PROTAGONIST THERAPEUTICS, INC. 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 endedDecember 31, 2020 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 10, 2021 .
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," "intends," "may," "plans," "potential," "predicts," "projects," "should," "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, 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 ofProtagonist Therapeutics, Inc. inthe United States and other jurisdictions. 25 Table of Contents Overview We are a clinical-stage biopharmaceutical company that utilizes a proprietary technology platform to discover and develop novel peptide-based drugs to address significant unmet medical needs and transform existing treatment paradigms for patients. We have multiple clinical assets derived from this platform in development for multiple indications. 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: Graphic]] *Subject to Covid-19 related delays
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
Phase 2 proof of concept ("POC") studies in the blood disorders polycythemia
vera ("PV") in the third quarter of 2019 and hereditary hemochromatosis ("HH")
in January 2020 . In December 2020 , we presented four posters and one oral
presentation relating to rusfertide at the American Society for Hematology's
virtual annual meeting, including updated interim Phase 2 results for rusfertide
in PV. We believe these interim results provide evidence regarding the potential
of rusfertide to eliminate the need for phlebotomy by controlling hematocrit
levels below 45% on an individual patient basis. Rusfertide has a unique
mechanism of action in the potential treatment of PV, which may enable it to
decrease and maintain hematocrit levels within the range of recommended clinical
guidelines without causing the iron deficiency that may occur with frequent
phlebotomy.
We selected PV for potential pivotal study in rusfertide and completed patient
enrollment in this ongoing Phase 2 clinical trial in April 2021 . In June 2020 ,
the U.S. Food and Drug Administration ("FDA") granted orphan drug designation
for rusfertide for the treatment of PV. In October 2020 , the European Medicines
Agency granted orphan drug designation for rusfertide for the treatment of PV.
In December 2020 , the FDA granted Fast Track designation for rusfertide for the
treatment of PV. Based on feedback provided by the FDA's Division of
Nonmalignant Hematology and written comments from the European Medicines Agency
("EMA") received during the first quarter of 2021, we expect to initiate a
global Phase 3 clinical trial of rusfertide in PV in early 2022. During the
first quarter of 2021, we initiated another Phase 2 study for rusfertide in up
to 20 patients diagnosed with PV and with routinely elevated hematocrit levels
(>48%). In addition, we expect to disclose preliminary data from our Phase 2 POC
study in HH, our second indication, in the second half of 2021.
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Our clinical assets PTG-943 and PTG-200 are orally delivered investigational
drugs currently in development for inflammatory bowel disease ("IBD"), a
gastrointestinal ("GI") disease consisting primarily of ulcerative colitis
("UC") and Crohn's disease ("CD"), that are designed to block biological
pathways currently targeted by marketed injectable antibody drugs. Our orally
stable peptide approach may offer targeted delivery to the GI tissue
compartment. 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. As a result,
if successfully developed and approved, we believe they may transform the
existing treatment paradigm for IBD.
PN-943 is an investigational, orally delivered, gut-restricted alpha-4-beta-7
("?4?7") specific integrin antagonist for 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 a 150-patient Phase 2 study evaluating the safety, tolerability and
efficacy of PN-943 in patients with moderate to severe UC. This ongoing study is
expected to be completed in 2022, subject to delays related to the COVID-19
pandemic.
PTG-200 (also referenced as JNJ-67864238) is an investigational, orally
delivered, gut-restricted Interleukin-23 receptor ("IL-23R") antagonist for the
treatment of IBD. 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 PTG-200 and certain related
compounds for all indications, including IBD. The agreement with Janssen was
amended in May 2019 to expand the collaboration by supporting efforts towards
second-generation IL- 23R antagonists. In January 2020 , as part of the expanded
research collaboration, we announced the identification and nomination of an
orally delivered IL-23R antagonist peptide as a second-generation development
candidate, triggering a $5.0 million milestone payment to us. Janssen initiated
a global Phase 2 POC clinical study for PTG-200 in moderate-to-severe CD in the
fourth quarter of 2019. Due to the uncertain effect on the timing of clinical
trials caused by the COVID-19 pandemic, we have suspended guidance on a timeline
for completion of the PTG-200 Phase 2 study. In October 2020 , we announced the
selection of two second-generation IL-R antagonists for advancement into
clinical development, PN-235 (also referenced as JNJ-77242113) and PN-232 (also
referenced as JNJ-75105186). A Phase 1 study was initiated for PN-235 in
December 2020 and is expected to be completed in 2021. PN-232 is in the late
preclinical stage and we expect to initiate and complete a Phase 1 study for
PN-232 in 2021. The advancement of three different oral co-development
candidates provides us with several strategic options for development in
multiple indications.
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. We are continuing to closely monitor the impact of the
COVID-19 pandemic on our business and have taken and continue to take proactive
efforts to protect the health and safety of our patients, study investigators,
clinical research staff and employees, and to maintain business continuity. The
extent of the impact of the COVID-19 pandemic on our activities is highly
uncertain and difficult to predict, as the pandemic and the response to the
pandemic continue to evolve. Capital markets and economies worldwide have been
significantly impacted by the COVID-19 pandemic, and the pandemic has
contributed to a global economic recession. Such economic disruption could have
a material adverse effect on our business. Policymakers around the globe have
responded with fiscal policy actions to support the healthcare industry and
economy as a whole. The magnitude and overall effectiveness of these actions
remains uncertain.
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The severity of the impact of the COVID-19 pandemic on our activities will depend 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, our suppliers and our manufacturers operate and areas where our clinical trial sites are located; the timing, extent, effectiveness and durability of vaccine programs or other treatments; and new or continuing travel and other restrictions and public health measures, such as social distancing, business closures or disruptions. Accordingly, the extent and severity of the impact on our existing and planned clinical trials, manufacturing, collaboration activities and operations is uncertain and cannot be fully predicted. 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 and collaboration activities, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities, supply chain disruptions, the ongoing impact on operating activities and employees, and the ongoing impact of any initiatives or programs that we may undertake to address financial and operational challenges. As of the date of issuance of this Quarterly Report on Form 10-Q, the extent to which the COVID-19 pandemic may materially impact our future financial condition, liquidity or results of operations is 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$24.0 million and$20.1 million for the three months endedMarch 31, 2021 and 2020, respectively. As ofMarch 31, 2021 , we had an accumulated deficit of$307.8 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, commercialization and other expenses related to our ongoing operations and product development, including clinical development activities under our worldwide license and collaboration agreement with Janssen, and, 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
OnMay 26, 2017 , we and Janssen, one of the Janssen Pharmaceutical Companies of Johnson & Johnson, entered into an exclusive license and collaboration agreement for the clinical development, manufacture and potential commercialization of PTG-200 worldwide for the treatment of CD and UC (the "Janssen License and Collaboration Agreement"), which was subsequently amended effectiveMay 7, 2019 (the "First Amendment"). The First Amendment expanded the scope of the Janssen License and Collaboration Agreement by supporting efforts toward identifying and developing second-generation compounds. Janssen is a related party to us asJohnson & Johnson Innovation - JJDC, Inc. , a significant stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. During the third quarter of 2017, we received a non-refundable, upfront cash payment of$50.0 million from Janssen. During the second quarter of 2019, we received a non-refundable cash payment of$25.0 million upon execution of the First Amendment. During the first quarter of 2020, we received a cash payment of$5.0 million upon the successful nomination of a second-generation development 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 withUnited 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 assets and 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. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. 28 Table of Contents Use of Estimates Due to the ongoing COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We have taken into consideration any known COVID-19 impacts in our accounting estimates to date and are not aware of any additional specific events or circumstances that would require any additional updates to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of the date of issuance 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.
Stock-Based Compensation
We recognize compensation costs related to stock options accounted for under Accounting Standards Codification Topic 718 - "Stock Compensation" based on the estimated fair value of the awards on the date of grant. We estimate the fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The estimated fair value of the stock-based awards is generally recognized over the requisite service period, which is generally the vesting period of the respective awards. The Black-Scholes option-pricing model requires the use of subjective assumptions which determine the fair value of stock-based awards. Expected volatility generally requires significant judgement to determine. Prior toJanuary 1, 2020 , our expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. For the year endedDecember 31, 2020 , our expected volatility was estimated based upon a mix of 75% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 25% of the volatility of our own stock price since our initial public offering inAugust 2016 . BeginningJanuary 1, 2021 , our expected volatility is estimated based upon a mix of 50% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 50% of the volatility of our own stock price since our initial public offering inAugust 2016 . These comparable companies are chosen based on their similar size, stage in the life cycle, or area of specialty. We will continue to apply this process until a longer period of historical information regarding the volatility of our own stock price becomes available. InFebruary 2021 , we granted performance share units ("PSUs) to certain of our executives. Stock-based compensation expense associated with PSUs is based on the fair value of our common stock on the grant date, which equals the closing price of our common stock on the grant date. We recognize compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance obligation becomes probable. There have been no other material changes in our critical accounting policies during the three months endedMarch 31, 2021 , 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 on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 10, 2021 .
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
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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 study 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;
? 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.
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The following table summarizes our research and development expenses incurred during the periods indicated:
Three Months Ended March 31,
2021 2020
(Dollars in thousands)Clinical and development expense - rusfertide (PTG-300)$ 10,079 $ 6,806 Clinical and development expense - PN-943 7,724 7,018 Clinical and development expense - PN-235 1,799 - Clinical and development expense - PTG-200 1 885 Clinical and development expense - PTG-100 109 181 Preclinical and drug discovery research expense 5,361 4,283 Grants and tax incentives expense reimbursement, net (828) (405) Total research and development expenses$ 24,245
$ 18,768 We expect our research and development expenses will increase as we progress our product candidates into later stage clinical trials, expand the number of ongoing clinical trials, advance development activities under the Janssen License and Collaboration Agreement, advance our discovery research projects into the pre-clinical stage and continue our early-stage research. The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval 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 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-commercial 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, including expenses related to existing and future compliance with rules and regulations of theSEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations, 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.
Interest Expense
Interest expense consists of interest recognized on borrowings under our term loan facility, which is comprised of contractual interest, amortization of origination fees and other issuance costs, and accretion of final payment fees.
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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
Three Months Ended March 31, Dollar %
2021 2020 Change Change
(Dollars in thousands)License and collaboration revenue - related party $ 6,189 $ 3,647$ 2,542 70 Operating expenses: Research and development (1) 24,245 18,768 5,477 29 General and administrative (2) 5,965
4,576 1,389 30
Total operating expenses 30,210 23,344 6,866 29
Loss from operations (24,021) (19,697) (4,324) 22
Interest income 102 526 (424) (81)
Interest expense - (243) 243 (100)
Other expense, net (79) (490) 411 (84)Loss before income tax expense (23,998)
(19,904) (4,094) 21
Income tax expense - (176) 176 (100)
Net loss $ (23,998) $ (20,080) $ (3,918) 20
(1) Includes
expense for the three months ended
(2) Includes
expense for the three months ended
License and Collaboration Revenue
License and collaboration revenue increased$2.5 million , or 70%, from$3.6 million for the three months endedMarch 31, 2020 to$6.2 million for the three months endedMarch 31, 2021 , which was primarily related to services provided under the Janssen License and Collaboration Agreement recognized based on proportional performance. We have determined that the transaction price of the initial performance obligation under the Janssen License and Collaboration Agreement was$96.3 million as ofMarch 31, 2021 , a decrease of$2.3 million from the transaction price of$98.6 million as ofDecember 31, 2020 . In order to determine the transaction price, we evaluated all payments expected to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen. We determined that the transaction price includes the$50.0 million upfront payment, the$25.0 million payment received upon the effectiveness of the First Amendment, the$5.0 million payment triggered by the successful nomination of a second-generation compound,$17.9 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research costs and other services, and estimated variable consideration consisting of a$7.5 million milestone payment subject to the completion of a Phase 1 study for a second-generation compound, offset by$9.1 million of net cost reimbursement to Janssen for services performed. The decrease in transaction price fromDecember 31, 2020 toMarch 31, 2021 was due primarily to a decrease in the forecast of remaining services to be provided under the initial performance obligation. We re-evaluate the transaction price each reporting period and as uncertain events are resolved or other changes
in
circumstances occur.
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Research and Development Expenses
Th
Three Months Ended March 31, Dollar %
2021 2020 Change Change
(Dollars in thousands)
Clinical and development expense -
rusfertide (PTG-300) $ 10,079 $ 6,806 $ 3,273 48
Clinical and development expense - PN-943 7,724 7,018 706 10
Clinical and development expense - PN-235 1,799 - 1,799 100
Clinical and development expense -
PTG-200 1 885 (884) (100)
Clinical and development expense -
PTG-100 109 181 (72) (40)
Preclinical and drug discovery research
expense 5,361 4,283 1,078 25
Grants and tax incentive expense
reimbursement, net (828)
(405) (423) 104
Total research and development expenses
Research and development expenses increased$5.5 million , or 29%, from$18.8 million for the three months endedMarch 31, 2020 to$24.2 million for the three months endedMarch 31, 2021 . The increase was primarily due to an increase of$3.3 million in rusfertide clinical trial and development costs, including the ongoing Phase 2 trials in PV, which began inDecember 2019 , and HH, which began in early 2020, and clinical and contract manufacturing activities in preparation for a planned global Phase 3 clinical trial of rusfertide in PV;$1.8 million of Phase 1 clinical trial and development costs for PN-235; an increase of$1.1 million in preclinical and drug discovery research expenses, including pre-clinical costs related to our research collaboration efforts with Janssen; and an increase of$0.7 million in PN-943 clinical trial and development costs following the initiation of the Phase 2 trial in UC in 2020. These increases were partially offset by a decrease of$0.9 million in PTG-200 clinical trial and development expenses under the Janssen License and Collaboration Agreement due to our delivery of substantially all agreed-upon services for the PTG-200 Phase 2 clinical trial, and a$0.4 million increase in grant and accrued refundable cash tax incentives.
General and Administrative Expenses
General and administrative expenses increased$1.4 million , or 30%, from$4.6 million for the three months endedMarch 31, 2020 to$6.0 million for the three months endedMarch 31, 2021 primarily due to an increase of$0.6 million in personnel expenses,$0.2 million in recruiting expenses and$0.2 million in market research expenses to support the growth of our operations, and a$0.4 million increase in legal fees due primarily to an arbitration matter with a former research and collaboration partner. The increase in personnel expenses includes$0.3 million in wages and salaries and$0.2 million in stock-based compensation expense.
Interest Income
Interest income decreased$0.4 million , or 81%, from$0.5 million for the three months endedMarch 31, 2020 to$0.1 million for the three months endedMarch 31, 2021 . This decrease was due primarily to the recent record low interest rate environment and a change in the mix of marketable securities compared to the prior year period, despite higher interest-earning asset balances.
Interest Expense
Interest expense decreased$0.2 million , or 100%, from$0.2 million for the three months endedMarch 31, 2020 to zero for the three months endedMarch 31, 2021 . The decrease in interest expense was due to the prepayment of our outstanding long-term debt under our term credit facility during the second quarter of 2020. We had no debt outstanding under our term loan facility as
ofMarch 31, 2021 . Income Tax Expense Income tax expense decreased$0.2 million , or 100%, from$0.2 million for the three months endedMarch 31, 2020 to zero for the three months endedMarch 31, 2021 . Our effective income tax rate was 0% for the three months endedMarch 31, 2021 as compared to (0.9)% for the three months endedMarch 31, 2020 . During the second quarter of 33 Table of Contents 2020, ourAustralia subsidiary sold beneficial rights to discovery intellectual property to ourU.S. entity, and theU.S. entity reimbursed theAustralia subsidiary for certain direct development costs. Upon completion of the sale, we analyzed tax planning strategies and future income and concluded that a valuation allowance is necessary for ourAustralia subsidiary. We maintained a full valuation allowance on our tax position as ofMarch 31, 2021 .
