PROTAGONIST THERAPEUTICS, INC.

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PROTAGONIST THERAPEUTICS, INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/05/2022 | 05:02pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our Unaudited Condensed Consolidated
Financial Statements and related notes included in Part I, Item 1 of this
quarterly report (this "Quarterly Report") on Form 10-Q and with our Audited
Consolidated Financial Statements and related notes thereto for the year ended
December 31, 2021, included in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission ("SEC") on February 28, 2022.

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"). 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," 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, the potential for eventual regulatory approval
and commercialization of our product candidates and our potential receipt of
milestone payments and royalties under our collaboration agreements, the timing
and amount of potential payments that we may be required to make to
collaboration partners; future operating results or the ability to generate
sales, income or cash flow, and the impact of the ongoing COVID-19 pandemic are
forward-looking statements. They involve risks, uncertainties and assumptions
that are beyond our ability to control or predict, including those discussed in
Part II, Item 1A, of this Quarterly Report. While we believe such information
forms a reasonable basis for such statements, such information may be limited or
incomplete, and our statements should not be read to indicate that we have
conducted an exhaustive inquiry into, or review of, all potentially available
relevant information. 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, even if new information becomes
available in the future. "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 multiple peptide-based new chemical entities in different stages of development, all derived from the Company's proprietary discovery technology platform. Our clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases.

Our Product Pipeline

[[Image Removed: A picture containing graphical user interface Description automatically generated]]

Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an
injectable hepcidin mimetic in development for the potential treatment of
erythrocytosis, iron overload and other blood disorders. Hepcidin is a key
hormone in regulating iron equilibrium and is critical to the proper development
of red blood cells. Rusfertide mimics the effect of the natural hormone
hepcidin, but with greater potency, solubility and stability. We initiated
REVIVE, a Phase 2 proof of concept ("POC") trial in the blood disorder
polycythemia vera ("PV"), in the third quarter of 2019. We completed enrollment
of patients in the ongoing REVIVE Phase 2 clinical trial of rusfertide in PV in
the first quarter of 2022 with a target of approximately 50 patients to be
enrolled through the end of the randomization portion of the trial. We initiated
a Phase 2 POC trial in hereditary hemochromatosis ("HH") in January 2020, which
was completed during the fourth quarter of 2021. During the first quarter of
2021, we initiated PACIFIC, another Phase 2 trial for rusfertide in up to 20
patients diagnosed with PV and with routinely elevated hematocrit levels (>48%).
Data from these trials presented at medical conferences in 2021 provided
evidence regarding the potential of rusfertide for managing hematocrit, reducing
thrombotic risk and improving iron deficiency symptoms. Rusfertide has a unique
mechanism of action in the potential treatment of PV, which may enable it to
specifically decrease and maintain hematocrit levels within the range of
recommended clinical guidelines without causing the iron deficiency that can
occur with frequent phlebotomy.

On September 16, 2021, the U.S. Food and Drug Administration ("FDA") placed a
clinical hold on our rusfertide clinical trials following our submission to the
FDA of findings in a 26-week rasH2 transgenic mouse carcinogenicity study. In
October 2021, we submitted a Complete Response to the FDA related to the
clinical hold, and the FDA removed the clinical hold on October 8, 2021. In our
Complete Response, we provided the individual patient clinical safety reports
the FDA requested for human cancers observed in rusfertide clinical trials,
updated the investigator brochure and patient informed consent forms for ongoing
rusfertide trials, proposed new safety and stopping rules in trial protocols for
our ongoing rusfertide clinical trials, and performed a comprehensive review of
our rusfertide safety database. Dosing of patients and enrollment in ongoing
clinical trials with rusfertide resumed in the fourth quarter of 2021.

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Based on ongoing end of Phase 2 feedback provided by the FDA's Division of
Nonmalignant Hematology and written comments from the European Medicines Agency
("EMA"), we activated sites and initiated patient screening for VERIFY, a global
Phase 3 clinical trial of rusfertide in PV, in the first quarter of 2022.
Patient enrollment in VERIFY is expected to be completed in the first half of
2023.

The FDA granted orphan drug designation for rusfertide for the treatment of PV
in June 2020, and Fast Track designation for rusfertide for the treatment of PV
in December 2020. The EMA granted orphan drug designation for rusfertide for
treatment of PV in October 2020. The FDA granted Breakthrough Therapy
Designation for rusfertide for the treatment of PV in June 2021. In April 2022,
we received a letter from the FDA indicating the FDA's intent to rescind
Breakthrough Therapy Designation for rusfertide in PV. We submitted a meeting
request to the FDA, along with a briefing document articulating why we believe
rusfertide continues to warrant Breakthrough Therapy Designation. The FDA letter
does not relate to the rusfertide Fast Track Designation, which remains active.

Our alpha-4-beta-7 ("?4?7") antagonist PN-943 and our Interleukin-23 receptor
("IL-23R") antagonist compound PN-235 are orally delivered investigational drugs
that are designed to block biological pathways currently targeted by marketed
injectable antibody drugs. Our orally stable peptide approach may offer a
targeted therapeutic approach for GI and systemic compartments as needed. We
believe that, compared to antibody drugs, these product candidates have the
potential to provide improved safety due to minimal exposure in the blood,
increased convenience and compliance due to oral delivery, and the opportunity
for the earlier introduction of targeted oral therapy.

PN-943 is an investigational, orally delivered, gut-restricted ?4?7 specific
integrin antagonist for inflammatory bowel disease ("IBD"). We submitted a U.S.
Investigational New Drug application with the FDA for PN-943 in December 2019,
which took effect in January 2020. During the second quarter of 2020 we
initiated IDEAL, a 159 patient Phase 2 trial evaluating the safety, tolerability
and efficacy of PN-943 in patients with moderate to severe UC. This trial
includes a 12-week induction period and a 40-week extended treatment period.
Enrollment in IDEAL was completed during the first quarter of 2022. Patients
were randomized to either twice daily ("BID") with 150 mg or 450 mg PN-943, or
placebo, for 12 weeks and analyzed for outcome measures. Topline data from the
12-week induction period reported in April 2022 demonstrated that while the
higher 450 mg BID dose arm did not meet the prespecified primary endpoint, the
lower 150 mg BID dose arm achieved 27.5% clinical remission with a delta of 13%
versus placebo, with strong concordance across several key proxies including
histological and endoscopic endpoints for efficacy. Consistent with the goals of
a Phase 2 study and based on the safety and efficacy data from the 150 mg BID
arm, IDEAL achieved clinical POC and validation for an oral, gut-restricted
approach for UC via blockade of the ?4?7 pathway. We are currently finalizing
the study design for a registrational Phase 3 trial anchored around the 150 mg
BID dose of PN-943, pending regulatory guidance. We intend to pursue further
clinical development in collaboration with a large pharmaceutical partner or
through a structured financing arrangement.

In May 2017, we entered into a worldwide license and collaboration agreement
with Janssen Biotech, Inc. ("Janssen"), a Johnson & Johnson company, to
co-develop and co-detail our IL-23R antagonist compounds, including PTG-200
(JNJ-67864238) and certain related compounds for all indications, including IBD.
PTG-200 was a first-generation investigational, orally delivered, IL-23R
antagonist for the treatment of IBD. The agreement with Janssen was amended in
May 2019 to expand the collaboration by supporting efforts towards
second-generation IL-23R antagonists; and in July 2021 to, among other things,
enable Janssen to independently research and develop collaboration compounds for
multiple indications in the IL-23 pathway and further align our financial
interests.

In October 2020, we and Janssen announced the selection of two second-generation
IL23-R antagonists for advancement into clinical development, PN-232
(JNJ-75105186) and PN-235 (JNJ-77242113). During the fourth quarter of 2021,
following a pre-specified interim analysis criteria, a portfolio decision was
made by Janssen to stop further development of both PTG-200 and PN-232 favor of
advancing PN-235, based on its superior potency and overall pharmacokinetic and
pharmacodynamic profile. A PN-235 Phase 1 trial was completed in the fourth
quarter of 2021. Janssen initiated FRONTIER 1, a 240-patient Phase 2b clinical
trial of PN-235 in moderate-to-severe plaque psoriasis, in February 2022 and is
expected to initiate a separate Phase 2 trial of PN-235 in IBD in 2023.

During the fourth quarter of 2021, we received a $7.5 million milestone payment
from Janssen triggered by the completion of data collection for PN-235 Phase 1
activities. In March 2022, we became eligible to receive a $25.0

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million milestone payment in connection with the dosing of a third patient in
FRONTIER 1, which we received in April 2022. We will be eligible to receive a
$10.0 million milestone payment in connection with the dosing of a third patient
in the second Phase 2 trial of a second-generation candidate. We remain eligible
for up to approximately $875.0 million in development-related milestone
payments, in addition to the $112.5 million in milestone payments already
earned.

