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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 154 added, 92 removed, 228 unchanged (52% of the section changed)

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Forward-Looking Statements

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

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

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

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

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

In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, including enrollment, data and regulatory submissions, 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, ongoing military conflicts, including between Ukraine and Russia and in Israel and surrounding areas;

rising tensions between China and Taiwan, inflationary pressure and the availability of credit are forward-looking statements.

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

All statements other than statements of historical fact, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, financing needs, expectations, plans or intentions relating to clinical development, product candidates, the regulatory approval process, products and markets, and business trends and other information referred to under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements.

These statements are subject to substantial known and unknown risks, uncertainties and other factors that may cause our actual results, outcomes, performance or achievements, or the timing of such results, outcomes, performance or achievements, to be materially different from any results, outcomes, performances or achievements expressed or implied by the forward-looking statements.

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

Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors, including, among other things, the potential for our programs;

the timing, initiation, progress and expected results of our clinical trials and research and development programs, including enrollment, data, costs and regulatory submissions;

our cash runway;

our ability to advance product candidates into, and successfully complete, nonclinical studies and clinical trials;

the potential for eventual regulatory approval and commercialization of our product candidates;

the commercialization of our product candidates, if approved;

our ability and the potential to successfully manufacture and supply our product candidates for clinical trials and for commercial use, if approved;

the pricing, coverage, and reimbursement of our product candidates, if approved;

our potential receipt of milestone payments and royalties under our collaboration agreements;

future operating results;

our ability to generate sales, income or cash flow;

our estimates regarding expenses, capital requirements, and needs for additional financing and our ability to obtain additional capital;

our ability to retain the continued service of our key executives and to identify, hire, and retain additional qualified professionals, the impact of any future outbreaks of disease, epidemics and pandemics;

ongoing military conflicts, including between Ukraine and Russia and in Israel and surrounding areas;

rising tensions between China and Taiwan;

developments relating to our competitors and our industry, including competing product candidates and therapies;

inflationary pressure and the availability of credit .

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.

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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 in advanced Phase 3 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 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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The trial enrolled patients across North and South America, Europe, Asia and Australia.

Enrollment for the VERIFY trial has been completed and we expect to announce top-line data for the trial’s 32-week primary efficacy endpoint by the end of the first quarter of 2025, potentially leading to a New Drug Application (“NDA”) filing in the fourth quarter of 2025.

Enrollment for the VERIFY trial has been completed and we expect to announce top-line data for the trial’s 32-week primary efficacy endpoint in the first quarter of 2025, potentially leading to a New Drug Application (“NDA”) filing in the fourth quarter of 2025.

By the end of 2024, we expect to receive the results of our ongoing two-year study evaluating the carcinogenicity potential of rusfertide when administered once weekly to rats.

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During the 12 weeks of the blinded randomized withdrawal, 92.3% of subjects on rusfertide (24 out of 26) were not phlebotomized.

Data from the REVIVE trial presented at the European Hematology Association Congress in June 2023 suggested that rusfertide treatment results in highly statistically significant reduction in the need for therapeutic phlebotomy in phlebotomy-dependent patients, leading to rapid, sustained and durable control of hematocrit levels below 45%.

Data from the REVIVE trial presented at the European Hematology Association (“EHA”) Congress in June 2023 suggested that rusfertide treatment results in highly statistically significant reduction in the need for therapeutic phlebotomy in phlebotomy-dependent patients, leading to rapid, sustained and durable control of hematocrit levels below 45%.

Rusfertide was well tolerated, with localized injection site reactions comprising the majority of adverse events.

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In February 2024, the full Phase 2 REVIVE trial results, including efficacy and safety data, were published in the New England Journal of Medicine.

Updated long-term results from the REVIVE trial presented at the EHA Congress in June 2024 continued to show a durable positive effect on PV symptomology and other benefits including iron deficiency as well as an encouraging safety profile.

In January 2024, we entered into a worldwide license and collaboration agreement with Takeda for the development and commercialization of rusfertide (the “Takeda Collaboration Agreement”).

