10-Q 1 ptgx-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                    

Commission File No. 001-37852

PROTAGONIST THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

98-0505495

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

7707 Gateway Boulevard, Suite 140
Newark, California

94560-1160

(Address of registrant’s principal executive offices)

(Zip code)

(510) 474-0170

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001

PTGX

The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  

As of April 30, 2024, there were 58,652,133 shares of the registrant’s Common Stock, par value $0.00001 per share, outstanding.

PROTAGONIST THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

I

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss)

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 3.

Defaults Upon Senior Securities

56

Item 4.

Mine Safety Disclosures

56

Item 5.

Other Information

56

Item 6.

Exhibits

57

SIGNATURES

59

PART I. – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

March 31, 

December 31, 

    

2024

    

2023

Assets

Current assets:

Cash and cash equivalents

$

172,568

$

186,727

Marketable securities

150,067

154,890

Receivable from collaboration partner

300,043

10,000

Prepaid expenses and other current assets

4,875

3,960

Total current assets

627,553

355,577

Property and equipment, net

1,111

1,195

Restricted cash - noncurrent

225

225

Operating lease right-of-use asset

387

954

Total assets

$

629,276

$

357,951

Liabilities and Stockholders’ Equity

Current liabilities:

  

Accounts payable

$

3,507

$

772

Payable to collaboration partner

3

3

Accrued expenses and other payables

16,487

19,358

Deferred revenue - current

16,125

Income taxes payable

3,326

Operating lease liability - current

462

1,141

Total current liabilities

39,910

21,274

Deferred revenue - noncurrent

28,922

Total liabilities

68,832

21,274

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding

Common stock, $0.00001 par value, 90,000,000 shares authorized; 58,600,787 and 57,708,613 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

1

1

Additional paid-in capital

969,042

952,491

Accumulated other comprehensive loss

(229)

(105)

Accumulated deficit

(408,370)

(615,710)

Total stockholders’ equity

560,444

336,677

Total liabilities and stockholders’ equity

$

629,276

$

357,951

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

1

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

March 31, 

    

2024

    

2023

License and collaboration revenue

$

254,953

$

Operating expenses:

Research and development

33,734

27,416

General and administrative

 

14,910

 

8,605

Total operating expenses

 

48,644

 

36,021

Income (loss) from operations

 

206,309

 

(36,021)

Interest income

 

4,376

 

2,491

Other expense, net

(19)

(195)

Income (loss) before income tax expense

210,666

(33,725)

Income tax expense

(3,326)

Net income (loss)

$

207,340

$

(33,725)

Net income (loss) per share, basic

$

3.41

$

(0.67)

Net income (loss) per share, diluted

$

3.26

$

(0.67)

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

 

60,855,689

  

 

50,573,650

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

 

63,595,328

  

 

50,573,650

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

2

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2024

    

2023

Net income (loss)

$

207,340

$

(33,725)

Other comprehensive income (loss):

  

Gain on translation of foreign operations

 

 

194

Unrealized (loss) gain on marketable securities

 

(124)

 

43

Comprehensive income (loss)

$

207,216

$

(33,488)

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

3

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

Accumulated

Additional

Other

Total

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Stock

Capital

(Loss) Income

Deficit

Equity

Three months ended March 31, 2024

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2023

 

57,708,613

  

$

1

$

952,491

  

$

(105)

$

(615,710)

  

$

336,677

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

 

827,978

  

 

 

7,799

  

 

 

  

 

7,799

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

(20,793)

(600)

(600)

Issuance of common stock upon exercise of Pre-Funded Warrants

 

84,989

  

 

 

  

 

 

  

 

Stock-based compensation expense

 

  

 

 

9,352

  

 

 

  

 

9,352

Other comprehensive income (loss)

 

  

 

 

  

 

(124)

 

  

 

(124)

Net income (loss)

 

  

 

 

  

 

 

207,340

  

 

207,340

Balance at March 31, 2024

 

58,600,787

  

$

1

$

969,042

  

$

(229)

$

(408,370)

  

$

560,444

Accumulated

Additional

Other

Total

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Stock

Capital

(Loss) Income

Deficit

Equity

Three months ended March 31, 2023

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2022

49,339,252

$

$

752,722

$

(359)

$

(536,755)

$

215,608

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

1,749,199

1

24,301

24,302

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

358,211

  

 

 

2,261

  

 

 

  

 

2,261

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

(6,159)

(100)

(100)

Stock-based compensation expense

 

  

 

 

7,584

  

 

 

  

 

7,584

Other comprehensive income (loss)

