Protagonist Therapeutics, Inc [PTGX] Filings

10-Q 1 ptgx-20230930x10q.htm 10-Q

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 September 30, 2023


☐	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 October 27, 2023, there were 57,678,122 shares of the registrant’s Common Stock, par value $0.00001 per share, outstanding.

Table of Contents

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 Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58
	SIGNATURES	60

Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	230,527	$	125,744
Marketable securities		90,224		111,611
Receivable from collaboration partner		—		10
Prepaid expenses and other current assets		4,130		5,712
Total current assets		324,881		243,077
Marketable securities - noncurrent		1,985		—
Property and equipment, net		1,421		1,565
Restricted cash - noncurrent		225		225
Operating lease right-of-use asset		1,504		3,061
Total assets	$	330,016	$	247,928
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,252	$	3,640
Payable to collaboration partner		3		69
Accrued expenses and other payables		24,809		24,955
Operating lease liability - current		1,803		2,515
Total current liabilities		27,867		31,179
Operating lease liability - noncurrent		—		1,141
Total liabilities		27,867		32,320
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; 57,647,476 and 49,339,252 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		1		—
Additional paid-in capital		945,363		752,722
Accumulated other comprehensive loss		(170)		(359)
Accumulated deficit		(643,045)		(536,755)
Total stockholders’ equity		302,149		215,608
Total liabilities and stockholders’ equity	$	330,016	$	247,928

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

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
License and collaboration revenue	$	—	$	—	$	—	$	26,581
Operating expenses:
Research and development		30,664		25,402		91,262		96,331
General and administrative		7,662		6,901		25,439		25,107
Total operating expenses		38,326		32,303		116,701		121,438
Loss from operations		(38,326)		(32,303)		(116,701)		(94,857)
Interest income		4,252		1,157		10,656		1,809
Other expense, net		(31)		(86)		(245)		(151)
Net loss	$	(34,105)	$	(31,232)	$	(106,290)	$	(93,199)
Net loss per share, basic and diluted	$	(0.58)	$	(0.64)	$	(1.91)	$	(1.90)
Weighted-average shares used to compute net loss per share, basic and diluted		59,182,899		49,107,639		55,542,543		48,971,329

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

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net loss	$	(34,105)	$	(31,232)	$	(106,290)	$	(93,199)
Other comprehensive loss:
(Loss) gain on translation of foreign operations		—		(79)		194		(193)
Unrealized gain (loss) on marketable securities		28		319		(5)		12
Comprehensive loss	$	(34,077)	$	(30,992)	$	(106,101)	$	(93,380)

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

Table of Contents

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) Gain		Deficit		Equity
Three months ended September 30, 2023	Shares	Amount
Balance at June 30, 2023	57,494,185	$	1	$	903,205	$	(198)	$	(608,940)	$	294,068
Exercise of Warrants in exchange for issuance of Pre-funded Warrants	—		—		33,813		—		—		33,813
Issuance of common stock upon exercise of Warrants	44,748		—		559		—		—		559
Issuance of common stock under equity incentive and employee stock purchase plans	108,543		—		1,021		—		—		1,021
Stock-based compensation expense	—		—		6,765		—		—		6,765
Other comprehensive gain	—		—		—		28		—		28
Net loss	—		—		—		—		(34,105)		(34,105)
Balance at September 30, 2023	57,647,476	$	1	$	945,363	$	(170)	$	(643,045)	$	302,149


						Accumulated
				Additional		Other				Total
	Common			Paid-In		Comprehensive		Accumulated		Stockholders’
	Stock			Capital		(Loss) Gain		Deficit		Equity
Three months ended September 30, 2022	Shares	Amount
Balance at June 30, 2022	48,683,931	$	—	$	740,027	$	(720)	$	(471,329)	$	267,978
Issuance of common stock under equity incentive and employee stock purchase plans	114,483		—		680		—		—		680
Issuance of common stock upon exercise of Exchange Warrants	399,997		—		—		—		—		—
Stock-based compensation expense	—		—		5,950		—		—		5,950
Other comprehensive gain	—		—		—		240		—		240
Net loss	—		—		—		—		(31,232)		(31,232)
Balance at September 30, 2022	49,198,411	$	—	$	746,657	$	(480)	$	(502,561)	$	243,616

