What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 114 added, 98 removed, 223 unchanged (49% 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, 2022, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 15, 2023.

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 on Form 10-Q (the “Quarterly Report”) 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 (the “SEC”) on March 15, 2023.

Forward-Looking Statements

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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, 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.

While we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

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, our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results, our ability to generate sales, income or cash flow, the impact of any future outbreaks of disease, epidemics and pandemics, such as the COVID-19 pandemic (“COVID-19”), ongoing military conflicts, including between Ukraine and Russia and in Israel and surrounding areas;

rising tensions between China and Taiwan, inflationary pressures, the impact of a potential U.S.

government shutdown, the availability of credit and our exposure to banking or other financial institution instability are forward-looking statements.

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

These statements are based on information available to us as of the date of this Quarterly Report and, while we believe such information provides a reasonable basis for these statements, the information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements.

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in the United States and other jurisdictions.

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly PN-235) in different stages of development, both derived from our proprietary discovery technology platform.

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly PN-235) in advanced stages of development, both derived from our 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 and is wholly owned.

Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an injectable hepcidin mimetic in development for the potential treatment of polycythemia vera (“PV”) and other blood disorders and is wholly owned.

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

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Data from our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 provided evidence regarding the potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency symptoms.

Rusfertide has a unique mechanism of action in the potential treatment of the blood disorder polycythemia vera (“PV”), which may enable it to specifically decrease and maintain hematocrit levels within the range of recommended clinical guidelines without causing the iron deficiency that can occur with frequent phlebotomy.

Rusfertide has a unique mechanism of action in the potential treatment of PV, which may enable it to specifically decrease and maintain hematocrit levels within the range of recommended clinical guidelines without causing the iron deficiency that can occur with frequent phlebotomy.

Our rusfertide Phase 2 clinical trials include the following:

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

We completed enrollment of patients in the first quarter of 2022 and 70 patients were enrolled through the end of the randomized withdrawal portion of the trial, which was completed during the first quarter of 2023 and will continue in open label extension.

● REVIVE, a Phase 2 proof of concept trial, was initiated in the fourth quarter of 2019.

● 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 the 52-week trial was completed during the second quarter of 2023.

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VERIFY, a global double-blind, placebo-controlled 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 first quarter of 2024.

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JNJ-2113 achieved the study’s primary and secondary efficacy endpoints.

A statistically significant greater proportion of patients who received JNJ-2113 achieved PASI-75 as well as PASI-90 and PASI-100

(90% and 100% improvement, respectively, in skin lesions as measured by the PASI) responses compared to placebo at Week 16 in all five of the trial’s treatment groups.

A statistically significant greater proportion of patients who received JNJ-2113 achieved PASI-75 as well as PASI-90 and PASI-100 (90% and 100% improvement, respectively, in skin lesions as measured by the PASI) responses compared to placebo at Week 16 in all five of the trial’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.

Janssen has announced their plans to initiate a Phase 3 registrational study in JNJ-2113 moderate-severe plaque psoriasis for adult patients 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 $50.0 million and $115.0 million, respectively.

The filing of a New Drug Application (“NDA”) for JNJ-2113 with the U.S.

Food and Drug Administration would qualify us for a milestone payment of $35.0 million, and approval of the NDA by the FDA would qualify us for a milestone payment of $50.0 million, respectively.

In October 2023, Janssen initiated three JNJ-2113 studies, including:

● ICONIC-LEAD – A randomized controlled Phase 3 trial to evaluate the safety and efficacy of JNJ-2113 compared with placebo in participants with moderate-to-severe plaque psoriasis, with PASI-90 and Investigator’s Global Assessment (“IGA”) score of 0 (clear) or 1 (almost clear) as co-primary endpoints;

● ICONIC-TOTAL – A randomized, controlled Phase 3 trial to evaluate the efficacy and safety of JNJ-2113 compared with placebo for the treatment of plaque psoriasis in participants with at least moderate severity affecting special areas (scalp, genital, and/or palms of the hands and soles of the feet) with overall IGA score of 0 or 1 as the primary endpoint;

● ANTHEM-UC – A Phase 2b randomized controlled trial to evaluate the safety and effectiveness of JNJ-2113 compared with placebo in participants with moderate-to-severely active ulcerative colitis (“UC”).

