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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-08 · 158 added, 222 removed, 138 unchanged (73% of the section changed)

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

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

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 15, 2023.

Forward-Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical fact are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,” and similar expressions intended to identify forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,”, “seeks” and similar expressions intended to identify forward-looking statements.

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

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

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

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

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Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future developments, changes in assumptions or otherwise.

“Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc.

in the United States and other jurisdictions.

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and PN-235 in different stages of development, all derived from the Company’s proprietary discovery technology platform.

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

Our clinical programs fall into two broad categories of diseases;

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Our Product Pipeline

Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an injectable hepcidin mimetic in development for the potential treatment of erythrocytosis, iron overload and other blood disorders.

Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells.

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Our rusfertide Phase 2 clinical trials include the following:

● REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the third quarter of 2019.

We completed enrollment of patients in the ongoing REVIVE Phase 2 clinical trial of rusfertide in PV in the first quarter of 2022 with a target of approximately 50 patients to be enrolled through the end of the randomization portion of the trial, which we expect to complete by January 2023.

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

Data from the PACIFIC study presented at the 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting demonstrate the effects of dosing interruption and resumption.

Rusfertide dosing and interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood cells.

● REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019.

We completed enrollment of patients in the first quarter of 2022 with a target of approximately 50 patients to be enrolled through the end of the randomization portion of the trial, which was completed during the first quarter of 2023 and will continue in open label extension.

● PACIFIC, another Phase 2 trial for rusfertide for patients diagnosed with PV and with routinely elevated hematocrit levels (>48%), was initiated during the first quarter of 2021 and completion of the 52-week trial is expected during the second quarter of 2023.

At the June 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting, we presented updated interim results for REVIVE and PACIFIC demonstrating the effects of dosing interruption and resumption.

Rusfertide dosing interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood

Rusfertide restart restored therapeutic benefits.

Based on ongoing end of Phase 2 feedback provided by the FDA’s Division of Nonmalignant Hematology and written comments from the European Medicines Agency (“EMA”), we activated sites and initiated patient screening for VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately 250 patients, in the first quarter of 2022.

While significant efforts have been taken toward the goal of full enrollment and a high degree of interest has been observed from physicians and patient communities, operational challenges, including site staff shortages, have continued to delay initial recruitment activities.

We expect enrollment completion in the second half of 2023.

On September 16, 2021, the U.S.

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

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

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

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

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

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

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

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

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

The FDA correspondence relating to the Breakthrough Therapy designation does not address the rusfertide Fast Track Designation, which remains active.

Following a brief clinical hold, over 90% of patients in the REVIVE trial provided reconsent and returned to rusfertide treatment after dosing interruption and reinitiation.

At the June 2022 European Hematology Association Congress, we presented interim data as of May 2022 showing that rusfertide treatment interruption reverses hematologic gains and re-initiation of treatment restores therapeutic benefits in patients with PV.

At the December 2022 American Society of Hematology meeting, we presented data as of October 2022 related to rusfertide, including a subgroup of analyses of the adverse event profile from the REVIVE trial.

These preliminary results indicated that 84% of treatment-emergent adverse events (“TEAEs”) were Grade 2 or below.

16% of patients experienced Grade 3 TEAEs and there were no Grade 4 TEAEs.

On March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized withdrawal portion of the REVIVE trial.

Subjects receiving rusfertide achieved statistically significant improvements versus placebo in the trial’s primary endpoint.

The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements.

In the REVIVE trial, subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study, followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks.

More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were responders compared with placebo (69.2% versus 18.5%, p=0.0003).

A study subject was defined as a responder if the subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy eligibility and without phlebotomy.

During the 12 weeks of the blinded randomized withdrawal, only 2 of 26 subjects on rusfertide were phlebotomized.

VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately 250 patients, was initiated in the first quarter of 2022.

Significant efforts have been taken toward the goal of full enrollment and a high degree of interest has been observed from physicians and patient communities.

We expect enrollment completion in the fourth quarter of 2023.

In keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease indications have been paused.

This decision was influenced in part by the recent enactment of the Inflation Reduction Act in the United States and includes previously planned trials of rusfertide in the subset of hereditary hemochromatosis patients with chronic arthropathy.

Our Interleukin-23 receptor (“IL-23R”) antagonist compound PN-235 is an orally delivered investigational drug that is designed to block biological pathways currently targeted by marketed injectable antibody drugs.

