PROTAGONIST THERAPEUTICS, INC.

20162019 FORM 10-K10‑K ANNUAL REPORT

TABLE OF CONTENTS

PART I

StatementStatements made in this Annual Report on Form 10-K contains10‑K contain 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. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in “Item 1A. Risk Factors” and elsewhere in this Annual Report. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and 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. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Item 1.Business.

Overview

We are a clinical-stage biopharmaceutical company withthat utilizes a proprietary technology platform focused on discoveringto discover and developingdevelop novel peptide-based new chemical entities (“NCEs” )drugs to address significant unmet medical needs.needs and transform existing treatment paradigms for patients. We have three assets in various stages of clinical development derived from this platform, and we expect to report results from six different Phase 2 studies by the end of 2021.

Figure 1: Our Product Pipeline

Our most advanced clinical asset, PTG-300, is an injectable hepcidin mimetic in development for the potential treatment of iron overload and other blood disorders. PTG-300 mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability. Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells. We are currently developing PTG-300 for the treatment of ineffective erythropoiesis, chronic anemia and iron overload, with an initial focus on beta-thalassemia non-transfusion dependent (“NTD”) and transfusion dependent (“TD”) patients where the primary focus is on developing first-in-class oral peptideendpoints are hemoglobin increases and transfusion burden reductions, respectively. PTG-300 has received an orphan drug designation from the U.S. Food and Drug Administration (“FDA”) and European Union (“EU”) regulatory authorities for the treatment of beta-thalassemia. The FDA has granted Fast Track designation to PTG-300 for the treatment of beta-thalassemia. In the first quarter of 2019, we began dosing patients in a global Phase 2 study of PTG-300 in beta-thalassemia. Preliminary results from this Phase 2 study reported in the fourth quarter of 2019 suggest that the dose related pharmacodynamic responses in lowering serum iron and transferrin saturation (“TSAT”) warrant continued evaluation at higher and/or more frequent doses which will be required to evaluate the rate and durability of clinical response in order to reach definitive conclusions. We expect to report clinical efficacy results from this Phase 2 study in 2020. We initiated a Phase 2 study in polycythemia vera (“PV”) in the third quarter of 2019 and a Phase 2 study in hereditary hemochromatosis (“HH”) in January 2020. We are working toward the initiation of an investigator-sponsored study (“IST”) of PTG-300 in patients with myelodysplastic syndromes (“MDS”) in the first half of 2020. Assuming PTG-300 shows clinical efficacy in one or more of the above indications, we intend to select our first indication in 2020 for a potential pivotal study to begin in 2021.

Our clinical assets PTG-200 and PN-943 are orally delivered drugs currently in development for inflammatory bowel disease (“IBD”), a gastrointestinal (“GI”) disease consisting primarily of ulcerative colitis (“UC”) and Crohn’s disease (“CD”), that specifically target the sameblock biological pathways alsocurrently targeted by currently marketed injectable antibody drugs. Compared to injectable antibody drugs, our oral peptides offerOur orally stable peptide approach offers targeted delivery to the gastrointestinal (“GI”)GI tissue compartment,compartment. We believe that, compared to antibody drugs, these product candidates have the potential forto provide improved safety due to minimal exposure in the blood, improvedincreased convenience and compliance due to oral delivery, and the opportunity for the earlier introduction of targeted therapy for inflammatory bowel disease (“IBD”). Our initial lead product candidates, PTG-100 and PTG-200, are based on this approach and we believeoral therapy. As a result, if approved, they have the potential tomay transform the existing treatment paradigm for IBD,IBD. 

PTG-200 (also referenced as JNJ-67864238) is an orally delivered gut-restricted Interleukin-23 receptor (“IL-23R”) antagonist for the treatment of IBD. In May 2017, we entered into a GI disease consisting primarilyworldwide license and collaboration agreement with Janssen Biotech, Inc. (“Janssen”), a Johnson & Johnson company, to co-develop and co-detail PTG-200 and any second-generation compounds for all indications, including IBD. The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL-23R antagonists, triggering a $25.0 million milestone payment to us. In January 2020, as part of ulcerative colitisthe expanded research collaboration, we announced the identification and nomination of an orally delivered, gut-restricted IL-23R antagonist peptide as a second-generation development candidate, triggering a $5.0 million milestone payment to us. See “Item 7. Management’s Discussion and Analysis – Overview” and Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information. In 2018, we completed a Phase 1 clinical study to evaluate the safety, pharmacokinetics and pharmacodynamics of PTG-200 in healthy volunteers. Janssen submitted a U.S. Investigational New Drug application (“UC”IND”), for PTG-200 in CD during the second quarter of 2019, which took effect in July 2019. In collaboration with Janssen, we initiated a Phase 2 clinical study for PTG-200 in CD in the fourth quarter of 2019, with results expected in the first half of 2021.

PN-943 is an orally delivered, gut-restricted, alpha-4-beta-7 (“α4β7”) specific integrin antagonist. We developed PN-943 as a potentially more potent orally delivered, gut-restricted α4β7 backup compound to PTG-100, our first-generation orally delivered gut-restricted α4β7 inhibitor that was being developed for treatment of UC. In 2019, we completed a Phase 1 single ascending dose (“SAD”) and Crohn’s diseasemultiple ascending dose (“CD”MAD”). clinical study of PN-943 in healthy volunteers to evaluate safety, pharmacokinetics and pharmacodynamics. We reported results of the SAD part of the study during the second quarter of 2019 and the MAD part of the study during the third quarter of 2019. The pharmacodynamic results indicated that the administration of PN-943 was well tolerated, and results of target engagement were supportive of the higher potency of PN-943 as compared to PTG-100. We submitted a U.S. IND for PN-943 in December 2019, which took effect in January 2020. We anticipate initiating a Phase 2 proof of concept (“POC”) study in UC in the second quarter of 2020, with topline data expected in the second half of 2021.

PTG-100 and PTG-200Our clinical assets are all derived from our proprietary peptide technologydiscovery platform. Peptide therapeutics represent a substantial and growing therapeutic class with more than 60 U.S. Food and Drug Administration (“FDA”) approved drugs. Our platform enables us to discoverengineer novel, structurally constrained peptides that retain certain key advantages of both oral andorally delivered small moleculemolecules and injectable antibody drugs, while overcoming many of their limitations as therapeutic agents. ConstrainedImportantly, constrained peptides are rigid, well-folded structures typically formed by disulfide bonds thatcan be designed to alleviate the fundamental instability inherent in traditional peptides which cannot be delivered orally. Further, these constrained peptides are designed to bindallow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to biologicaluse our peptide technology platform to discover product candidates against targets including protein-protein interactions (“PPI”) targets, which are typically approached by antibodies since small molecules cannot bind effectively to these targets. It is estimated that up to 80% of all potentialin disease targets are not amenable to drug development by small molecules and have therefore traditionally been approached by injectable antibody drugs.areas with significant unmet medical needs.

Our novel peptides have potential applicability in a wide range of therapeutic areas in addition to GI diseases. Our first product candidate beyond IBD is PTG‑300: AN INJECTABLE HEPCIDIN MIMETIC

PTG-300, an injectable hepcidin mimetic, which is currently in pre-clinical development with completion of Investigational New Drug (“IND”) enabling studies expected by the end of the first half of 2017. A hepcidin mimeticwas discovered through our peptide technology platform. Hepcidin is a peptide that mimics the function of the natural hormone hepcidin.that regulates iron metabolism. We are developing PTG-300 has potential utility for the treatment of certain disorders characterized by ineffective erythropoiesis, excessive red blood cells or iron overload disorders, such asb-Thalassemia, hereditary hemochromatosis (“HH”) and sickle cell disease (“SCD”), eachoverload. In diseases of which may qualify PTG-300 for orphan drug designation.

Index to Financial Statements

Our Product Candidates

PTG-100

PTG-100 has first-in-class potential as an oral, alpha-4-beta-7 (“a4b7”) integrin-specific antagonist for the treatmentineffective erythropoiesis, excessive quantities of IBD. Thea4b7 integrin is considered to be one of the most GI-specific biological targets for IBD. It is a cell surface protein present on T cells that plays an important roleiron in the trafficking of T cellsbone marrow contribute to oxidative stress and premature cell death causing anemia. In healthy individuals, hepcidin regulates iron levels by inhibiting iron absorption from the GI tissue compartmenttract and by bindinglimiting macrophage release of iron. Individuals with beta-thalassemia and MDS can have insufficient hepcidin to MAdCAM-1, an extracellular proteinmaintain appropriate iron levels that resides mostlyresult in the GI vasculature.

We are leveraging several factors to inform and guide the clinical developmentchronic anemia. Because of PTG-100 for the treatmentstability issues, complexity of IBD. First, PTG-100 shares the samea4b7 integrin target as the injectable antibody drug vedolizumab, marketed as Entyvio^®, for the treatment of moderate-to-severe UC and CD. Second, we utilized pharmacodynamic (“PD”) biomarker assays similar to those described in scientific publications used with Entyvio^® and other antibodies in development as indicators of target engagement to establish proof-of-concept (“POC”) in our Phase 1 clinical trial with PTG-100. These PD data include increases in receptor occupancy and decreases in receptor expression. We believe that we can utilize published information describing the development and regulatory path of Entyvio^® and other approved antibody drugs for IBD to help inform the design of our clinical development studies.

We have completed extensive pre-clinical studies of PTG-100 in which we established pharmacological POC, including effects on T cell trafficking and mucosal healing similar to comparatora4b7 rodent antibody, DATK-32. Following the submission and approval of a Clinical Trial Notification (“CTN”) in Australia in December 2015, we initiated a Phase 1 clinical trial, comprised of three components: a single ascending dose (“SAD”) and multiple ascending dose (“MAD”) component, each of which evaluated safety, pharmacokinetics (“PK”), and PD-based POC in healthy subjects, using an oral liquid formulation of PTG-100. The Phase 1 clinical trial was completed in June 2016. Dose escalation proceeded up to 1,000 mg, the highest dose tested in the study for both single and multiple dosing. There were no serious adverse events reported in the Phase 1 clinical trial, and no dose-limiting toxicities were observed. All reported adverse events were of mild to moderate severity. There were no dose-dependent increases observed for any adverse events. The most frequent adverse events reported by subjects on PTG-100 were headache and upper respiratory tract infection. These events were also observed in subjects who took placebo.

We initiated a global Phase 2b randomized, double-blinded, placebo-controlled dose-finding clinical trial in the fourth quarter of 2016 to assess safety and efficacy of PTG-100 in moderate-to-severe UC patients. We anticipate that the trial will enroll approximately 240 subjects at approximately 100 sites in the United States, Canada, Europe (Western, Central, and Eastern), Asia, Australia, and New Zealand. The primary objectives of our Phase 2b clinical trial are to evaluate the safety and tolerability of PTG-100 and its efficacy in the induction of remission in subjects with moderate-to-severe UC. Secondary objectives are to select PTG-100 induction doses for continued development, to characterize PTG-100 plasma concentrations and pharmacodynamic responses, and to evaluate any immunogenicity over 12 weeks. The trial will include subjects who have had prior exposure to tumor necrosis factor-alpha (“TNF-a”) inhibitors and subjects who have not been treated with biologics. Subjects will be randomized to one of four dose arms (150mg/300mg/900mg PTG-100 or placebo) for 12 weeks of once-daily oral dosing, followed by four weeks of safety follow-up. An interim futility analysis is expected to be performed in the second half of 2017, and if futility criteria are not met, one or two PTG-100 doses will be selected for continued randomization of the remaining subjects. We expect to complete the study and report top-line data in the second half of 2018. We expect that this trial will support end-of-Phase 2 meetings with global health authorities and enable the initiation of a Phase 3 pivotal program.

The primary endpoints are consistent with those used in the clinical development of previously approved drugs for UC. The trial is statistically powered to detect a clinically meaningful difference in induction of remission in subjects with moderate-to-severe UC who are treated with PTG-100 compared to placebo. The evaluation of clinical remission is based on the Mayo Score, which is a well-established composite assessment that utilizes patient-reported outcomes and endoscopic improvement. Secondary efficacy endpoints will include

Index to Financial Statements

endoscopic response, clinical response, endoscopic remission, change in endoscopic subscore, change in stool frequency and rectal bleeding subscores, change in fecal calprotectin, change in the IBD questionnaire, change in Mayo score and change in partial Mayo score, from baseline to multiple points during the induction period.

We plan to develop PTG-100 initially for the treatment of moderate-to-severe UC, potentially followed by mild-to-moderate UC, CD, and pediatric IBD, the latter being an orphan indication.

PTG-200

Our second oral, GI-restricted peptide product candidate is PTG-200, a potential first-in-class Interleukin-23 receptor (“IL-23R”) specific antagonist for the treatment of IBD. Interleukin-23 (“IL-23”) is a member of the IL-12 family of pro-inflammatory cytokines, and is a protein that regulates inflammatory and immune function and plays a key role in the development of IBD. By blocking the IL-23 receptor with PTG-200 in the GI tissue compartment, we expect to reduce inflammation while potentially minimizing the risk of systemic side effects due to its GI-restricted nature. The IL-23 pathway is targeted by the IL-12 and IL-23 antagonist infused antibody drug ustekinumab, marketed as Stelara^®, for psoriasis, psoriatic arthritis, and moderate-to-severe CD.

We have completed pre-clinical POC studies for PTG-200, started IND-enabling studies, and plan to initiate a Phase 1 clinical trial in 2017. We plan to develop PTG-200 initially for the treatment of moderate-to-severe CD, potentially followed by UC and pediatric IBD, the latter being an orphan indication.

PTG-300

PTG-300 is an injectable hepcidin mimetic peptide that we are developing for the treatment of iron overload disorders, such asb-Thalassemia, HH and SCD, each of which may qualify for orphan drug designation. Hepcidin is a peptide hormone critical for regulating iron homeostasis. However, hepcidin has significant stability, potencysynthesis and solubility limitations.limitations, direct replacement with native hepcidin is not a practical therapeutic approach. We have discovered and developed PTG-300 as a stable, soluble, more readily manufactured injectable hepcidin mimetic that could potentially prevent iron toxicity and anemia with chronic subcutaneous injections.

Mechanism of Action and Rationale

The molecular target of the hormone hepcidin is the cellular trans-membrane protein ferroportin, which functions as an export channel for intracellular iron in macrophages, liver hepatocytes, and duodenal enterocytes. By binding to the extracellular domain of ferroportin, hepcidin redistributes iron by reducing the export of iron from inside the enterocytes and macrophages to the systemic circulation. Excessive quantities of iron relative to the lower levels of beta-globin chains in the bone marrow induce ineffective erythropoiesis resulting in anemia. As a hepcidin mimetic, PTG-300 may redistribute iron to the macrophages, reduce iron-induced oxidative stress in the bone marrow, and allow for sufficient production of red blood cells. In addition, by limiting the release of iron into the blood, PTG-300 may inhibit the damage caused by excessive absorption of iron by vital organs such as the liver and heart (i.e. secondary iron overload).

Iron Disorders Overview

Beta-thalassemia

Beta-thalassemia is a rare genetic blood disorder that is characterized by impaired red blood cell production. As a result of the underlying genetic defect in -globin production, beta-thalassemia patients may be severely anemic, resulting in the need for lifelong supportive care with regular red blood cell transfusions. Repeated transfusions can cause secondary iron overload in the heart and liver which results in shortened lifespan in patients. In the bone marrow, elevated levels of iron relative to the decreased levels of beta-globin can prevent red blood cells from fully developing, resulting in anemia. In addition, the resulting immature red blood cells can aggregate in the spleen causing organ enlargement that may require surgical removal. In conditions of ineffective erythropoiesis, such as beta-thalassemia and MDS, hepcidin levels are suppressed leading to increases in iron absorption from the GI tract and iron export from macrophages which may be toxic to developing erythrocytes. It has been proposed that agents with hepcidin activity may help correct the iron distribution abnormalities in beta-thalassemia with beneficial effects on erythropoiesis.

Existing treatment options for iron-loading anemia and secondary iron overload are limited. Patients with transfusion-dependent (“TD”) beta-thalassemia require lifelong regular red blood cell transfusions and general supportive care. Red blood cell transfusions can treat a patient’s anemia but exacerbate the patient’s iron overload and are burdensome. The iron overload caused by transfusions may require treatment with chelating agents, which can have adverse effects. Transfusion and iron chelation therapy have significantly improved the survival of TD beta-thalassemia patients over the last few decades. However, these agents work very slowly and have significant kidney, gastrointestinal, and liver toxicity issues. The greatest unmet need for beta-thalassemia is for more effective treatment for chronic anemia to decrease the burden of frequent blood transfusions and thus eliminate the complications associated with the disease and its management as well as costs associated with red blood cell transfusions and chelation therapy. We believe that PTG-300 may be able to restore iron homeostasis in the bone marrow as well as reduce excess circulating iron, improving anemia and thereby reducing or eliminating the need for red blood cell transfusions and related chelation treatments.

Beta-thalassemia is most prevalent in people of Mediterranean descent, such as Italians, Greeks or Turks, and is also found in people from the Arabian Peninsula, Iran, Africa, Southeast Asia and southern China. Globally, the prevalence of beta-thalassemia was estimated to be approximately 300,000 patients in 2008, with at least 60,000 patients born each year with the disease, according to the Centers for Disease Control and Prevention. In 2018, Decision Resource Group (“DRG”) reported that while beta-thalassemia has a worldwide carrier rate of 1.5%, the disease is rare in the United States, Italy, Germany, United Kingdom, Spain, and France with a total diagnosed prevalence of 16,000 patients, approximately 85% of which are transfusion dependent, representing an estimated market opportunity of approximately $1.4 billion to $2.5 billion. The prevalence in the United States is low, with an estimated 3,000 patients and approximately 300 patients born each year with the disease. Most patients with beta-thalassemia suffer from anemia caused by hepcidin deficiency and a significant number are dependent on transfusions and chelating agents, which can cost between $50,000 to $70,000 per year in the United States.

Polycythemia vera (“PV”)

PV is a rare chronic disease caused by a hematopoietic stem cell mutation. PV is characterized by excessive erythropoiesis (production of blood cells). These excess blood cells can increase risk of serious problems such as blood clots, potentially leading to heart attack and stroke as well as more common symptoms including fatigue, headache, blurred vision, shortness of breath and an enlarged spleen. Over time PV may transform into myelofibrosis or leukemia. An important aspect of the mechanism of action of the hepcidin mimetic PTG-300 is to reduce serum iron, which is required to support the excessive erythropoiesis which occurs in PV, thereby potentially enabling PTG-300 to manage this excessive erythropoiesis and ultimately reduce the phlebotomy burden and thrombotic risk in these patients. In the United States, Italy, Germany, United Kingdom, Spain and France,  there are currently more than 150,000 diagnosed PV patients representing an estimated market opportunity of approximately $1.0 billion to $2.0 billion.