Additional Phase 3 studies are expected to be initiated in the first quarter of 2024 as part of the broader psoriasis ICONIC clinical program led by Janssen.

All of the studies in the ICONIC program will use the once daily, immediate release formulation from the previously completed FRONTIER 1 study.

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, which was completed in the second quarter of 2023, and FRONTIER 2, a long-term extension study.

Janssen has announced their plans to initiate a separate Phase 2b trial of JNJ-2113 in ulcerative colitis (“UC”), a second indication.

Advancement of JNJ-2113 into a Phase 2 and a Phase 3 study in a second indication would qualify us for milestone payments of $10.0 million and $15.0 million, respectively.

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

We earned a $50.0 million milestone payment upon dosing of the third patient in the ICONIC-LEAD Phase 3 trial in late October 2023.

Under our agreement with Janssen,

● we will qualify for a $10.0 million milestone payment upon the dosing of the third patient in the Phase 2b trial in UC;

● we will qualify for a $115.0 million milestone payment upon JNJ-2113 meeting the primary endpoint in a Phase 3 trial;

● we will qualify for a $35.0 million milestone payment upon the filing of a New Drug Application (“NDA”) for JNJ-2113 with the U.S.

Food and Drug Administration (the “FDA”);

● we will qualify for a $50.0 million milestone payment upon approval of the NDA by the FDA;

● we will qualify for a $15.0 million milestone payment upon the advancement of JNJ-2113 into a Phase 3 trial in a second indication.

We remain eligible for up to approximately $805.0 million in future development and sales milestone payments, inclusive of those future development milestones discussed above, in addition to the $112.5 million in nonrefundable payments from Janssen already received to date and the $50.0 million that was achieved in the fourth quarter of 2023.

We also remain eligible to receive upward tiering royalties on net product sales at percentages ranging from six percent to ten percent, with ten percent being the royalty rate for over $4.0 billion in net sales.

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We completed a Phase 2 trial of PN-943 in patients with moderate to severe UC in early 2023.

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

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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Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal.

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

Our discovery pipeline has strategically focused on i) hematology and blood disorders and ii) inflammatory and immunomodulatory diseases.

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 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 failures of banking and other financial institutions.

We have experienced delays in our existing and planned clinical trials due to worldwide impacts related to the COVID-19 pandemic, and our 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, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by the direct and indirect effects of COVID-19, domestic and global monetary and fiscal policy, geopolitical instability, ongoing military conflicts, including 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 impact of a potential U.S.

government shutdown and instability in banks and other financial institutions.

We have experienced delays in our existing and planned clinical trials due to worldwide direct and indirect impacts related to COVID-19, and our future results of operations and liquidity could be adversely impacted by future outbreaks of disease, epidemics and pandemics, including further delays in existing and planned clinical trials, continued 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.

Federal Reserve

and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time.

Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time.

Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results.

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

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with the ongoing conflict between Russia and Ukraine, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with ongoing military conflicts, including between Russia and Ukraine and in Israel and surrounding areas, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

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 $38.5 million and $72.2 million for the three and six months ended June 30, 2023, respectively.

Our net loss was $41.0 million and $62.0 million for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $608.9 million.

Our net loss was $34.1 million and $106.3 million for the three and nine months ended September 30, 2023, respectively.

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

As of September 30, 2023, we had an accumulated deficit of $643.0 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.

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Janssen License and Collaboration Agreement

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”).

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

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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 six months ended June 30, 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.

There have been no material changes to our critical accounting policies during the three and nine months ended September 30, 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 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.

We recognize the amounts 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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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.

We expect our second half 2023 research and development expenses to remain relatively flat as compared to the first half of 2023 as we continue to focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization.

We expect our fourth quarter 2023 research and development expenses to remain relatively flat as compared to the first nine months of 2023 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.

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Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

Comparison of the Three Months Ended September 30, 2023 and 2022

Three Months Ended

September 30,

(Dollars in thousands)

License and collaboration revenue

Operating expenses:

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Other expense, net

*Percentage not meaningful

(1) Includes $4.8 million and $4.1 million of non-cash stock-based compensation expense for the three months ended June 30, 2023 and 2022, respectively.