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

We believe that, compared to antibody drugs, PN-235 has the potential to provide improved safety due to minimal exposure in the blood, increased convenience and compliance due to oral delivery, and the opportunity for the earlier introduction of targeted oral therapy.

This decision was influenced in part by the enactment of the Inflation Reduction Act (“IRA”) in the United States and includes previously planned trials of rusfertide in the subset of hereditary hemochromatosis patients with chronic arthropathy.

JNJ-2113 (formerly known as PN-235)

Our partnered Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113 is an orally delivered investigational drug that is designed to block biological pathways currently targeted by marketed injectable antibody drugs.

Our orally stable peptide approach may offer a targeted therapeutic approach for gastrointestinal (“GI”) and systemic compartments as needed.

We believe that, compared to antibody drugs, JNJ-2113 has the potential to provide clinical improvement in an oral medication with increased convenience and compliance and the opportunity for the earlier introduction of targeted oral therapy.

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

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

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

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

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

In February 2022, Janssen initiated FRONTIER 1, a 240-patient Phase 2b clinical trial of PN-235 in moderate-to-severe plaque psoriasis expected to be completed in the first quarter of 2023.

Other studies of PN-235 that Janssen has initiated or planned include the SUMMIT study of PN-235 for the treatment of moderate-to-severe plaque psoriasis

expected to be completed in the second quarter of 2023, FRONTIER 2, a long-term extension study, and a Phase 1 study of PN-235 in healthy Japanese and Chinese volunteers.

Janssen is expected to initiate a separate Phase 2 trial of PN-235 in IBD in 2023 .

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

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

We will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the second Phase 2 trial of a second-generation candidate, and a $50 million milestone upon dosing of a third patient in a Phase 3 trial for a second-generation compound for any indication .

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

PN-943 is an investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin antagonist for IBD.

During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to advance second-generation product candidate JNJ-2113 (JNJ-77242113) based on its superior

potency and overall pharmacokinetic and pharmacodynamic profile.

A JNJ-2113 Phase 1 trial was completed in the fourth quarter of 2021.

In February 2022, Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed in December 2022.

FRONTIER1 was a randomized, multicenter, double-blind, placebo-controlled study that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113 taken orally.

The primary endpoint of the study is the proportion of patients achieving PASI-75 (a 75% improvement in skin lesions as measured by the Psoriasis Area and Severity Index) at 16 weeks.

In March 2023, we announced positive topline results from the trial.

JNJ-2113 achieved the study's primary efficacy endpoint, with a statistically significant greater proportion of patients who received JNJ-2113 achieving PASI-75 responses compared to placebo at Week 16 in all five of the study’s treatment groups.

A clear dose response was observed across an eight-fold dose range.

Treatment was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo.

It is our expectation that JNJ-2113 will progress into a Phase 3 registrational study in plaque psoriasis on the strength of the FRONTIER1 data.

Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study would qualify us for milestone payments of $50 million and $115 million, respectively.

Data will be presented from various pre-clinical and clinical studies on JNJ-2113 at medical conferences beginning in the second quarter of 2023.

Other Phase 2 studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the treatment of moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023, and FRONTIER 2, a long-term extension study.

A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy Chinese adult participants is currently recruiting.

Following the completion of Phase 2 studies of JNJ-2113 in plaque psoriasis, we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication.

Additional indications may include any or all of psoriatic arthritis, ulcerative colitis (“UC”) and Crohn’s disease (“CD”).

During the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by the completion of data collection for JNJ-2113 Phase 1 activities.

In the second quarter of 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022.

We will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the first Phase 2 trial of a second-generation candidate, a $50 million milestone upon dosing of a third patient in a Phase 3 trial for a second-generation compound for any indication, and a $115.0 million milestone payment upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primarily clinical endpoint .

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

We also remain eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.

PN-943 is a wholly owned, investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin antagonist for IBD.

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

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

The trial includes a 12-week induction period, which has been completed, and a 40-week extended treatment period.

With the exception of completing the 40-week extended treatment period for eligible patients in the IDEAL trial, expected to be completed in the first quarter of 2023, we do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We will continue to explore out-licensing opportunities globally.

De-prioritization of our PN-943 clinical program and streamlining of certain discovery programs is part of our ongoing commitment to optimize and focus resources toward the rusfertide program in PV.

The trial included a 12-week induction period and a 40-week extended treatment period, which have been completed.

We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

Discovery Platform

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

For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic,

which we believe will be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.

Business Update

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

The severity of the impact of the COVID-19 pandemic on our activities depends on a number of factors, including, but not limited to, the duration and severity of the pandemic, the development and spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments;

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

We are 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.

