10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

or

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

For the transition period from                      to                    

Commission File No. 001-37852

PROTAGONIST THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	98-0505495
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7707 Gateway Boulevard, Suite 140 Newark, California	94560-1160
(Address of registrant’s principal executive offices)	(Zip code)
(510) 474-0170 (Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.00001	PTGX	The Nasdaq Stock Market, LLC

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
		Smaller reporting company	☒
Non-accelerated Filer	☒	Emerging growth company	☐

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

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

As of April 28, 2023, there were 57,251,254 shares of the registrant’s Common Stock, par value $0.00001 per share, outstanding.

PROTAGONIST THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

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		Page
PART I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosure	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
	SIGNATURES	58

PART I. – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	127,686	$	125,744
Marketable securities		103,073		111,611
Receivable from collaboration partner		51		10
Prepaid expenses and other current assets		4,926		5,712
Total current assets		235,736		243,077
Property and equipment, net		1,341		1,565
Restricted cash - noncurrent		225		225
Operating lease right-of-use asset		2,556		3,061
Total assets	$	239,858	$	247,928
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,021	$	3,640
Payable to collaboration partner		22		69
Accrued expenses and other payables		16,587		24,955
Operating lease liability - current		2,599		2,515
Total current liabilities		23,229		31,179
Operating lease liability - noncurrent		462		1,141
Total liabilities		23,691		32,320
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $0.00001 par value, 90,000,000 shares authorized; 51,440,503 and 49,339,252 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		1		—
Additional paid-in capital		786,768		752,722
Accumulated other comprehensive loss		(122)		(359)
Accumulated deficit		(570,480)		(536,755)
Total stockholders’ equity		216,167		215,608
Total liabilities and stockholders’ equity	$	239,858	$	247,928

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended March 31,
	2023		2022
License and collaboration revenue	$	—	$	25,722
Operating expenses:
Research and development		27,416		36,318
General and administrative		8,605		10,515
Total operating expenses		36,021		46,833
Loss from operations		(36,021)		(21,111)
Interest income		2,491		168
Other (expense) income, net		(195)		13
Net loss	$	(33,725)	$	(20,930)
Net loss per share, basic and diluted	$	(0.67)	$	(0.43)
Weighted-average shares used to compute net loss per share, basic and diluted		50,573,650		48,752,548

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2023		2022
Net loss	$	(33,725)	$	(20,930)
Other comprehensive loss:
Gain on translation of foreign operations		194		95
Unrealized gain (loss) on marketable securities		43		(268)
Comprehensive loss	$	(33,488)	$	(21,103)

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

						Accumulated
				Additional		Other				Total
	Common			Paid-In		Comprehensive		Accumulated		Stockholders'
	Stock			Capital		(Loss) Gain		Deficit		Equity
Three months ended March 31, 2023	Shares	Amount
Balance at December 31, 2022	49,339,252	$	—	$	752,722	$	(359)	$	(536,755)	$	215,608
Issuance of common stock pursuant to at-the-market offering, net of issuance costs	1,749,199		1		24,301		—		—		24,302
Issuance of common stock under equity incentive and employee stock purchase plans	358,211		—		2,261		—		—		2,261
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units	(6,159)		—		(100)		—		—		(100)
Stock-based compensation expense	—		—		7,584		—		—		7,584
Other comprehensive gain	—		—		—		237		—		237
Net loss	—		—		—		—		(33,725)		(33,725)
Balance at March 31, 2023	51,440,503	$	1	$	786,768	$	(122)	$	(570,480)	$	216,167

						Accumulated
				Additional		Other				Total
	Common			Paid-In		Comprehensive		Accumulated		Stockholders'
	Stock			Capital		(Loss) Gain		Deficit		Equity
Three months ended March 31, 2022	Shares	Amount
Balance at December 31, 2021	47,838,330	$	—	$	709,682	$	(299)	$	(409,362)	$	300,021
Issuance of common stock pursuant to at-the-market offering, net of issuance costs	422,367		—		14,553		—		—		14,553
Issuance of common stock under equity incentive and employee stock purchase plans	299,131		—		2,558		—		—		2,558
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units	(7,726)		—		(186)		—		—		(186)
Stock-based compensation expense	—		—		5,935		—		—		5,935
Other comprehensive loss	—		—		—		(173)		—		(173)
Net loss	—		—		—		—		(20,930)		(20,930)
Balance at March 31, 2022	48,552,102	$	—	$	732,542	$	(472)	$	(430,292)	$	301,778

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities
Net loss	$	(33,725)	$	(20,930)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		7,584		5,935
Operating lease right-of-use asset amortization		584		584
(Accretion)/amortization of discount/premium on marketable securities		(1,255)		358
Depreciation		248		249
Other		194		—
Changes in operating assets and liabilities:
Receivable from collaboration partner		(41)		(23,584)
Prepaid expenses and other assets		787		1,279
Accounts payable		381		5,559
Payable to collaboration partner		(47)		(519)
Accrued expenses and other payables		(8,383)		(5,110)
Deferred revenue		—		(833)
Operating lease liability		(674)		(654)
Net cash used in operating activities		(34,347)		(37,666)
Cash Flows from Investing Activities
Purchase of marketable securities		(28,060)		(55,832)
Proceeds from maturities of marketable securities		37,896		51,629
Purchases of property and equipment		(10)		(273)
Net cash provided by (used in) investing activities		9,826		(4,476)
Cash Flows from Financing Activities
Proceeds from at-the-market offering, net of issuance costs		24,302		14,553
Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan		2,261		2,558
Tax withholding payments related to net settlement of restricted stock units		(100)		(186)
Net cash provided by financing activities		26,463		16,925
Effect of exchange rate changes on cash, cash equivalents and restricted cash		—		29
Net increase (decrease) in cash, cash equivalents and restricted cash		1,942		(25,188)
Cash, cash equivalents and restricted cash, beginning of period		125,969		123,890
Cash, cash equivalents and restricted cash, end of period	$	127,911	$	98,702
Supplemental Disclosure of Non-Cash Financing and Investing Information:
Purchases of property and equipment in accounts payable and accrued liabilities	$	15	$	235
Issuance costs related to common stock offering included in accrued liabilities and other payables	$	—	$	25

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

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PROTAGONIST THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.Organization and Description of Business

Protagonist Therapeutics, Inc. (the “Company”) is headquartered in Newark, California. The Company is a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as PN-235) in different stages of clinical development, all derived from the Company’s proprietary technology platform. The Company’s clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases. Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is located in Brisbane, Queensland, Australia.

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Executive Officer, the Company’s chief operating decision maker, in deciding how to allocate resources and assessing performance. The Company operates and manages its business as one operating segment. The Company’s Chief Executive Officer reviews financial information on an aggregate basis for the purposes of allocating and evaluating financial performance.

Liquidity

As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of $230.8 million. The Company has incurred net losses from operations since inception and had an accumulated deficit of $570.5 million as of March 31, 2023. The Company’s ultimate success depends upon the outcome of its research and development and collaboration activities. The Company expects to incur additional losses in the future and anticipates the need to raise additional capital to continue to execute its long-range business plan. Since the Company’s initial public offering in August 2016, it has financed its operations primarily through proceeds from offerings of common stock and payments received under license and collaboration agreements.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and emergent variants with increased transmissibility, even in those who are fully vaccinated. The future impact on the Company’s activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments; and new travel and other restrictions and public health measures. The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to the pandemic. The Company’s 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 its operating activities and employees. In addition, a recession or market correction related to or amplified by COVID-19 could materially affect the Company’s business.

The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, including the ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation and recent failures of banking and other financial institutions. In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect the Company’s operating results. In addition, the failure of Silicon Valley Bank and other regional banks in the United States between March and May of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance Corporation. The Company continues to monitor these events and the potential impact on its

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business. Although the Company does not believe that inflation has had a material impact on its financial position or results of operations to date, it may be adversely affected in the future due to global monetary and fiscal policy, macroeconomic factors, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine and other factors, and such factors may lead to increases in the cost of manufacturing for and initiation of studies in the Company’s product candidates.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of March 31, 2023 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

Effective January 1, 2023, the financial statements of Protagonist Australia use the U.S. dollar as the functional currency, which reflects the expected nature of the ongoing operations of this subsidiary. The cumulative translation adjustment as of January 1, 2023 related to this subsidiary was not material. Prior to January 1, 2023, the financial statements of Protagonist Australia used the Australian dollar as the functional currency since the majority of expense transactions occurred in such currency. Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.

Principles of Consolidation

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

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, marketable securities and leases. Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration agreements. Management bases these estimates on historical and anticipated results,

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trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results could differ materially from these estimates.

Due to the prolonged nature of the COVID-19 pandemic, military conflict between Ukraine and Russia, rising tensions between China and Taiwan and inflationary pressures, there has been uncertainty and disruption in the global economy and financial markets. The Company has taken into consideration any known impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the issuance of this report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

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

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

	March 31,
	2023		2022
Cash and cash equivalents	$	127,686	$	98,477
Restricted cash - noncurrent		225		225
Total cash reported on condensed consolidated statements of cash flows	$	127,911	$	98,702

Investment Impairment

As of each reporting date, the Company assesses each of its investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors. Factors considered in determining whether an impairment is credit-related include the extent to which the investment’s fair value is less than its cost basis, declines in published credit ratings, issuer default on interest or principal payments, and declines in the financial condition and near-term prospects of the issuer. Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other income (expense), net. The portion of the impairment that is not credit-related is recorded as a reduction of other comprehensive income (loss), net of applicable taxes.

The Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment. The Company writes off accrued interest as a reduction of interest income when an issuer has defaulted on interest payments due on a security.

Significant Accounting Policies

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

Recently Adopted Accounting Pronouncement

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). The guidance requires measurement and recognition of expected credit losses for financial assets at the time financial assets are initially

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recognized in the financial statements. The measurement of expected credit losses is based on historical credit loss information as well as current and future economic factors. ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of credit loss or other factors. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326): Effective Dates, which delayed the mandatory effective date of ASU 2016-13 for smaller reporting companies. The Company adopted ASU 2016-13 effective January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

Note 3. License and Collaboration Agreement

Agreement Terms

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement (the “Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”), which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and Janssen (the “Original Agreement’), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Prior to January 1, 2023, Janssen was a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc. was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson. Upon the effectiveness of the Original Agreement, the Company received a non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the effectiveness of the First Amendment, the Company received a $25.0 million payment from Janssen in 2019. The Company received a $5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first quarter of 2020 and received a $7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021. The Company received a $25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound during the second quarter of 2022.

The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates. The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly known as PN-235). PTG-200 is an oral IL-23 receptor antagonist that was in Phase 2a development for the treatment of Crohn’s disease (“CD”). During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for the conduct of all future trials, including these anticipated Phase 2 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials.

The Restated Agreement enables Janssen to develop collaboration compounds for multiple indications. Under the Restated Agreement, Janssen is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

Upcoming potential development milestones for second-generation compounds include:

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

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

● $15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication; and

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

Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent. The sales milestone payments in the Original Agreement also remain the same in the Restated Agreement.

Pursuant to both the Original and Restated Agreements, payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities. Janssen bills the Company for its share of the PTG-200 Phase 2a development costs as expenses are incurred by Janssen. Milestone payments are received after the related milestones are achieved.

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

The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier. Upon a termination of the Restated Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Revenue Recognition

The Restated Agreement contains a single performance obligation for the development license; Phase 1 development services for PTG-200, PN-232 and JNJ-2113 (formerly known as PN-235); the Company’s services associated with Phase 2a development for PTG-200 in CD; the initial year of second-generation compound research services; and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and JNJ-2113 through Phase 1. Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and JNJ-2113 beyond Phase 1 are no longer required.

The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and ended upon the completion of Phase 1 clinical trials for PN-232 and JNJ-2113. Final activities related to these trials were completed as of June 30, 2022.

The transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, and increase of $0.2 million from the transaction price of $131.5 million as of March 31, 2022. In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen. The transaction price as of June 30, 2022 included $112.5 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of $8.2 million of development cost reimbursement from Janssen, partially offset by $6.9 million of net cost reimbursement due to Janssen for services performed. The Company concluded that the variable consideration constraint was appropriately reflected in the estimated transaction price as of June 30, 2022, and that the achievement of future milestones was subject to additional development and/or regulatory uncertainty and therefore it was not probable at June 30, 2022 that a material reversal of such revenues would not occur. Janssen also opted in for certain additional services to be performed by the Company that were outside the initial performance obligation. Revenue for these additional services was recognized as these services were performed.

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No license and collaboration revenue was recognized for the three months ended March 31, 2023 because the Company completed its performance obligation under the collaboration as of June 30, 2022. For the three months ended March 31, 2022, the Company recognized license and collaboration revenue of $25.7 million. License and collaboration revenue for the three months ended March 31, 2022 was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

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

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2023	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	10	$	41		—	$	51
Contract liabilities:
Payable to collaboration partner	$	69	$	11		(58)	$	22

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2022	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	1,566	$	25,150	$	(1,566)	$	25,150
Contract liabilities:
Deferred revenue	$	1,601	$	25,658	$	(26,491)	$	768
Payable to collaboration partner	$	899	$	330	$	(849)	$	380

During the three months ended March 31, 2023 and 2022, the Company recognized revenue of zero and $13,000, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period. None of the costs to obtain or fulfill the contract were capitalized.

Note 4. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

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

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

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

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

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

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		—		87,299		—		87,299
Corporate debt securities		—		10,870		—		10,870
U.S. Treasury and agency securities		—		79,783		—		79,783
Total financial assets	$	46,007	$	177,952	$	—	$	223,959

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

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

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

Note 5. Cash Equivalents and Marketable Securities

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

	March 31, 2023
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		87,316		—		(17)		87,299
Corporate debt securities		10,877		5		(12)		10,870
U.S. Treasury and agency securities		79,770		70		(57)		79,783
Total cash equivalents and marketable securities	$	223,970	$	75	$	(86)	$	223,959
Classified as:
Cash equivalents							$	120,886
Marketable securities								103,073
Total cash equivalents and marketable securities							$	223,959

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	December 31, 2022
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	54,292	$	—	$	—	$	54,292
Commercial paper		110,257		—		(30)		110,227
Corporate debt securities		10,756		—		(15)		10,741
U.S. Treasury and agency securities		57,251		27		(36)		57,242
Total cash equivalents and marketable securities	$	232,556	$	27	$	(81)	$	232,502
Classified as:
Cash equivalents							$	120,891
Marketable securities								111,611
Total cash equivalents and marketable securities							$	232,502

Marketable securities of $103.1 million and $111.6 million held at March 31, 2023 and December 31, 2022, respectively, had contractual maturities of less than one year. The Company does not intend to sell its securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity. There were no realized gains or realized losses on marketable securities for the periods presented. The Company evaluated securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors and determined that there were no credit-related losses to be recognized as of March 31, 2023.

Note 6. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

	March 31,		December 31,
	2023		2022
Prepaid clinical and research related expenses	$	1,492	$	2,746
Prepaid insurance		1,401		1,417
Prepaid license		542		489
Other prepaid expenses		1,491		1,018
Other receivable		—		42
Prepaid expenses and other current assets	$	4,926	$	5,712

Property and Equipment, Net

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

	March 31,		December 31,
	2023		2022
Laboratory equipment	$	4,831	$	4,817
Furniture and computer equipment		1,089		1,089
Leasehold improvements		913		913
Total property and equipment		6,833		6,819
Accumulated depreciation		(5,492)		(5,254)
Property and equipment, net	$	1,341	$	1,565

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Accrued Expenses and Other Payables

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

	March 31,		December 31,
	2023		2022
Accrued clinical and research related expenses	$	13,108	$	19,109
Accrued employee related expenses		2,080		4,967
Accrued professional service fees		1,065		464
Other		334		415
Total accrued expenses and other payables	$	16,587	$	24,955

Note 7. Stockholders’ Equity

In August 2022, the Company entered into an Open Market Sale Agreement^SM (the “Sales Agreement”), pursuant to which the Company could offer and sell up to $100.0 million of shares of common stock from time to time in the “at-the-market” offerings (the “2022 ATM Facility”). As of and for the three months ended March 31, 2023, the Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs.

In November 2019, the Company entered into an Open Market Sale Agreement^SM (the “Prior Sales Agreement”), pursuant to which the Company could offer and sell up to $75.0 million of shares of common stock from time to time in the “at-the-market” offerings (the “2019 ATM Facility”). During the year ended December 31, 2022, the Company sold 422,367 shares of its common stock under the 2019 ATM Facility for net proceeds of $14.6 million, after deducting issuance costs. The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement in August 2022.

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering expenses payable by the Company. In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant is exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $15.00 per share. The exercise price and number of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. Under certain circumstances, the Warrants may be exercisable on a “cashless” basis. In connection with the issuance and sale of the common stock and Warrants, the Company granted the Investors certain registration rights with respect to the Warrants and the Warrant Shares. The common stock and warrants are classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and the net proceeds from the transaction were recorded as a credit to additional paid-in capital. As of March 31, 2023, none of the Warrants have been exercised.

Note 8. Equity Plans

Equity Incentive Plan

In July 2016, the Company’s board of directors and stockholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan. The 2016 Plan is administered by the board of directors, or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under

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the 2016 Plan expire no later than ten years from the date of grant. As of March 31, 2023, 892,905 shares were available for issuance under the 2016 Plan.

Inducement Plan

In May 2018, the Company’s board of directors approved the Company’s 2018 Inducement Plan (as subsequently amended, the “2018 Inducement Plan”) is a non-stockholder approved stock plan, under which the Company awards options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2018 Inducement Plan is administered by the board of directors or the Compensation Committee of the board, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under the 2018 Inducement Plan expire no later than ten years from the date of grant. As of March 31, 2023, 574,772 shares were available for issuance under the 2018 Inducement Plan.

Stock Options

Stock option activity under the Company’s equity incentive and inducement plans is set forth below:

		Weighted-		Weighted-
		Average		Average
		Exercise		Remaining	Aggregate
	Options	Price Per		Contractual	Intrinsic
	Outstanding	Share		Life (years)	Value (1)
					(in millions)
Balances at December 31, 2022	6,240,509	$	19.03
Options granted	2,198,750		12.17
Options exercised	(128,722)		13.49
Options forfeited	(148,693)		26.21
Balances at March 31, 2023	8,161,844	$	17.14	7.74	$	63.3
Options exercisable – March 31, 2023	3,935,198	$	16.82	6.23		30.8
Options vested and expected to vest – March 31, 2023	8,161,844	$	17.14	7.74	$	63.3

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on March 31, 2023. The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2023.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the three months ended March 31, 2023 was $10.05 per share.

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Stock Options Valuation Assumptions

The fair value of employee stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended March 31,
	2023	2022
Expected term (in years)	5.27 - 6.02	5.27 - 6.08
Expected volatility	106.3% - 110.1%	97.1% - 98.2%
Risk-free interest rate	3.57% - 3.59%	1.64% - 2.13%
Dividend yield	—	—

In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires judgment to determine.

Expected Term—The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company has limited historical exercise information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.

Expected Volatility—Beginning January 1, 2023, the Company’s expected volatility is estimated based upon the volatility of the Company’s stock price over a period equal to the expected term of the stock option grants. For the year ended December 31, 2022, the Company’s expected volatility was estimated based upon a mix of 25% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 75% of the volatility of the Company’s stock price since its initial public offering in August 2016.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Restricted Stock Units

Restricted stock unit (“RSU”) activity under the Company’s equity incentive plans is set forth below:

		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested RSUs at December 31, 2022	637,436	$	19.29
Granted	396,775		18.57
Vested	(160,884)		15.83
Forfeited	(9,215)		20.86
Unvested RSUs at March 31, 2023	864,112	$	16.26

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Performance Stock Units

As of March 31, 2023 and December 31, 2022, 199,500 unvested performance stock units (“PSUs”) were outstanding under the Company’s equity incentive plans, with a weighted average grant date fair value of $14.59 per share. The terms of the unvested PSUs provide for 100% of shares to be earned based on the achievement of certain pre-determined performance objectives, subject to the participant’s continued employment. The PSUs will vest, if at all, upon certification by the compensation committee of the Board of Directors of the actual achievement of the related performance objectives, subject to specified change of control exceptions.

Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance objectives becomes probable. The total grant date fair value of unvested PSUs outstanding as of March 31, 2023 was $2.9 million. As of March 31, 2023, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of March 31, 2023.

Employee Stock Purchase Plan

The Company’s 2016 Employee Stock Purchase Plan (“2016 ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, eligible employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period. During the three months ended March 31, 2023, a total of 68,605 shares of common stock were issued under the 2016 ESPP, and 1,486,685 shares of common stock remained available for issuance as of March 31, 2023.

Stock-Based Compensation

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

	Three Months Ended March 31,
	2023		2022
Research and development	$	4,582	$	3,326
General and administrative		3,002		2,609
Total stock-based compensation expense	$	7,584	$	5,935

As of March 31, 2023, total unrecognized stock-based compensation expense was approximately $66.8 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

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Note 9. Net Loss per Share

As the Company had net losses for the three months ended March 31, 2023 and 2022, all potential weighted average dilutive common shares were determined to be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss	$	(33,725)	$	(20,930)
Denominator:
Weighted-average shares used to compute net loss per common share, basic and diluted		50,573,650		48,752,548
Net loss per share, basic and diluted	$	(0.67)	$	(0.43)

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

	March 31,
	2023	2022
Options to purchase common stock	8,161,844	6,809,610
Common stock warrants	2,750,000	2,750,000
Restricted stock units	864,112	606,810
Performance stock units	199,500	105,500
ESPP shares	24,998	19,762
Total	12,000,454	10,291,682

Note 10. Subsequent Event

In April 2023, the Company completed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of $20.00 per share and issued an additional 750,000 shares of common stock at a price of $20.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were approximately $107.7 million.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 15, 2023.

Forward-Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,”, “seeks” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the timing of enrollment in our clinical trials, our cash runway, 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, the impact of the COVID-19 pandemic, the military conflict between Ukraine and Russia, rising tensions between China and Taiwan, inflationary pressures, availability of credit and our exposure to banking or other financial institution failures 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, whether as a result of new information, future developments, changes in assumptions or otherwise. “Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc. in the United States and other jurisdictions.

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Overview

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as PN-235) 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

Rusfertide

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 and is wholly owned. 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. Data from our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 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 the blood disorder polycythemia vera (“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. Our rusfertide Phase 2 clinical trials include the following:

● REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019. We completed enrollment of patients in the first quarter of 2022 with a target of approximately 50 patients to be enrolled through the end of the randomization portion of the trial, which was completed during the first quarter of 2023 and will continue in open label extension.

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

At the June 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting, we presented updated interim results for REVIVE and PACIFIC demonstrating the effects of dosing interruption and resumption. Rusfertide dosing interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood

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cells. Rusfertide restart restored therapeutic benefits. Following a brief clinical hold, over 90% of patients in the REVIVE trial provided reconsent and returned to rusfertide treatment after dosing interruption and reinitiation. At the June 2022 European Hematology Association Congress, we presented interim data as of May 2022 showing that rusfertide treatment interruption reverses hematologic gains and re-initiation of treatment restores therapeutic benefits in patients with PV. At the December 2022 American Society of Hematology meeting, we presented data as of October 2022 related to rusfertide, including a subgroup of analyses of the adverse event profile from the REVIVE trial. These preliminary results indicated that 84% of treatment-emergent adverse events (“TEAEs”) were Grade 2 or below. 16% of patients experienced Grade 3 TEAEs and there were no Grade 4 TEAEs.

On March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements versus placebo in the trial’s primary endpoint.

The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial, subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study, followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks. More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were responders compared with placebo (69.2% versus 18.5%, p=0.0003). A study subject was defined as a responder if the subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, only 2 of 26 subjects on rusfertide were phlebotomized.

VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately 250 patients, was initiated in the first quarter of 2022. Significant efforts have been taken toward the goal of full enrollment and a high degree of interest has been observed from physicians and patient communities. We expect enrollment completion in the fourth quarter of 2023.

In keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease indications have been paused. This decision was influenced in part by the enactment of the Inflation Reduction Act (“IRA”) in the United States and includes previously planned trials of rusfertide in the subset of hereditary hemochromatosis patients with chronic arthropathy.

JNJ-2113 (formerly known as PN-235)

Our partnered Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113 is an orally delivered investigational drug that is designed to block biological pathways currently targeted by marketed injectable antibody drugs. Our orally stable peptide approach may offer a targeted therapeutic approach for gastrointestinal (“GI”) and systemic compartments as needed. We believe that, compared to antibody drugs, JNJ-2113 has the potential to provide clinical improvement in an oral medication with increased convenience and compliance and the opportunity for the earlier introduction of targeted oral therapy.

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 inflammatory bowel disease (“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.

During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to advance second-generation product candidate JNJ-2113 (JNJ-77242113) based on its superior

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potency and overall pharmacokinetic and pharmacodynamic profile. A JNJ-2113 Phase 1 trial was completed in the fourth quarter of 2021.

In February 2022, Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed in December 2022. FRONTIER1 was a randomized, multicenter, double-blind, placebo-controlled study that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113 taken orally. The primary endpoint of the study is the proportion of patients achieving PASI-75 (a 75% improvement in skin lesions as measured by the Psoriasis Area and Severity Index) at 16 weeks. In March 2023, we announced positive topline results from the trial. JNJ-2113 achieved the study's primary efficacy endpoint, with a statistically significant greater proportion of patients who received JNJ-2113 achieving PASI-75 responses compared to placebo at Week 16 in all five of the study’s treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo. It is our expectation that JNJ-2113 will progress into a Phase 3 registrational study in plaque psoriasis on the strength of the FRONTIER1 data. Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study would qualify us for milestone payments of $50 million and $115 million, respectively. Data will be presented from various pre-clinical and clinical studies on JNJ-2113 at medical conferences beginning in the second quarter of 2023.

Other Phase 2 studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the treatment of moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023, and FRONTIER 2, a long-term extension study. A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy Chinese adult participants is currently recruiting. Following the completion of Phase 2 studies of JNJ-2113 in plaque psoriasis, we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication. Additional indications may include any or all of psoriatic arthritis, ulcerative colitis (“UC”) and Crohn’s disease (“CD”).

During the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by the completion of data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. We will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the first Phase 2 trial of a second-generation candidate, a $50 million milestone upon dosing of a third patient in a Phase 3 trial for a second-generation compound for any indication, and a $115.0 million milestone payment upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primarily clinical endpoint. We remain eligible for up to approximately $855.0 million in future development and sales milestone payments, in addition to the $112.5 million in nonrefundable payments from Janssen already received as of today. We also remain eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.

PN-943

PN-943 is a wholly owned, investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin antagonist for IBD. 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. Enrollment in IDEAL was completed during the first quarter of 2022. The trial included a 12-week induction period and a 40-week extended treatment period, which have been completed. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

Discovery Platform

Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents. Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to use our peptide technology platform to discover product candidates against targets in disease areas with significant unmet medical needs. For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic,

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which we believe will be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.

Business Update

We are subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and emergent variants with increased transmissibility, even in those who are fully vaccinated. Some of the workforce trends starting during the pandemic have continued to lead to staffing shortages in settings such as clinical trial sites and healthcare offices. The future impact of COVID-19 on our activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants; the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments; and new 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. In addition, a recession or market correction related to or amplified by COVID-19 could materially affect our business.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability, including an ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment and historically high domestic and global inflation. In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results. Also, the failure of Silicon Valley Bank and other regional banks in the United States between March and May of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance Corporation. We continue to monitor these events and the potential impact on our business. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

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 $33.7 million and $20.9 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had an accumulated deficit of $570.5 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant research and development expenses and other expenses related to our ongoing operations, product development, and pre-commercialization activities. As a result, we 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 (the “Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”), which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between us and Janssen (the “Original Agreement’), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Prior to January 1, 2023, Janssen was a related party to us as Johnson & Johnson Innovation - JJDC, Inc. was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson. On July 27,

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2021, we entered into the Restated Agreement (“Restated Agreement”) with Janssen, which amends and restates the Original Agreement, as amended by the First Amendment. 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. In the first quarter of 2020, we received a $5.0 million payment triggered by the successful nomination of a second-generation IL-23R antagonist development compound. In the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by completion of the data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. 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, 2023, 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, 2022 filed with the SEC on March 15, 2023.

Components of Our Results of Operations

License and Collaboration Revenue

Our license and collaboration revenue is derived from payments we receive under the Restated Agreement with Janssen. 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;

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● 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 amount 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 recognize the amounts from grants under government programs as a reduction of research and development expenses when the related research costs are incurred.

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

We expect our research and development expenses to decrease in the near term as we focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program. 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 of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services, and pre-commercialization expenses, including selling and marketing costs. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other administrative supplies. We expect to continue to incur expenses supporting our continued operations as a public company, including expenses related to compliance with the

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rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations expenses, audit fees, professional services and general overhead and administrative costs.

Interest Income

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

Other (Expense) Income, Net

Other (expense) income, 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, 2023 and 2022

	Three Months Ended March 31,				Dollar		%
	2023		2022		Change		Change
	(Dollars in thousands)
License and collaboration revenue	$	—	$	25,722	$	(25,722)	(100)
Operating expenses:
Research and development (1)		27,416		36,318		(8,902)	(25)
General and administrative (2)		8,605		10,515		(1,910)	(18)
Total operating expenses		36,021		46,833		(10,812)	(23)
Loss from operations		(36,021)		(21,111)		(14,910)	71
Interest income		2,491		168		2,323	*
Other (expense) income, net		(195)		13		(208)	*
Net loss	$	(33,725)	$	(20,930)	$	(12,795)	61

*Percentage not meaningful

(1) Includes $4.6 million and $3.3 million of non-cash stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively.

(2) Includes $3.0 million and $2.6 million of non-cash stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $25.7 million, or 100%, from $25.7 million for the three months ended March 31, 2022 to zero for the three months ended March 31, 2023. License and collaboration revenue for the first quarter of 2022 included a $25.0 million milestone payment we earned following the dosing of the third patient in the FRONTIER 1 clinical trial for JNJ-2113. We completed our performance obligation pursuant to the collaboration as of June 30, 2022.

We determined that the transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, an increase of $0.2 million from the transaction price of $131.5 million as of March 31, 2022. 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 June 30, 2022 included $112.5 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of $8.2 million of development cost reimbursement from Janssen, partially offset by $6.9 million of net cost reimbursement due to Janssen for services performed.

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Research and Development Expenses

	Three Months Ended March 31,				Dollar		%
	2023		2022		Change		Change
	(Dollars in thousands)
Clinical and development expense — rusfertide (PTG-300)	$	21,631	$	13,377	$	8,254	62
Clinical and development expense — PN-943		959		15,741		(14,782)	(94)
Clinical and development expense — JNJ-2113 (PN-235)		45		221		(176)	(80)
Clinical and development expense — PN-232		1		68		(67)	(99)
Clinical and development expense — PTG-200		11		(6)		17	(283)
Clinical and development expense — PTG-100		(6)		190		(196)	(103)
Pre-clinical and drug discovery research expense		4,775		6,727		(1,952)	(29)
Total research and development expenses	$	27,416	$	36,318	$	(8,902)	(25)

Research and development expenses decreased $8.9 million, or 25%, from $36.3 million for the three months ended March 31, 2022 to $27.4 million for the three months ended March 31, 2023. The decrease was primarily due to (i) a decrease of $14.8 million in expenses for the PN-943 program where further development work was de-prioritized to optimize and focus resources toward the rusfertide program in PV, and (ii) a decrease of $2.0 million in expenses related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $8.3 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We had 80 and 97 full-time equivalent research and development employees as of March 31, 2023 and 2022, respectively. Research and development personnel-related expenses for the three months ended March 31, 2023 increased by $0.7 million as compared to the three months ended March 31, 2022, including an increase of $1.3 million in stock-based compensation expense partially offset by a decrease of $0.6 million in other personnel-related expenses.

General and Administrative Expenses

General and administrative expenses decreased $1.9 million, or 18%, from $10.5 million for the three months ended March 31, 2022 to $8.6 million for the three months ended March 31, 2023 due primarily to one-time costs incurred during the first quarter of 2022.

We had 23 and 25 full-time equivalent general and administrative employees as of March 31, 2023 and 2022, respectively.

Interest Income

Interest income increased $2.3 million from $0.2 million for the three months ended March 31, 2022 to $2.5 million for the three months ended March 31, 2023. 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 August 2022, we entered into an Open Market Sale Agreement^SM (the “Sales Agreement”), pursuant to which we could offer and sell up to $100.0 million of shares of our common stock from time to time in the “at-the-market” offerings (the “2022 ATM Facility”). As of and for the three months ended March 31, 2023, we sold 1,749,199

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shares of our common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs.

In November 2019, we entered into an Open Market Sale Agreement^SM (the “Prior Sales Agreement”), pursuant to which we could offer and sell up to $75.0 million of shares of our common stock from time to time in the “at-the-market” offerings (the “2019 ATM Facility”). During the year ended December 31, 2022, we sold 422,367 shares of our common stock under the 2019 ATM Facility for net proceeds of $14.6 million, after deducting issuance costs. The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement in August 2022.

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

● Upon effectiveness of the Original 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 JNJ-2113 (formerly known as 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 JNJ-2113 in moderate-to-severe plaque psoriasis during the first quarter of 2022, which was received during the second quarter of 2022.

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

Pursuant to the Restated Agreement, we may be eligible to receive clinical development, regulatory and sales milestones, if and when achieved. Upcoming potential development milestones for second-generation products include:

● $10.0 million upon the 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 payment received during the second quarter of 2022 described above);

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

● $15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication; and

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

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Capital Requirements

As of March 31, 2023, we had $230.8 million of cash, cash equivalents and marketable securities and an accumulated deficit of $570.5 million. Our capital expenditures for the three months ended March 31, 2023 were $10,000. Our capital expenditures for the years ended December 31, 2022 and 2021 were $0.8 million and $1.1 million, respectively. Our primary uses of cash are to fund our operating expenses, primarily related to our research and development expenditures, general and administrative costs and pre-commercialization costs. Cash used to operating activities is impacted by the timing of when we pay these expenses. As of the date of this filing, we believe, based on our current operating plan and assumptions, 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. 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, for instance, our planned pre-clinical and clinical trials are successful or expanded, our product candidates enter new and more advanced stages of clinical development, we experience significant delays or difficulties in commencing, enrolling or completing clinical studies, our newer product clinical trials advance beyond the discovery stage or various other factors. We expect that our cash burn will be lower in 2023 due to our research and development expenses decreasing in the near term as we continue to focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

We anticipate that we will need to raise substantial additional funding to advance rusfertide through clinical development and toward potential regulatory approval and to develop, acquire, or in-license other potential product candidates. Our future funding requirements 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 our 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 costs 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 Restated 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 Restated 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 discoveries of product candidates;

● the time and costs necessary to respond to technological and market developments;

● the extent to which we may acquire or in-license other product candidates and technologies;

● the costs necessary to attract, hire and retain qualified personnel;

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● 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.

Such additional funding may come from various sources, including raising additional capital, seeking access to debt, and seeking additional collaborative or other arrangements with partners, but such funding may not be available on terms acceptable to us, if at all. As discussed in Part II, Item1A. “Risk Factors”, we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability and banking and other financial institution failures, among other factors. A future recession or market correction related to COVID-19 or due to other factors, including significant geopolitical or macroeconomic events, could materially affect our business and our access to credit and financial markets.

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 could be diluted, and the terms of these securities could include liquidation or other preferences that could adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we could 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. For additional information, see Part II, Item 1A. “Risk Factors” – “Risks Related to our Financial Position and Capital Requirements”.

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

	Three Months Ended March 31,
Condensed Consolidated Statements of Cash Flows Data:	2023		2022
	(Dollars in thousands)
Cash used in operating activities	$	(34,347)	$	(37,666)
Cash provided by (used in) investing activities	$	9,826	$	(4,476)
Cash provided by financing activities	$	26,463	$	16,925
Stock-based compensation	$	7,584	$	5,935

Cash Used in Operating Activities

Cash used in operating activities for the three months ended March 31, 2023 was $34.3 million, consisting primarily of our net loss of $33.7 million and a net change of $8.0 million in net operating assets and liabilities, partially offset by certain non-cash items, including $7.6 million of stock-based compensation expense. The $3.3 million decrease in cash flow used in operating activities during the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily due to a $15.9 million net change in operating assets and liabilities and a $1.6 million increase in stock-based compensation expense, partially offset by a $12.8 million increase in our net loss.

Cash Provided by (Used in) Investing Activities

Cash provided by investing activities for the three months ended March 31, 2023 was $9.8 million, consisting of proceeds from maturities of marketable securities of $37.9 million, partially offset by purchases of marketable securities of $28.1 million. The $14.3 million increase in cash provided by investing activities for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily related to a decrease of $27.8 million in purchases of marketable securities, partially offset by a $13.7 million decrease in proceeds from maturities of marketable securities.

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Cash Provided by Financing Activities

Cash provided by financing activities for the three months ended March 31, 2023 was $26.5 million, consisting primarily of net cash proceeds from sales of $24.3 million under the 2022 ATM Facility and proceeds from the issuance of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase plan of $2.3 million. The $9.5 million increase in cash provided by financing activities for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily due to a $9.7 million increase in net cash proceeds from ATM sales.

Contractual Obligations and Other Commitments

During the three months ended March 31, 2023, there were no material changes to our material cash requirements, including commitments for capital expenditures, 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 ended December 31, 2022 filed with the SEC on March 15, 2023.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities related to our interest-earning investments and inflation risk affecting labor costs and clinical trial costs.

Interest Rate Fluctuation Risk

We had $230.8 million and $237.4 million in cash, cash equivalents and marketable securities at March 31, 2023 and December 31, 2022, respectively. Our cash and cash equivalents consist of cash, money market funds, commercial paper and government bonds. Marketable securities consist of corporate bonds, commercial paper and government bonds. A portion of our investments are interest-bearing instruments carrying a degree of interest rate risk. However, because our investments are of high-quality credit rating and short term in duration, we believe that our exposure to interest rate risk is not significant and that a hypothetical 100 basis point change in interest rates would not have a significant impact on the total value of our portfolio.

Approximately $1.9 million and $2.5 million of our cash balance was located in Australia at March 31, 2023 and December 31, 2022, respectively. Our expenses, except those related to our Australian operations, are generally denominated in U.S. dollars. For our operations in Australia, the majority of our expenses are denominated in Australian dollars. To date, we have not had a formal hedging program with respect to foreign currency, but we may do so in the future if our exposure to foreign currency becomes more significant. A 10% increase or decrease in current exchange rates would not have a material effect on our results of operations.

Inflation Fluctuation Risk

The inflationary environment has fluctuated over the period covered by this report. Inflation generally affects us by increasing our costs, such as the cost of labor and research and development contract costs. We do not believe inflation has had a material effect on our results of operations during the three months ended March 31, 2023.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, under the supervision and with the participation of our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of our disclosure controls and procedures, our Chief

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Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

From time to time, we may become subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.

ITEM 1A.RISK FACTORS

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. Our business faces significant risks and the risks described below may not be the only risks we face. If any of these risks occur, our business, results of operations or financial condition could suffer, and the market price of our common stock could decline.

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Item 1A. Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC, before making an investment decision regarding our common stock.

● We have no approved products and no historical commercial revenue, which makes it difficult to assess our future prospects and financial results.

● We are heavily dependent on the success of our product candidates in clinical development.

● Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage of clinical development.

● Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial opportunity, including being required by an independent data monitoring committee or

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regulatory authorities to, delay or halt or clinical trials, or if such side effects or adverse events are sufficiently severe or prevalent, order us to suspend or cease altogether further development of our product candidates.

● We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

● We have never generated any revenue from product sales and may never be profitable.

● We expect to require substantial additional funding.

● Raising additional capital may cause dilution to our existing stockholders.

● We rely on Janssen to continue the development of product candidates subject to our license and collaboration with Janssen, and to successfully commercialize any resulting products.

● Our existing or future collaborations with third parties may not be successful.

● We rely on third parties to conduct our pre-clinical studies and clinical trials and are subject to risks associated with their businesses and performance of their obligations to us.

● We rely on third-party contract manufacturers to manufacture our drug substance and clinical drug product.

● If we are ultimately unable to obtain regulatory approval for our product candidates in the United States or other jurisdictions, our business will be substantially harmed.

● We have no marketing and sales organization and may not be able to effectively market and sell any products or generate product revenue if any of our product candidates are approved for marketing.

● If we commercialize our product candidates abroad, we will be subject to the risks of doing business outside of the United States.

● We face significant competition from other biotechnology and pharmaceutical companies.

● We face risks to our business arising from the COVID-19 pandemic, including risks to our ongoing and planned clinical trials and pre-clinical and discovery research.

● Unstable market and economic conditions, including elevated and sustained inflation, may have serious adverse consequences on our business, financial condition and stock price.

● Our success depends on our ability to attract, retain and motivate qualified executives and other personnel.

● We may experience difficulties in managing the growth of our organization.

● We are subject to risks associated with information technology systems or breaches of data security.

● Any misconduct by our employees, independent contractors, principal investigators, consultants and vendors could have a material adverse effect on our business.

● Our headquarters is located near known earthquake fault zones.

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● If we are unable to obtain or protect intellectual property rights related to our product candidates and technologies, we may not be able to compete effectively in our markets.

● We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and ultimately unsuccessful.

● Patents covering our product candidates could be found invalid or unenforceable.

● Third party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.

● Our stock price has been and will likely continue to be volatile and may decline, regardless of our operating performance.

Risks Related to Clinical Development

We are a biopharmaceutical company with no approved products and no historical commercial revenue, which makes it difficult to assess our future prospects and financial results.

We are a biopharmaceutical company with a somewhat limited operating history as a publicly traded company. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing our technology, undertaking pre-clinical studies and clinical trials of our pipeline candidates and conducting research to identify additional product candidates. We have not yet successfully developed an approved product or generated revenue from product sales or successfully conducted a pivotal registration trial for one of our product candidates. Consequently, the ability to accurately assess our future operating results or business prospects is significantly more limited than if we had a longer operating history or approved products on the market.

We expect that our financial condition and operating results will fluctuate significantly from period to period due to a variety of factors, many of which are beyond our control, including the success of our programs, decisions by regulatory bodies, actions taken by competitors or current or future licensees or collaborative partners, market conditions and other factors identified in these risk factors. Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with a clinical-stage biopharmaceutical company, many of which are outside of our control, and past results, including operating or financial results, should not be relied on as an indication of future results.

We are heavily dependent on the success of our product candidates in clinical development, and if any of these products fail to receive regulatory approval or are not successfully commercialized, our business would be adversely affected.

We currently have no product candidates that are approved for commercial sale, and we may never develop a marketable product. We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to our current product candidates and the development of other product candidates. We cannot be certain that our product candidates will receive regulatory approval or, if approved, be successfully commercialized. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of our product candidates will be subject to extensive regulation by the U.S. Food and Drug Administration (“FDA”) and other regulatory authorities in the United States and other countries. In addition, even if approved, our pricing and reimbursement will be subject to further review and discussions with payors. We are not permitted to market any product candidate in the United States until after approval of a new drug application (“NDA”) from the FDA, or in any foreign countries until approval by corresponding regulatory authorities. We will need to successfully conduct and complete large, extensive clinical trials in the target patient populations to support a potential application for regulatory approval by the FDA or corresponding regulatory authorities. Those trials, such as our ongoing VERIFY Phase 3 trial evaluating rusfertide for the treatment of

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PV or subsequent late-stage product candidates, may not demonstrate the safety and efficacy of our product candidates to support a marketing approval in the United States or other jurisdictions.

Our product candidates require additional clinical development, regulatory approval and secure sources of commercial manufacturing supply prior to commercialization. We cannot assure you that our clinical trials for our product candidates will be initiated or completed in a timely manner or successfully, or at all. Further we cannot be certain that we plan to advance any other product candidates into clinical trials. Moreover, any delay or setback in the development of any product candidate would be expected to adversely affect our business and cause our stock price to fall. For example, our stock price dropped significantly in September 2021 following the announcement of a full clinical hold imposed by the FDA on our rusfertide clinical studies. Our stock price also dropped significantly in April 2022 following the announcement of our voluntary withdrawal of Breakthrough Therapy Designation for rusfertide, and the announcement of topline data from our Phase 2 clinical trial evaluating PN-943 in UC.

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical development process. The results of pre-clinical studies and early clinical trials of our product candidates and studies and trials of other products may not be predictive of the results of later-stage clinical trials. Any hypothesis formed from pre-clinical or early clinical observations for any of our product candidates may prove to be incorrect, and the data generated in animal models or observed in limited patient populations may be of limited value and may not be applicable in clinical trials conducted under the controlled conditions required by applicable regulatory requirements.

In addition to our planned pre-clinical studies and clinical trials, we will be required to complete one or more large scale, well-controlled clinical trials to demonstrate substantial evidence of efficacy and safety for each product candidate we intend to commercialize. Further, given the patient populations for which we are developing therapeutics, we expect to have to evaluate long-term exposure to establish the safety of our therapeutics in a chronic-dose setting. We have not yet completed a Phase 3 clinical trial or submitted an NDA. As a result, we have no corporate history or track record of successfully completing these phases of the development cycle. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. Clinical trial failures may result from a multitude of factors including, but not limited to, flaws in trial design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety and/or efficacy traits of the product candidate. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies.

We may experience delays in ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. For example, we initially experienced slower than expected patient enrollment in VERIFY, a global Phase 3 clinical trial of rusfertide in PV. Clinical trials can be delayed for a variety of reasons, including if a clinical trial is modified, suspended or terminated by us. For example, in keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in other indications have been paused. Clinical trials can also be delayed by the institutional review boards or ethics committees of the institutions in which such clinical trials are being conducted, by a Data Safety Monitoring Board, for such trial or by the FDA or other regulatory authorities. Such authorities may impose a modification, suspension or termination due to a number of factors.

For example, our rusfertide clinical studies were subject to a three-week clinical hold by the FDA beginning in September 2021. The clinical hold was triggered by a non-clinical finding in a 26-week rasH2 transgenic mouse model indicating benign and malignant subcutaneous skin tumors. Also, in April 2022, the FDA indicated that it intended to rescind Breakthrough Therapy Designation for rusfertide in PV. For additional information, see the risk factor entitled “Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial opportunity” below.

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In addition, there are a significant number of global clinical trials in hematologic disorders that are currently ongoing, especially in Phases 2 and 3, making it highly competitive and challenging to recruit subjects. Additionally, other companies targeting the same patient populations as our clinical trials for such medicines may make it more difficult for us to complete enrollment in our clinical trials. Furthermore, any negative results we may report in clinical trials of our product candidate may make it difficult or impossible to recruit and retain patients in other ongoing or subsequent clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both. In addition, we are subject to risks and uncertainties as a result of the ongoing military conflict in Ukraine and Russia. For example, in 2022 we closed down clinical trial sites in Russia and Ukraine at which a limited number of subjects were enrolled in our PN-943 Phase 2 IDEAL trial.

If we experience material delays in the completion of any clinical trial, the reduction in remaining patent term would harm the commercial prospects for that product candidate and our ability to generate product revenue from any of these product candidates will be delayed. Any of these occurrences may harm our business, financial condition and prospects significantly.

If we are unable to discover and develop new product candidates, our business will be adversely affected.

As part of our strategy, we seek to discover and develop new product candidates. Research programs to identify appropriate biological targets, pathways and product candidates require substantial scientific, technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates yet fail to yield product candidates for clinical development for many reasons.

Our proprietary peptide platform may not result in any products of commercial value.

We have developed a proprietary peptide technology platform to enable the identification, testing, design and development of new product candidates. Our peptide platform may not yield additional product candidates that enter clinical development and, ultimately, become commercially valuable. Although we expect to continue to enhance the capabilities of our platform by developing and integrating existing and new research technologies, our enhancement and development efforts may not succeed. As a result, we may not be able to advance our drug discovery capabilities as quickly as we expect or identify as many potential drug candidates as we desire.

Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial opportunity.

If undesirable side effects or adverse events are caused by our product candidates or by other companies’ similar approved drugs or product candidates, then we may elect to, or be required by an independent data monitoring committee or regulatory authorities to, delay or halt our clinical trials. If such side effects or adverse events are sufficiently severe or prevalent, the FDA or comparable foreign regulatory authorities could order us to suspend or cease altogether further development of our product candidates. Even if our product candidates are approved, side effects or adverse events could result in significant delay in or denial of, regulatory approval, restrictive labeling, or potential product liability claims. Moreover, for our product candidates that are in development for indications for which injectable antibody drugs have been approved, clinical trials for those product candidates may need to show a risk/benefit profile that is competitive with those existing products in order to obtain regulatory approval or, if approved, a product label that is favorable for commercialization.

For example, on September 16, 2021 our clinical studies for rusfertide were placed on a full clinical hold by the FDA. On October 8, 2021, the FDA lifted the full clinical hold and dosing in all clinical studies of rusfertide could be resumed after we provided the FDA with all requested information as the basis for a Complete Response and subsequent removal of the clinical hold. In particular, we provided the requested individual patient clinical safety reports, updated the investigator brochure and patient informed consent forms, performed a comprehensive review of the most recent safety database, and included new safety and stopping rules in the study protocols. The clinical hold was initially triggered by a non-clinical finding in a 26-week rasH2 transgenic mouse model indicating benign and

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malignant subcutaneous skin tumors. The rasH2 signal also prompted a re-examination of the four cases of cancer observed across all rusfertide clinical trials involving over 160 patients, and a comprehensive review of the safety database, including cases of suspected unexpected serious adverse reactions.

We have focused our limited resources to pursue particular product candidates and indications, and consequently, we may fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we have historically focused on research programs and product candidates mainly on the development of rusfertide, the product candidates subject to our Janssen collaboration and, through early 2022, PN-943. Going forward, we have no plans to devote further resources to PN-943 as part of our ongoing commitment to optimize and focus resources toward our rusfertide program in PV. In addition, in keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease indications have been paused. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration partnerships, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

Risks Related to our Financial Position and Capital Requirements

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

We have incurred significant operating losses every year since inception and expect to continue to incur operating losses for the foreseeable future. As of March 31, 2023, we had an accumulated deficit of $570.5 million. We expect to continue to incur significant research, development and other expenses related to our ongoing operations and product development. As a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approvals for, our product candidates.

We do not anticipate generating revenue from sales of products for a number of years, if ever, and we have not yet successfully completed registrational or pivotal clinical trials for our product candidates. If any of our product candidates fail in clinical trials or do not gain regulatory approval or fail to achieve market acceptance, we may never become profitable. Revenue we generate from our collaboration with Janssen, and any future collaboration arrangements may not be sufficient to sustain our operations. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.

We expect to require substantial additional funding, which may not be available to us on acceptable terms, or at all.

Our operations have consumed substantial amounts of cash since inception. Developing pharmaceutical product candidates, including conducting pre-clinical studies and clinical trials, is expensive. We expect to require substantial additional future capital in order to complete clinical development and, if we are successful, to commercialize any of our current product candidates. Further, in the event that the Restated Agreement with Janssen is terminated, we may not receive any additional fees or milestone payments under that agreement. Absent the funding support obtained under the Restated Agreement, our further development of the collaboration product candidates would require significant additional capital from us, or the establishment of alternative collaborations with third parties, which may not be possible.

As of March 31, 2023, we had cash, cash equivalents and marketable securities of $230.8 million. Based upon our current operating plan and expected expenditures, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months. However, we expect that

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we will need to have access to substantial additional funds in the future in order to complete clinical development or commercialize our product candidates to a point where our operations generate net cash inflows.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates or technologies.

We may seek additional funding through a combination of equity offerings, including the use of the 2022 ATM facility, debt financings, collaborations and/or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. Our ability to raise additional capital may be adversely impacted by adverse economic conditions and market volatility. The incurrence of indebtedness and/or the issuance of certain equity securities could result in fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur debt and/or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to decline. In the event that we enter into additional collaborations and/or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to our proprietary technology platform or product candidates. To the extent that we raise additional capital through the sale of equity securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

Risks Related to our Reliance on Third Parties

If Janssen does not elect to continue the development of JNJ-2113 (formerly known as PN-235), our business and business prospects would be adversely affected.

JNJ-2113, the product candidate in development pursuant to our Janssen collaboration, may prove to have undesirable or unintended side effects or other characteristics adversely affecting its safety, efficacy or cost effectiveness that could prevent or limit its approval for marketing and successful commercial use, or that could delay or prevent the commencement and/or completion of clinical trials. Under the terms of the Restated Agreement with Janssen, Janssen may terminate the agreement for convenience and without cause on written notice of a certain period. In addition, prior to any termination of the agreement, Janssen will generally have control over the further clinical development of JNJ-2113 and any other licensed compounds. Janssen’s decisions with respect to such development will affect the timing and availability of potential future payments under the agreement, if any. For example, 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 in favor of JNJ-2113. If the Restated Agreement with Janssen is terminated early, or if Janssen’s development activities are terminated early or suspended for an extended period of time, or are otherwise unsuccessful, our business and business prospects would be materially and adversely affected.

We may have disagreements with Janssen during the term of the Janssen License and Collaboration Agreement, and if they are not settled amicably or in the favor of Protagonist, the result may harm our business.

We are subject to the risk of possible disagreements with Janssen regarding the development of JNJ-2113 or other matters under the Restated Agreement with Janssen, such as the interpretation of the agreement or ownership of proprietary rights. Also, because the period of collaborative development under the agreement has ended, Janssen has sole decision-making authority for product candidates resulting from the collaboration, which could lead to disputes with Janssen. Disagreements with Janssen could lead to litigation or arbitration, which would be expensive and would be time-consuming for our management and employees.

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We may not be successful in obtaining or maintaining development and commercialization collaborations, any collaboration arrangements we enter into in the future may not be successful.

Other than our Restated Agreement with Janssen, we have no active collaborations for any of our product candidates. Even if we establish other collaboration arrangements, any such collaboration may not ultimately be successful, which could have a negative impact on our business, results of operations, financial condition and growth prospects. If we enter into collaborations limited to certain territories, we may not maintain significant rights or control of future development and commercialization of any product candidate subject to the collaboration and potential disputes could develop in the future over the terms of the collaboration and the respective rights of the parties.

If our strategic collaborations do not result in the successful development and commercialization of product candidates or if one of our collaborators fails to act under the collaboration agreement or terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the applicable collaboration agreement. In addition, if a collaboration is terminated, it may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual obligations or do not meet regulatory requirements or expected deadlines, we may not be able to obtain timely regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party contract research organizations (“CROs”) to execute, monitor and manage clinical trials and collect data for our pre-clinical studies and clinical programs. We control only certain aspects of their activities. We and our CROs are required to comply with GCPs, which are regulations and guidelines promulgated by the FDA, the European Medicines Agency (“EMA”) and comparable foreign regulatory authorities for all of our product candidates in clinical development. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may not accept the data or require us to perform additional clinical trials before considering our filing for regulatory approval or approving our marketing application. In addition, significant portions of the clinical studies for our product candidates are expected to be conducted outside of the United States, which will make it more difficult for us to monitor CROs and perform visits of our clinical trial sites (particularly during the ongoing pandemic) and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials and compliance with applicable regulations, including GCPs.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

We face a variety of manufacturing risks and rely on third parties to manufacture our drug substance and clinical drug product and we intend to rely on third parties to produce commercial supplies of any approved product candidate.

We rely on contract manufacturers to manufacture and provide product for us that meets applicable regulatory requirements. We do not currently have, nor do we plan to develop, the infrastructure or capability internally to manufacture our drug supplies and we expect to continue to depend on contract manufacturers for the foreseeable future. As we proceed with the development and potential commercialization of our product candidates, we will need to increase the scale at which the drug is manufactured which will require the development of new manufacturing processes to potentially reduce the cost of goods. We will rely on our internal process research and development efforts and those of contract manufacturers to develop the good manufacturing processes (“GMPs”) required for cost-effective,

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large-scale production. If we and our contract manufacturers are not successful in converting to commercial-scale manufacturing, then our product costs may not be competitive and the development and/or commercialization of our product candidates would be materially and adversely affected. Moreover, our contract manufacturers are the sole source of supply for our clinical product candidates. If we were to experience an unexpected loss of supply for any reason, whether as a result of manufacturing, supply or storage issues, natural disasters, the COVID-19 pandemic or otherwise, we could experience delays, disruptions, suspensions or termination of our clinical trial and planned development program, or be required to restart or repeat, any ongoing clinical trials.

We also rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that our vendors use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if approved, for commercial sale. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a contract manufacturer or other third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates.

Risks Related to Regulatory Approval

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy and time consuming, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

Our business is substantially dependent on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize our product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, the EMA or any other foreign regulatory authority, and we may never receive such regulatory approval for any of our product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is difficult to predict, typically takes many years following the commencement of clinical trials and depends upon numerous factors. Approval policies, regulations and the types and amount of clinical and manufacturing data necessary to gain approval may change during the course of clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we have in development or may seek to develop in the future will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

● the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, or our interpretation of the data submitted in support of regulatory approval:

● we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication or that a product candidate’s clinical and other benefits outweigh its safety risks;

● the results of clinical trials may fail to achieve the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

● the data collected from pre-clinical studies and clinical trials of our product candidates may not be sufficient to support the submission of an NDA, supplemental NDA, or other regulatory submissions necessary to obtain regulatory approval;

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● we or our contractors may not meet the GMP and other applicable requirements for manufacturing processes, procedures, documentation and facilities necessary for approval by the FDA or comparable foreign regulatory authorities; and

● changes to the approval policies or regulations of the FDA or comparable foreign regulatory authorities with respect to our product candidates may result in our clinical data becoming insufficient for approval.

In addition, even if we were to obtain regulatory approval, regulatory authorities may approve our product candidates for fewer or more limited indications than what we requested approval for, may include safety warnings or other restrictions that may negatively impact the commercial viability of our product candidates, including the potential for a favorable price or reimbursement at a level that we would otherwise intend to charge for our products. Likewise, regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials or the conduct of an expensive risk-evaluation and mitigation system, which could significantly reduce the potential for commercial success or viability of our product candidates. Any of the foregoing possibilities could materially harm the prospects for our product candidates and business and operations.

We may fail to obtain orphan drug designations from the FDA and/or the EMA for our product candidates, as applicable, and even if we obtain such designations, we may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

Our strategy includes filing for orphan drug designation where available for our product candidates. Rusfertide has received orphan drug designation for the treatment of patients with PV from the FDA and the EMA. Despite this designation, we may be unable to maintain the benefits associated with orphan drug status, including market exclusivity. We may not be the first to obtain regulatory approval of a product candidate for a given orphan-designated indication. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet patient needs. Further, even if we obtain orphan drug designation exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may receive and be approved for the same condition, and only the first applicant to receive approval for a given active ingredient will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care.

Risks Related to Commercialization of our Product Candidates

We currently have no marketing and sales organization. To the extent any of our product candidates for which we maintain commercial rights is approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell any products or generate product revenue.

We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any of our product candidates that receive marketing approval, we will have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. In the event of successful development of any of our product candidates, we may elect to build a targeted specialty sales force which will be expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. With respect to our product candidates, we may choose to partner with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems, and in the case of the Restated Agreement with Janssen, we may elect to exercise our Co-Detailing Option (allows us to elect to provide up to 30% of the selling effort in the United States for any IL-23R antagonist compounds approved for commercial sale), which would require us to establish a U.S. sales team. If we are not

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successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare therapies, which could result in reduced demand for us.

Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

We currently conduct, and intend to continue to conduct, a substantial portion of the clinical trials for our product candidates outside of the United States. If approved, we may commercialize our product candidates abroad. We will thus be subject to the risks of doing business outside of the United States.

We currently conduct, and intend to continue to conduct, a substantial portion of our clinical trials outside of the United States and, if approved, we intend to also market our product candidates outside of the United States. We are thus subject to risks associated with doing business outside of the United States. Our business and financial results in the future could be adversely affected due to a variety of factors associated with conducting development and marketing of our product candidates, if approved, outside of the United States, including varying medical standards and practices, geopolitical risks, uncertainty around intellectual property protection, and regulatory risks, such as compliance with the Foreign Corrupt Practices Act. If we are unable to anticipate and address these risks properly, our business and financial results will be harmed.

We may fail or elect not to commercialize our product candidates, even if approved.

We cannot be sure that, if our clinical trials for any of our product candidates are successfully completed, we will be able to submit an NDA to the FDA or that any NDA we submit will be approved by the FDA in a timely manner, if at all. After completing clinical trials for a product candidate in humans, a drug dossier is prepared and submitted to the FDA as an NDA, and includes all pre-clinical studies and clinical trial data relevant to the safety and effectiveness of the product at the suggested dose and duration of use for the proposed indication as well as manufacturing information, in order to allow the FDA to review such drug dossier and to consider a product candidate for approval for commercialization in the United States. If we are unable to submit an NDA with respect to any of our current product candidates, if any NDA we submit is not approved by the FDA, or we elect not to file an NDA, or if we are unable to obtain any required state and local distribution licenses or similar authorizations, we will be unable to commercialize that product. The FDA can and does reject NDAs and require additional clinical trials, even when product candidates achieve favorable results in Phase 3 clinical trials. Also, we may be subject to pricing pressures from competitive products that could make it difficult or impossible for us to commercialize the product candidate successfully. If we fail to commercialize any of our product candidates, our business, financial condition, results of operations and prospects may be materially and adversely affected.

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The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors and others in the medical community.

We or our collaboration partners in any potential commercial launch of our product candidates may not be successful in achieving widespread patient or physician awareness or acceptance of such product candidate. Even though we expect that our product candidate will be priced responsibly, if approved, there is no guarantee that it or any other product that we bring to the market directly or through a strategic partner will gain market acceptance by physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of any of our product candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

● the safety and efficacy of the product in clinical trials, and potential advantages over competing treatments;

● the publication of unfavorable safety or efficacy data concerning our product by third parties;

● the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;

● the clinical indications for which approval is granted;

● recognition and acceptance of our product candidates over our competitors’ products;

● prevalence of the disease or condition for which the product is approved;

● the cost of treatment, particularly in relation to competing treatments;

● the willingness of the target patient population to try our therapies and of physicians to prescribe these therapies;

● the strength of marketing and distribution support and timing of market introduction of competitive products;

● the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

● publicity concerning our products or competing products and treatments;

● the extent to which third-party payors provide coverage and adequate reimbursement for the product candidate, or any other product candidates we may pursue, if approved;

● our ability to maintain compliance with regulatory requirements; and

● labeling or naming imposed by FDA or other regulatory agencies.

Even if a product candidate we may develop in the future displays an equivalent or more favorable efficacy and safety profile in pre-clinical and clinical trials, market acceptance of the product candidate will not be fully known until after it is launched and may be negatively affected by a potential poor safety experience and the track record of other product candidates. Our efforts, or those of any strategic licensing or collaboration partner, to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, may be under-resourced compared to large well-funded pharmaceutical entities and may never be successful. If ay product candidates we may develop in the future are approved but fail to achieve an adequate level of acceptance by physicians,

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patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to become or remain profitable.

Risks Related to our Business and Industry

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors worldwide, including major multinational pharmaceutical companies, biotechnology companies, specialty pharmaceutical and generic pharmaceutical companies as well as universities and other research institutions.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, and experienced marketing and manufacturing organizations. As a result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of newer technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, pharmaceutical products that are easier to develop, more effective or less costly than any product candidates that we are currently developing or that we may develop. If approved, our product candidates are expected to face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.

Pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate advantages in efficacy, convenience, tolerability or safety in order to overcome price competition and to be commercially successful. If our competitors succeed in obtaining FDA, EMA or other regulatory approval or discovering, developing and commercializing drugs before we do, there would be a material adverse impact on the future prospects for our product candidates and business. For example, in November 2021, the FDA approved a Biologics License Application for ropeginterferon alfa-2b for use in treatment for patients with PV in the absence of symptomatic splenomegaly from PharmaEssentia Corporation, the manufacturer of the novel pegylated interferon. We also face competition in certain instances from the existing standards of care, which may be significantly less expensive than our expected drug prices. For example, one widely used treatment for patients is phlebotomy and/or chelation therapy. While patients may not like therapies that involve frequent blood draws, these therapies are inexpensive and may present pricing challenges for us if our drug candidates are successfully developed and approved.

The COVID-19 pandemic has and could continue to adversely impact our business, including our ongoing and planned clinical trials and pre-clinical and discovery research.

The extent to which the COVID-19 pandemic will continue to impact our business is uncertain and cannot be predicted. The pandemic’s impact on our business will depend on a variety of factors, including the timing, extent, effectiveness and durability of vaccine programs or other treatments, new or continuing travel and other restrictions and public health measures, such as social distancing, business closures or disruptions, and the development and spread of COVID-19 variants. As the COVID19 pandemic evolves, we could experience additional disruptions or increased expenses that may adversely impact our business, including:

● delays or difficulties in enrolling patients in our ongoing clinical trials and our future clinical trials;

● delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff, or maintaining ongoing operations at such sites; and

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● delays in manufacturing, receiving the supplies, materials and services needed to conduct clinical trials and pre-clinical research.

While the extent of the impact of the COVID-19 pandemic on our business and financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on our business, financial condition, and operating results.

Unstable market and economic conditions, including elevated and sustained inflation, may have serious adverse consequences on our business, financial condition and stock price.

As has been widely reported, we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability, including an ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, and historically high domestic and global inflation. In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results. We continue to monitor these events and the potential impact on our business. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials. In addition, global credit and financial markets have experienced extreme volatility and disruptions in the past several years and the foregoing factors have led to and may continue to cause diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, uncertainty about economic stability and increased inflation.

There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. A future recession or market correction or other significant geopolitical events could materially affect our business and the value of our common stock. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals.

We maintain our cash at financial institutions, often in balances that exceed federally-insured limits. The failure of financial institutions could adversely affect our ability to pay our operational expenses or make other payments.

Our cash held in non-interest-bearing and interest-bearing accounts exceeds the Federal Deposit Insurance Corporation (FDIC) insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. For example, the FDIC took control of Silicon Valley Bank on March 10, 2023. The Federal Reserve subsequently announced that account holders would be made whole. However, the FDIC may not make all account holders whole in the event of future bank failures. In addition, even if account holders are ultimately made whole with respect to a future bank failure, account holders’ access to their accounts and assets held in their accounts may be substantially delayed. Any material loss that we may experience in the future or inability for a material time period to access our cash and cash equivalents could have an adverse effect on our ability to pay our operational expenses or make other payments, which could adversely affect our business.

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If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, integrity oversight and reporting obligations, exclusion from participation in governmental healthcare programs, and the curtailment of our operations, any of which could adversely affect our business, operations, and financial condition.

Healthcare providers, including physicians, and third-party payors will play a primary role in the recommendation and prescription of any future product candidates we may develop or any product candidates for which we obtain marketing approval. Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. The laws that may affect our ability to operate include, but are not limited to:

● the federal Anti-Kickback Statute;

● the federal false claims laws, including the False Claims Act;

● the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);

● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, which also imposes obligations, including mandatory contractual terms, on HIPAA-covered entities, their business associates as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

● the federal civil monetary penalties statute;

● the federal Physician Payments Sunshine Act; and

● analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws.

Further, the ACA, among other things, amended the intent requirements of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.

We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers, including some who could influence the use of our product candidates, if approved. While we have worked to structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use our product candidates, if approved, to be in violation of applicable laws.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have continued to increase their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of significant investigations, prosecutions, convictions and settlements in the healthcare industry. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could significantly increase our costs or otherwise have an adverse effect on our business.

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If our operations are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, integrity oversight and reporting obligations, exclusion from government funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and the curtailment or restructuring of our operations. If, and to the extent that, Janssen or we are unable to comply with these regulations, our ability to earn potential royalties from worldwide net sales of Janssen collaboration product candidates would be materially and adversely impacted. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. The imposition of any of these penalties or other commercial limitations could negatively impact our collaboration with Janssen or cause Janssen to terminate the Restated Agreement with Janssen, either of which would materially and adversely affect our business, financial condition and results of operations.

Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

We are highly dependent on our existing senior management team. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements would harm our research and development efforts, our collaboration efforts, as well as our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing, marketing, sales, general and administrative and management training and skills.

We may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other biopharmaceutical and pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Many are located in areas of the country with lower costs of living. Additionally, the United States has recently experienced historically high levels of inflation and an acute workforce shortage generally, which has created a hyper-competitive wage environment that may increase our operating costs. Any or all of these factors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop and commercialize product candidates and to grow our business and operations as currently contemplated.

We expect to expand the size of our organization in the future, and we may experience difficulties in managing this growth.

As of March 31, 2023, we had 103 full-time equivalent employees, including 80 full-time equivalent employees engaged in research and development. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, scientific, sales, marketing, research, development, regulatory, manufacturing, financial and other resources. In addition, as our operations expand, we expect that we will need to manage relationships with strategic collaborators, CROs, contract manufacturers, suppliers, vendors and other third parties. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. We may not be successful in accomplishing these tasks in growing our company, and our failure to accomplish any of them could adversely affect our business and operations.

Significant disruptions of information technology systems or breaches of data security could adversely affect our business.

Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our internal computer systems and those of our CROs, contract manufacturers, collaboration partner, and other third parties on which we rely may make them potentially vulnerable to

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breakdown, telecommunications and electrical failures, malicious intrusion such as ransomware and computer viruses that may result in the impairment of key business processes. Our systems are potentially vulnerable to data security breaches, by employees or others, that may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property or could lead to the public exposure of personally identifiable information (including sensitive personal information) of our employees, collaborators, clinical trial patients, and others. A malicious intrusion, email compromise or other data security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. If we are unable to prevent such data security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials, and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Our employees, independent contractors, principal investigators, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk that our employees, independent contractors, principal investigators, consultants or vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and regulations or those of comparable foreign regulatory authorities, (ii) manufacturing standards, (iii) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations established and enforced by comparable foreign regulatory authorities, or (iv) laws that require the true, complete and accurate reporting of financial information or data. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

We may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to stop development or, if approved, limit commercialization of our product candidates.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our product candidates. We currently carry clinical trial liability insurance for our clinical trials. Although we maintain such

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insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

Our headquarters is located near known earthquake fault zones. The occurrence of an earthquake, fire or any other catastrophic event could disrupt our operations or the operations of third parties who provide vital support functions to us, which could have a material adverse effect on our business and financial condition.

We and some of the third-party service providers on which we depend for various support functions are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism, pandemics and similar unforeseen events beyond our control. Our corporate headquarters, including our laboratory facilities, are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates could limit our ability to generate revenue.

The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford medications and therapies. Sales of any of our product candidates that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow us to realize a sufficient return on our investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products as increasingly high barriers are being erected to the entry of new products into the healthcare markets. Coverage and reimbursement can differ significantly from payor to payor. It is difficult to predict what CMS will decide with respect to reimbursement for novel products such as ours since there is no body of established practices and precedents for these new products.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries may cause us to price our product candidates on less favorable terms than we currently anticipate. In many countries, particularly the countries of the European Union, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

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Risks Related to our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our product candidates and technologies, we may not be able to compete effectively in our markets.

We rely upon a combination of patent protection, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates and technologies. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. We may or may not file or prosecute all necessary or desirable patent applications. The patent applications that we own or license may fail to result in issued patents in the United States or in other foreign countries, or they may fail to result in issued patents with claims that cover our product candidates or technologies in the United States or in other foreign countries. Any failure to identify relevant prior art relating to a patent or patent applications can invalidate a patent or prevent a patent from issuing. Even if patents have been issued, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patent and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates and technologies, or prevent others from designing around our claims.

If the breadth or strength of protection provided by our patents is challenged, or if they fail to provide meaningful exclusivity for our product candidates, it could prevent us from asserting exclusivity over the covered product and allow generic competition. We cannot offer any assurances about which, if any, of our patent applications will issue, the breadth of any such issued patent, or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition or other challenge to our patents or patent applications could significantly diminish the commercial prospects of any products that we develop.

In addition, patents have a limited lifespan. In the United States and in many other countries, the natural expiration of a patent is generally 20 years after it is filed, and once any patents covering a product expire, generic competitors may enter the market. Our granted U.S. patent covering rusfertide expires in 2034, but is eligible for extension of up to five years for a portion of the time spent in development. Although the life of a patent can be increased based on certain delays caused by the U.S. Patent and Trademark Office (the “PTO”), this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If we encounter delays in our clinical trials or in gaining regulatory approval, the period of time during which we could market any of our product candidates under patent protection, if approved, would be reduced.

We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights, including trade secrets, to the same extent as federal and state laws of the United States and many countries limit the enforceability of patents against third parties, including government agencies or government contractors.

Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Also, if our trade secrets are disclosed in a foreign jurisdiction, competitors worldwide could have access to our proprietary information and we may be without satisfactory recourse. Such disclosure could have a material adverse effect on our business.

We also rely on trade secret protection and confidentiality agreements to protect proprietary scientific, business and technical information and know-how that is not or may not be patentable or that we elect not to patent. For example, we primarily rely on trade secrets and confidentiality agreements to protect our peptide therapeutics technology platform. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive

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position in our market. If we are unable to protect the confidentiality of our trade secrets and proprietary know-how or if competitors independently develop viable competing products, our business and competitive position may be harmed.

Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how and other confidential information related to such technology, we cannot be certain that we have executed such agreements with all third parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can be we certain that our agreements will not be breached. If any of the parties to these confidentiality agreements breaches or violates the terms of such agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result.

Even if we are able to adequately protect our trade secrets and proprietary information, our trade secrets could otherwise become known or could be independently discovered by our competitors. If our trade secrets are not adequately protected so as to protect our market against competitors’ products, others may be able to exploit our proprietary peptide product candidate discovery technologies to identify and develop competing product candidates, and thus our competitive position could be adversely affected, as could our business.

We may be involved in lawsuits and other legal proceedings to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our issued patents or any patents issued as a result of our pending or future patent applications. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable or may refuse to stop the other party in such infringement proceeding from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.

Issued patents and patent applications may be challenged in the courts and in the patent office in the United States and abroad. An adverse determination in any such challenge could prevent the issuance of, reduce the scope of, invalidate or render unenforceable our patent rights, result in the loss of exclusivity, or limit our ability to stop others from using or commercializing our platform technology and products. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any issued patents covering our product candidates, including any patent that may issue as a result of our pending or future patent applications, could be found invalid or unenforceable if challenged in court in the United States or abroad.

As more groups become engaged in scientific research and product development in fields related to our product candidates, such as hepcidin mimetics or IL-23R, the risk of our patents, or patents that we have in-licensed, being challenged through patent interferences, derivation proceedings, oppositions, re-examinations, litigation or other means will likely increase. An adverse outcome in a patent dispute could have a material adverse effect on our business by:

● causing us to lose patent rights in the relevant jurisdiction(s);

● subjecting Janssen or us to litigation, or otherwise preventing the commercialization of product candidates in the relevant jurisdiction(s); or

● requiring Janssen or us to obtain licenses to the disputed patents, cease using the disputed technology or develop or obtain alternative technologies.

An adverse outcome in a patent dispute could severely harm our collaboration with Janssen or cause Janssen to terminate the Restated Agreement.

51

Litigation or other legal proceedings relating to intellectual property claims, with or without merit, are unpredictable and generally expensive and time-consuming and, even if resolved in our favor, are likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Third party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.

Our commercial success depends in part on our ability to develop, manufacture, market and sell our drug candidates and use our proprietary technologies without infringing or otherwise violating the patents and proprietary rights of third parties. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which we are developing product candidates, and there may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates and technologies.

Third parties may initiate legal proceedings against us alleging that we are infringing or otherwise violating their patent or other intellectual property rights. Given the vast number of patents in our field of technology, marketing of our product candidates or practice of our technologies could infringe existing patents or patents granted in the future. There may be applications now pending of which we are unaware that may later result in issued patents that may be infringed by the practice of our peptide therapeutics technology platform or the manufacture, use or sale of our product candidates. If any third-party patents were to be held by a court of competent jurisdiction to cover the manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product or formulation itself, the holders of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. As our industry expands and more patents are issued, the risk increases that our product candidates or technologies may give rise to claims of infringement of the patent rights of others.

Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to commercialize our product candidates. Even if we are successful in defending against any infringement claims, litigation is expensive and time-consuming and is likely to divert management’s attention and substantial resources from our core business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible or require substantial time and monetary expenditure. We may choose to seek, or may be required to seek, a license from the third-party patent holder and would most likely be required to pay license fees or royalties or both, each of which could be substantial. These licenses may not be available on commercially reasonable terms, however, or at all. Even if we were able to obtain a license, the rights we obtain may be nonexclusive, which would provide our competitors access to the same intellectual property rights upon which we are forced to rely. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In such an event, we would be unable to further practice our technologies or develop and commercialize any of our product candidates at issue, which could harm our business significantly.

52

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of former or other employers.

Many of our employees and consultants, including our senior management and our scientific founders, have been employed or retained at universities or by other biotechnology or pharmaceutical companies, including potential competitors. Some of our employees and consultants, including each member of our senior management and each of our scientific founders, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment or retention. We may be subject to claims that we or these employees, consultants or independent contractors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or consultant’s former or other employer. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

We may be subject to claims challenging the inventorship or ownership of our issued patents, any patents issued as a result of our pending or future patent applications and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an ownership interest in our issued patents, any patents issued as a result of our pending or future applications or other intellectual property. We have had in the past, and we may also have in the future, ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates and technologies. Litigation may be necessary to defend against these and other claims.

In addition, some of our intellectual property rights were generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 and implementing regulations. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us or our licensors to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party in certain circumstances (also referred to as “march-in rights”).

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we expect to rely on third parties in the development and manufacture of our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations.

53

Intellectual property rights do not necessarily address all potential threats to our business.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business. The following examples are illustrative:

● others may be able to make compounds or formulations that are similar to our product candidates, but that are not covered by the claims of any patents that we own, license or control;

● we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own;

● we may not have been the first to file patent applications covering certain of our inventions;

● others may independently develop the same, similar, or alternative technologies without infringing, misappropriating or violating our intellectual property rights;

● it is possible that our pending patent applications will not lead to issued patents;

● issued patents may not provide us with any competitive advantages, or may be narrowed or held invalid or unenforceable, including as a result of legal challenges;

● our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

● we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such trade secrets or know-how; and

● the patents of others may have an adverse effect on our business.

Should any of these events occur, they could have a material adverse impact on our business and financial condition.

Risks Related to Ownership of our Common Stock

Our stock price has been and will likely continue to be volatile and may decline regardless of our operating performance.

Our stock price has fluctuated in the past and is likely to be volatile in the future. From January 1, 2023 through March 31, 2023, the reported sale price of our common stock has fluctuated between $10.62 and $25.69 per share. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock, including due to the factors discussed in these “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q

Volatility in our share price could subject us to securities class action litigation.

Securities class action litigations have often been brought against companies following a decline in the market price of their securities. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

54

We are required to develop and maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on the effectiveness of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. If we have a material weakness and our independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting, we would receive an adverse opinion.

We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and continue the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not complete our continued evaluation, testing and any required remediation in a timely fashion. During our evaluation of our internal control, if we identify one or more material weaknesses in our internal control over financial reporting or fail to remediate any material weaknesses, we will be unable to assert that our internal control over financial reporting is effective. Any material weakness or other failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation (“Certificate of Incorporation”) provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings. Furthermore, Section 22 of the Securities Act of 1933, as amended, creates concurrent jurisdiction for federal and state courts over all Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes, which may discourage such lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

There are provisions in our Certificate of Incorporation and Bylaws, such as the existence of a classified board and the authorization of “blank-check” preferred stock, that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by our stockholders. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our Certificate of Incorporation, our Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

55

General Risk Factors

Our ability to use net operating loss carryforwards to offset future taxable income, and our ability to use tax credit carryforwards, may be subject to certain limitations.

Our ability to use our federal and state net operating losses (“NOLs”) to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use our NOLs. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change”, generally defined as a greater than fifty percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research and development tax credits) to offset its post-change taxable income or tax liability may be limited. We have experienced ownership changes in the past, resulting in annual limitations in our ability to use our NOLs and credits. In addition, we may experience subsequent ownership changes as a result of future equity offerings or other changes in the ownership of our stock, some of which are beyond our control. As a result, the amount of the NOLs and tax credit carryforwards presented in our financial statements could be limited and may expire unused. Any such material limitation or expiration of our NOLs may harm our future operating results by effectively increasing our future tax obligations.

We may have additional tax liabilities.

We are regularly subject to audits by tax authorities in the jurisdictions in which we conduct business. Although we believe our tax positions are reasonable, the final outcome of tax audits and related litigation could be materially different than that reflected in our historical income tax provisions and accruals, and we could be subject to assessments of additional taxes and/or substantial fines or penalties. The resolution of any audits or litigation could have an adverse effect on our financial position and results of operations. We and our subsidiary are engaged in intercompany transactions, the terms and conditions of which may be scrutinized by tax authorities, which could result in additional tax and/or penalties becoming due.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

None.

Repurchases of Shares or of Company Equity Securities

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

None.

56

ITEM 6.EXHIBITS

EXHIBIT INDEX

Exhibit		Incorporation By Reference
Number	Exhibit Description	Form	SEC File No.	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation	8-K	001-37852	3.1	8/16/2016
3.2	Amended and Restated Bylaws	S-1/A	333-212476	3.2b	8/1/2016
31.1+	Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2+	Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1+*	Certification of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS+	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+	Inline XBRL Taxonomy Extension Schema Document
101.CAL+	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE+	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

+     Filed herewith.

*     This certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Protagonist Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of the Form 10-Q, irrespective of any general incorporation language contained in such filing.

57

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PROTAGONIST THERAPEUTICS, INC.
Date:  May 4, 2023	By:	/s/ Dinesh V. Patel, Ph.D.
		Dinesh V. Patel, Ph.D.
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
Date:  May 4, 2023	By:	/s/ Asif Ali
		Asif Ali
		Executive Vice President, Chief Financial Officer
		(Principal Financial and Accounting Officer)

58

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dinesh V. Patel, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Protagonist Therapeutics, Inc.:

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and we have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Dinesh V. Patel, Ph.D.
Date:  May 4, 2023	Dinesh V. Patel, Ph.D.
	President, Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Asif Ali, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Protagonist Therapeutics, Inc.:

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ Asif Ali
Date:  May 4, 2023	Asif Ali
	Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Dinesh V. Patel, Chief Executive Officer of Protagonist Therapeutics, Inc. (the “Company”), and Asif Ali, Chief Financial Officer of the Company, each hereby certify that, to the best of his knowledge:

1.    The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.    The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented herein.

Date:  May 4, 2023	/s/ Dinesh V. Patel, Ph.D.
	Dinesh V. Patel, Ph.D.
	President, Chief Executive Officer
Date:  May 4, 2023	/s/ Asif Ali
	Asif Ali
	Executive Vice President, Chief Financial Officer

This certification accompanies the Form 10-Q to which it relates, and is not deemed to be filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Protagonist Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2023	Apr. 28, 2023
Document And Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Entity File Number	001-37852
Entity Registrant Name	PROTAGONIST THERAPEUTICS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	98-0505495
Entity Address, Address Line One	7707 Gateway Boulevard, Suite 140
Entity Address, City or Town	Newark
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	94560-1160
City Area Code	510
Local Phone Number	474-0170
Title of 12(b) Security	Common Stock
Trading Symbol	PTGX
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		57,251,254
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Entity Central Index Key	0001377121
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 127,686	$ 125,744
Marketable securities	103,073	111,611
Receivable from collaboration partner	51	10
Prepaid expenses and other current assets	4,926	5,712
Total current assets	235,736	243,077
Property and equipment, net	1,341	1,565
Restricted cash - noncurrent	225	225
Operating lease right-of-use asset	2,556	3,061
Total assets	239,858	247,928
Current liabilities:
Accounts payable	4,021	3,640
Payable to collaboration partner	22	69
Accrued expenses and other payables	16,587	24,955
Operating lease liability - current	2,599	2,515
Total current liabilities	23,229	31,179
Operating lease liability - noncurrent	462	1,141
Total liabilities	23,691	32,320
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.00001 par value, 90,000,000 shares authorized; 51,440,503 and 49,339,252 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	1
Additional paid-in capital	786,768	752,722
Accumulated other comprehensive loss	(122)	(359)
Accumulated deficit	(570,480)	(536,755)
Total stockholders' equity	216,167	215,608
Total liabilities and stockholders' equity	$ 239,858	$ 247,928

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Condensed Consolidated Balance Sheets
Preferred stock, par value	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.00001	$ 0.00001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	51,440,503	49,339,252
Common stock, shares outstanding	51,440,503	49,339,252

XML

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Condensed Consolidated Statements of Operations
License and collaboration revenue		$ 25,722
Revenue from Contract with Customer, Product and Service [Extensible List]	License and Collaboration Agreement	License and Collaboration Agreement
Operating expenses:
Research and development	$ 27,416	$ 36,318
General and administrative	8,605	10,515
Total operating expenses	36,021	46,833
Loss from operations	(36,021)	(21,111)
Interest income	2,491	168
Other (expense) income, net	(195)	13
Net loss	$ (33,725)	$ (20,930)
Net loss per share, basic	$ (0.67)	$ (0.43)
Net loss per share, diluted	$ (0.67)	$ (0.43)
Weighted-average shares used to compute net loss per share, basic	50,573,650	48,752,548
Weighted-average shares used to compute net loss per share, diluted	50,573,650	48,752,548

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Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Condensed Consolidated Statements of Comprehensive Loss
Net loss	$ (33,725)	$ (20,930)
Other comprehensive loss:
Gain on translation of foreign operations	194	95
Unrealized gain (loss) on marketable securities	43	(268)
Comprehensive loss	$ (33,488)	$ (21,103)

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Condensed Consolidated Statements of Stockholder's Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive (Loss) Gain	Accumulated Deficit	Total
Balance, Beginning at Dec. 31, 2021		$ 709,682	$ (299)	$ (409,362)	$ 300,021
Balance, Beginning (in shares) at Dec. 31, 2021	47,838,330
Increase (Decrease) in Stockholders' Equity
Issuance of common stock, net of issuance costs		14,553			14,553
Issuance of common stock, net of issuance costs (in shares)	422,367
Issuance of common stock under equity incentive and employee stock purchase plans		2,558			2,558
Issuance of common stock under equity incentive and employee stock purchase plans (in shares)	299,131
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units		(186)			(186)
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units (in shares)	(7,726)
Stock-based compensation expense		5,935			5,935
Other comprehensive gain (loss)			(173)		(173)
Net loss				(20,930)	(20,930)
Balance, Ending at Mar. 31, 2022		732,542	(472)	(430,292)	301,778
Balance, Ending (in shares) at Mar. 31, 2022	48,552,102
Balance, Beginning at Dec. 31, 2022		752,722	(359)	(536,755)	$ 215,608
Balance, Beginning (in shares) at Dec. 31, 2022	49,339,252				49,339,252
Increase (Decrease) in Stockholders' Equity
Issuance of common stock, net of issuance costs	$ 1	24,301			$ 24,302
Issuance of common stock, net of issuance costs (in shares)	1,749,199
Issuance of common stock under equity incentive and employee stock purchase plans		2,261			2,261
Issuance of common stock under equity incentive and employee stock purchase plans (in shares)	358,211
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units		(100)			(100)
Shares withheld for net settlement of tax withholding upon vesting of restricted stock units (in shares)	(6,159)
Stock-based compensation expense		7,584			7,584
Other comprehensive gain (loss)			237		237
Net loss				(33,725)	(33,725)
Balance, Ending at Mar. 31, 2023	$ 1	$ 786,768	$ (122)	$ (570,480)	$ 216,167
Balance, Ending (in shares) at Mar. 31, 2023	51,440,503				51,440,503

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash Flows from Operating Activities
Net loss	$ (33,725)	$ (20,930)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	7,584	5,935
Operating lease right-of-use asset amortization	584	584
(Accretion)/amortization of discount/premium on marketable securities	(1,255)	358
Depreciation	248	249
Other	194
Changes in operating assets and liabilities:
Receivable from collaboration partner	(41)	(23,584)
Prepaid expenses and other assets	787	1,279
Accounts payable	381	5,559
Payable to collaboration partner	(47)	(519)
Accrued expenses and other payables	(8,383)	(5,110)
Deferred revenue		(833)
Operating lease liability	(674)	(654)
Net cash used in operating activities	(34,347)	(37,666)
Cash Flows from Investing Activities
Purchase of marketable securities	(28,060)	(55,832)
Proceeds from maturities of marketable securities	37,896	51,629
Purchases of property and equipment	(10)	(273)
Net cash provided by (used in) investing activities	9,826	(4,476)
Cash Flows from Financing Activities
Proceeds from at-the-market offering, net of issuance costs	24,302	14,553
Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan	2,261	2,558
Tax withholding payments related to net settlement of restricted stock units	(100)	(186)
Net cash provided by financing activities	26,463	16,925
Effect of exchange rate changes on cash, cash equivalents and restricted cash		29
Net increase (decrease) in cash, cash equivalents and restricted cash	1,942	(25,188)
Cash, cash equivalents and restricted cash, beginning of period	125,969	123,890
Cash, cash equivalents and restricted cash, end of period	127,911	98,702
Supplemental Disclosure of Cash Flow Information:
Purchases of property and equipment in accounts payable and accrued liabilities	$ 15	235
Issuance costs related to common stock offering included in accrued liabilities and other payables		$ 25

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Organization and Description of Business

3 Months Ended

Mar. 31, 2023

Organization and Description of Business

Organization and Description of Business

PROTAGONIST THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.Organization and Description of Business

Protagonist Therapeutics, Inc. (the “Company”) is headquartered in Newark, California. The Company is a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as PN-235) in different stages of clinical development, all derived from the Company’s proprietary technology platform. The Company’s clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases. Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is located in Brisbane, Queensland, Australia.

Operating segments are components of an enterprise for which separate financial information is available and is evaluated regularly by the Chief Executive Officer, the Company’s chief operating decision maker, in deciding how to allocate resources and assessing performance. The Company operates and manages its business as one operating segment. The Company’s Chief Executive Officer reviews financial information on an aggregate basis for the purposes of allocating and evaluating financial performance.

Liquidity

As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of $230.8 million. The Company has incurred net losses from operations since inception and had an accumulated deficit of $570.5 million as of March 31, 2023. The Company’s ultimate success depends upon the outcome of its research and development and collaboration activities. The Company expects to incur additional losses in the future and anticipates the need to raise additional capital to continue to execute its long-range business plan. Since the Company’s initial public offering in August 2016, it has financed its operations primarily through proceeds from offerings of common stock and payments received under license and collaboration agreements.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and emergent variants with increased transmissibility, even in those who are fully vaccinated. The future impact on the Company’s activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants, the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments; and new travel and other restrictions and public health measures. The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to the pandemic. The Company’s 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 its operating activities and employees. In addition, a recession or market correction related to or amplified by COVID-19 could materially affect the Company’s business.

The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by domestic and global monetary and fiscal policy, geopolitical instability, including the ongoing military conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment, historically high domestic and global inflation and recent failures of banking and other financial institutions. In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect the Company’s operating results. In addition, the failure of Silicon Valley Bank and other regional banks in the United States between March and May of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance Corporation. The Company continues to monitor these events and the potential impact on its

business. Although the Company does not believe that inflation has had a material impact on its financial position or results of operations to date, it may be adversely affected in the future due to global monetary and fiscal policy, macroeconomic factors, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine and other factors, and such factors may lead to increases in the cost of manufacturing for and initiation of studies in the Company’s product candidates.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of March 31, 2023 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

Effective January 1, 2023, the financial statements of Protagonist Australia use the U.S. dollar as the functional currency, which reflects the expected nature of the ongoing operations of this subsidiary. The cumulative translation adjustment as of January 1, 2023 related to this subsidiary was not material. Prior to January 1, 2023, the financial statements of Protagonist Australia used the Australian dollar as the functional currency since the majority of expense transactions occurred in such currency. Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.

Principles of Consolidation

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

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, marketable securities and leases. Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration agreements. Management bases these estimates on historical and anticipated results,

trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results could differ materially from these estimates.

Due to the prolonged nature of the COVID-19 pandemic, military conflict between Ukraine and Russia, rising tensions between China and Taiwan and inflationary pressures, there has been uncertainty and disruption in the global economy and financial markets. The Company has taken into consideration any known impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the issuance of this report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

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

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

	March 31,
	2023		2022
Cash and cash equivalents	$	127,686	$	98,477
Restricted cash - noncurrent		225		225
Total cash reported on condensed consolidated statements of cash flows	$	127,911	$	98,702

Investment Impairment

As of each reporting date, the Company assesses each of its investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors. Factors considered in determining whether an impairment is credit-related include the extent to which the investment’s fair value is less than its cost basis, declines in published credit ratings, issuer default on interest or principal payments, and declines in the financial condition and near-term prospects of the issuer. Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other income (expense), net. The portion of the impairment that is not credit-related is recorded as a reduction of other comprehensive income (loss), net of applicable taxes.

The Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment. The Company writes off accrued interest as a reduction of interest income when an issuer has defaulted on interest payments due on a security.

Significant Accounting Policies

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

Recently Adopted Accounting Pronouncement

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). The guidance requires measurement and recognition of expected credit losses for financial assets at the time financial assets are initially

recognized in the financial statements. The measurement of expected credit losses is based on historical credit loss information as well as current and future economic factors. ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of credit loss or other factors. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326): Effective Dates, which delayed the mandatory effective date of ASU 2016-13 for smaller reporting companies. The Company adopted ASU 2016-13 effective January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

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License and Collaboration Agreement

3 Months Ended

Mar. 31, 2023

License and Collaboration Agreement..

License and Collaboration Agreement

License and Collaboration Agreement

Note 3. License and Collaboration Agreement

Agreement Terms

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement (the “Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”), which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and Janssen (the “Original Agreement’), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Prior to January 1, 2023, Janssen was a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc. was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson. Upon the effectiveness of the Original Agreement, the Company received a non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the effectiveness of the First Amendment, the Company received a $25.0 million payment from Janssen in 2019. The Company received a $5.0 million payment triggered by the successful nomination of a second-generation oral Interleukin (“IL”)-23 receptor antagonist development compound (“second-generation compound”) during the first quarter of 2020 and received a $7.5 million payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021. The Company received a $25.0 million milestone payment in connection with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound during the second quarter of 2022.

The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates. The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly known as PN-235). PTG-200 is an oral IL-23 receptor antagonist that was in Phase 2a development for the treatment of Crohn’s disease (“CD”). During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for the conduct of all future trials, including these anticipated Phase 2 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials.

The Restated Agreement enables Janssen to develop collaboration compounds for multiple indications. Under the Restated Agreement, Janssen is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

Upcoming potential development milestones for second-generation compounds include:

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

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

● $15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication; and

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

Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent. The sales milestone payments in the Original Agreement also remain the same in the Restated Agreement.

Pursuant to both the Original and Restated Agreements, payments to the Company for research and development services are generally billed and collected as services are performed or assets are delivered, including research activities and Phase 1 and Phase 2 development activities. Janssen bills the Company for its share of the PTG-200 Phase 2a development costs as expenses are incurred by Janssen. Milestone payments are received after the related milestones are achieved.

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

The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier. Upon a termination of the Restated Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Revenue Recognition

The Restated Agreement contains a single performance obligation for the development license; Phase 1 development services for PTG-200, PN-232 and JNJ-2113 (formerly known as PN-235); the Company’s services associated with Phase 2a development for PTG-200 in CD; the initial year of second-generation compound research services; and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200 through Phase 2a and PN-232 and JNJ-2113 through Phase 1. Under the Restated Agreement, development services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and JNJ-2113 beyond Phase 1 are no longer required.

The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial performance obligations began on the Original Agreement effective date of July 13, 2017 and ended upon the completion of Phase 1 clinical trials for PN-232 and JNJ-2113. Final activities related to these trials were completed as of June 30, 2022.

The transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of June 30, 2022, and increase of $0.2 million from the transaction price of $131.5 million as of March 31, 2022. In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen. The transaction price as of June 30, 2022 included $112.5 million of nonrefundable payments received to date, $17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of $8.2 million of development cost reimbursement from Janssen, partially offset by $6.9 million of net cost reimbursement due to Janssen for services performed. The Company concluded that the variable consideration constraint was appropriately reflected in the estimated transaction price as of June 30, 2022, and that the achievement of future milestones was subject to additional development and/or regulatory uncertainty and therefore it was not probable at June 30, 2022 that a material reversal of such revenues would not occur. Janssen also opted in for certain additional services to be performed by the Company that were outside the initial performance obligation. Revenue for these additional services was recognized as these services were performed.

No license and collaboration revenue was recognized for the three months ended March 31, 2023 because the Company completed its performance obligation under the collaboration as of June 30, 2022. For the three months ended March 31, 2022, the Company recognized license and collaboration revenue of $25.7 million. License and collaboration revenue for the three months ended March 31, 2022 was primarily related to the transaction price under the Restated Agreement recognized based on proportional performance.

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

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2023	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	10	$	41		—	$	51
Contract liabilities:
Payable to collaboration partner	$	69	$	11		(58)	$	22

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2022	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	1,566	$	25,150	$	(1,566)	$	25,150
Contract liabilities:
Deferred revenue	$	1,601	$	25,658	$	(26,491)	$	768
Payable to collaboration partner	$	899	$	330	$	(849)	$	380

During the three months ended March 31, 2023 and 2022, the Company recognized revenue of zero and $13,000, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of each period. None of the costs to obtain or fulfill the contract were capitalized.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Fair Value Measurements

Note 4. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

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

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

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

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

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

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		—		87,299		—		87,299
Corporate debt securities		—		10,870		—		10,870
U.S. Treasury and agency securities		—		79,783		—		79,783
Total financial assets	$	46,007	$	177,952	$	—	$	223,959

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

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

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

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Cash Equivalents and Marketable Securities

3 Months Ended

Mar. 31, 2023

Cash Equivalents and Marketable Securities

Cash Equivalents and Marketable Securities

Note 5. Cash Equivalents and Marketable Securities

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

	March 31, 2023
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		87,316		—		(17)		87,299
Corporate debt securities		10,877		5		(12)		10,870
U.S. Treasury and agency securities		79,770		70		(57)		79,783
Total cash equivalents and marketable securities	$	223,970	$	75	$	(86)	$	223,959
Classified as:
Cash equivalents							$	120,886
Marketable securities								103,073
Total cash equivalents and marketable securities							$	223,959

	December 31, 2022
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	54,292	$	—	$	—	$	54,292
Commercial paper		110,257		—		(30)		110,227
Corporate debt securities		10,756		—		(15)		10,741
U.S. Treasury and agency securities		57,251		27		(36)		57,242
Total cash equivalents and marketable securities	$	232,556	$	27	$	(81)	$	232,502
Classified as:
Cash equivalents							$	120,891
Marketable securities								111,611
Total cash equivalents and marketable securities							$	232,502

Marketable securities of $103.1 million and $111.6 million held at March 31, 2023 and December 31, 2022, respectively, had contractual maturities of less than one year. The Company does not intend to sell its securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity. There were no realized gains or realized losses on marketable securities for the periods presented. The Company evaluated securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors and determined that there were no credit-related losses to be recognized as of March 31, 2023.

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Balance Sheet Components

3 Months Ended

Mar. 31, 2023

Balance Sheet Components

Balance Sheet Components

Note 6. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

	March 31,		December 31,
	2023		2022
Prepaid clinical and research related expenses	$	1,492	$	2,746
Prepaid insurance		1,401		1,417
Prepaid license		542		489
Other prepaid expenses		1,491		1,018
Other receivable		—		42
Prepaid expenses and other current assets	$	4,926	$	5,712

Property and Equipment, Net

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

	March 31,		December 31,
	2023		2022
Laboratory equipment	$	4,831	$	4,817
Furniture and computer equipment		1,089		1,089
Leasehold improvements		913		913
Total property and equipment		6,833		6,819
Accumulated depreciation		(5,492)		(5,254)
Property and equipment, net	$	1,341	$	1,565

Accrued Expenses and Other Payables

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

	March 31,		December 31,
	2023		2022
Accrued clinical and research related expenses	$	13,108	$	19,109
Accrued employee related expenses		2,080		4,967
Accrued professional service fees		1,065		464
Other		334		415
Total accrued expenses and other payables	$	16,587	$	24,955

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Stockholders' Equity

3 Months Ended

Mar. 31, 2023

Stockholders' Equity

Stockholders' Equity

Note 7. Stockholders’ Equity

In August 2022, the Company entered into an Open Market Sale Agreement^SM (the “Sales Agreement”), pursuant to which the Company could offer and sell up to $100.0 million of shares of common stock from time to time in the “at-the-market” offerings (the “2022 ATM Facility”). As of and for the three months ended March 31, 2023, the Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs.

In November 2019, the Company entered into an Open Market Sale Agreement^SM (the “Prior Sales Agreement”), pursuant to which the Company could offer and sell up to $75.0 million of shares of common stock from time to time in the “at-the-market” offerings (the “2019 ATM Facility”). During the year ended December 31, 2022, the Company sold 422,367 shares of its common stock under the 2019 ATM Facility for net proceeds of $14.6 million, after deducting issuance costs. The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement in August 2022.

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering expenses payable by the Company. In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant is exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise price of $15.00 per share. The exercise price and number of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. Under certain circumstances, the Warrants may be exercisable on a “cashless” basis. In connection with the issuance and sale of the common stock and Warrants, the Company granted the Investors certain registration rights with respect to the Warrants and the Warrant Shares. The common stock and warrants are classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and the net proceeds from the transaction were recorded as a credit to additional paid-in capital. As of March 31, 2023, none of the Warrants have been exercised.

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Equity Plans

3 Months Ended

Mar. 31, 2023

Equity Plans

Equity Plans

Note 8. Equity Plans

Equity Incentive Plan

In July 2016, the Company’s board of directors and stockholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan. The 2016 Plan is administered by the board of directors, or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under

the 2016 Plan expire no later than ten years from the date of grant. As of March 31, 2023, 892,905 shares were available for issuance under the 2016 Plan.

Inducement Plan

In May 2018, the Company’s board of directors approved the Company’s 2018 Inducement Plan (as subsequently amended, the “2018 Inducement Plan”) is a non-stockholder approved stock plan, under which the Company awards options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2018 Inducement Plan is administered by the board of directors or the Compensation Committee of the board, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under the 2018 Inducement Plan expire no later than ten years from the date of grant. As of March 31, 2023, 574,772 shares were available for issuance under the 2018 Inducement Plan.

Stock Options

Stock option activity under the Company’s equity incentive and inducement plans is set forth below:

		Weighted-		Weighted-
		Average		Average
		Exercise		Remaining	Aggregate
	Options	Price Per		Contractual	Intrinsic
	Outstanding	Share		Life (years)	Value (1)
					(in millions)
Balances at December 31, 2022	6,240,509	$	19.03
Options granted	2,198,750		12.17
Options exercised	(128,722)		13.49
Options forfeited	(148,693)		26.21
Balances at March 31, 2023	8,161,844	$	17.14	7.74	$	63.3
Options exercisable – March 31, 2023	3,935,198	$	16.82	6.23		30.8
Options vested and expected to vest – March 31, 2023	8,161,844	$	17.14	7.74	$	63.3

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on March 31, 2023. The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2023.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employees during the three months ended March 31, 2023 was $10.05 per share.

Stock Options Valuation Assumptions

The fair value of employee stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended March 31,
	2023	2022
Expected term (in years)	5.27 - 6.02	5.27 - 6.08
Expected volatility	106.3% - 110.1%	97.1% - 98.2%
Risk-free interest rate	3.57% - 3.59%	1.64% - 2.13%
Dividend yield	—	—

In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires judgment to determine.

Expected Term—The Company’s expected term represents the period that the Company’s options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company has limited historical exercise information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.

Expected Volatility—Beginning January 1, 2023, the Company’s expected volatility is estimated based upon the volatility of the Company’s stock price over a period equal to the expected term of the stock option grants. For the year ended December 31, 2022, the Company’s expected volatility was estimated based upon a mix of 25% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants and 75% of the volatility of the Company’s stock price since its initial public offering in August 2016.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Restricted Stock Units

Restricted stock unit (“RSU”) activity under the Company’s equity incentive plans is set forth below:

		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested RSUs at December 31, 2022	637,436	$	19.29
Granted	396,775		18.57
Vested	(160,884)		15.83
Forfeited	(9,215)		20.86
Unvested RSUs at March 31, 2023	864,112	$	16.26

Performance Stock Units

As of March 31, 2023 and December 31, 2022, 199,500 unvested performance stock units (“PSUs”) were outstanding under the Company’s equity incentive plans, with a weighted average grant date fair value of $14.59 per share. The terms of the unvested PSUs provide for 100% of shares to be earned based on the achievement of certain pre-determined performance objectives, subject to the participant’s continued employment. The PSUs will vest, if at all, upon certification by the compensation committee of the Board of Directors of the actual achievement of the related performance objectives, subject to specified change of control exceptions.

Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance objectives becomes probable. The total grant date fair value of unvested PSUs outstanding as of March 31, 2023 was $2.9 million. As of March 31, 2023, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for the PSUs has been recognized as expense as of March 31, 2023.

Employee Stock Purchase Plan

The Company’s 2016 Employee Stock Purchase Plan (“2016 ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, eligible employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period. During the three months ended March 31, 2023, a total of 68,605 shares of common stock were issued under the 2016 ESPP, and 1,486,685 shares of common stock remained available for issuance as of March 31, 2023.

Stock-Based Compensation

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

	Three Months Ended March 31,
	2023		2022
Research and development	$	4,582	$	3,326
General and administrative		3,002		2,609
Total stock-based compensation expense	$	7,584	$	5,935

As of March 31, 2023, total unrecognized stock-based compensation expense was approximately $66.8 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

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Net Loss per Share

3 Months Ended

Mar. 31, 2023

Net Loss per Share

Net Loss per Share

Note 9. Net Loss per Share

As the Company had net losses for the three months ended March 31, 2023 and 2022, all potential weighted average dilutive common shares were determined to be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss	$	(33,725)	$	(20,930)
Denominator:
Weighted-average shares used to compute net loss per common share, basic and diluted		50,573,650		48,752,548
Net loss per share, basic and diluted	$	(0.67)	$	(0.43)

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

	March 31,
	2023	2022
Options to purchase common stock	8,161,844	6,809,610
Common stock warrants	2,750,000	2,750,000
Restricted stock units	864,112	606,810
Performance stock units	199,500	105,500
ESPP shares	24,998	19,762
Total	12,000,454	10,291,682

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Subsequent Event

3 Months Ended

Mar. 31, 2023

Subsequent Event

Subsequent Event

Note 10. Subsequent Event

In April 2023, the Company completed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of $20.00 per share and issued an additional 750,000 shares of common stock at a price of $20.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were approximately $107.7 million.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of March 31, 2023 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future period.

Effective January 1, 2023, the financial statements of Protagonist Australia use the U.S. dollar as the functional currency, which reflects the expected nature of the ongoing operations of this subsidiary. The cumulative translation adjustment as of January 1, 2023 related to this subsidiary was not material. Prior to January 1, 2023, the financial statements of Protagonist Australia used the Australian dollar as the functional currency since the majority of expense transactions occurred in such currency. Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated other comprehensive loss on the condensed consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.

Principles of Consolidation

Principles of Consolidation

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

Use of Estimates

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, marketable securities and leases. Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration agreements. Management bases these estimates on historical and anticipated results,

trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results could differ materially from these estimates.

Due to the prolonged nature of the COVID-19 pandemic, military conflict between Ukraine and Russia, rising tensions between China and Taiwan and inflationary pressures, there has been uncertainty and disruption in the global economy and financial markets. The Company has taken into consideration any known impacts in its accounting estimates to date and is not aware of any additional specific events or circumstances that would require any additional updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the issuance of this report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Cash as Reported in Consolidated Statements of Cash Flows

Cash as Reported in Condensed Consolidated Statements of Cash Flows

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

Investment Impairment

Investment Impairment

As of each reporting date, the Company assesses each of its investments in available-for-sale debt securities whose fair value is below its cost basis to determine if the investment’s impairment is due to credit-related factors or noncredit-related factors. Factors considered in determining whether an impairment is credit-related include the extent to which the investment’s fair value is less than its cost basis, declines in published credit ratings, issuer default on interest or principal payments, and declines in the financial condition and near-term prospects of the issuer. Credit-related impairments on available-for-sale debt securities are recognized as an allowance for credit losses with a corresponding adjustment to other income (expense), net. The portion of the impairment that is not credit-related is recorded as a reduction of other comprehensive income (loss), net of applicable taxes.

The Company has elected to exclude accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment. The Company writes off accrued interest as a reduction of interest income when an issuer has defaulted on interest payments due on a security.

Recently Adopted Accounting Pronouncement

Recently Adopted Accounting Pronouncement

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”). The guidance requires measurement and recognition of expected credit losses for financial assets at the time financial assets are initially

recognized in the financial statements. The measurement of expected credit losses is based on historical credit loss information as well as current and future economic factors. ASU 2016-13 also eliminates the concept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of credit loss or other factors. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326): Effective Dates, which delayed the mandatory effective date of ASU 2016-13 for smaller reporting companies. The Company adopted ASU 2016-13 effective January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2023

Summary of Significant Accounting Policies

Schedule of cash as reported in the consolidated statements of cash flows

	March 31,
	2023		2022
Cash and cash equivalents	$	127,686	$	98,477
Restricted cash - noncurrent		225		225
Total cash reported on condensed consolidated statements of cash flows	$	127,911	$	98,702

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License and Collaboration Agreement (Tables)

3 Months Ended

Mar. 31, 2023

License and Collaboration Agreement.

Schedule of changes in contract assets and liabilities

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2023	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	10	$	41		—	$	51
Contract liabilities:
Payable to collaboration partner	$	69	$	11		(58)	$	22

	Balance at						Balance at
	Beginning of						End of
Three Months Ended March 31, 2022	Period		Additions		Deductions		Period
Contract assets:
Receivable from collaboration partner	$	1,566	$	25,150	$	(1,566)	$	25,150
Contract liabilities:
Deferred revenue	$	1,601	$	25,658	$	(26,491)	$	768
Payable to collaboration partner	$	899	$	330	$	(849)	$	380

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Schedule of fair value of financial assets

	March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		—		87,299		—		87,299
Corporate debt securities		—		10,870		—		10,870
U.S. Treasury and agency securities		—		79,783		—		79,783
Total financial assets	$	46,007	$	177,952	$	—	$	223,959

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

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Cash Equivalents and Marketable Securities (Tables)

3 Months Ended

Mar. 31, 2023

Cash Equivalents and Marketable Securities

Schedule of cash equivalents and marketable securities

	March 31, 2023
	Amortized		Gross Unrealized
	Cost		Gains		Losses		Fair Value
Money market funds	$	46,007	$	—	$	—	$	46,007
Commercial paper		87,316		—		(17)		87,299
Corporate debt securities		10,877		5		(12)		10,870
U.S. Treasury and agency securities		79,770		70		(57)		79,783
Total cash equivalents and marketable securities	$	223,970	$	75	$	(86)	$	223,959
Classified as:
Cash equivalents							$	120,886
Marketable securities								103,073
Total cash equivalents and marketable securities							$	223,959

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Balance Sheet Components (Tables)

3 Months Ended

Mar. 31, 2023

Balance Sheet Components

Summary of Prepaid Expenses and Other Current Assets

	March 31,		December 31,
	2023		2022
Prepaid clinical and research related expenses	$	1,492	$	2,746
Prepaid insurance		1,401		1,417
Prepaid license		542		489
Other prepaid expenses		1,491		1,018
Other receivable		—		42
Prepaid expenses and other current assets	$	4,926	$	5,712

Summary of Property and Equipment Net

	March 31,		December 31,
	2023		2022
Laboratory equipment	$	4,831	$	4,817
Furniture and computer equipment		1,089		1,089
Leasehold improvements		913		913
Total property and equipment		6,833		6,819
Accumulated depreciation		(5,492)		(5,254)
Property and equipment, net	$	1,341	$	1,565

Schedule of Accrued Expenses and Other Payables

	March 31,		December 31,
	2023		2022
Accrued clinical and research related expenses	$	13,108	$	19,109
Accrued employee related expenses		2,080		4,967
Accrued professional service fees		1,065		464
Other		334		415
Total accrued expenses and other payables	$	16,587	$	24,955

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Equity Plans (Tables)

3 Months Ended

Mar. 31, 2023

Schedule of activity under equity incentive plans

		Weighted-		Weighted-
		Average		Average
		Exercise		Remaining	Aggregate
	Options	Price Per		Contractual	Intrinsic
	Outstanding	Share		Life (years)	Value (1)
					(in millions)
Balances at December 31, 2022	6,240,509	$	19.03
Options granted	2,198,750		12.17
Options exercised	(128,722)		13.49
Options forfeited	(148,693)		26.21
Balances at March 31, 2023	8,161,844	$	17.14	7.74	$	63.3
Options exercisable – March 31, 2023	3,935,198	$	16.82	6.23		30.8
Options vested and expected to vest – March 31, 2023	8,161,844	$	17.14	7.74	$	63.3

(1) The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on March 31, 2023. The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on March 31, 2023.

Schedule of stock-based compensation expense

	Three Months Ended March 31,
	2023		2022
Research and development	$	4,582	$	3,326
General and administrative		3,002		2,609
Total stock-based compensation expense	$	7,584	$	5,935

Options to Purchase Common Stock

Black-Scholes option-pricing model assumptions

	Three Months Ended March 31,
	2023	2022
Expected term (in years)	5.27 - 6.02	5.27 - 6.08
Expected volatility	106.3% - 110.1%	97.1% - 98.2%
Risk-free interest rate	3.57% - 3.59%	1.64% - 2.13%
Dividend yield	—	—

Restricted stock units

Schedule of activity under equity incentive plans

		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested RSUs at December 31, 2022	637,436	$	19.29
Granted	396,775		18.57
Vested	(160,884)		15.83
Forfeited	(9,215)		20.86
Unvested RSUs at March 31, 2023	864,112	$	16.26

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Net Loss per Share (Tables)

3 Months Ended

Mar. 31, 2023

Net Loss per Share

Schedule of computation of the basic and diluted net loss per share attributable to common stockholders

	Three Months Ended March 31,
	2023		2022
Numerator:
Net loss	$	(33,725)	$	(20,930)
Denominator:
Weighted-average shares used to compute net loss per common share, basic and diluted		50,573,650		48,752,548
Net loss per share, basic and diluted	$	(0.67)	$	(0.43)

Schedule of potentially dilutive securities excluded from diluted net loss per share calculations

	March 31,
	2023	2022
Options to purchase common stock	8,161,844	6,809,610
Common stock warrants	2,750,000	2,750,000
Restricted stock units	864,112	606,810
Performance stock units	199,500	105,500
ESPP shares	24,998	19,762
Total	12,000,454	10,291,682

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Organization and Description of Business - Liquidity (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) segment	Dec. 31, 2022 USD ($)
Organization and Description of Business
Number of operating segments | segment	1
Net losses from operations since inception
Cash, cash equivalents and marketable securities	$ 230,800
Accumulated deficit	$ (570,480)	$ (536,755)

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Summary of Significant Accounting Policies - Cash and Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
Aggregate amounts of cash and cash equivalents and the restricted cash
Cash and cash equivalents	$ 127,686	$ 125,744	$ 98,477
Restricted cash - noncurrent	225	225	225
Total cash reported on condensed consolidated statements of cash flows	$ 127,911	$ 125,969	$ 98,702	$ 123,890

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License and Collaboration Agreement - Narrative (Details) - USD ($)		3 Months Ended
	Jul. 27, 2021	Mar. 31, 2023	Jun. 30, 2022	Mar. 31, 2022	Apr. 30, 2022	Dec. 31, 2021	Mar. 31, 2020	May 07, 2019	Jul. 13, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
License and collaboration revenue				$ 25,722,000
Recognized revenue from deferred revenue contract liability		$ 0		13,000
Janssen | Services performed for IL-23 receptor antagonist compound research costs and other services
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Reimbursement for services performed			$ 17,900,000
Janssen | License and Collaboration Agreement
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Revenue recognized		0
Janssen | License and Collaboration Agreement | Three phase 1 studies of second-generation compounds
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Eligible amount received						$ 7,500,000
Janssen | License and Collaboration Agreement | 3rd patient in the first Phase 2 clinical trial for any second-generation compound for a second indication
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Eligible amount received					$ 25,000,000.0
Janssen | License and Collaboration Agreement | Phase 3 clinical trial for a second-generation compound for any indication
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upcoming potential development milestones		115,000,000.0
Janssen | Original Agreement | Upfront cash payment
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upfront payment									$ 50,000,000.0
Janssen | Restated Agreement
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Contract modification, increase (decrease) in adjustment to revenue			200,000
Upfront payment			112,500,000
Development cost payable			6,900,000
Reimbursement for services performed			8,200,000
Maximum percentages royalties on net product sales	10.00%
Final transaction price			$ 131,700,000	$ 131,500,000
Janssen | Restated Agreement | Second-generation Oral Interleukin ("IL")-23 Receptor Antagonist Development Compound
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Eligible amount received							$ 5,000,000.0
Janssen | Restated Agreement | License and Collaboration Agreement
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Eligible amount received								$ 25,000,000.0
Janssen | Restated Agreement | License and Collaboration Agreement | Phase 2 studies for second-generation products
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upcoming potential development milestones		25,000,000.0
Janssen | Restated Agreement | License and Collaboration Agreement | 3rd patient in the first Phase 2 clinical trial for any second-generation compound for a second indication
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upcoming potential development milestones		10,000,000.0
Janssen | Restated Agreement | License and Collaboration Agreement | Dosing of the 3rd patient in a Phase 3 clinical trial for a second-generation compound for any indication
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upcoming potential development milestones		50,000,000.0
Janssen | Restated Agreement | License and Collaboration Agreement | Dosing Of Third Patient In Phase 3 Clinical Trial For Second Generation Compound For A Second Indication [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Upcoming potential development milestones		$ 15,000,000.0

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License and Collaboration Agreement - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Receivable from collaboration partner - related party
Balance at Beginning of Period		$ 1,566
Additions		25,150
Deductions		(1,566)
Balance at End of Period		25,150
Deferred revenue - related party
Balance at Beginning of Period		1,601
Additions		25,658
Deductions		(26,491)
Balance at End of Period		768
Payable to collaboration partner - related party
Balance at Beginning of Period	$ 69	899
Additions		330
Deductions		(849)
Balance at End of Period	22	$ 380
License and Collaboration Agreement
Receivable from collaboration partner - related party
Balance at Beginning of Period	10
Additions	41
Balance at End of Period	51
Payable to collaboration partner - related party
Balance at Beginning of Period	69
Additions	11
Deductions	(58)
Balance at End of Period	22
Janssen | License and Collaboration Agreement
Deferred revenue - related party
Additions	$ 25,700

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Fair Value Measurements (Details) - Recurring - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	$ 223,959	$ 232,502
Money Market Funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	46,007	54,292
Commercial Paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	87,299	110,227
U.S. Treasury and agency securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	79,783	57,242
Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	10,870	10,741
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	46,007	54,292
Level 1 [Member] | Money Market Funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	46,007	54,292
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	177,952	178,210
Level 2 [Member] | Commercial Paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	87,299	110,227
Level 2 [Member] | U.S. Treasury and agency securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	79,783	57,242
Level 2 [Member] | Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total financial assets	$ 10,870	$ 10,741

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Cash Equivalents and Marketable Securities - Cash Equivalents and Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Cash Equivalents and Marketable Securities
Total cash equivalents and marketable securities, Amortized Cost	$ 223,970	$ 232,556
Total cash equivalents and marketable securities, Gross Unrealized Gains	75	27
Total cash equivalents and marketable securities, Gross Unrealized Losses	(86)	(81)
Total cash equivalents and marketable securities, Fair Value	223,959	232,502
U.S. Treasury and agency securities
Cash Equivalents and Marketable Securities
Total cash equivalents and marketable securities, Amortized Cost	79,770	57,251
Total cash equivalents and marketable securities, Gross Unrealized Gains	70	27
Total cash equivalents and marketable securities, Gross Unrealized Losses	(57)	(36)
Total cash equivalents and marketable securities, Fair Value	79,783	57,242
Corporate debt securities
Cash Equivalents and Marketable Securities
Total cash equivalents and marketable securities, Amortized Cost	10,877	10,756
Total cash equivalents and marketable securities, Gross Unrealized Gains	5
Total cash equivalents and marketable securities, Gross Unrealized Losses	(12)	(15)
Total cash equivalents and marketable securities, Fair Value	10,870	10,741
Money Market Funds
Cash Equivalents and Marketable Securities
Total cash equivalents and marketable securities, Amortized Cost	46,007	54,292
Total cash equivalents and marketable securities, Fair Value	46,007	54,292
Commercial Paper
Cash Equivalents and Marketable Securities
Total cash equivalents and marketable securities, Amortized Cost	87,316	110,257
Total cash equivalents and marketable securities, Gross Unrealized Losses	(17)	(30)
Total cash equivalents and marketable securities, Fair Value	$ 87,299	$ 110,227

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Cash Equivalents and Marketable Securities - Classification of Cash Equivalents and Marketable Securities (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Classified as:
Cash equivalents	$ 120,886		$ 120,891
Marketable securities - current	103,073		111,611
Total cash equivalents and marketable securities	$ 223,959		$ 232,502
Contractual maturities
Maximum period of current contractual maturities	1 year		1 year
Realized Gain (loss)	$ 0	$ 0

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Balance Sheet Components - Prepaid Expenses and Other Current Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Prepaid Expense and Other Assets, Current [Abstract]
Prepaid clinical and research related expenses	$ 1,492	$ 2,746
Prepaid insurance	1,401	1,417
Prepaid licenses	542	489
Other prepaid expenses	1,491	1,018
Other receivable		42
Prepaid expenses and other current assets	$ 4,926	$ 5,712

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Balance Sheet Components - Property and Equipment, Net (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Property and Equipment
Total property and equipment	$ 6,833	$ 6,819
Accumulated depreciation	(5,492)	(5,254)
Property and equipment, net	1,341	1,565
Laboratory equipment
Property and Equipment
Total property and equipment	4,831	4,817
Furniture and computer equipment
Property and Equipment
Total property and equipment	1,089	1,089
Leasehold improvements
Property and Equipment
Total property and equipment	$ 913	$ 913

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Balance Sheet Components - Accrued Expenses and Other Payables (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Accrued Expenses and Other Payables
Accrued clinical and research related expenses	$ 13,108	$ 19,109
Accrued employee related expenses	2,080	4,967
Accrued professional service fees	1,065	464
Other	334	415
Total accrued expenses and other payables	$ 16,587	$ 24,955

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended				3 Months Ended
	Aug. 31, 2022	Jan. 31, 2022	Oct. 31, 2019	Aug. 31, 2018	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Aug. 06, 2018
Stock transactions
Common stock sold					51,440,503		49,339,252
Par value (per share)					$ 0.00001		$ 0.00001
2019 Sales Agreement
Stock transactions
Common stock issued (in shares)		422,367
Maximum aggregate offering price			$ 75.0
Proceeds from public offering of common stock, net of issuance costs		$ 14.6
2022 Sales Agreement
Stock transactions
Common stock sold					1,749,199
Maximum aggregate offering price	$ 100.0
Aggregate net proceeds					$ 24.3
Common Stock
Stock transactions
Common stock issued (in shares)					1,749,199	422,367
Common Stock | Private Placement
Stock transactions
Number of warrants exercised					0
Investors | Private Placement
Stock transactions
Aggregate shares of common stock sold				2,750,000
Common stock sold, price per share				$ 8.00
Net proceeds from sale of common stock				$ 21.7
Warrants issued to purchase common stock, number of shares								2,750,000
Warrants exercisable date				Aug. 08, 2023
$10.00 per share | Investors | Private Placement
Stock transactions
Warrants to purchase common stock (in shares)								1,375,000
Exercise Price (per share)								$ 10.00
$15.00 per share | Investors | Private Placement
Stock transactions
Warrants to purchase common stock (in shares)								1,375,000
Exercise Price (per share)								$ 15.00

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Equity Plans - Narrative (Details) - shares	1 Months Ended
	May 31, 2018	Jul. 31, 2016	Mar. 31, 2023
2016 Equity Incentive Plan
Equity Plans
Expiration period		10 years
Number of shares available for issuance			892,905
2018 Inducement Plan
Equity Plans
Expiration period	10 years
Number of shares available for issuance			574,772

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Equity Plans - Stock Option Activity (Details) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2023 USD ($) $ / shares shares
Options Outstanding
Options Outstanding, Beginning balance | shares	6,240,509
Options Outstanding, Options granted | shares	2,198,750
Options Outstanding, Options exercised | shares	(128,722)
Options Outstanding, Options forfeited | shares	(148,693)
Options Outstanding, Ending balance | shares	8,161,844
Options Outstanding, Options exercisable | shares	3,935,198
Options Outstanding, Options vested and expected to vest | shares	8,161,844
Weighted-Average Exercise Price Per Share
Weighted-Average Exercise Price Per Share, Beginning balance	$ 19.03
Weighted-Average Exercise Price Per Share, Options granted	12.17
Weighted-Average Exercise Price Per Share, Options exercised	13.49
Weighted-Average Exercise Price Per Share, Options forfeited	26.21
Weighted-Average Exercise Price Per Share, Ending balance	17.14
Weighted-Average Exercise Price Per Share, Options exercisable	16.82
Weighted-Average Exercise Price Per Share, Options vested and expected to vest	$ 17.14
Weighted-Average Remaining Contractual Life (years)
Weighted-Average Remaining Contractual Life (years)	7 years 8 months 26 days
Weighted-Average Remaining Contractual Life (years), Options exercisable	6 years 2 months 23 days
Weighted-Average Remaining Contractual Life (years), Options vested and expected to vest	7 years 8 months 26 days
Aggregate Intrinsic Value
Aggregate Intrinsic Value, Options Outstanding | $	$ 63.3
Aggregate Intrinsic Value, Options exercisable | $	30.8
Aggregate Intrinsic Value, Options vested and expected to vest | $	$ 63.3
Options, weighted-average grant-date fair value	$ 10.05

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Equity Plans - Stock Options Valuation Assumptions (Details) - Options to Purchase Common Stock	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Equity Plans
Expected volatility, Minimum	106.30%	97.10%
Expected volatility, Maximum	110.10%	98.20%
Risk-free interest rate, Minimum	3.57%	1.64%
Risk-free interest rate, Maximum	3.59%	2.13%
Dividend yield	0.00%	0.00%
Expected Volatility, Percentage Of Mix Allocated To Peer Companies			25.00%
Expected Volatility, Percentage Of Mix Allocated To Entity Stock Price			75.00%
Minimum
Equity Plans
Expected term (in years)	5 years 3 months 7 days	5 years 3 months 7 days
Maximum
Equity Plans
Expected term (in years)	6 years 7 days	6 years 29 days

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Equity Plans - Restricted and Performance Stock Units - (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Restricted stock units
Number of Shares
Number of shares, Unvested, Beginning balance	637,436
Number of shares, Granted	396,775
Number of shares, Vested	(160,884)
Number of Shares, Forfeited	(9,215)
Number of shares, Unvested, Ending balance	864,112	637,436
Weighted-Average Grant Date Fair Value
Weighted-Average Grant Date Fair Value, Unvested, Beginning balance	$ 19.29
Weighted-Average Grant Date Fair Value, Granted	18.57
Weighted-Average Grant Date Fair Value, Vested	15.83
Weighted-Average Grant Date Fair Value, Forfeited	20.86
Weighted-Average Grant Date Fair Value, Unvested, Ending balance	$ 16.26	$ 19.29
Performance Stock Units
Equity Plans
Vesting percentage of requisite service period	100.00%	100.00%
Number of Shares
Number of shares, Unvested, Beginning balance	199,500
Number of shares, Unvested, Ending balance	199,500	199,500
Weighted-Average Grant Date Fair Value
Weighted-Average Grant Date Fair Value, Unvested, Beginning balance	$ 14.59
Weighted-Average Grant Date Fair Value, Unvested, Ending balance	$ 14.59	$ 14.59
Aggregate fair value of restricted stock units that vested	$ 2.9

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Equity Plans - Performance Stock Units (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Equity Plans
Stock-based compensation	$ 7,584,000	$ 5,935,000
Performance Stock Units
Equity Plans
Vesting percentage of requisite service period	100.00%		100.00%
Fair value of stock units	$ 2,900,000
Stock-based compensation	$ 0

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Equity Plans - Employee Stock Purchase Plan 2016 ESPP (Details) - 2016 Employee Stock Purchase Plan - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Equity Plans
Maximum payroll deduction for share purchases (as a percent)	15.00%
Purchase price of stock (as a percent)	85.00%
Shares issued in period		68,605
Number of shares available for issuance	1,486,685

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Equity Plans - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	$ 7,584	$ 5,935
Total unrecognized stock-based compensation costs related to stock options	$ 66,800
Period of unrecognized stock-based compensation costs to be recognized	2 years 8 months 12 days
Research and Development
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	$ 4,582	3,326
General and Administrative
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	$ 3,002	$ 2,609

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Net Loss per Share - Computation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Numerator:
Net loss	$ (33,725)	$ (20,930)
Denominator:
Weighted-average shares used to compute net loss per common share, Basic	50,573,650	48,752,548
Weighted-average shares used to compute net loss per common share, Diluted	50,573,650	48,752,548
Net loss per share, basic	$ (0.67)	$ (0.43)
Net loss per share, diluted	$ (0.67)	$ (0.43)

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Net Loss per Share - Antidilutive Securities (Details) - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	12,000,454	10,291,682
Options to Purchase Common Stock
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	8,161,844	6,809,610
Common stock warrants
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	2,750,000	2,750,000
Restricted stock units
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	864,112	606,810
Performance Stock Units
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	199,500	105,500
ESPP shares
Potentially dilutive securities have been excluded from diluted net loss per share calculations
Anti-dilutive securities (in shares)	24,998	19,762

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Subsequent Event (Details) - Subsequent Event $ / shares in Units, $ in Millions	1 Months Ended
	Apr. 30, 2023 USD ($) $ / shares shares
Subsequent Event [Line Items]
Common stock sold, price per share | $ / shares	$ 20.00
Common stock issued (in shares) | shares	5,000,000
Net proceeds, after deducting issuance costs | $	$ 107.7
Underwriter share
Subsequent Event [Line Items]
Common stock sold, price per share | $ / shares	$ 20.00
Common stock issued (in shares) | shares	750,000