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

COVID-19 Business Impact

We are subject to risks and uncertainties as a result of the ongoing
COVID-19 pandemic. The severity of the impact of the COVID-19 pandemic on our
activities depends on a number of factors, including, but not limited to, the
duration and severity of the pandemic, including the severity of any additional
periods of increases or spikes in the number of cases in the areas we and our
suppliers operate and areas where our clinical trial sites are located; the
development and spread of COVID-19 variants, the timing, extent, effectiveness
and durability of COVID-19 vaccine programs or other treatments; and new or
continuing travel and other restrictions and public health measures. We have
experienced delays in our existing and planned clinical trials due to the
worldwide impacts of the pandemic. Our future results of operations and
liquidity could be adversely impacted by further delays in existing and planned
clinical trials, continued difficulty in recruiting patients for these clinical
trials, delays in manufacturing and collaboration activities, supply chain
disruptions, and the ongoing impact on our operating activities and employees.
The extent of the impact of the COVID-19 pandemic remains difficult to predict
as this event is ongoing and information continues to evolve. Capital markets
and economies worldwide have been negatively impacted and may be further
impacted in the future. Such economic disruption could have a material adverse
effect on our business. As of the date of issuance of these condensed
consolidated financial statements, the extent to which the COVID-19 pandemic may
materially impact our future financial condition, liquidity or results of
operations remains uncertain.

Operations


We have incurred net losses in each year since inception and we do not
anticipate achieving sustained profitability in the foreseeable future. Our net
loss was $20.9 million and $24.0 million for the three months ended March 31,
2022 and 2021, respectively. As of March 31, 2022, we had an accumulated deficit
of $430.3 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, development and other expenses related
to our ongoing operations, product development, and pre-commercialization
activities. As a result, we expect to continue to incur losses in the future as
we continue our development of, and seek regulatory approval for, our product
candidates.

Janssen License and Collaboration Agreement


On July 27, 2021, we entered into an amended and restated License and
Collaboration Agreement ("Restated Agreement") with Janssen. The Restated
Agreement amends and restates the License and Collaboration Agreement, dated May
26, 2017, by and between us and Janssen (as amended by the First Amendment
thereto, effective May 7, 2019, the "Original Agreement"). Janssen is a related
party to us as Johnson & Johnson Innovation - JJDC, Inc., a significant
stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. The
Original Agreement became effective on July 13, 2017. Upon the effectiveness of
the Original Agreement, we received a non-refundable, upfront cash payment of
$50.0 million from Janssen. Upon the effectiveness of the First Amendment, we
received a $25.0 million payment from Janssen in 2019. We also received a $5.0
million payment triggered by the successful nomination of a second-generation
IL-23R antagonist development compound during the first quarter of 2020. In
the

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fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by completion of the data collection for PN-235 Phase 1 activities. In April 2022, we received a $25.0 million milestone payment in connection with the initiation of the first Phase 2 trial of a second-generation candidate. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information.

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 United States 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, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.

There have been no material changes to our critical accounting policies during
the three months ended March 31, 2022, 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, 2021 filed with the SEC on February 28, 2022.

Components of Our Results of Operations

License and Collaboration Revenue


Our license and collaboration revenue is derived from payments we receive under
the Janssen License and Collaboration Agreement. See Note 3 to the condensed
consolidated financial statements included elsewhere in this 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, non-clinical and clinical studies;


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? 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 other supplies.

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

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 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 clinical expenses are incurred for our early-stage research and drug
discovery projects, 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.

The following table summarizes our research and development expenses incurred during the periods indicated:

                                                             Three Months Ended March 31,
                                                                2022                2021

                                                                 (Dollars in thousands)
Clinical and development expense - PN-943                  $       15,741      $        7,724
Clinical and development expense - rusfertide (PTG-300)            13,377              10,079
Clinical and development expense - PN-235                             221               1,799
Clinical and development expense - PN-232                              68                   -
Clinical and development expense - PTG-200                            (6)                   1
Clinical and development expense - PTG-100                            190                 109
Pre-clinical and drug discovery research expense                    6,727               5,361
Grants and tax incentives expense reimbursement, net                    -               (828)
Total research and development expenses                    $       36,318  

$ 24,245



We expect our research and development expenses will increase as we progress our
product candidates into later stage clinical trials, add to the number of
ongoing clinical trials, advance our discovery research projects into the
pre-clinical stage and continue our early-stage research and prepare for the
commercialization of our product candidates. The process of conducting research,
identifying potential product candidates and conducting pre-clinical 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

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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 supplies. We expect to continue
to incur expenses to support our continued operations as a public company,
including expenses related to existing and future compliance with rules and
regulations of the SEC and those of the national securities exchange on which
our securities are traded, insurance expenses, investor relations, 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 Income (Expense), Net

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

Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

                                                        Three Months Ended March 31,         Dollar       %
                                                          2022                2021           Change     Change

                                                                 (Dollars in thousands)
License and collaboration revenue - related party    $        25,722     $         6,189    $ 19,533       316
Operating expenses:
Research and development (1)                                  36,318              24,245      12,073        50
General and administrative (2)                                10,515       
       5,965       4,550        76
Total operating expenses                                      46,833              30,210      16,623        55
Loss from operations                                        (21,111)            (24,021)       2,910      (12)
Interest income                                                  168                 102          66        65
Other income (expense), net                                       13                (79)          92     (116)
Net loss                                             $      (20,930)     $      (23,998)    $  3,068      (13)

(1) Includes $3.3 million and $1.5 million of non-cash stock-based compensation

expense for the three months ended March 31, 2022 and 2021, respectively.

(2) Includes $2.6 million and $1.2 million of non-cash stock-based compensation

expense for the three months ended March 31, 2022 and 2021, respectively.

License and Collaboration Revenue


License and collaboration revenue increased $19.5 million, or 316%, from $6.2
million for the three months ended March 31, 2021 to $25.7 million for the three
months ended March 31, 2022. The increase in revenue was primarily due to an
increase in transaction price and proportional performance resulting from the
$25.0 million milestone payment we became eligible to receive in March 2022 upon
the dosing of the third patient in the Janssen Phase 2b FRONTIER 1 trial of
PN-235 for moderate-to-severe plaque psoriasis.

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We determined that the transaction price of the initial performance obligation
under the Restated Janssen License and Collaboration Agreement was $131.5
million as of March 31, 2022, an increase of $25.0 million from the transaction
price of $106.5 million as of December 31, 2021. In order to determine the
transaction price, we evaluated all payments to be received during the duration
of the contract, net of development costs reimbursement expected to be payable
to Janssen. The transaction price as of March 31, 2022 includes $87.5 million of
nonrefundable payments received to date, the $25.0 million milestone payment
receivable following the dosing of the third patient in the Phase 2b FRONTIER 1
clinical trial of PN-235, $17.9 million of reimbursement from Janssen for
services performed for IL-23 receptor antagonist compound research costs and
other services, and estimated variable consideration consisting of $8.2 million
of development cost reimbursement receivable from Janssen, partially offset by
$7.1 million of net cost reimbursement due to Janssen for services performed.
The increase in transaction price from December 31, 2021 to March 31, 2022 was
due primarily to the $25.0 million milestone payment we became eligible to
receive in March 2022 upon the dosing of the third patient in the Janssen Phase
2b FRONTIER 1 trial for moderate-to-severe plaque psoriasis. We re-evaluate the
transaction price each reporting period and as uncertain events are resolved or
other changes in circumstances occur.

Research and Development Expenses

                                                                 Three Months Ended March 31,           Dollar      %
                                                                 2022                          2021     Change    Change

                                                                          (Dollars in thousands)
Clinical and development expense - PN-943                  $          15,741                 $  7,724  $   8,017     104
Clinical and development expense - rusfertide (PTG-300)               13,377                   10,079      3,298      33
Clinical and development expense - PN-235                                221                    1,799    (1,578)    (88)
Clinical and development expense - PN-232                                 68                        -         68       *
Clinical and development expense - PTG-200                               (6)                        1        (7)       *
Clinical and development expense - PTG-100                               190                      109         81      74
Pre-clinical and drug discovery research expense                       6,727                    5,361      1,366      25
Grants and tax incentives expense reimbursement, net                       -                    (828)        828   (100)
Total research and development expenses                    $          36,318                 $ 24,245  $  12,073      50


*Percentage not meaningful


Research and development expenses increased $12.1 million, or 50%, from $24.2
million for the three months ended March 31, 2021 to $36.3 million for the
three months ended March 31, 2022. The increase was primarily due to an increase
of $8.0 million in PN-943 contract manufacturing costs and clinical expenses
related to the Phase 2 IDEAL trial in UC initiated in 2020, an increase of $3.3
million in rusfertide clinical and contract manufacturing expenses for VERIFY,
the global Phase 3 clinical trial in PV initiated in the first quarter of 2022,
an increase of $1.4 million in pre-clinical and drug discovery research
expenses, and a decrease of $0.8 million in Australia research and tax incentive
expense reimbursement. These increases were partially offset by a decrease of
$1.6 million in clinical and development expenses for the PN-235 Phase 1 trial
under the Janssen License and Collaboration agreement, which was completed in
the fourth quarter of 2021.