Some of the workforce trends starting during the pandemic have continued to lead to staffing shortages in settings such as clinical trial sites and healthcare offices.

The future impact of COVID-19 on our 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.

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

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

In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business.

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

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

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 our business.

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

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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 our operating results.

Also, 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.

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

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

Our net loss was $31.2 million and $93.2 million for the three and nine months ended September 30, 2022, respectively.

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

As of September 30, 2022, we had an accumulated deficit of $502.6 million.

Our net loss was $33.7 million and $20.9 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, we had an accumulated deficit of $570.5 million.

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

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

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

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

Janssen License and Collaboration Agreement

On July 27, 2021, we entered into an amended and restated License and Collaboration Agreement (“Restated Agreement”) with Janssen.

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

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

The Original Agreement became effective on July 13, 2017.

On July 27, 2021, we 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 us 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 us as Johnson & Johnson Innovation - JJDC, Inc.

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

2021, we entered into the Restated Agreement (“Restated Agreement”) with Janssen, which amends and restates the Original Agreement, as amended by the First Amendment.

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

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

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

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

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

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

In the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by completion of the data collection for JNJ-2113 Phase 1 activities.

In the second quarter of 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022.

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

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

There have been no material changes to our critical accounting policies during the three and nine months ended September 30, 2022, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

There have been no material changes to our critical accounting policies during the three months ended March 31, 2023, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2022 filed with the SEC on March 15, 2023.

Components of Our Results of Operations

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● facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other supplies.

We recognize the funds from grants under government programs as a reduction of research and development expenses when the related research costs are incurred.

In addition, we recognize the funds related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses.

We recognize the amount related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses.

The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured.

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We may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive.

We recognize the amounts from grants under government programs as a reduction of research and development expenses when the related research costs are incurred.

We allocate direct costs and indirect costs incurred to product candidates when they enter clinical development.

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Indirect costs allocated to our product candidates on a program-specific basis include research and development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative support costs.

Program-specific costs are unallocated when the clinical expenses are incurred for our early-stage research and drug discovery projects, our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects.

Program-specific costs are unallocated when the clinical expenses are incurred for our early-stage research and drug discovery projects as our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects.

As such, we do not provide financial information regarding the costs incurred for early-stage pre-clinical and drug discovery programs on a program-specific basis prior to the clinical development stage.

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

Three Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Pre-clinical and drug discovery research expense

Milestone payment obligation to former collaboration partner

Grants and tax incentives expense reimbursement, net

Total research and development expenses

We expect our research and development expenses will increase as we progress our rusfertide program into later stage clinical trials and prepare for commercialization.

We expect our research and development expenses to decrease in the near term as we focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization.

We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

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

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

Most recently, with the exception of completing the 40-week extended treatment period for eligible patients in the Phase 2 IDEAL trial, expected to be completed in the first quarter of 2023, we do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We will continue to explore out-licensing opportunities globally.

De-prioritization of PN-943 and streamlining of certain discovery programs is part of our ongoing commitment to optimize and focus resources toward the rusfertide program in PV.

General and Administrative Expenses

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

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

We expect to continue to incur expenses to support our continued operations as a public company, including expenses related to existing and future compliance

with rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations, audit fees, professional services and general overhead and administrative costs.

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

We expect to continue to incur expenses supporting our continued operations as a public company, including expenses related to compliance with the

rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations expenses, audit fees, professional services and general overhead and administrative costs.

Interest Income

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

Other Expense, Net

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

Other (Expense) Income, Net

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

Results of Operations

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

Three Months Ended

September 30,

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Loss from operations

Interest income

Other expense, net

*Percentage not meaningful

(1) Includes $3.9 million and $2.6 million of non-cash stock-based compensation expense for the three months ended September 30, 2022 and 2021, respectively.

(2) Includes $2.1 million and $2.2 million of non-cash stock-based compensation expense for the three months ended September 30, 2022 and 2021, respectively.

License and collaboration revenue

License and collaboration revenue decreased $10.3 million, or 100%, from $10.3 million for the three months ended September 30, 2021 to zero for the three months ended September 30, 2022.

The decrease was primarily related to a decrease in services provided under the Restated Agreement with Janssen, with associated revenue recognized based on proportional performance, because we completed our performance obligation pursuant to the collaboration as of June 30, 2022.

We determined that the final transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022.