Hereditary hemochromatosis (“HH”)

HH is a blood disorder caused by genetic mutations that increase iron uptake from the diet and alter its distribution in the body, leading to iron buildup in the body’s tissues and organs, particularly in the skin, heart, liver, pancreas and joint tissues. Excess iron in these organs and tissues can be more potenttoxic and more amenableover time lead to cirrhosis, liver cancer, heart problems, joint pain and diabetes. Current treatments for HH, including periodic phlebotomy, can be a significant burden to patients. PTG-300 could potentially reduce the need for phlebotomy and offer a safer and better long-term solution to management of the disease. The genetic defects that cause most HH are present in approximately five to seven million patients in the United States and EU.

Myelodysplastic syndromes (“MDS”)

MDS are a group of disorders in which blood cells do not mature properly in the bone marrow. Symptoms can include fatigue, shortness of breath, excessive bleeding or frequent infections. There are approximately 19,000 transfusion dependent MDS patients in the United States, Italy, Germany, United Kingdom, Spain, and France. There are multiple MDS subpopulations, some of which are characterized by anemia, low hepcidin, and high serum iron and transferrin saturation. Significant unmet needs for these patients include reduction in or elimination of transfusions, prevention of disease progression to acute myelogenous leukemia and overall survival.

PTG‑300’s Clinical Development Program

PTG-300 has received orphan drug designation from the FDA and EU regulatory authorities, and Fast Track designation from the FDA for the treatment of beta-thalassemia. Fast Track designation is an expedited review to facilitate development of investigational drugs which treat a serious or life-threatening condition and fill an unmet medical need. In 2018, we successfully filed an IND for PTG-300 in the United States and related clinical trial applications outside the United States.

In the first quarter of 2019, we began dosing patients in a global Phase 2 study of PTG-300 in beta-thalassemia called TRANSCEND. The study is a single-arm, open label, MAD design that evaluates safety, POC and dose finding in adolescent and adult patients with anemia associated with NTD or TD beta-thalassemia. NTD patients receive 12 weeks treatment with PTG-300 in escalating dose cohorts. The primary efficacy endpoint in NTD patients is a  change in hemoglobin from baseline. TD patients receive 16 weeks treatment with PTG-300 in escalating dose cohorts. The primary efficacy endpoint in TD patients is a change in transfusion burden from baseline. The primary objectives of this study are to evaluate the safety, tolerability and preliminary efficacy of PTG-300 and identify an appropriate starting dose and titration regimen for registration studies.

Previously, we reported preliminary results from the Phase 2 study. Dose-related drug exposure reductions from baseline TSAT and serum iron levels were observed (Figure 2), with significant reductions at the 40 mg and 80 mg weekly doses and significant and sustained reductions at the 40 mg twice weekly doses.

Figure 2: PTG-300 Reduces TSAT and Serum Iron Levels – TD Beta-thalassemia Patients and Normal Human Volunteers (“NHV”)

The dose-related pharmacodynamic responses in TSAT and serum iron levels observed in this preliminary analysis provide the first evidence of the effects of PTG-300 in patients with beta-thalassemia. These early results suggest the potential of finding an appropriate dose of PTG-300 for continued development in the treatment of beta-thalassemia. While we have observed clinical responders in the study based on the pre-specified criteria of reductions in transfusion burden, continued evaluation at higher doses will be required to evaluate the rate and durability of these

effects in order to reach definitive conclusions. We will continue further study with additional dose regimens and longer follow-up and expect to report topline results in 2020.

PTG-300 was well-tolerated and systemic adverse events were mild to moderate in severity and were typical of patients with beta-thalassemia. These events were not dose-related and did not prevent dose escalation. There was one serious drug-related adverse event of vomiting and confusion, and the most frequent treatment emergent adverse event observed was injection site erythema in 5 out of 39 patients (12.8%). 

In the fourth quarter of 2019, we initiated a Phase 2 study of PTG-300 in PV designed to evaluate safety and preliminary efficacy in patients requiring phlebotomy. The Phase 2 study in PV is expected to enroll approximately 30 patients and consists of a 16-week open-label dose finding stage every 4 weeks from 10 mg to 80 mg and a 12-week maintenance period at doses which generate desired hematocrit levels, followed by a 12-week randomized and blinded withdrawal stage. The study has an open-label extension for up to one year to monitor long term safety and benefits of the drug. The endpoints of this clinical POC study include measurement of blood parameters (hematocrit and hemoglobin levels), reductions or less frequent subcutaneous delivery compareddelay in phlebotomy requirements, and improvements in quality-of-life symptoms. 

In January 2020, we initiated a Phase 2 study of PTG-300 in HH. This study is an open label, multicenter study designed to hepcidin. evaluate the effects of PTG-300 in approximately 30 adult patients over 24 weeks of treatment. Guidelines for HH focus on controlling TSAT and ferritin to prevent long-term complications. Given the TSAT reductions from PTG-300 observed to date in both healthy volunteers and beta-thalassemia patients, as well as regulation of organ iron content in a mouse model of HH, we believe that a significant reduction in phlebotomy may be possible with PTG-300. The endpoints of this POC study include change in TSAT and serum iron levels, reductions in phlebotomy requirements and an assessment of participant-reported outcomes.

We planexpect to complete IND-enabling studies by the endinitiate an IST of PTG-300 in MDS in the first half of 2020.

Assuming PTG-300 shows clinical efficacy in one or more of the above indications, we intend to select our first indication in 2020 for a potential pivotal study to begin in 2021.

OVERVIEW OF INFLAMMATORY BOWEL DISEASE

IBD is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, consisting primarily of UC and CD. In UC, inflammation may be limited to part of the colon or extend through its entirety. UC is primarily characterized by ulceration of the intestinal surface, accompanied by rectal bleeding and frequent, urgent bowel movements. CD occurs anywhere along the GI tract, commonly affecting the small intestine and the proximal large intestine. CD complications may include strictures and fistula, which penetrate all layers of the intestine. UC is usually diagnosed earlier than CD due to bleeding symptoms. Patients with CD may initially present with abdominal pain, fatigue and anorexia, which can be misdiagnosed. Both diseases’ peak diagnosis years are in young adulthood and are found about equally in both males and females. Management is lifelong and affects school attendance, graduation rates, childbearing and work productivity. IBD prevalence is increasing worldwide and is correlated with the adoption of western diets and lifestyle, as well as genetic factors (5 to 20% of affected patients have a first degree relative with the disease).

Market Overview

According to the Crohn’s & Colitis Foundation of America, there are more than 1.6 million IBD patients in the United States alone, an increase of approximately 200,000 patients since 2011. As many as 70,000 new cases of IBD are diagnosed in the United States each year, and there may be as many as 80,000 children in the United States with IBD. GlobalData estimates that the UC market was approximately $5.3 billion across seven major markets: United States, France, Germany, Italy, Spain, United Kingdom and Japan. This is expected to increase at a compound annual growth rate of approximately 2.5% to $6.8 billion by 2026. In 2017, GlobalData estimated that the CD market reached approximately $9.6 billion across those same seven major markets and completeis expected to grow approximately 3.7% per year to $13.8 billion by 2026.

Johnson & Johnson global sales of Stelara® (approved for psoriasis, psoriatic arthritis, moderate-to-severe CD and UC) exceeded $5.0 billion in 2018. Takeda Pharmaceuticals sales of Entyvio® for IBD reached approximately $3.0 billion in 2019.

Current Standard of Care in IBD

In recent years, treatment of IBD has evolved from a Phase 1focus on successful symptom management to an emphasis on modifying the underlying disease to achieve long-term remission. While available treatments exist for moderate-to-severe IBD, there continues to be a significant medical need for novel, efficacious, safe and convenient treatments. New technologies and outcome measures have been developed to improve staging definitions and assessments of treatment benefit. Nonetheless, halting or reversing IBD progression has not yet been achieved with any single agent therapy, and attaining and maintaining long-term remission in most patients remains a significant unmet medical need. Across therapeutic classes, 15% to 31% rates of clinical trial that will evaluate safety/ tolerability, pharmacokineticsremission represent the current ceiling in patients with moderate-to-severely active disease.

Biosimilar infliximab and pharmacodynamic proof-of-conceptother tumor necrosis factor (“TNF”) inhibitors are the first line standard of care in moderate-to-severe IBD. Anti-TNFs bind to and neutralize a central pro-inflammatory cytokine in the gut via systemic immunosuppression. As a result, they can be associated with infection and malignancy risk. Although the magnitude of these risks is relatively low, they are significant for the young IBD population who must continue on lifelong treatment. In addition, more than 10% of patients treated with anti-TNF agents lose response with each year of treatment. In 2014, a novel anti-trafficking mechanism launched with vedolizumab (Entyvio®), which blocks migration of leukocytes into the gut via α4β7 integrins. This mechanism remains the only true “gut selective” approach in the IBD market today, although formulation technologies can limit systemic exposure from orally delivered agents. Entyvio® has shown an excellent safety profile, although it requires intravenous administration. Entyvio® was followed by the endlaunch of 2017.ustekinumab (Stelara®) in CD in 2016, which blocks inflammation produced through the Interleukin 12 (“IL-12”) and Interleukin 23 (“IL-23”) pathways, and tofacitinib (Xeljanz®), an orally delivered pan-Janus kinase (JAK) inhibitor approved in UC.

Additional Product Candidates.A head-to-head trial called VARSITY comparing the long-term safety and efficacy of an anti-integrin and anti-TNFs has been completed. Entyvio® demonstrated superior rates of clinical remission and endoscopic improvement compared with Humira, the market leader in the TNF inhibitor class. The first formal combination trials in IBD were initiated in the last year, adding new mechanisms such as integrin inhibitors or IL-23 inhibitors to anti-TNFs. Most IBD experts now believe that combining treatment classes with additive or synergistic mechanisms of action will be required to attain the disease-modifying effects and lasting remissions in a larger group of patients documented in other areas of immunology, such as psoriasis or rheumatoid arthritis.

We are currently researchingbelieve the development of new, potent and targeted orally delivered therapies for IBD may offer safer and more effective treatment options, alone or in combination, for moderate-to-severe IBD patients. In addition, many clinicians continue to advocate for earlier introduction of targeted therapeutics in mild-to-moderate IBD in order to prevent disease progression and irreversible gastrointestinal damage. Our orally delivered, GI-restricted, peptide drugs PTG-200 and PN-943 work on the same specific validated targets as FDA-approved injectable antibodies and have the potential oralto offer improved safety and injectable peptide-basedcompliance and to minimize the risk of immunogenicity associated with antibodies. We believe that our product candidates, for a range of conditionsif approved, have the potential to be used more broadly, including but not restricted to GI diseases.

The Evolution of Antibody Drugs for Targeted Therapy and Their Limitations

Before the FDA approval of antibody drugs, chemically synthesized oral small molecules were the standard-of-care for the treatment of many diseases. However, small molecules are not capable of blocking most PPIs that underpin cellular processes frequently involved in numerous diseases. It is estimated that small molecules cannot be developed as drugs for the treatment of up to 80% of all identified potential disease targets. With the availability of antibody drugs, targeted therapy for many PPI-driven diseases became feasible.

In 2015, six of the top ten selling U.S. drugs were antibody drugs. In 2013, all approved antibody drugs together generated approximately $75 billion in sales. More than 30 antibody drugs have now been approved by the FDA, including the IBD targeted therapy drugs Humira^®, Remicade^®, and Entyvio^®.

Despite their growing use, antibody drugs present several limitations for patients including, but not limited to, the following:

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Our Solution for IBD: Oral, GI-Restricted Peptidesmild-to-moderate IBD.

Our novel peptide therapeutics platform may provide important benefits over existing non-targeted small molecule, injectable antibody, and conventional peptide therapeutics. In addition, our platform represents a major step forward in the evolution of peptidesIBD Solution: Orally Delivered, GI-Restricted Peptides as therapeutics. Most of the more than 60 currently FDA approved peptides have unstructured shapes, leading to chemical and biological stability limitations, which confine their use to injectable drugs. In contrast, our peptide technology platform allows us to identify constrained peptides that can serve as a starting point for discovery and development of oral, selective, and potent peptides. The well-folded conformation in our constrained peptides is typically derived by disulfide bonds, a structural feature inherent in many naturally occurring peptides. Targeted Therapies

For the IBD targets of interest, the size and nature of our peptides isare carefully selected and modified so as to acquire the desired potency and specificity, and also to largely restrict their presence to the GI tissue compartment when administered orally. These features translate to oral,orally delivered, GI-restricted, selective and potent peptide drug candidates with specific advantages compared to antibody drugs:

In chronic GI diseases such as IBD, we believe that our oral,orally delivered, GI-restricted peptide product candidates may offer improved delivery, the potential for improved safety and tolerability, and cost efficiencies that may provide an overall benefit to patients, payers,payors, and physicians.

Overview of Inflammatory Bowel DiseasePTG‑200: AN ORALLY DELIVERED IL‑23R ANTAGONIST

Inflammatory bowel disease is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, consisting primarily of UC and CD, and characterized by abdominal pain, diarrhea, weight loss, fatigue and anemia. In UC, inflammation starts in the rectum and generally extends proximally in a continuous manner through the entire colon. In CD, the disease most commonly affects the small intestine and the proximal large intestine. Both UC and CD have periods of various intensity and severity, and when a patient is symptomatic, the disease is considered to be in

PTG-200, an  active or flare stage. Approximately 25% of UC cases occur in persons before the age of 20. Furthermore, pediatric IBD is considered an orphan indication.

Market Overview

According to the Crohn’s & Colitis Foundation of America, there were an estimated 1.6 million IBD patients in the United States in 2013, an increase of approximately 200,000 patients since 2011. As many as 70,000 new cases of IBD are diagnosed in the United States each year. As of 2008, annual direct treatment costs for patients with IBD in the United States were estimated to exceed $6.3 billion, while indirect costs such as missed work days were estimated to cost an additional $5.5 billion. In 2012, GlobalData estimated that the UC market reached approximately $4.2 billion and the CD market reached approximately $3.2 billion, in each case across ten major markets: the United States, France, Germany, Italy, Spain, the United Kingdom, Japan, Canada, China, and India. According to Global Data estimates, these markets are expected to grow at a compound annual growth rate of approximately 3% to 5% over the ten years from 2012 to 2022.

History of IBD Treatments

Non-Targeted Therapies

Sulfasalazine was discovered as the first non-targeted therapy for treatment of UC. Non-targeted therapies continued to evolve, including the introduction of corticosteroids for treatment of moderate UC in the 1950s. Subsequently, the immunosuppressive drug mercaptopurine was identified for UC in the 1960s, azathiopurine was developed in the 1970s, followed by 5-aminosalicylic acid. While these oral, non-targeted broad-spectrum anti-inflammatory agents and non-specific immunomodulators continue to be part of the IBD treatment paradigm, especially in mild-to-moderate IBD, these drugs are often ineffective, and corticosteroid and oral immunosuppressive drugs may have significant and disabling adverse effects that limit their use.

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TNF-aanda4b7Integrin Targeted Antibody Drugs

Recent advances in molecular biology and genomics ushered in the development of the potent and highly targeted biologic drugs. TNF-a was identified as a cytokine, a protein involved in cell signaling, that plays an important role in the inflammatory processes associated with IBD. In developing therapies against TNF-a, small molecule antagonists that directly bind TNF-a and other PPI targets have yet to be discovered and approved as therapeuticsorally delivered, gut-restricted IL‑23R specific antagonist for the treatment of IBD. Thus, monoclonal antibody drugs emerged as a new class of therapeutics that can inhibit TNF-a activiy. There are currently five TNF-a antibody drugs (Humira^®, Remicade^®, Cimzia^®, Simponi^® and Inflectra^® (infliximab biosimilar)) approved for the treatment of UC and/or CD. In 2014, Entyvio^®, an intravenously administered antibody that selectively targets thea4b7 integrin, was approved for the treatment of adult patients with moderate-to-severe UC or CD where one or more standard therapies have not resulted in an adequate response. Entyvio^® sales were approximately $530 million in 2015 and are projected to peak at approximately $2 billion.

While antibody drugs have greatly improved the treatment of IBD, they generally serve as the last-line of treatment before surgery due to their potential for severe adverse effects, diminishing efficacy over time, inherent limitations as injectable-based therapies, and high costs of therapy.

The Evolving IBD Treatment Paradigm

Inducing and maintaining clinical remission is the primary goal of treatment for IBD patients. The current treatment paradigm for IBD is considered a “step-up” approach. It involves a sequential “step-up” in treatment to more potent but higher risk therapies according to the level of severity of the patient’s disease. Thus, targeted biologic therapies are generally reserved for patients with moderate-to-severe disease who have failed to respond to non-targeted oral therapies including 5-ASA agents, corticosteroids and non-specific immunomodulators. As a result, only a portion of IBD patients currently receive a targeted antibody therapy.

For moderate-to-severe IBD patients, physicians may prescribe TNF-a antibody drugs (e.g. Remicade^® or Humira^®) or Entyvio^®, an antibody drug inhibitinga4b7 integrin, to induce and maintain clinical remission. Patients who are transitioned to these targeted antibody drugs may fail to respond to treatment or lose response to some or all of these agents over time and may ultimately require surgery. Approximately 50% to 73% of CD and 65% of UC patients fail to reach remission with TNF-a antibodies. Furthermore, 30% to 40% of UC patients and approximately 40% of CD patients treated with TNF-a antibody drugs stop responding to these agents over time (secondary non-responders) at a rate of approximately 10% to 13% per year. Of the CD patients who initially benefit from TNF-a antibody drugs, 25% to 40% of these patients develop intolerable or serious adverse events or lose their response within the first year of therapy. Currently, a common approach for IBD patients with lack of efficacy or loss of response to TNF-a antibody drugs is to switch such patients to other TNF-a antibody drugs. Although this is initially successful in 40% to 60% of patients, there remains a lack of treatment options for patients who lose responses to multiple TNF-a antibody drugs. Further, patient non-adherence with TNF-a antibody drugs in IBD has been reported to be between approximately 30% to 45% resulting in a greater need for hospitalization.

The development of new, potent and targeted therapies for IBD with oral delivery may potentially offer more effective treatment options for moderate-to-severe IBD patients. Furthermore, many clinicians are already advocating for an earlier introduction of targeted therapeutics in IBD to reduce, replace or delay the use of corticosteroids and non-specific oral immunomodulators. This treatment approach is often referred to as a “top-down” approach as therapeutics that are currently at the top of the “step-up” pyramid are moved down to earlier in the treatment paradigm (see Figure 1). We believe we are well-positioned to be leaders in this shift from “step-up” to “top-down” therapy. Our oral, GI-restricted, and targeted peptide drugs work on the same specific targets as injectable antibody drugs and have the potential to offer improved patient safety, improved compliance and convenience and reduced immunogenicity as compared to antibody drugs. In addition, key opinion leaders are increasingly viewing thea4b7 integrin antagonist Entyvio^® as a preferable alternative to TNF-a blockers for the

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treatment of IBD due to its improved safety profile. Taken together, we believe that these trends may result in our product candidates, if approved, being used more broadly than antibody drugs in moderate-to-severe IBD patients and potentially being used for the treatment of mild-to-moderate disease.

Figure 1: Transforming the Existing IBD Treatment Paradigm with Oral Targeted Therapy Drugs

PTG-100: AN ORALa4b7INTEGRIN ANTAGONIST

PTG-100 was discovered through our peptide technology platformplatform. Interleukin‑23 (“IL-23”), a member of the IL‑12 family of pro-inflammatory cytokines, is a protein that regulates inflammatory and is being developed asimmune function and plays a potential first-in-class oral, GI-restricteda4b7 integrin-specific antagonist initially for patients with moderate-to-severe UC.

Mechanism of Action

Integrins, such asa4b7, are transmembrane proteins that regulate cellular movement into extravascular tissue and play an importantkey role in modulating the inflammatory reaction in the gut. Thea4b7 integrin is expressed on the surface of T cells, immune cells that help defend against foreign and potentially harmful substances that enter the body. The development of UC is driven by the migration ofa4b7 T cells into the GI tissue compartment and their subsequent activation within the GI tissue compartment. The entry ofa4b7 T cells into the GI tissue compartment is facilitated by the PPI between thea4b7 integrin and its corresponding ligand, MAdCAM-1, which is primarily expressed in the GI tissue compartment. Hence, the binding ofa4b7 to MAdCAM-1 can be categorized as a GI-specific interaction and has been identified as an IBD-specific targeted therapeutic approach.IBD. By blocking the binding ofa4b7 integrin to MAdCAM-1, PTG-100 may prevent T cells from entering the GI tissue compartment, thereby reducing inflammation that leads to the clinical manifestations of UC.

a4b7 for IBD is targeted by FDA-approved Entyvio^® (vedolizumab), which has demonstrated safety and efficacy in patientsIL‑23R with moderate-to-severe UC and CD. Since PTG-100 targets the same biological pathway as Entyvio^®, we can utilize similar PD-based POC as early as in our pre-clinical studies and Phase 1 clinical trial to inform and guide our Phase 2b development program. We sourced these PD biomarker assays from public scientific publications and do not maintain any contractual arrangement providing access to this information with the makers of these marketed products.

Translating PTG-100’s Pre-Clinical POC to Clinical POC

We have established a potentially efficacious dose range of PTG-100 in mice by demonstrating similar pharmacologic activity between oral PTG-100 and an injectablea4b7 antibody in mouse models of IBD. From this

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efficacious dose range in mice, approximately 6-50 mg/kg per day, we are able to directly estimate a potentially efficacious dose range in humans through allometric scaling based on whole body surface areas, which we determined to be approximately 33-300 mg per day.

Concurrently, we employed a complementary approach for establishing a potentially efficacious human dose range and early POC through specific blood PD response markers that reflecta4b7 integrin target engagement of PTG-100PTG‑200 in the GI tissue compartment, we hope to improve disease symptoms and correlated those PD measurements with efficacy responses in mouse colitis models. Target engagement is a critical feature for demonstrating that PTG-100 can reach its intended target, thus inhibitingreduce bowel wall damage while potentially minimizing the traffickingrisk of T cells into the GI tissue compartment. Our PD markers were monitored in mice and cynomolgus monkeys (“cyno”), which were similarly evaluated in normal healthy volunteers in our Phase 1 clinical trial. These blood PD responses demonstrated that PTG-100 engaged its intendeda4b7 target and helped guide human dosing for our Phase 2b clinical trial.

PTG-100’s Pre-Clinical Proof-of-Concept Studies

Pre-clinical studies have demonstrated that PTG-100 is a potent and highly selectivea4b7 antagonist with minimal systemic absorption. Mouse colitis models have further demonstrated that PTG-100 can inhibit T cell trafficking in the gut similarside effects due to the actions of the mousea4b7 antagonist antibody.

PTG-100 potently inhibited binding ofa4b7 to MAdCAM-1 in several human biochemical enzyme-linked immunosorbent assay (“ELISA”) and cell adhesion (transformed and primary cells) assays in a low nanomolar concentration range sufficient to inhibit 50% of binding (“IC50”) comparable to vedolizumab. PTG-100 exhibited greater than a 100,000-fold selectivity against other structurally similar integrins,a4b1 andaLb2, in cell adhesion assays which is comparable to the selectivity of vedolizumab. PTG-100 was stable inin vitro assays simulating the GI tissue compartment, such as the small intestine and gastric stomach, with half-lives exceeding 12 hours and in human liver microsomes suggesting strong oral stability and the potential for once daily dosing in humans. PTG-100 did not affect the growth of and was not metabolized by common members of the human intestinal microflora. In total, these drug properties provide evidence to characterize PTG-100 as a potential first-in-class orally stablea4b7-specific antagonist. Furthermore, these drug properties allowed us to demonstrate proof-of-concept in animal colitis studies.

Non-clinical metabolism and PK studies demonstrated that much greater amounts of PTG-100 as measured by the maximum concentration (“Cmax”) as a percentage of total drug amount dosed orally, were present in the GI compartments, such as the small intestine, colon and feces compared to the systemic plasma and urine compartments of mice, rats, and cyno, thus confirming its GI-restricted properties. Further, PTG-100 has an oral systemic bioavailability of less than 0.5%.nature.

We designed mouse colitis studies similar to those used for antibody drugs targeting this pathway to specifically monitor T cell trafficking to and from the GI tissue compartment (Figure 2). PTG-100 reduceda4b7 memory T cells migrating to the gut lymphoid tissues, including the mesenteric lymph nodes (“MLN”) and Peyer’s patches (“PP”), under inflammatory conditions in the GI tissue compartment. Another example of the ability of PTG-100 to inhibit T cell trafficking was demonstrated by the reduction in the number ofa4b7 cells in colon lesions in colitis mice. Furthermore, treatment benefit was demonstrated through blinded video endoscopy analysis for mucosal damage, and assessment of the incidence of bloody feces, which represent symptoms and measurements of UC in humans. In all studies in mouse models of colitis, the effects of oral PTG-100 were comparable to those of an injection of high doses of a positive controla4b7 antibody. This allows us to define the efficacious dose in mice with potential translation to the efficacious dose in humans.

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Figure 2: PTG-100 Reduces Trafficking of Memory T Cells to MLN and Peyer’s Patches

Establishing Blood Pharmacodynamic Readouts of Target Engagement

We have used pre-clinical blood PD response markers that reflect target engagement in the GI tissue compartment and correlate with efficacy responses in mouse colitis studies to guide our dosing in human studies. Furthermore, we believe these pre-clinical blood PD responses, specifically receptor occupancy (“RO”) increases reflecting target engagement and receptor expression (“RE”) decreases reflecting subsequent pharmacologic activity, can be compared to the PD responses we observed in our Phase 1 clinical trial in healthy volunteers and ultimately can help to guide the dosing for evaluating clinical benefit in UC patients in the Phase 2b clinical trial. In the mouse colitis model, RO and RE were correlated within vivo efficacy that can be extrapolated to the blood RO and RE observed in healthy mice and cyno. These PD markers from mice and cyno have specifically demonstrated increases in RO that peak at approximately 4 hours following a single dose and multiple doses (Figure 3A), and decreases in RE after multiple doses in healthy mice (Figure 3B) and colitis mice. In translating the pre-clinical observations into a clinical setting, we are focused on evaluating dose- and time-dependent trends in RO and RE in our Phase 1 clinical trial that can be benchmarked to the animal data to give us greater confidence in progressing PTG-100 in clinical trials. Emphasis is placed on trends and not on absolute numbers owing to differences in GI transit times in different species and absence of absolute scaling methods from animals to humans for GI-restricted drugs.

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Figure 3: (A) Percent Receptor Occupancy and (B) Receptor Expression ofa4b7on CD4+ Memory T Cells in Blood of Healthy Mice Dosed for 14 Days

PTG-100’s Non-GLP and GLP Safety Pharmacology and Toxicology Studies

To date, all toxicology and safety pharmacology studies have not identified any safety issues. Good Laboratory Practices (“GLP”) toxicology studies in rats and cyno over 42 days and 12 weeks of dosing showed that PTG-100 was well-tolerated at all dose levels with no dose-limiting toxicities. GLP are those procedural and operational requirements specified by FDA regulation to ensure the validity and reliability of nonclinical studies. No adverse effects were seen in either rat or cyno studies at all doses tested. Standard safety pharmacology and genotoxicity studies were similarly negative. We are currently conducting chronic GLP toxicology studies to support our anticipated Phase 3 program.

PTG-100’s Phase 1 Clinical Trial Overview

Following the submission and approval of a CTN, we initiated a Phase 1 randomized, double-blind, placebo-controlled clinical trial of PTG-100 in 78 normal healthy male volunteers in Australia, which was completed in June 2016. The Phase 1 SAD and MAD components were conducted with a solution-based liquid formulation of PTG-100. In the formulation bridging component of the trial, we compared the relative bioavailability of the liquid formulation to the capsule formulation that is being used in Phase 2b. In addition to determining the safety and tolerability and PK of PTG-100, the SAD and MAD components of the trial evaluated PD-based POC through the assessment ofa4b7 receptor occupancy that indicates target engagement anda4b7 target expression on peripheral blood memory T cells similar to what was done in the pre-clinical studies.

Safety and Tolerability

In both the SAD and MAD portions of the clinical trial, dose escalation proceeded from 100 mg up to the planned 1,000 mg dose level. There were no dose-limiting toxicities. There were no deaths or serious adverse events (“SAEs”) reported in the trial. All reported adverse events were of mild to moderate severity. There were no dose-dependent increases observed for any adverse events. The most frequent adverse events reported by subjects on PTG-100 were headache and upper respiratory tract infection. These events were also observed in subjects who took placebo.

Pharmacokinetics

PTG-100 plasma levels increased in a dose-dependent manner in both single and multiple dosing cohorts. Consistent with the pre-clinical data in mice, rats, and cyno, the blood levels of PTG-100 were extremely low as

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determined by the Area Under the Curve (AUC, which is a pharmacokinetic measurement of drug exposure in blood plasma against time) and Cmax (maximum concentration), thus demonstrating the GI-restricted nature of the drug. There was no apparent evidence of drug accumulation at Day 14 in the MAD cohorts perhaps related to the relatively short half-life (“T1/2”) in the blood.

PTG-100 fecal levels increased in a dose-dependent manner in the multiple dosing cohorts. Minimum drug levels of PTG-100 were observed in urine samples, as expected, based on its characteristics as a GI-restricted drug with minimal systemic exposure.

Establishing Pharmacodynamic POC in Humans

Data from our mouse colitis studies support our conclusion that blood receptor occupancy is a correlate of target engagement in the GI tissue compartment in the dose ranges studied. In our Phase 1 clinical trial, blood receptor occupancy on CD4+ memorya4b7+T cells increased in a dose-dependent and time-dependent manner. For receptor occupancy in the SAD cohorts, treatment groups were significant compared to placebo at 100 mg (p£0.05), 300 mg (p£0.005) and 1,000 mg (p£0.0001). In the MAD cohorts, treatment groups were significant compared to placebo at 100 mg (p<0.0005), 300 mg (p<0.0001) and 1,000 mg (p<0.0001) four hours post dose on Day 14.

An additional parameter of pharmacologic activity that we measured was the change ina4b7 expression on the blood memory T cells. Based onin vitro studies comparing vedolizumab and PTG-100, we expected thata4b7 expression would be reduced over time due to the internalization of thea4b7 receptor. Following single and multiple dose administration in the Phase 1 clinical trial, a dose-dependent and time-dependent reduction ina4b7 expression was observed, and it appears that the reduction in target expression may become saturated at 300 mg since a similar response was observed in the 1,000 mg cohort following both single and multiple dosing. Fora4b7, downregulation of expression was significant in treatment groups, compared to placebo at 300 mg and 1,000 mg (p£0.01).

The single dose 300 mg cohort was evaluated under fasted and fed (standard high fat diet) conditions. Blood drug levels and blood receptor occupancy of PTG-100 were compared under both conditions. Based on data from this SAD component and previous pre-clinical studies, the MAD component of the clinical trial was conducted under fed conditions.

Thus, we observed dose-dependent and time-dependent target engagement and pharmacologic activity of PTG-100 following single- and multiple-dose administration in healthy volunteers consistent with observations in the animal studies.

Formulation Change from Phase 1 Clinical Trial to Phase 2b Clinical Trial

We utilized a liquid formulation in the SAD and MAD components of the Phase 1 clinical trial. To support the use of a capsule formulation in the Phase 2b study, we compared the PK in a single dose cross-over evaluation of the liquid and capsule formulation in normal healthy volunteers and observed that the plasma exposure of the capsule formulation was lower than that of the liquid formulation at the same dose level. The PD effects were highly similar between the capsule and liquid formulations, despite the lower plasma exposure of the capsule formulation.

PTG-200: AN ORAL IL-23R ANTAGONIST

PTG-200 was discovered through our peptide technology platform and is being developed as a potential first-in-class oral, GI-restricted antagonist that binds to the IL-23R and specifically blocks its interaction with the IL-23 cytokine. PTG-200 will be initially studied in patients with moderate-to-severe CD potentially followed by UC and pediatric IBD.

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Mechanism of Action and Rationale

IL-23 is a member of the IL-12IL‑12 family of cytokines with pro-inflammatory and autoimmune properties. Cytokines are cell signaling proteins that are released by cells and affect the behavior of other cells. Binding of the IL-23IL‑23 ligand to the IL-23RIL‑23R receptor leads to an expression of pro-inflammatory cytokines involved in the mucosal autocrine cascade that is an important pathway of many inflammatory diseases, including IBD. Furthermore, genetic analyses of IBD patients have implicated IL-23RIL‑23R mutations as a risk factor associated with susceptibility to IBD. The antagonist infused antibody drug ustekinumab (marketed as Stelara^‑Stelara® for psoriasis, psoriatic arthritis, and moderate-to-severe CD) is a p40 antagonist antibody that inhibits both the IL-23 and IL-12 pathways. Next-generation IBD antibody drugs, such as guselkumab, target the p19 subunit of the IL-23IL‑23 ligand and are specific to the IL-23 pathway, which is believed to be an important driver of local IBD pathology, while not blockading the IL-12IL‑12 pathway. IL-12IL‑12 is believed to be important in immune surveillance against the development of infections and malignancies.

We believe that the oral,orally delivered, GI-restricted nature of PTG-200 willmay allow PTG-200PTG‑200 to be a potent inhibitor of the IL-23IL‑23 pathway for the treatment of IBD. By targeting IL-23RIL‑23R with our orally delivered GI-restricted oral IL-23RIL‑23R antagonist PTG-200, we believe PTG-200 willPTG‑200 may restore proper immune function in the GI tissue compartment where there is active disease while minimizing the risk of systemic side effects. Several key cell types that reside in gut-associated lymphoid tissue (“GALT”), including T cells, innate lymphoid cells, and natural killer cells, increase their expression of IL-23R during the progression of IBD. Therefore, the high concentrations of PTG-200PTG‑200 in GALT will facilitate access and binding to IL-23RIL‑23R expressed in the same tissue.tissue with the potential for concomitant efficacy benefits.

PTG-200’s Pre-Clinical Proof-of-Concept StudiesPhase 1 Clinical Study

PTG-200 potently inhibited binding of IL-23 to the IL-23 receptor in several biochemical (ELISA) and cell (transformed and primary) signaling assays in a subnanomolar to low nanomolar concentration range sufficient to inhibit 50% of binding. PTG-200 exhibited greater than a 50,000-fold selectivity against other structurally similar receptors (IL-12Rb1 and IL-6R) thereby potentially reducing the risk of off target interactions. In total, these drug properties provide evidence to characterize PTG-200 as a potential first-in-class orally stable IL-23R-specific antagonist.

In PK studies in rats and cyno, PTG-200 was GI-restricted with less than 0.5% oral systemic bioavailability in plasma or urine and principal exposure in the small intestine, colon, and feces. Similar results were observed in cyno.

We have also completed pre-clinical POC studies in rat 2, 4, 6-trinitrobenzenesulfonic acid (TNBS) colitis models demonstrating that oral delivery of PTG-200 and other prototype antagonists significantly improved disease outcomes, such as reducing body weight loss, reducing the increased colon weight/length ratio, and reducing the increased colon macroscopic score which is comprised of assessments of colon adhesions, strictures, ulcers, and wall thickness in a dose dependent manner (Figure 4). Furthermore, PTG-200 was found to reduce the increased histopathology summary score, which is comprised of assessments of mucosal and transmural inflammation, gland loss, and erosion parameters. Finally, PTG-200 was able to reduce the expression of the pro-inflammatory IL-23 induced cytokines in the colon and the IBD disease biomarker lipocalin (LCN2) in the serum and feces (Figure 4).

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Figure 4: PTG-200 Reduces Pathology in Rat TNBS-Induced Colitis

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The efficacy of oral PTG-200 seen in this IBD model was comparable to that of a positive control antibody against the rat IL-23p19 subunit which was injected and therefore present in the systemic blood compartment. This allows us to define the efficacious dose range in rats (approximately 28-61 mg/kg per day) with potential translation to the efficacious dose in humans.

PTG-200’s Preliminary Pre-Clinical Safety Studies

In preliminary non-GLP toxicity studies in rats, PTG-200 was well-tolerated with no adverse events at the highest dose level tested. We have initiated 3 month GLP toxicology, safety pharmacology, genotoxicity, and current good manufacturing practice (“cGMP”) manufacturing studies in support of starting a Phase 1 clinical trial in 2017.

Proposed Clinical Plans

We plan to complete IND-enabling studies and to initiate a Phase 1 clinical trial of PTG-200 in 2017 to evaluateAustralia during the fourth quarter of 2018. The Phase 1 study was a randomized, double-blind, placebo-controlled, SAD and MAD-escalation trial in 80 normal healthy volunteers. The primary endpoint was safety tolerability, and PK. Following completiontolerability. Secondary endpoints included the identification of the maximally tolerated dose and the evaluation of pharmacokinetic parameters.

Results of the Phase 1 study demonstrated that administration of PTG-200 was well-tolerated. No serious adverse events or dose-limiting toxicities were observed. The pharmacokinetic and pharmacodynamic parameters were consistent with the GI-restricted design of PTG-200.

PTG-200’s Clinical Development Plan

We have a worldwide license and collaboration agreement with Janssen, to co-develop and co-detail PTG-200 and any second-generation compounds for all indications, including IBD. The agreement was amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL-23R antagonists, triggering a $25.0 million milestone payment to the Company. In January 2020, we announced the identification and nomination of an orally delivered, gut-restricted IL-23R antagonist peptide as a second-generation development candidate under our license and collaboration agreement with Janssen, advancing the collaboration and triggering a $5.0 million milestone payment to us. See “Item 7. Management’s Discussion and Analysis – Overview” and Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information. Janssen submitted an IND for PTG-200 in CD during the second quarter of 2019, which took effect in July 2019.

In collaboration with Janssen, we initiated a Phase 2 clinical trial, we plan to initiate astudy in CD called PRISM in the fourth quarter of 2019. The global, randomized, double-blind,double blind, placebo-controlled, Phase 2 POC clinical trialstudy is evaluating the efficacy of oral administration of PTG-200 in 90 patients with moderate-to-severe CD. The study will assess the effect of twice-daily dosing of PTG-200 on change from baseline in Crohn's Disease Activity Index score at week 12 as the primary endpoint. The study will also assess change from baseline in simple endoscopic score for CD rates of clinical response and remission, endoscopic response and remission, and patient-reported outcome-2 remission. Results from this Phase 2 study in CD are expected in 2021.

PTG-300:PN-943: AN INJECTABLE HEPCIDIN MIMETICORALLY DELIVERED α4β7 INTEGRIN ANTAGONIST

PTG-300PN-943, an orally delivered, gut-restricted α4β7 specific integrin antagonist, was discovered through our peptide technology platform and is being developed initially for patients with moderate-to-severe UC. α4β7 integrin is considered to be one of the most GI-specific biological targets for IBD due to its binding to MAdCAM-1, an extracellular protein that resides mostly in the GI vasculature. PN-943 shares the same α4β7 integrin target as the injectable antibody drug vedolizumab, marketed as Entyvio®, for the treatment of moderate-to-severe UC and CD. We believe that we can leverage the development and regulatory path of Entyvio® and other approved antibody drugs for IBD to help inform the design of our clinical development studies.

Mechanism of Action and Rationale

Integrins, such as α4β7, are transmembrane proteins that regulate cellular movement into extravascular tissue and play an important role in modulating the inflammatory reaction in the gut. The α4β7 integrin is expressed on the surface of T cells, immune cells that help defend against foreign and potentially harmful substances that enter the body. The

development of UC is driven by the migration of α4β7 T cells into the GI tissue compartment and their subsequent activation within the GI tissue compartment. The entry of α4β7 T cells into the GI tissue compartment is facilitated by the protein-protein interactions (“PPI”) between the α4β7 integrin and its corresponding ligand, MAdCAM‑1, which is primarily expressed in the GI tissue compartment. Hence, the binding of α4β7 to MAdCAM‑1 can be categorized as a novel mimeticGI-specific interaction and has been identified as an IBD-specific targeted therapeutic approach. By blocking the binding of hepcidinα4β7 integrin to potentially treat iron overload disorders such asb-Thalassemia, HH and SCD, each of whichMAdCAM‑1, PN-943 may qualify for orphan designation. Hepcidin is a naturally-occurring hormone involved inprevent T cells from entering the transport and utilization of iron in the human body. Hepcidin has significant stability, potency, and solubility limitations. In order to effectively treat iron overload disorders in the body, we designed PTG-300 as a stable, soluble, hepcidin mimetic that can potentially be more potent and more amenable for weekly or less frequent subcutaneous delivery compared to hepcidin. We believe PTG-300 has the potential to improve disease symptoms and provide better safety byGI tissue compartment, thereby reducing the needinflammation that leads to the clinical manifestations and long-term implications of UC.

α4β7 for blood transfusionsIBD is targeted by the FDA-approved drug Entyvio®, which has demonstrated safety and chelator useefficacy inb patients with moderate-to-severe UC and CD. Since PN-943 targets the same biological pathway as Entyvio-Thalassemia® patients by treating both the underlying anemia and iron overload associated with the disease. We have achieved, we utilized similar PD-based POC in our pre-clinical studies and Phase 1 clinical trial to inform and guide our Phase 2 development program. We sourced these PD biomarker assays from public scientific publications and do not maintain any contractual arrangement providing access to this information with the makers of these marketed products.

PN-943 Pre-Clinical Proof-of-Concept Studies

We have demonstratedcompleted extensive pre-clinical studies of PN-943 in which we established pharmacodynamic target engagement POC, including effects on receptor occupancy, T cell trafficking and mucosal healing in rodents and monkeys. Based on pre-clinical data, we believe that PTG-300 hasPN-943 may be a more potent α4β7 integrin antagonist compound than PTG-100 without sacrificing its other positive attributes, such as selectivity and tolerability. PTG-100 is our first generation α4β7 inhibitor that shares the potential for greater potency, stability, andin vivo efficacy compared to natural hepcidin.

Mechanism of Action

The molecularsame α4β7 integrin target of hepcidin is the cellular trans-membrane protein ferroportin, which functions as an export channel for intracellular iron in macrophages, liver hepatocytes, and duodenal enterocytes. Upon binding to the extracellular domain of ferroportin, hepcidin decreases the delivery of iron to the blood circulation neededEntyvio® for the productiontreatment of red blood cells.

Overview ofb-Thalassemiamoderate-to-severe UC and Current Therapies

b-Thalassemia is potentially our first clinical indication for PTG-300. Due to repeat transfusions and/ or increased absorption of iron, patients withb-Thalassemia frequently suffer from iron overload which can lead to significant morbidity and mortality. This iron overload is exacerbated in thoseb-Thalassemia patients who require chronic blood transfusions for survival. A hepcidin mimetic such as PTG-300 will potentially be able to correct the anemia caused by the genetic mutation underlyingb-Thalassemia, thus giving it a dual benefit of increasing the production of red blood cells, reducing excess circulating iron, and reducing splenomegaly.

Globally, prevalence ofb-Thalassemia is estimated to be approximately 200,000, with at least 60,000 patients born each year with the disease. In 2010, theb-Thalassemia market was estimated to be greater than $500 million, based largely on drugs consisting of chelating agents used to treat iron overload disorders. The

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market is expected to grow to nearly $1 billion by 2018.b-Thalassemia has low prevalence in the Americas, with an estimated 2,750 patients and with approximately 300 patients born each year with the disease. Therefore,b-Thalassemia may qualify for FDA orphan designation.

PTG-300’s Pre-clinical Proof-of-Concept Studies

InCD. We completed extensive pre-clinical studies of PTG-100 in which we demonstrated that PTG-300 can lower serum iron more effectively than hepcidinestablished pharmacological POC and maintain such lowered serum iron levels for at least 24 hours followingcompleted a single subcutaneous injection (Figure 5). We have also demonstrated that PTG-300 in a dose dependent manner can reduce serum iron in healthy mice, rats, and cyno.

Figure 5: PTG-300 is More Effective Than Hepcidin in Lowering Serum Iron in Healthy Mice

PTG-300 was also able to address the underlying anemia present in a mouse genetic model of b-Thalassemia, as shown most prominently by the significant increase in red blood cell number (RBC) and hemoglobin (HGB) with the corresponding decrease in reticulocyte content (Figure 6). As a consequence we also observed a significant reduction in the pathological increases in spleen weight (splenomegaly) by addressing the underlying ineffective erythropoiesis. Furthermore, PTG-300 was effective in reducing the increase in liver iron content. In contrast the oral iron chelator deferiprone (DFP) did not correct the anemia or the splenomegaly.

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Figure 6: PTG-300 Addresses Ineffective Erythropoiesis in Mouseb-Thalassemia

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PTG-300’s Development Program

PTG-300 is being manufactured and formulated to support completion of pre-clinical GLP toxicology, genotoxicity, and safety pharmacology studies, which will enable us to complete a single ascending dose Phase 1 clinical trial in Australia in 2016.

PN-943’s Phase 1 Clinical Trial Overview

We completed a Phase 1 randomized, double-blind, placebo-controlled clinical trial of PN-943 in normal healthy male volunteers in 2017. This study will evaluate safety/Australia in 2019. The Phase 1 SAD and MAD components were conducted with a solution-based liquid formulation. In addition to determining the safety and tolerability PK and pharmacokinetics of PN-943, the SAD and MAD components of the trial evaluated PD-based POC through the evaluationassessment of PTG-300’sα4β7 receptor occupancy and α4β7 target expression that indicate target engagement on peripheral blood memory T cells similar to what was done in the pre-clinical studies and in the Phase 1 trial with PTG-100. In the clinical trial, dose escalation proceeded from 100 mg up to 1,400 mg for the SAD portion and 1,000 mg for the MAD portion. 

We reported results of the SAD part of the study during the second quarter of 2019 and the MAD part of the study during the third quarter of 2019. The pharmacodynamic results of target engagement were supportive of the three-fold higher potency of PN-943 as compared to PTG-100 and saturation at 1000 mg (Figure 3). This is consistent with data from pre-clinical studies and confirmed by this Phase 1 pharmacodynamic data. We believe this links PN-943 to greater probability of success in a  Phase 2 trial based on signs of clinical efficacy of PTG-100 in the Phase 2 PROPEL trial in US patients. The administration of PN-943 was well-tolerated.

Figure 3: PN-943 vs. PTG-100: Dose Related and Saturable Effect on Blood % Receptor Occupancy (“RO”)

PN-943 Clinical Development Plan

We filed an IND for PN-943 that took effect on serum iron levels.in January 2020. We expect to initiate a Phase 2 POC study of PN-943 in UC in the second quarter of 2020.

OUR PEPTIDE TECHNOLOGY PLATFORM

Our proprietary technology platform is purposefully built to exploit the advantages of constrained peptides, which are smaller than antibody-based drugs and may be delivered orally but are big enough to bind and block the difficult targets that antibodies bind and modulate. The platform has been successfully applied to a diverse set of biological targets that has led to several pre-clinical and clinical-stageclinical stage peptide-based NCEs,new chemical entities, including our only clinical-stageclinical stage product candidate PTG-100, and our other product candidates, in pre-clinical studies PTG-200 and PTG-300, for a variety of clinical indications. Our platform is comprised of a series of tools and methods, including a combination of molecular design, phage display, oral stability assays, medicinal chemistry, biomarker, formulations, andin vivo pharmacology approaches. We apply this platform to the discovery and development of constrained peptides to develop new drug candidates.

The platform is used to develop potential drug candidates:candidates (agonists and antagonists): (i) using the structure of a target, when available, (ii) when no target structure exists, or (iii) from publicallypublicly disclosed peptide starting points. In a structure-based approach, our proprietary molecular design software and structural database of several thousand constrained peptides, termed Vectrix^TMVectrix™, are screened to identify suitable scaffolds. The scaffolds whichidentified form the basis of designing and constructing the first set of phage or chemical libraries. The initial hits are identified by either panning or screening such libraries, respectively. When structural information is unavailable for a target, hits are identified by panning a set of 34 proprietary cluster-based phage libraries consisting of millions of constrained peptides. Once the hits are identified, they are optimized using a set of peptide, peptide mimetic and medicinal chemistry techniques that include the incorporation of new or manipulation of existing cyclization-constraints, as well as natural or unnatural amino acids and chemical conjugation or acylation techniques. These techniques are applied to optimize potency, selectivity, stability, exposure and ultimately efficacy. For PTG-300, hit discovery and optimization relied exclusively on medicinal chemistry, with no phage display, to develop potent and selective injectable candidates with enhanced stability and exposure in blood. For injectable products, stability in blood is determined using in vitro assay techniques to identify chemical and biological sites of degradation, which are then optimized whilst maintaining potency and selectivity. Conjugation strategies are used to optimize the exposure of the injected peptide. For PN-943 and PTG‑200, phage display is tightly coupled to medicinal chemistry and oral stability techniques to develop potent,

selective and orally delivered molecules that are GI-restricted. Oral stability is profiled in a series ofin vitroandex vivo oral-stability assays that portray the chemical and metabolic barriers a peptide will encounter as it transits the GI tract are used to identifytract.  These metabolically labile spots in the peptides. Such sites form the focus of medicinal-chemistry based optimizationpeptides are optimized using medicinal chemistry-based approaches to engineer oral stability. Finally, variousstability whilst maintaining selectivity and potency. Various in vivo pharmacology tools are then used to quantify peptide exposure in relevant GI organs and tissues. TheThis data can then be used to optimize required GI exposure and ultimatelyin vivo efficacy.

The key foundations of the platform include:

Molecular design tools and large database of constrained scaffolds

Through advances in genomics, molecular biology and structural genomic initiatives there has been an explosion in the number of known structures of potential new drug targets, including PPI targets. In particular, constrained peptides have the required surface complexity to match or complement the large flat surfaces of PPI targets to provide potent and selective drug candidates. We believe existing commercial molecular design software is not suitable, as it has been developed to identify small molecules that plug cavities of enzymes and do not bind to PPI targets.

We have developed a database of all known structures of a sub-class of constrained peptides, known as disulfide-rich peptides (“DRPs”). We have collected approximately 4,500 DRP scaffolds that are found throughout nature, ranging from single cell organisms to humans. We have created a proprietary molecular design environment, called Vectrix^TM. A pattern matching algorithm within Vectrix^TM allows the selection of an appropriately stable DRP scaffold using the structure of the target of interest. This molecular design process is used to identify constrained peptides as starting points for hit discovery, which are ultimately optimized into potent, selective peptides against targets which are not amenable to small molecule drug discovery.

Phage display techniques and cluster libraries

Phage display may be used to discover the original hit based on Vectrix^TM-derived scaffolds, optimize existing hits, or to identify hits against those targets in which no structural information exists. For the latter

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targets, a series of pre-existing phage libraries, termed cluster libraries, are used for hit discovery. This includes 20 proprietary libraries of structurally diverse DRPs that sample greater than 85% of their known structural diversity and 14 proprietary libraries that sample different protein loop geometries. Collectively these libraries provide immense potential for discovering hits at diverse targets as they are based on natural-DRP scaffolds with these characteristics.

Oral stability and in vitro and ex vivo assays

The GI tract provides a set of chemical and metabolic barriers that hinder the development of oral therapeutic agents. We have developed numerousin vitro andex vivo systems that profile peptide candidates for their stability features needed for oral delivery, GI restriction, and transit through the entire GI tract. This includes profiling for chemical stability, specifically pH and redox stability, and metabolic stability against proteases and other enzymes that are either of human or microbial origin.

Thesein vitro assays identify metabolic weak spots of peptides, which can then be stabilized by peptidic and peptidomimetic modifications without losing potency.

Medicinal peptide chemistry

We have significant expertise in optimizing potency, selectivity, oral stability and exposure of constrained peptides using a combination of peptide-cyclization, natural and unnatural amino acids, and various conjugation and acylation techniques. With respect to PTG-300, hit discovery and optimization relies exclusively on medicinal chemistry, with no phage display, to develop potent and selective injectable candidates with enhanced exposure in blood. For other targets, such as the discovery of PTG-100 and PTG-200, phage display is tightly coupled to medicinal chemistry and oral stability techniques to develop potent, selective and oral molecules that are GI-restricted.

In vivo pharmacology tools for GI restriction

When developing oral, GI-restricted constrained peptides, we correlate efficacy with potency and level of GI tissue compartment exposure. We have developed the required expertise and know-how to build PK and PD relationships to optimize physicochemical features of constrained peptides such that they are minimally absorbed and have the required degree of GI tissue compartment exposure over the required duration of time frame to achieve in vivoefficacy. This involves examining constrained peptide concentrationsis complemented by formulation studies to enhance GI exposure.  Finally, various biomarkers are also developed to correlate exposure with efficacy to guide candidate selection, dose selection and provide preliminary proof-of-concept of target engagement in various GI tissue compartments, blood, urine, and feces when delivered orally in rodents. In this fashion, we can understand the degree of tissue targeting, GI restriction and oral stability that is required to achieve efficacy.clinical trials.

Future Applications of our Platform

We believe we have built a versatile, well-validated and unique discovery platform. For example, this peptide technology platform has been used to develop product candidates for diverse target classes including G-protein-coupled receptors, (“GPCRs”), ion channels, transporters and cytokines for a variety of therapeutic areas. In the future we may tackle other GI diseases and expand our delivery techniques to include other organ/tissue systems, such as the lung and eye, which will provide potential opportunities to pursue a variety of diseases. In addition, the gut may communicate with the immune, central nervous, and endocrine systems, providing the potential of our GI-restricted approach to treat metabolic, cancer and cardiovascular diseases. Lastly, we intend to progress our platform to achieve systemic bioavailability with peptides, macrocyles and peptidomimetics, thereby enabling us to address systemic diseases.

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Material Agreements

Janssen License and Collaboration Agreement

In May 2017, we and Janssen entered into an exclusive license and collaboration agreement for the clinical development, manufacture and potential commercialization of PTG-200 and any second-generation compounds worldwide for the treatment of CD and UC (the “Janssen License and Collaboration Agreement”). The Janssen License and Collaboration Agreement became effective on July 13, 2017 and was subsequently amended effective May 2019 (the “First Amendment”). The First Amendment expands the original collaboration by supporting efforts towards research and development of second-generation IL-23R antagonists. During the third quarter of 2017, we received a non-refundable, upfront cash payment of $50.0 million from Janssen. During the second quarter of 2019, we received a non-refundable cash payment of $25.0 million upon execution of the First Amendment. During the first quarter of 2020, we received a milestone payment of $5.0 million triggered by the identification and nomination of a second-generation development candidate. See “Item 7. Management’s Discussion and Analysis – Overview” and Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.

Research Collaboration and License Agreement with Zealand Pharma A/S

In June 2012, we entered into a Research Collaboration and License Agreement with Zealand Pharma A/S (“Zealand”) to identify, optimize and develop novel DRPsdisulfide-rich peptides to discover a hepcidin mimetic. Under the terms of theWe amended this agreement Zealand made an upfront payment and also funded the collaboration.

In October 2013, Zealand decided to abandon the collaboration program and, pursuant to the terms of the agreement, we elected to assume theon February 28, 2014, at which point Protagonist assumed responsibility for the development program. See “Item 7. Management’s Discussion and commercialization of the product. Upon Zealand’s abandonment, Zealand assigned to us certain intellectual property arising from the collaborationAnalysis – Contractual Obligations and also granted us an exclusive license to certain background intellectual property rights of Zealand that relateOther Commitments” and Note 6 to the products assumed by us. Upon the nomination of PTG-300 as a development candidate, we owed Zealand a payment of $250,000. If we initiate a Phase 1 clinical trialConsolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for PTG-300, we will pay Zealand an additional $250,000. We have the right, but not the obligation, to further develop and commercialize the products and, if we successfully develop and commercialize PTG-300 without a partner, we will pay to Zealand up to an additional aggregate of $128.5 million for the achievement of certain development, regulatory and sales milestone events. In addition, we will pay to Zealand a low single digit royalty on worldwide net sales of the product until the later of ten years from the first commercial sale of the product or the expiration of the last patent covering the product. Due to Zealand’s abandonment of the collaboration program and our assumption of the responsibility for the development and commercialization of the product, the agreement has terminated other than with respect to our potential milestone payments and royalty to Zealand.

Letter Agreement with Johnson & Johnson Development Corporation

In May 2013, in connection with our sale of Series B Stock, we entered into a letter agreement with Johnson & Johnson Development Corporation (“JJDC”), as amended on April 19, 2016, pursuant to which we granted JJDC a right of first negotiation with respect to the consummation of any proposed sale, transfer, license, commercialization or distribution arrangement (each, a “Transaction”) of our inventions, developments, patents, patent applications, know-how or other proprietary rights or products controlled by us that are necessary for the research, development or commercialization of the PTG-100, PTG-200 and IL-13 programs (each, a “Program”) other than an acquisition, merger, consolidation, or sale of substantially all of our assets. The letter agreement does not apply with respect to the PTG-300 program. The term of JJDC’s right of first negotiation commenced in May 2014 and terminates, with respect to any Program, 60 days after our filing of an IND (or the foreign equivalent), with respect to each Program (such right of first negotiation period, the “ROFN Period”). On November 1, 2015, JJDC waived their right of first negotiation with respect to PTG-100. Neither we, nor JJDC, have an obligation to enter into a Transaction during the ROFN Period. We are not currently pursuing an IL-13 Program.