 

  

 

 

  

 

237

 

  

 

237

Net income (loss)

 

  

 

 

  

 

 

(33,725)

  

 

(33,725)

Balance at March 31, 2023

 

51,440,503

  

$

1

$

786,768

  

$

(122)

$

(570,480)

  

$

216,167

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

4

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2024

    

2023

Cash Flows from Operating Activities

 

  

  

Net income (loss)

$

207,340

$

(33,725)

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

Stock-based compensation

9,352

7,584

Operating lease right-of-use asset amortization

584

584

Accretion of discount on marketable securities

(1,615)

(1,255)

Depreciation

236

248

Other

194

Changes in operating assets and liabilities:

Receivable from collaboration partner

(290,043)

(41)

Prepaid expenses and other assets

(915)

787

Accounts payable

2,825

381

Payable to collaboration partner

(47)

Accrued expenses and other payables

(2,870)

(8,383)

Deferred revenue

45,047

Income taxes payable

3,326

Operating lease liability

(696)

(674)

Net cash used in operating activities

(27,429)

(34,347)

Cash Flows from Investing Activities

Purchase of marketable securities

(65,671)

(28,060)

Proceeds from maturities of marketable securities

71,984

37,896

Purchases of property and equipment

(242)

(10)

Net cash provided by investing activities

6,071

9,826

Cash Flows from Financing Activities

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

24,302

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

7,799

2,261

Tax withholding payments related to net settlement of restricted stock units

(600)

(100)

Net cash provided by financing activities

7,199

26,463

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

(14,159)

1,942

Cash, cash equivalents and restricted cash, beginning of period

 

186,952

 

125,969

Cash, cash equivalents and restricted cash, end of period

$

172,793

$

127,911

Supplemental Disclosure of Non-Cash Financing and Investing Information:

Purchases of property and equipment in accounts payable and accrued liabilities

$

45

$

15

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

5

PROTAGONIST THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.Organization and Description of Business

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 in advanced Phase 3 stages of clinical development, both derived from the Company’s proprietary technology platform. The Company’s clinical programs fall into two broad categories of diseases: (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases. 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.

Liquidity

As of March 31, 2024, the Company had cash, cash equivalents and marketable securities of $322.6 million. The Company has incurred cumulative net losses from inception through March 31, 2024 of $408.4 million. The Company’s ultimate success depends upon the outcome of its research and development and collaboration activities. The Company may incur additional losses in the future 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, and high interest rates. The Company’s future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including potential 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. The U.S. 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. 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 domestic and 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.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), the instructions to Form 10-Q and Rule

6

10-01 of Regulation S-X and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of March 31, 2024 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any future period.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, filed with the SEC on February 27, 2024.

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of the condensed 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 condensed 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 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. Actual results may differ materially from these estimates.

There has been uncertainty and disruption in the global economy and financial markets due to a number of factors, including geopolitical instability, inflationary pressures, high interest rates, a recessionary environment, domestic and global monetary and fiscal policy 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 Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and the restricted cash as presented on the condensed consolidated balance sheets.

7

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

March 31, 

    

2024

    

2023

Cash and cash equivalents

$

172,568

$

127,686

Restricted cash - noncurrent

 

225

 

225

Total cash reported on condensed consolidated statements of cash flows

$

172,793

$

127,911

Stock-Based Compensation Expense

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 on a quarterly basis the probability of achieving the performance criteria. 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.

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

Three Months Ended

March 31, 

    

2024

    

2023

Research and development

$

5,288

$

4,582

General and administrative

 

4,064

 

3,002

Total stock-based compensation expense

$

9,352

$

7,584

8

Significant Accounting Policies

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 (“Topic 808”). For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of 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 (“Topic 606”). For units of account that are accounted for pursuant to 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 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.

There have been no other material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, as compared to those disclosed in Note 2. Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Adopted Accounting Pronouncements

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 adopted ASU 2020-06 effective January 1, 2024. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

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

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 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 is currently evaluating the impact of the adoption of this guidance on its financial position, results of operations and cash flow.

In December 2023, the FASB issued Accounting Standards Update No. 2023-09 Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public business entities to disclose specific categories in the income tax rate reconciliation annually and provide additional information for reconciling items that meet a qualitative threshold. ASU 2023-09 also requires that entities disclose annually additional information about income taxes paid and disaggregated information for certain items. ASU 2023-09 is effective for the Company beginning on January 1, 2025. The Company is currently evaluating the impact of the adoption of this guidance on its financial position, results of operations and cash flows.

9

Note 3. License and Collaboration Agreements

Takeda Collaboration Agreement

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”) (“the Takeda Collaboration Agreement”), which became effective in March 2024.

The Company and Takeda will jointly develop and commercialize 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 will share costs of the development, manufacture and commercialization activities for the Licensed Products in the Profit-Share Territory, provided that (i) the Company will lead, and will be responsible for its costs associated with, completion of the ongoing Phase 3 VERIFY program evaluating rusfertide for the treatment of polycythemia vera (“PV’) as well as associated U.S. regulatory activities; (ii) Takeda will lead, and will be solely responsible for its costs associated with, pre-commercialization activities related to rusfertide in the Profit-Share Territory, and (iii) Takeda will lead commercialization of rusfertide in the Profit-Share Territory, with Protagonist 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.

Within 30 days after the effectiveness of the Takeda Collaboration Agreement, the Company will receive an upfront payment of $300.0 million. 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 will 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 filing of a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for rusfertide for polycythemia vera (“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 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:

10

$25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY clinical trial for rusfertide in PV; and
$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 has evaluated the Takeda Collaboration Agreement and concluded that it has elements that are within the scope of Topic 606 and 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 has 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 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 $0.9 million with respect to the period from effective date of the contract through March 31, 2024.

The Company determined that the Takeda Collaboration Agreement met the definition of a collaborative arrangement under 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 has determined that development costs subsequent to the Company Opt-in date are within the scope of 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 has 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 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, as amended by the first amendment, effective May 7, 2019 (together, the “JNJ License and Collaboration Agreement”). From inception in 2017 through December 31, 2022, the Company earned a total of $112.5 million in non-refundable upfront cash payment from JNJ. During the fourth quarter of 2023, the Company earned 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 and a $10.0 million milestone payment upon the dosing of the third patient in the ANTHEM Phase 2b trial moderately-to-severely active ulcerative colitis (“UC”). The Company has earned a total of $172.5 million in non-refundable payments from JNJ from inception in 2017 through the date of this Quarterly Report.

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

11

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.

Upcoming potential development and regulatory milestones 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 an NDA for a second-generation compound with the FDA;
$50.0 million upon FDA approval of an NDA for a second-generation compound; and
$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.

The Company completed its performance obligation under the JNJ License and Collaboration Agreement as of June 30, 2022. 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

For the three months ended March 31, 2024, the Company recognized license and collaboration revenue of $255.0 million related to the Takeda Collaboration Agreement transaction price, including $254.1 million allocated to the rusfertide license delivered to Takeda upon effectiveness of the agreement in March 2024 and $0.9 million for development services provided by the Company during the period based on the cost-based input method. For the three months ended March 31, 2023, no license and collaboration revenue was recognized.

The remaining unrecognized transaction price amount of $45.0 million was recorded as deferred revenue on the Company’s condensed consolidated balance sheet as of March 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).

During the three months ended March 31, 2024 and 2023, the Company did not recognize revenue from any amounts included in the deferred revenue contract liability balance at the beginning of each period. None of the costs to obtain or fulfill the contracts were capitalized.

Note 4. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. 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:

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

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

12

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

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

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Money market funds

$

24,432

$

$

 

$

24,432

Certificates of deposit

 

10,661

 

 

 

10,661

Commercial paper

 

170,510

 

 

 

170,510

Corporate debt securities

12,657

12,657

U.S. Treasury and agency securities

101,035

101,035

Total financial assets

$

24,432

$

294,863

  

$

 

$

319,295

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Money market funds

$

19,212

$

$

 

$

19,212

Certificates of deposit

 

13,004

 

 

 

13,004

Commercial paper

 

 

130,296

 

 

 

130,296

Corporate debt securities

 

 

7,672

  

 

 

 

7,672

U.S. Treasury and agency securities

145,085

 

 

145,085

Total financial assets

$

19,212

$

296,057

  

$

 

$

315,269

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

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.

13

Note 5. Cash Equivalents and Marketable Securities

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

March 31, 2024

Amortized

Gross Unrealized

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

$

24,432

$

$

$

24,432

Certificates of deposit

10,661

2

(2)

 

10,661

Commercial paper

 

170,606

1

(97)

 

170,510

Corporate debt securities

12,677

(20)

12,657

U.S. Treasury and agency securities

101,037

4

(6)

101,035

Total cash equivalents and marketable securities

$

319,413

$

7

  

$

(125)

$

319,295

Classified as:

  

  

  

Cash equivalents

  

  

  

$

169,228

Marketable securities

  

  

  

 

150,067

Total cash equivalents and marketable securities

  

  

  

$

319,295

December 31, 2023

Amortized

Gross Unrealized

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

$

19,212

$

  

$

$

19,212

Certificates of deposit

12,998

6

 

13,004

Commercial paper

 

130,351

 

5

  

 

(60)

 

130,296

Corporate debt securities

 

7,678

 

  

 

(6)

 

7,672

U.S. Treasury and agency securities

145,024

63

(2)

145,085

Total cash equivalents and marketable securities

$

315,263

$

74

  

$

(68)

$

315,269

Classified as:

  

  

  

Cash equivalents

  

  

  

$

160,379

Marketable securities

  

  

  

 

154,890

Total cash equivalents and marketable securities

  

  

  

$

315,269

Marketable securities of $150.1 million and $154.9 million held as of March 31, 2024 and December 31, 2023, respectively, had contractual maturities of less than one year. 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 March 31, 2024.

14

Note 6. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

March 31, 

December 31, 

2024

2023

Prepaid clinical and research related expenses

$

1,645

$

649

Prepaid insurance

1,335

1,410

Prepaid licenses

530

529

Other prepaid expenses

 

1,005

 

1,040

Other receivable

360

332

Prepaid expenses and other current assets

$

4,875

$

3,960

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

March 31, 

December 31, 

2024

2023

Laboratory equipment

$

5,423

$

5,323

Furniture and computer equipment

 

1,195

 

1,143

Leasehold improvements

 

963

 

963

Total property and equipment

 

7,581

 

7,429

Accumulated depreciation

 

(6,470)

 

(6,234)

Property and equipment, net

$

1,111

$

1,195

Accrued Expenses and Other Payables

Accrued expenses and other payables consisted of the following (in thousands):

March 31, 

December 31, 

    

2024

2023

Accrued clinical and research related expenses

$

8,459

$

11,841

Accrued employee related expenses

 

2,458

 

6,786

Accrued professional service fees

5,530

632

Other

 

40

 

99

Total accrued expenses and other payables

$

16,487

$

19,358

Note 7. Stockholders’ Equity

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 Offering

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

15

“2022 ATM Facility”). There were no sales of the Company’s common stock under the 2022 ATM Facility during the three months ended March 31, 2024. 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.

Pre-Funded Warrants

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering expenses payable by the Company. In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant was exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of the Company’s common stock had an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock had an exercise price of $15.00 per share. The 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”). Subsequent to the execution of the agreements and prior to the expiration of the Warrants, all outstanding Warrants were exercised for gross proceeds of $34.4 million in exchange for 44,748 shares of the Company’s common stock and Pre-Funded Warrants to purchase 2,705,252 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Pre-Funded Warrants) with an exercise price of $0.001 per share. The Pre-Funded Warrants will expire upon the day they are exercised in full. The Pre-Funded Warrants are exercisable at any time prior to expiration except that the Pre-Funded Warrants cannot be exercised by the Investors if, after giving effect thereto, the Investors would beneficially own more than 9.99% of the Company’s common stock, subject to certain exceptions. The common stock and Pre-Funded Warrants 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 Accounting Standards Codification Topic 260, Earnings Per Share, outstanding Pre-Funded Warrants are included in the computation of basic net loss per share because the exercise price is negligible, and they are fully vested and exercisable after the original issuance date. During the three months ended March 31, 2024, Pre-Funded Warrants to purchase 84,992 shares were net exercised, resulting in the issuance of 84,989 shares of common stock. As of March 31, 2024, Pre-Funded Warrants to purchase 2,620,260 shares were outstanding.

Note 8. Income Taxes

The Company has recorded an income tax provision of $3.3 million for the three months ended March 31, 2024. No income tax provision was recorded for the three months ended March 31, 2023. The primary difference in tax expense as compared to the prior year is a result of taxable income resulting from the recognition of revenue in connection with the Takeda Collaboration Agreement. The tax provision for the three months ended March 31, 2024 was determined using an estimated annual effective tax rate, adjusted for discrete items, if any.

Based on the available objective evidence during the three months ended March 31, 2024, the Company believes it is more likely than not that its net deferred tax assets may not be realized. The primary difference between the effective tax rate and the statutory tax rate relates to the Company's change in valuation allowance.

Note 9. Net Income (Loss) per Share

The computation of basic net income (loss) per common share is based on the weighted-average number of common shares outstanding during each period. The computation of diluted net income (loss) per common share is based on the weighted-average number of common shares outstanding during the period plus, when their effect is

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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, 2,620,260 outstanding Pre-Funded Warrants were included in the computation of weighted-average common shares, basic for the three months ended March 31, 2024 because the exercise price is negligible, and they are 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 common share and diluted net loss per common share are equal.

The following table reconciles the numerator and denominator used to calculate diluted net income (loss) per common share (in thousands, except share and per share data):

Three Months Ended

March 31, 

    

2024

    

2023

Numerator:

Net income (loss)

$

207,340

$

(33,725)

Denominator:

Weighted-average common share, basic

 

60,855,689

 

50,573,650

Dilutive effect of common stock equivalents

 

2,739,639

 

Weighted-average common share, dilutive

63,595,328

50,573,650

Net income (loss) per common share

Basic net income (loss) per common share

$

3.41

$

(0.67)

Diluted net income (loss) per common share

$

3.26

$

(0.67)

Approximately 4.2 million potentially dilutive common shares consisting of shares subject to outstanding stock options, RSUs, and ESPP were excluded from the diluted net income per common share computation for the three months ended March 31, 2024 because their effect was anti-dilutive. Approximately 12.0 million potentially dilutive common shares consisting of shares subject to outstanding stock options, RSUs, PSUs, ESPP and warrants were excluded from the diluted net loss per common share computation for the three months ended March 31, 2023 due to the Company’s net loss for the period.

Note 10. Subsequent Event

On May 6, 2024, the Company amended its facility lease agreement dated as of March 6, 2017 (the “Amended Lease”) to lease 60,575 rentable square feet of office and laboratory space located in Newark, California. The term of the Amended Lease commences on July 1, 2024 (or such later date when tenant improvements in newly leased office space within the facility are substantially complete). Under the Amended Lease, which expires in November 2029, the Company will pay an initial monthly base rent of $3.53 per square foot, which will increase by 3.5% annually. The Amended Lease provides for an agreed-upon period of rent abatement. The Company will be responsible for its proportional share of operating expenses and tax obligations. No additional security deposit was required pursuant to the Amended Lease.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report on Form 10-Q (the “Quarterly Report”) and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024.

Forward-Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,” “seeks” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, including enrollment, data and regulatory submissions, our cash runway, the potential for eventual regulatory approval and commercialization of our product candidates, our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results, our ability to generate sales, income or cash flow, the impact of any future outbreaks of disease, epidemics and pandemics, ongoing military conflicts, including between Ukraine and Russia and in Israel and surrounding areas; rising tensions between China and Taiwan, inflationary pressure and the availability of credit are forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those risks, uncertainties and assumptions discussed in Part II, Item 1A, of this Quarterly Report. These statements are based on information available to us as of the date of this Quarterly Report and, while we believe such information provides a reasonable basis for these statements, the information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future developments, changes in assumptions or otherwise. “Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc. in the United States and other jurisdictions.

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Overview

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 in advanced Phase 3 stages of development, both derived from our proprietary discovery technology platform. Our clinical programs fall into two broad categories of diseases: (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory (“I&I”) diseases.

Our Product Pipeline

Graphic

Rusfertide

Rusfertide, our injectable hepcidin mimetic partnered with Takeda Pharmaceuticals USA, Inc. (“Takeda”), is in development for the treatment of polycythemia vera (“PV”). We have initiated VERIFY (ClinicalTrials.gov identifier NCT05210790), a global double-blind, placebo-controlled Phase 3 clinical trial of rusfertide in PV for approximately 250 patients. The trial evaluates the efficacy, symptom burden and safety of once-weekly, subcutaneously self-administered rusfertide in patients with uncontrolled hematocrit who are phlebotomy dependent despite standard of care treatment. The trial enrolled patients across North and South America, Europe, Asia and Australia. Enrollment for the VERIFY trial has been completed and we expect to announce top-line data for the trial’s 32-week primary efficacy endpoint by the end of the first quarter of 2025, potentially leading to a New Drug Application (“NDA”) filing in the fourth quarter of 2025. By the end of 2024, we expect to receive the results of our ongoing two-year study evaluating the carcinogenicity potential of rusfertide when administered once weekly to rats.

Our rusfertide Phase 2 clinical trials include the following:

REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019. We completed enrollment of patients in the first quarter of 2022 and 70 patients were enrolled through the end of the randomized withdrawal portion of the trial, which was completed during the first quarter of 2023 and is continuing in an ongoing open-label extension (“OLE”);

THRIVE, a Phase 2 long-term extension trial for REVIVE patients on years three through five of treatment; and

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

In March 2023, we announced positive topline results from the blinded, placebo-controlled, randomized withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements versus placebo in the trial’s primary endpoint. The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the REVIVE trial to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial, subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the trial, followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks. More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were responders compared with placebo (69.2% versus 18.5%, p=0.0003). A trial subject was defined as a responder if the subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, 92.3% of subjects on rusfertide (24 out of 26) were not phlebotomized.

Data from the REVIVE trial presented at the European Hematology Association Congress in June 2023 suggested that rusfertide treatment results in highly statistically significant reduction in the need for therapeutic phlebotomy in phlebotomy-dependent patients, leading to rapid, sustained and durable control of hematocrit levels below 45%. Rusfertide was well tolerated, with localized injection site reactions comprising the majority of adverse events.

Long-term follow up data from the REVIVE trial presented at the American Society of Hematology Annual Meeting in December 2023 showed durable hematocrit control, decreased phlebotomy use, long-term tolerability, and no new safety signals in patients with PV. An analysis of the PACIFIC Phase 2 trial was also presented that indicated rusfertide improves markers of iron deficiency in patients with PV. In addition, data was presented regarding the prevalence of thromboembolic events and secondary cancers in PV patients not treated with rusfertide. In February 2024, the full Phase 2 REVIVE trial results, including efficacy and safety data, were published in the New England Journal of Medicine.

In January 2024, we entered into a worldwide license and collaboration agreement with Takeda for the development and commercialization of rusfertide (the “Takeda Collaboration Agreement”. Under the terms of the agreement, we earned a nonrefundable upfront payment of $300.0 million upon effectiveness of the agreement in March 2024, which we received in April 2024. We are eligible to receive additional worldwide development, regulatory and commercial milestone payments for rusfertide of up to $330 million, inclusive of the following potential upcoming milestones:

$25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY trial for rusfertide in PV; and
$50.0 million upon U.S. Food and Drug Administration (the “FDA”) approval of NDA for rusfertide in PV (or $75.0 million if we exercise our full right to opt-out of the 50:50 U.S. profit and loss sharing arrangement).

We are also eligible to receive tiered royalties from 10% to 17% on ex-U.S. net sales of rusfertide and other specified second-generation injectable hepcidin memetic compounds (the “Licensed Products”). We and Takeda will also share equally in profits and losses (50% to us and 50% to Takeda of the Licensed Products in the United States. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for further details related to the agreement, including our right to opt-out of the 50:50 U.S. profit and loss sharing arrangement.

JNJ-2113

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

20

biological pathways currently targeted by marketed injectable antibody drugs. Our orally stable peptide approach may offer a targeted therapeutic approach for gastrointestinal and systemic compartments as needed. We believe that, compared to antibody drugs, JNJ-2113 has the potential to provide clinical improvement in an oral medication with increased convenience and compliance and the opportunity for the earlier introduction of targeted oral therapy.

JNJ has initiated the following JNJ-2113 trials:

ICONIC-LEAD (NCT06095115) – A 600-patient randomized, controlled Phase 3 trial to evaluate the safety and efficacy of JNJ-2113 compared with placebo in participants with moderate-to-severe plaque psoriasis, with PASI-90 (90% improvement in skin lesions as measured by the Psoriasis Area and Severity Index (“PASI”)) and Investigator’s Global Assessment (“IGA”) score of 0 (clear) or 1 (almost clear) as co-primary endpoints;
ICONIC-TOTAL (NCT06095102) – A 300-patient randomized, controlled Phase 3 trial to evaluate the efficacy and safety of JNJ-2113 compared with placebo for the treatment of plaque psoriasis in participants with at least moderate severity affecting special areas (scalp, genital, and/or palms of the hands and soles of the feet) with overall IGA score of 0 or 1 as the primary endpoint;
ICONIC ADVANCE 1 (NCT06143878) – A 750-patient randomized, controlled Phase 3 trial to evaluate the effectiveness of JNJ-2113 in participants with moderate-to-severe plaque psoriasis compared to placebo and Sotyktu (“deucravacitinib”). The trial’s primary co-endpoints are PASI-90 and IGA score of 0 or 1;
ICONIC ADVANCE 2 (NCT06220604)– A 675-patient Phase 3 trial similarly designed to ICONIC ADVANCE 1; and
ANTHEM-UC (NCT06049017) – A 240-patient Phase 2b randomized, controlled trial to evaluate the safety and effectiveness of JNJ-2113 compared with placebo in participants with moderate-to-severely active ulcerative colitis (“UC”).

All of the trials in the ICONIC program will use the 200 mg q.d. immediate release formulation of JNJ-2113 from the previously completed FRONTIER 1 trial. JNJ initiated FRONTIER 1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed in December 2022. FRONTIER 1 was a randomized, multicenter, double-blind, placebo-controlled trial that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113 taken orally. The primary endpoint of the trial was the proportion of patients achieving PASI-75 (75% improvement in skin lesions as measured by the PASI) at 16 weeks. In July 2023, we announced updated positive topline results from the trial, which were presented by JNJ at the World Congress of Dermatology in Singapore. JNJ-2113 achieved the trial’s primary and secondary efficacy endpoints. A statistically significant greater proportion of patients who received JNJ-2113 achieved PASI-75 as well as PASI-90 and PASI-100 (100% improvement in skin lesions as measured by the PASI) responses compared to placebo at week 16 in all five of the trial’s treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo. Other Phase 2 trials of JNJ-2113 include the SUMMIT trial for the treatment of moderate-to-severe plaque psoriasis and FRONTIER 2, a long-term extension study, both of which were completed by JNJ in 2023.

At JNJ’s Enterprise Business Review in December 2023, JNJ highlighted JNJ-2113 as a potential first- and best-in class targeted oral IL-23 peptide antagonist with potential across multiple indications, including plaque psoriasis, psoriatic arthritis and inflammatory bowel disease, with potential peak year sales projection of $5.0 billion plus. JNJ IL-23 monoclonal antibody drugs Stelara and Tremfya generated $14.0 billion in revenues in 2023.

In February 2024, the JNJ-2113 Phase 2b FRONTIER 1 trial results in adults living with moderate-to-severe plaque psoriasis were published in the New England Journal of Medicine. In March 2024, data presented at the American Academy of Dermatology 2024 Annual Meeting showed that, in Phase 2b FRONTIER 2, JNJ-2113 maintained high rates of skin clearance through 52 weeks in adults with moderate-to-severe plaque psoriasis.

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On July 17, 2021, we entered into an Amended and Restated License and Collaboration Agreement with JNJ, which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and JNJ, as amended by the first amendment, effective May 7, 2019 (together, the “JNJ License and Collaboration Agreement”). Under the JNJ License and Collaboration Agreement, we earned a $50.0 million milestone payment upon dosing of the third patient in the ICONIC-TOTAL Phase 3 trial in late October 2023, which we received in December 2023. We earned a $10.0 million milestone payment upon the dosing of the third patient in the ANTHEM Phase 2b trial in UC in December 2023, which we received in January 2024. To date, we have earned $172.5 million in nonrefundable payments from JNJ. We are eligible for up to approximately $795.0 million in future development and sales milestone payments, inclusive of the following potential upcoming milestones:

$115.0 million milestone payment upon JNJ-2113 meeting the co-primary endpoints in any one of the four ICONIC program Phase 3 trials;
$35.0 million milestone payment upon the filing of an NDA for JNJ-2113 with the FDA;
$50.0 million milestone payment upon approval of the NDA by the FDA; and
$15.0 million milestone payment upon the advancement of JNJ-2113 into a Phase 3 trial in a second indication.

We also remain eligible to receive upward tiering royalties on net product sales at percentages ranging from six percent to ten percent, with ten percent applicable for net sales over $4.0 billion. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Discovery Platform

Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents. Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. Our discovery pipeline has strategically focused on i) hematology and blood disorders and ii) I&I diseases. For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic, which we believe to be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.

In January 2024, we announced a new oral Interleukin-17 (“IL-17”) peptide antagonist program targeting three IL-17 dimers (IL-17 AA, AF and FF) which may offer potential treatment options for hidradenitis suppurativa, spondyloarthritis, plaque psoriasis and psoriatic arthritis. Our preliminary results showed similar or better in vitro potency than the currently approved drugs Cosentyx® and Taltz®. We expect to nominate a development candidate ready for Investigational New Drug enabling studies by the end of 2024.

Business Update

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, ongoing military conflicts, including between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, and high interest rates. Our future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including potential further delays in existing and planned clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions. The conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results.

22

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

Operations

We have incurred cumulative net losses from inception through March 31, 2024 of $408.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant research and development expenses and other expenses related to our ongoing operations, product development, and pre-commercialization activities. As a result, we may incur losses in the future as we continue the development of, and seek regulatory approval for, our product candidates.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Topic 606 requires us to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which we have sold the same performance obligation separately are not available, we estimate the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Whenever we determine that goods or services promised in a contract should be accounted for as a combined performance obligation over time, we determine the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts will be expended evenly over time. Costs incurred or labor hours are typically used as the measure of performance. Management judgment is required in determining the level of effort required under an arrangement and the period over which we expect to complete our performance obligations. If we determine that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on our consolidated balance sheets.

Certain judgments affect the application of our revenue recognition policy. For example, we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months. This

23

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

There have been no other material changes to our critical accounting policies during the three months ended March 31, 2024, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 2023 filed with the SEC on February 27, 2024.

Components of Our Results of Operations

License and Collaboration Revenue

Our license and collaboration revenue is derived from payments we receive under our license and collaboration agreements with Takeda and JNJ. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information.

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made. In instances where we enter into agreements with third parties to provide research and development services to us, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service and may include upfront payments, monthly payments, and payments upon the completion of milestones or the receipt of deliverables.

Research and development expenses consist primarily of the following:

expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;
employee-related expenses, which include salaries, benefits and stock-based compensation;
laboratory vendor expenses related to the preparation and conduct of pre-clinical and non-clinical studies and clinical trials;
costs related to production of clinical supplies and non-clinical materials, including fees paid to contract manufacturers;
license fees and milestone payments under license and collaboration agreements; and
facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and administrative other supplies.

We recognize the amounts related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses. The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available. We may alternatively be eligible for a taxable credit in the form

24

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

We allocate direct costs and indirect costs incurred to product candidates when they enter clinical development. For product candidates in clinical development, direct costs consist primarily of clinical, pre-clinical, and drug discovery costs, costs of supplying drug substance and drug product for use in clinical and pre-clinical studies, including clinical manufacturing costs, contract research organization fees, and other contracted services pertaining to specific clinical trials and pre-clinical studies. Indirect costs allocated to our product candidates on a program-specific basis include research and development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative support costs. Program-specific costs are unallocated when the related expenses are incurred for our early-stage research and drug discovery projects as our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not provide financial information regarding the costs incurred for early-stage pre-clinical and drug discovery programs on a program-specific basis prior to the clinical development stage.

We expect our research and development expenses to increase in the near term as compared to the prior year period as we continue to focus our resources on (i) progressing our rusfertide program into later stage clinical trials and preparing for commercialization and ii) advancing our pre-clinical and drug discovery research programs. The process of conducting research, identifying potential product candidates and conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval, and commencing pre-commercialization activities is costly and time intensive. We may never succeed in achieving marketing approval for our product candidates regardless of our costs and efforts. The probability of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data, competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory approvals, market conditions, and our ability to successfully commercialize our products if they are approved for marketing. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services, and pre-commercialization expenses, including selling and marketing costs. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other administrative supplies. We expect to continue to incur expenses supporting our continued operations as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations expenses, audit fees, professional services and general overhead and administrative costs.

Interest Income

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

Other Expense, Net

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

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Results of Operations

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

Three Months Ended

March 31, 

Dollar

%

    

2024

    

2023

    

Change

    

Change

(Dollars in thousands)

License and collaboration revenue

$

254,953

$

$

254,953

*

Operating expenses:

 

  

 

  

 

  

 

  

Research and development (1)

33,734

27,416

6,318

 

23

General and administrative (2)

 

14,910

 

8,605

 

6,305

 

73

Total operating expenses

 

48,644

 

36,021

 

12,623

 

35

Income (loss) from operations

 

206,309

 

(36,021)

 

242,330

 

*

Interest income

 

4,376

 

2,491

 

1,885

 

76

Other expense, net

(19)

(195)

176

(90)

Income (loss) before income tax expense

210,666

(33,725)

244,391

*

Income tax expense

(3,326)

(3,326)

*

Net income (loss)

$

207,340

$

(33,725)

$

241,065

 

*

*Percentage not meaningful.

(1)Includes $5.3 million and $4.6 million of non-cash stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively.
(2)Includes $4.1 million and $3.0 million of non-cash stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively.

License and Collaboration Revenue

License and collaboration revenue increased from $0 for the three months ended March 31, 2023 to $255.0 million for the three months ended March 31, 2024. Revenue for the three months ended March 31, 2024 included $254.1 million of the $300.0 million transaction price for the Takeda Collaboration Agreement allocated to the delivery of the rusfertide license to Takeda upon effectiveness of the agreement in March 2024, and $0.9 million allocated to development services provided by us during the period based on the cost-based input method. For the three months ended March 31, 2023, we did not recognize any license and collaboration revenue.

Research and Development Expenses

Three Months Ended

March 31, 

Dollar

%

    

2024

2023

Change

Change

(Dollars in thousands)

Clinical and development expense — rusfertide

$

24,513

$

21,631