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 payments under collaboration agreements.
InOctober 2019 , we filed a registration statement on Form S-3 (File no. 333-234414) that was declared effective as ofNovember 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 onNovember 27, 2019 (the "2019 Sales Agreement"). InMay 2020 , we completed an underwritten public offering of 7,000,000 shares of common stock at a public offering price of$14.00 per share, and we issued an additional 1,050,000 shares of our common stock at a price of$14.00 per share following the underwriters' exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by us, were$105.3 million . During the year endedDecember 31, 2021 , we issued 2,483,719 shares under our ATM facility for net proceeds of$41.9 million . No shares were issued under the ATM facility during the three months endedMarch 31, 2021 . As ofMarch 31, 2021 , a total of$94.2 million of common stock remained available for sale under the 2019 Form S-3,$31.9 million of which remained available for sale under the ATM financing facility. InDecember 2020 , we filed an automatic registration statement on Form S-3ASR and an accompanying prospectus (Registration Statement No. 333-251254), pursuant to which we completed an underwritten public offering of 4,761,904 shares of common stock at a public offering price of$21.00 per share and issued an additional 714,285 shares of our common stock at a price of$21.00 per share following the underwriters' exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by us, were$107.6 million . This Form S-3ASR expires inDecember 2023 . We have received$80.0 million in non-refundable payments from Janssen since the inception of the Janssen License and Collaboration Agreement in 2017 throughMarch 31, 2021 , as follows:
? Upon effectiveness of the agreement, we received a non-refundable, upfront cash
payment of
Upon effectiveness of the First Amendment, we became eligible to receive a
?
quarter of 2019; and
In
? triggered by the successful nomination of a second-generation development
compound, which was received during the first quarter of 2020.
We also receive payments for services provided under the collaboration agreement
and in-kind reimburses Janssen for certain costs they have incurred based on the
cost sharing terms of the agreement.
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Pursuant to the First Amendment, we will be eligible to receive clinical development, regulatory and sales milestones, if and as achieved, and/or payments relating to Janssen's elections to maintain or expand its license rights. The next possible milestone or opt-in election events based on a Phase 2 clinical trial in CD are as follows:
Janssen can elect to advance PTG-200 into Phase 2b following receipt of the top
? line results of the CD Phase 2a clinical trial for PTG-200 by paying a
million maintenance fee (the "Amended First Opt-in Election"); or
Janssen would make a
? third patient in the first Phase 2b clinical trial for CD for a
second-generation product.
Janssen can also then elect to receive exclusive, worldwide commercial rights for both PTG-200 and second-generation products following the Phase 2b completion date for PTG-200 or a second-generation product by paying a$50.0 million payment (the "Amended Second Opt-in Election"). We will also be eligible for certain additional milestone payments including a potential payment of either$100.0 million upon a Phase 3 CD clinical trial meeting a primary clinical endpoint with respect to PTG-200 or$115.0 million upon a Phase 3 CD clinical trial meeting a primary clinical endpoint with respect to a second-generation compound. We will be eligible to receive a$7.5 million milestone payment at the completion of a Phase 1 study for the first second-generation compound. Pursuant to the First Amendment, we will be eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent. InOctober 2019 , we entered into a credit and security agreement pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal amount of up to$50.0 million , at our option, untilSeptember 30, 2021 .$20.0 million remains available under this term loan facility subject to the satisfaction of certain conditions, including the achievement of certain clinical development milestones. We had no outstanding debt balance as ofMarch 31, 2021 . Additional information about this credit facility is presented in Note 9 to the condensed consolidated financial statements included elsewhere in this report.