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

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

Research and Development Expenses

Three Months Ended

September 30,

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Pre-clinical and drug discovery research expense

Milestone payment obligation to former collaboration partner

Grants and tax incentives expense reimbursement, net

Total research and development expenses

Research and development expenses decreased $11.6 million, or 31%, from $37.0 million for the three months ended September 30, 2021 to $25.4 million for the three months ended September 30, 2022.

The decrease was primarily due to (i) a decrease of $6.6 million relating to the PN-943 program, which has been paused in order to optimize and focus resources toward our rusfertide program in PV, (ii) a decrease of $4.0 million in expenses related to milestone payments and obligations incurred under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration during the third quarter of 2021, and (iii) a decrease in expenses relating to PN 232 and PN-235 due to the completion of Phase 1 clinical trials that began in 2021.

We had 99 and 92 full-time equivalent research and development employees as of September 30, 2022 and 2021, respectively.

Research and development expenses for the three months ended September 30, 2022 included increases of $1.2 million in stock-based compensation expense and $0.7 million in other personnel-related expenses compared to the three months ended September 30, 2021.

General and Administrative Expenses

General and administrative expenses decreased $0.4 million, or 5%, from $7.3 million for the three months ended September 30, 2021 to $6.9 million for the three months ended September 30, 2022 due primarily to a decrease of $0.1 million in personnel-related expenses and $0.2 million in consulting, legal and other costs.

We had 23 and 24 full-time equivalent general and administrative employees as of September 30, 2022 and 2021, respectively.

Interest Income

Interest income increased $1.0 million from $0.1 million for the three months ended September 30, 2021 to $1.2 million for the three months ended September 30, 2022.

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

Comparison of the Nine Months Ended September 30, 2022 and 2021

Nine Months Ended

September 30,

(Dollars in thousands)

License and collaboration revenue - related party

Operating expenses:

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Interest income

Other expense, net

(1) Includes $11.3 million and $6.3 million of non-cash stock-based compensation expense for the nine months ended September 30, 2022 and 2021, respectively.

(2) Includes $7.4 million and $5.1 million of non-cash stock-based compensation expense for the nine months ended September 30, 2022 and 2021, respectively.

Other (expense) income, net

*Percentage not meaningful

(1) Includes $4.6 million and $3.3 million of non-cash stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively.

(2) Includes $3.0 million and $2.6 million of non-cash stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue increased $7.8 million, or 42%, from $18.7 million for the nine months ended September 30, 2021 to $26.6 million for the nine months ended September 30, 2022.

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

License and collaboration revenue decreased $25.7 million, or 100%, from $25.7 million for the three months ended March 31, 2022 to zero for the three months ended March 31, 2023.

License and collaboration revenue for the first quarter of 2022 included a $25.0 million milestone payment we earned following the dosing of the third patient in the FRONTIER 1 clinical trial for JNJ-2113.

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

We determined that the final transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, an increase of $25.2 million from the transaction price of $106.5 million as of December 31, 2021.

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

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

1 unchanged sentence

Research and Development Expenses

Nine Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands)

1 unchanged sentence

Clinical and development expense — PN-943

Clinical and development expense — PN-235

Clinical and development expense — JNJ-2113 (PN-235)

Clinical and development expense — PN-232

1 unchanged sentence

Clinical and development expense — PTG-100

Pre-clinical and discovery research expense

Milestone payment obligation to former collaboration partner

Grants and tax incentives expense reimbursement, net

Pre-clinical and drug discovery research expense

Total research and development expenses

Research and development expenses increased $8.7 million, or 10%, from $87.6 million for the nine months ended September 30, 2021 to $96.3 million for the nine months ended September 30, 2022.

The increase was primarily due to (i) an increase of $7.2 million in PN-943 contract manufacturing costs and clinical expenses related to the Phase 2 IDEAL trial for which we announced top line data in April 2022, (ii) an increase of $6.3 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial, and (iii) a decrease of $2.2 million in grant and tax incentives expense reimbursement.

These increases were partially offset by a decrease of $4.0 million in expenses related to milestone payments and obligations under the Zealand Agreement for rusfertide pursuant to the resolution of related arbitration incurred during the third quarter of 2021 and decreases in PN-235 and PN-232 expenses related to the completion of Phase 1 clinical trials that began in 2021.

We do not intend to dedicate further internal resources to clinical development or contract manufacturing expenses for our PN-943 clinical program as part of our ongoing commitment to optimize and focus resources toward our rusfertide program in PV.

We had 99 and 92 full-time equivalent research and development employees as of September 30, 2022 and 2021, respectively.

