What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-21 compared with 2024-02-27 · 345 added, 343 removed, 592 unchanged (54% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss )

Consolidated Statements of Stockholders’ Equity

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We have audited the accompanying consolidated balance sheets of Protagonist Therapeutics, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Accrued clinical and research related expenses

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Takeda Collaboration Agreement

Description of the Matter

At December 31, 2023, the Company has accrued $11.8 million of clinical and research related expenses.

As described in Note 2 to the consolidated financial statements, the Company records estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities, based upon the estimated amount of services provided but not yet invoiced.

The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers.

Auditing management’s accounting for accrued clinical and research related expenses is especially challenging because the evaluation is dependent on a high volume of data exchanged between third-party service providers, internal clinical personnel, and the Company’s finance department.

The accrued amounts are determined based on an evaluation of the unique terms and conditions set forth in each respective agreement.

Additionally, due to the duration of clinical trial activities and the timing of invoices received from third parties, the calculation of the accrual for services incurred requires management to determine that they have complete and accurate information from its vendors.

As described in Note 3, the Company entered into a Collaboration and License Agreement with Takeda Pharmaceuticals USA, Inc.

(Takeda), pursuant to which the Company and Takeda will collaborate on the development and commercialization of rusfertide (Takeda Agreement).

As further described in Note 3, the transaction price was allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling price.

Auditing the Company’s revenue recognition for the Takeda Agreement was complex and required the evaluation of significant judgments made by management, including the determination of the standalone selling price of the license obligation.

The estimated standalone selling price for the performance obligation related to the license of intellectual property reflects management’s assumptions, which includes forecasted revenues, development timelines, discount rates and probabilities of technical and regulatory success.

Changes to these assumptions can have a material effect on the allocation of the transaction price to the performance obligations as well as the amount and timing of revenue recognized.

How We Addressed the Matter in Our Audit

To test accrued clinical and research related expenses, our audit procedures included, among others, testing the accuracy and completeness of the inputs used in management’s analysis to determine costs incurred.

We also inspected terms and conditions for selected research and development contracts and change orders and compared these to the cost models management used in tracking progress of service agreements.

We met with the Company’s internal clinical personnel to understand the status of significant clinical activities.

We evaluated accruals recorded for services incurred by third parties by understanding the terms and timeline of significant projects and evaluating management’s determination of work performed at the balance sheet date.

Further, we inspected selected invoices received from third parties after the balance sheet date and evaluated whether services performed prior to the balance sheet date had been properly included in costs accrued.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls addressing the risks of material misstatement related to the accounting for the Takeda Agreement.

For example, we tested management’s controls over the identification of performance obligations, the determination of the significant assumptions described above with respect to the estimation of the standalone selling price of the performance obligations related to the licensed compounds, and the accuracy and completeness of underlying data used in estimating the standalone selling price and the transaction price.

Our audit procedures included, among others, obtaining and reading the Takeda Agreement and evaluating the completeness of the performance obligations identified by management.

We also evaluated management’s estimates of the standalone selling price for identified performance obligations.

For example, we evaluated the reasonableness and consistency of significant assumptions used in the determination of standalone selling price.

We also performed a sensitivity analysis to evaluate the impact that changes in the significant assumptions would have on the estimated standalone selling price of performance obligations and the resulting impact on the allocation of transaction price to each performance obligation, as well as revenue recognized during the period.

We involved our valuation professionals to assist in the assessment of certain assumptions used in the determination of the estimated standalone selling price of the license performance obligation.

/s/ Ernst & Young LLP

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Total current assets

Marketable securities - noncurrent

Property and equipment, net

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Accrued expenses and other payables

Operating lease liability - current

Deferred revenue

Income taxes payable

Operating lease liability

Total current liabilities

Deferred revenue - noncurrent

Operating lease liability - noncurrent

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 9)

Stockholders’ equity:

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no shares issued and outstanding

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

Common stock, $ 0.00001 par value, 180,000,000 and 90,000,000 shares authorized as of December 31, 2024 and 2023, respectively;

61,035,139 and 57,708,613 shares issued and outstanding as of December 31, 2024 and 2023, respectively

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Total operating expenses

Loss from operations

Income (loss) from operations

Interest income

Other expense, net

Net loss per share, basic and diluted

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

Other income (expense), net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income (loss) per share, basic

Net income (loss) per share, diluted

Weighted-average shares used to compute net income (loss) per share, basic

Weighted-average shares used to compute net income (loss) per share, diluted

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

PROTAGONIST THERAPEUTICS, INC.

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss )

(In thousands)

Year Ended December 31,

Other comprehensive loss:

Net income (loss)

Other comprehensive income (loss):

Unrealized gain on marketable securities

Gain (loss) on translation of foreign operations

Unrealized gain (loss) on marketable securities

Comprehensive loss

Comprehensive income (loss)

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

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Balance at December 31, 2021

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

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

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

Stock-based compensation expense

Other comprehensive income (loss)

Balance at December 31, 2021

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

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Other comprehensive income (loss)

Net income (loss)

Balance at December 31, 2022

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Other comprehensive income (loss)

Net income (loss)

Balance at December 31, 2023

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

Issuance of common stock upon exercise of Pre-Funded Warrants

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

Stock-based compensation expense

Other comprehensive income (loss)

Net income (loss)

Balance at December 31, 2024

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

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Cash Flows from Operating Activities

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Stock-based compensation

Operating lease right-of-use asset amortization

(Accretion) amortization of discount/premium on marketable securities

Accretion of discount on marketable securities

Changes in operating assets and liabilities:

Research and development tax incentive receivable

Receivable from collaboration partner

Prepaid expenses and other assets

Research and development tax incentive receivable

Accounts payable

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Deferred revenue

Income taxes payable

Operating lease liability

Other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash Flows from Investing Activities

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Cash Flows from Financing Activities

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

Tax withholding payments related to net settlement of restricted stock units

Proceeds from public offering of common stock, net of issuance costs

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Proceeds from issuance of common stock upon exercise of Warrants

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

Tax withholding payments related to net settlement of restricted stock units

Issuance costs related to prior period common stock offering

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

Net increase in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Supplemental Disclosure of Cash Flow Information:

Cash paid for taxes

Supplemental Disclosure of Non-Cash Financing and Investing Information:

Right-of-use asset obtained in exchange for lease obligation

Leasehold improvements obtained under tenant improvement allowance

Purchases of property and equipment in accounts payable and accrued liabilities

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

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

PROTAGONIST THERAPEUTICS, INC.

P ROTAGONIST THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

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Protagonist Therapeutics, Inc.

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

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

(the “Company”) is a discovery through late-stage development biopharmaceutical company focused on peptide therapeutics.

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

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

The Company has one wholly owned subsidiary, Protagonist Pty Limited (“Protagonist Australia”), located in Brisbane, Queensland, Australia.

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Executive Officer, the Company’s chief operating decision maker, in deciding how to allocate resources and assessing performance.

The Company operates and manages its business as one operating segment.

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

Substantially all of the Company’s long-lived assets are in the United States.

(i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory (“I&I”) diseases.

Two novel peptides derived from the Company’s proprietary discovery technology platform, rusfertide and icotrokinra (formerly known as JNJ-2113), are currently in advanced Phase 3 clinical development.

Rusfertide, an injectable mimetic of the natural hormone hepcidin partnered with Takeda Pharmaceuticals, Inc.