In the event that we receive a bona fide term sheet for a Program, we are obligated to notify JJDC of such offer (but not the terms thereof) and JJDC has a period of 30 days to notify us of exercise of its right to negotiate for a Transaction with JJDC. Following expiration of the ROFN Period with respect to any remaining Program, we are required to deliver to JJDC certain information relating to such Program, including pre-clinical results, manufacturing protocols and other information relevant to the evaluation of such Program, as determined by us. For a period of 60 days following delivery of such information (the “Exclusive Negotiation Period”), we are required to negotiate in good faith and exclusively with JJDC to enter into a Transaction with JJDC with respect to such Program and we are not permitted to enter into negotiations with any third party with respect to a Transaction involving such Program that would impair the ability of JJDC to exercise its rights under the letter agreement.

Finally, for a period of 180 days following expiration of an Exclusive Negotiation Period for a Program (the “Tail Period”), we are not permitted to enter into a Transaction with respect to such Program with a third party on terms that contain upfront payments and pre-launch milestones (valued on a risk-adjusted basis) that are inferior in total economic value to those that JJDC and its affiliates last offered to us, to the extent any such offer was previously made by JJDC or its affiliates to us.

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JJDC’s right of first negotiation with respect to any Program that has not earlier expired or been waived by JJDC will terminate upon the sale, transfer or other disposition by us of all or substantially all of our assets, our consummation of a merger or consolidation with or into another entity, or the transfer (whether by merger, consolidation, equity financing, or otherwise), in one transaction or a series of related transactions, to a person or group of affiliated persons a majority or more of our outstanding voting stock (or the surviving or acquiring entity).information.

Competition

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. While we believe that our product candidates, technology, knowledge and experience provide us with competitive advantages, we face competition from established and emerging pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others.

We believe our principal competition in the treatment of chronic iron overload disorders such as beta-thalassemia will be luspatercept (Acceleron/Celgene-BMS) and mitapivat (Agios). Although gene therapy is potentially curative for

beta-thalassemia, we believe that Bluebird Bio’s LentiGlobin will have limited application due to safety risks associated with its required “pre-conditioning” regimen, which is similar to allogeneic hematopoietic stem cell transplantation. Hematopoietic stem cell transplantation is infrequently utilized in beta-thalassemia due to its risk benefit profile in a younger patient population. Luspatercept and LentiGlobin have been approved in the United States and Europe, respectively, for TD beta-thalassemia, and are in Phase 3 development for beta-thalassemia, and mitapivat is in Phase 2 studies for beta-thalassemia. An IND for Luspatercept has been filed in the United States for thalassemia and MDS.

There are currently no approved oralorally delivered peptide-baseda4b α4β7 integrins and IL-23 based product candidatesor IL‑23R products for IBD.

We believe our principal competition in the treatment of IBD will come from companies with approvedinjectable agents in the following therapeutic classes, among others:

anti-integrin class that are or will be approved by 2028, including:

WeCD prior to the launch of PTG-200 and PN-943. These include JAK inhibitors, pan-JAK tofacitinib (Xeljanz) approved in UC and next-generation JAK1 inhibitors filgotinib and upadacitinib, as well as S1P inhibitors, ozanimod, amiselmod and etrasimod. The anti-IL-23 antibodies are also aware of several companies developing therapeutic product candidates fordemonstrating positive data in IBD. Our clinical asset PTG-200 will compete as the treatment of IBD, including, but not limited to AbbVie, Allergan, Arena Pharmaceuticals, Inc., AstraZeneca, Biogen, Boehringer Ingelheim (adalimumab biosimilar in Pre-Registration), Bristol-Myers Squibb, Celgene (mongersen sodium and ozanimod hydrochloride in Phase 3 clinical trials), Eli Lilly and Company, Galapagos, Gilead, Lycera Corp., Mitsubishi Tanabe Pharma Corporation, Pfizer (tofacitinib citrate in a Phase 3 clinical trial), Roche/Genentech (etrolizumab in a Phase 3 clinical trial), Samsung Bioepis (adalimumab biosimilar in Pre-Registration), Sandoz (adalimumab biosimilar in Phase 3), Shire, and UCB S.A.

We believe our principal competition in the treatment of iron overload disorders, such as ß-Thalassemia, HH and SCD, will come from other pipeline products being developed by companies such as Acceleron (luspatercept in a Phase 3 clinical trial), bluebird bio (LentiGlobin in a Phase 3 clinical trial), Bristol-Myers Squibb, Emmaus Medical (glutamine in pre-registration), Gilead, Global Blood Therapeutics, Inc., La Jolla Pharmaceutical, and Novartis AG, among others. We believe competition will also include approved iron chelation therapies that have been developed by Novartis AG and Apotex, among others.only orally delivered IL-23R antagonist.

Intellectual Property

We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to the development of our business, including seeking, maintaining, and defending patent rights, whether developed internally or licensed from third parties. We also rely on trade secrets relating to our proprietary technology platform and on know-how, and continuing technological innovation to develop, strengthen, and maintain our proprietary position in the field of peptide-based therapeutics that may be important for the development of our business. We will also take advantage of regulatory protection afforded through data exclusivity, market exclusivity and patent term extensions where available.

Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making,

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using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the same. For more information, please see “Item 1A1A. Risk Factors—Risks Related to Our Intellectual Property.”

We have twoown or co-own 16 issued U.S. patents, over 20 granted ex-U.S. patents, and numerous U.S. and ex-U.S. patent applications related to our lead product candidates, andclinical assets. We possess substantial know-how and trade secrets relating to the development and commercialization of peptide based therapeutic products. Our proprietary intellectual property, including patent and non-patent intellectual property, is generally directed to, for example, peptide-based therapeutic compositions, methods of using these peptide-based therapeutic compositions to treat or prevent disease, methods of manufacturing peptide-based therapeutic compositions, and other proprietary technologies and processes related to our lead product development candidates. As of February 10, 2017, our patent portfolio includes the following:

term extensions).

Our objective is to continue to expand our portfolio of patents and patent applications in order to protect our product candidatesclinical assets and related peptide-based drug technologies. Examples of the products and technology areas covered by our intellectual property portfolio are described below.

a4b7Integrin Antagonist Peptides

Thea4b7 integrin antagonist peptide patent portfolio includes one issued U.S. patent and pending patent applications directed to compositions ofa4b7 integrin peptide monomers and dimers cyclized through intramolecular bonds and containing amino acid modifications conferring increased stability, potency and/or selectivity, as well as methods of synthesizing and using these antagonist peptides to treat inflammatory disorders. Applications are currently pending in the United States and other major jurisdictions, including Australia, Canada, China, Japan, and Europe. Patent applications directed to PTG-100 composition of matter and uses thereof, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in October 2035 (worldwide, excluding possible patent term extensions). We expect other patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to result in patents that would expire from October 2033 to March 2037 (worldwide, excluding possible patent term extensions).

IL-23R Antagonist Peptides

The IL-23R antagonist peptide patent portfolio includes patent applications directed to compositions ofIL-23R antagonist peptides cyclized through intramolecular bonds and containing amino acid modifications conferring increased stability, potency and/or selectivity, as well as methods of synthesizing and using these antagonist peptides to treat inflammatory disorders. Applications are currently pending in the United States and internationally. Patent applications directed to PTG-200 composition of matter and uses thereof, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in July 2035 (worldwide, excluding possible patent term extensions). We expect other patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from July 2035 to December 2036 (worldwide, excluding possible patent term extensions).

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Hepcidin Mimetics Analogues

The hepcidin peptide analogues patent portfolio includes patent applications directed to compositions of hepcidin peptide analogues cyclized through intramolecular bonds and containing amino acid modifications conferring increased stability, potency and/or selectivity, as well as methods of synthesizing and using these hepcidin peptide analogues to treat iron-related disorders. Applications are currently pending in the United States and other major jurisdictions, including Australia, Canada, China, Japan, and Europe. Patent applications directed to PTG-300 composition of matter and uses thereof, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire in March 2034 (worldwide, excluding possible patent term extensions). We expect other patents and patent applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from March 2034 to December 2036 (worldwide, excluding possible patent term extensions).

Other

We also license patents and patent applications directed to processes and methods related to our technology platform. These patents have issued in the United States and other major jurisdictions, including Australia and EuropeEurope. Some licensed patents are expired, and others are expected to expire between September 2019 andbefore or by February 2023. Material aspects of our technology platform are protected by trade secrets and confidentiality agreements.

In addition to the above, we have established expertise and development capabilities focused in the areas of pre-clinical research and development, manufacturing and manufacturing process scale-up, quality control, quality assurance, regulatory affairs and clinical trial design and implementation. We believe that our focus and expertise will help us develop products based on our proprietary intellectual property.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the date of filing the non-provisional application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent or may be shortened if a patent is terminally disclaimed over an earlier-filed patent.

The term of a patent that covers an FDA approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S. patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multiple products, it can only be extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug application (“NDA”), we expect to apply for patent term extensions for patents covering our product candidates and their methods of use.

Trade Secrets

We rely on trade secrets to protect certain aspects of our technology, particularly in relation to our technology platform. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our

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consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. For more information, please see “Item 1A1A. Risk Factors—Risks Related to Our Intellectual Property.”

Manufacturing

We contract with third parties for the manufacturing of all of our product candidates including PTG-100, PTG-200, and PTG-300, for pre-clinical and clinical studies and eventually for commercial supplies, and intend to continue to do so in the future. We do not own or operate any manufacturing facilities and we have no plans to build any owned clinical or commercial scale manufacturing capabilities. We believe that the use of contract manufacturing organization (“CMOs”) eliminates the need for us to directly invest in manufacturing facilities, equipment and additional staff. Although we rely on contract manufacturers,

our personnel and consultants have extensive manufacturing and quality control experience overseeing CMOs. We regularly consider second source or back-up manufacturers for both active pharmaceutical ingredient and drug product manufacturing. To date, our third-party manufacturers have met the manufacturing requirements for the product candidates in a timely manner.candidates. We expect third-party manufacturers to be capable of providing sufficientneeded quantities of our product candidates to meet anticipated full-scale commercial demands, but we have not assessed these capabilities beyond the supply of clinical materials to date. We currently engage CMOs on a “fee for services” basis based onfor our current development plans. We plan to identify CMOs and enter into longer term contracts or commitments as we move our product candidates into Phase 3 clinical trials. We believe there are alternate sources of manufacturing that have been and could be engaged and enabled to satisfy itsour clinical and commercial requirements, however we cannot guarantee that identifying and establishing alternative relationships with such sources will be successful, cost effective, or completed on a timely basis without significant delay in the development or commercialization of our product candidates.

Government Regulation

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs, such as those we are developing. These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of our product candidates.

U.S. Government Regulation

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

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Pre-clinical Studies

Pre-clinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some pre-clinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND (or equivalent submission ex-US). In addition, an IRB or ethics committee (“EC”) at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health (“NIH”) for public dissemination on their www.clinicaltrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB or EC can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the pre-clinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act (“PDUFA”) guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision.

In addition, under the Pediatric Research Equity Act of 2003 (“PREA”), as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”), plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCP requirements.

Index to Financial Statements

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Fast Track Designation

The FDA has various programs, including fast track designation, which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures. Under the fast track program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the drug candidate. To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides additional opportunities for interaction with the FDA’s review team and may allow for rolling review of NDA components before the completed application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. The FDA may decide to rescind the fast track designation if it determines that the qualifying criteria no longer apply.

Orphan Designation

The FDA may grant orphan designation to drugs or biologics intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, and there is no reasonable expectation that the cost of developing and marketing the product for this type of disease or condition will be recovered from sales in the United States. Orphan designation must be requested before submitting a NDA or Biologics License Application (“BLA”). After the FDA grants orphan designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan exclusivity, which means the FDA may not approve any other application to market the same product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer with orphan exclusivity is unable to assure sufficient quantities of the approved orphan designated product. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling

Index to Financial Statements

claims are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for any marketed products, and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

Coverage and Reimbursement

Sales of our product candidates, if approved, will depend, in part, on the extent to which the cost of such products will be covered and adequately reimbursed by third-party payors, such as government healthcare programs, commercial insurance and managed health care organizations. These third-party payors are increasingly limiting coverage and/or reducing reimbursements for medical products and services by challenging the prices and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-partythird-

party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

Index to Financial Statements

There is no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. The coverage determination process can be a time-consuming and costly process that may require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained or applied consistently. Even if reimbursement is provided, market acceptance of our products may be adversely affected if the amount of payment for our products proves to be unprofitable for health care providers or less profitable than alternative treatments, or if administrative burdens make our products less desirable to use.

In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of our products candidates, once approved, and have a material adverse effect on our sales, results of operations and financial condition.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively referred to as the ACA, enacted in March 2010, has had and is expected to continue to have a significant impact on the health care industry. The ACA, among other things, imposes a significant annual fee on certain companies that manufacture or import branded prescription drug products. The ACA also increased the Medicaid rebate rate and expanded the rebate program to include Medicaid managed care organizations. It also contains substantial new provisions intended to broaden access to health insurance, reduce or constrain the growth of health care spending, enhance remedies against health care fraud and abuse, add new transparency requirements for the health care industry, impose new taxes and fees on pharmaceutical manufacturers, and impose additional health policy reforms, any or all of which may affect our business. Since its enactment, there have been

There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the current administration to repeal or replace certain aspects of the ACA. For example, since January 2017, the President has signed two Executive Orders and there may be additional challengesother directives designed to delay, circumvent, or loosen certain requirements mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and amendmentsreplace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA were signed into law. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and the medical device tax and, effective January 1, 2021, also eliminates the health insurance tax. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”, and increase from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in the Medicare Part D program. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA inare invalid as well. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the future. The ACA is likely to continuewill impact the downward pressure on pharmaceutical pricing,ACA and may also increase our regulatory burdens and operating costs.business.

Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of 2% per fiscal year,

which went into effect in 2013 and, following passage of subsequent legislation, including the Bipartisan Budget Act of 2015,BBA, will stay in effect through 20252029 unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These newNew laws may result in additional reductions in Medicare and other health care funding.

Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the current administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Further, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and, at the same, has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. While some measures may require additional authorization to become effective, Congress and the current administration have both stated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

It is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for our product candidates or what actions foreign, federal, state, or private payors for health care treatment and services may take in response to any such health care reform proposals or legislation. Adoption of price controls and other cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures reforms may prevent or limit our ability to generate revenue, attain profitability or commercialize our product candidates.

Other Health Care Laws and Compliance Requirements

We will also be subject to health care regulation and enforcement by the federal government and the states and foreign governments in which we will conduct our business once our products are approved. The laws that may affect our ability to operate include, but are not limited to:to, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic health care transactions and protects the

Index to Financial Statements

security and privacy of protected health information. Criminalinformation; the criminal health care fraud statutes under HIPAA also prohibits persons and entities from knowingly and willfully executing a scheme to defraud any health care benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services; the federal health care programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare and Medicaid programs; federal false claims laws and civil monetary penalties laws that prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid; and the Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human

Services information related to payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members.members and, beginning in 2022, applicable manufacturers also will be required to report such information regarding payments and transfers of value provided, as well as ownership and investment interests held, during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists and certified nurse-midwives.

The majority of states also have statutes or regulations similar to the aforementioned federal anti-kickback and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. We may be subject to state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. In addition, we may be subject to reporting requirements under state transparency laws, as well as state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government that otherwise restricts certain payments that may be made to health care providers and entities. In addition, certain states and local jurisdictions require the registration of pharmaceutical sales representatives.

Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant administrative, civil and criminal penalties, damages, fines, individual imprisonment, disgorgement, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion of products from reimbursement under U.S. federal or state health care programs, and the curtailment or restructuring of our operations.

Government Regulation Outside of the United States

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical studies and any commercial sales and distribution of our products.

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies.

The requirements and process governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical studies are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Index to Financial Statements

The requirements for conducting clinical trials in Australia, where we anticipate conducting Phase 1 trials for PTG-200 and PTG-300, are as follows:

Conducting clinical trials for therapeutic drug candidates in Australia is subject to regulation by Australian governmental entities. Approval for inclusion in the Australian Register of Therapeutic Goods (“ARTG”) is required before a pharmaceutical drug product may be marketed in Australia.

Typically, the process of obtaining approval of a new therapeutic drug product for inclusion in the ARTG requires compilation of clinical trial data. Clinical trials conducted using “unapproved therapeutic goods” in Australia, being those which have not yet been evaluated by the Therapeutic Goods Administration (“TGA”) for quality, safety and efficacy must occur pursuant to either the CTN or Clinical Trial Exemption (“CTX”), process.

The CTN process broadly involves:Employees

The CTX process broadly involves:

In each case, it is required that:

Pre-clinical studies include laboratory evaluation of the therapeutic drug product as well as animal studies to assess the potential safety and efficacy of the drug. The results of the pre-clinical studies form part of the materials submitted to the HREC in the case of a CTN trial and part of the application to the TGA in the case of a CTX trial.

Clinical trials involve administering the investigational product to healthy volunteers or patients under the supervision of a qualified principal investigator. The TGA has developed guidelines for a CTN. Under the CTN process, all material relating to the proposed trial is submitted directly to the HREC of each institution at which the trial is to be conducted. An HREC is an independent review committee set up under guidelines of the

Index to Financial Statements

Australian National Health and Medical Research Council. The role of an HREC is to ensure the protection of rights, safety and wellbeing of human subjects involved in a clinical trial by, among other things, reviewing, approving and providing continuing review of trial protocols and amendments, and of the methods and material to be used in obtaining and documenting informed consent of the trial subjects. The TGA is formally notified by submission of a CTN application but does not review the safety of the drug or any aspect of the proposed clinical trial. The approving authority of each institution gives the final approval for the conduct of the clinical trial, having due regard to advice from the HREC. Following approval, responsibility for all aspects of the trial conducted under a CTN application remains with the HREC of each investigator’s institution.

The standards for clinical research in Australia are set by the TGA and the National Health and Medical Research Council, and compliance with GCP is mandatory. Guidelines, such as those promulgated by the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”), are required across all fields, including those related to pharmaceutical quality, nonclinical and clinical data requirements and study designs. The basic requirements for preclinical data to support a first-in-human study under ICH guidelines are applicable in Australia. Requirements related to adverse event reporting in Australia are similar to those required in other major jurisdictions.

Employees

As of December 31, 2016,2019, we had 3573 full-time employees, 2754 of whom were in research and development, of which 2three hold an M.D. and 1020 hold Ph.D. degrees. The remaining 819 employees worked in finance, business development, human resources and administrative support, of which 2three hold a Ph.D. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Corporate and Other Information

Protagonist Pty Limited (“Protagonist Australia”) was incorporated in Australia in September 2001. We were incorporated as a Delaware corporation in 2006, under the name Protagonist Therapeutics, Inc., and became the parent of Protagonist Australia pursuant to a transaction in which all of the issued and outstanding capital stock of Protagonist

Australia was exchanged for shares of our common stock and Series A preferred stock. Our principal executive offices are located at 521 Cottonwood Drive,7707 Gateway Boulevard, Suite 100, Milpitas,140, Newark, California 95035.94560. Our telephone number is (408) 649-7370.(510) 474‑0170. Our website address is www.protagonist-inc.com. References to our website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document.

We make available, free of charge on our corporate website, copies of our Annual Reports on Form 10-K,10‑K, Quarterly Reports on Form 10-Q,10‑Q, Current Reports on Form 8-K,8‑K, Proxy Statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act. We also show detail about stock trading by corporate insiders by providing access to SEC Forms 3, 4 and 5. This information may also be obtained from the SEC’s on-line database, which is located at www.sec.gov. Our common stock is traded on the NASDAQNasdaq Stock Market under the symbol “PTGX.”

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. We will remain an emerging growth company until the earlier of (1) December 31, 2021, (2) the last day of the first fiscal year in which our annual gross revenues are $1.0 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities, and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended (Exchange Act).

Investing in

Item 1A.Risk Factors

We have identified the following risks and uncertainties that may have a material adverse effect on our common stock involves a high degreebusiness, financial condition or results of risk. Youoperations. Investors should carefully consider the risks described below together with the other information included or incorporated by reference in this Annual Report on Form 10-K, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statementsbefore making an investment decision. Our business faces significant risks and the related notes. We cannot assure yourisks described below may not be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. If any of the events discussed in the risk factors below will not occur. The occurrence of any of the events or developments described below could have a material and adverse impact onthese risks occur, our business, results of operations or financial condition and cash flows and future prospects and, if so, our future prospects would likely be materially and adversely affected. If any of such events were to happen,could suffer, the tradingmarket price of our common stock could decline and you could lose all or part of your investment. Although weinvestment in our common stock.

Risks Related to Clinical Development

We are an early clinical-stage biopharmaceutical company with no approved products and no historical product revenue, which makes it difficult to assess our future prospects and financial results.

We are an early clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have discussed all known material risks,been limited to developing our technology, undertaking pre-clinical studies and early stage clinical trials of our pipeline candidates and conducting research to identify additional product candidates. We have not yet demonstrated an ability to generate product revenue or successfully overcome many of the risks described belowand uncertainties frequently encountered by companies in new and rapidly evolving fields such as biopharmaceutical drug discovery and development. 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, but not limited to:

Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early 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 early-stage 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 in registrational or pivotal clinical trials or 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 only onesnext 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 remain 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 conduct larger, more extensive clinical trials in the target patient populations to support a potential application for regulatory approval by the FDA or corresponding regulatory authorities, and we do not expect to be in a position to do so for the near term. We may not receive any preferential or expedited review of any application for regulatory approval by virtue of the fact that our product candidates target biological pathways that are also targeted by currently marketed injectable antibody drugs, and our product candidates will be subject to the regulatory review processes applicable to completely new drugs.

We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trial or receive regulatory approval. Filing an application and obtaining regulatory approval for a pharmaceutical product candidate is an extensive, lengthy, expensive and inherently uncertain process, and the regulatory authorities may delay, limit or deny approval of our product candidates for many reasons, including:

Our product candidates will require additional research, clinical development, manufacturing activities, regulatory approval in multiple jurisdictions, securing sources of commercial manufacturing supply and partnering with a commercial organization. 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 may face, and additional risksplan to advance any other peptide-based product candidates into clinical trials. Moreover, any delay or uncertainties not knownsetback in the development of any product candidate would be expected to us or that we currently deem immaterial may also impairadversely affect our business and cause our stock price to fall. For example, the announcement of the premature discontinuation of the global Phase 2 clinical trial of PTG-100 for the treatment of moderate-to-severe UC in March 2018 due to the interim analysis meeting futility criteria on the primary endpoint of clinical remission (that was subsequently confirmed to be due to human error in endoscopy reads by the original vendor) significantly depressed our stock price.

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 prospects.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 expect to have to complete at least two 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 never conducted a Phase 3 clinical trial or submitted an NDA, and as a result, we have no history or track record to rely on when entering 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. Clinical trials can be delayed for a variety of reasons, including delays related to:

We could encounter delays if a clinical trial is modified, suspended or terminated by us, by the IRBs or ECs 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. In addition, there are a significant number of global clinical trials in IBD and in hematologic disorders that are currently ongoing, especially in Phases 2 and 3, making it highly competitive and challenging to recruit subjects. Furthermore, any negative results we may report in clinical trials of our product candidates, such as the premature termination of our Phase 2 clinical trial of PTG-100 for the treatment of moderate-to-severe UC, may make it difficult or impossible to recruit and retain patients in other 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.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed and our ability to generate product revenue from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.

In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval.

All of our peptide-based product candidates other than PTG-300, PTG-200 and PN-943 are in research or pre-clinical development and have not entered into clinical trials. If we are unable to develop, test and commercialize our peptide-based product candidates, our business will be adversely affected.

As part of our strategy, we seek to discover, develop and commercialize a portfolio of new peptide-based product candidates in addition to PTG-300, PTG-200, and PN-943. 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. We cannot assure you that our peptide platform will work, nor that any of these potential targets or other aspects of our proprietary drug discovery and design platform will yield product candidates that

could enter clinical development and, ultimately, be commercially valuable. Although we expect to continue to enhance the capabilities of our proprietary platform by developing and integrating existing and new research technologies, we may not be successful in any of our enhancement and development efforts. If our enhancement or development efforts are unsuccessful, 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 impacting safety that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in limiting the commercial opportunity for our product candidates if approved.

Undesirable side effects that may be caused by our product candidates or caused by similar approved drugs or product candidates in development by other companies, could cause us, an independent data monitoring committee or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or adverse events related to our product candidates. In such an event, our clinical trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of our product candidates for any or all targeted indications. In addition, drug-related side effects could negatively affect patient recruitment or the ability of enrolled patients to complete the trial and even if our clinical trials are completed and our product candidate is approved, drug-related side effects could restrict the label or result in potential product liability claims. Any of these occurrences could significantly harm our business, financial condition and prospects significantly.

Moreover, since our product candidates PTG-200 and PN-943 have been developed for indications for which injectable antibody drugs have been approved, we expect that our clinical trials would need to show a risk/benefit profile that is competitive with those existing products and product candidates in order to obtain regulatory approval or, if approved, a product label that is favorable for commercialization.

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 focused on research programs and product candidates mainly on the development of PTG-300 for treatment of certain rare blood disorders and the discovery and development of PTG-200, including any second-generation compounds, and PN-943, GI-restricted drugs that target the same biological pathways as currently marketed injectable antibody drugs for the treatment of IBD. 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 since our inception in 2006.inception. Our net loss for the years ended December 31, 2016, 2015,2019, 2018 and 20142017 was approximately $37.2$77.2 million, $14.9$38.9 million and $11.1$37.0 million,  respectively.  As of December 31, 2016,2019 and 2018, we had an accumulated deficit of $64.6 million.$217.7 million and $140.5 million, respectively. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect to continue incurringto incur significant research, development and other expenses related to our ongoing operations and product development, including clinical development activities under the Janssen License and

Collaboration Agreement, and as a result, we expect to continue incurringto incur losses forin the foreseeable future. We also expect these losses to increasefuture as we continue our development of, and seek regulatory approvals for, our peptide-based product candidates.

We do not anticipate generating revenue from sales of products for the foreseeable future, if ever, and we do not currently have any product candidates in registration or pivotal clinical trials. If any of our peptide-based product candidates fail in clinical trials or do not gain regulatory approval, or even if approved, fail to achieve market acceptance, we may never become profitable. Furthermore, any revenues generated from the Janssen License and Collaboration Agreement may not be sufficient alone to sustain our operations as there can be no assurance that we will receive any opt-in election fees, development, regulatory, or sales milestone payments, or royalties from Janssen in the future pursuant to the Janssen License and Collaboration Agreement. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. 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.

If one or more of our peptide-based product candidates is approved for commercial sale and we retain commercial rights, we anticipate incurring significant costs associated with manufacturing and commercializing such approved peptide-based product candidate. Therefore, even if we are able to generate revenue from the sale of any approved product, we may never become profitable.

We are an early clinical-stage biopharmaceutical company with no approved products and no historical product revenue, which makes it difficult to assess our future prospects and financial results.

We are an early clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. 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, including pre-clinical studies and clinical trial of PTG-100 and pre-clinical studies of PTG-200 and PTG-300, as well as our proprietary technology platform. We successfully filed a CTN in Australia to support our completed Phase 1 clinical trial of PTG-100. We have successfully filed a U.S. IND application to support our ongoing

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Phase 2b study of PTG-100 in ulcerative colitis (“UC”). As an early clinical-stage company, we have not yet demonstrated an ability to generate revenue or successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields such as biopharmaceutical drug discovery and development. 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, but not limited to:

Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early-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 will 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. We conducted a Phase 1 clinical trial of PTG-100 in healthy volunteers and we have initiated a Phase 2b clinical trial of PTG-100 in patients with

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moderate-to-severe UC, and we have also commenced IND-enabling studies of PTG-200 and PTG-300. Developing pharmaceutical product candidates, including conducting pre-clinical studies and clinical trials, is expensive. We will require substantial additional future capital in order to complete clinical development and, if we are successful, to commercialize any of our current product candidates. If the U.S. Food and Drug Administration (“FDA”)FDA or any foreign regulatory agency, such as the European Medicines Agency (“EMA”), requires that we perform studies or trials in addition to those that we currently anticipate with respect to the development of PTG-100, PTG-200 or any of our other product candidates, or repeat studies or trials, our expenses would further increase beyond what we currently expect, and any delay resulting from such further or repeat studies or trials could also result in the need for additional financing. Further, in the event our Janssen License and Collaboration Agreement is terminated, we may not receive any development fees, milestone payments, or royalties under the Janssen License and Collaboration Agreement, and we would be required to fund all clinical development, manufacturing, and commercial activities for PTG-200 and any second-generation compounds, which would require us to raise additional capital or establish alternative collaborations with third-party collaboration partners, which may not be possible.

As of December 31, 2019, we had cash, cash equivalents and marketable securities of $133.0 million. Based upon our current operating plan and expected expenditures, we believe that our existing cash, cash equivalents, and available-for-salemarketable securities and proceeds from our debt facility will be sufficient to fund our operations for at least the next 12 months. Our existing capital resources will not be sufficient to enable us to initiate any pivotal clinical trials. Accordingly,However, we expect that we will need to raise substantial additional funds in the future in order to complete clinical development or commercialize any of our product candidates. Our funding requirements and the timing of our need for additional capital are subject to change based on a number of factors, including:

If we are unable to obtain additional funding from equity offerings or debt financings, including on a timely basis, we may be required to:

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

We may seek additional funding through a combination of equity offerings, debt financings, collaborations and/or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. 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 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 peptide-based product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms. To the extent that we raise additional capital through the sale of equity securities, including sales of common stock pursuant to our sales agreement with Jefferies LLC (the “Sales Agreement”), 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.

Covenants in our credit and security agreement restrict our business and operations in many ways and if we do not effectively manage our covenants, our financial conditions and results of operations could be adversely affected.

In October 2019, we entered into a credit and security agreement (the “Credit Agreement”) pursuant to which we have borrowed $10.0 million to date and an additional $40.0 million is available, subject to specified availability periods and the satisfaction of certain conditions. All of our assets, except for intellectual property and certain other customary excluded property, are security for our borrowings under the Credit Agreement. The Credit Agreement contains customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions, any of which could restrict our business and operations, particularly our ability to respond to changes in our business or to take specified actions to take advantage of certain business opportunities that may be presented to us.

Our failure to comply with any of the covenants could result in a default under the Credit Agreement, which would permit the lenders to declare all or part of any outstanding borrowings to be immediately due and payable, or to refuse to permit additional borrowings under the loan and security agreement. If we are unable to repay those amounts, the lenders under the Credit Agreement could proceed against the collateral granted to them to secure that debt, which would seriously harm our business. In addition, before we borrow additional funds under the Credit Agreement, we must first satisfy ourselves that we will have access to existing and future alternate sources of capital, including cash flow

from our own operations, equity capital markets or debt capital markets in order to repay any principal borrowed, which we may be unable to do, in which case, our liquidity and ability to fund our operations may be substantially impaired.

Risks Related to Our Business and IndustryReliance on Third Parties

We are heavily dependent on the success of our lead product candidates, PTG-100, which is in early-stage clinical development, and PTG-200, which is in pre-clinical development, andIf Janssen does not elect to continue the development of other product candidatesPTG-200 or any second-generation compounds, our business and business prospects would be significantly harmed.

Under the terms of the Janssen License and Collaboration Agreement, Janssen may terminate the research program for second-generation compounds after an agreed upon period, and retains the right to terminate the Janssen License and Collaboration Agreement for convenience and without cause on written notice of a certain period. In addition, Janssen will generally retain control over the further clinical development of PTG-200 and the clinical development of second-generation compounds. Janssen’s decisions with respect to such as PTG-300,development will affect the timing and availability of potential future opt-in, milestone and royalty payments, if anyany. If the research program or the Janssen License and Collaboration agreement are terminated early, or if Janssen’s development activities are terminated early or suspended for an extended period of these products fail to receive regulatory approvaltime, or are not successfully commercialized,otherwise unsuccessful, our business and business prospects would be materially adversely affected.

We currently have no product candidatesIf there are any safety or efficacy results that are in registration or pivotal clinical trials or are approved for commercial sale, and we may never be able to develop a marketable product. We expect that a substantial portioncause the benefit-risk profile of our efforts and expenditures over the next few years will be devoted to our lead product candidates, PTG-100 and PTG-200 targeting inflammatory bowel disease (“IBD”), and the development of other product candidates such as PTG-300 which targets iron overload disorders. We cannot be certain that PTG-100, PTG-200, PTG-300 or any other product candidates will receive regulatory approvalsecond-generation compounds to become unacceptable, clinical development would be delayed or if approved, be successfully commercialized. The research, testing, manufacturing, labeling, approval, sale, marketinghalted, and distribution of PTG-100, PTG-200,as a result, Janssen may terminate the Janssen License and PTG-300 will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, each of which has differing regulations. 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 after approval of a marketing application by corresponding regulatory authorities. We completed a Phase 1 clinical trial for PTG-100 in June 2016. We will need to conduct larger, more extensive clinical trials in the target patient population to support a potential application for regulatory approval by the FDA or corresponding regulatory authorities, and we do not expect to be in a position to do so for the near term. We will not receive any preferential or expedited review of any application for regulatory approval by virtue of the fact that our product candidates target biological pathways that are also targeted by currently marketed injectable antibody drugs, and our product candidates will be subject to the regulatory review processes applicable to completely new drugs.

We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trial or receive regulatory approval. Filing an application and obtaining regulatory approval for a pharmaceutical product candidate is an extensive, lengthy, expensive and inherently uncertain process, and the regulatory authorities may delay, limit or deny approval of our product candidates for many reasons, including:

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Our peptide-based product candidates will require additional research, clinical development, manufacturing activities, regulatory approval in multiple jurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply and building of or partnering with a commercial organization. We cannot assure you that our clinical trials for PTG-100 or our planned clinical trials for PTG-200 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 peptide-based product candidates into clinical trials. Moreover, any delay or setback in the development of any product candidate, in particular PTG-100, PTG-200, or PTG-300, would be expected to adversely affect our business prospects, and may cause our stock priceus to fall.cease operations.

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

Our business and future profitability is substantially dependent on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize our most advanced peptide-based product candidates, PTG-100, which is in an ongoing Phase 2b trial, and PTG-200 and PTG-300, which are in pre-clinical development. We are not permitted to market or promote any of our peptide-based product candidates before we receive regulatory approval from the FDA, the EMA or any other foreign regulatory authority, and wesecond-generation compounds may never receive such regulatory approval for any of our peptide-based product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of regulatory authorities. 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.

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

The lengthy regulatory approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market PTG-100 and PTG-200, our lead product candidates, or any other product candidate, such as PTG-300, which would harm our business, results of operations and prospects significantly.

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 REMS, 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 have not previously submitted an NDA, a BLA, a Marketing Authorization Application (“MAA”), or any corresponding drug approval filing to the FDA, the EMA or any comparable foreign authority for any peptide-based product candidate. Further, our product candidates may not receive regulatory approval even if we complete such filings. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

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. Further, we have never conducted a Phase 2 or Phase 3 clinical trial or submitted an NDA.

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

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results of later-stage clinical trials. In addition to our planned pre-clinical studies and clinical trials, we expectprove to have to complete at least two large scale,undesirable or adequate, well-controlled 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 never conducted a Phase 2 or Phase 3 clinical trial or submitted an NDA, and as a result, we have no history or track-record to rely on when entering these phases of the development cycle. For example, the results generated to date in pre-clinical studies and the Phase 1 clinical trial for PTG-100 do not ensure that future Phase 2 clinical trials or later clinical trials will have similar results or be successful. 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. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. 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. Clinical trials can be delayed for a variety of reasons, including delays related to:

We could encounter delays if a clinical trial is modified, suspended or terminated by us, by the IRBs or ECs 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, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols, inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed and our ability to generate product revenue from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

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In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval.

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.

We may encounter delays in enrolling, be unable to enroll or maintain, a sufficient number of patients to complete any of our clinical trials. Patient enrollment and retention in clinical trials is a significant factor in the timing of clinical trials and depends on many factors, including the size and nature of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical trial sites and the eligibility criteria for the clinical trial. Furthermore, any negative results we may report in clinical trials of our product candidates may make it difficult or impossible to recruit and retain patients in other clinical trials of that same candidate. For example, we are aware of a number of therapies that are commercialized or are being developed for IBD and we expect to face competition from these investigational drugs or approved drugs for potential subjects in our clinical trials, which may delay the pace of enrollment in our planned clinical trials. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates, or could render further development impossible.

All of our peptide-based product candidates other than PTG-100 are in research or pre-clinical development and have not entered into clinical trials. If we are unable to develop, test and commercialize our peptide-based product candidates, our business will be adversely affected.

As part of our strategy, we also seek to discover, develop and commercialize a portfolio of new peptide-based product candidates in addition to PTG-100. 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, including:

Our research and development strategy for our lead product candidates relies in large part on clinical data and results obtained from antibody and small molecule products that are approved or in late-stage developmenteffectiveness that could ultimately prove to be inaccurateprevent or unreliablelimit its approval for marketing and successful commercial use, with our peptide-based product candidate approach.

As part of our strategy to mitigate clinical development risk, we seek to develop peptide-based product candidates against biological targets and pathways which have been identified as addressable by approved or later stage products in development. While we utilize pre-clinical in vivo and in vitro models as well as clinical

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biomarkers to assess potential safety and efficacy early in the candidate selection and development process, this strategy necessarily relies upon clinical data and other results obtained by third parties that may ultimately prove to be inaccurate or unreliable or otherwise not applicable to the indications in which we develop our peptide-based product candidates. We will have to conduct clinical trials to show the safety and efficacy of our peptide-based product candidates against the identified biological targets and pathways to show that our peptide-based product candidates can address the identified mechanism of action shown by these third party results. For example, PTG-100 is ana4b7 integrin antagonist that targets the same target as the currently marketed injectable antibody drug, Entyvio^®, and PTG-200 targets the IL-23 biological pathway, which is a pathway targeted by the currently marketed injectable antibody drug, Stelara^®, approved for treatment of psoriasis and Crohn’s disease. If our interpretation of the third party clinical data and results from molecules directed against the same biological target or pathway or our pre-clinical in vivo and in vitro models prove inaccurate or our assumptions and conclusions about the applicability of our peptide-based product candidates against the same biological targets or pathways are incorrect or inaccurate, then our development efforts may prove longer and more extensive and our research and development strategy and business and operations could be significantly harmed.