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

Table of Contents

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) Gain		Deficit		Equity
Nine months ended September 30, 2023	Shares	Amount
Balance at December 31, 2022	49,339,252	$	—	$	752,722	$	(359)	$	(536,755)	$	215,608
Issuance of common stock pursuant to public offering, net of issuance costs	5,750,000		—		107,790		—		—		107,790
Issuance of common stock pursuant to at-the-market offering, net of issuance costs	1,749,199		1		24,301		—		—		24,302
Exercise of Warrants in exchange for issuance of Pre-funded Warrants	—		—		33,813		—		—		33,813
Issuance of common stock upon exercise of Warrants	44,748		—		559		—		—		559
Issuance of common stock under equity incentive and employee stock purchase plans	796,240		—		4,255		—		—		4,255
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units	(31,963)		—		(769)		—		—		(769)
Stock-based compensation expense	—		—		22,692		—		—		22,692
Other comprehensive gain	—		—		—		189		—		189
Net loss	—		—		—		—		(106,290)		(106,290)
Balance at September 30, 2023	57,647,476	$	1	$	945,363	$	(170)	$	(643,045)	$	302,149


						Accumulated
				Additional		Other				Total
	Common			Paid-In		Comprehensive		Accumulated		Stockholders’
	Stock			Capital		(Loss) Gain		Deficit		Equity
Nine months ended September 30, 2022	Shares	Amount
Balance at December 31, 2021	47,838,330	$	—	$	709,682	$	(299)	$	(409,362)	$	300,021
Issuance of common stock pursuant to at-the-market offering, net of issuance costs	422,367		—		14,553		—		—		14,553
Issuance of common stock under equity incentive and employee stock purchase plans	545,443		—		3,895		—		—		3,895
Issuance of common stock upon exercise of Exchange Warrants	399,997		—		—		—		—		—
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units	(7,726)		—		(188)		—		—		(188)
Stock-based compensation expense	—		—		18,690		—		—		18,690
Issuance costs related to prior period common stock offering	—		—		25		—		—		25
Other comprehensive loss	—		—		—		(181)		—		(181)
Net loss	—		—		—		—		(93,199)		(93,199)
Balance at September 30, 2022	49,198,411	$	—	$	746,657	$	(480)	$	(502,561)	$	243,616

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

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2023		2022
Cash Flows from Operating Activities
Net loss	$	(106,290)	$	(93,199)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		22,692		18,690
Operating lease right-of-use asset amortization		1,751		1,751
(Accretion) amortization of discount/premium on marketable securities		(3,221)		365
Depreciation		729		778
Other		194		—
Changes in operating assets and liabilities:
Research and development tax incentive receivable		—		2,719
Receivable from collaboration partner		10		1,441
Prepaid expenses and other assets		1,582		413
Accounts payable		(2,271)		3,121
Payable to collaboration partner		(66)		(867)
Accrued expenses and other payables		(259)		(8,127)
Deferred revenue		—		(1,601)
Operating lease liability		(2,047)		(1,986)
Net cash used in operating activities		(87,196)		(76,502)
Cash Flows from Investing Activities
Purchase of marketable securities		(93,077)		(134,279)
Proceeds from maturities of marketable securities		115,696		222,537
Purchases of property and equipment		(590)		(725)
Net cash provided by investing activities		22,029		87,533
Cash Flows from Financing Activities
Proceeds from public offering of common stock, net of issuance costs		107,790		—
Proceeds from at-the-market offering, net of issuance costs		24,302		14,553
Proceeds from exercise of Warrants in exchange for issuance of Pre-funded Warrants		33,813		—
Proceeds from issuance of common stock upon exercise of Warrants		559		—
Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan		4,255		3,895
Tax withholding payments related to net settlement of restricted stock units		(769)		(188)
Issuance costs related to prior period common stock offering		—		25
Net cash provided by financing activities		169,950		18,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash		—		(165)
Net increase in cash, cash equivalents and restricted cash		104,783		29,151
Cash, cash equivalents and restricted cash, beginning of period		125,969		123,890
Cash, cash equivalents and restricted cash, end of period	$	230,752	$	153,041
Supplemental Disclosure of Non-Cash Financing and Investing Information:
Purchases of property and equipment in accounts payable and accrued liabilities	$	3	$	61

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

Table of Contents

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 (formerly PN-235) in advanced stages of clinical development, both derived from the Company’s proprietary technology platform. The Company’s clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases. 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 September 30, 2023, the Company had cash, cash equivalents and marketable securities of $322.7 million. The Company has incurred net losses from operations since inception and had an accumulated deficit of $643.0 million as of September 30, 2023. The Company’s ultimate success depends upon the outcome of its research and development and collaboration activities. 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. 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 economic uncertainty and capital markets disruption, which has been impacted by the direct and indirect effects of the COVID-19 pandemic (“COVID-19”), domestic and global monetary and fiscal policy, geopolitical instability, including ongoing military conflicts between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation, the potential impact of a U.S. government shutdown, and instability in banks and other financial institutions. The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to COVID-19, and its future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including further delays in existing and planned clinical trials, difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions. The conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices as well as supply chain interruptions, and has contributed to record inflation globally. 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. 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 impact on its financial position or results of operations to date, it may be adversely affected in the future due to global monetary and fiscal policy, macroeconomic factors, supply chain constraints, the ongoing conflicts between Russia and Ukraine and in Israel and surrounding areas and other factors, and such factors may lead to increases in the cost of manufacturing for and delays in the initiation of studies in the Company’s product candidates.

Table of Contents

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”) 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 September 30, 2023 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

Effective January 1, 2023, the financial statements of Protagonist Australia use the U.S. dollar as the functional currency due to 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 condensed consolidated balance sheets.

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, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.

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 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. 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 could differ materially from these estimates.

There has been uncertainty and disruption in the global economy and financial markets due to a number of factors, including the direct and indirect effects of COVID-19, geopolitical instability, inflationary pressures and domestic and global monetary and fiscal policy. The Company has taken into consideration any known impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the

Table of Contents

issuance of this report. 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.

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


	September 30,
	2023		2022
Cash and cash equivalents	$	230,527	$	152,816
Restricted cash – noncurrent		225		225
Total cash reported on condensed consolidated statements of cash flows	$	230,752	$	153,041

Investment Impairment

As of each reporting date, the Company assesses each of its investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors. 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. 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 (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), the Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment. The Company writes off accrued interest as a reduction of interest income when an issuer has defaulted on interest payments due on a security.

Stock-Based Compensation Expense

The Company measures its stock-based awards made to its equity plan participants based on the estimated fair values of the awards as of the grant date. For stock option awards, the Company uses the Black-Scholes option-pricing model to estimate fair values. For restricted stock unit awards, the estimated fair value is generally the fair market value of the underlying stock on the grant date. Stock-based compensation expense is recognized over the requisite service period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. The Company recognizes forfeitures of stock-based awards as they occur.

The Company has granted performance share units (“PSUs”) to certain executives of the Company. Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense over the vesting periods of the awards that are ultimately expected to vest when the achievement of the related performance obligation becomes probable.

Table of Contents

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Research and development	$	3,780	$	3,858	$	13,171	$	11,290
General and administrative		2,985		2,092		9,521		7,400
Total stock-based compensation expense	$	6,765	$	5,950	$	22,692	$	18,690

Significant Accounting Policies

Other than the change in Protagonist Australia functional currency from the Australian dollar to the U.S. dollar effective January 1, 2023 and the investment impairment policy, as discussed above, there have been no material changes to the Company’s significant accounting policies during the three and nine months ended September 30, 2023 as compared to those disclosed in Note 2. Summary of Significant Accounting Policies included in our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Note 3. 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 Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”), which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and Janssen (the “Original Agreement”), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Prior to January 1, 2023, Janssen was a related party to the Company 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 Janssen. Upon the effectiveness of the First Amendment, the Company received a $25.0 million payment from Janssen 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 received 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 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, following a pre-specified interim analysis criteria, a portfolio

Table of Contents

decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for the conduct of all future trials, including anticipated Phase 2 and Phase 3 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials.

The Restated Agreement enables Janssen to develop collaboration compounds for multiple indications. Under the Restated Agreement, Janssen 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:

●

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

●

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

●

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

●

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

●

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

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. Janssen bills the Company for its share of the PTG-200 Phase 2a development costs as expenses are incurred by Janssen. Milestone payments are received after the related milestones are achieved.

Janssen retains exclusive, worldwide rights to develop and commercialize IL-23 receptor antagonist compounds derived from the research collaboration conducted under the Original Agreement, or Janssen’s further research under the Restated Agreement. Any further research and development will be conducted by Janssen. The Company will have the right to co-detail (for CD and ulcerative colitis indications) up to two of the IL-23 receptor antagonist compounds under the collaboration in the U.S. market.

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, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Table of Contents

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 (formerly PN-235); 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 Janssen 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 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 obligation began on the Original Agreement’s 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.

No license and collaboration revenue was recognized for the three and nine months ended September 30, 2023 because the Company completed its performance obligation under the collaboration as of June 30, 2022. For the three and nine months ended September 30, 2022, the Company recognized license and collaboration revenue of zero and $26.6 million, respectively. License and collaboration revenue for the nine months ended September 30, 2022 was primarily related to the transaction price recognized under the Restated Agreement based on proportional performance.

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


	Balance at						Balance at
	Beginning of						End of
Nine Months Ended September 30, 2023	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	10	$	41		(51)	$	—
Contract liabilities:
Payable to collaboration partner	$	69	$	11		(77)	$	3


	Balance at						Balance at
	Beginning of						End of
Nine Months Ended September 30, 2022	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	1,566	$	25,165	$	(26,606)	$	125
Contract liabilities:
Deferred revenue	$	1,601	$	25,757	$	(27,358)	$	—
Payable to collaboration partner	$	899	$	52	$	(919)	$	32

During the three and nine months ended September 30, 2022, the Company recognized revenue of zero and $0.9 million from amounts included in the deferred revenue contract liability balance at the beginning of each period. None of the costs to obtain or fulfill the contract were capitalized.

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

Table of Contents

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.

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):


	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	70,470	$	—	$	—	$	70,470
Certificates of deposit		—		4,799		—		4,799
Commercial paper		—		132,226		—		132,226
Corporate debt securities		—		1,980		—		1,980
U.S. Treasury and agency securities		—		108,786		—		108,786
Total financial assets	$	70,470	$	247,791	$	—	$	318,261


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	54,292	$	—	$	—	$	54,292
Commercial paper		—		110,227		—		110,227
Corporate debt securities		—		10,741		—		10,741
U.S. Treasury and agency securities				57,242		—		57,242
Total financial assets	$	54,292	$	178,210	$	—	$	232,502

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.

Table of Contents

Note 5. Cash Equivalents and Marketable Securities

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


	September 30, 2023
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	70,470	$	—	$	—	$	70,470
Certificates of deposit		4,798		1		—		4,799
Commercial paper		132,275		—		(49)		132,226
Corporate debt securities		1,982		—		(2)		1,980
U.S. Treasury and agency securities		108,794		9		(17)		108,786
Total cash equivalents and marketable securities	$	318,319	$	10	$	(68)	$	318,261
Classified as:
Cash equivalents							$	226,052
Marketable securities								90,224
Marketable securities - noncurrent								1,985
Total cash equivalents and marketable securities							$	318,261


	December 31, 2022
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	54,292	$	—	$	—	$	54,292
Commercial paper		110,257		—		(30)		110,227
Corporate debt securities		10,756		—		(15)		10,741
U.S. Treasury and agency securities		57,251		27		(36)		57,242
Total cash equivalents and marketable securities	$	232,556	$	27	$	(81)	$	232,502
Classified as:
Cash equivalents							$	120,891
<

Protagonist Therapeutics, Inc [PTGX] Filings
10-Q	[2023-11-02]
10-Q	[2023-08-03]
10-Q	[2023-05-04]
10-K	[2023-03-15]
10-Q	[2022-11-08]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-28]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-Q	[2021-05-04]
10-K	[2021-03-10]
10-Q	[2020-11-04]
10-Q	[2020-08-06]
10-Q	[2020-05-07]
10-K	[2020-03-10]
10-Q	[2019-11-06]
10-Q	[2019-08-07]
10-Q	[2019-05-08]
10-K	[2019-03-12]
10-Q	[2018-11-06]
10-Q	[2018-08-07]
10-Q	[2018-05-09]
10-K	[2018-03-07]
10-Q	[2017-11-07]
10-Q	[2017-08-08]
10-Q	[2017-05-10]
10-K	[2017-03-07]
10-Q	[2016-11-14]
10-Q	[2016-09-15]
S-1	[2016-07-11]