(“Takeda”), is currently in Phase 3 development for treatment of the rare blood disorder polycythemia vera (“PV”).

Icotrokinra is a first-in-class investigational targeted oral peptide that selectively blocks the Interleukin-23 receptor (“IL-23R”), which is licensed to J&J Innovative Medicines (“JNJ”), formerly Janssen Biotech, Inc.

Icotrokinra is an orally delivered drug that is designed to block biological pathways currently targeted by marketed injectable antibody drugs.

Following Icotrokinra’s joint discovery by the Company and JNJ scientists pursuant to their IL-23R collaboration, the Company was primarily responsible for the development of icotrokinra through Phase 1, with JNJ assuming responsibility for development in Phase 2 and beyond.

The Company also has a number of pre-clinical stage oral drug discovery programs to address clinically and commercially validated targets, including IL-17 oral peptide antagonist PN-881, an oral metabolic/obesity peptide program, and an oral hepcidin mimetic/ferroportin blocker program.

The Company is headquartered in Newark, California and has one wholly owned subsidiary, Protagonist Pty Limited (“Protagonist Australia”), located in Brisbane, Queensland, Australia.

As of December 31, 2024, the Company had cash, cash equivalents and marketable securities of $ 559.2 million.

The Company has incurred net losses from operations since inception and had an accumulated deficit of $ 615.7 million as of December 31, 2023.

The Company has incurred an accumulated deficit from inception through December 31, 2024 of $ 340.5 million.

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

The Company expects to incur additional losses in the future and anticipates the need to raise additional capital to continue to execute its long-range business plan.

The Company may incur additional losses in the future as it continues the development of rusfertide through Phase 3 development and a potential NDA filing and invests in its pre-clinical discovery programs and may need to raise additional capital to continue to execute its long-range business plan.

Since the Company’s initial public offering in August 2016, it has financed its operations primarily through proceeds from offerings of common stock and payments received under license and collaboration agreements.

Risks and Uncertainties

The Company is currently operating in a period of macroeconomic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, including ongoing military conflicts between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation, high interest rates and instability in banks and other financial institutions.

The Company’s 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, 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.

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

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

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

Although the Company does not believe that inflation has had a material adverse impact on its financial position or results of operations to date, its financial position or results of operations may be adversely affected in the future due to numerous factors, including global monetary and fiscal policy, supply chain constraints, the ongoing conflicts between Russia and Ukraine and in Israel and surrounding areas and other factors, and such factors may lead to increases in the cost of manufacturing for and delays in the initiation of studies in the Company’s product candidates.

Summary of Significant Accounting Policies

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All intercompany balances and transactions have been eliminated upon consolidation.

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

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

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

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

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

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, marketable securities and leases.

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

On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes,

marketable securities and leases.

Estimates related to revenue recognition include assumptions used to determine standalone selling price utilized to allocate the transaction price between distinct performance obligations, assumptions used to recognize revenue over time for certain performance obligations for which a cost-based input method is used as the measure of progress and estimates of whether contingent consideration should be included in the transaction price at each reporting period.

Management bases these estimates on historical and anticipated results, trends and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events.

There has been uncertainty and disruption in the global economy and financial markets due to a number of factors, including geopolitical instability, inflationary pressures, high interest rates, a recessionary environment, domestic and global monetary and fiscal policy, changes in trade policies, including tariffs or other trade restrictions or the threat of such actions, banking and other financial institution instability and other factors.

The Company has taken into consideration any known impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the filing date of this Annual Report on Form 10-K.

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Restricted Cash

Restricted cash consists primarily of cash balances held as security in connection with a letter of credit related to the Company’s facility lease entered into in March 2017, as subsequently amended.

Restricted cash consists of cash balances held as security in connection with a letter of credit related to the Company’s facility lease entered into in March 2017, as subsequently amended.

The Company’s letter of credit balance was $ 0.2 million at December 31, 2024, 2023 and 2022 pursuant to the terms of the facility lease.

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

Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other

income (expense), net.

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

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

Pursuant to Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), the Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment.

Pursuant to Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326) , the Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment.

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

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The Company determines if an arrangement is a lease at inception.

Pursuant to Accounting Standards Codification Topic 842, Leases (“ASC 842”), operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

Pursuant to Accounting Standards Codification Topic 842, Leases (“ASC Topic 842”), operating leases are included in operating lease right-of-use (“ROU”) asset, operating lease liability, and noncurrent operating lease liability on the consolidated balance sheets.

Operating lease ROU asset and operating lease liability are recognized based on the net present value of the future minimum lease payments over the lease term at commencement date.

If the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of future payments.

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There have been no such impairments of long-lived assets for any of the periods presented.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those from stockholders.

The Company’s foreign currency translation and unrealized gains and losses on available-for-sale securities represent the only components of other comprehensive loss that are excluded from reported net loss and that are presented in the consolidated statements of comprehensive loss.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’ equity that result from transactions and economic events other than those from stockholders.

The Company’s foreign currency translation and unrealized gains and losses on available-for-sale securities represent the only components of other comprehensive income (loss) that are excluded from reported net income (loss) and that are presented in the consolidated statements of comprehensive income (loss).

The Company uses the asset and liability method to account for income taxes in accordance with the authoritative guidance for income taxes.

Under this method, deferred tax assets and liabilities are determined based on future tax

consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and tax loss and credit carryforwards.

Under this method, deferred tax assets and liabilities are determined based on future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and tax loss and credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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To date, there have been no interest or penalties recorded in relation to unrecognized tax benefits.

Collaborative Arrangements

The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards and therefore are within the scope of Accounting Standards Codification Topic 808, Collaborative Arrangements (“ASC Topic 808”).

For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of ASC Topic 808 and which units of account are more reflective of a vendor-customer relationship and therefore are within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”).

For units of account that are accounted for pursuant to ASC Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election.

For collaborative arrangements that are within the scope of ASC Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity.

Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to research and development expense or general and administrative expense, as appropriate.

Revenue Recognition

Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

Under ASC Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC Topic 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

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At the inception of each arrangement or amendment that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price.

ASC 606 suggests two alternatives to use when estimating the amount of variable consideration:

ASC Topic 606 suggests two alternatives to use when estimating the amount of variable consideration:

the expected value method and the most likely amount method.

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If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered

probable of being achieved until those approvals are received.

If there is more than one performance obligation, the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis.

The Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each

subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price.

At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

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Research and Development Costs

Research and development costs (“R&D”) are expensed as incurred, unless there is an alternate future use in other research and development projects or otherwise.

Research and development costs include salaries and benefits, stock-based compensation expense, laboratory supplies and facility-related overhead, outside contracted services, including clinical trial costs, manufacturing and process development costs for both clinical and pre-clinical materials, research costs, development milestone payments under license and collaboration agreements, and other consulting services.

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated services provided but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

The Company accrues for these costs based on various factors such as estimates of the work completed and in accordance with agreements

established with its third-party service providers.

Research and development costs are expensed as incurred, unless there is an alternate future use in other research and development projects or otherwise.

Research and development costs include salaries and benefits, stock-based compensation expense, laboratory supplies and facility-related overhead, outside contracted services, including clinical trial costs, manufacturing and process development costs for clinical and pre-clinical materials, research costs, development milestone payments under license and collaboration agreements, and other consulting services.

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical and non-clinical studies, clinical trials and contract manufacturing activities.

The Company records the estimated costs of research and development activities based upon the estimated

services provided but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets and within research and development expense in the consolidated statements of operations.