We had 97 and 63 full-time equivalent research and development employees as of March 31, 2022 and 2021, respectively.

General and Administrative Expenses


General and administrative expenses increased $4.6 million, or 76%, from $6.0
million for the three months ended March 31, 2021 to $10.5 million for the
three months ended March 31, 2022 primarily due to increases of $2.1 million in
personnel expenses and $2.5 million in expenses to support the growth of our
business and other costs. The increase in personnel expenses was primarily due
to increases of $1.4 million in stock-based compensation expense and $0.7
million in wages and benefits.

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We had 25 and 20 full-time equivalent general and administrative employees as of March 31, 2022 and 2021, respectively.

Interest Income


Interest income increased $0.1 million, or 65%, from $0.1 million for the three
months ended March 31, 2021 to $0.2 million for the three months ended March 31,
2022. This increase was due primarily to higher yields on invested balances
during a period of increasing interest rates compared to the prior year period.

Liquidity and Capital Resources

Sources of Liquidity

Historically, we have funded our operations primarily from net proceeds from the sale of shares of our common stock and the receipt of payments under collaboration agreements.


In October 2019, we filed a registration statement on Form S-3 (File no.
333-234414) that was declared effective as of November 22, 2019 and permits the
offering, issuance, and sale by us of up to a maximum aggregate offering price
of $250.0 million of our common stock, preferred stock, debt securities and
warrants (the "2019 Form S-3"). Up to a maximum of $75.0 million of the maximum
aggregate offering price of $250.0 million may be issued and sold pursuant to an
ATM financing facility under a sales agreement we entered into on November 27,
2019 (the "2019 Sales Agreement"). In January 2022, we issued 422,367 shares of
our common stock under our ATM financing facility for net proceeds of $14.6
million, after deducting issuance costs. As of March 31, 2022, a total of $79.3
million of common stock remained available for sale under the 2019 Form S-3,
$17.0 million of which remained available for sale under the ATM financing
facility. This Form S-3 expires in October 2022.

In December 2020, we filed an automatic registration statement on Form S-3ASR
and an accompanying prospectus (File No. 333-251254). In June 2021, pursuant
this S-3ASR, we completed an underwritten public offering of 3,046,358 shares of
common stock at a public offering price of $37.75 per share and issued an
additional 456,953 shares of common stock at a public offering price of $37.75
per share following the underwriters' exercise of their option to purchase
additional shares. Net proceeds, after deducting underwriting commission and
offering costs paid by us, were $123.8 million. This Form S-3ASR expires in
December 2023.

We have received $112.5 million in non-refundable payments from Janssen since
the inception of the Janssen License and Collaboration Agreement in 2017 through
the date of this report as follows:

? Upon effectiveness of the agreement, we received a non-refundable, upfront cash

payment of $50.0 million from Janssen;

Upon effectiveness of the First Amendment, we became eligible to receive a

? $25.0 million payment from Janssen, which was received during the second

quarter of 2019;

In December 2019, we became eligible to receive a $5.0 million payment

? triggered by the successful nomination of a second-generation development

compound, which was received during the first quarter of 2020;

In October 2021, we became eligible to receive a $7.5 million milestone payment

? triggered by completion of the data collection for PN-235 Phase 1 activities,

which was received during the fourth quarter of 2021; and

In March 2022, we became eligible to receive a $25.0 million milestone payment

? in connection with the dosing of the third patient in the Phase 2b clinical

   trial of PN-235 in moderate-to-severe plaque psoriasis, which we received in
   April 2022.


                                       29

  Table of Contents

We also receive payments for services provided under the collaboration agreement
and we make in-kind payment reimbursements to Janssen for certain costs they
have incurred based on the cost sharing terms of the agreement.

Pursuant to the amended and restated License and Collaboration Agreement with
Janssen executed July 27, 2021 (the "Restated Agreement"), we will be eligible
to receive clinical development, regulatory and sales milestones, if and as
achieved. Upcoming potential development milestones for second-generation
products include:

$10.0 million for dosing of the third patient in the first Phase 2 clinical

? trial for any second-generation product for a second indication (i.e., an

indication different than the indication which triggered the $25.0 million

milestone described above); and

? $50.0 million for dosing of the third patient in a Phase 3 clinical trial for a

second-generation compound for any indication.

Capital Requirements


As of March 31, 2022, we had $305.3 million of cash, cash equivalents and
marketable securities and an accumulated deficit of $430.3 million. Our capital
expenditures for the three months ended March 31, 2022 were $0.5 million. Our
capital expenditures for the years ended December 31, 2021 and 2020 were $1.1
million and $0.5 million, respectively. Our primary uses of cash are to fund
operating expenses, primarily our research and development expenditures, general
and administrative costs and pre-commercialization costs. Cash used to fund
operating expenses is impacted by the timing of when we pay these expenses. We
believe, based on our current operating plan and expected expenditures, that our
existing cash, cash equivalents and marketable securities will be sufficient to
meet our anticipated operating and capital expenditure requirements for at least
the next 12 months from the date of this filing. We have based this estimate on
assumptions that may prove to be wrong. We could utilize our available capital
resources sooner than we currently expect if our planned pre-clinical and
clinical trials are successful or expanded, our product candidates enter new and
more advanced stages of clinical development or our newer product clinical
trials advance beyond the discovery stage. We expect to require additional
financing to advance our product candidates through clinical development and
toward potential regulatory approval and to develop, acquire or in-license other
potential product candidates. Such additional funding may come from raising
additional capital, seeking access to debt, and additional collaborative or
other arrangements with corporate sources, but such funding may not be available
at terms acceptable to us, if at all.

We anticipate that we will need to raise substantial additional funding, the requirements of which will depend on many factors, including:

the progress, timing, scope, results and costs of advancing our clinical trials

? for our product candidates, including the ability to enroll patients in a

timely manner for our clinical trials;

? the costs of and ability to obtain clinical and commercial supplies and any

other product candidates we may identify and develop;

? our ability to successfully commercialize the product candidates we may

identify and develop;

the selling and marketing costs associated with our current product candidates

? and any other product candidates we may identify and develop, including the

cost and timing of expanding our sales and marketing capabilities;

the achievement of development, regulatory and sales milestones resulting in

? payments to us from Janssen under the Janssen License and Collaboration

Agreement, as amended, or other such arrangements that we may enter into, and

   the timing of receipt of such payments, if any;


                                       30

  Table of Contents

the timing, receipt and amount of royalties under the Janssen License and

? Collaboration Agreement on worldwide net sales of IL-23 receptor antagonist

compounds, upon regulatory approval or clearance, if any;

the amount and timing of sales and other revenues from our current product

? candidates and any other product candidates we may identify and develop,

including the sales price and the availability of adequate third-party

reimbursement;

? the cash requirements of any future acquisitions or discovery of product

candidates;

? the time and cost necessary to respond to technological and market

developments;

? the extent to which we may acquire or in-license other product candidates and

technologies;

? costs necessary to attract, hire and retain qualified personnel;

? the costs of maintaining, expanding and protecting our intellectual property

portfolio; and

? the costs of ongoing general and administrative activities to support the

growth of our business.

Adequate additional funding may not be available to us on acceptable terms, or
at all. Any failure to raise capital as and when needed could have a negative
impact on our financial condition and on our ability to pursue our business
plans and strategies. Further, our operating plans may change, and we may need
additional funds to meet operational needs and capital requirements for clinical
trials, other research and development activities and pre-commercialization
costs. If we do raise additional capital through public or private equity
offerings or convertible debt securities, the ownership interest of our existing
stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect our stockholders' rights.
If we raise additional capital through debt financing, we may be subject to
covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends.
Because of the numerous risks and uncertainties associated with the development
and commercialization of our product candidates, we are unable to fully estimate
the amounts of increased capital outlays and operating expenditures associated
with our current and anticipated product development programs.

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

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Financials (USD)
Sales 2022 31,9 M - -
Net income 2022 -157 M - -
Net cash 2022 174 M - -
P/E ratio 2022 -2,55x
Yield 2022 -
Capitalization 393 M 393 M -
EV / Sales 2022 6,85x
EV / Sales 2023 27,7x
Nbr of Employees 122
Free-Float 98,6%
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Managers and Directors
Dinesh V. Patel President, Chief Executive Officer & Director
Asif Ali Chief Financial Officer & Executive Vice President
Harold E. Selick Chairman
Mark L. Smythe Vice President-Technology
David Y. Liu Chief Research & Development Strategy Officer
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