022 was $ 2.9 million.

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

Employee Stock Purchase Plan

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

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

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

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

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

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

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

During the year ended December 31, 2022, a total of 58,709 shares of common stock were issued under the 2016 ESPP, and approximately 1,255,290 shares of common stock were available for issuance as of December 31, 2022.

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

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

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

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

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

The Company matched 50 % of each employee’s contribution up to a maximum of $ 4,000 for the year ended December 31, 2022 and $ 3,500 for the year ended December 31, 2021, resulting in recognized expense of approximately $ 0.3 million for the years ended December 31, 2022 and 2021.

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

No income tax expense was recorded by the Company for the years ended December 31, 2022, and 2021.

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

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

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

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

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Total net loss before taxes

The federal, state and foreign components of the income tax expense (benefit) are summarized as follows:

The federal, state and foreign components of the income tax expense (benefit) are summarized as follows (in thousands):

Year Ended December 31,

Total current tax (benefit) expense

Total deferred tax expense (benefit)

Total income tax expense (benefit)

Total deferred tax expense

Total income tax expense

The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:

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Change in valuation allowance

(Provision) benefit for income taxes

Provision for income taxes

The components of the deferred tax assets are as follows (in thousands):

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Research and development and foreign credits

Section 174 capitalized R&D expenditure

Total deferred tax assets

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Net deferred tax assets

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

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

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

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

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not”.

Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by approximately $ 34.2 million, $ 32.0 million and $ 19.4 million during the years ended December 31, 2022, 2021 and 2020, respectively.

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Subsequent ownership changes may affect the limitation in future years.

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

As of December 31, 2022, the Company had $ 349.5 million of federal net operating loss carryforwards and $ 214.8 million of state net operating loss carryforwards.

$ 78.7 million of the federal net operating loss carryforwards will begin to expire in 2033, if not utilized, and the remaining $ 270.8 million have no expiration date.

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

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

As of December 31, 2022, the Company had approximately AUD 0.3 million ($ 0.2 million) of Australian tax loss carryforward.

As of December 31, 2022, the Company had $ 28.1 million of federal and $ 10.7 million of state research and development tax credit carryforwards available to reduce future income taxes.

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Balance at beginning of year

(Decreases) increases based on tax positions related to prior years

Decreases based on tax positions related to prior years

Increases based on tax positions related to current year

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

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

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

Federal income tax credit on qualifying clinical study expenditures.

Tax Law Updates

On December 22, 2017, the U.S.

enacted comprehensive tax legislation (the “Tax Act”).

The Tax Act made broad and complex changes to the U.S.

tax code, including the imposition of a one-time mandatory deemed repatriation tax (“Transition Tax”) on certain earnings accumulated offshore since 1986 and the reduction of the corporate tax rate from 35 % to 21 % for U.S.

taxable income, resulting in a one-time remeasurement of U.S.

federal deferred tax assets and liabilities.

The Tax Act also amended Internal Revenue Code Section 174 requiring capitalization of research and experimentation expenditures.

The capitalized expenses are amortized over a period of five or fifteen years .

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations.

Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes.

We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business.

Net Loss per Share

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Performance stock units

Restructuring

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

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

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

Subsequent Event

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

The Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility pursuant to the Sales Agreement during the period from January 1, 2023 through filing date of this Annual Report on Form 10-K.

Net proceeds were $ 24.3 million, after deducting issuance costs.

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

As of the filing date of this Annual Report on Form 10-K, a total of $ 275.1 million of common stock remained available for sale under the registration statement on Form S-3 (File No.

333-266595) that was declared effective as of August 16, 2022, $ 75.1 million of which remained available for sale under the 2022 ATM facility.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data