The Company accrues for these costs based on various factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers.

As actual costs become known, the Company adjusts its accrued liabilities.

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Research and Development Tax Incentive

The Company is eligible under the AusIndustry research and development tax incentive program to obtain either a refundable cash tax incentive or a taxable credit in the form of a non-cash tax incentive from the Australian Taxation Office.

The refundable cash tax incentive is available to the Company on the basis of specific criteria with which the Company must comply.

Specifically, the Company must have annual turnover of less than AUD 20.0 million and cannot be controlled by income tax exempt entities.

The refundable cash tax incentive is recognized as a reduction to research and development expense when the right to receive has been attained and funds are considered to be collectible.

The Company may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive in years when the annual turnover exceeds the limit.

The Company is eligible under the AusIndustry research and development tax incentive program to obtain either a refundable tax offset or a nonrefundable tax offset from the Australian Taxation Office.

The refundable cash offset is available to the Company on the basis of specific criteria with which the Company must comply.

Specifically, the Company must have aggregated annual turnover of less than AUD 20.0 million and cannot be controlled by income tax exempt entities.

The refundable tax offset is recognized as a reduction to research and development expense when the right to receive has been attained and funds are considered to be collectible.

The Company may alternatively be eligible for a nonrefundable tax offset in years when the aggregated annual turnover exceeds AUD 20.0 million.

The Company evaluates its eligibility under tax incentive programs as of each balance sheet date and makes accrual and related adjustments based on the most current and relevant data available.

Unused nonrefundable tax offsets may be carried forward to future years, subject to satisfying specific criteria.

Stock-based Compensation

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

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

For restricted stock unit (“RSU”) awards, the estimated fair value is generally the fair market value of the underlying stock on the grant date.

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

The Company has granted stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”).

Stock-based compensation expense associated with stock options is based on the estimated grant date fair value using the Black-Scholes valuation model, which requires the use of subjective assumptions related to expected stock price volatility, option term, risk-free interest rate and dividend yield.

The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest.

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

For RSUs, the Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest.

PSUs allow the recipients of such awards to earn fully vested shares of the Company’s common stock upon the achievement of pre-established performance objectives.

Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing market price of the Company’s common stock on the grant date and is recognized when the performance objective is expected to be achieved.

The Company evaluates the probability of achieving the performance criteria on a quarterly basis.

The cumulative effect on current and prior periods of a change in the estimated number of PSUs expected to be earned is recognized as compensation expense or as reduction of previously recognized compensation expense in the period of the revised estimate.

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

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

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

The Company recognizes compensation expense on an accelerated basis over the vesting periods of the awards that are ultimately expected to vest when achievement of the related performance obligation becomes probable.

The Company assesses the probability of achievement of the related performance obligation on a quarterly basis.

If stock-based awards are granted in contemplation of or shortly before a planned release of material nonpublic information, and such information is expected to result in a material increase in the Company’s share price, the Company considers whether an adjustment to the observable market price is required when estimating fair values.

Net Loss per Share

Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares of common stock, Exchange Warrants and Pre-Funded Warrants (as defined in Note 10.

Stockholders’ Equity for details) outstanding during the period, without consideration of potentially dilutive securities.

In accordance with Accounting Standards Codification Topic 260, Earnings Per Share (“ASC 260”), outstanding Exchange Warrants and 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.

Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company in each period.

Stockholders’ Equity for additional information regarding the Exchange Warrants and Pre-Funded Warrants.

Net Income (Loss) per Share

The computation of basic net income (loss) per share of common stock is based on the weighted-average number of shares of common stock outstanding during each period.

The computation of diluted net income (loss) per share of

common stock is based on the weighted-average number of shares of common stock outstanding during the period plus, when their effect is dilutive, incremental shares consisting of shares subject to stock options, RSUs, PSUs, the Company’s employee stock purchase plan (“ESPP”), and warrants.

In accordance with Accounting Standards Codification Topic 260, Earnings Per Share (“ASC Topic 260”), outstanding Exchange and Pre-Funded Warrants (as defined in Note 10.

Stockholders’ Equity) are included in the computation of weighted-average shares of common stock, basic because the exercise price was negligible, and they were fully vested and exercisable after the original issuance date.

In periods when the Company has net income, the dilutive effect of all potentially outstanding shares is computed using the treasury stock method.

In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per share of common stock and diluted net loss per share of common stock are equal.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board (“FASB”) issued ASU 2016-13.

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

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

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

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

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

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

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplified accounting for convertible instruments by removing major separation models required under current GAAP.

ASU 2020-06 also removed certain settlement conditions that were required for equity-linked contracts to qualify for the derivative scope exception, and it simplified the diluted earnings per share calculation in certain areas.

ASU 2020-06 is effective for the Company beginning January 1, 2024.

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

Recently Issued Accounting Pronouncements as of December 31, 2023

In November 2023, the FASB issued Accounting Standards Update No.

2023-07 Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose incremental segment information on an annual and interim basis.

ASU 2023-07 requires all public entities, including public entities with a single reportable segment, to provide one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance.

Additionally, the guidance requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures.

ASU 2023-07 is effective for the Company for fiscal years beginning on January 1, 2024, and interim periods within fiscal years beginning on January 1, 2025.

The Company currently operates as one reportable segment and the impact of the adoption of this standard was limited to certain enhanced disclosures in the consolidated financial statements.

See Note 15 to these consolidated financial statements for disclosures related to the adoption of this guidance.

Recently Issued Accounting Pronouncements Not Yet Adopted as of December 31, 2024

In December 2023, the FASB issued Accounting Standards Update No.

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ASU 2023-09 also requires that entities disclose annually additional information about income taxes paid and disaggregated information for certain items.

The standard can be applied prospectively or retrospectively.

ASU 2023-09 is effective for the Company beginning on January 1, 2025.

The Company is currently evaluating the impact of the adoption of ASU 2023-09 on its financial position, results of operations and cash flows.

The Company will adopt this guidance in its 2025 Annual Report on Form 10-K but does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cashflows.

In November 2024, the FASB issued Accounting Standards Update No.

ASU 2023-07 requires public entities with a single reportable segment to provide all the disclosures required by the amendments in ASU 2023-07 and all existing segment disclosures in Segment Reporting (Topic 280) .

ASU 2023-07 is effective for the Company for fiscal years beginning on January 1, 2024, and interim periods within fiscal years beginning on January 1, 2025.

The Company does not expect the adoption of ASU 2023-07 to have a material impact on its financial position, results of operations or cash flows.

In August 2020, the FASB issued Accounting Standards Update No.

2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas.

ASU 2020 - 06 is effective for the Company beginning on January 1, 2024.

The Company does not expect the adoption of ASU 2020-06 to have a material impact on its financial position, results of operations or cash flows.

License and Collaboration Agreement

Agreement Terms

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement (the “Restated Agreement”) with J&J Innovative Medicines (“JNJ”), formerly Janssen Biotech, Inc., which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and JNJ (the “Original Agreement”), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”).

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

2024-03 Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires detailed disclosures about specified categories of expenses (including employee compensation, depreciation, and amortization) included in certain expense captions presented on the face of the income statement.

ASU 2024-03 is effective for the Company or fiscal years beginning on January 1, 2027, and for interim periods within fiscal years beginning on January 1, 2028.

Early adoption is permitted.

The guidance may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or (2) retrospectively to all prior periods presented in the financial statements.