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net sales of rusfertide and other specified second-generation injectable hepcidin memetic compounds (the “Licensed Products”).

We and Takeda will also share equally in profits and losses (50% to us and 50% to Takeda of the Licensed Products in the United States.

We and Takeda also share equally in profits and losses (50% to us and 50% to Takeda of the Licensed Products in the United States).

See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for further details related to the agreement, including our right to opt-out of the 50:50 U.S.

profit and loss sharing arrangement.

Our Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113, partnered with J&J Innovative Medicines (“JNJ”), formerly Janssen Biotech, Inc., is an orally delivered investigational drug that is designed to block

biological pathways currently targeted by marketed injectable antibody drugs.

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

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● ICONIC ADVANCE 2 (NCT06220604) – A 543-patient Phase 3 trial similarly designed to ICONIC ADVANCE 1;

● Pustular/Erythrodermic Psoriasis (NCT06295692) – A 16-patient open label Phase 3 trial to evaluate the effectiveness of JN-2113 in participants with pustular or erythrodermic psoriasis;

● ANTHEM-UC (NCT06049017) – A 252-patient 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”).

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Other Phase 2 trials of JNJ-2113 include the SUMMIT trial for the treatment of moderate-to-severe plaque psoriasis and FRONTIER 2, a long-term extension study, both of which were completed by JNJ in 2023.

At JNJ’s Enterprise Business Review in December 2023, JNJ highlighted JNJ-2113 as a potential first- and best-in class targeted oral IL-23 peptide antagonist with potential across multiple indications, including plaque psoriasis, psoriatic arthritis and inflammatory bowel disease, with potential peak year sales projection of $5.0 billion plus.

JNJ IL-23 monoclonal antibody drugs Stelara and Tremfya generated $14.0 billion in revenues in 2023.

psoriasis, psoriatic arthritis and inflammatory bowel disease, with potential peak year sales projection of $5.0 billion plus.

JNJ IL-23 monoclonal antibody drugs Stelara and Tremfya generated approximately $14.0 billion in revenues in 2023.

In February 2024, the JNJ-2113 Phase 2b FRONTIER 1 trial results in adults living with moderate-to-severe plaque psoriasis were published in the New England Journal of Medicine.

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Our clinical assets are all derived from our proprietary discovery platform.

Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents.

Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs while overcoming many of their limitations as therapeutic agents.

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.

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

For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic, which we believe to be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.

Our discovery pipeline has strategically focused on i) hematology and blood disorders, ii) I&I diseases and iii) metabolic diseases, including obesity.

We have a pre-clinical stage program to identify an orally active hepcidin mimetic or small molecule ferropotin blocker, which we believe to be complementary to the injectable rusfertide for offering the best treatment options for PV and other potential erythropoietic and iron imbalance disorders.

In January 2024, we announced a new oral Interleukin-17 (“IL-17”) peptide antagonist program targeting three IL-17 dimers (IL-17 AA, AF and FF) which may offer potential treatment options for hidradenitis suppurativa, spondyloarthritis, plaque psoriasis and psoriatic arthritis.

Our preliminary results showed similar or better in vitro potency than the currently approved drugs Cosentyx® and Taltz®.

We expect to nominate a development candidate ready for Investigational New Drug enabling studies by the end of 2024.

Business Update

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, ongoing military conflicts, including between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, and high interest rates.

Our future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including potential further delays in existing and planned 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.

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.

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

Although we do not believe that inflation has had a material adverse impact on our financial position or results of operations to date, our financial position or results of operations may be adversely affected in the future due to numerous factors, including 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 other factors, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

We have incurred cumulative net losses from inception through March 31, 2024 of $408.4 million.

We expect to nominate a development candidate ready for Investigational New Drug (“IND”) enabling studies by the end of 2024.

We recently announced an oral peptide-based program for obesity and expect progression towards a development candidate by mid-2025.

Risks and Uncertainties

We describe the respective risks, uncertainties and assumptions that could affect our business, financial condition or results of operations in Part II, Item 1A.

“Risk Factors” herein.

We have incurred cumulative net losses from inception through June 30, 2024 of $439.0 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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Costs incurred or labor hours are typically used as the measure of performance.

Management judgment is required in determining the level of effort required under an arrangement and the period over which we expect to complete our performance obligations.

Management’s judgment is required in determining the level of effort required under an arrangement and the period over which we expect to complete our performance obligations.

If we determine that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on our consolidated balance sheets.

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Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months.

estimate is based on our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period.

There have been no other material changes to our critical accounting policies during the three months ended March 31, 2024, 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, 2023 filed with the SEC on February 27, 2024.

This estimate is based on our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period.

There have been no other material changes to our critical accounting policies during the six months ended June 30, 2024, 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, 2023 filed with the SEC on February 27, 2024.

Components of Our Results of Operations

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● license fees and milestone payments under license and collaboration agreements;

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

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.

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We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available.

We may alternatively be eligible for a taxable credit in the form

of a non-cash tax incentive.

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

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

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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 research and development expenses to increase in the near term as compared to the prior year period as we continue to focus our resources on (i) progressing our rusfertide program into later stage clinical trials and preparing for commercialization and ii) advancing our pre-clinical and drug discovery research programs.

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

We expect our research and development expenses to increase in the near term as compared to the prior year period as we continue to focus our resources on (i) progressing our rusfertide program into later stage clinical trials and preparing for commercialization and (ii) advancing our pre-clinical and drug discovery research programs, including our expected nomination of a development candidate from our discovery platform for IND-enabling studies by the end of 2024.

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

We may never succeed in achieving marketing approval for our product candidates regardless of our costs and efforts.

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

Other Expense, Net

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

Other Income (Expense), Net

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

Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended

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Total operating expenses

Loss from operations

Interest income

Other income (expense), net

Loss before income tax benefit

Income tax benefit

*Percentage not meaningful.

(1) Includes $5.1 million and $4.8 million of non-cash stock-based compensation expense for the three months ended June 30, 2024 and 2023, respectively.

(2) Includes $3.8 million and $3.5 million of non-cash stock-based compensation expense for the three months ended June 30, 2024 and 2023, respectively.

License and Collaboration Revenue

License and collaboration revenue increased from $0 for the three months ended June 30, 2023 to $4.2 million for the three months ended June 30, 2024.

Revenue for the three months ended June 30, 2024 included $4.2 million of the $300.0 million transaction price for the Takeda Collaboration Agreement allocated to development services provided by us during the period based on the cost-based input method.

For the three months ended June 30, 2023, we did not recognize any license and collaboration revenue.

Research and Development Expenses

Three Months Ended

(Dollars in thousands)

Clinical and development expense — rusfertide

Clinical and development expense — PN-943

Clinical and development expense — other

Pre-clinical and drug discovery research expense

Total research and development expenses

Research and development expenses increased $0.3 million, or 1%, from $33.2 million for the three months ended June 30, 2023 to $33.5 million for the three months ended June 30, 2024.

The increase was primarily due to (i) an increase of $4.5 million in pre-clinical and drug discovery research program expense partially offset by (ii) a decrease of $4.0 million in rusfertide clinical and development expense due primarily to decreases in contract manufacturing expenses and (iii) a decrease of $0.2 million in expenses for the PN-943 program as further development work was de-prioritized in 2023.

We expect to nominate a development candidate from our discovery platform ready for IND-enabling studies by the end of 2024.

We had 97 and 81 full-time equivalent research and development employees as of June 30, 2024 and 2023, respectively.

Research and development personnel-related expenses for the three months ended June 30, 2024 increased by $1.3 million as compared to the three months ended June 30, 2023, including increases of $1.0 million in personnel-related expenses and $0.3 million in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased $0.3 million, or 3%, from $9.1 million for the three months ended June 30, 2023 to $9.4 million for the three months ended June 30, 2024.

This increase was primarily due to a $0.7 million increase in personnel-related expenses and a $0.3 million increase in stock-based compensation expense, partially offset by a $0.7 million decrease in market research, legal and other general expenses.

We had 28 and 25 full-time equivalent general and administrative employees as of June 30, 2024 and 2023, respectively.

Interest Income

Interest income increased $3.5 million, or 89%, from $3.9 million for the three months ended June 30, 2023 to $7.4 million for the three months ended June 30, 2024.

This increase was due primarily to higher invested balances, including the $300.0 million upfront payment received under the Takeda Collaboration Agreement in April 2024.

Income Tax Benefit

Income tax benefit was $0.7 million and $0 for the three months ended June 30, 2024 and 2023, respectively.

Income tax benefit for the three months ended June 30, 2024 was a result of our net loss position for the period.

The effective tax rate was 2.16% and 0% for the three months ended June 30, 2024 and 2023, respectively.

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended

(Dollars in thousands)

License and collaboration revenue

Operating expenses:

Research and development (1)

General and administrative (2)

Total operating expenses

Income (loss) from operations

Interest income

Other expense, net

Other income (expense), net

Income (loss) before income tax expense

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*Percentage not meaningful.

(1) Includes $5.3 million and $4.6 million of non-cash stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively.

(2) Includes $4.1 million and $3.0 million of non-cash stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively.

(3) Includes $10.4 million and $9.4 million of non-cash stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively.

(4) Includes $7.9 million and $6.5 million of non-cash stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively.

License and Collaboration Revenue

License and collaboration revenue increased from $0 for the three months ended March 31, 2023 to $255.0 million for the three months ended March 31, 2024.

Revenue for the three months ended March 31, 2024 included $254.1 million of the $300.0 million transaction price for the Takeda Collaboration Agreement allocated to the delivery of the rusfertide license to Takeda upon effectiveness of the agreement in March 2024, and $0.9 million allocated to development services provided by us during the period based on the cost-based input method.

For the three months ended March 31, 2023, we did not recognize any license and collaboration revenue.

License and collaboration revenue increased from $0 for the six months ended June 30, 2023 to $259.1 million for the six months ended June 30, 2024.

The Takeda Collaboration Agreement included a nonrefundable upfront payment of $300.0 million, of which we recognized $255.0 million during the three months ended March 31, 2024.

The remaining $45.0 million was recorded as deferred revenue to be recognized over time as the Company satisfies its performance obligation to complete the ongoing Phase 3 VERIFY trial for rusfertide.

License and collaboration revenue for the six months ended June 30, 2024 of $259.1 million included $254.1 million of the $300.0 million upfront cash payment allocated to the delivery of the rusfertide license to Takeda upon effectiveness of the agreement in March 2024, and $5.0 million allocated to development services provided by us during the period based on the cost input method.

For the six months ended June 30, 2023, we did not recognize any license and collaboration revenue.

Research and Development Expenses

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Clinical and development expense — other

Pre-clinical and drug discovery research expense

Preclinical and drug discovery research expense

Total research and development expenses

Research and development expenses increased $6.3 million, or 23%, from $27.4 million for the three months ended March 31, 2023 to $33.7 million for the three months ended March 31, 2024.

The increase was primarily due to (i) an increase of $2.9 million in rusfertide clinical and contract manufacturing expenses primarily for the ongoing Phase 3 VERIFY clinical trial and (ii) an increase of $4.3 million in pre-clinical and drug discovery research program expense, partially offset by (iii) a decrease of $0.9 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.

completed a Phase 2 trial of PN-943, an orally delivered gut-restricted alpha 4 beta 7 specific integrin antagonist, in patients with moderate to severe UC in early 2023.

We had 97 and 80 full-time equivalent research and development employees as of March 31, 2024 and 2023, respectively.

Research and development personnel-related expenses for the three months ended March 31, 2024 increased by $2.6 million as compared to the three months ended March 31, 2023, including increases of $1.9 million in personnel-related expenses and $0.7 million in stock-based compensation expense.

Research and development expenses increased $6.7 million, or 11%, from $60.6 million for the six months ended June 30, 2023 to $67.3 million for the six months ended June 30, 2024.

The increase was primarily due to (i) an increase of $8.8 million in pre-clinical and drug discovery research program expense partially offset by (ii) a decrease of $1.1 million in rusfertide clinical and development expense due primarily to decreases in contract manufacturing expenses and (iii) a decrease of $1.1 million in expenses for the PN-943 program as further development work was de-prioritized in 2023.

We expect to nominate a development candidate from our discovery platform for IND-enabling studies by the end of 2024.

We had 97 and 81 full-time equivalent research and development employees as of June 30, 2024 and 2023, respectively.

Research and development personnel-related expenses for the six months ended June 30, 2024 increased by $3.9 million as compared to the six months ended June 30, 2023, including increases of $2.9 million in personnel-related expenses and $1.0 million in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased $6.3 million, or 73%, from $8.6 million for the three months ended March 31, 2023 to $14.9 million for the three months ended March 31, 2024.

This increase was primarily due to a $4.6 million increase in advisory and legal fees related to the Takeda Collaboration Agreement, a $1.1 million increase in stock-based compensation expense and a $0.9 million increase in personnel-related expenses, partially offset by a $0.7 million decrease in consulting and outside services, marketing and other general expenses.

We had 27 and 23 full-time equivalent general and administrative employees as of March 31, 2024 and 2023, respectively.

General and administrative expenses increased $6.6 million, or 37%, from $17.8 million for the six months ended June 30, 2023 to $24.4 million for the six months ended June 30, 2024.

This increase was primarily due to a $4.6 million increase in advisory and legal fees related to the Takeda Collaboration Agreement, a $1.6 million increase in personnel-related expenses and a $1.4 million increase in stock-based compensation expense, partially offset by a $1.0 million decrease in market research, consulting and outside services and other general expenses.

We had 28 and 25 full-time equivalent general and administrative employees as of June 30, 2024 and 2023, respectively.

Interest Income

Interest income increased $1.9 million from $2.5 million for the three months ended March 31, 2023 to $4.4 million for the three months ended March 31, 2024.

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.

Interest income increased $5.4 million, or 84%, from $6.4 million for the six months ended June 30, 2023 to $11.8 million for the six months ended June 30, 2024.

This increase was due primarily to higher invested balances, including the $300.0 million upfront payment received under the Takeda Collaboration Agreement in April 2024.

Income Tax Expense

Income tax expense was $3.3 million and $0 for the three months ended March 31, 2024 and 2023, respectively.

Income tax expense for the three months ended March 31, 2024 is a result of taxable income resulting from the recognition of revenue in connection with the Takeda Collaboration Agreement.

The effective tax rate was 1.54% and 0% for the three months ended March 31, 2024 and 2023, respectively.

Income tax expense was $2.7 million and $0 for the six months ended June 30, 2024 and 2023, respectively.

Income tax expense for the six months ended June 30, 2024 was a result of taxable income from the recognition of revenue in connection with the Takeda Collaboration Agreement.

The effective tax rate was 1.48% and 0% for the six months ended June 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

Sources of Liquidity

We had $322.6 million and $341.6 million in cash, cash equivalents and marketable securities at March 31, 2024 and December 31, 2023, respectively.

We had $595.4 million and $341.6 million in cash, cash equivalents and marketable securities at June 30, 2024 and December 31, 2023, respectively.

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.

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In August 2022, we entered into an Open Market Sale Agreement SM , 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 of our common stock under the 2022 ATM Facility during the three months ended March 31, 2024.

There were no sales of our common stock under the 2022 ATM Facility during the three and six months ended June 30, 2024.

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 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.

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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 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 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.

During the three months ended March 31, 2024, Pre-Funded Warrants to purchase 84,992 shares were net exercised, resulting in the issuance of 84,989 shares of common stock.

As of March 31, 2024, Pre-Funded Warrants to purchase 2,620,260 were outstanding.

During the three and six months ended June 30, 2024, Pre-Funded Warrants to purchase 84,992 shares were net exercised, resulting in the issuance of 84,989 shares of common stock.

As of June 30, 2024, Pre-Funded Warrants to purchase 2,620,260 were outstanding.

Receipt of Payments Under Collaboration Agreements

In March 2024, we earned a $300.0 million upfront payment from Takeda upon the closing of the Takeda Collaboration Agreement, which was received in April 2024.

In March 2024, we earned a $300.0 million upfront payment from Takeda upon the closing of the Takeda Collaboration Agreement, which we received in April 2024.

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

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profit and loss sharing arrangement in exchange for enhanced economics).

We have earned a total of $112.5 million in non-refundable payments from JNJ from the inception of the JNJ License and Collaboration Agreement in 2017 through December 31, 2022.

In addition, we earned the following milestone payments under the JNJ License and Collaboration Agreement during the year ended December 31, 2023:

● in October 2023, we earned a $50.0 million milestone payment in connection with the dosing of the third patient in the ICONIC-TOTAL Phase 3 clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was received in December 2023;

● in December 2023, we earned a $10.0 million payment for services in connection with the dosing of the third patient in the ANTHEM Phase 2b clinical trial of JNJ-2113 in ulcerative colitis, which was received in January 2024.

Under the JNJ License and Collaboration Agreement, we earned a $50.0 million milestone payment upon the dosing of the third patient in the ICONIC-TOTAL Phase 3 trial in late October 2023, which we received in December 2023.

We earned a $10.0 million milestone payment upon the dosing of the third patient in the ANTHEM Phase 2b trial in UC in December 2023, which we received in January 2024.

We have earned a total of $172.5 million in non-refundable payments from JNJ from the inception of the JNJ License and Collaboration Agreement in 2017 through June 30, 2024.

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

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Capital Requirements

As of March 31, 2024, we had $322.6 million of cash, cash equivalents and marketable securities and an accumulated deficit of $408.4 million.

Our capital expenditures were $0.2 million and $0.6 million for the three months ended March 31, 2024 and the year ended December 31, 2023, respectively.

As of June 30, 2024, we had $595.4 million of cash, cash equivalents and marketable securities and an accumulated deficit of $439.0 million.

Our capital expenditures were $0.3 million and $0.6 million for the six months ended June 30, 2024 and the year ended December 31, 2023, respectively.

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

We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months from the date of this Quarterly Report based on current operating plans and financial forecasts.

We expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operations for at

least the next twelve months from the date of this Quarterly Report based on current operating plans and financial forecasts.

We may require additional funding to advance our early discovery pipeline and to develop, acquire, or in-license other potential product candidates.

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

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

If we raise additional capital through debt financing, we could be subject to covenants limiting or restricting our ability to take

specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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

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

Three Months Ended

Six Months Ended

Condensed Consolidated Statements of Cash Flows Data:

(Dollars in thousands)

Cash used in operating activities

Cash provided by investing activities

Cash provided by (used) in operating activities

Cash (used in) provided by investing activities

Cash provided by financing activities

Stock-based compensation

Cash Used in Operating Activities

Cash used in operating activities for the three months ended March 31, 2024 was $27.4 million, consisting primarily of our net income of $207.3 million and $9.4 million of stock-based compensation, partially offset by a net change of $243.3 million in net operating assets and liabilities.

The change in net operating assets and liabilities was driven by a change of $290.0 million in receivable from collaboration partner partially offset by $45.1 million in deferred revenue, both of which related to the $300.0 million upfront payment we earned upon the effectiveness of the Takeda Collaboration Agreement in March 2024.

The $6.9 million decrease in cash used in operating activities during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to a

$241.1 million change in our net income and a $1.8 million increase in stock-based compensation expense, partially offset by a $235.3 million net change in net operating assets and liabilities.

Cash Provided by Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 was $6.1 million, consisting primarily of proceeds from maturities of marketable securities of $72.0 million, partially offset by purchases of marketable securities of $65.7 million.