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. We cannot assure you that our peptide platform will work, nor that any of these potential targets or other aspects of our proprietary drug discovery and design platform will yield product candidates that could enter clinical development and, ultimately, be commercially valuable. Although we expect to continue to enhance the capabilities of our proprietary platform by developing and integrating existing and new research technologies, we may not be successful in any of our enhancement and development efforts. For example, we may not be able to enter into agreements on suitable terms to obtain technologies required to develop certain capabilities of our peptide platform. In addition, we may not be successful in developing the conditions necessary to simulate specific tissue function from multiple species, or otherwise develop assays or cell cultures necessary to expand these capabilities. If our enhancement or development efforts are unsuccessful, 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 impacting safety that could delay or prevent theirthe commencement and/or completion of clinical trials. If regulatory submissions requesting approval limitto market PTG-200 or any such second-generation compounds are submitted, after reviewing the commercialdata in such submissions, the FDA and regulatory agencies in other countries may conclude that the overall benefit-risk profile of an approved label,treatment is unacceptable, and clinical development would be delayed or result in limiting the commercial opportunity for our product candidates if approved.

Undesirable side effects that may be caused by our product candidates or caused by similar approved drugs or product candidates in development by other companies, could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or adverse events related to our product candidates. In such an event, our clinical trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of our product candidates for any or all targeted indications. In addition, drug-related side effects could negatively affect patient recruitment or the ability of enrolled patients to complete the trial and even if our clinical trials are completed and our product candidate is approved, drug-related side effects could restrict the label or result in potential product liability claims. Any of these occurrences could significantly harm our business, financial condition and prospects significantly.

Moreover, since our product candidates PTG-100 and PTG-200 are being developed for indications for which injectable antibody drugs have been approved, we expect that our clinical trials would need to show a risk/benefit profile that is competitive with those existing products and product candidates in order to obtain regulatory approval or, if approved, a product label that is favorable for commercialization.

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Additionally if one or more of our product candidates receives marketing approval and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

halted. Any of these events could prevent us from achieving or maintaining market acceptance of the particular peptide-based product candidate which could significantlywould severely harm our business and prospects.

Clinical trials by their nature examine the effects of a potential therapy in a sample of the potential future patient population. As such, clinical trials conducted with PTG-200 or any second-generation compounds may not uncover all possible adverse events that patients may experience. We or Janssen may in the future observe or report dose-limiting or other safety issues in potential future clinical trials.

The occurrence of these events may cause Janssen to abandon its development of PTG-200 or any second-generation compounds entirely and terminate the Janssen License and Collaboration Agreement. Any termination of the Janssen License and Collaboration Agreement by Janssen would have a material adverse effect on our results of operations, financial condition, business prospects and the future of PTG-200 and any second-generation compounds.

There may be disagreements between Janssen and Protagonist 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, including those regarding the development, manufacture, and commercialization of PTG-200 or any second-generation compounds, interpretation of the Janssen License and Collaboration Agreement, and ownership of proprietary rights. In addition, in certain circumstances, we may believe that a particular milestone has been achieved and Janssen may disagree with our belief. In that case, receipt of that milestone payment may be delayed or may never be received, which would adversely affect our financial condition and may require us to adjust our operating plans. The joint governance structure contemplated by the Janssen License and Collaboration Agreement will cease to have decision-making authority once the development term ends, which will preclude our ability to participate in any further decision-making for PTG-200 and any second-generation

compounds. As a result of possible disagreements with Janssen, we also may become involved in litigation or arbitration, which would be time-consuming for our management and employees and expensive.

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, and any potential partner may not devote sufficient resources to the development or commercialization of our product candidates or may otherwise fail in development or commercialization efforts, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.

Other than our Janssen License and Collaboration Agreement, we have no active collaborations for any of our product candidates. Even if we are able to 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. While we currently plan to enter into collaborations that are limited to certain identified territories, there can be no assurance that we would maintain significant rights or control of future development and commercialization of such product candidate. Accordingly, if we collaborate with a third party for development and commercialization of a product candidate, we may relinquish some or all of the control over the future success of that product candidate to the third party, and that partner may not devote sufficient resources to the development or commercialization of our product candidate or may otherwise fail in development or commercialization efforts, in which event the development and commercialization of the product candidate in the collaboration could be delayed or terminated and our business could be substantially harmed. In some cases, we may be responsible for continuing development of a product candidate or research program under a collaboration, and the payments we receive from our partner may be insufficient to cover the cost of this development or may result in a dispute between the parties. Moreover, collaborations and sales and marketing arrangements are complex and time consuming to negotiate, document and implement, and they may require substantial resources to maintain, which may be detrimental to the development of our other product candidates.

We are subject to a number of additional risks associated with our dependence on collaborations with third parties, the occurrence of which could cause our collaboration arrangements to fail. Conflicts may arise between us and partners, such as conflicts concerning the implementation of development plans, efforts and resources dedicated to the product candidate, interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. Any such disagreement between us and a partner could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product candidates, and in turn prevent us from generating sufficient revenue to achieve or maintain profitability:

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

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 duties 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 CROs to monitor and manage clinical trials and collect data for our pre-clinical studies and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that their conduct meets regulatory requirements and that each of our studies and trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. Thus, we and our CROs are required to comply with good clinical practices (“GCPs”), which are regulations and guidelines promulgated by the FDA, the EMA and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. 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. We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials complies with GCPs. While we have agreements governing activities of our CROs, we may have limited influence over their actual performance and the qualifications of their personnel conducting work on our behalf. In addition, significant portions of the clinical studies for our peptide-based 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 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. Failure to comply with applicable regulations in the conduct of the clinical studies for our peptide-based product candidates may require us to repeat clinical trials, which would delay the regulatory approval process.

Some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.

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. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote

sufficient time and resources to our pre-clinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be

Index to Financial Statements

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 peptide-based product candidates. As a result, our results of operations and the commercial prospects for our peptide-based product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, thereThere can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We face a variety of manufacturing risks and rely completely 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 peptide-based product candidate.

Our clinical trials must be conducted with product manufactured under current good manufacturing practicescGMP and for Europe and other major countries,regions, International Council for Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”) guidelines, and we rely on contract manufacturesmanufacturers to manufacture and provide product for us that meet these requirements. We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our pre-clinical and clinical drug supplies and we lack the resources and the capability to manufacture any of our peptide-based product candidates on a clinical or commercial scale. We expect to continue to depend on contract manufacturers for the foreseeable future. In particular, asAs we proceed with the development and potential commercialization of PTG-100,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.processes to potentially reduce the cost of goods. We will rely on our internal process research and development efforts and those of contract manufacturermanufacturers to develop the GMP manufacturing processes required for largercost-effective and large scale production. If the contract manufacturer isthese efforts are not successful in developing largecost-effective processes and if the contract manufacturers are not successful in converting it to commercial scale processes,manufacturing, then our development and/or commercialization of PTG-100our product candidates could be materially delayed. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel.adversely affected. Moreover, our contract manufacturers are the sole source of supply for our clinical product candidates, including PTG-100.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, pandemics or otherwise, we could experience delays, disruptions, suspensions or termination of our clinical study 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 peptide-based product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we 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 peptide-based product candidates for our clinical trials, and if approved, for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. 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 peptide-based product candidate to complete the clinical trial, any significant delay in the supply of a peptide-based 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 peptide-based product candidates. If our contract manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our peptide-based product candidates, the commercial launch of our peptide-based product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenue from the sale of our peptide-based product candidates.

Index to Financial Statements

If we submit an application for regulatory approval of any of our product candidates, the facilities used by our contract manufacturers to manufacture our product candidates will be subject to inspection and approval by the FDA or

other regulatory authorities. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our peptide-based product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our peptide-based product candidates, if approved.

Risks Related to Regulatory Approval

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

Our business and future profitability is substantially dependent on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize our peptide-based product candidates. We are not permitted to market or promote any of our peptide-based 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 peptide-based product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, 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:

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 REMS, 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 have not previously submitted an NDA, a Marketing Authorization Application (“MAA”), or any corresponding drug approval filing to the FDA, the EMA or any comparable foreign authority for any peptide-based product candidate. Further, our product candidates may not receive regulatory approval even if we complete such filings. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Even if we obtain and maintain approval for any of our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.

Sales of our product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval and, to the extent that we retain commercial rights following clinical development, we would plan to seek regulatory approval to commercialize our peptide-based product candidates in the United States, the EU and additional foreign countries. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional pre-clinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. If we fail to comply with the regulatory requirements in international markets or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our peptide-based product candidates will be harmed and our business will be adversely affected.

We may fail to obtain orphan drug designations from the FDA and/or EU 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. Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA or BLA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity.

We have not obtained nor have we sought to obtain orphan designation for any product candidates to date, although we believe some of the potential indications of our product candidates could qualify forPTG-300 has received orphan drug designation and the related benefits if approved for that indication. For example, if PTG-100 or PTG-200 is developed for the treatment of pediatric IBD or PTG-300 for the treatment of iron overload disorders in patients with ß-Thalassemiabeta-thalassemia from the FDA and possibly HH and SCD,EU. Despite this designation, we planmay be unable to file and expect to qualify formaintain the benefits associated with orphan drug designation with respect to such indication. Even if we obtain such designations, westatus, including market exclusivity. We may not be the first to obtain regulatory approval of a product candidate for the beta-thalassemia or any other orphan-designated indication that we may pursue due to the uncertainties associated with

developing pharmaceutical products. 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 the needs of patients with the orphan-designated disease or condition. 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 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. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek orphan drug designation for our product candidates, we may never receive such designations.

Risks Related to Commercialization of our Product Candidates

IndexWe currently have no marketing and sales organization. To the extent any of our peptide-based product candidates for which we maintain commercial rights is approved for marketing, if we are unable to Financial Statements

We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any peptide-based product candidates that receive marketing approval, we would 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 obtaining or maintainingdoing so. In the event of successful development and commercialization collaborations, andof any potential partner may not devote sufficient resources to the development or commercialization 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 peptide-based 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 Janssen License and Collaboration Agreement, we may elect to exercise our Co-Detailing Option (as described below), which would require us to establish a U.S. sales team. If we are not successful in commercializing our peptide-based product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

We have not yet negotiated our agreement with Janssen specifying all of the terms of our Co-Detailing Option and would need to develop our own internal sales force.

Pursuant to the Janssen License and Collaboration Agreement, we have an option, which, if PTG-200 and/or any second-generation compounds are approved for commercial sale, allows us to elect to provide up to 30% of the PTG-200 selling effort in the United States with sales force personnel (the “Co-Detailing Option”). While the Janssen License and Collaboration Agreement includes the material terms of our Co-Detailing Option, Janssen and we mutually agreed to negotiate a separate agreement specifying the detailed activities and responsibilities in respect of the marketing and co-promotion following our election to exercise our Co-Detailing Option. We will need to negotiate this separate agreement with Janssen and, as a result, Janssen may place restrictions or additional obligations on us, including financial obligations. Any restrictions or additional obligations may restrict our co-detailing activities or involve more significant financial or other obligations than we currently anticipate. There are risks involved with establishing our own sales force capabilities. Developing an internal sales force and function will require substantial expenditures and will be time-consuming, may expose us to unforeseen costs and expenses, and we may not be able to effectively recruit, train or retain sales personnel. Accordingly, we may be unable to establish our own sales force which could effectively preclude our ability to take any advantage of participating in co-detailing PTG-200 and/or any second-generation compounds in the United States. In addition, any sales force we establish may not be effective, or may otherwise fail in development be less effective than the any sales force that Janssen utilizes to promote PTG-200 and/or any second-generation compounds. In such event, commercialization efforts,may be adversely affected, which could materially and adversely affect any sales milestone payments or royalties we may receive under the Janssen License and Collaboration Agreement.

Even if our product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, government payors (including Medicare and Medicaid programs), private insurers, and other third-party payors, or others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, government payors, other third-party payors and other healthcare providers. If any of our approved products fail to achieve an adequate level of acceptance, we may not generate significant revenue to become profitable. The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to:

Because we expect sales of our peptide-based product candidates, if approved, to generate revenue for us to achieve profitability, the failure of our peptide-based product candidates to achieve market acceptance would harm our business and could require us to seek collaborations or undertake additional financings sooner than we would otherwise plan.

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 developprofitably sell any peptide-based product candidates for which we obtain marketing approval.

For example, in the United States in March 2010, the ACA was enacted to increase access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and the health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs.

There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the current administration to repeal or replace certain aspects of the ACA. Since January 2017, the President has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has

considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been enacted. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and the medical device tax and, effective January 1, 2021, also eliminates the health insurance tax. Further, the Bipartisan Budget Act of 2018 (the “BBA”) among other things, amends the ACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress may consider other legislation to repeal or replace other elements of the ACA. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how this decision, future decisions, subsequent appeals and other efforts to repeal and replace the ACA will impact the ACA and our business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2029 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers and increased the statute of limitations period in which the government may recover overpayments to providers from three to five years.

Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level, the current administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients and increase patient access to lower-cost generic and biosimilar drugs. Further, the current administration released a “Blueprint” to lower drug prices and reduce out-of-pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal health programs, incentivize manufacturers to lower the list price of their products and reduce the out-of-pocket costs of drug products paid by consumers. While some of the measures may require additional authorization to become effective, Congress and the current administration have both stated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our product candidates, if approved.

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 our peptide-based product candidates or additional pricing pressures.

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.

Governments outside the United States tend to impose strict price controls, which may adversely affect our financial condition and operating results.revenues, if any.

We have no current collaborationsIn some countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for any of oura product candidates. Even if we are able to establish 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. While we currently plan to enter into collaborations that are limited to certain identified territories,candidate. In addition, there can be no assurance that we would maintain significant rightsconsiderable pressure by governments and other stakeholders on prices and reimbursement levels. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. To obtain reimbursement or control of future development and commercialization of such product candidate. Accordingly, if we collaborate with a third party for development and commercialization of a product candidate,pricing approval in some countries, we may relinquish some or all ofbe required to conduct a clinical trial that compares the control over the future success of that product candidate to the third party, and that partner may not devote sufficient resources to the development or commercializationcost-effectiveness of our product candidate to other available therapies, which is time-consuming and costly. If coverage and reimbursement of our product candidates are unavailable or may otherwise faillimited in developmentscope or commercialization efforts, in which event the development and commercialization of the product candidate in the collaboration could be delayedamount, or terminated andif pricing is set at unsatisfactory levels, our business could be substantially harmed. In addition,harmed, possibly materially.

We currently conduct, and intend to continue to conduct, a substantial portion of the termsclinical trials for our product candidates outside of any potential collaboration or other arrangement thatthe United States. If approved, we may establish may notcommercialize our product candidates abroad. We will thus be favorablesubject to us or may not be perceived as favorable, which may negatively impact the pricerisks of doing business outside of the United States.

We currently conduct, and intend to continue to conduct, a substantial portion of our common stock. In some cases,clinical trials outside of the United States and, if approved, we may be responsible for continuing developmentintend to also market our peptide-based product candidates outside of a product candidate or research program under a collaboration, and the payments we receive from our partner may be insufficient to cover the cost of this development or may result in a dispute between the parties. Moreover, collaborations and sales and marketing arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain, which may be detrimental to the development of our other product candidates.

United States. We are thus subject to a number of additional 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 dependence on collaborations withpeptide-based product candidates, if approved, outside of the United States, including:

If we are unable to anticipate and address these risks properly, our business and financial results will be harmed.

Our business could be adversely affected by the effects of health epidemics, including the recent coronavirus, or COVID-19, outbreak, in regions where we or third parties the occurrence ofon which could cause our collaboration arrangements to fail. Conflicts may arise between uswe rely have significant manufacturing and partners, such as conflicts concerning the implementation of development plans, efforts and resources dedicated to the product candidate, interpretationdistribution facilities, concentrations of clinical data,trial sites or other business operations. We have clinical trial sites in countries that have been directly affected by COVID-19, and depend on outsourced manufacturing operations, including China, for various stages of our supply chain. In addition, if COVID-19 becomes a pandemic, it could materially affect our operations globally, including at our headquarters in the achievementSan Francisco Bay Area and at our clinical trial sites throughout the globe.

Our business could be adversely affected by health epidemics in regions where we have significant manufacturing and distribution facilities, concentrations of milestones,clinical trial sites or other business operations.

If the interpretation of financial provisionsrecent coronavirus, or the ownership of intellectual property developed during the collaboration. If any such conflicts arise,COVID-19, outbreak continues to spread, we may need to limit operations or implement limitations, including work from home policies. There is a collaborator could act in its own self-interest, whichrisk that some countries or regions may be adverseless effective at containing COVID-19, or it may be more difficult to our interests. Any such disagreement between us andcontain if the outbreak reaches a partnerlarger population or broader geography, in which case the risks described herein could result in one or more of the following, each of which could delay or prevent the development or commercializationbe elevated significantly.

In particular, some of our product candidates, and in turn prevent us from generating sufficient revenue to achieve or maintain profitability:

In addition, the termination of a collaboration may limit our ability to obtain rightssufficient materials for our drug products. While we are closely monitoring developments and are implementing and evaluating new mitigation strategies, the full impact of this outbreak is uncertain at this time and any prolonged disruption to our manufacturers and distributors could significantly disrupt our supply chain and could have a material adverse effect on our development plans and business.

In addition, our clinical trials may be affected by the productCOVID-19 outbreak. Site initiation and patient enrollment may be delayed or intellectual property developed bydisrupted due to prioritization of hospital and medical resources toward the COVID-19 outbreak or inability to access hospital and other clinical sites. Further, site initiation and patient enrollment may be delayed due to difficulties related to clinical site investigators, clinical site staff and patients who may be reluctant to travel to medical sites to comply with clinical trial protocols or be monitored. If COVID-19 becomes a pandemic, it may delay enrollment in our collaborator under terms that wouldglobal clinical trials, some patients may not be sufficiently favorable for usable to consider further developmentcomply with clinical trial protocols if quarantines impede patient movement or investment ininterrupt healthcare services, and we may be unable to obtain data from blood samples or other required medical procedures.

The ultimate impact of the terminated collaboration product candidate, even if it were returnedCOVID-19 outbreak or a similar health epidemic is highly uncertain and subject to us.change. We do not yet know the full extent of potential delays or impacts on our business, our supply chain, clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material impact on our operations, and, therefore, we will continue to monitor the COVID-19 situation closely and implement risk mitigation as needed.

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.

Index to Financial Statements

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. Mergers and acquisitions in our industry may result in even more resources being concentrated in our competitors. 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, or develop blocking intellectual property to which we do not have a license, there would be a material adverse impact on the future prospects for our product candidates and business.