Research and development expenses for the nine months ended September 30, 2022 included increases of $5.0 million in stock-based compensation expense and $4.9 million in other personnel-related expenses compared to the nine months ended September 30, 2021.

Research and development expenses decreased $8.9 million, or 25%, from $36.3 million for the three months ended March 31, 2022 to $27.4 million for the three months ended March 31, 2023.

The decrease was primarily due to (i) a decrease of $14.8 million in expenses for the PN-943 program where further development work was de-prioritized to optimize and focus resources toward the rusfertide program in PV, and (ii) a decrease of $2.0 million in expenses related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $8.3 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial.

We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We had 80 and 97 full-time equivalent research and development employees as of March 31, 2023 and 2022, respectively.

Research and development personnel-related expenses for the three months ended March 31, 2023 increased by $0.7 million as compared to the three months ended March 31, 2022, including an increase of $1.3 million in stock-based compensation expense partially offset by a decrease of $0.6 million in other personnel-related expenses.

General and Administrative Expenses

General and administrative expenses increased $5.2 million, or 26%, from $19.9 million for the nine months ended September 30, 2021 to $25.1 million for the nine months ended September 30, 2022 due primarily to an increase of $3.2 million in personnel-related expenses and $2.0 million in expenses to support the growth of our business and other costs.

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

We had 23 and 24 full-time equivalent general and administrative employees as of September 30, 2022 and 2021, respectively.

General and administrative expenses decreased $1.9 million, or 18%, from $10.5 million for the three months ended March 31, 2022 to $8.6 million for the three months ended March 31, 2023 due primarily to one-time costs incurred during the first quarter of 2022.

We had 23 and 25 full-time equivalent general and administrative employees as of March 31, 2023 and 2022, respectively.

Interest Income

Interest income increased $1.5 million from $0.3 million for the nine months ended September 30, 2021 to $1.8 million for the nine months ended September 30, 2022.

Interest income increased $2.3 million from $0.2 million for the three months ended March 31, 2022 to $2.5 million for the three months ended March 31, 2023.

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

2 unchanged sentences

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

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

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

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

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

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

The 2019 Form S-3 expired in October 2022.

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

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

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

The Form S-3ASR expires in December 2023.

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

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

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

As of September 30, 2022, no offering, issuance or sale of common stock, preferred stock, debt securities or warrants was made under the 2022 Form S-3 or the 2022 Sales Agreement.

In August 2022, we entered into an Open Market Sale Agreement SM (the “Sales Agreement”), pursuant to which we could offer and sell up to $100.0 million of shares of our 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, we sold 1,749,199

shares of our common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs.

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

During the year ended December 31, 2022, we sold 422,367 shares of our 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.

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

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

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

● Upon effectiveness of the First Amendment, we became eligible to receive a $25.0 million payment from Janssen, which was received during the second quarter of 2019;

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

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

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

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

Pursuant to the Restated Agreement, we will be eligible to receive clinical development, regulatory and sales milestones, if and as achieved.

● In October 2021, we became eligible to receive a $7.5 million milestone payment triggered by completion of the data collection for JNJ-2113 (formerly known as PN-235) Phase 1 activities, which was received during the fourth quarter of 2021;

● In March 2022, we became eligible to receive a $25.0 million milestone payment in connection with the dosing of the third patient in the Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis during the first quarter of 2022, which was received during the second quarter of 2022.

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

Pursuant to the Restated Agreement, we may be eligible to receive clinical development, regulatory and sales milestones, if and when achieved.

Upcoming potential development milestones for second-generation products include:

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

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

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

● $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 product for a second indication (i.e., an indication different than the indication which triggered the $25.0 million milestone payment 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.

Capital Requirements

As of September 30, 2022, we had $267.4 million of cash, cash equivalents and marketable securities and an accumulated deficit of $502.6 million.

Our capital expenditures for the nine months ended September 30, 2022 were $0.7 million.

As of March 31, 2023, we had $230.8 million of cash, cash equivalents and marketable securities and an accumulated deficit of $570.5 million.

Our capital expenditures for the three months ended March 31, 2023 were $10,000.

Our capital expenditures for the years ended December 31, 2022 and 2021 were $0.8 million and $1.1 million, respectively.

Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures, general and administrative costs and pre-commercialization costs.

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

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

Our primary uses of cash are to fund our operating expenses, primarily related to our research and development expenditures, general and administrative costs and pre-commercialization costs.

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

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

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

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

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

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

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

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

A future recession or market correction resulting from the spread of COVID-19 or other significant geopolitical events could materially affect our business.