The $3.8 million decrease in cash provided by investing activities for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily related to a decrease in the net activity of purchases and maturities of marketable securities.

Cash Provided by (Used in) Operating Activities

Cash provided by operating activities for the six months ended June 30, 2024 was $241.2 million and consisted primarily of our net income of $176.7 million, $18.3 million of stock-based compensation and a change of $47.7 million in net operating assets and liabilities.

The change in net operating assets and liabilities was driven primarily by a change of $40.9 million in deferred revenue related to the Takeda Collaboration Agreement and a change of $10.0 million in receivable from collaboration partner related to a milestone payment under the Janssen License and Collaboration Agreement, which we received in January 2024.

The $301.8 million increase in cash provided by operating activities during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily due to the receipt of a $300.0 million upfront payment which we earned upon the effectiveness of the Takeda Collaboration Agreement.

Cash (Used in) Provided by Investing Activities

Cash used in investing activities for the six months ended June 30, 2024 was $82.0 million and consisted primarily of purchases of marketable securities of $240.6 million, partially offset by proceeds from maturities of marketable securities of $158.8 million.

The $117.6 million increase in cash used in investing activities for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily related to the investment of a portion of the $300.0 million upfront payment we earned upon the effectiveness of the Takeda Collaboration Agreement.

Cash Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2024 was $7.2 million, consisting primarily of net cash proceeds of $7.8 million from the issuance of common stock upon exercises of stock options and purchases of stock under our employee stock purchase plan (“ESPP”), partially offset by $0.6 million in tax withholding payments related to net settlement of restricted stock units.

The $19.3 million decrease in cash provided by financing activities for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to a $24.3 million decrease in ATM sales of our common stock, partially offset by $5.5 million increase in proceeds from issuance of common stock upon exercise of options and purchases of common stock under the ESPP.

Cash provided by financing activities for the six months ended June 30, 2024 was $9.8 million and consisted primarily of net cash proceeds of $10.4 million from the issuance of common stock upon exercises of stock options and purchases of stock under our employee stock purchase plan (“ESPP”), partially offset by $0.6 million in tax withholding payments related to net settlement of restricted stock units.

The $124.9 million decrease in cash provided by financing activities for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily due to $107.9 million of proceeds received from a public offering of our common stock in April 2023 and a $24.3 million decrease in ATM sales of our common stock, partially offset by a $7.1 million increase in proceeds from the issuance of common stock upon exercise of options and purchases of common stock under the ESPP.

Contractual Obligations and Other Commitments

Takeda Collaboration Agreement

Under the Takeda Collaboration Agreement, we are obligated for expenditures related to completion of our Phase 3 clinical trial for rusfertide in PV and, if successful, an NDA filing with the FDA.

The timing and actual amounts may vary from estimates depending on numerous factors, some of which are outside of our control and some of which are contingent upon the success of certain development and regulatory activities.

The timing and amount of such payments are not determinable as of the date of the Quarterly Report on Form 10-Q.

During the three months ended March 31, 2024, there were no other 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, 2023 filed with the SEC on February 27, 2024.

Under the Takeda Collaboration Agreement, we are responsible for expenditures related to completion of our Phase 3 clinical trial for rusfertide in PV and, if successful, for expenditures related to an NDA filing with the FDA.

The timing and actual amounts of these payments may vary from estimates depending on numerous factors, some of which are outside of our control and some of which are contingent upon the success of certain development and regulatory activities.

The timing and amount of such payments are not determinable as of the date of this Quarterly Report on Form 10-Q.

Lease Agreement

Our contractual obligations include minimum lease payments under our operating lease obligations.

In May 2024, we entered into a third amendment to our facility lease agreement dated as of March 2017 to extend the term for our existing office and laboratory space and lease additional office space in Newark, California.

See Note 7 to the condensed consolidated financial statements elsewhere in this report for additional information.

Except as described above, during the six months ended June 30, 2024 there were no other 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, 2023 filed with the SEC on February 27, 2024.

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