(2) Includes $3.5 million and $2.7 million of non-cash stock-based compensation expense for the three months ended June 30, 2023 and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $0.9 million, or 100%, from $0.9 million for the three months ended June 30, 2022 to zero for the three months ended June 30, 2023.

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

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

(1) Includes $3.8 million and $3.9 million of non-cash stock-based compensation expense for the three months ended September 30, 2023 and 2022, respectively.

(2) Includes $3.0 million and $2.1 million of non-cash stock-based compensation expense for the three months ended September 30, 2023 and 2022, respectively.

Research and Development Expenses

Three Months Ended

September 30,

(Dollars in thousands)

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

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Clinical and development expense — other

Pre-clinical and drug discovery research expense

Grants and tax incentives expense reimbursement, net

Total research and development expenses

*Percentage not meaningful.

Research and development expenses decreased $1.4 million, or 4%, from $34.6 million for the three months ended June 30, 2022 to $33.2 million for the three months ended June 30, 2023.

The decrease was primarily due to (i) a decrease of $13.4 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 $1.1 million in expenses

related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $13.7 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial.

We had 81 and 101 full-time equivalent research and development employees as of June 30, 2023 and 2022, respectively.

Research and development personnel-related expenses for the three months ended June 30, 2023 increased by $0.5 million as compared to the three months ended June 30, 2022 due primarily to an increase in stock-based compensation expense.

Research and development expenses increased $5.3 million, or 21%, from $25.4 million for the three months ended September 30, 2022 to $30.7 million for the three months ended September 30, 2023.

The increase was primarily due to (i) an increase of $9.1 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial, partially offset by (ii) a decrease of $4.0 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.

We had 84 and 99 full-time equivalent research and development employees as of September 30, 2023 and 2022, respectively.

Research and development personnel-related expenses for the three months ended September 30, 2023 decreased by $0.7 million as compared to the three months ended September 30, 2022 due primarily to a decrease in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased $1.5 million, or 19%, from $7.7 million for the three months ended June 30, 2022 to $9.2 million for the three months ended June 30, 2023 primarily due to increases in payroll and stock-based compensation and general expenses.

The increase in personnel expenses was primarily due to an increase in stock-based compensation expense.

We had 25 and 26 full-time equivalent general and administrative employees as of June 30, 2023 and 2022, respectively.

General and administrative expenses increased $0.8 million, or 11%, from $6.9 million for the three months ended September 30, 2022 to $7.7 million for the three months ended September 30, 2023 due primarily to increases in stock-based compensation expense and other personnel-related expenses, partially offset by decreases in consulting, marketing expense and other general expenses.

We had 27 and 23 full-time equivalent general and administrative employees as of September 30, 2023 and 2022, respectively.

Interest Income

Interest income increased $3.4 million from $0.5 million for the three months ended June 30, 2022 to $3.9 million for the three months ended June 30, 2023.

Interest income increased $3.1 million from $1.2 million for the three months ended September 30, 2022 to $4.3 million for the three months ended September 30, 2023.

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

Comparison of the Six Months Ended June 30, 2023 and 2022

Six Months Ended

Comparison of the Nine Months Ended September 30, 2023 and 2022

Nine Months Ended

September 30,

(Dollars in thousands)

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Other expense, net

*Percentage not meaningful

(1) Includes $9.4 million and $7.4 million of non-cash stock-based compensation expense for the six months ended June 30, 2023 and 2022, respectively.

(2) Includes $6.5 million and $5.3 million of non-cash stock-based compensation expense for the six months ended June 30, 2023 and 2022, respectively.

(1) Includes $13.2 million and $11.3 million of non-cash stock-based compensation expense for the nine months ended September 30, 2023 and 2022, respectively.

(2) Includes $9.5 million and $7.4 million of non-cash stock-based compensation expense for the nine months ended September 30, 2023 and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $26.6 million, or 100%, from $26.6 million for the six months ended June 30, 2022 to zero for the six months ended June 30, 2023.

License and collaboration revenue for the six months ended June 30, 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.

License and collaboration revenue decreased $26.6 million, or 100%, from $26.6 million for the nine months ended September 30, 2022 to zero for the nine months ended September 30, 2023.

License and collaboration revenue for the nine months ended September 30, 2022 included a $25.0 million milestone payment 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.

Research and Development Expenses

Six Months Ended

Nine Months Ended

September 30,

(Dollars in thousands)

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

Clinical and development expense — PN-232

Clinical and development expense — PTG-200

Clinical and development expense — PTG-100

Clinical and development expense — Other

Preclinical and drug discovery research expense

Grants and tax incentives expense reimbursement, net

Total research and development expenses

Research and development expenses decreased $10.3 million, or 15%, from $70.9 million for the six months ended June 30, 2022 to $60.6 million for the six months ended June 30, 2023.

Research and development expenses decreased $5.1 million, or 5%, from $96.3 million for the nine months ended September 30, 2022 to $91.3 million for the nine months ended September 30, 2023.

The decrease was primarily due to (i) a decrease of $32.2 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 $3.0 million in expenses related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $31.0 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial.

We had 81 and 101 full-time equivalent research and development employees as of June 30, 2023 and 2022, respectively.

Research and development personnel-related expenses for the six months ended June 30, 2023 increased by $1.2 million as compared to the six months ended June 30, 2022 due to an increase of $2.0 million in stock-based compensation expense, partially offset by a decrease of $0.8 million in other personnel-related expenses.

We had 84 and 99 full-time equivalent research and development employees as of September 30, 2023 and 2022, respectively.

Research and development personnel-related expenses for the nine months ended September 30, 2023 increased by $0.4 million as compared to the nine months ended September 30, 2022 due to an increase of $1.9

million in stock-based compensation expense, partially offset by a decrease of $1.5 million in other personnel-related expenses.

General and Administrative Expenses

General and administrative expenses decreased $0.4 million, or 2%, from $18.2 million for the six months ended June 30, 2022 to $17.8 million for the six months ended June 30, 2023 due primarily to one-time costs incurred during the first quarter of 2022, partially offset by an increase in stock-based compensation expense during the current year period.

We had 25 and 26 full-time equivalent general and administrative employees as of June 30, 2023 and 2022, respectively.

General and administrative expenses increased $0.3 million, or 1%, from $25.1 million for the nine months ended September 30, 2022 to $25.4 million for the nine months ended September 30, 2023 due primarily to an increase in stock-based compensation expense during the current year period, partially offset by one-time costs incurred during the first quarter of 2022.

We had 27 and 23 full-time equivalent general and administrative employees as of September 30, 2023 and 2022, respectively.

Interest Income

Interest income increased $5.7 million from $0.7 million for the six months ended June 30, 2022 to $6.4 million for the six months ended June 30, 2023.

Interest income increased $8.8 million from $1.8 million for the nine months ended September 30, 2022 to $10.6 million for the nine months ended September 30, 2023.

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

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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.

per share following the underwriters’ exercise of their option to purchase additional shares.

Proceeds from Sales of Our Common Stock

In April 2023, we completed an underwritten public offering of 5,000,000 shares of our common stock at a public offering price of $20.00 per share and issued an additional 750,000 shares of common stock at a price of $20.00 per share following the underwriters’ exercise of their option to purchase additional shares.

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

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

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

There were no sales under the 2022 ATM Facility during the year ended December 31, 2022.

During 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.

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

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 “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.

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

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

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

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

Warrants to purchase 1,375,000 shares of our common stock had an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of our common stock had an exercise price of $15.00 per share.

The exercise price and number of shares of our 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, we granted the Investors certain registration rights with respect to the Warrants and the Warrant Shares.

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, we entered into certain agreements with the Investors and their affiliates under which we 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 our 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 our 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.

Receipt of Payments Under Collaboration Agreements

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:

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● 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 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.

● 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, which was received during the second quarter of 2022;

● In late October 2023, we became eligible to receive a $50.0 million milestone payment in connection with the dosing of the third patient in the ICONIC-LEAD Phase 3 clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis.

We have also received 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:

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

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

● $35.0 million upon the filing of a New Drug Application (“NDA”) for a second-generation compound with the U.S.

Food and Drug Administration (the “FDA”);

● $35.0 million upon the filing of an NDA for a second-generation compound with the FDA;

● $50.0 million upon FDA approval of an NDA for a second-generation compound;

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

● $10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e.

an indication different than the indication which triggered the $25.0 million milestone received during the second quarter of 2022 described above);

● $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.

Capital Requirements

As of June 30, 2023, we had $313.4 million of cash, cash equivalents and marketable securities and an accumulated deficit of $608.9 million.

Our capital expenditures were $0.2 million and $0.8 million for the six months ended June 30, 2023 and the year ended December 31, 2022, respectively.

As of September 30, 2023, we had $322.7 million of cash, cash equivalents and marketable securities and an accumulated deficit of $643.0 million.

Our capital expenditures were $0.6 million and $0.8 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.

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

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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 annual 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 expect that our cash burn will approximate current levels for the remainder of the year, but will increase in 2024.

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.

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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.

“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 instability, among other factors.

A future recession or market correction, including those due to significant geopolitical or macroeconomic events, could materially affect our business and our access to credit and financial markets.

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

Six Months Ended

Nine Months Ended

September 30,

Condensed Consolidated Statements of Cash Flows Data:

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Cash Used in Operating Activities

Cash used in operating activities for the six months ended June 30, 2023 was $60.6 million, consisting primarily of our net loss of $72.2 million and a net change of $4.0 million in net operating assets and liabilities, partially offset by certain non-cash items, including $15.9 million of stock-based compensation expense.

The $9.3 million increase in cash flow used in operating activities during the six months ended June 30, 2023, as compared

to the six months ended June 30, 2022, was primarily due to a $10.2 million increase in our net loss and a $2.6 million increase in discount accretion on marketable securities, partially offset by a $3.2 million increase in stock-based compensation expense.

Cash used in operating activities for the nine months ended September 30, 2023 was $87.2 million, consisting primarily of our net loss of $106.3 million and a net change of $3.1 million in net operating assets and liabilities, partially offset by certain non-cash items, including $22.7 million of stock-based compensation expense.

The $10.7 million increase in cash flow used in operating activities during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $13.1 million increase in our net loss and a $3.6 million increase in discount accretion on marketable securities, partially offset by a $4.0 million increase in stock-based compensation expense.

Cash Provided by Investing Activities

Cash provided by investing activities for the six months ended June 30, 2023 was $35.6 million, consisting of proceeds from maturities of marketable securities of $70.0 million, partially offset by purchases of marketable securities of $34.1 million.

The $5.3 million increase in cash provided by investing activities for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily related to a decrease of $68.0 million in purchases of marketable securities, partially offset by a $63.0 million decrease in proceeds from maturities of marketable securities.

Cash provided by investing activities for the nine months ended September 30, 2023 was $22.0 million, consisting of primarily of proceeds from maturities of marketable securities of $115.7 million, partially offset by purchases of marketable securities of $93.1 million.

The $65.5 million decrease in cash provided by investing activities for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily related to a decrease in the net activity of purchases and maturities of marketable securities.

Cash Provided by Financing Activities

Cash provided by financing activities for the six months ended June 30, 2023 was $134.6 million, consisting primarily of net cash proceeds of $107.9 million from the April 2023 public offering of our common stock, $24.3 million from sales of our common stock under the 2022 ATM Facility, and $3.2 million in proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

The $117.0 million increase in cash provided by financing activities for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily due to a $117.6 million increase in net cash proceeds from the public offerings and ATM sales of our common stock.

Cash provided by financing activities for the nine months ended September 30, 2023 was $170.0 million, consisting primarily of net cash proceeds of $107.8 million from the April 2023 public offering of our common stock, $24.3 million from sales of our common stock under the 2022 ATM Facility, $34.4 million from the exercise of the Warrants in exchange for issuance of Pre-funded Warrants and common stock, and $4.3 million in proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.

The $151.7 million increase in cash provided by financing activities for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to a $107.8 million increase in net cash proceeds from the public offerings, a $9.7 million increase in ATM sales of our common stock and a $34.4 million increase in net cash proceeds from the exercise of the Warrants.

Contractual Obligations and Other Commitments

During the three and six months ended June 30, 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.

During the three and nine months ended September 30, 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