Capital Requirements
As ofMarch 31, 2021 , we had$279.7 million of cash, cash equivalents and marketable securities and an accumulated deficit of$307.8 million . Our capital expenditures for the years endedDecember 31, 2020 and 2019 were$0.5 million and$1.0 million , respectively. Our primary uses of cash are to fund operating expenses, primarily our research and development expenditures 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 and access to our term loan facility 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, and we could utilize our available capital resources sooner than we currently expect. If our planned pre-clinical and clinical trials are successful, or our other product candidates enter clinical trials or advance beyond the discovery stage, we will need to raise additional funding. Such additional funding may come from raising additional capital, seeking access to additional 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 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. 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 our pre-clinical studies and
? 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;
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? 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 or other such arrangements that we may enter into, and the timing of
receipt of such payments, if any;
the timing, receipt and amount of royalties under the Janssen License and
? Collaboration Agreement on worldwide net sales of PTG-200, including any
second-generation 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 or 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 (in
thousands):
Three Months Ended March 31,
2021 2020
(In thousands)Cash used in operating activities$ (28,756) $ (15,848) Cash (used in) provided by investing activities (6,793) 42,730 Cash provided by financing activities 979
399
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Cash Flows from Operating Activities
Cash used in operating activities for the three months endedMarch 31, 2021 was$28.8 million , consisting of our net loss of$24.0 million and a net change of$8.4 million in net operating assets and liabilities, partially offset by$3.6 million in non-cash charges. Non-cash charges were primarily comprised of$2.7 million of stock-based compensation,$0.4 million of operating lease right-of-use asset amortization,$0.3 million of net amortization of discount on marketable securities, and$0.2 million of depreciation and amortization. The change in net operating assets and liabilities was primarily due to a decrease of$8.7 million in deferred revenue related to the Janssen License and Collaboration Agreement, an increase of$1.6 million in receivable from collaboration partner, an increase of$0.8 million in research and development tax incentive receivable, a decrease of$0.7 million in accrued expenses and other payables, a decrease of$0.5 million in operating lease liability, and a decrease of$0.3 million in accounts payable, partially offset by an increase of$4.1 million in payable to collaboration partner. Cash used in operating activities for the three months endedMarch 31, 2020 was$15.8 million , consisting of our net loss of$20.1 million , partially offset by$3.3 million in non-cash charges and a net change of$0.9 million in net operating assets. Non-cash charges were primarily comprised of$2.0 million of stock-based compensation, a$0.5 foreign currency measurement loss,$0.4 million of operating lease right-of-use asset amortization,$0.2 million of depreciation and amortization and a$0.2 million change in deferred tax asset, partially offset by$0.2 million of net accretion of discount on marketable securities. The change in net operating assets and liabilities was primarily due to a decrease of$3.2 million in receivable from collaboration partner, an increase of$0.9 million in accounts payable and a decrease of$0.8 million in prepaid expenses and other current assets, partially offset by a decrease of$2.5 million in deferred revenue related to the Janssen License and Collaboration Agreement, a decrease of$0.7 million in accrued expenses and other payables, a decrease of$0.5 million in operating lease liability, an increase of$0.2 million in research and development tax incentive receivable and a decrease of$0.1 million in payable to collaboration partner.
Cash Flows from Investing Activities
Cash used in investing activities for the three months endedMarch 31, 2021 was$6.8 million , consisting of purchases of marketable securities of$87.2 million and purchases of property and equipment of$0.1 million , partially offset by proceeds from maturities of marketable securities of$80.5 million .
Cash provided by investing activities for the three months ended
Cash Flows from Financing Activities
Cash provided by financing activities for the three months endedMarch 31, 2021 was$1.0 million , consisting of$1.3 million from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan, partially offset by$0.2 million tax withholding payments related to net settlement of restricted stock units and$0.1 million of offering costs. Cash provided by financing activities for the three months endedMarch 31, 2020 was$0.4 million , consisting primarily of proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan.
Contractual Obligations and Other Commitments
During the three months endedMarch 31, 2021 , there were no material changes to our contractual obligations and commitments described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with
theSEC onMarch 10, 2021 . 37 Table of Contents
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