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

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

We could utilize our available capital resources sooner than we currently expect if, for instance, our planned pre-clinical and clinical trials are successful or expanded, our product candidates enter new and more advanced stages of clinical development, we experience significant delays or difficulties in commencing, enrolling or completing clinical studies, our newer product clinical trials advance beyond the discovery stage or various other factors.

We expect that our cash burn will be lower in 2023 due to our research and development expenses decreasing in the near term as we continue to focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization.

We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We anticipate that we will need to raise substantial additional funding to advance rusfertide through clinical development and toward potential regulatory approval and to develop, acquire, or in-license other potential product candidates.

Our future funding requirements will depend on many factors, including:

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

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

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

● our ability to successfully commercialize the product candidates we may identify and develop;

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

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

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

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

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

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

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

● the time and cost necessary to respond to technological and market developments;

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

● the time and costs necessary to respond to technological and market developments;

● the extent to which we may acquire or in-license other product candidates and technologies;

● costs necessary to attract, hire and retain qualified personnel;

● the costs necessary to attract, hire and retain qualified personnel;

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

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

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

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

As discussed in Part II, Item1A.

“Risk Factors”, we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability and banking and other financial institution failures, among other factors.

A future recession or market correction related to COVID-19 or due to other factors, including significant geopolitical or macroeconomic events, could materially affect our business and our access to credit and financial markets.

Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials, other research and development activities and pre-commercialization costs.

If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights.

If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders could be diluted, and the terms of these securities could include liquidation or other preferences that could adversely affect our stockholders’ rights.

If we raise additional capital through debt financing, we could be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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

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

For additional information, see Part II, Item 1A.

“Risk Factors” – “Risks Related to our Financial Position and Capital Requirements”.

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

Nine Months Ended

September 30,

Three Months Ended March 31,

Condensed Consolidated Statements of Cash Flows Data:

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Stock-based compensation

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2022 was $76.5 million, consisting primarily of our net loss of $93.2 million and a net change of $4.9 million in net operating assets and liabilities, partially offset by certain non-cash items, including $18.7 million of stock-based compensation expense.

The $4.4 million increase in cash flow used in operating activities during the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to a $7.3 million increase in stock-based compensation expense and $2.0 million related to net change in net operating assets and liabilities, partially offset by a $4.6 million increase in our net loss.

Cash Flows from Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2022 was $87.5 million, consisting of proceeds from maturities of marketable securities of $222.5 million, partially offset by purchases of marketable securities of $134.3 million and purchases of property and equipment of $0.7 million.

The $131.3 million increase in cash provided by investing activities for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily related to a decrease of $121.6 million in purchases of marketable securities and an increase of $9.5 million in proceeds from maturities of marketable securities.

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

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2022 was $18.3 million, consisting primarily of net cash proceeds from ATM sales of $14.6 million and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $3.9 million.

The $109.5 million decrease in cash provided by financing activities for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was primarily due to a $109.4 million decrease in net cash proceeds from ATM sales.

Cash Used in Operating Activities

Cash used in operating activities for the three months ended March 31, 2023 was $34.3 million, consisting primarily of our net loss of $33.7 million and a net change of $8.0 million in net operating assets and liabilities, partially offset by certain non-cash items, including $7.6 million of stock-based compensation expense.

The $3.3 million decrease in cash flow used in operating activities during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily due to a $15.9 million net change in operating assets and liabilities and a $1.6 million increase in stock-based compensation expense, partially offset by a $12.8 million increase in our net loss.

Cash Provided by (Used in) Investing Activities

Cash provided by investing activities for the three months ended March 31, 2023 was $9.8 million, consisting of proceeds from maturities of marketable securities of $37.9 million, partially offset by purchases of marketable securities of $28.1 million.

The $14.3 million increase in cash provided by investing activities for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily related to a decrease of $27.8 million in purchases of marketable securities, partially offset by a $13.7 million decrease in proceeds from maturities of marketable securities.

Cash Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2023 was $26.5 million, consisting primarily of net cash proceeds from sales of $24.3 million under the 2022 ATM Facility and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $2.3 million.

The $9.5 million increase in cash provided by financing activities for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily due to a $9.7 million increase in net cash proceeds from ATM sales.

Contractual Obligations and Other Commitments

During the three and nine months ended September 30, 2022, there were no material changes to our material cash requirements, including commitments for capital expenditures, described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

During the three months ended March 31, 2023, there were no material changes to our material cash requirements, including commitments for capital expenditures, described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 15, 2023.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis