What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 120 added, 150 removed, 329 unchanged (45% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

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Total current assets

Marketable securities - noncurrent

Property and equipment, net

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

57,494,185 and 49,339,252 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

57,647,476 and 49,339,252 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

License and collaboration revenue

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive loss:

(Loss) gain on translation of foreign operations

Unrealized loss on marketable securities

Unrealized gain (loss) on marketable securities

Comprehensive loss

5 unchanged sentences

Stockholders’

Three months ended June 30, 2023

Balance at March 31, 2023

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

Three months ended September 30, 2023

Balance at June 30, 2023

Exercise of Warrants in exchange for issuance of Pre-funded Warrants

Issuance of common stock upon exercise of Warrants

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

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

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2023

Other comprehensive gain

Balance at September 30, 2023

Comprehensive

Stockholders’

Three months ended June 30, 2022

Balance at March 31, 2022

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

Issuance costs related to prior period common stock offering

Other comprehensive loss

Balance at June 30, 2022

Other comprehensive gain

Balance at September 30, 2022

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

4 unchanged sentences

Stockholders’

Six months ended June 30, 2023

Nine months ended September 30, 2023

Balance at December 31, 2022

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

Exercise of Warrants in exchange for issuance of Pre-funded Warrants

Issuance of common stock upon exercise of Warrants

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

2 unchanged sentences

Other comprehensive gain

Balance at June 30, 2023

Balance at September 30, 2023

Comprehensive

Stockholders’

Six months ended June 30, 2022

Nine months ended September 30, 2022

Balance at December 31, 2021

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

2 unchanged sentences

Other comprehensive loss

Balance at June 30, 2022

Balance at September 30, 2022

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash Flows from Operating Activities

4 unchanged sentences

Changes in operating assets and liabilities:

Research and development tax incentive receivable

Receivable from collaboration partner

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

Proceeds from exercise of Warrants in exchange for issuance of Pre-funded Warrants

Proceeds from issuance of common stock upon exercise of Warrants

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

3 unchanged sentences

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

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

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

2 unchanged sentences

Purchases of property and equipment in accounts payable and accrued liabilities

Issuance costs related to common stock offering included in accrued liabilities and other payables

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

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

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

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

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

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

The Company has one wholly-owned subsidiary, Protagonist Pty Limited (“Protagonist Australia”), 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 Chief Executive Officer, the Company’s chief operating decision maker, in deciding how to allocate resources and assessing performance.

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

As of June 30, 2023, the Company had cash, cash equivalents and marketable securities of $ 313.4 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 608.9 million as of June 30, 2023.

As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $ 322.7 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 643.0 million as of September 30, 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 currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by the COVID-19 pandemic, domestic and global monetary and fiscal policy, geopolitical instability, including the ongoing military conflict between Russia and Ukraine and rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation and of failures of banking and other financial institutions.

The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to the COVID-19 pandemic, and its future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including further delays in existing and planned clinical trials, difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions.

The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by the direct and indirect effects of the COVID-19 pandemic (“COVID-19”), domestic and global monetary and fiscal policy, geopolitical instability, including ongoing military conflicts between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation, the potential impact of a U.S.

government shutdown, and instability in banks and other financial institutions.

The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to COVID-19, and its future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including further delays in existing and planned clinical trials, difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions.

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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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 global monetary and fiscal policy, macroeconomic factors, supply chain constraints, 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.

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, the ongoing conflicts between Russia and Ukraine and in Israel and surrounding areas and other factors, and such factors may lead to increases in the cost of manufacturing for and delays in the initiation of studies in the Company’s product candidates.

Summary of Significant Accounting Policies

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 June 30, 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.

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, 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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

The results of operations for the three and nine months ended September 30, 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.

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Actual results could differ materially from these estimates.

There has been uncertainty and disruption in the global economy and financial markets due to a number of factors, including the COVID-19 pandemic, geopolitical instability, inflationary pressures and domestic and global monetary and fiscal policy.

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 issuance of this report.

There has been uncertainty and disruption in the global economy and financial markets due to a number of factors, including the direct and indirect effects of COVID-19, geopolitical instability, inflationary pressures and domestic and global monetary and fiscal policy.

issuance of this report.

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

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

September 30,

Cash and cash equivalents

6 unchanged sentences

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.

Pursuant to Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), 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.

Stock-Based Compensation Expense

The Company measures its stock-based awards made to its equity plan participants based on the estimated fair values of the awards as of the grant date.

For stock option awards, the Company uses the Black-Scholes option-pricing model to estimate fair values.

For restricted stock unit awards, the estimated fair value is generally the fair market value of the underlying stock on the grant date.

Stock-based compensation expense is recognized over the requisite service period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest.

The Company recognizes forfeitures of stock-based awards as they occur.

The Company has granted performance share units (“PSUs”) to certain executives of the Company.

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 periods of the awards that are ultimately expected to vest when the achievement of the related performance obligation becomes probable.

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

Three Months Ended

Nine Months Ended

September 30,

Research and development

General and administrative

Total stock-based compensation expense

Significant Accounting Policies

Other than the change in Protagonist Australia functional currency from the Australian dollar to the 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 and six months ended June 30, 2023 as compared to those disclosed in Note 2.

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 and nine months ended September 30, 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”).

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board (“FASB”) issued 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.

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

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

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 anticipated Phase 2 and Phase 3 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials.

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Final activities related to these trials were completed 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, 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, the Company evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen.

The transaction price as of 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.

The Company concluded that the variable consideration constraint was appropriately reflected in the estimated transaction price as of June 30, 2022, and that the achievement of future milestones was subject to additional development and/or regulatory uncertainty and therefore it was not probable at June 30, 2022 that a material reversal of such revenues would not occur.

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

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

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

For the three and six months ended June 30, 2022, the Company recognized license and collaboration revenue of $ 0.9 million and

$ 26.6 million, respectively.

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

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

For the three and nine months ended September 30, 2022, the Company recognized license and collaboration revenue of zero and $ 26.6 million, respectively.

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

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Contract assets:

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Payable to collaboration partner

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Contract assets:

3 unchanged sentences

Payable to collaboration partner

During the three and six months ended June 30, 2022, the Company recognized revenue of $ 0.9 million 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, 2022, the Company recognized revenue of zero and $ 0.9 million 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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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

The accounting guidance

establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1 —Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

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

June 30, 2023

September 30, 2023

Money market funds

Certificates of deposit

Commercial paper

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Total financial assets

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

The Company’s certificates of deposit, commercial paper, corporate debt securities, and U.S.

Treasury and agency securities, including U.S.

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

June 30, 2023

September 30, 2023

Gross Unrealized

Money market funds

Certificates of deposit

Commercial paper

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Marketable securities

Marketable securities - noncurrent

Total cash equivalents and marketable securities

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Total cash equivalents and marketable securities

Marketable securities of $ 78.0 million and $ 111.6 million held at June 30, 2023 and December 31, 2022, respectively, had contractual maturities of less than one year .

Marketable securities of $ 90.2 million and $ 111.6 million held at September 30, 2023 and December 31, 2022, respectively, had contractual maturities of less than one year .

Marketable securities – noncurrent of $ 2.0 million held at September 30, 2023 had contractual maturities of at least one year but less than two years .

The Company did no t hold any marketable securities – noncurrent at December 31, 2022.

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 material realized gains or realized losses on marketable securities for the periods presented.

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 June 30, 2023.

Balance Sheet Components

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

Prepaid clinical and research related expenses

September 30,

Prepaid insurance

Prepaid license

Prepaid clinical and research related expenses

Prepaid licenses

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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Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were approximately $ 107.8 million.

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

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

There were no sales of the Company’s common stock under the 2022 ATM Facility during the year ended December 31, 2022.

During 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.

There were no sales of the Company’s common stock under the 2022 ATM Facility during the three months ended June 30, 2023.

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

During the 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.

There were no sales of the Company’s common stock under the 2022 ATM Facility during the three months ended June 30, 2023 and September 30, 2023.

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

During the year ended December 31, 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.

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In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”).

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

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

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.

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

Warrants to purchase 1,375,000 shares of the Company’s common stock had an exercise price of $ 10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock had 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”) were 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 were exercisable on a “cashless” basis.

In connection with the issuance and sale of the common stock and Warrants, the Company granted the Investors certain registration rights with respect to the Warrants and the Warrant Shares.

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 June 30, 2023, none of the Warrants have been exercised.

Equity Incentive Plan

In July 2016, the Company’s Board of Directors (“the Board”) and stockholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan.

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

As of June 30, 2023, 841,577 shares of common stock were available for issuance under the 2016 Plan.

Inducement Plan

In May 2018, the Board approved the Company’s 2018 Inducement Plan (as subsequently amended, the “2018 Inducement Plan”), 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 or the Compensation Committee of the Board (the “Compensation Committee”), 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 June 30, 2023, 575,961 shares of common stock were available for issuance under the 2018 Inducement Plan.

Stock Options

Stock option activity under the Company’s equity incentive and inducement plans is set forth below:

(in millions)

Balances at December 31, 2022

Options granted

Options exercised

Options forfeited

Balances at June 30, 2023

Options exercisable – June 30, 2023

Options vested and expected to vest – June 30, 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 June 30, 2023.

The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on June 30, 2023.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the six months ended June 30, 2023 was $ 10.40 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

Six Months Ended

Expected term (in years)

Expected volatility

106.2 % - 107.5 %

96.3 % - 99.9 %

106.2 % - 107.5 %

96.3 % - 99.9 %

Risk-free interest rate

3.71 % - 4.04 %

2.71 % - 2.93 %

3.57 % - 4.04 %

1.64 % - 2.93 %

Dividend yield

In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.

Each of these inputs is subjective and generally requires judgment to determine.

Expected Term —The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

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 —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.

Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend —The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock.

Therefore, the Company used an expected dividend yield of zero .

Restricted Stock Units

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

Unvested RSUs at December 31, 2022

Unvested RSUs at June 30, 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, 2022

Unvested PSUs at June 30, 2023

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

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

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.

During the three and six months ended June 30, 2023, the Compensation Committee certified the actual achievement of performance objectives related to certain PSUs.

As a result, recipients earned a total of 114,000 shares of common stock.

The total fair market value of PSUs on vest date during the three and six months ended June 30, 2023 was $ 3.0 million.

The total grant date fair value of unvested PSUs outstanding as of June 30, 2023 was $ 2.0 million.

As of June 30, 2023, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for unvested PSUs has been recognized as expense as of June 30, 2023.

Employee Stock Purchase Plan

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 six months ended June 30, 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 June 30, 2023.

Stock-Based Compensation

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

Three Months Ended

Six Months Ended

Research and development

General and administrative

Total stock-based compensation expense

As of June 30, 2023, total unrecognized stock-based compensation expense was approximately $ 60.7 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

The common stock and Warrants were 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.

In August 2023, prior to the expiration of the Warrants, the Company entered into certain agreements with the Investors and their affiliates under which the Company agreed to allow the Warrants to be exercised in exchange for pre-funded warrants representing the same number of Warrant Shares underlying the Warrants with an exercise price of $ 0.001 per share (the “Pre-Funded Warrants”).

Subsequent to the execution of the agreements and prior to the expiration of the Warrants, all outstanding Warrants were exercised for gross proceeds of $ 34.4 million in exchange for 44,748 shares of the Company’s common stock and Pre-Funded Warrants to purchase 2,705,252 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 Pre-Funded Warrants) with an exercise price of $ 0.001 per share.

The Pre-Funded Warrants will expire upon the day they are exercised in full.

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

The common stock and Pre-Funded Warrants were classified as equity in accordance with ASC 480 and the net proceeds from the transaction were recorded as a credit to additional paid-in capital.

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

As of September 30, 2023, none of the Pre-Funded Warrants have been exercised.

Net Loss per Share

As the Company had net losses for the three and six months ended June 30, 2023 and 2022, all potential weighted average dilutive common shares were determined to be anti-dilutive.

As the Company had net losses for the three and nine months ended September 30, 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

Six Months Ended

Nine Months Ended

September 30,

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

The Company announced the achievement of a $ 50.0 million milestone event under its license and collaboration agreement with Janssen on November 1, 2023.

The milestone was earned when the third patient was dosed in the ICONIC-TOTAL Phase 3 clinical trial of JNJ-2113 in patients with moderate-to-severe psoriasis.

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