The Company does not expect the adoption of this guidance to have a material effect on its consolidated financial statements and continues to evaluate disclosure presentation alternatives.

License and Collaboration Agreements

Takeda Collaboration Agreement

In January 2024, the Company entered into the Takeda Collaboration Agreement, which became effective in March 2024.

Pursuant to the Takeda Collaboration Agreement, the Company and Takeda are jointly developing and commercializing rusfertide and potentially other specified second-generation injectable hepcidin mimetic compounds (the “Licensed Products”) in the United States (the “Profit-Share Territory”).

Takeda is solely and exclusively responsible for the development and commercialization of the Licensed Products in all other countries (the “Takeda Territory”).

The Company and Takeda share the costs of the development, manufacture and commercialization activities for the Licensed Products in the Profit-Share Territory, provided that (i) the Company leads, and is solely responsible for its costs associated with, completion of the ongoing Phase 3 VERIFY program evaluating rusfertide for the treatment of PV as well as associated U.S.

regulatory activities;

(ii) Takeda leads, and is solely responsible for its costs associated with, pre-commercialization activities related to rusfertide in the Profit-Share Territory;

and (iii) Takeda leads commercialization of rusfertide in the Profit-Share Territory, with the Company holding an option to co-detail.

Takeda is solely responsible for all costs for the development, manufacture and commercialization of the Licensed Products in the Takeda Territory.

The Company granted Takeda a non-transferable, sublicensable and, except for certain specified exceptions, exclusive license to certain intellectual property of the Company to exercise its rights and perform its obligations under the Takeda Collaboration Agreement.

The Company received a one-time, non-refundable upfront payment of $ 300.0 million in April 2024.

In addition, the Company is eligible to receive additional worldwide development, regulatory and commercial milestone payments for rusfertide of up to $ 330.0 million, and tiered royalties from 10 % to 17 % on net sales of the Licensed Products in the Takeda Territory.

The Company and Takeda also share equally in profits and losses ( 50 % to the Company and 50 % to Takeda) for Licensed Products in the Profit-Share Territory.

Takeda will book sales of the Licensed Products globally.

The Company has the right to opt-out entirely of profit- and loss-sharing in the Profit-Share Territory for rusfertide and all other Licensed Products (the “Full Opt-out Right”) (i) during the 90-day period beginning 120 days after the filing of an NDA with the FDA for rusfertide for PV (the “Initial Opt-out Period”);

and (ii) for convenience without receipt of the Opt-out Payment (as defined below) (generally following the Initial Opt-out Period).

In addition, if the Company does not exercise the Full Opt-out Right, the Company may opt-out of any Licensed Product other than rusfertide on a Licensed Product-by-Licensed Product basis (each, a “Partial Opt-out Right” and either the Full Opt-out Right or a Partial Opt-out right being an “Opt-out Right”).

Following the Company’s exercise of an Opt-out Right, the Company has agreed to transition applicable development and commercial activities to Takeda, and Takeda has agreed to assume sole operational and financial responsibility for such activities in the United States.

The Takeda Collaboration Agreement provides for aggregate development, regulatory and commercial milestone payments from Takeda to the Company for rusfertide of up to $ 975 million if the Company exercises the Full Opt-out Right.

In addition to these milestone payments, in the event the Company exercises the Full Opt-out Right during the Initial Opt-out Period, the Company will receive:

(i) a $ 200 million payment following its exercise of the Full Opt-out Right;

and (ii) an additional $ 200 million payment following FDA approval of the NDA for rusfertide for PV (together, the “Opt-out Payment”).

If the Company exercises an Opt-out Right, Takeda has agreed to pay the Company royalties of 14 % to 29 % on worldwide net sales of the Licensed Products with respect to which the Company has exercised an Opt-out Right.

Upcoming potential development and regulatory milestones under the Takeda Collaboration Agreement include:

● $ 25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY clinical trial for rusfertide in PV;

● $ 50.0 million upon FDA approval of an NDA for rusfertide in PV (or $ 75.0 million if the Company exercises the Full Opt-out Right).

The Company evaluated the Takeda Collaboration Agreement and concluded that it has elements that are within the scope of ASC Topic 606 and ASC Topic 808.

As of the effective date of the Takeda Collaboration Agreement, the Company identified two distinct performance obligations:

(i) the rusfertide license delivered upon the effectiveness of the Takeda Collaboration Agreement and (ii) certain development services to be provided prior to the Initial Opt-out Period, including the Company’s responsibilities to complete the VERIFY Phase 3 clinical trial in PV and to file an NDA with the FDA upon successful completion of the VERIFY trial and associated manufacturing services.

The Company determined that the initial transaction price totaled $ 300.0 million, comprised of the upfront payment.

The Company has excluded any future estimated milestones or royalties from this transaction price to date, all of which are either currently constrained or subject to the sales-and usage-based royalty exception.

As part of the Company’s evaluation of this variable consideration constraint, it determined that the potential payments are contingent upon developmental and regulatory milestones that are uncertain and are highly susceptible to factors outside of its control.

The Company allocated $ 254.1 million of the initial transaction price to the license and $ 45.9 million to the development services based upon the relative standalone selling price of each performance obligation.

The estimate of standalone selling price for the license was determined based on discounted cash flows for the expected development and commercialization of rusfertide and includes assumptions for forecasted revenues, development timelines and expenses, discount rates, and probabilities of technical and regulatory success.

The estimate of standalone selling price for the development services was determined based on forecasted costs and expenses over the expected development period.

For the license of rusfertide, the Company determined that Takeda could benefit from the license at the time the license was granted and therefore, the related performance obligation was satisfied at a point in time.

The amount allocated to the license, which represents functional intellectual property that was transferred at a point in time, was satisfied upon transfer of the license to Takeda.

The amount allocated to development services will be recognized over time based on a measure of the Company’s efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g., costs incurred compared to total budget).

The Company recognized $ 15.3 million of revenue allocated to development services with respect to the period from the effective date of the contract through December 31, 2024.

The Company determined that the Takeda Collaboration Agreement met the definition of a collaborative arrangement under ASC Topic 808.

Both parties are active participants in directing and carrying out the development of the Licensed Products and both are exposed to the significant risk and rewards related to the commercial success of the Products.

If the Company does not exercise an Opt-out Right (“Company Opt-in”), the Company and Takeda would co-detail the Licensed Products in the U.S.

and share in the economic results through a profit-sharing structure.

The Company determined that development costs subsequent to the Company Opt-in date are within the scope of ASC Topic 808, which does not provide recognition and measurement guidance.

As such, the Company determined that Accounting Standards Codification Topic 730, “ Research and Development” was appropriate to analogize to based on the cost-sharing provisions of the agreement.

The Company concluded that payments to or reimbursements from Takeda related to these services will be accounted for as an increase to or reduction of research and development expense, respectively.

JNJ License and Collaboration Agreement

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement with JNJ, formerly Janssen Biotech, Inc., which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and JNJ, as amended effective May 7, 2019 and November 14, 2024 (together, the “JNJ License and Collaboration Agreement”).

Prior to January 1, 2023, JNJ was a related party to us as Johnson & Johnson Innovation - JJDC, Inc.

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

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

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

The Company received a $ 5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first

quarter of 2020 and a $ 7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021.

The Company received a $ 25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound during the second quarter of 2022.

The Company received a $ 50.0 million milestone payment in connection with the dosing of a third patient in the ICONIC-TOTAL Phase 3 clinical trial of JNJ-2113 in patients with moderate-to-severe psoriasis during the fourth quarter of 2023.

The Company became eligible to receive a $ 10.0 million milestone payment upon t he dosing of the third patient in the ANTHEM Phase 2b trial in UC in December 2023.

The Company has earned a total of $ 172.5 million in non-refundable payments from JNJ since the inception of the Restated Agreement in 2017 through the date of this report.

The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates.

The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly PN- 235).

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

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

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

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

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

Upcoming potential development milestones for second-generation compounds include:

● $ 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”);

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

● $ 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.

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

The sales milestone payments in the Original Agreement also remain the same in the Restated Agreement.

Pursuant to both the Original and Restated Agreements, payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities.

JNJ bills the Company for its share of the PTG-200 Phase 2a development costs as expenses are incurred by JNJ.

Milestone payments are received after the related milestones are achieved.

JNJ retains exclusive, worldwide rights to develop and commercialize IL-23 receptor antagonist compounds derived from the research collaboration conducted under the Original Agreement, or JNJ’s further research under the Restated Agreement.

Any further research and development will be conducted by JNJ.

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

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

Upon a termination of the Restated Agreement, all rights revert back to the Company, and in

certain circumstances, if such termination occurs during ongoing clinical trials, JNJ would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

The JNJ License and Collaboration Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates and enables JNJ to develop collaboration compounds for multiple indications.

Under the JNJ License and Collaboration Agreement, JNJ is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

During the fourth quarter of 2023, the Company 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 icotrokinra (formerly JNJ-2113) in patients with moderate-to-severe psoriasis and a $ 10.0 million milestone payment upon the dosing of the third patient in the

ANTHEM Phase 2b trial moderately-to-severely active UC.

The JNJ License and Collaboration Agreement was further amended in November 2024 to:

● increase the milestone payment for a Phase 3 clinical trial of any licensed product for any indication meeting its primary endpoint by $ 50.0 million, from $ 115.0 million to $ 165.0 million;

● eliminate the $ 35.0 million milestone payment previously due for the acceptance of an NDA filing by the FDA for use of a licensed product for any indication;

● eliminate the $ 15.0 million milestone payment previously due for the dosing of the third patient in the first Phase 3 clinical trial of a licensed product for a second indication.

The Company earned the $ 165.0 million milestone payment described above during the fourth quarter of 2024.

The Company has earned a total of $ 337.5 million in non-refundable payments from JNJ from inception in 2017 through December 31, 2024.

Upcoming potential development and regulatory milestones include:

● $ 50.0 million upon FDA approval of an NDA in any indication;

● $ 25.0 million upon the acceptance of an NDA filing by the FDA for a second indication;

● $ 45.0 million upon FDA approval of an NDA for a second indication.

Pursuant to the agreement, the Company is eligible to receive future sales milestone payments and tiered royalties on net product sales at percentages ranging from 6 % to 10 %.

Revenue Recognition

The Restated Agreement contains a single performance obligation for the development license;

Phase 1 development services for PTG-200, PN-232 and JNJ-2113;

the Company’s services associated with Phase 2a development for PTG-200 in CD;

the initial year of second-generation compound research services;

and all other such services that the Company may perform at the request of JNJ to support the development of PTG-200 through Phase 2a and PN-232 and JNJ-2113 through Phase 1.

Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and JNJ-2113 beyond Phase 1 are no longer required.

The Company concluded that the remaining development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the Restated Agreement of the development license and PTG-200, PN- 232 and JNJ-2113 services, including compound supply and other services.

Therefore, the Restated Agreement is treated as if it were part of the Original Agreement.

The Restated Agreement was accounted for as if it were a modification of services under the Original Agreement by applying a cumulative catch-up adjustment to revenue.

As of the effective date of the Restated Agreement, the Company calculated the adjusted cumulative revenue under the Restated Agreement with primary updates to the transaction price, including the release of and update of prior constraints and fewer remaining services to be provided, resulting in a cumulative adjustment that increased revenue by $ 8.0 million for the year ended December 31, 2021.

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

For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and ended upon the completion of Phase 1 clinical trials for PN-232 and JNJ-2113.

Final activities related to these trials were completed as of June 30, 2022.

The Company uses the most likely amount method to estimate variable consideration included in the transaction price.

Variable consideration after the effective date of the Restated Agreement consisted of future milestone payments and cost sharing payments for agreed-upon services offset by development costs reimbursable to JNJ.

Cost sharing payments from JNJ related to the agreed-upon services for development activities that the Company performed within the duration of the contract were included in the transaction price at the Company’s share of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third-party contract costs.

Cost sharing payments to JNJ related to agreed-upon services for activities that JNJ performed within the duration of the contract are not a distinct service that JNJ transfers to the Company.

Therefore, the consideration payable to JNJ was accounted for as a reduction in the transaction price.

The transaction price of the initial performance obligation under the Restated Agreement was $ 131.7 million as of December 31, 2022, an increase of $ 25.2 million from the transaction price of $ 106.5 million at December 31, 2021 under the Restated Agreement.

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

The transaction price as of December 31, 2022 included $ 112.5 million of nonrefundable payments received to date, $ 17.9 million of reimbursement from JNJ for services performed for IL-23 receptor antagonist compound research and other services, and variable consideration consisting of $ 8.2 million of development cost reimbursement from JNJ, partially offset by $ 6.9 million of net cost reimbursement due to JNJ for services performed.

The Company concluded that the variable consideration constraint was appropriately reflected in the transaction price as of December 31, 2022, and that the achievement of future milestones is subject to additional development and/or regulatory uncertainty and therefore it was not probable at December 31, 2022 that a material reversal of such revenues would not occur.

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

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

The Company utilized a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize.

In applying the cost-based input method of revenue recognition, the

Company used actual costs incurred relative to expected costs to fulfill the combined performance obligation.

These costs consisted primarily of internal full-time equivalent effort and third-party contract costs.

Revenue was recognized based on actual costs incurred as a percentage of total estimated costs as the Company completed its performance obligations.

A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations.

The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to JNJ.

For the year ended December 31, 2023, the Company recognized $ 60.0 million of license and collaboration revenue, which included a $ 50.0 million milestone payment earned in October 2023 in connection with the dosing of the third patient in the ICONIC-TOTAL Phase 3 trial of JNJ-2113 in patients with moderate-to-severe psoriasis, and a $ 10.0 million milestone payment earned in December 2023 upon the dosing of the third patient in the ANTHEM Phase 2b trial in UC.

For the year ended December 31, 2022, the Company recognized $ 26.6 million of license and collaboration revenue, which was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

The Company completed its performance obligation under the collaboration as of June 30, 2022.

For the year ended December 31, 2024, the Company recognized $ 434.4 million of license and collaboration revenue.

This amount included a cumulative catch-up adjustment increasing license and collaboration revenue by $ 8.0 million, and $ 18.6 million of license and collaboration revenue based on proportional performance following the contract modification for the Restated Agreement.

In addition, the Company recorded $ 0.8 million of revenue related to additional services provided by the Company under the Restated Agreement.

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

Year Ended December 31, 2023

Contract assets:

Receivable from collaboration partner

Contract liabilities:

Payable to collaboration partner

Year Ended December 31, 2022

Contract assets:

Receivable from collaboration partner

Contract liabilities:

Deferred revenue

Payable to collaboration partner

During the year ended December 31, 2022, the Company recognized revenue of $ 0.9 million from amounts included in the deferred revenue balance at the beginning of the year.

This was comprised of $ 269.4 million related to the Takeda Collaboration Agreement, including (i) $ 254.1 million allocated to the rusfertide license delivered to Takeda upon the effectiveness of the agreement in March 2024 and (ii) $ 15.3 million for development services provided by the Company during the period based on the cost-based input method, and $ 165.0 million related to the JNJ License and Collaboration Agreement, as described above.

For the year ended December 31, 2023, the Company recognized $ 60.0 million of collaboration revenue related to the JNJ License and Collaboration Agreement , which included a $ 50.0 million milestone payment earned in October 2023 in connection with the dosing of the third patient in the ICONIC-TOTAL Phase 3 trial of icotrokinra in patients with moderate-to-severe psoriasis, and a $ 10.0 million milestone payment earned in December 2023 upon the dosing of the third patient in the ANTHEM Phase 2b trial for patients with UC.

For the year ended December 31, 2022, the Company recognized $ 26.6 million of collaboration revenue related to the JNJ License and Collaboration Agreement, which was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

The Company completed its performance obligation under the collaboration as of June 30, 2022.

During the years ended December 31, 2024 and 2023, no revenue was recognized from amounts included in the deferred revenue balance at the beginning of the year.

During the year ended December 31, 2022, the Company recognized revenue of $ 0.9 million from amounts included in the deferred revenue balance at the beginning of the year.

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

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

The remaining unrecognized transaction price amount of $ 30.6 million related to the Takeda Collaboration Agreement was recorded as deferred revenue on the Company’s consolidated balance sheet as of December 31, 2024 and will be recognized over time based on a measure of the Company’s efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g.

costs incurred compared to total budget).

Fair Value Measurements

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.

The accounting guidance establishes

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

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

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

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

The Company’s certificates of deposit, U.S.

Treasury and agency securities, including U.S.

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

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

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

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Total cash equivalents and marketable securities

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Marketable securities

Marketable securities - current

Marketable securities - noncurrent

Total cash equivalents and marketable securities

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Commercial paper

Corporate debt securities

Treasury and agency securities

Total cash equivalents and marketable securities

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Cash equivalents

Marketable securities

Marketable securities - current

Total cash equivalents and marketable securities

Marketable securities of $ 154.9 million and $ 111.6 million held as of December 31, 2023 and 2022, respectively, had contractual maturities of less than one year .

All of the Company’s marketable securities are classified as available-for-sale.

Current marketable securities of $ 321.7 million and $ 154.9 million held as of December 31, 2024 and 2023, respectively, had contractual maturities of less than one year.

Noncurrent marketable securities of $ 140.3 million held as of December 31, 2024 had contractual maturities of at least one year but no more than two years .

The Company does not intend to sell its securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity.

There were no material realized gains or realized losses on marketable securities for the periods presented.

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

Balance Sheet Components

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

Prepaid insurance

Accrued interest receivable

Prepaid clinical and research related expenses

Prepaid insurance

Prepaid licenses

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Research Collaboration and License Agreement

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

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

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

The Company has the right, but not the obligation, to further develop and commercialize such compounds.

The agreement provides for payments to Zealand for the achievement of certain development, regulatory and sales milestone events that occur prior to a partnering arrangement related to such compounds between the Company and a third party.

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

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

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

Pursuant to a collaboration agreement between the Company and Zealand Pharma A/S (“Zealand”) entered into in June 2012 and a related arbitration resolution agreement entered into in August 2021, the Company is obligated to pay Zealand certain milestone and royalty payments for rusfertide.

The potential future payments include:

(i) up to $ 2.75 million in future development milestone payments;

(ii) a low single digit royalty on worldwide net sales;

and (iii) sales milestones for achievement of annual net sales amounts in specified geographies.

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

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

For the year ended December 31, 2021, the Company recorded research and development

expense of $ 4.0 million under this agreement.

No research and development expense were recorded under this agreement for the years ended December 31, 2023 or 2022.

The Company applies ASC 842 to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet.

The Company has elected to account for each separate lease component and non-lease components as one single component for all lease assets.

No expense was recorded under this agreement for the years ended December 31, 2024, 2023 or 2022.

The Company applies ASC Topic 842 to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet.

The Company has elected to account for each separate lease component and non-lease component as one single component for all lease assets.

Leases with terms of 12 months or less are not recorded on the balance sheet, and the related lease expenses are recognized on a straight-line basis over the lease term.

The Company has one operating lease agreement originally entered into in March 2017 for approximately 42,900 square feet for laboratory and office space located in Newark, California.

In July 2021, the Company entered into a second amendment to its original facility lease agreement, as amended, for 15,000 square feet of additional office space in Newark, California (the “Second Amendment”).

The Company commenced operations in the additional space in September 2021.

Under the Second Amendment, the Company will pay additional base rent of approximately $ 1.5 million over the lease term, which expires in May 2024.

As a result of this amendment, the Company recorded an additional right-of-use-asset and the related liability of $ 1.4 million as of December 31, 2021.

The Company provided the landlord with a $ 450,000 letter of credit collateralized by restricted cash as security deposit for the operating lease agreement, which expires in May 2024.

The security deposit for the lease was later reduced to $ 225,000 in March 2021.

No additional security deposit was required pursuant to the Second Amendment.

Under the terms of the lease, as amended, the Company is responsible for its proportional share of operating expenses and tax obligations.

Balance sheet information related to operating leases is as follows for the periods presented (in thousands):

Operating Leases:

In July 2021, the Company entered into a second amendment to its original facility lease agreement, as amended, for 15,000 square feet of additional office space in Newark, California.

On May 6, 2024, the Company amended its facility lease agreement (the “Amended Lease”) to extend the lease term for its existing office and laboratory space from one to 66 months and lease approximately 17,700 rentable square feet of additional office space, all located in Newark, California.

The Company began occupying the additional space under the Amended Lease on July 1, 2024.

The Amended Lease, which expires in November 2029, provides for an agreed-upon period of rent abatement and a tenant improvement allowance of $ 1.8 million.

As a result of this amendment, the Company recorded an additional right-of-use-asset and the related liability of $ 10.5 million.

The Company provided the landlord with a $ 225,000 letter of credit collateralized by restricted cash as security deposit for the operating lease agreement.

No additional security deposit was required pursuant to the Amended Lease, and the Company is responsible for its proportional share of operating expenses and tax obligations.

Balance sheet information related to the Company’s operating lease is as follows for the periods presented (in thousands):

Operating Lease:

Operating lease right-of-use asset

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Weighted-average discount rate

Other information related to the Company’s operating leases is as follows for the periods presented (in thousands):

Other information related to the Company’s operating lease is as follows for the periods presented (in thousands):

Year Ended December 31,

Operating lease cost

Short-term rent expense

Sublease income

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Subject to the required notice periods and the Company’s obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time.

However, the financial terms of some of these agreements may include non-refundable upfront payments, payments by the Company for options to acquire certain rights, contingent obligations by the Company for potential development and regulatory milestone payments and/or sales-based milestone payments and royalty payments.

These obligations are recorded in the Company’s consolidated statements of operations as incurred, which is generally when the corresponding events become probable.

Certain payments are contingent upon the occurrence of various future events that have a high degree of uncertainty.

The Company expects to enter into additional clinical development, contract research, clinical and commercial manufacturing, supplier and collaborative research agreements in the future, which may require upfront payments and long-term commitments of capital resources.

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

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

however, if no estimate in the

range is better than any other, it accrues the minimum amount in the range.

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

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

Under the Arbitration Resolution Agreement, (1) the Company was required to make an additional payment of $ 1.5 million to Zealand in August 2022 with respect to rusfertide;

(2) all development milestones with respect of rusfertide were reduced by 50 %, except that the Company agreed to pay in full within two business days after the

effective date of the Arbitration Resolution Agreement (and timely paid):

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

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

(3) the royalty rates payable by the Company on net sales of rusfertide were reduced by 50 %;

(4) all sales milestone payments on net sales of rusfertide were reduced by 50 %;

(5) the parties agreed that each party will retain all payments previously made by the other party in connection with the original collaboration agreement;

and (6) the parties released claims related to the original collaboration agreement, the abandonment agreement and the arbitration.

In addition to the payments specified in items (1) and (2) above, the Company may also be required to pay Zealand up to $ 2.75 million in future development milestone payments relating to rusfertide.

Those payments include up to $ 1.0 million in the aggregate for registrational proposals and up to $ 1.75 million in the aggregate for commercial launch in the three geographic territories specified in the original collaboration agreement.

The Company considered the outcome of these arbitration proceedings as being related to its research and development project;

Under the Arbitration Resolution Agreement, the Company recognized $ 4.0 million in development milestone payments to Zealand in the third quarter of 2021 and is obligated to pay Zealand certain milestone and royalty payments for rusfertide.

The potential future payments include (i) up to $ 2.75 million in future development milestone payments, (ii) a low single digit royalty on worldwide net sales, and (iii) sales milestones for achievement of annual net sales amounts in specific geographies.

The Company considered the outcome of these arbitration proceedings as being related to its research and development projects;

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

Stockholders’ Equity

Public Offerings

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

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

Shares of Common Stock Authorized for Issuance

At the Company’s 2024 Annual Meeting of Stockholders held on June 20, 2024, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to increase the number of authorized shares of the Company’s common stock from 90,000,000 to 180,000,000 , which also has the effect of increasing the total number of authorized shares from 100,000,000 to 190,000,000 (the “Amendment”).

On June 21, 2024, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Amendment, which became effective immediately upon such filing.

Public Offering

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

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

ATM Offerings

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

No shares were sold under the 2019 ATM Facility during the year ended December 31, 2021.

During the year ended December 31, 2022, the Company sold 422,367 shares of its common stock under the 2019 ATM Facility for net proceeds of $ 14.6 million, after deducting issuance costs.

The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement in August 2022.

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

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

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

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

During the year ended December 31, 2023, the Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility for net proceeds of $ 24.3 million, after deducting issuance costs.

There were no sales of the Company’s common stock under the 2022 ATM Facility during the years ended December 31, 2024 and 2022.

Exchange Warrants

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The Exchange Warrants expired ten years from the date of issuance.

The Exchange Warrants were exercisable at any time prior to

expiration except that the Exchange Warrants could not be exercised by the Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99 % of the Company’s common stock, subject to certain exceptions.

The Exchange Warrants were exercisable at any time prior to expiration except that the Exchange Warrants could not be exercised by the Exchanging Stockholders if, after giving

effect thereto, the Exchanging Stockholders would beneficially own more than 9.99 % of the Company’s common stock, subject to certain exceptions.

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

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

During the year ended December 31, 2022, Exchange Warrants to purchase 400,000 shares of the Company’s common stock were net exercised, resulting in the issuance of 399,997 shares of common stock.

During the year ended December 31, 2022, the remaining Exchange Warrants to purchase 400,000 shares of the Company’s common stock were net exercised, resulting in the issuance of 399,997 shares of common stock.

As of December 31, 2024, there were no outstanding Exchange Warrants.

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

The exercise price and number of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) were subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants.

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

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

The common stock and Warrants met the criteria for equity classification and the net proceeds from the transaction were recorded as a credit to additional paid-in capital.

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

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The common stock and Pre-Funded Warrants met the criteria for equity classification and the net proceeds from the transaction were recorded as a credit to additional paid-in capital.

In accordance with ASC 260, 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 December 31, 2023, none of the Pre-Funded Warrants have been exercised.

In accordance with ASC Topic 260, 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 year ended December 31, 2024, Pre-Funded Warrants to purchase 1,205,252 shares were net exercised, resulting in the issuance of 1,205,225 shares of common stock.

As of December 31, 2024, Pre-Funded Warrants to purchase 1,500,000 shares of common stock remained outstanding.

Equity Incentive Plan

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ISOs were granted only to Company employees.

NSOs were granted to Company employees, non-employee members of the Company’s Board of Directors

(“Board”) and consultants.

Options under the 2007 Plan have a term of ten years and generally vest over a four-year period.

NSOs were granted to Company employees, non-employee members of the Company’s Board of Directors (“Board”) and consultants.

Options under the 2007 Plan have a term of ten years and generally vested over a four-year period.

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

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Employee stock options generally vest over a period of approximately four years .

Non-employee Board director initial stock options generally vest monthly over a period of approximately three years , and non-employee Board director annual refresher stock options generally vest over a period of approximately one year .

Consultant awards generally vest over a period of approximately one year.

Employee RSUs generally vest over a period of approximately three or four years .

Non-employee Board director initial stock options generally vest monthly over a period of approximately three years .

Non-employee Board director annual refresher options and RSUs generally vest over a period of approximately one year .

Inducement Plan

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Options exercised

( 1,766,092 )

Options forfeited

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volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 75 % of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

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RSUs granted to certain non-executive employees in 2022 vested 100 % on approximately the first anniversary of the grant date.

RSUs granted to certain executives in 2021 vest 100 % on the third anniversary of the grant date.

RSU activity under the Company’s equity incentive plans is set forth below:

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

The total fair market value of PSUs at vest date during the year ended December 31, 2023 was $ 3.0 million.

The total fair market value of the PSUs at vest date during the year ended December 31, 2023 was $ 3.0 million.

No PSUs vested during the years ended December 31, 2024 and 2022.

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3.56 % - 5.17 %

0.75 % - 3.56 %

Dividend yield

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The Company may make contributions to this plan at its discretion.

The Company matched 50 % of each employee’s contribution up to a maximum of $ 4,000 for the years ended December 31, 2023 and 2022 and $ 3,500 for the year ended December 31, 2021, resulting in recognized expense of approximately $ 0.4 million for the year ended December 31, 2023 and $ 0.3 million for each of the years ended December 31, 2022 and 2021.

No income tax expense was recorded by the Company for the years ended December 31, 2023, 2022, and 2021.

The Company’s effective income tax rate differed from the Company’s federal statutory rate of 21 %, primarily because its U.S.

loss cannot be benefited due to the full valuation position and reduced by foreign taxes.

The Company matched 50 % of each employee’s contribution up to a maximum of $ 4,000 for the years ended December 31, 2024, 2023 and 2022, resulting in recognized expense of approximately $ 0.4 million, $ 0.4 million and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The following table presents domestic and foreign components of net loss before income taxes (in thousands):

Year Ended December 31,

Total net loss before taxes

Total net income (loss) before taxes

The federal, state and foreign components of the income tax expense are summarized as follows (in thousands):

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State taxes, net of federal benefit

Research and development credits

Foreign tax rate difference

4 unchanged sentences

Net operating loss carryforwards

Accruals/other

Accruals and other

Operating lease liability

Research and development and foreign credits

Section 174 capitalized R&D expenditure

Section 174 capitalized research and development expenditures

Stock-based compensation

Total deferred tax assets

4 unchanged sentences

Net deferred tax assets

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

Accounting Standards Codification Topic 740, Income Taxes , requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period.

Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance.

The valuation allowance increased by approximately $ 28.1 million, $ 34.2 million and $ 32.0 million during the years ended December 31, 2023, 2022 and 2021, respectively.

The valuation allowance decreased by approximately $ 50.9 million during the year ended December 31, 2024, and increased by $ 28.1 million and $ 34.2 million during the years ended December 31, 2023 and 2022, respectively.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue Code.

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The Company performed a Section 382 analysis through December 31, 2024.

The Company has experienced ownership changes in the past and in the current year.

The Company has experienced ownership changes in the past.

The ownership changes will not result in a limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized.

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The state net operating loss carryforwards will begin to expire in 2035, if not utilized.

As of December 31, 2023, the Company did no t have any Australian tax loss carryforward.

As of December 31, 2024, the Company had $ 35.6 million of federal and $ 7.7 million of state research and development tax credit carryforwards available to reduce future income taxes.

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Protagonist Australia had an accumulated deficit at December 31, 2024 and, accordingly, no provision has been provided thereon for any unremitted earnings.

The Company has elected to recognize any potential global intangible low-taxed income (“GILTI”) obligation as an expense in the period it is incurred.

The Company has received orphan drug designation from the FDA for its clinical asset rusfertide (PTG-300) for the treatment of polycythemia vera and beta-thalassemia and may qualify for a related 25 % U.S.

Federal income tax credit on qualifying clinical study expenditures.

Tax Law Updates

On December 22, 2017, the U.S.

enacted comprehensive tax legislation (the “Tax Act”).

The Tax Act made broad and complex changes to the U.S.

tax code, including the imposition of a one-time mandatory deemed repatriation tax on certain earnings accumulated offshore since 1986 and the reduction of the corporate tax rate from 35 % to 21 % for U.S.

taxable income, resulting in a one-time remeasurement of U.S.

federal deferred tax assets and liabilities.

The Tax Act also amended Internal Revenue Code Section 174 requiring capitalization of research and experimentation expenditures.

The capitalized expenses are amortized over a period of five or fifteen years .

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations.

Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes.

We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business.

Net Loss per Share

As the Company had a net loss for the each of the years ended December 31, 2023, 2022 and 2021, all potential weighted average dilutive common shares were determined to be anti-dilutive.

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

Federal income tax credit on qualifying clinical trial expenditures.

Net Income (Loss) per Share

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

Year Ended December 31,

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

Net loss per share, basic and diluted

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

Options to purchase common stock

Common stock warrants

Restricted stock units

Performance stock units

Subsequent Event

In January 2024, the Company entered into a worldwide license and collaboration agreement for the development and commercialization of rusfertide with Takeda Pharmaceuticals USA, Inc.

(“Takeda”), which is yet to become effective.

Under the terms of the agreement, the Company expects to receive an upfront payment of $ 300 million and to be eligible to receive additional worldwide development, regulatory and commercial milestone payments of up to $ 330 million, as well as tiered royalties from 10 % to 17 % on ex-U.S.

The Company expects to be responsible for research and development through the completion of the Phase 3 VERIFY trial and U.S.

regulatory approval.

Takeda is expected to have rights for ex-U.S.

development and to be responsible for leading global commercialization activities.

The Company and Takeda expect to also share equally in U.S.

profits and losses ( 50 % to the Company and 50 % to Takeda).

Further details related to the agreement, including the Company’s right to opt-out of the 50:50 U.S.

profit and loss sharing arrangement in exchange for enhanced economics, are available on the Current Report on Form 8-K filed by the Company on January 31, 2024 with the SEC.

The effectiveness of the agreement is dependent on and subject to the termination or expiration of any applicable waiting periods under the Hart-Scott-Rodino Act.

Net income (loss)

Weighted-average shares of common stock, basic

Dilutive effect of common stock equivalents

Weighted-average shares of common stock, dilutive

Net income (loss) per share of common stock

Basic net income (loss) per share of common stock

Diluted net income (loss) per share of common stock

Approximately 2.9 million potentially dilutive shares of common stock (consisting of shares subject to outstanding stock options, RSUs, and under the ESPP) were excluded from the diluted net income per share of common stock computations for the year ended December 31, 2024 because their effect was anti-dilutive.

Approximately 8.7 million and 9.9 million potentially dilutive shares of common stock (consisting of shares subject to outstanding stock options, RSUs, PSUs, warrants and under the ESPP, as applicable) were excluded from the diluted net loss per share of common stock computations for the years ended December 31, 2023 and 2022, respectively, due to the Company’s net losses for these periods.

Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available and which are evaluated by a company’s chief operating decision maker (“CODM”), in deciding how to allocate resources and to assess performance.

The Company operates and manages its business as one operating segment, which primarily focuses on the discovery and development of innovative medicines in areas of unmet medical need.

The Company’s Chief Executive Officer serves as the Company’s CODM and manages and allocates resources to the operations of the Company on an entity-wide basis.

Managing and allocating resources on an entity-wide basis enables the CODM to assess the overall level of resources available and how to best deploy these resources across functions and research and development projects based on unmet medical need, scientific data, probability of technical and regulatory successful development, market potential and other considerations, and, as necessary, reallocate resources among our internal research and development portfolio and external opportunities to best support the long-term growth of our business.

The Company’s CODM reviews financial information on an aggregate basis for the purposes of allocating resources and evaluating financial performance, including segment net income (loss), which is also reported on the consolidated statement of operations as consolidated net income (loss).

The Company derives revenues from its collaboration partners, consisting of nonrefundable upfront and milestone payments and cost sharing payments under its license and collaboration agreements.

The Company’s customers are comprised of its two collaboration partners, Takeda and JNJ, formerly Janssen Biotech.

Takeda and JNJ accounted for 62 % and 38 % of the Company’s revenues for the year ended December 31, 2024, respectively.

JNJ accounted for 100 % of the Company’s revenues for the years ended December 31, 2023 and 2022.

All of the Company’s revenues for the years ended December 31, 2024, 2023 and 2022 were generated in the United States.

See Note 3 to the consolidated financial statements for additional information.

Segment information was as follows for the years presented (dollars in thousands):

Year Ended December 31,

Discovery department expenses (1)

Development department expenses (1)

General and administrative department expenses (1)

Employee wages and benefits - discovery

Employee wages and benefits - development

Employee wages and benefits - general and administrative

Stock-based compensation

Other segment items (2)

Interest income

Income tax expense

Segment profit (loss)

Reconciliation of profit (loss)

Adjustments and reconciling items

Consolidated net income (loss)

Other segment information

Segment assets (3)

Long-lived assets (4)

Expenditures for long-lived assets

(1) Amounts exclude employee wages and benefits, stock-based compensation and expense allocations.

(2) Other segment items include foreign currency related income (expense) and other miscellaneous income (expense).

(3) The measure of segment assets is reported on the consolidated balance sheet as total assets.

(4) Long-lived assets include property and equipment, net and operating lease right-of-use asset.

The accounting policies of the Company’s operating segment are the same as those described in the summary of significant accounting policies.

Substantially all of the Company’s long-lived assets are in the United States.

See Note 6 to the consolidated financial statements for depreciation expense for the periods presented.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data