What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-08 · 141 added, 302 removed, 300 unchanged (60% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

1 unchanged sentence

Marketable securities

Receivable from collaboration partner and contract asset - related party

Research and development tax incentive receivable

Receivable from collaboration partner

Prepaid expenses and other current assets

6 unchanged sentences

Accounts payable

Payable to collaboration partner - related party

Payable to collaboration partner

Accrued expenses and other payables

Deferred revenue - related party

Operating lease liability - current

7 unchanged sentences

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

49,198,411 and 47,838,330 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

51,440,503 and 49,339,252 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

7 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

License and collaboration revenue - related party

Three Months Ended March 31,

License and collaboration revenue

Operating expenses:

4 unchanged sentences

Interest income

Other expense, net

Other (expense) income, net

Net loss per share, basic and diluted

4 unchanged sentences

(In thousands)

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Other comprehensive loss:

Loss on translation of foreign operations

Gain on translation of foreign operations

Unrealized gain (loss) on marketable securities

6 unchanged sentences

Stockholders'

Three months ended September 30, 2022

Balance at June 30, 2022

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

Other comprehensive gain

Balance at September 30, 2022

Comprehensive

Stockholders'

Three months ended September 30, 2021

Balance at June 30, 2021

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

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

Stock-based compensation expense

Other comprehensive loss

Balance at September 30, 2021

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

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share data)

Comprehensive

Stockholders'

Nine months ended September 30, 2022

Three months ended March 31, 2023

Balance at December 31, 2022

1 unchanged sentence

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

Balance at September 30, 2022

Other comprehensive gain

Balance at March 31, 2023

Comprehensive

Stockholders'

Nine months ended September 30, 2021

Three months ended March 31, 2022

Balance at December 31, 2021

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

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

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

2 unchanged sentences

Other comprehensive loss

Balance at September 30, 2021

Balance at March 31, 2022

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities

2 unchanged sentences

Operating lease right-of-use asset amortization

Net amortization of premium on marketable securities

(Accretion)/amortization of discount/premium on marketable securities

Changes in operating assets and liabilities:

Research and development tax incentive receivable

Receivable from collaboration partner - related party

Receivable from collaboration partner

Prepaid expenses and other assets

Accounts payable

Payable to collaboration partner - related party

Payable to collaboration partner

Accrued expenses and other payables

Deferred revenue - related party

Deferred revenue

Operating lease liability

9 unchanged sentences

Tax withholding payments related to net settlement of restricted stock units

Issuance costs related to prior period common stock offering

Net cash provided by financing activities

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

Net increase in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

9 unchanged sentences

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

The Company is a biopharmaceutical company with peptide-based new chemical entities rusfertide and PN-235 in different stages of clinical 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;

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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.

As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $ 267.4 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 502.6 million as of September 30, 2022.

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

As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of $ 230.8 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 570.5 million as of March 31, 2023.

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

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Risks and Uncertainties

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

The impact of the COVID-19 pandemic on the Company’s activities depends on a number of factors, including, but not limited to, the duration and severity of the pandemic;

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.

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

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 resulting from the spread of COVID-19 could materially affect our business.

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

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

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

In 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 the ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation and recent failures of banking and other financial institutions.

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.

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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 such factors may lead to increases in the cost of manufacturing for and initiation of studies in the Company’s product candidates.

In addition, the failure of Silicon Valley Bank and other regional banks in the United States between March and May of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance Corporation.

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

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 global monetary and fiscal policy, macroeconomic factors, 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

Basis of Presentation and Consolidation

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

As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of September 30, 2022 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements.

As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of March 31, 2023 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements.

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

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future period.

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

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

Effective January 1, 2023, the financial statements of Protagonist Australia use the U.S.

dollar as the functional currency, which reflects the expected nature of the ongoing operations of this subsidiary.

The cumulative translation adjustment as of January 1, 2023 related to this subsidiary was not material.

Prior to January 1, 2023, the financial statements of Protagonist Australia used the Australian dollar as the functional currency since the majority of expense transactions occurred in such currency.

Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.

Principles of Consolidation

5 unchanged sentences

Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration agreements.

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.

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.

Actual results could differ materially from these estimates.

Due to the ongoing COVID-19 pandemic, military conflict between Ukraine and Russia 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 date of issuance of this report.

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.

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

3 unchanged sentences

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

September 30,

Cash and cash equivalents

1 unchanged sentence

Total cash reported on condensed consolidated statements of cash flows

Investment Impairment

As of each reporting date, the Company assesses each of its investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors.

Factors considered in determining whether an impairment is credit-related include the extent to which the investment’s fair value is less than its cost basis, declines in published credit ratings, issuer default on interest or principal payments, and declines in the financial condition and near-term prospects of the issuer.

Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other income (expense), net.

The portion of the impairment that is not credit-related is recorded as a reduction of other comprehensive income (loss), net of applicable taxes.

The Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment.

The Company writes off accrued interest as a reduction of interest income when an issuer has defaulted on interest payments due on a security.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2022 as compared to those disclosed in Note 2.

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

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

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.

In November 2019, the FASB issued ASU No.

2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates , which amended the mandatory effective date of ASU No.

2016-13 for smaller reporting companies.

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

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

Other than the change in Protagonist Australia functional currency from Australian dollar to U.S.

dollar effective January 1, 2023 and the investment impairment policy, as discussed above, there have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023 as compared to those disclosed in Note 2.

Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Adopted Accounting Pronouncement

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”).

The guidance requires measurement and recognition of expected credit losses for financial assets at the time financial assets are initially

recognized in the financial statements.

The measurement of expected credit losses is based on historical credit loss information as well as current and future economic factors.

ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of credit loss or other factors.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326):

Effective Dates , which delayed the mandatory effective date of ASU 2016-13 for smaller reporting companies.

The Company adopted ASU 2016-13 effective January 1, 2023.

The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or 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”).

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.

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 and Janssen (the “Original Agreement’), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”).

Prior to January 1, 2023, Janssen was a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc.

was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson.

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.

In April 2022, 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 first quarter of 2022.

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 received 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 include PTG-200 (JN-67864238), PN-232 (JNJ-75105186) and PN-235 (JNJ-77242113).

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

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

Pursuant to the Restated Agreement, the parties:

● 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 trial and the ongoing Phase 1 trials in PN-232 and PN-235;

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

● concluded the parties’ two-year research collaboration, while enabling Janssen to continue conducting additional research through July 2024 on compounds developed pursuant to the Original Agreement.

The Restated Agreement enables Janssen to develop collaboration compounds for multiple indications.

Under the Restated Agreement, Janssen is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

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 trials of second-generation compounds;

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

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

The Company’s continuing development expense obligations under the Restated Agreement were 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 ongoing Phase 1 trial evaluating PN-235 incurred through January 4, 2021;

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

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

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

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

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

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

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

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

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

(b) any second indication (rather than ulcerative colitis (“UC”), as in the Original Agreement);

and (c) any third 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:

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

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

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

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

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

● $ 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 second 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.

Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.

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Any further research and development will be conducted by Janssen.

The Company will have the right to co-detail (for CD and UC indications) up to two of the IL-23 receptor antagonist compounds under the collaboration in the U.S.

The Company will have the right to co-detail (for CD and ulcerative colitis indications) up to two of the IL-23 receptor antagonist compounds under the collaboration in the U.S.

The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier.

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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.

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.

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 PN-235 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 was 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 for the year ended December 31, 2021.

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

For revenue recognition purposes, the duration of the Restated Agreement 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 PN-235.

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 consists of future milestone payments and cost sharing payments for agreed upon services offset by development costs 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 are included in the transaction price at the Company’s share of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third-party contract costs.

Cost sharing payments to Janssen related 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 final transaction price of the initial performance obligation under the Restated Agreement was $ 131.7 million as of June 30, 2022.

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

In order to determine the transaction price, 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.

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

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 methods 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 full-time equivalent effort and third-party contract costs.

Revenue is 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 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 nine months ended September 30, 2022, the Company recognized license and collaboration revenue of $ 26.6 million.

No license and collaboration revenue was recognized for the three months ended September 30, 2022 because the Company completed its performance obligation under the collaboration as of June 30, 2022.

License and collaboration revenue for the nine months ended September 30, 2022 was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

For the three and nine months ended September 30, 2021, the Company recorded a cumulative catch-up adjustment increasing license and collaboration revenue by $ 8.0 million, and also recognized license and collaboration revenue of $ 2.3 million and $ 9.9 million, respectively, related to the contract modification under the Restated Agreement entered in July 2021.

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

No revenue related to additional services provided by the Company under the Restated Agreement was recognized for the three months ended September 30, 2021.

No license and collaboration revenue was recognized for the three months ended March 31, 2023 because the Company completed its performance obligation under the collaboration as of June 30, 2022.

For the three months ended March 31, 2022, the Company recognized license and collaboration revenue of $ 25.7 million.

License and collaboration revenue for the three months ended March 31, 2022 was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Contract assets:

Receivable from collaboration partner - related party

Receivable from collaboration partner

Contract liabilities:

Deferred revenue - related party

Payable to collaboration partner - related party

Nine Months Ended September 30, 2021

Payable to collaboration partner

Three Months Ended March 31, 2022

Contract assets:

Receivable from collaboration partner - related party

Receivable from collaboration partner

Contract liabilities:

Deferred revenue - related party

Payable to collaboration partner - related party

During the three and nine months ended September 30, 2022, the Company recognized revenue of zero and $ 0.9 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

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

Deferred revenue

Payable to collaboration partner

During the three months ended March 31, 2023 and 2022, the Company recognized revenue of zero and $ 13,000 , respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period.

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

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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).

September 30, 2022

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

March 31, 2023

Money market funds

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Treasury and agency securities

Supranational and sovereign government securities

Total financial assets carried at fair value

Total financial assets

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

Treasury and agency securities, including U.S.

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

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

Treasury bills, 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

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

September 30, 2022

March 31, 2023

Gross Unrealized

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Cash equivalents

Marketable securities - current

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

Total cash equivalents and marketable securities

Marketable securities – current of $ 114.6 million and $ 203.2 million held at September 30, 2022 and December 31, 2021, respectively, had contractual maturities of less than one year .

Marketable securities of $ 103.1 million and $ 111.6 million held at March 31, 2023 and December 31, 2022, 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.

The Company evaluated securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors and determined that there were no credit-related losses to be recognized as of March 31, 2023.

Balance Sheet Components

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

September 30,

Prepaid clinical and research related expenses

Prepaid insurance

Prepaid license

Other prepaid expenses

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

September 30,

Laboratory equipment

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

September 30,

Accrued clinical and research related expenses

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Accrued professional service fees

Accrued payment to former collaboration partner

Total accrued expenses and other payables

Research Collaboration and License Agreement

The Company and Zealand Pharma A/S (“Zealand”) entered into a collaboration agreement in June 2012.

In October 2013, Zealand abandoned the collaboration, and the collaboration agreement was terminated in 2014.

The agreement provides for certain post-termination payment obligations to Zealand with respect to compounds related to the collaboration that meet specified conditions set forth in the collaboration agreement and which the Company elects to further develop following Zealand’s abandonment of the collaboration.

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

However, upon reevaluation, the Company concluded in 2019 that rusfertide is not a compound requiring post-termination payments under the agreement and initiated an arbitration proceeding in January 2020.

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

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

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

No research and development expense was recorded under the Zealand collaboration agreement for the three and nine months ended September 30, 2022.

The Company recognized $ 4.0 million in research and development expense under the agreement for the three and nine months ended September 30, 2021, respectively.

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 three and nine months ended September 30, 2022.

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

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

There was no cash tax incentive receivable balance as of September 30, 2022 .

Commitments and Contingencies

Legal Proceedings

The Company recognizes accruals for legal actions to the extent that it concludes that a loss is both probable and reasonably estimable.

The Company accrues for the best estimate of a loss within a range;

however, if no estimate in the range is better than any other, it accrues the minimum amount in the range.

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

On January 23, 2020, the Company initiated arbitration proceedings with the International Court of Arbitration of the International Chamber of Commerce against Zealand related to a collaboration agreement the Company and Zealand entered into in 2012 and terminated in 2014.

The agreement provides for certain post-termination payment obligations to Zealand with respect to compounds related to the collaboration that the Company elects to further develop and meet specified conditions.

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

Under the Arbitration Resolution Agreement, (1) the Company 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 (2) business days after the effective date of the Agreement (and timely paid):

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

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

(3) the royalty 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 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 its research and development project;

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

Stockholders’ Equity

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

As of and for the three months ended March 31, 2023, the Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility for net proceeds of $ 24.3 million, after deducting issuance costs.

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 the “at-the-market” offerings (the “2019 ATM Facility”).

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 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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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.

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.

Under certain circumstances, the Warrants may be exercisable on a “cashless” basis.

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

As of September 30, 2022, none of the Warrants have been exercised.

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

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

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

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

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

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

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.

On July 1, 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.

There were no outstanding Exchange Warrants as of September 30, 2022.

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

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

As of September 30, 2022, a total of $ 79.3 million of securities remained available for sale under the 2019 Form S-3, $ 17.0 million of which remained available for sale under the ATM financing facility.

The 2019 Form S-3 expired in October 2022.

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

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

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

The Form S-3ASR expires in December 2023.

In August 2022, the Company filed a registration statement on Form S-3 (File No.

333-266595) that was declared effective as of August 16, 2022, and permits the offering, issuance, and sale by the Company of up to a maximum aggregate offering price of $ 300.0 million of its common stock, preferred stock, debt securities and warrants (the “2022 Form S-3”).

Up to a maximum of $ 100.0 million of the maximum aggregate offering price of $ 300.0 million may be issued and sold pursuant to an at-the-market (“ATM”) financing facility under a sales agreement entered into by the Company on August 5, 2022 (the “2022 Sales Agreement”).

As of September 30, 2022, no offering, issuance or sale

of common stock, preferred stock, debt securities or warrants was made under the 2022 Form S-3 or the 2022 Sales Agreement.

As of March 31, 2023, none of the Warrants have been exercised.

Equity Incentive Plan

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The 2016 Plan is administered by the board of directors, or a committee appointed by the board of directors, 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 2016 Plan expire no later than ten years from the date of grant.

As of September 30, 2022, 1,118,375 shares were available for issuance under the 2016 Plan.

Awards granted under

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

As of March 31, 2023, 892,905 shares were available for issuance under the 2016 Plan.

Inducement Plan

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 the Company 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.

In May 2018, the Company’s board of directors approved the Company’s 2018 Inducement Plan (as subsequently amended, the “2018 Inducement Plan”) is a non-stockholder approved stock plan, under which the Company 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 September 30, 2022, 690,147 shares were available for issuance under the 2018 Inducement Plan, as amended.

As of March 31, 2023, 574,772 shares were available for issuance under the 2018 Inducement Plan.

Stock Options

5 unchanged sentences

Options forfeited

Balances at September 30, 2022

Options exercisable – September 30, 2022

Options vested and expected to vest – September 30, 2022

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on September 30, 2022.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on September 30, 2022.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the nine months ended September 30, 2022 was $ 18.67 per share.

Balances at March 31, 2023

Options exercisable – March 31, 2023

Options vested and expected to vest – March 31, 2023

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on March 31, 2023.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2023.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the three months ended March 31, 2023 was $ 10.05 per share.

Stock Options Valuation Assumptions

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Expected term (in years)

2 unchanged sentences

97.1 % - 98.2 %

96.3 % - 101.7 %

87.4 % - 90.2 %

Risk-free interest rate

1 unchanged sentence

1.64 % - 2.13 %

1.64 % - 4.01 %

0.11 % - 1.16 %

Dividend yield

3 unchanged sentences

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

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

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

Expected Volatility —Beginning January 1, 2023, the Company’s expected volatility is estimated based upon the volatility of the Company’s stock price over a period equal to the expected term of the stock option grants.

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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Unvested RSUs at December 31, 2022

Unvested RSUs at September 30, 2022

Unvested RSUs at March 31, 2023

Performance Stock Units

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

Unvested PSUs at December 31, 2021

Unvested PSUs at September 30, 2022

As of March 31, 2023 and December 31, 2022, 199,500 unvested performance stock units (“PSUs”) were outstanding under the Company’s equity incentive plans, with a weighted average grant date fair value of $ 14.59 per share.

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 related performance objectives, subject to specified change of control exceptions.

The PSUs will vest, if at all, upon certification by the compensation committee of the Board of Directors of the actual achievement of the related performance objectives, subject to specified change of control exceptions.

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

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

The total grant date fair value of unvested PSUs outstanding as of September 30, 2022 was $ 2.9 million.

As of September 30, 2022, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of September 30, 2022.

The total grant date fair value of unvested PSUs outstanding as of March 31, 2023 was $ 2.9 million.

As of March 31, 2023, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of March 31, 2023.

Employee Stock Purchase Plan

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

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

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 nine months ended September 30, 2022, a total of 58,709 shares of common stock were issued under the 2016 ESPP, and 1,255,290 shares remained available for issuance as of September 30, 2022.

During the three months ended March 31, 2023, a total of 68,605 shares of common stock were issued under the 2016 ESPP, and 1,486,685 shares of common stock remained available for issuance as of March 31, 2023.

Stock-Based Compensation

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

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Research and development

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Total stock-based compensation expense

As of September 30, 2022, total unrecognized stock-based compensation expense was approximately $ 56.4 million, which the Company expects to recognize over a weighted-average period of approximately 2.5 years.

2022 Tax Law Updates

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law.

The IRA contains two main tax provisions:

a new corporate alternative minimum tax imposed on certain corporations and an excise tax imposed upon shares repurchased by certain publicly traded corporations.

The provisions are effective for tax years beginning after December 31, 2022.

The Company is evaluating the impact of these provisions on its condensed financial statements and expects that the adoption of this act will not have a material impact on its financial statements.

As of March 31, 2023, total unrecognized stock-based compensation expense was approximately $ 66.8 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

Net Loss per Share

As the Company had net losses for the three and nine months ended September 30, 2022 and 2021, all potential weighted average dilutive common shares were determined to be anti-dilutive.

As the Company had net losses for the three months ended March 31, 2023 and 2022, all potential weighted average dilutive common shares were determined to be anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

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

1 unchanged sentence

The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per share computations for the periods presented because their inclusion would be anti-dilutive:

September 30,

Options to purchase common stock

2 unchanged sentences

Performance stock units

Subsequent Event

In April 2023, the Company completed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of $ 20.00 per share and issued an additional 750,000 shares of common stock at a price of $ 20.00 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 approximately $ 107.7 million.

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

What changed 10-Q

Item 1. Financial Statements