We believe our principal competition in the treatment of IBD is from companies with approved agents in the following therapeutic classes, among others:

We are also aware of several companies developing therapeutic product candidates for the treatment of IBD, including, but not limited to AbbVie, Allergan, Arena Pharmaceuticals, Inc., AstraZeneca, Biogen, Boehringer Ingelheim (adalimumab biosimilar in Pre-Registration), Bristol-Myers Squibb, Celgene (mongersen sodium and ozanimod hydrochloride in Phase 3 clinical trials), Eli Lilly and Company, Galapagos, Gilead, Lycera Corp., Mitsubishi Tanabe Pharma Corporation, Pfizer (tofacitinib citrate in a Phase 3 clinical trial), Roche/Genentech (etrolizumab in a Phase 3 clinical trial), Samsung Bioepis (adalimumab biosimilar in Pre-Registration), Sandoz (adalimumab biosimilar in Phase 3), Shire, and UCB S.A.

We believe our principal competition in the treatment of iron overload disorders, such as ß-Thalassemia, HH and SCD, will come from other pipeline products being developed by companies such as Acceleron (luspatercept in a Phase 3 clinical trial), bluebird bio (LentiGlobin in a Phase 3 clinical trial), Bristol-Myers Squibb, Emmaus Medical (glutamine in pre-registration), Gilead, Global Blood Therapeutics, Inc., La Jolla Pharmaceutical, and Novartis AG, among others. We believe competition will also include approved iron chelation therapies that have been developed by Novartis AG and Apotex, among others.

We believe that our ability to successfully compete will depend on, among other things:

Because our research approach depends on our proprietary technology platform, it may be difficult for us to continue to successfully compete in the face of rapid changes in technology. If we fail to continue to advance our technology platform, technological change may impair our ability to compete effectively and technological advances or

products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.

We currently have no marketing and sales organization. To the extent any of our peptide-based 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 peptide-based product candidates, we may not be able to effectively market and sell any peptide-based product candidates, 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 peptide-based product candidates that receive marketing approval, we would 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 peptide-based 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. If we are unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such partner does not devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize any of our peptide-based product candidates that receive regulatory approval. If we are not successful in commercializing our peptide-based product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

Even if our peptide-based product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, government payors (including Medicare and Medicaid programs), private insurers, and other third-party payors, or others in the medical community necessary for commercial success.

If any of our peptide-based product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, government payors, other third-party payors and other healthcare providers. If any of our approved peptide-based products fail to achieve an adequate level of acceptance, we may not generate significant revenue to become profitable. The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to:

Index to Financial Statements

Because we expect sales of our peptide-based product candidates, if approved, to generate revenue for us to achieve profitability, the failure of our peptide-based product candidates to achieve market acceptance would harm our business and could require us to seek collaborations or undertake additional financings sooner than we would otherwise plan.

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 focused on research programs and product candidates on the discovery and development of GI-restricted drugs that target the same biological pathways as currently marketed injectable antibody drugs for the treatment of IBD. 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. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. 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.

Even if we obtain and maintain approval for any of our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.

Sales of our product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval and, to the extent that we retain commercial rights following clinical development, we would plan to seek regulatory approval to commercialize our peptide-based product candidates in the United States, the EU and additional foreign countries. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the US, including additional pre-clinical studies or clinical trials. In many countries outside the US, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products is also subject to approval. We may decide to submit an MAA to the EMA for approval in the EEA. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process and the EMA has its own procedures for approval ofpeptide-based product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may

Index to Financial Statements

limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the US and the EEA also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our peptide-based product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets and or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our peptide-based product candidates will be harmed and our business will be adversely affected.

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, 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:

Index to Financial Statements

Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”),ACA, among other things, amended the intent requirements of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, ACA provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act. Moreover, while we do not submit claims and our customers make the ultimate decision on how to submit claims, from time to time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we provided improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities. 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, especially in light of the lack of applicable precedent and regulations.reform. Federal

Index to Financial Statements

and state enforcement bodies have recently increasedcontinued to increase their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. 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 increase our costs or otherwise have an adverse effect on our business.

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 PTG-200 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 criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval The imposition 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 numberany 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 peptide-based product candidates for which we obtain marketing approval.

For example, in the United States in March 2010, the ACA was enacted to increase access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and the health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. Among the provisions of the ACA of importance to our potential peptide-based product candidates are the following:

Index to Financial Statements

The financial impact of the ACA over the next few years will depend on a number of factors including but not limited to the policies reflected in implementing regulations and guidance and changes in sales volumes for products affected by the new system of rebates, discounts and fees.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional action is taken by Congress. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers and increased the statute of limitations period in which the government may recover overpayments to providers from three to five years. In addition, recently there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their commercial products. The implementation of cost containment measuresthese penalties or other healthcare reforms may prevent us from being ablecommercial limitations could negatively impact our collaboration with Janssen or cause Janssen to generate revenue, attain profitability, or commercialize our product candidates, if approved.

We expect that additional stateterminate the Janssen License and federal healthcare reform measures will be adopted in the future, anyCollaboration Agreement, either of which could limit the amounts that federalwould materially and state governments will pay for healthcare therapies, which could result in reduced demand for our peptide-based product candidates or additional pricing pressures.

Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the Affordable Care Act. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the Affordable Care Act that are repealed. Thus, the full impact of the Affordable Care Act, or any law replacing elements of it, on our business remains unclear. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.

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.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.business, financial condition and results of operations.

In some countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. In addition, there can be considerable pressure by governments and

Index to Financial Statements

other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and reimbursement have been obtained. Reference pricing used by various countries and parallel distribution or arbitrage between low-priced and high-priced countries, can further reduce prices. 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 candidate to other available therapies, which is time-consuming and costly. If coverage and reimbursement of our product candidates are unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.

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.

Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific, medical and regulatory personnel. We are highly dependent on our existing senior management team, especially Dinesh V. Patel, Ph.D., our President and Chief Executive Officer, David Y. Liu, Ph.D., our Chief Scientific Officer and Head of Research and Development, Richard S. Shames, M.D., our Chief Medical Officer, Tom O’Neil, our Chief Financial Officer and William Hodder, our Senior Vice President of Corporate Development. We are not aware of any present intention of any of these individuals to leave us.team. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to maintain retention incentives or counteract more lucrative offers from other companies. All of our employees may terminate their employment with us at any time, with or without notice. 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 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. Our competitors may provide higher compensation or more diverse opportunities and better opportunities for career advancement. Any or all of these competing 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 peptide-based product candidates and to grow our business and operations as currently contemplated.

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

As of December 31, 2016,2019, we had 3573 full-time employees, including 2754 employees engaged in research and development. As our development and commercialization plans and strategies develop and we continue to operate as a public company, we expect to need additional managerial, operational, scientific, sales, marketing, development, regulatory, manufacturing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:

Index to Financial Statements

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 peptide-based 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 breakdown, telecommunications and electrical failures, malicious intrusion and computer viruses that may result in the impairment of key business processes. In addition, our systems are potentially vulnerable to data security breaches—whetherbreaches-whether by employees or others—thatothers-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 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 because of lost or misappropriated information, including sensitive patient data. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have implemented security measures to protect our data security and information technology systems, such measures may not prevent such events. Any such disruptions and breaches of security could have a material adverse effect on the development of our product candidates as well as our business and financial condition.

Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, cyber, auto liability, workers’ compensation, clinical trial, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage.coverage to insure risks which could arise from our operations. Any significant uninsured liabilitylosses or liabilities may require us to pay substantial amounts from corporate cash intended to fund operations, which would adversely affect our financial position and results of operations.

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

Index to Financial Statements

and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations alsomaterials, 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.

If we, or our contractors or agents are unable to comply with federal, state and county environmental and safety laws and regulations, including those governing laboratory procedures and the handling of biohazardous materials, chemicals and various radioactive compounds, considerable additional costs or liabilities could be assessed that would have a material adverse effect on our financial condition. We, our collaborators, contractors or agents may be required to incur significant costs to comply with current or future environmental laws and regulations and may be adversely affected by the cost of compliance with these laws and regulations.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

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 and 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, including those laws that require the reporting of true, complete and accurate information to the FDA, (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. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our pre-clinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and third-parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. 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 any of our peptide-based product candidates, if approved.

We face an inherent risk of product liability as a result of the clinical testing of our peptide-based product candidates and will face an even greater risk if we commercialize any products. For example, 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. Claims could also be asserted under state consumer protection acts. 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 peptide-based product candidates.

Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

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 peptide-based product candidates. We currently carry clinical trial liability insurance for our clinical trials. Although we maintain such 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.

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 peptide-based product candidates outside of the United States. We are thus subject to risks associated with doing business outside of the United States. With respect to our peptide-based 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 outside of the United States or in lieu of our own sales force and distribution systems, which would indirectly expose us to these risks. 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 peptide-based product candidates, if approved, outside of the United States, including:

Index to Financial Statements

Our headquarters and certain of our data storage facilities are 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, such as data storage, are vulnerable to damage from catastrophic events, such as power loss, natural disasters, terrorism and similar unforeseen events beyond our control. Our corporate headquarters and other 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.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, damaged critical infrastructure, such as our data storage facilities or financial systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery and business continuity plan in place. We may incur substantial expenses as a result of the absence or limited nature of our internal or third party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our development plans and business.

The insurance coverage and reimbursement status of newly-approvednewly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for our peptide-based 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 peptide-based 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 peptide-based 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. In the United States, the principal decisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services (“CMS”), an agency within the United States Department of Health and Human Services.. CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.degree, but also have their own methods and approval process. Therefore, 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. Reimbursement agencies in Europe may be more conservative than CMS.

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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 tablet vaccineproduct candidates on less favorable terms than we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, 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 peptide-based product candidates to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our peptide-based 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.

Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our tablet vaccine candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market.

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. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost, in a timely manner, or in all jurisdictions. 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. There is no assurance that all the potentially relevant prior art relating to our patent and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents have been issued, or do successfully issue, from our patent applications, 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 the patent and patent applications we hold, obtain or pursue with respect to our product candidates and technologies is challenged, or if they fail to provide meaningful exclusivity for our product candidates and technologies, it could threaten our ability to commercialize our product candidates and technologies. Several patent applications covering our product candidates and technologies have been filed recently.filed. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such 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 these patents or any other

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patents owned by or, if applicable in the future, licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates and technologies that we may develop. Further, 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. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any patent application related to our product candidates and technologies. Furthermore, an interference proceeding can be provoked by a third party or instituted by the U.S. Patent and Trademark Office (“PTO”) to determine who was the first to invent any of the subject matter covered by the patent claims of our applications.

In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available however the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications. For example, our granted U.S. patents covering PN-943 and PTG-200 expire in 2035, and our granted U.S. patent covering PTG-300 expires in 2034. In addition, although upon issuance in the United States 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. Further, 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. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patent and other intellectual property rights, especially those relating to life sciences. 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. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

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. If, in the future, we obtain licenses from third parties, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications or to maintain any patents, covering technology that we license from third parties. We may also require the cooperation of our licensors to enforce any licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our

business. Moreover, if we do obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those obligations could give our licensor the right to terminate the license. Termination of a necessary license could have a material adverse impact on our business.

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.

While we hold two issued patents and have filed patent applications to protect certain aspects of our product candidates, 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 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.

We seek to protect our proprietary information, data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. Although these agreements are designed to protect our proprietary information, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. 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.

We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we

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have taken to protect our proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to our trade secrets.

Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time-consuming, and the outcome is unpredictable. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. We cannot guarantee that our employees, former employees or consultants will not file patent applications claiming our inventions. Because of the “first-to-file” laws in the United States, such unauthorized patent application filings may defeat our attempts to obtain patents on our own inventions.

Trade secrets and know-how can be difficult to protect as trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

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. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own

competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, in the absence of patent protection, we would have no right to prevent them, or those to whom they communicate, from using that technology or information to compete with us. 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 to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our issued patentpatents 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.

Interference or derivation proceedings provoked by third parties or brought by us, the PTO or any foreign patent authority may be necessary to determine the priority or ownership of inventions with respect to our patent or patent applications. Our defense of litigation, interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on

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commercially reasonable terms, if any license is offered at all. Our defense

Because of the expense and uncertainty of litigation, or interference proceedingswe may fail and,conclude that even if successful,a third party is infringing our issued patents, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in substantial costs and distractthe best interest of our management andcompany or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other employees.non-litigious action or solution.

We may not be able to prevent misappropriation of our intellectual property, trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

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.

If we initiate legal proceedings against a third party to enforce a patent covering our product candidates or technologies, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the U.S.,United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent.commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post grant review, and equivalent proceedings in foreign jurisdictions, such as opposition or derivation proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our product candidates or technologies. The outcome following legal assertions of invalidity and unenforceability is

unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware of during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection could have a material adverse impact on our business.

The lives of any patents issuedAs more groups become engaged in scientific research and product development in fields related to our product candidates, such as a resultIL-23R, the risk of our pendingpatents, or futurepatents that we have in-licensed, being challenged through patent applicationsinterferences, 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:

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

Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities. 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 sufficientable to effectively protectprevent third parties from infringing upon or misappropriating or from successfully challenging our productsintellectual property rights. Uncertainties resulting from the initiation and business.

Patentscontinuation of patent litigation or other proceedings could have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications. If patents are issuedmaterial adverse effect on our pending patent applications, the resulting patents are projectedability to expire on dates ranging from 2022 to 2035. In addition, although upon issuancecompete in the United States the life of a patent can be increased based on certain delays caused by the USPTO, this increase can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If we do not have sufficient patent life to protect our products, our business and results of operations will be adversely affected.marketplace.

Competitors could enter the market with generic versions of our product candidates, which may result in a material decline in sales of our product candidates.

Under the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application or ANDA,(“ANDA”), seeking approval of a generic copy of an approved innovator product. Under theHatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references the FDA’s

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finding of safety and effectiveness of a previously approved drug. A 505(b)(2) NDA product may be for a new or improved version of the original innovator product. Innovative small molecule drugs may be eligible for certain periods of regulatory exclusivity (e.g., five years for new chemical entities, three years for changes to an approved drug requiring a new clinical study, seven years for orphan drugs), which preclude FDA approval (or in some circumstances, FDA filing and review of) an ANDA or 505(b)(2) NDA relying on the FDA’s finding of safety and effectiveness for the innovative drug. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug, which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic applicant that seeks to market its product before expiration of the patents must

include in the ANDA or 505(b)(2) what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.

Accordingly, if our product candidates are approved, competitors could file ANDAs for generic versions of our product candidates, or 505(b)(2) NDAs that reference our product candidates. If there are patents listed for our product candidates in the Orange Book, those ANDAs and 505(b)(2) NDAs would be required to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. We cannot predict whether any patents issuing from our pending patent applications will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether we would sue on any such patents, or the outcome of any such suit.

We may not be successful in securing or maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could more immediately face generic competition and its sales would likely decline materially. Should sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product and our results of operations and cash flows could be materially and adversely affected.

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. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation proceedings, post grant reviews, inter partes reviews, and reexamination proceedings before the PTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, 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, including our competitors, 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, we cannot assure you that marketing of our product candidates or practice of our technologies will not infringe existing patents or patents that may be granted in the future. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, 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 a patent holder believes our product candidates or technologies infringe on its patent, the patent

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holder may sue us even if we have received patent protection for our product candidates and technologies. In addition, third parties may obtain patents in the future and claim that our product candidates or technologies infringe upon these patents. If any third-party patents were 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 the biotechnology and pharmaceutical industries expandour 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 further practice our technologies or develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. 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, which could harm our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement (which may include situations in which we had knowledge of an issued patent but nonetheless proceeded with activity which infringed such patent), 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.

We may not identify relevant third party patents or may incorrectly interpret the relevance, scope or expiration of a third party patent which might adversely affect our ability to develop and market our products.

We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

Because of the expense and uncertainty of litigation, weWe may not be successful in a positionobtaining or maintaining necessary rights to enforceprotect our product candidates through acquisitions and in-licenses. We may find that our programs require the use of proprietary rights held by third parties or the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license compositions, methods of use, processes or other third party intellectual property rights againstfrom third parties.

Becauseparties we identify as necessary for our product candidates. The licensing and acquisition of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may be issued on as a result of our pending or future patent applications or

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other intellectual property rights the risk-adjusted costis a competitive area, and a number of bringing and enforcing suchmore established companies are also pursuing strategies to license or acquire third party intellectual property rights that we may consider attractive. In addition, companies that perceive us to be a claim or actioncompetitor may be too highunwilling to assign or not in the best interest of our companylicense rights to us. We also may be unable to license or our shareholders. In such cases, we may decideacquire third party intellectual property rights on terms that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

Intellectual property disputes could causewould allow us to spend substantial resources and distractmake an appropriate return on our personnel from their normal responsibilities.

Litigation or other legal proceedings relatinginvestment. Even if we are able to obtain a license to intellectual property claims, with or without merit, is unpredictable and generally expensive and time-consuming and, even if resolved in our favor, is 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. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. 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,interest, we may not be able to preventsecure exclusive rights, in which case others could use the same rights and compete with us.

If we are unable to successfully obtain rights to required 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.

We may not be able to protect ourparty intellectual property rights throughoutor maintain the world.

Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive, and ourexisting intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Many companieswe have, encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The requirements for patentability differ, in varying degrees, from country to country. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patent and other intellectual property rights, especially those relating to life sciences. 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. This could make it difficult for us to stop the infringement of any patents we obtain or the misappropriation of our other intellectual property rights. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

Proceedings to enforce our patent rights in foreign jurisdictions, regardless of whether successful, would result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wishhave to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in allabandon development of our expected significant foreign markets.

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 patentsthat program and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

Similarly, 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.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The PTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the PTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We employ reputable law firms and other professionals and rely on such third parties to help us comply with these requirements and effect payment of these fees with respect to the patent and patent applications that we own, and if we in-license intellectual property we may have to rely upon our licensors to comply with these

requirements and effect payment of these fees with respect to any patents and patent applications that we license. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act (Leahy-Smith Act)(“Leahy-Smith Act”) was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications will beare prosecuted and may also affect patent litigation. The PTO is currently developinghas developed regulations and procedures to govern administration of the Leahy-Smith Act, andbut many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 2013, 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. Depending on decisions by the U.S. Congress, the federal courts, and the PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patentpatents and patents that we might obtain in the future.

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

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 or permit us to maintain our competitive advantage. The following examples are illustrative:

requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. Such an outcome could have a material adverse effect onTo the extent any of our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

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.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

We have not yet registered trademarks for a commercial trade name for our product candidates and failure to secure such registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for our product candidates. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

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We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

We may find that our programs require the use of proprietary rights held by third parties or the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights. We may be unable to acquire or in-license compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the same rights and compete with us.

If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of that program and our business and financial condition could suffer.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our product candidates.

We may seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

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Risks Related to Ownership of our Common Stock

The price of our stock may be volatile, and you could lose all or part of your investment.

The tradingOur stock price of our common stock has been,fluctuated in the past and is likely to be highly volatile in the future. The stock market in general and could be subjectthe market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to wide fluctuationsthe operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in response to various factors, some of which are beyond our control.common stock. In addition to the factors discussed in these “Risk Factors” and elsewhere in this quarterly report,Annual Report on Form 10-K, these factors include, but are not limited to: