Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023March 31, 2024

or

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

For the transition period from                      to                    

Commission File No. 001-37852

PROTAGONIST THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

98-0505495

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

7707 Gateway Boulevard, Suite 140
Newark, California

94560-1160

(Address of registrant’s principal executive offices)

(Zip code)

(510) 474-0170

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.00001

PTGX

The Nasdaq Stock Market, LLC

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

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

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

Large accelerated filer

Accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

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

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

As of July 31, 2023,April 30, 2024, there were 57,530,24258,652,133 shares of the registrant’s Common Stock, par value $0.00001 per share, outstanding.

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS

I

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive LossIncome (Loss)

3

Condensed Consolidated Statements of Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

65

Notes to Unaudited Condensed Consolidated Financial Statements

76

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2018

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3331

Item 4.

Controls and Procedures

3432

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

3432

Item 1A.

Risk Factors

3432

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

5856

Item 3.

Defaults Upon Senior Securities

5856

Item 4.

Mine Safety Disclosures

5856

Item 5.

Other Information

5856

Item 6.

Exhibits

5957

SIGNATURES

6159

Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

June 30, 

December 31, 

    

2023

    

2022

Assets

Current assets:

Cash and cash equivalents

$

235,382

$

125,744

Marketable securities

78,019

111,611

Receivable from collaboration partner

39

10

Prepaid expenses and other current assets

3,501

5,712

Total current assets

316,941

243,077

Property and equipment, net

1,263

1,565

Restricted cash - noncurrent

225

225

Operating lease right-of-use asset

2,037

3,061

Total assets

$

320,466

$

247,928

Liabilities and Stockholders’ Equity

Current liabilities:

  

Accounts payable

$

4,573

$

3,640

Payable to collaboration partner

10

69

Accrued expenses and other payables

19,369

24,955

Operating lease liability - current

2,446

2,515

Total current liabilities

26,398

31,179

Operating lease liability - noncurrent

1,141

Total liabilities

26,398

32,320

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding

Common stock, $0.00001 par value, 90,000,000 shares authorized; 57,494,185 and 49,339,252 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

1

Additional paid-in capital

903,205

752,722

Accumulated other comprehensive loss

(198)

(359)

Accumulated deficit

(608,940)

(536,755)

Total stockholders’ equity

294,068

215,608

Total liabilities and stockholders’ equity

$

320,466

$

247,928

March 31, 

December 31, 

    

2024

    

2023

Assets

Current assets:

Cash and cash equivalents

$

172,568

$

186,727

Marketable securities

150,067

154,890

Receivable from collaboration partner

300,043

10,000

Prepaid expenses and other current assets

4,875

3,960

Total current assets

627,553

355,577

Property and equipment, net

1,111

1,195

Restricted cash - noncurrent

225

225

Operating lease right-of-use asset

387

954

Total assets

$

629,276

$

357,951

Liabilities and Stockholders’ Equity

Current liabilities:

  

Accounts payable

$

3,507

$

772

Payable to collaboration partner

3

3

Accrued expenses and other payables

16,487

19,358

Deferred revenue - current

16,125

Income taxes payable

3,326

Operating lease liability - current

462

1,141

Total current liabilities

39,910

21,274

Deferred revenue - noncurrent

28,922

Total liabilities

68,832

21,274

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding

Common stock, $0.00001 par value, 90,000,000 shares authorized; 58,600,787 and 57,708,613 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

1

1

Additional paid-in capital

969,042

952,491

Accumulated other comprehensive loss

(229)

(105)

Accumulated deficit

(408,370)

(615,710)

Total stockholders’ equity

560,444

336,677

Total liabilities and stockholders’ equity

$

629,276

$

357,951

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

1

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

Six Months Ended

Three Months Ended

June 30, 

June 30, 

March 31, 

    

2023

    

2022

    

2023

    

2022

    

2024

    

2023

License and collaboration revenue

$

$

859

$

$

26,581

$

254,953

$

Operating expenses:

Research and development

33,182

34,611

60,598

70,929

33,734

27,416

General and administrative

 

9,172

 

7,691

 

17,777

 

18,206

 

14,910

 

8,605

Total operating expenses

 

42,354

 

42,302

 

78,375

 

89,135

 

48,644

 

36,021

Loss from operations

 

(42,354)

 

(41,443)

 

(78,375)

 

(62,554)

Income (loss) from operations

 

206,309

 

(36,021)

Interest income

 

3,913

 

484

 

6,404

652

 

4,376

 

2,491

Other expense, net

(19)

(78)

(214)

(65)

(19)

(195)

Net loss

$

(38,460)

$

(41,037)

$

(72,185)

$

(61,967)

Net loss per share, basic and diluted

$

(0.68)

$

(0.84)

$

(1.34)

$

(1.27)

Weighted-average shares used to compute net loss per share, basic and diluted

 

56,775,742

  

 

49,049,902

 

53,691,965

  

 

48,902,047

Income (loss) before income tax expense

210,666

(33,725)

Income tax expense

(3,326)

Net income (loss)

$

207,340

$

(33,725)

Net income (loss) per share, basic

$

3.41

$

(0.67)

Net income (loss) per share, diluted

$

3.26

$

(0.67)

Weighted-average shares used to compute net income (loss) per share, basic

 

60,855,689

  

 

50,573,650

Weighted-average shares used to compute net income (loss) per share, diluted

 

63,595,328

  

 

50,573,650

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

2

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive LossIncome (Loss)

(Unaudited)

(In thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Net loss

$

(38,460)

$

(41,037)

$

(72,185)

$

(61,967)

Other comprehensive loss:

  

  

(Loss) gain on translation of foreign operations

 

 

(209)

 

194

 

(114)

Unrealized loss on marketable securities

 

(76)

 

(39)

 

(33)

 

(307)

Comprehensive loss

$

(38,536)

$

(41,285)

$

(72,024)

$

(62,388)

Three Months Ended

March 31, 

    

2024

    

2023

Net income (loss)

$

207,340

$

(33,725)

Other comprehensive income (loss):

  

Gain on translation of foreign operations

 

 

194

Unrealized (loss) gain on marketable securities

 

(124)

 

43

Comprehensive income (loss)

$

207,216

$

(33,488)

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

3

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

Accumulated

Additional

Other

Total

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Stock

Capital

(Loss) Gain

Deficit

Equity

Three months ended June 30, 2023

  

Shares

  

Amount

  

  

  

  

 

Balance at March 31, 2023

 

51,440,503

  

$

1

$

786,768

  

$

(122)

$

(570,480)

  

$

216,167

Issuance of common stock pursuant to public offering, net of issuance costs

5,750,000

107,790

107,790

Issuance of common stock under equity incentive and employee stock purchase plans

 

329,486

  

 

 

973

  

 

 

  

 

973

Shares withheld for net settlement of tax withholding upon vesting of restricted stock units

(25,804)

(669)

(669)

Stock-based compensation expense

 

  

 

 

8,343

  

 

 

  

 

8,343

Other comprehensive loss

 

  

 

 

  

 

(76)

 

  

 

(76)

Net loss

 

  

 

 

  

 

 

(38,460)

  

 

(38,460)

Balance at June 30, 2023

 

57,494,185

  

$

1

$

903,205

  

$

(198)

$

(608,940)

  

$

294,068

Accumulated

Additional

Other

Total

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Stock

Capital

(Loss) Gain

Deficit

Equity

Three months ended June 30, 2022

  

Shares

  

Amount

  

  

  

  

 

Balance at March 31, 2022

48,552,102

$

$

732,542

$

(472)

$

(430,292)

$

301,778

Issuance of common stock under equity incentive and employee stock purchase plans

131,829

  

 

 

655

  

 

 

  

 

655

Stock-based compensation expense

 

  

 

 

6,805

  

 

 

  

 

6,805

Issuance costs related to prior period common stock offering

  

 

25

 

25

Other comprehensive loss

 

  

 

 

  

 

(248)

 

  

 

(248)

Net loss

 

  

 

 

  

 

 

(41,037)

  

 

(41,037)

Balance at June 30, 2022

 

48,683,931

  

$

$

740,027

  

$

(720)

$

(471,329)

  

$

267,978

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

4

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

Accumulated

Accumulated

Additional

Other

Total

Additional

Other

Total

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Stock

Capital

(Loss) Gain

Deficit

Equity

Stock

Capital

(Loss) Income

Deficit

Equity

Six months ended June 30, 2023

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2022

 

49,339,252

  

$

$

752,722

  

$

(359)

$

(536,755)

  

$

215,608

Issuance of common stock pursuant to public offering, net of issuance costs

5,750,000

107,790

107,790

Issuance of common stock pursuant to at-the-market offering, net of issuance costs

1,749,199

1

24,301

24,302

Three months ended March 31, 2024

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2023

 

57,708,613

  

$

1

$

952,491

  

$

(105)

$

(615,710)

  

$

336,677

Issuance of common stock under equity incentive and employee stock purchase plans

 

687,697

  

 

 

3,234

  

 

 

  

 

3,234

 

827,978

  

 

 

7,799

  

 

 

  

 

7,799

Shares withheld for net settlement of tax withholding upon vesting of restricted stock units

(31,963)

(769)

(769)

(20,793)

(600)

(600)

Issuance of common stock upon exercise of Pre-Funded Warrants

 

84,989

  

 

 

  

 

 

  

 

Stock-based compensation expense

 

  

 

 

15,927

  

 

 

  

 

15,927

 

  

 

 

9,352

  

 

 

  

 

9,352

Other comprehensive gain

 

  

 

 

  

 

161

 

  

 

161

Net loss

 

  

 

 

  

 

 

(72,185)

  

 

(72,185)

Balance at June 30, 2023

 

57,494,185

  

$

1

$

903,205

  

$

(198)

$

(608,940)

  

$

294,068

Other comprehensive income (loss)

 

  

 

 

  

 

(124)

 

  

 

(124)

Net income (loss)

 

  

 

 

  

 

 

207,340

  

 

207,340

Balance at March 31, 2024

 

58,600,787

  

$

1

$

969,042

  

$

(229)

$

(408,370)

  

$

560,444

Accumulated

Additional

Other

Total

Accumulated

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Additional

Other

Total

Stock

Capital

(Loss) Gain

Deficit

Equity

Common

Paid-In

Comprehensive

Accumulated

Stockholders’

Six months ended June 30, 2022

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2021

47,838,330

$

$

709,682

$

(299)

$

(409,362)

$

300,021

Stock

Capital

(Loss) Income

Deficit

Equity

Three months ended March 31, 2023

  

Shares

  

Amount

  

  

  

  

 

Balance at December 31, 2022

49,339,252

$

$

752,722

$

(359)

$

(536,755)

$

215,608

Issuance of common stock pursuant to at-the-market offering, net of issuance costs

422,367

14,553

14,553

1,749,199

1

24,301

24,302

Issuance of common stock under equity incentive and employee stock purchase plans

 

430,960

  

 

 

3,213

  

 

 

  

 

3,213

358,211

  

 

 

2,261

  

 

 

  

 

2,261

Shares withheld for net settlement of tax withholding upon vesting of restricted stock units

(7,726)

(186)

(186)

(6,159)

(100)

(100)

Stock-based compensation expense

 

  

 

 

12,740

  

 

 

  

 

12,740

 

  

 

 

7,584

  

 

 

  

 

7,584

Issuance costs related to prior period common stock offering

  

 

25

 

25

Other comprehensive loss

 

  

 

 

  

 

(421)

 

  

 

(421)

Net loss

 

  

 

 

  

 

 

(61,967)

  

 

(61,967)

Balance at June 30, 2022

 

48,683,931

  

$

$

740,027

  

$

(720)

$

(471,329)

  

$

267,978

Other comprehensive income (loss)

 

  

 

 

  

 

237

 

  

 

237

Net income (loss)

 

  

 

 

  

 

 

(33,725)

  

 

(33,725)

Balance at March 31, 2023

 

51,440,503

  

$

1

$

786,768

  

$

(122)

$

(570,480)

  

$

216,167

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

54

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Six Months Ended

Three Months Ended

June 30, 

March 31, 

    

2023

    

2022

    

2024

    

2023

Cash Flows from Operating Activities

 

  

  

 

  

  

Net loss

$

(72,185)

$

(61,967)

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss)

$

207,340

$

(33,725)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Stock-based compensation

15,927

12,740

9,352

7,584

Operating lease right-of-use asset amortization

1,168

1,168

584

584

(Accretion) amortization of discount/premium on marketable securities

(2,215)

454

Accretion of discount on marketable securities

(1,615)

(1,255)

Depreciation

485

508

236

248

Other

194

194

Changes in operating assets and liabilities:

Receivable from collaboration partner

(29)

1,523

(290,043)

(41)

Prepaid expenses and other assets

2,211

(255)

(915)

787

Accounts payable

933

(184)

2,825

381

Payable to collaboration partner

(59)

(819)

(47)

Accrued expenses and other payables

(5,661)

(1,553)

(2,870)

(8,383)

Deferred revenue

(1,601)

45,047

Income taxes payable

3,326

Operating lease liability

(1,354)

(1,315)

(696)

(674)

Net cash used in operating activities

(60,585)

(51,301)

(27,429)

(34,347)

Cash Flows from Investing Activities

Purchase of marketable securities

(34,122)

(102,121)

(65,671)

(28,060)

Proceeds from maturities of marketable securities

69,896

132,942

71,984

37,896

Purchases of property and equipment

(186)

(563)

(242)

(10)

Net cash provided by investing activities

35,588

30,258

6,071

9,826

Cash Flows from Financing Activities

Proceeds from public offering of common stock, net of issuance costs

107,868

Proceeds from at-the-market offering, net of issuance costs

24,302

14,553

24,302

Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan

3,234

3,213

7,799

2,261

Tax withholding payments related to net settlement of restricted stock units

(769)

(186)

(600)

(100)

Issuance costs related to prior period common stock offering

25

Net cash provided by financing activities

134,635

17,605

7,199

26,463

Effect of exchange rate changes on cash, cash equivalents and restricted cash

10

Net increase (decrease) in cash, cash equivalents and restricted cash

109,638

(3,428)

Net (decrease) increase in cash, cash equivalents and restricted cash

(14,159)

1,942

Cash, cash equivalents and restricted cash, beginning of period

 

125,969

 

123,890

 

186,952

 

125,969

Cash, cash equivalents and restricted cash, end of period

$

235,607

$

120,462

$

172,793

$

127,911

Supplemental Disclosure of Non-Cash Financing and Investing Information:

Purchases of property and equipment in accounts payable and accrued liabilities

$

61

$

122

$

45

$

15

Issuance costs related to common stock offering included in accrued liabilities and other payables

$

78

$

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

65

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1.Organization and Description of Business

Protagonist Therapeutics, Inc. (the “Company”) is headquartered in Newark, California. The Company is a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly PN-235) in differentadvanced Phase 3 stages of clinical development, both derived from the Company’s proprietary technology platform. The Company’s clinical programs fall into two broad categories of diseases;diseases: (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory diseases. The Company has one wholly owned subsidiary, Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is, located in Brisbane, Queensland, Australia.

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

Liquidity

As of June 30, 2023,March 31, 2024, the Company had cash, cash equivalents and marketable securities of $313.4$322.6 million. The Company has incurred cumulative net losses from operations since inception and had an accumulated deficitthrough March 31, 2024 of $608.9 million as of June 30, 2023.$408.4 million. The Company’s ultimate success depends upon the outcome of its research and development and collaboration activities. The Company expects tomay incur additional losses in the future and anticipates themay need to raise additional capital to continue to execute its long-range business plan. Since the Company’s initial public offering in August 2016, it has financed its operations primarily through proceeds from offerings of common stock and payments received under license and collaboration agreements.

Risks and Uncertainties

The Company is currently operating in a period of economicmacroeconomic uncertainty and capital markets disruption, which has been impacted by the COVID-19 pandemic, domestic and global monetary and fiscal policy, geopolitical instability, including the ongoing military conflictconflicts between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, a recessionary environment, historicallyand high domestic and global inflation and of failures of banking and other financial institutions.interest rates. The Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to the COVID-19 pandemic, and itsCompany’s future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including furtherpotential delays in existing and planned clinical trials, difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions. The conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices as well as supply chain interruptions, and has contributed to record inflation globally.interruptions. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect the Company’s operating results. In addition, the failure of Silicon Valley Bank and other regional banks in the United States during the first half of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance Corporation. The Company continues to monitor these events and the potential impact on its business. Although the Company does not believe that inflation has had a material adverse impact on its financial position or results of operations to date, itits financial position or results of operations may be adversely affected in the future due to numerous factors, including domestic and global monetary and fiscal policy, macroeconomic factors, supply chain constraints, the ongoing conflictconflicts between Russia and Ukraine and in Israel and surrounding areas and other factors, and such factors may lead to increases in the cost of manufacturing for and delays in the initiation of studies in the Company’s product candidates.

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Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), the instructions to Form 10-Q and Rule

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10-01 of Regulation S-X and applicable rules and regulations of the SECSecurities and Exchange Commission (“SEC”) regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the condensed consolidated balance sheet as of June 30, 2023March 31, 2024 has been derived from the Company’s unaudited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the Company’s condensed consolidated financial statements. The results of operations for the three and six months ended June 30, 2023March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 20232024 or for any future period.

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

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 20222023 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 15, 2023.February 27, 2024.

Principles of Consolidation

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

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, marketable securities and leases. Estimates related to revenue recognition include actual costs incurred versus total estimated costs of the Company’s deliverablesassumptions used to determine percentagestandalone selling price utilized to allocate the transaction price between distinct performance obligations, assumptions used to recognize revenue over time for certain performance obligations for which a cost-based input method is used as the measure of completion in addition to the applicationprogress and estimates of potential revenue constraintswhether contingent consideration should be included in the determination of the transaction price under its license and collaboration agreements.at each reporting period. Management bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results couldmay differ materially from these estimates.

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

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Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

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

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

June 30, 

    

2023

    

2022

Cash and cash equivalents

$

235,382

$

120,237

Restricted cash - noncurrent

 

225

 

225

Total cash reported on condensed consolidated statements of cash flows

$

235,607

$

120,462

Investment Impairment

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

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

Significant Accounting Policies

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

Recently Adopted Accounting Pronouncement

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

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Note 3. License and Collaboration Agreement

Agreement Terms

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

The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates. The candidates nominated for initial development pursuant to the Restated Agreement included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly PN-235). PTG-200 is an oral IL-23 receptor antagonist that was in Phase 2a development for the treatment of Crohn’s disease (“CD”). During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for the conduct of all future trials, including anticipated Phase 2 and Phase 3 trials, and the Company is primarily responsible for the conduct of the second-generation Phase 1 trials.

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

Upcoming potential development milestones for second-generation compounds include:

$50.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for any indication;
$115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint;
$35.0 million upon the filing of a New Drug Application (“NDA”) for a second-generation compound with the U.S. Food and Drug Administration (the “FDA”);
$50.0 million upon FDA approval of an NDA for a second-generation compound;
$10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e., an indication different than the indication which triggered the $25.0 million milestone received during the second quarter of 2022 described above); and
$15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication.

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

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

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

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

Revenue Recognition

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

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

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

No license and collaboration revenue was recognized for the three and six months ended June 30, 2023 because the Company completed its performance obligation under the collaboration as of June 30, 2022. For the three and six months ended June 30, 2022, the Company recognized license and collaboration revenue of $0.9 million and

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

March 31, 

    

2024

    

2023

Cash and cash equivalents

$

172,568

$

127,686

Restricted cash - noncurrent

 

225

 

225

Total cash reported on condensed consolidated statements of cash flows

$

172,793

$

127,911

Stock-Based Compensation Expense

The Company has granted stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”).

Stock-based compensation expense associated with stock options is based on the estimated grant date fair value using the Black-Scholes valuation model, which requires the use of subjective assumptions related to expected stock price volatility, option term, risk-free interest rate and dividend yield. The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest.

Stock-based compensation expense associated with RSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing market price of the Company’s common stock on the grant date. For RSUs, the Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest. PSUs allow the recipients of such awards to earn fully vested shares of the Company’s common stock upon the achievement of pre-established performance objectives. Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing market price of the Company’s common stock on the grant date and is recognized when the performance objective is expected to be achieved. The Company evaluates on a quarterly basis the probability of achieving the performance criteria. The cumulative effect on current and prior periods of a change in the estimated number of PSUs expected to be earned is recognized as compensation expense or as reduction of previously recognized compensation expense in the period of the revised estimate.

The Company recognizes forfeitures of stock-based awards as they occur.

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

Three Months Ended

March 31, 

    

2024

    

2023

Research and development

$

5,288

$

4,582

General and administrative

 

4,064

 

3,002

Total stock-based compensation expense

$

9,352

$

7,584

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Significant Accounting Policies

Collaborative Arrangements

The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of Accounting Standards Codification Topic 808 - Collaborative Arrangements (“Topic 808”). For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers (“Topic 606”). For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election. For collaborative arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to research and development expense or general and administrative expense, as appropriate.

There have been no other material changes to the Company’s significant accounting policies during the three months ended March 31, 2024, as compared to those disclosed in Note 2. Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. ASU2020-06 is effective for the Company beginning on January 1, 2024. The Company adopted ASU 2020-06 effective January 1, 2024. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted as of March 31, 2024

In November 2023, the FASB issued Accounting Standards Update No. 2023-07 Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose incremental segment information on an annual and interim basis. ASU 2023-07 requires public entities with a single reportable segment to provide all the disclosures required by the amendments in ASU 2023-07 and all existing segment disclosures in Segment Reporting (Topic 280). ASU 2023-07 is effective for the Company for fiscal years beginning on January 1, 2024, and interim periods within fiscal years beginning on January 1, 2025. The Company is currently evaluating the impact of the adoption of this guidance on its financial position, results of operations and cash flow.

In December 2023, the FASB issued Accounting Standards Update No. 2023-09 Income Taxes (Topic 740) – Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public business entities to disclose specific categories in the income tax rate reconciliation annually and provide additional information for reconciling items that meet a qualitative threshold. ASU 2023-09 also requires that entities disclose annually additional information about income taxes paid and disaggregated information for certain items. ASU 2023-09 is effective for the Company beginning on January 1, 2025. The Company is currently evaluating the impact of the adoption of this guidance on its financial position, results of operations and cash flows.

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Note 3. License and Collaboration Agreements

Takeda Collaboration Agreement

In January 2024, the Company entered into a worldwide license and collaboration agreement for the development and commercialization of rusfertide with Takeda Pharmaceuticals USA, Inc. (“Takeda”) (“the Takeda Collaboration Agreement”), which became effective in March 2024.

The Company and Takeda will jointly develop and commercialize rusfertide and potentially other specified second-generation injectable hepcidin mimetic compounds (the “Licensed Products”) in the United States (the “Profit-Share Territory”). Takeda is solely and exclusively responsible for the development and commercialization of the Licensed Products in all other countries (the “Takeda Territory”). The Company and Takeda will share costs of the development, manufacture and commercialization activities for the Licensed Products in the Profit-Share Territory, provided that (i) the Company will lead, and will be responsible for its costs associated with, completion of the ongoing Phase 3 VERIFY program evaluating rusfertide for the treatment of polycythemia vera (“PV’) as well as associated U.S. regulatory activities; (ii) Takeda will lead, and will be solely responsible for its costs associated with, pre-commercialization activities related to rusfertide in the Profit-Share Territory, and (iii) Takeda will lead commercialization of rusfertide in the Profit-Share Territory, with Protagonist holding an option to co-detail. Takeda is solely responsible for all costs for the development, manufacture and commercialization of the Licensed Products in the Takeda Territory. The Company granted Takeda a non-transferable, sublicensable, and except for certain specified exceptions, exclusive license to certain intellectual property of the Company to exercise its rights and perform its obligations under the Takeda Collaboration Agreement.

Within 30 days after the effectiveness of the Takeda Collaboration Agreement, the Company will receive an upfront payment of $300.0 million. In addition, the Company is eligible to receive additional worldwide development, regulatory and commercial milestone payments for rusfertide of up to $330.0 million, and tiered royalties from 10% to 17% on net sales of the Licensed Products in the Takeda Territory. The Company and Takeda will also share equally in profits and losses (50% to the Company and 50% to Takeda) for Licensed Products in the Profit-Share Territory. Takeda will book sales of the Licensed Products globally.

The Company has the right to opt-out entirely of profit- and loss-sharing in the Profit-Share Territory for rusfertide and all other Licensed Products (the “Full Opt-out Right”) (i) during the 90-day period beginning 120 days after filing of a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for rusfertide for polycythemia vera (“PV’) (the “Initial Opt-out Period”); and (ii) for convenience without receipt of the Opt-out Payment (as defined below) (generally following the Initial Opt-out Period). In addition, if the Company does not exercise the Full Opt-out Right, the Company may opt-out of any Licensed Product other than rusfertide on a Licensed Product-by-Licensed Product basis (each, a “Partial Opt-out Right” and either the Full Opt-out Right or a Partial Opt-out right being an “Opt-out Right”). Following the Company’s exercise of an Opt-out Right, the Company has agreed to transition applicable development and commercial activities to Takeda, and Takeda has agreed to assume sole operational and financial responsibility for such activities in the United States.

The Takeda Collaboration Agreement provides for aggregate development, regulatory and commercial milestone payments from Takeda to the Company for rusfertide of up to $975 million if the Company exercises the Full Opt-out Right. In addition to these milestone payments, in the event the Company exercises the Full Opt-out Right during the Initial Opt-out Period, the Company will receive: (i) a $200 million payment following its exercise of the Full Opt-out Right; and (ii) an additional $200 million payment following FDA approval of the NDA for rusfertide for PV (together, the “Opt-out Payment”). If the Company exercises an Opt-out Right, Takeda has agreed to pay the Company royalties of 14% to 29% on worldwide net sales of Licensed Products with respect to which the Company has exercised an Opt-out Right.

Upcoming potential development and regulatory milestones under the Takeda Collaboration Agreement include:

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$25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY clinical trial for rusfertide in PV; and
$50.0 million upon FDA approval of an NDA for rusfertide in PV (or $75.0 million if the Company exercises the Full Opt-out Right).

The Company has evaluated the Takeda Collaboration Agreement and concluded that it has elements that are within the scope of Topic 606 and Topic 808. As of the effective date of the Takeda Collaboration Agreement, the Company identified two distinct performance obligations: (i) the rusfertide license delivered upon the effectiveness of the Takeda Collaboration Agreement and (ii) certain development services to be provided prior to the Initial Opt-out Period, including the Company’s responsibilities to complete the VERIFY Phase 3 clinical trial in PV and to file an NDA with the FDA upon successful completion of the VERIFY trial and associated manufacturing services.

The Company has determined that the initial transaction price totaled $300.0 million, comprised of the upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date, all of which are either currently constrained or subject to the sales-and usage-based royalty exception. As part of the Company’s evaluation of this variable consideration constraint, it determined that the potential payments are contingent upon developmental and regulatory milestones that are uncertain and are highly susceptible to factors outside of its control. The Company allocated $254.1 million of the initial transaction price to the license and $45.9 million to the development services based upon the relative standalone selling price of each performance obligation. The amount allocated to the license, which represents functional intellectual property that was transferred at a point in time, was satisfied upon transfer of the license to Takeda. The amount allocated to development services will be recognized over time based on a measure of the Company’s efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g., costs incurred compared to total budget). The Company recognized $0.9 million with respect to the period from effective date of the contract through March 31, 2024.

The Company determined that the Takeda Collaboration Agreement met the definition of a collaborative arrangement under Topic 808. Both parties are active participants in directing and carrying out the development of the Licensed Products and both are exposed to the significant risk and rewards related to the commercial success of the Products. If the Company does not exercise an Opt-out Right (“Company Opt-in”), the Company and Takeda would co-detail the Licensed Products in the U.S. and share in the economic results through a profit-sharing structure. The Company has determined that development costs subsequent to the Company Opt-in date are within the scope of Topic 808, which does not provide recognition and measurement guidance. As such, the Company determined that Accounting Standards Codification Topic 730 – Research and Development was appropriate to analogize to based on the cost-sharing provisions of the agreement. The Company has concluded that payments to or reimbursements from Takeda related to these services will be accounted for as an increase to or reduction of research and development expense, respectively.

JNJ License and Collaboration Agreement

On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement with J&J Innovative Medicines (“JNJ”), formerly Janssen Biotech, Inc., which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and JNJ, as amended by the first amendment, effective May 7, 2019 (together, the “JNJ License and Collaboration Agreement”). From inception in 2017 through December 31, 2022, the Company earned a total of $112.5 million in non-refundable upfront cash payment from JNJ. During the fourth quarter of 2023, the Company earned a $50.0 million milestone payment in connection with the dosing of a third patient in the ICONIC-TOTAL Phase 3 clinical trial of JNJ-2113 in patients with moderate-to-severe psoriasis and a $10.0 million milestone payment upon the dosing of the third patient in the ANTHEM Phase 2b trial moderately-to-severely active ulcerative colitis (“UC”). The Company has earned a total of $172.5 million in non-refundable payments from JNJ from inception in 2017 through the date of this Quarterly Report.

The JNJ License and Collaboration Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor antagonist drug candidates and enables JNJ to develop collaboration compounds for multiple

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$26.6 million, respectively.indications. Under the JNJ License and Collaboration Agreement, JNJ is required to use commercially reasonable efforts to develop at least one collaboration compound for at least two indications.

Upcoming potential development and regulatory milestones include:

$115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint;
$35.0 million upon the filing of an NDA for a second-generation compound with the FDA;
$50.0 million upon FDA approval of an NDA for a second-generation compound; and
$15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication.

The Company completed its performance obligation under the JNJ License and Collaboration Agreement as of June 30, 2022. Pursuant to the agreement, the Company is eligible to receive future sales milestone payments and tiered royalties on net product sales at percentages ranging from 6% to 10%.

Revenue Recognition

For the three months ended March 31, 2024, the Company recognized license and collaboration revenue for the three and six months ended June 30, 2022 was primarilyof $255.0 million related to the Takeda Collaboration Agreement transaction price, recognized underincluding $254.1 million allocated to the Restated Agreementrusfertide license delivered to Takeda upon effectiveness of the agreement in March 2024 and $0.9 million for development services provided by the Company during the period based on proportional performance.the cost-based input method. For the three months ended March 31, 2023, no license and collaboration revenue was recognized.

The following tables present changes inremaining unrecognized transaction price amount of $45.0 million was recorded as deferred revenue on the Company’s contract assetscondensed consolidated balance sheet as of March 31, 2024 and liabilities duringwill be recognized over time based on a measure of the periods presented (in thousands):

Balance at

Balance at

Beginning of

End of

Six Months Ended June 30, 2023

    

Period

Additions

    

Deductions

    

Period

Contract assets:

Receivable from collaboration partner

$

10

$

41

(12)

$

39

Contract liabilities:

Payable to collaboration partner

$

69

$

11

(70)

$

10

Balance at

Balance at

Beginning of

End of

Six Months Ended June 30, 2022

    

Period

Additions

    

Deductions

    

Period

Contract assets:

Receivable from collaboration partner

$

1,566

$

25,165

$

(26,688)

$

43

Contract liabilities:

Deferred revenue

$

1,601

$

25,757

$

(27,358)

$

Payable to collaboration partner

$

899

$

30

$

(849)

$

80

Company’s efforts toward satisfying the performance obligation relative to the total expected efforts or inputs to satisfy the performance obligation (e.g. costs incurred compared to total budget).

During the three and six months ended June 30, 2022,March 31, 2024 and 2023, the Company recognizeddid not recognize revenue of $0.9 million from any amounts included in the deferred revenue contract liability balance at the beginning of each period. None of the costs to obtain or fulfill the contractcontracts were capitalized.

Note 4. Fair Value Measurements

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

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

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

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

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

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

June 30, 2023

March 31, 2024

    

Level 1

    

Level 2

    

Level 3

    

Total

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Money market funds

$

64,578

$

$

 

$

64,578

$

24,432

$

$

 

$

24,432

Certificates of deposit

 

10,661

 

 

 

10,661

Commercial paper

 

132,955

 

 

 

132,955

 

170,510

 

 

 

170,510

Corporate debt securities

6,408

6,408

12,657

12,657

U.S. Treasury and agency securities

101,851

101,851

101,035

101,035

Total financial assets

$

64,578

$

241,214

  

$

 

$

305,792

$

24,432

$

294,863

  

$

 

$

319,295

December 31, 2022

December 31, 2023

    

Level 1

    

Level 2

    

Level 3

    

Total

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Money market funds

$

54,292

$

$

 

$

54,292

$

19,212

$

$

 

$

19,212

Certificates of deposit

 

13,004

 

 

 

13,004

Commercial paper

 

 

110,227

 

 

 

110,227

 

 

130,296

 

 

 

130,296

Corporate debt securities

 

 

10,741

  

 

 

 

10,741

 

 

7,672

  

 

 

 

7,672

U.S. Treasury and agency securities

57,242

 

 

57,242

145,085

 

 

145,085

Total financial assets

$

54,292

$

178,210

  

$

 

$

232,502

$

19,212

$

296,057

  

$

 

$

315,269

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

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

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Note 5. Cash Equivalents and Marketable Securities

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

June 30, 2023

March 31, 2024

Amortized

Gross Unrealized

 

Amortized

Gross Unrealized

 

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

$

64,578

$

$

$

64,578

$

24,432

$

$

$

24,432

Certificates of deposit

10,661

2

(2)

 

10,661

Commercial paper

 

133,007

(52)

 

132,955

 

170,606

1

(97)

 

170,510

Corporate debt securities

6,422

(14)

6,408

12,677

(20)

12,657

U.S. Treasury and agency securities

101,872

22

(43)

101,851

101,037

4

(6)

101,035

Total cash equivalents and marketable securities

$

305,879

$

22

  

$

(109)

$

305,792

$

319,413

$

7

  

$

(125)

$

319,295

Classified as:

  

  

  

  

  

  

Cash equivalents

  

  

  

$

227,773

  

  

  

$

169,228

Marketable securities

  

  

  

 

78,019

  

  

  

 

150,067

Total cash equivalents and marketable securities

  

  

  

$

305,792

  

  

  

$

319,295

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December 31, 2022

December 31, 2023

Amortized

Gross Unrealized

 

Amortized

Gross Unrealized

 

    

Cost

    

Gains

    

Losses

    

Fair Value

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

$

54,292

$

  

$

$

54,292

$

19,212

$

  

$

$

19,212

Certificates of deposit

12,998

6

 

13,004

Commercial paper

 

110,257

 

  

 

(30)

 

110,227

 

130,351

 

5

  

 

(60)

 

130,296

Corporate debt securities

 

10,756

 

  

 

(15)

 

10,741

 

7,678

 

  

 

(6)

 

7,672

U.S. Treasury and agency securities

57,251

27

(36)

57,242

145,024

63

(2)

145,085

Total cash equivalents and marketable securities

$

232,556

$

27

  

$

(81)

$

232,502

$

315,263

$

74

  

$

(68)

$

315,269

Classified as:

  

  

  

  

  

  

Cash equivalents

  

  

  

$

120,891

  

  

  

$

160,379

Marketable securities

  

  

  

 

111,611

  

  

  

 

154,890

Total cash equivalents and marketable securities

  

  

  

$

232,502

  

  

  

$

315,269

Marketable securities of $78.0$150.1 million and $111.6$154.9 million held at June 30, 2023as of March 31, 2024 and December 31, 2022,2023, respectively, had contractual maturities of less than one year. The Company does not intend to sell its securities that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell its securities before recovery of their amortized cost basis, which may be at maturity. There were no material realized gains or realized losses on marketable securities for the periods presented. The Company evaluated securities with unrealized losses to determine whether such losses, if any, arewere due to credit-related factors and determined that there were no credit-related losses to be recognized as of June 30, 2023.March 31, 2024.

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Note 6. Balance Sheet Components

Prepaid Expenses and Other Current Assets

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

June 30, 

December 31, 

March 31, 

December 31, 

2023

2022

2024

2023

Prepaid clinical and research related expenses

$

796

$

2,746

$

1,645

$

649

Prepaid insurance

827

1,417

1,335

1,410

Prepaid license

607

489

Prepaid licenses

530

529

Other prepaid expenses

 

1,260

 

1,018

 

1,005

 

1,040

Other receivable

11

42

360

332

Prepaid expenses and other current assets

$

3,501

$

5,712

$

4,875

$

3,960

Property and Equipment, Net

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

June 30, 

December 31, 

March 31, 

December 31, 

2023

2022

2024

2023

Laboratory equipment

$

4,982

$

4,817

$

5,423

$

5,323

Furniture and computer equipment

 

1,089

 

1,089

 

1,195

 

1,143

Leasehold improvements

 

913

 

913

 

963

 

963

Total property and equipment

 

6,984

 

6,819

 

7,581

 

7,429

Accumulated depreciation

 

(5,721)

 

(5,254)

 

(6,470)

 

(6,234)

Property and equipment, net

$

1,263

$

1,565

$

1,111

$

1,195

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Accrued Expenses and Other Payables

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

June 30, 

December 31, 

March 31, 

December 31, 

    

2023

2022

    

2024

2023

Accrued clinical and research related expenses

$

14,703

$

19,109

$

8,459

$

11,841

Accrued employee related expenses

 

3,633

 

4,967

 

2,458

 

6,786

Accrued professional service fees

868

464

5,530

632

Other

 

165

 

415

 

40

 

99

Total accrued expenses and other payables

$

19,369

$

24,955

$

16,487

$

19,358

Note 7. Stockholders’ Equity

Public Offering

In April 2023, the Company completed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of $20.00 per share and issued an additional 750,000 shares of common stock at a price of $20.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by the Company, were approximately $107.8 million.

ATM Offering

In August 2022, the Company entered into an Open Market Sale AgreementSM (the “Sales Agreement”), pursuant to which the Company may offer and sell up to $100.0 million of shares of common stock from time to time in “at-the-market” offerings (the “2022

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“2022 ATM Facility”). There were no sales of the Company’s common stock under the 2022 ATM Facility during the yearthree months ended DecemberMarch 31, 2022.2024. During the three months ended March 31, 2023, the Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs. There were no sales of the Company’s common stock under the 2022 ATM Facility during the three months ended June 30, 2023.

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

In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each, an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of its common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering expenses payable by the Company. In a concurrent private placement, the Company issued the Investors warrants to purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant iswas exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of the Company’s common stock havehad an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the Company’s common stock havehad an exercise price of $15.00 per share. The common stock and Warrants met the criteria for equity classification and the net proceeds from the transaction were recorded as a credit to additional paid-in capital.

In August 2023, prior to the expiration of the Warrants, the Company entered into certain agreements with the Investors and their affiliates under which the Company agreed to allow the Warrants to be exercised in exchange for pre-funded warrants representing the same number of Warrant Shares underlying the Warrants with an exercise price of $0.001 per share (the “Pre-Funded Warrants”). Subsequent to the execution of the agreements and numberprior to the expiration of the Warrants, all outstanding Warrants were exercised for gross proceeds of $34.4 million in exchange for 44,748 shares of the Company’s common stock and Pre-Funded Warrants to purchase 2,705,252 shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject(subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. Under certain circumstances,Pre-Funded Warrants) with an exercise price of $0.001 per share. The Pre-Funded Warrants will expire upon the day they are exercised in full. The Pre-Funded Warrants mayare exercisable at any time prior to expiration except that the Pre-Funded Warrants cannot be exercisable on a “cashless” basis. In connection withexercised by the issuance and saleInvestors if, after giving effect thereto, the Investors would beneficially own more than 9.99% of the Company’s common stock, and Warrants, the Company granted the Investorssubject to certain registration rights with respect to the Warrants and the Warrant Shares.exceptions. The common stock and warrants are classified asPre-Funded Warrants met the criteria for equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity (“ASC 480”),classification and the net proceeds from the transaction were recorded as a credit to additional paid-in capital. AsIn accordance with Accounting Standards Codification Topic 260, Earnings Per Share, outstanding Pre-Funded Warrants are included in the computation of June 30, 2023, none of the Warrants have been exercised.

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Note 8. Equity Plans

Equity Incentive Plan

In July 2016, the Company’s Board of Directors (“the Board”) and stockholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan. The 2016 Plan is administered by the Board, or a committee appointed by the Board, which determines the types of awards to be granted, including the number of shares subject to the awards,basic net loss per share because the exercise price is negligible, and they are fully vested and exercisable after the vesting schedule. Awards granted underoriginal issuance date. During the 2016 Plan expire no later than ten years fromthree months ended March 31, 2024, Pre-Funded Warrants to purchase 84,992 shares were net exercised, resulting in the dateissuance of grant. As of June 30, 2023, 841,57784,989 shares of common stockstock. As of March 31, 2024, Pre-Funded Warrants to purchase 2,620,260 shares were availableoutstanding.

Note 8. Income Taxes

The Company has recorded an income tax provision of $3.3 million for issuance under the 2016 Plan.three months ended March 31, 2024. No income tax provision was recorded for the three months ended March 31, 2023. The primary difference in tax expense as compared to the prior year is a result of taxable income resulting from the recognition of revenue in connection with the Takeda Collaboration Agreement. The tax provision for the three months ended March 31, 2024 was determined using an estimated annual effective tax rate, adjusted for discrete items, if any.

Inducement Plan

In May 2018,Based on the Board approvedavailable objective evidence during the Company’s 2018 Inducement Plan (as subsequently amended, the “2018 Inducement Plan”), a non-stockholder approved stock plan, under whichthree months ended March 31, 2024, the Company awards optionsbelieves it is more likely than not that its net deferred tax assets may not be realized. The primary difference between the effective tax rate and restricted stock unit awardsthe statutory tax rate relates to persons that were not previously employees or directorsthe Company's change in valuation allowance.

Note 9. Net Income (Loss) per Share

The computation of basic net income (loss) per common share is based on the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2018 Inducement Plan is administered by the Board or the Compensation Committee of the Board (the “Compensation Committee”), which determines the types of awards to be granted, including theweighted-average number of common shares subject tooutstanding during each period. The computation of diluted net income (loss) per common share is based on the awards, the exercise price and the vesting schedule. Awards granted under the 2018 Inducement Plan expire no later than ten years from the date of grant. As of June 30, 2023, 575,961 sharesweighted-average number of common stock were available for issuance under the 2018 Inducement Plan.

Stock Options

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

Weighted-

Weighted-

Average

Average

Exercise

Remaining

Aggregate

Options

Price Per

Contractual

Intrinsic

    

Outstanding

    

Share

    

Life

    

Value (1)

(years)

(in millions)

Balances at December 31, 2022

 

6,240,509

  

$

19.03

 

 

Options granted

 

2,262,750

12.61

 

 

  

Options exercised

 

(220,771)

12.27

  

  

Options forfeited

(157,679)

26.14

Balances at June 30, 2023

 

8,124,809

  

$

17.29

7.53

$

92.2

Options exercisable – June 30, 2023

4,410,899

  

$

16.81

6.33

51.9

Options vested and expected to vest – June 30, 2023

8,124,809

$

17.29

 

7.53

$

92.2

(1)The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on June 30, 2023. The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on June 30, 2023.

The estimated weighted-average grant-date fair value of common stock underlying options granted to employeesshares outstanding during the six months ended June 30, 2023 was $10.40 per share.period plus, when their effect is

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Stock Options Valuation Assumptions

The fair valuedilutive, incremental shares consisting of shares subject to stock options, RSUs, PSUs, the Company’s employee stock option awards was estimated atpurchase plan (“ESPP”), and warrants. In accordance with Accounting Standards Codification Topic 260, Earnings Per Share, 2,620,260 outstanding Pre-Funded Warrants were included in the datecomputation of grantweighted-average common shares, basic for the three months ended March 31, 2024 because the exercise price is negligible, and they are fully vested and exercisable after the original issuance date. 

In periods when the Company has net income, the dilutive effect of all potentially outstanding shares is computed using the treasury stock method. In periods in which the Company reports a Black-Scholes option-pricing model with the following assumptions:net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equal.

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2023

2022

2023

2022

Expected term (in years)

 

6.08 - 6.08

 

5.50 - 6.08

5.27 - 6.08

 

5.27- 6.08

Expected volatility

 

106.2% - 107.5%

96.3% - 99.9%

106.2% - 107.5%

96.3% - 99.9%

Risk-free interest rate

 

3.71% - 4.04%

2.71% - 2.93%

3.57% - 4.04%

1.64% - 2.93%

Dividend yield

 

 

 

The following table reconciles the numerator and denominator used to calculate diluted net income (loss) per common share (in thousands, except share and per share data):

Three Months Ended

March 31, 

    

2024

    

2023

Numerator:

Net income (loss)

$

207,340

$

(33,725)

Denominator:

Weighted-average common share, basic

 

60,855,689

 

50,573,650

Dilutive effect of common stock equivalents

 

2,739,639

 

Weighted-average common share, dilutive

63,595,328

50,573,650

Net income (loss) per common share

Basic net income (loss) per common share

$

3.41

$

(0.67)

Diluted net income (loss) per common share

$

3.26

$

(0.67)

In determiningApproximately 4.2 million potentially dilutive common shares consisting of shares subject to outstanding stock options, RSUs, and ESPP were excluded from the fair valuediluted net income per common share computation for the three months ended March 31, 2024 because their effect was anti-dilutive. Approximately 12.0 million potentially dilutive common shares consisting of shares subject to outstanding stock options, RSUs, PSUs, ESPP and warrants were excluded from the options granted,diluted net loss per common share computation for the three months ended March 31, 2023 due to the Company’s net loss for the period.

Note 10. Subsequent Event

On May 6, 2024, the Company uses the Black-Scholes option-pricing modelamended its facility lease agreement dated as of March 6, 2017 (the “Amended Lease”) to lease 60,575 rentable square feet of office and assumptions discussed below. Each of these inputs is subjective and generally requires judgment to determine.

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

Expected Volatility—Beginning January 1, 2023, the Company’s expected volatility is estimated based upon the volatility of the Company’s stock price over a period equal to the expected term of the stock option grants. ForAmended Lease commences on July 1, 2024 (or such later date when tenant improvements in newly leased office space within the year ended December 31, 2022,facility are substantially complete). Under the Company’s expected volatilityAmended Lease, which expires in November 2029, the Company will pay an initial monthly base rent of $3.53 per square foot, which will increase by 3.5% annually. The Amended Lease provides for an agreed-upon period of rent abatement. The Company will be responsible for its proportional share of operating expenses and tax obligations. No additional security deposit was estimated based upon a mix of 25% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equalrequired pursuant to the expected term of the stock option grants and 75% of the volatility of the Company’s stock price since its initial public offering in August 2016.

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

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

Restricted Stock Units

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

Weighted

Average

Number of

Grant Date

    

Shares

    

Fair Value

Unvested RSUs at December 31, 2022

637,436

$

19.29

Granted

396,775

12.17

Vested

(284,321)

14.20

Forfeited

(12,901)

16.28

Unvested RSUs at June 30, 2023

736,989

$

18.37

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Performance Stock Units

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

Weighted

Average

Number of

Grant Date

    

Shares

    

Fair Value

Unvested PSUs at December 31, 2022

199,500

$

14.59

Granted

 

Vested

(114,000)

8.76

Forfeited

Unvested PSUs at June 30, 2023

85,500

$

23.57

The terms of the PSUs provide for 100% of shares to be earned based on the achievement of certain pre-determined performance objectives, subject to the participant’s continued employment. The PSUs will vest, if at all, upon certification by the Compensation Committee of the actual achievement of the related performance objectives, subject to specified change of control exceptions.

Stock-based compensation expense associated with PSUs is based on the fair value of the Company’s common stock on the grant date, which equals the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest when the achievement of the related performance objectives becomes probable.

During the three and six months ended June 30, 2023, the Compensation Committee certified the actual achievement of performance objectives related to certain PSUs. As a result, recipients earned a total of 114,000 shares of common stock. The total fair market value of PSUs on vest date during the three and six months ended June 30, 2023 was $3.0 million.

The total grant date fair value of unvested PSUs outstanding as of June 30, 2023 was $2.0 million. As of June 30, 2023, the achievement of the related performance objectives was deemed not probable and, accordingly, no stock-based compensation for unvested PSUs has been recognized as expense as of June 30, 2023.

Employee Stock Purchase Plan

The Company’s 2016 Employee Stock Purchase Plan (“2016 ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, eligible employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period. During the six months ended June 30, 2023, a total of 68,605 shares of common stock were issued under the 2016 ESPP, and 1,486,685 shares of common stock remained available for issuance as of June 30, 2023.

Stock-Based Compensation

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

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Research and development

$

4,809

$

4,106

$

9,391

$

7,432

General and administrative

 

3,534

 

2,699

 

6,536

 

5,308

Total stock-based compensation expense

$

8,343

$

6,805

$

15,927

$

12,740

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As of June 30, 2023, total unrecognized stock-based compensation expense was approximately $60.7 million, which the Company expects to recognize over a weighted-average period of approximately 2.7 years.

Note 9. Net Loss per Share

As the Company had net losses for the three and six months ended June 30, 2023 and 2022, all potential weighted average dilutive common shares were determined to be anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Numerator:

  

Net loss

$

(38,460)

$

(41,037)

$

(72,185)

$

(61,967)

Denominator:

  

Weighted-average shares used to compute net loss per common share, basic and diluted

 

56,775,742

 

49,049,902

 

53,691,965

  

 

48,902,047

Net loss per share, basic and diluted

$

(0.68)

$

(0.84)

$

(1.34)

$

(1.27)

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

June 30, 

    

2023

    

2022

Options to purchase common stock

8,124,809

 

6,825,121

Common stock warrants

2,750,000

2,750,000

Restricted stock units

736,989

766,090

Performance stock units

85,500

219,000

ESPP shares

24,998

19,103

Total

 

11,722,296

 

10,579,314

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

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (thison Form 10-Q (the “Quarterly Report”) on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2022,2023, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”(the “SEC”) on March 15, 2023.February 27, 2024.

Forward-Looking Statements

This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “targets,” “will,” “would,”, “seeks” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the timing ofincluding enrollment, in our clinical trials,data and regulatory submissions, our cash runway, the potential for eventual regulatory approval and commercialization of our product candidates, and our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results, or theour ability to generate sales, income or cash flow, the impact of the COVID-19 pandemic, theany future outbreaks of disease, epidemics and pandemics, ongoing military conflictconflicts, including between Ukraine and Russia and in Israel and surrounding areas; rising tensions between China and Taiwan, inflationary pressures,pressure and the availability of credit and our exposure to banking or other financial institution failures are forward-looking statements. TheyForward-looking statements involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those risks, uncertainties and assumptions discussed in Part II, Item 1A, of this Quarterly Report. WhileThese statements are based on information available to us as of the date of this Quarterly Report and, while we believe such information formsprovides a reasonable basis for suchthese statements, suchthe information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future developments, changes in assumptions or otherwise. “Protagonist,” the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks of Protagonist Therapeutics, Inc. in the United States and other jurisdictions.

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Overview

We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly PN-235) in differentadvanced Phase 3 stages of development, both derived from our proprietary discovery technology platform. Our clinical programs fall into two broad categories of diseases;diseases: (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory (“I&I”) diseases.

Our Product Pipeline

GraphicGraphic

Rusfertide

Our most advanced clinical asset, rusfertide (generic name for PTG-300), is anRusfertide, our injectable hepcidin mimetic partnered with Takeda Pharmaceuticals USA, Inc. (“Takeda”), is in development for the potential treatment of erythrocytosis, iron overloadpolycythemia vera (“PV”). We have initiated VERIFY (ClinicalTrials.gov identifier NCT05210790), a global double-blind, placebo-controlled Phase 3 clinical trial of rusfertide in PV for approximately 250 patients. The trial evaluates the efficacy, symptom burden and other blood disorderssafety of once-weekly, subcutaneously self-administered rusfertide in patients with uncontrolled hematocrit who are phlebotomy dependent despite standard of care treatment. The trial enrolled patients across North and is wholly owned. Hepcidin is a key hormone in regulating iron equilibriumSouth America, Europe, Asia and is criticalAustralia. Enrollment for the VERIFY trial has been completed and we expect to announce top-line data for the proper development of red blood cells. Rusfertide mimicstrial’s 32-week primary efficacy endpoint by the effectend of the natural hormone hepcidin, but with greater potency, solubility and stability. Data fromfirst quarter of 2025, potentially leading to a New Drug Application (“NDA”) filing in the fourth quarter of 2025. By the end of 2024, we expect to receive the results of our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 provided evidence regardingongoing two-year study evaluating the carcinogenicity potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency symptoms. Rusfertide has a unique mechanism of action in the potential treatment of the blood disorder polycythemia vera (“PV”), which may enable itwhen administered once weekly to specifically decrease and maintain hematocrit levels within the range of recommended clinical guidelines without causing the iron deficiency that can occur with frequent phlebotomy. rats.

Our rusfertide Phase 2 clinical trials include the following:

REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019. We completed enrollment of patients in the first quarter of 2022 and 70 patients were enrolled through the end of the randomized withdrawal portion of the trial, which was completed during the first quarter of 2023 and will continueis continuing in open label extension.an ongoing open-label extension (“OLE”);

THRIVE, a Phase 2 long-term extension trial for REVIVE patients on years three through five of treatment; and

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

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OnIn March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements versus placebo in the trial’s primary endpoint. The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial, subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study,trial, followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks. More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were responders compared with placebo (69.2% versus 18.5%, p=0.0003). A studytrial subject was defined as a responder if the subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, only 292.3% of 26 subjects on rusfertide (24 out of 26) were not phlebotomized.

Data from the REVIVE trial presented at the European Hematology Association Congress in June 2023 suggested that rusfertide treatment results in highly statistically significant reduction in the need for therapeutic phlebotomy in phlebotomy-dependent patients, leading to rapid, sustained and durable control of hematocrit levels below 45%. Rusfertide was well tolerated, with localized injection site reactions comprising the majority of adverse events.

VERIFY,Long-term follow up data from the REVIVE trial presented at the American Society of Hematology Annual Meeting in December 2023 showed durable hematocrit control, decreased phlebotomy use, long-term tolerability, and no new safety signals in patients with PV. An analysis of the PACIFIC Phase 2 trial was also presented that indicated rusfertide improves markers of iron deficiency in patients with PV. In addition, data was presented regarding the prevalence of thromboembolic events and secondary cancers in PV patients not treated with rusfertide. In February 2024, the full Phase 2 REVIVE trial results, including efficacy and safety data, were published in the New England Journal of Medicine.

In January 2024, we entered into a global double-blind, placebo-controlled Phase 3 clinical trialworldwide license and collaboration agreement with Takeda for the development and commercialization of rusfertide (the “Takeda Collaboration Agreement”. Under the terms of the agreement, we earned a nonrefundable upfront payment of $300.0 million upon effectiveness of the agreement in PVMarch 2024, which we received in April 2024. We are eligible to receive additional worldwide development, regulatory and commercial milestone payments for approximately 250 patients, was initiatedrusfertide of up to $330 million, inclusive of the following potential upcoming milestones:

$25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY trial for rusfertide in PV; and
$50.0 million upon U.S. Food and Drug Administration (the “FDA”) approval of NDA for rusfertide in PV (or $75.0 million if we exercise our full right to opt-out of the 50:50 U.S. profit and loss sharing arrangement).

We are also eligible to receive tiered royalties from 10% to 17% on ex-U.S. net sales of rusfertide and other specified second-generation injectable hepcidin memetic compounds (the “Licensed Products”). We and Takeda will also share equally in profits and losses (50% to us and 50% to Takeda of the Licensed Products in the first quarterUnited States. See Note 3 to the condensed consolidated financial statements included elsewhere in this Quarterly Report for further details related to the agreement, including our right to opt-out of 2022. Significant efforts have been taken toward the goal of full enrollment50:50 U.S. profit and a high degree of interest has been observed from physicians and patient communities. We expect enrollment completion in the first quarter of 2024.

loss sharing arrangement.

JNJ-2113 (formerly PN-235)

Our partnered Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113, partnered with J&J Innovative Medicines (“JNJ”), formerly Janssen Biotech, Inc., is an orally delivered investigational drug that is designed to block

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

In May 2017, we entered into a worldwide license and collaboration agreement with Janssen Biotech, Inc. (“Janssen”), a Johnson & Johnson company, to co-develop and co-detail our IL-23R antagonist compounds, including PTG-200 (JNJ-67864238) and certain related compounds for all indications, including inflammatory bowel disease (“IBD”). PTG-200 was a first-generation investigational, orally delivered, IL-23R antagonist forJNJ has initiated the following JNJ-2113 trials:

ICONIC-LEAD (NCT06095115) – A 600-patient randomized, controlled Phase 3 trial to evaluate the safety and efficacy of JNJ-2113 compared with placebo in participants with moderate-to-severe plaque psoriasis, with PASI-90 (90% improvement in skin lesions as measured by the Psoriasis Area and Severity Index (“PASI”)) and Investigator’s Global Assessment (“IGA”) score of 0 (clear) or 1 (almost clear) as co-primary endpoints;
ICONIC-TOTAL (NCT06095102) – A 300-patient randomized, controlled Phase 3 trial to evaluate the efficacy and safety of JNJ-2113 compared with placebo for the treatment of plaque psoriasis in participants with at least moderate severity affecting special areas (scalp, genital, and/or palms of the hands and soles of the feet) with overall IGA score of 0 or 1 as the primary endpoint;
ICONIC ADVANCE 1 (NCT06143878) – A 750-patient randomized, controlled Phase 3 trial to evaluate the effectiveness of JNJ-2113 in participants with moderate-to-severe plaque psoriasis compared to placebo and Sotyktu (“deucravacitinib”). The trial’s primary co-endpoints are PASI-90 and IGA score of 0 or 1;
ICONIC ADVANCE 2 (NCT06220604)– A 675-patient Phase 3 trial similarly designed to ICONIC ADVANCE 1; and
ANTHEM-UC (NCT06049017) – A 240-patient Phase 2b randomized, controlled trial to evaluate the safety and effectiveness of JNJ-2113 compared with placebo in participants with moderate-to-severely active ulcerative colitis (“UC”).

All of IBD. The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL-23R antagonists; and in July 2021 to, among other things, enable Janssen to independently research and develop collaboration compounds for multiple indicationstrials in the IL-23 pathway and further align our financial interests.

DuringICONIC program will use the fourth quarter200 mg q.d. immediate release formulation of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by Janssen to advance second-generation product candidate JNJ-2113 (JNJ-77242113) based on its superior potency and overall pharmacokinetic and pharmacodynamic profile. A JNJ-2113 Phasefrom the previously completed FRONTIER 1 trial was completed in the fourth quarter of 2021.

In February 2022, Janssentrial. JNJ initiated FRONTIER1,FRONTIER 1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed in December 2022. FRONTIER1FRONTIER 1 was a randomized, multicenter, double-blind, placebo-controlled studytrial that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113 taken orally. The primary endpoint of the trial was the proportion of patients achieving PASI-75 (a 75%(75% improvement in skin lesions as measured by the Psoriasis Area and Severity Index (“PASI”)PASI) at 16 weeks. In July 2023, we announced updated positive topline results from the trial, which were presented by JNJ at the World Congress of Dermatology in Singapore. JNJ-2113 achieved the study’strial’s primary and secondary efficacy endpoints. A statistically significant greater proportion of patients who received JNJ-2113 achieved PASI-75 as well as PASI-90 and PASI-100

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(90% and 100% (100% improvement respectively, in skin lesions as measured by the PASI) responses compared to placebo at Weekweek 16 in all five of the trial’s treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo. Janssen has announced their plans to initiate a Phase 3 registrational study in JNJ-2113 moderate-severe plaque psoriasis for adult patients on the strength of the FRONTIER1 data. Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study would qualify us for milestone payments of $50.0 million and $115.0 million, respectively. The filing of a New Drug Application (“NDA”) for JNJ-2113 with the U.S. Food and Drug Administration would qualify us for a milestone payment of $35.0 million, and approval of the NDA by the FDA would qualify us for a milestone payment of $50.0 million, respectively.

Other Phase 2 studiestrials of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113trial for the treatment of moderate-to-severe plaque psoriasis which was completed in the second quarter of 2023, and FRONTIER 2, a long-term extension study. Janssen has announced their plans to initiatestudy, both of which were completed by JNJ in 2023.

At JNJ’s Enterprise Business Review in December 2023, JNJ highlighted JNJ-2113 as a separatepotential first- and best-in class targeted oral IL-23 peptide antagonist with potential across multiple indications, including plaque psoriasis, psoriatic arthritis and inflammatory bowel disease, with potential peak year sales projection of $5.0 billion plus. JNJ IL-23 monoclonal antibody drugs Stelara and Tremfya generated $14.0 billion in revenues in 2023.

In February 2024, the JNJ-2113 Phase 2b FRONTIER 1 trial results in adults living with moderate-to-severe plaque psoriasis were published in the New England Journal of Medicine. In March 2024, data presented at the American Academy of Dermatology 2024 Annual Meeting showed that, in Phase 2b FRONTIER 2, JNJ-2113 maintained high rates of skin clearance through 52 weeks in adults with moderate-to-severe plaque psoriasis.

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On July 17, 2021, we entered into an Amended and Restated License and Collaboration Agreement with JNJ, which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between the Company and JNJ, as amended by the first amendment, effective May 7, 2019 (together, the “JNJ License and Collaboration Agreement”). Under the JNJ License and Collaboration Agreement, we earned a $50.0 million milestone payment upon dosing of the third patient in the ICONIC-TOTAL Phase 3 trial in late October 2023, which we received in December 2023. We earned a $10.0 million milestone payment upon the dosing of the third patient in the ANTHEM Phase 2b trial of JNJ-2113 in ulcerative colitis (“UC”), a second indication. Advancement of JNJ-2113 into a Phase 2 and a Phase 3 studyUC in a second indication would qualify us for milestoneDecember 2023, which we received in January 2024. To date, we have earned $172.5 million in nonrefundable payments of $10.0 million and $15.0 million, respectively.

from JNJ. We remainare eligible for up to approximately $855.0$795.0 million in future development and sales milestone payments, inclusive of those discussed above, in addition to the $112.5 million in nonrefundable payments from Janssen already received to date. following potential upcoming milestones:

$115.0 million milestone payment upon JNJ-2113 meeting the co-primary endpoints in any one of the four ICONIC program Phase 3 trials;
$35.0 million milestone payment upon the filing of an NDA for JNJ-2113 with the FDA;
$50.0 million milestone payment upon approval of the NDA by the FDA; and
$15.0 million milestone payment upon the advancement of JNJ-2113 into a Phase 3 trial in a second indication.

We also remain eligible to receive upward tiering royalties on net product sales at percentages ranging from six percent to ten percent, with ten percent being the royalty rateapplicable for net sales over $4.0 billionbillion. See Note 3 to the condensed consolidated financial statements included elsewhere in net sales.

PN-943

PN-943 is a wholly owned, investigational, orally delivered, gut-restricted alpha 4 beta 7 specific integrin antagonistthis Quarterly Report for IBD. We completed a Phase 2 trial of PN-943 in patients with moderate to severe UC in early 2023. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.

additional information.

Discovery Platform

Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents. Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to use our peptide technology platform to discover product candidates against targets in disease areas with significant unmet medical needs, includingOur discovery pipeline has strategically focused on i) hematology and immunology.blood disorders and ii) I&I diseases. For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic, which we believe willto be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.

In January 2024, we announced a new oral Interleukin-17 (“IL-17”) peptide antagonist program targeting three IL-17 dimers (IL-17 AA, AF and FF) which may offer potential treatment options for hidradenitis suppurativa, spondyloarthritis, plaque psoriasis and psoriatic arthritis. Our preliminary results showed similar or better in vitro potency than the currently approved drugs Cosentyx® and Taltz®. We expect to nominate a development candidate ready for Investigational New Drug enabling studies by the end of 2024.

Business Update

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by the COVID-19 pandemic, domestic and global monetary and fiscal policy, geopolitical instability, including the ongoing military conflictconflicts, including between Russia and Ukraine and in Israel and surrounding areas, rising tensions between China and Taiwan, a recessionary environment, historicallyand high domestic and global inflation and failures of banking and other financial institutions. We have experienced delays in our existing and planned clinical trials due to worldwide impacts related to the COVID-19 pandemic, and ourinterest rates. Our future results of operations and liquidity could be adversely impacted by outbreaks of disease, epidemics and pandemics, including potential further delays in existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities and supply chain disruptions. The conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally.interruptions. The U.S. Federal Reserve

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and other central banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely affect our operating results. Also, the failure

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We continue to monitor these events and the potential impact on our business. Although we do not believe that inflation has had a material adverse impact on our financial position or results of operations to date, weour financial position or results of operations may be adversely affected in the future due to numerous factors, including domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with the ongoing conflictmilitary conflicts, including between Russia and Ukraine and in Israel and surrounding areas, and other factors, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.

Operations

We have incurred cumulative net losses in each year sincefrom inception and we do not anticipate achieving sustained profitability in the foreseeable future. Our net loss was $38.5 million and $72.2 million for the three and six months ended June 30, 2023, respectively. Our net loss was $41.0 million and $62.0 million for the three and six months ended June 30, 2022, respectively. Asthrough March 31, 2024 of June 30, 2023, we had an accumulated deficit of $608.9$408.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant research and development expenses and other expenses related to our ongoing operations, product development, and pre-commercialization activities. As a result, we expect to continue tomay incur losses in the future as we continue ourthe development of, and seek regulatory approval for, our product candidates.

Janssen License and Collaboration Agreement

On July 27, 2021, we entered into an Amended and Restated License and Collaboration Agreement (the “Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”), which amended and restated the License and Collaboration Agreement, effective July 13, 2017, by and between us and Janssen (the “Original Agreement”), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Prior to January 1, 2023, Janssen was a related party to us as Johnson & Johnson Innovation - JJDC, Inc. was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson. Upon the effectiveness of the Original Agreement, we received a non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the effectiveness of the First Amendment, we received a $25.0 million payment from Janssen in 2019. In the first quarter of 2020, we received a $5.0 million payment triggered by the successful nomination of a second-generation IL-23R antagonist development compound. In the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by completion of the data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a $25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information.

Critical Accounting Polices and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United StatesU.S. generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Topic 606 requires us to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which we have sold the same performance obligation separately are not available, we estimate the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Whenever we determine that goods or services promised in a contract should be accounted for as a combined performance obligation over time, we determine the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts will be expended evenly over time. Costs incurred or labor hours are typically used as the measure of performance. Management judgment is required in determining the level of effort required under an arrangement and the period over which we expect to complete our performance obligations. If we determine that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on our consolidated balance sheets.

Certain judgments affect the application of our revenue recognition policy. For example, we record short-term and long-term deferred revenue based on our best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that we do not expect will be recognized in the next 12 months. This

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estimate is based on our current operating plan and, if our operating plan should change in the future, we may recognize a different amount of deferred revenue over the next 12-month period.

There have been no other material changes to our critical accounting policies during the three and six months ended June 30, 2023,March 31, 2024, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report for the year ended December 31, 20222023 filed with the SEC on March 15, 2023.February 27, 2024.

Components of Our Results of Operations

License and Collaboration Revenue

Our license and collaboration revenue is derived from payments we receive under the Restated Agreementour license and collaboration agreements with Janssen.Takeda and JNJ. See Note 3 to the condensed consolidated financial statements included elsewhere in this reportQuarterly Report for additional information.

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made. In instances where we enter into agreements with third parties to provide research and development services to us, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service and may include upfront payments, monthly payments, and payments upon the completion of milestones or the receipt of deliverables.

Research and development expenses consist primarily of the following:

expenses incurred under agreements with clinical trial sites that conduct research and development activities on our behalf;
employee-related expenses, which include salaries, benefits and stock-based compensation;
laboratory vendor expenses related to the preparation and conduct of pre-clinical and non-clinical studies and clinical studies;trials;
costs related to production of clinical supplies and non-clinical materials, including fees paid to contract manufacturers;
license fees and milestone payments under license and collaboration agreements; and
facilities and other allocated expenses, which include expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and administrative other supplies.

We recognize the amountamounts related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses. The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available. We may alternatively be eligible for a taxable credit in the form

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

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

We expect our second half 2023 research and development expenses to remain relatively flatincrease in the near term as compared to the first half of 2023prior year period as we continue to focus our resources towardon (i) progressing our rusfertide program into later stage clinical trials and preparing for commercialization. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities forcommercialization and ii) advancing our PN-943 clinical program.pre-clinical and drug discovery research programs. The process of conducting research, identifying potential product candidates and conducting pre-clinical studies and clinical trials necessary to obtain regulatory approval, and commencing pre-commercialization activities is costly and time intensive. We may never succeed in achieving marketing approval for our product candidates regardless of our costs and efforts. The probability of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data, competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory approvals, market conditions, and our ability to successfully commercialize our products if they are approved for marketing. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources.

General and Administrative Expenses

General and administrative expenses consist of personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services, and pre-commercialization expenses, including selling and marketing costs. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of expenses for rent and maintenance of facilities, information technology, depreciation and amortization expense and other administrative supplies. We expect to continue to incur expenses supporting our continued operations as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of the national securities exchange on which our securities are traded, insurance expenses, investor relations expenses, audit fees, professional services and general overhead and administrative costs.

Interest Income

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

Other Expense, Net

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

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Results of Operations

Comparison of the Three Months Ended June 30,March 31, 2024 and 2023 and 2022

Three Months Ended

June 30, 

Dollar

%

    

2023

    

2022

    

Change

    

Change

(Dollars in thousands)

License and collaboration revenue

$

$

859

$

(859)

(100)

Operating expenses:

 

  

 

  

 

  

 

  

Research and development (1)

33,182

34,611

(1,429)

 

(4)

General and administrative (2)

 

9,172

 

7,691

 

1,481

 

19

Total operating expenses

 

42,354

 

42,302

 

52

 

-

Loss from operations

 

(42,354)

 

(41,443)

 

(911)

 

2

Interest income

 

3,913

 

484

 

3,429

 

*

Other expense, net

(19)

(78)

59

(76)

Net loss

$

(38,460)

$

(41,037)

$

2,577

 

(6)

Three Months Ended

March 31, 

Dollar

%

    

2024

    

2023

    

Change

    

Change

(Dollars in thousands)

License and collaboration revenue

$

254,953

$

$

254,953

*

Operating expenses:

 

  

 

  

 

  

 

  

Research and development (1)

33,734

27,416

6,318

 

23

General and administrative (2)

 

14,910

 

8,605

 

6,305

 

73

Total operating expenses

 

48,644

 

36,021

 

12,623

 

35

Income (loss) from operations

 

206,309

 

(36,021)

 

242,330

 

*

Interest income

 

4,376

 

2,491

 

1,885

 

76

Other expense, net

(19)

(195)

176

(90)

Income (loss) before income tax expense

210,666

(33,725)

244,391

*

Income tax expense

(3,326)

(3,326)

*

Net income (loss)

$

207,340

$

(33,725)

$

241,065

 

*

*Percentage not meaningfulmeaningful.

(1)Includes $4.8$5.3 million and $4.1$4.6 million of non-cash stock-based compensation expense for the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively.
(2)Includes $3.5$4.1 million and $2.7$3.0 million of non-cash stock-based compensation expense for the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $0.9 million, or 100%,increased from $0.9$0 for the three months ended March 31, 2023 to $255.0 million for the three months ended June 30, 2022 to zeroMarch 31, 2024. Revenue for the three months ended June 30, 2023. LicenseMarch 31, 2024 included $254.1 million of the $300.0 million transaction price for the Takeda Collaboration Agreement allocated to the delivery of the rusfertide license to Takeda upon effectiveness of the agreement in March 2024, and collaboration revenue for$0.9 million allocated to development services provided by us during the period based on the cost-based input method. For the three months ended June 30, 2022 was primarily related to the transaction price recognized under the Restated Agreement based on proportional performance. We completed our performance obligation pursuant to theMarch 31, 2023, we did not recognize any license and collaboration as of June 30, 2022.revenue.

Research and Development Expenses

Three Months Ended

June 30, 

Dollar

%

    

2023

2022

Change

Change

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

$

27,851

$

14,173

$

13,678

97

Clinical and development expense — PN-943

235

13,619

(13,384)

(98)

Clinical and development expense — JNJ-2113 (PN-235)

9

14

(5)

(36)

Clinical and development expense — PN-232

1

377

(376)

(100)

Clinical and development expense — PTG-200

(12)

(12)

*

Clinical and development expense — PTG-100

(8)

196

(204)

(104)

Pre-clinical and drug discovery research expense

5,106

6,232

(1,126)

(18)

Total research and development expenses

$

33,182

$

34,611

$

(1,429)

(4)

*Percentage not meaningful

Three Months Ended

March 31, 

Dollar

%

    

2024

2023

Change

Change

(Dollars in thousands)

Clinical and development expense — rusfertide

$

24,513

$

21,631

$

2,882

13

Clinical and development expense — PN-943

99

959

(860)

(90)

Clinical and development expense — other

51

51

Pre-clinical and drug discovery research expense

9,071

4,775

4,296

90

Total research and development expenses

$

33,734

$

27,416

$

6,318

23

Research and development expenses decreased $1.4increased $6.3 million, or 4%23%, from $34.6$27.4 million for the three months ended June 30, 2022March 31, 2023 to $33.2$33.7 million for the three months ended June 30, 2023.March 31, 2024. The decreaseincrease was primarily due to (i) an increase of $2.9 million in rusfertide clinical and contract manufacturing expenses primarily for the ongoing Phase 3 VERIFY clinical trial and (ii) an increase of $4.3 million in pre-clinical and drug discovery research program expense, partially offset by (iii) a decrease of $13.4$0.9 million in expenses for the PN-943 program where further development work was de-prioritized to optimize and focus resources toward the rusfertide program in PV, and (ii) a decrease of $1.1 million in expensesPV. We

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relatedcompleted a Phase 2 trial of PN-943, an orally delivered gut-restricted alpha 4 beta 7 specific integrin antagonist, in patients with moderate to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $13.7 millionsevere UC in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial.early 2023.

We had 8197 and 10180 full-time equivalent research and development employees as of June 30,March 31, 2024 and 2023, and 2022, respectively. Research and development personnel-related expenses for the three months ended June 30, 2023March 31, 2024 increased by $0.5$2.6 million as compared to the three months ended June 30, 2022 due primarily to an increaseMarch 31, 2023, including increases of $1.9 million in personnel-related expenses and $0.7 million in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses increased $1.5$6.3 million, or 19%73%, from $7.7$8.6 million for the three months ended June 30, 2022March 31, 2023 to $9.2$14.9 million for the three months ended June 30, 2023 primarily due to increases in payroll and stock-based compensation and general expenses. TheMarch 31, 2024. This increase in personnel expenses was primarily due to ana $4.6 million increase in advisory and legal fees related to the Takeda Collaboration Agreement, a $1.1 million increase in stock-based compensation expense.expense and a $0.9 million increase in personnel-related expenses, partially offset by a $0.7 million decrease in consulting and outside services, marketing and other general expenses.

We had 2527 and 2623 full-time equivalent general and administrative employees as of June 30,March 31, 2024 and 2023, and 2022, respectively.

Interest Income

Interest income increased $3.4$1.9 million from $0.5$2.5 million for the three months ended June 30, 2022March 31, 2023 to $3.9$4.4 million for the three months ended June 30, 2023.March 31, 2024. This increase was due primarily to higher invested balances as well as higher yields on invested balances during a period of increasing interest rates compared to the prior year period.

Comparison of the Six Months Ended June 30, 2023 and 2022

Six Months Ended

June 30, 

Dollar

%

    

2023

    

2022

    

Change

    

Change

(Dollars in thousands)

License and collaboration revenue

$

$

26,581

$

(26,581)

(100)

Operating expenses:

 

  

 

  

 

  

 

  

Research and development (1)

60,598

70,929

(10,331)

 

(15)

General and administrative (2)

 

17,777

 

18,206

 

(429)

 

(2)

Total operating expenses

 

78,375

 

89,135

 

(10,760)

 

(12)

Loss from operations

 

(78,375)

 

(62,554)

 

(15,821)

 

25

Interest income

 

6,404

652

 

5,752

 

*

Other expense, net

(214)

(65)

(149)

229

Net loss

$

(72,185)

$

(61,967)

$

(10,218)

 

16

*Percentage not meaningful

(1)Includes $9.4 million and $7.4 million of non-cash stock-based compensation expense for the six months ended June 30, 2023 and 2022, respectively.
(2)Includes $6.5 million and $5.3 million of non-cash stock-based compensation expense for the six months ended June 30, 2023 and 2022, respectively.

License and Collaboration Revenue

License and collaboration revenue decreased $26.6 million, or 100%, from $26.6 million for the six months ended June 30, 2022 to zero for the six months ended June 30, 2023. License and collaboration revenue for the six months ended June 30, 2022 included a $25.0 million milestone payment we earned following the dosing of the third patient in the FRONTIER 1 clinical trial for JNJ-2113. We completed our performance obligation pursuant to the collaboration as of June 30, 2022.

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Research and Development Expenses

Six Months Ended

June 30, 

Dollar

%

    

2023

2022

Change

Change

(Dollars in thousands)

Clinical and development expense — rusfertide (PTG-300)

$

49,482

$

27,550

$

21,932

80

Clinical and development expense — PN-943

1,194

29,360

(28,166)

(96)

Clinical and development expense — JNJ-2113 (PN-235)

54

235

(181)

(77)

Clinical and development expense — PN-232

2

445

(443)

(100)

Clinical and development expense — PTG-200

(1)

(6)

5

(83)

Clinical and development expense — PTG-100

(14)

386

(400)

(104)

Preclinical and drug discovery research expense

9,881

12,959

(3,078)

(24)

Total research and development expenses

$

60,598

$

70,929

$

(10,331)

(15)

Income Tax Expense

ResearchIncome tax expense was $3.3 million and development expenses decreased $10.3 million, or 15%, from $70.9 million$0 for the sixthree months ended June 30, 2022 to $60.6 millionMarch 31, 2024 and 2023, respectively. Income tax expense for the sixthree months ended June 30, 2023.March 31, 2024 is a result of taxable income resulting from the recognition of revenue in connection with the Takeda Collaboration Agreement. The decreaseeffective tax rate was primarily due to (i) a decrease of $28.2 million in expenses1.54% and 0% for the PN-943 program where further development work was de-prioritized to optimize and focus resources toward the rusfertide program in PV, and (ii) a decrease of $3.1 million in expenses related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of $21.9 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial.

We had 81 and 101 full-time equivalent research and development employees as of June 30, 2023 and 2022, respectively. Research and development personnel-related expenses for the sixthree months ended June 30,March 31, 2024 and 2023, increased by $1.2 million as compared to the six months ended June 30, 2022 due to an increase of $2.0 million in stock-based compensation expense, partially offset by a decrease of $0.8 million in other personnel-related expenses.

General and Administrative Expenses

General and administrative expenses decreased $0.4 million, or 2%, from $18.2 million for the six months ended June 30, 2022 to $17.8 million for the six months ended June 30, 2023 due primarily to one-time costs incurred during the first quarter of 2022, partially offset by an increase in stock-based compensation expense during the current year period.

We had 25 and 26 full-time equivalent general and administrative employees as of June 30, 2023 and 2022, respectively.

Interest Income

Interest income increased $5.7 million from $0.7 million for the six months ended June 30, 2022 to $6.4 million for the six months ended June 30, 2023. This increase was due primarily to higher invested balances as well as higher yields on invested balances during a period of increasing interest rates compared to the prior year period.

Liquidity and Capital Resources

Sources of Liquidity

We had $322.6 million and $341.6 million in cash, cash equivalents and marketable securities at March 31, 2024 and December 31, 2023, respectively. Historically, we have funded our operations primarily from net proceeds from the sale of shares of our common stock and the receipt of payments under collaboration agreements.

Proceeds from Sales of Our Common Stock

In April 2023, we completed an underwritten public offering of 5,000,000 shares of our common stock at a public offering price of $20.00 per share and issued an additional 750,000 shares of common stock at a price of $20.00

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per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting underwriting commissions and offering costs paid by us, were approximately $107.8 million.

In August 2022, we entered into an Open Market Sale AgreementSM(the “Sales Agreement”), pursuant to which we may offer and sell up to $100.0 million of shares of our common stock from time to time in “at-the-market” offerings (the “2022 ATM Facility”). There were no sales of our common stock under the 2022 ATM Facility during the yearthree months ended DecemberMarch 31, 2022.2024. During the three months ended March 31, 2023, we sold 1,749,199 shares of our common stock under the 2022 ATM Facility for net proceeds of $24.3 million, after deducting issuance costs. There were no sales of our common stock under the 2022 ATM Facility during the three months ended June 30, 2023.

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In November 2019,August 2018, we entered into a Securities Purchase Agreement with certain accredited investors (each, an Open Market Sale AgreementSM (“Investor” and, collectively, the “Prior Sales Agreement”“Investors”), pursuant to which we could offer and sell up to $75.0 millionsold an aggregate of 2,750,000 shares of our common stock from timeat a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering expenses payable by us. In a concurrent private placement, we issued the Investors warrants to time in “at-the-market” offerings (the “2019 ATM Facility”). During the year ended December 31, 2022, we sold 422,367purchase an aggregate of 2,750,000 shares of our common stock (each, a “Warrant” and, collectively, the “Warrants”). Each Warrant was exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of our common stock had an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of our common stock had an exercise price of $15.00 per share.

In August 2023, prior to the expiration of the Warrants, we entered into certain agreements with the Investors and their affiliates under which we agreed to allow the 2019 ATM FacilityWarrants to be exercised in exchange for netpre-funded warrants representing the same number of Warrant Shares underlying the Warrants with an exercise price of $0.001 per share (the “Pre-Funded Warrants”). Subsequent to the execution of the agreements and prior to the expiration of the Warrants, all outstanding Warrants were exercised for gross proceeds of $14.6$34.4 million after deducting issuance costs.in exchange for 44,748 shares of our common stock and Pre-Funded Warrants to purchase 2,705,252 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Pre-Funded Warrants) with an exercise price of $0.001 per share. The Prior Sales Agreement was terminatedPre-Funded Warrants will expire upon the day they are exercised in connection with and replacedfull. The Pre-Funded Warrants are exercisable at any time prior to expiration except that the Pre-Funded Warrants cannot be exercised by the Sales AgreementInvestors if, after giving effect thereto, the Investors would beneficially own more than 9.99% of our common stock, subject to certain exceptions. The common stock and Pre-Funded Warrants were recorded as a credit to additional paid-in capital. In accordance with Accounting Standards Codification Topic 260, Earnings Per Share, outstanding Pre-Funded Warrants are included in August 2022.the computation of basic net loss per share because the exercise price is negligible, and they are fully vested and exercisable after the original issuance date. During the three months ended March 31, 2024, Pre-Funded Warrants to purchase 84,992 shares were net exercised, resulting in the issuance of 84,989 shares of common stock. As of March 31, 2024, Pre-Funded Warrants to purchase 2,620,260 were outstanding.

Receipt of Payments Under Collaboration Agreements

We have received $112.5In March 2024, we earned a $300.0 million in non-refundable paymentsupfront payment from Janssen sinceTakeda upon the inceptionclosing of the RestatedTakeda Collaboration Agreement, which was received in 2017 through the date of this report as follows:

Upon effectiveness of the Original Agreement, we received a non-refundable, upfront cash payment of $50.0 million from Janssen;
Upon effectiveness of the First Amendment, we became eligible to receive a $25.0 million payment from Janssen, which was received during the second quarter of 2019;
In December 2019, we became eligible to receive a $5.0 million payment triggered by the successful nomination of a second-generation development compound, which was received during the first quarter of 2020;
In October 2021, we became eligible to receive a $7.5 million milestone payment triggered by completion of the data collection for JNJ-2113 (formerly PN-235) Phase 1 activities, which was received during the fourth quarter of 2021; and
In March 2022, we became eligible to receive a $25.0 million milestone payment in connection with the dosing of the third patient in the Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis during the first quarter of 2022, which was received during the second quarter of 2022.

We also expect to receive payments for services provided under the collaboration agreement and we may make in-kind payment reimbursements to Janssen for certain costs they have incurred pursuant to the cost sharing terms of the agreement.April 2024.

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

$25.0 million upon successful achievement of the primary endpoint in the Phase 3 VERIFY trial for rusfertide in PV; and
$50.0 million upon FDA approval of an NDA for rusfertide in PV (or $75.0 million if we exercise our full right to opt-out of the 50:50 U.S. profit and loss sharing arrangement in exchange for enhanced economics).

We have earned a total of $112.5 million in non-refundable payments from JNJ from the inception of the JNJ License and Collaboration Agreement in 2017 through December 31, 2022. In addition, we earned the following milestone payments under the JNJ License and Collaboration Agreement during the year ended December 31, 2023:

in October 2023, we earned a $50.0 million milestone payment in connection with the dosing of the third patient in athe ICONIC-TOTAL Phase 3 clinical trial for a second-generation compound for any indication;of JNJ-2113 in moderate-to-severe plaque psoriasis, which was received in December 2023; and
in December 2023, we earned a $10.0 million payment for services in connection with the dosing of the third patient in the ANTHEM Phase 2b clinical trial of JNJ-2113 in ulcerative colitis, which was received in January 2024.

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

Pursuant to the JNJ License and Collaboration Agreement, we may be eligible to receive clinical development, regulatory and sales milestones, if and when achieved. Upcoming potential development and regulatory milestones under the Janssen License and Collaboration Agreement include:

$115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint;
$35.0 million upon the filing of a New Drug Application (“NDA”)an NDA for a second-generation compound with the U.S. Food and Drug Administration (the “FDA”);FDA;

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$50.0 million upon FDA approval of an NDA for a second-generation compound;
$10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation compound for a second indication (i.e., an indication different than the indication which triggered the $25.0 million milestone received during the second quarter of 2022 described above); and
$15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound for a second indication.

Capital Requirements

As of June 30, 2023,March 31, 2024, we had $313.4$322.6 million of cash, cash equivalents and marketable securities and an accumulated deficit of $608.9$408.4 million. Our capital expenditures were $0.2 million and $0.8$0.6 million for the sixthree months ended June 30, 2023March 31, 2024 and the year ended December 31, 2022,2023, respectively. Our primary uses of cash are to fund our operating expenses, including our research and development expenditures and general and administrative costs and pre- commercialization costs. Cash used in operating activities is impacted by the timing of when we pay these expenses. As of the date of this filing, we believe, based on our current operating plan and assumptions,We expect that our existing cash, cash equivalents and marketable securities will be sufficient to meetfund our anticipated operating and capital expenditure requirementsoperations for at least the next 12 months. We havetwelve months from the date of this Quarterly Report based this estimate on assumptions that may prove to be wrong. We could utilize our available capital resources sooner than we currently expect if, for instance, our planned pre-clinicalcurrent operating plans and clinical trials are successful or expanded, our product candidates enter new and more advanced stages of clinical development, we experience significant delays or difficulties in commencing, enrolling or completing clinical studies, our newer product clinical trials advance beyond the discovery stage or various other factors. We expect that our cash burn will be lower in 2023 due to our annual research and development expenses decreasing in the near term as we continue to focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.financial forecasts.

We anticipate that we will need to raise substantialmay require additional funding to advance rusfertide through clinical development and toward potential regulatory approvalour early discovery pipeline and to develop, acquire, or in-license other potential product candidates. Our future funding requirements will depend on many factors, including:

the progress, timing, scope, results and costs of advancing our clinical trials for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials;
the costs of and our ability to obtain clinical and commercial supplies for our current product candidates and any other product candidates we may identify and develop;
our ability to successfully commercialize theour current product candidates and any other product candidates we may identify and develop;
the success of our existing or future collaboration with third parties;
the selling and marketing costs associated with our current product candidates and any other product candidates we may identify and develop, including the costs and timing of expanding our sales and marketing capabilities;
the achievement of development, regulatory and sales milestones resulting in payments to us from JanssenJNJ under the RestatedJNJ License and Collaboration Agreement, Takeda under the Takeda Collaboration Agreement, or other such arrangements that we may enter into, and the timing of receipt of such payments, if any;
the timing, receipt and amount of royalties from JNJ under the RestatedJNJ License and Collaboration Agreement on worldwide net sales of IL-23 receptor antagonist compounds,or Takeda under the Takeda Collaboration Agreement upon regulatory approval or clearance, if any;

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the amount and timing of sales and other revenues from our current product candidates and any other product candidates we may identify and develop, including the sales price and the availability of adequate third-party reimbursement;
the cash requirements of any future acquisitions or discoveries of product candidates;
the time and costs necessary to respond to technological and market developments;
the extent to which we may acquire or in-license other product candidates and technologies;
the costs necessary to attract, hire and retain qualified personnel;
the costs of maintaining, expanding and protecting our intellectual property portfolio; and
the costs of ongoing general and administrative activities to support the growth of our business.

Such additional funding may come from various sources, including raising additional capital, seeking access to debt, and seeking additional collaborative or other arrangements with partners, but such funding may not be available on terms acceptable to us, if at all. As discussed in Part II, Item1A.Item 1A. “Risk Factors”,Factors,” we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability, inflationary pressures and banking and other financial institution failures,high interest rates, among other factors. A future recession or market correction, including those due to significant geopolitical or macroeconomic events, could materially affect our business and our access to credit and financial markets.

Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials, other research and development activities and pre-commercialization costs. If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders could be diluted, and the terms of these securities could include liquidation or other preferences that could adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we could be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to fully estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs. For additional information, see Part II, Item 1A. “Risk Factors” – “Risks Related to our Financial Position and Capital Requirements”.Requirements.”

Cash Flows

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

Six Months Ended

Three Months Ended

June 30, 

March 31, 

    

2023

    

2022

    

2024

    

2023

Condensed Consolidated Statements of Cash Flows Data:

(Dollars in thousands)

Condensed Consolidated Statements of Cash Flows Data:

Condensed Consolidated Statements of Cash Flows Data:

Condensed Consolidated Statements of Cash Flows Data:

Condensed Consolidated Statements of Cash Flows Data:

Condensed Consolidated Statements of Cash Flows Data:

Condensed Consolidated Statements of Cash Flows Data:

(Dollars in thousands)

Cash used in operating activities

$

(60,585)

$

(51,301)

$

(27,429)

$

(34,347)

Cash provided by investing activities

$

35,588

$

30,258

$

6,071

$

9,826

Cash provided by financing activities

$

134,635

$

17,605

$

7,199

$

26,463

Stock-based compensation

$

15,927

$

12,740

$

9,352

$

7,584

Cash Used in Operating Activities

Cash used in operating activities for the sixthree months ended June 30, 2023March 31, 2024 was $60.6$27.4 million, consisting primarily of our net lossincome of $72.2$207.3 million and $9.4 million of stock-based compensation, partially offset by a net change of $4.0$243.3 million in net operating assets and liabilities. The change in net operating assets and liabilities was driven by a change of $290.0 million in receivable from collaboration partner partially offset by certain non-cash items, including $15.9$45.1 million in deferred revenue, both of stock-based compensation expense.which related to the $300.0 million upfront payment we earned upon the effectiveness of the Takeda Collaboration Agreement in March 2024. The $9.3$6.9 million increasedecrease in cash flow used in operating activities during the sixthree months ended June 30,March 31, 2024, as compared to the three months ended March 31, 2023, as comparedwas primarily due to a

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to the six months ended June 30, 2022, was primarily due to a $10.2$241.1 million increasechange in our net lossincome and a $2.6 million increase in discount accretion on marketable securities, partially offset by a $3.2$1.8 million increase in stock-based compensation expense.expense, partially offset by a $235.3 million net change in net operating assets and liabilities.

Cash Provided by Investing Activities

Cash provided by investing activities for the sixthree months ended June 30, 2023March 31, 2024 was $35.6$6.1 million, consisting primarily of proceeds from maturities of marketable securities of $70.0$72.0 million, partially offset by purchases of marketable securities of $34.1$65.7 million. The $5.3$3.8 million increasedecrease in cash provided by investing activities for the sixthree months ended June 30, 2023,March 31, 2024, as compared to the sixthree months ended June 30, 2022,March 31, 2023, was primarily related to a decrease in the net activity of $68.0 million in purchases of marketable securities, partially offset by a $63.0 million decrease in proceeds fromand maturities of marketable securities.

Cash Provided by Financing Activities

Cash provided by financing activities for the sixthree months ended June 30, 2023March 31, 2024 was $134.6$7.2 million, consisting primarily of net cash proceeds of $107.9$7.8 million from the April 2023 public offering of our common stock, $24.3 million from sales of our common stock under the 2022 ATM Facility, and $3.2 million in proceeds from the issuance of common stock upon exerciseexercises of stock options and purchases of common stock under our employee stock purchase plan.plan (“ESPP”), partially offset by $0.6 million in tax withholding payments related to net settlement of restricted stock units. The $117.0$19.3 million increasedecrease in cash provided by financing activities for the sixthree months ended June 30, 2023,March 31, 2024, as compared to the sixthree months ended June 30, 2022,March 31, 2023, was primarily due to a $117.6$24.3 million increasedecrease in net cash proceeds from the public offerings and ATM sales of our common stock.stock, partially offset by $5.5 million increase in proceeds from issuance of common stock upon exercise of options and purchases of common stock under the ESPP.

Contractual Obligations and Other Commitments

Takeda Collaboration Agreement

Under the Takeda Collaboration Agreement, we are obligated for expenditures related to completion of our Phase 3 clinical trial for rusfertide in PV and, if successful, an NDA filing with the FDA. The timing and actual amounts may vary from estimates depending on numerous factors, some of which are outside of our control and some of which are contingent upon the success of certain development and regulatory activities. The timing and amount of such payments are not determinable as of the date of the Quarterly Report on Form 10-Q.

During the three and six months ended June 30, 2023,March 31, 2024, there were no other material changes to our material cash requirements, including commitments for capital expenditures, described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 20222023 filed with the SEC on March 15, 2023.February 27, 2024.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Fluctuation Risk

We had $313.4$322.6 million and $237.4$341.6 million in cash, cash equivalents and marketable securities at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Our cash and cash equivalents consist of cash, money market funds, commercial paper and government bonds. Marketable securities consist of certificates of deposit, corporate bonds, commercial paper and government bonds. A portion of our investments are interest-bearing instruments carrying a degree of interest rate risk. However, because our investments are of high-quality credit rating and short term in duration, we believe that our exposure to interest rate risk is not significant and that a hypothetical 100 basis point change in interest rates would not have a significant impact on the total value of our portfolio.

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Approximately $1.5$0.4 million and $2.5$0.9 million of our cash balance was located in Australia at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Our expenses, except those related to our Australian operations, are generally denominated in U.S. dollars. For our operations in Australia, the majority of our expenses are denominated in Australian dollars. To date, we have not had a formal hedging program with respect to foreign currency, but we may do so in the future if our exposure to foreign currency becomes more significant. A 10% increase or decrease in current exchange rates would not have a material effect on ourthe results of our operations.

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Inflation Fluctuation Risk

The inflationary environment has fluctuated over the period covered by this report. Inflation generally affects us by increasing our costs, such as the cost of labor and research and development contract costs. We do not believe inflation has had a material effect on ourthe results of our operations during the three and six months ended June 30, 2023.March 31, 2024.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

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

Changes in Internal Control over Financial Reporting

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

PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

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

ITEM 1A.RISK FACTORS

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. Investors should carefully consider the risks described below before making an investment decision. Our business faces significant risks and the risks described below may not be the

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only risks we face. If any of these risks occur, our business, results of operations or financial condition could suffer, and the market price of our common stock could decline.

Summary of Risk Factors

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Item 1A. Risk Factors” and

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should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC, before making an investment decision regarding our common stock.

We have no approved products and no historical commercial revenue, which makes it difficult to assess our future prospects and financial results.
We are heavily dependent on the success of our product candidates in clinical development.
Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage of clinical development.
Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial opportunity, including being required by an independent data monitoring committee or regulatory authorities to delay or halt or clinical trials, or if such side effects or adverse events are sufficiently severe or prevalent, order us to suspend or cease altogether further development of our product candidates.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We have never generated any revenue from product sales and may never be profitable.
We expect tomay require substantial additional funding.
Raising additional capital may cause dilution to our existing stockholders.
We rely on JanssenJNJ to continue the development of product candidates subject to our license and collaboration with Janssen,JNJ, and to successfully commercialize any resulting products.products, and we rely on Takeda to successfully commercialize any products resulting from our collaboration agreement with Takeda.
Our existing or future collaborations with third parties may not be successful.
We rely on third parties to conduct our pre-clinical studies and clinical trials and are subject to risks associated with their businesses and performance of their obligations to us.
We rely on third-party contract manufacturers to manufacture our drug substance and clinical drug product.
If we are ultimately unable to obtain regulatory approval for our product candidates in the United States or other jurisdictions, our business will be substantially harmed.
We have no marketing and sales organization and may not be able to effectively market and sell any products or generate product revenue if any of our product candidates are approved for marketing.
If we commercialize our product candidates abroad, we will be subject to the risks of doing business outside of the United States.

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We face significant competition from other biotechnology and pharmaceutical companies.
We may face risks to our business arising from outbreaks of disease, epidemics and pandemics, such as the COVID-19 pandemic, including risks to our ongoing and planned clinical trials and pre-clinical and discovery research.

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Unstable market and economic conditions, including elevated and sustained inflation, may have serious adverse consequences on our business, financial condition and stock price.
Our success depends on our ability to attract, retain and motivate qualified executives and other personnel.
We may experience difficulties in managing the growth of our organization.
We are subject to risks associated with information technology systems or breaches of data security.
Any misconduct by our employees, independent contractors, principal investigators, consultants and vendors could have a material adverse effect on our business.
Our headquarters is located near known earthquake fault zones.
If we are unable to obtain or protect intellectual property rights related to our product candidates and technologies, we may not be able to compete effectively in our markets.
We may be involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and ultimately unsuccessful.
Patents covering our product candidates could be found invalid or unenforceable.
Third party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts.
Our stock price has been and will likely continue to be volatile and may decline, regardless of our operating performance.

Risks Related to Clinical Development

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

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

We expect that our financial condition and operating results will fluctuate significantly from period to period due to a variety of factors, many of which are beyond our control, including the success of our programs, decisions by regulatory bodies, actions taken by competitors or current or future licensees or collaborative partners, market and macroeconomic conditions and other factors identified in these risk factors. Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with a clinical-stage biopharmaceutical

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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.

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

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

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

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

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

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

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We may experience delays in ongoing clinical trials, and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. For example, we

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initially experienced slower than expected patient enrollment in VERIFY, a global Phase 3 clinical trial of rusfertide in PV. Clinical trials can be delayed for a variety of reasons, including if a clinical trial is modified, suspended or terminated by us. For example, in keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in other indications have been paused. Clinical trials can also be delayed by the institutional review boards or ethics committees of the institutions in which such clinical trials are being conducted, by a Data Safety Monitoring Board, for such trial or by the FDA or other regulatory authorities. Such authorities may impose a modification, suspension or termination due to a number of factors.

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

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

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

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

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

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

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

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

If undesirable side effects or adverse events are caused by our product candidates or by other companies’ similar approved drugs or product candidates, then we may elect to, or be required by an independent data monitoring

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

For example, onin September 16, 2021, our clinical studies for rusfertide were placed on a brief full clinical hold by the FDA. On October 8, 2021, the FDA lifted the full clinical hold and dosing in all clinical studies of rusfertide could be resumed after we provided the FDA with all requested information as the basis for a Complete Response and subsequent removal of the clinical hold. In particular, we provided the requested individual patient clinical safety reports, updated the investigator brochure and patient informed consent forms, performed a comprehensive review of the most recent safety database, and included new safety and stopping rules in the study protocols. The clinical hold was initially triggered byfollowing a non-clinical finding in a 26-week rasH2 transgenic mouse model indicating benign and malignant subcutaneous skin tumors.  The rasH2 signal also prompted a re-examination of the four cases of cancer observed across all rusfertideAny similar findings in human clinical trials involving over 160 patients, and a comprehensive reviewmay adversely impact regulatory approval, product labeling or commercialization of the safety database, including cases of suspected unexpected serious adverse reactions.rusfertide.

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

Because we have limited financial and managerial resources, we have historically focused on research programs and product candidates mainly on the development of rusfertide and the product candidates subject to our Janssen collaboration and, through early 2022, PN-943. Going forward, weJNJ collaboration. We have no plans to devote further resources to PN-943 as part of ouran ongoing commitment to optimize and focus resources toward our rusfertide program in PV. In addition, in keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease indications have been paused. As a result, we may forego or delay the 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 annual operating losses everyeach year since inception and expect tomay continue to incur operating losses for the foreseeable future. As of June 30, 2023,March 31, 2024, we had an accumulated deficit of $608.9$408.4 million. We expect to continue to incur significant research, development and other expenses related to our ongoing operations and product development. As a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approvals for, our product candidates.

We do not anticipate generating revenue from sales of products for a number of years, if ever, and we have not yet successfully completed registrational or pivotal clinical trials for our product candidates. If any of our product candidates fail in clinical trials or do not gain regulatory approval or fail to achieve market acceptance, we may never become profitable. Revenue we generate from our collaborationcollaborations with Janssen,JNJ, Takeda, and any future collaboration

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arrangements may not be sufficient to sustain our operations. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.

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

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

As of June 30, 2023,March 31, 2024, we had cash, cash equivalents and marketable securities of $313.4$322.6 million. Based upon our current operating plan and expected expenditures we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our operations for at least the next 12 months. However, we expect that we willmay need to have access to substantial additional funds in the future in order to complete clinical development or commercialize our product candidates to a point where our operations generate net cash inflows.

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

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

Risks Related to our Reliance on Third Parties

If JanssenJNJ does not elect to continue the development of JNJ-2113, (formerly PN-235),or if Takeda does not elect to develop and commercialize rusfertide, our business and business prospects would be adversely affected.

JNJ-2113, the product candidate in development pursuant to our JanssenJNJ collaboration, and rusfertide, the product candidate in development pursuant to the Takeda Collaboration Agreement, may prove to have undesirable or unintended side effects or other characteristics adversely affecting its safety, efficacy or cost effectiveness that could prevent or limit its approval for marketing and successful commercial use, or that could delay or prevent the commencement and/or completion of clinical trials.

Under the terms of the RestatedJNJ License and Collaboration Agreement, with Janssen, JanssenJNJ may terminate the agreement for convenience and without cause on written notice of a certain period. In addition, prior to any termination of the agreement, JanssenJNJ will generally have control over the further clinical development of JNJ-2113 and any other licensed compounds. Janssen’sJNJ’s decisions with respect to such development will affect the timing and availability of potential future payments under the agreement, if any. For example, during the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made by JanssenJNJ to stop further development of both PTG-200 and PN-232 in favor of JNJ-2113. If the Restated Agreement with Janssen is

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Under the terms of the Takeda Collaboration Agreement, Takeda may terminate the agreement for convenience in its entirety or as to a major region by providing advance written notice following the earliest of (i) the receipt of Phase 3 data with respect to the VERIFY clinical trial, (ii) the third anniversary of the effective date of the agreement or (iii) the occurrence of certain specified adverse events related to the clinical development of rusfertide.

If the JNJ License and Collaboration Agreement or the Takeda Collaboration Agreement is terminated early, or if Janssen’sJNJ’s or Takeda’s development activities are terminated early or suspended for an extended period of time, or are otherwise unsuccessful, our business and business prospects would be materially and adversely affected.

We may have disagreements with JanssenJNJ during the term of the JanssenJNJ License and Collaboration Agreement or Takeda under the Takeda 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 JanssenJNJ regarding the development of JNJ-2113 or other matters under the RestatedJNJ License and Collaboration Agreement with Janssen,and Takeda regarding the development of rusfertide or other matters under the Takeda Collaboration Agreement, such as the interpretation of thesuch agreement or ownership of proprietary rights. Also, because the period of collaborative development under the agreement has ended, JanssenJNJ has sole decision-making authority for product candidates resulting from the collaboration, which could lead to disputes with Janssen.JNJ. Disagreements with JanssenJNJ or Takeda could lead to litigation or arbitration, which would be expensive and would be time-consuming for our management and employees.

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

Other than our Restatedcollaboration with JNJ License and Collaboration Agreement and our collaboration with Janssen,Takeda under the Takeda Collaboration Agreement, we have no active collaborations for any of our product candidates. Even if we establish otherOur collaborations with JNJ and Takeda and any future collaboration arrangements any such collaboration may not ultimately be successful, which could have a negative impact on our business, results of operations, financial condition and growth prospects. If we enter into collaborations limited to certain territories, we mayWe do not maintain significant rights or control of future development and commercialization of any product candidate subjectactivities under our collaboration with JNJ, or in ex-U.S. territories under our collaboration with Takeda. This could lead to the collaboration and potential disputes could develop in the future over the terms of the collaborationcollaborations and the respective rights of the parties.parties, and these risks and uncertainties could be present with respect to our potential future collaborations as well.

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

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

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

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

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operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed significantly.

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

We rely on contract manufacturers to manufacture and provide product for us that meets applicable regulatory requirements. We do not currently have, nor do we plan to develop, the infrastructure or capability internally to manufacture our drug supplies and we expect to continue to depend on contract manufacturers for the foreseeable future. As we proceed with the development and potential commercialization of our product candidates, we will need to increase the scale at which the drug is manufactured which will require the development of new manufacturing processes to potentially reduce the cost of goods. We will rely on our internal process research and development efforts and those of contract manufacturers to develop the good manufacturing processespractices (“GMPs”) required for cost-effective, large-scale production. If we and our contract manufacturers are not successful in converting to commercial-scale manufacturing, then our product costs may not be competitive and the development and/or commercialization of our product candidates would be materially and adversely affected. Moreover, our contract manufacturers are the sole source of supply for our clinical product candidates. If we were to experience an unexpected loss of supply for any reason, whether as a result of manufacturing, supply or storage issues, natural disasters, geopolitical conflict, outbreaks of disease, epidemics and pandemics, such as the COVID-19 pandemic, or otherwise, we could experience delays, disruptions, suspensions or termination of our clinical trial and planned development program, or be required to restart or repeat, any ongoing clinical trials.

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

Risks Related to Regulatory Approval

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

Our business is substantially dependent on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize our product candidates. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, the EMA or any other foreign regulatory authority, and we may never receive such regulatory approval for any of our product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is difficult to predict, typically takes many years following the commencement of clinical trials and depends upon numerous factors. Approval policies, regulations and the types and amount of clinical and manufacturing data necessary to gain approval may change during the course of clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product

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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 FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials, or our interpretation of the data submitted in support of regulatory approval;
we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication or that a product candidate’s clinical and other benefits outweigh its safety risks;
the results of clinical trials may fail to achieve the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
the data collected from pre-clinical studies and clinical trials of our product candidates may not be sufficient to support the submission of an NDA, supplemental NDA, or other regulatory submissions necessary to obtain regulatory approval;
we or our contractors may not meet the GMP and other applicable requirements for manufacturing processes, procedures, documentation and facilities necessary for approval by the FDA or comparable foreign regulatory authorities; and
changes to the approval policies or regulations of the FDA or comparable foreign regulatory authorities with respect to our product candidates may result in our clinical data becoming insufficient for approval.

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

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

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

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Risks Related to Commercialization of our Product Candidates

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

We currently do not have a marketing or sales organization for the marketing, sales and distribution of pharmaceutical products.products, and have only a limited number of employees engaged in those activities. In order to commercialize or co-commercialize any of our product candidates that receive marketing approval, we will have to build adequate marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and weservices. We may not be successful in doing so. In the event of the 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.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. WithAs we have done with Takeda with respect to our product candidates,rusfertide, 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 insystems. In the case of the RestatedJNJ License and Collaboration Agreement with Janssen,or the Takeda Collaboration Agreement, we may elect to exercise our Co-Detailing Option (allows usright to elect to provide up to 30% of the selling effort in the United States for any IL-23R antagonist compounds approved for commercial sale),co-detail products, which would require us to establish a U.S. sales team. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.

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

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

Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. See Item 1. “Business – Government Regulation” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.

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

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

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

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

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

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

the safety and efficacy of the product in clinical trials, and potential advantages over competing treatments;
the publication of unfavorable safety or efficacy data concerning our product by third parties;
the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
the clinical indications for which approval is granted;
recognition and acceptance of our product candidates over our competitors’ products;
prevalence of the disease or condition for which the product is approved;
the cost of treatment, particularly in relation to competing treatments;
the willingness of the target patient population to try our therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support and timing of market introduction of competitive products;
the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

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publicity concerning our products or competing products and treatments;
the extent to which third-party payors provide coverage and adequate reimbursement for the product candidate, or any other product candidates we may pursue, if approved;
our ability to maintain compliance with regulatory requirements; and
labeling or naming imposed by FDA or other regulatory agencies.

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

Risks Related to our Business and Industry

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

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

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

Pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate advantages in efficacy, convenience, tolerability or safety in order to overcome price competition and to be commercially successful. If our competitors succeed in obtaining FDA, EMA or other regulatory approval or discovering, developing and commercializing drugs before we do, there would be a material adverse impact on the future prospects for our product candidates and business. For example, in November 2021, the FDA approved a Biologics License Application for ropeginterferon alfa-2b for use in treatment for patients with PV in the absence of symptomatic splenomegaly from PharmaEssentia Corporation, the manufacturer of the novel pegylated interferon. We also face competition in certain instances from the existing standards of care, which may be significantly less expensive than our expected drug prices. For example, one widely used treatment for patients is phlebotomy and/or chelation therapy. While patients may not like therapies that involve frequent blood draws, these therapies are inexpensive and may present pricing challenges for us if our drug candidates are successfully developed and approved. See Item 1, “Business – Competition” in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional information.

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Outbreaks of disease, epidemics and pandemics such as the COVID-19 pandemic, have and could continue to adversely impact our business, including our ongoing and planned clinical trials and pre-clinical and discovery research.

We have experienced delays in our existing and planned clinical trials due to worldwide impacts related to the COVID-19 pandemic, and our future results of operations and liquidity could be adversely impacted by direct and indirect impacts of epidemics and pandemics. We have and could in the future experience additional disruptions or increased expenses that may adversely impact our business, including delays or difficulties in enrolling patients in our ongoing clinical trials and our future clinical trials; delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff or maintaining ongoing operations at such sites; and delays in manufacturing and receiving the supplies, materials and services needed to conduct clinical trials and pre-clinical research.

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

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

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

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

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

Our cash held in non-interest-bearing and interest-bearing accounts generally exceeds the Federal Deposit Insurance Corporation (the “FDIC”) insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. For example, the FDIC took control of Silicon Valley Bank

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Valley Bank on March 10, 2023. The Federal Reserve subsequently announced that account holders would be made whole. However, the FDIC may not make all account holders whole in the event of future bank failures. In addition, even if account holders are ultimately made whole with respect to a future bank failure, account holders’ access to their accounts and assets held in their accounts may be substantially delayed. Any material loss that we may experience in the future or inability for a material time period to access our cash and cash equivalents could have an adverse effect on our ability to pay our operational expenses or make other payments, which could adversely affect our business.

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

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

the federal Anti-Kickback Statute;
the federal false claims laws, including the False Claims Act;
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, which also imposes obligations, including mandatory contractual terms, on HIPAA-covered entities, their business associates as well as their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
the federal civil monetary penalties statute;
the federal Physician Payments Sunshine Act; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws.

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

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

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have continued to increase their scrutiny of

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interactions between healthcare companies and healthcare providers, which has led to a number of significant investigations, prosecutions, convictions and settlements in the healthcare industry. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could significantly increase our costs or otherwise have an adverse effect on our business.

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, Janssenwe or weour collaboration partners are unable to comply with these regulations, our ability to earn potential royalties from worldwide net sales of Janssenproduct candidates under our collaboration product candidatesagreements would be materially and adversely impacted. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. The imposition of any of these penalties or other commercial limitations could negatively impact our collaboration with Janssenarrangements or cause Janssenour collaboration partners to terminate the Restated Agreement with Janssen,related license and collaboration agreement, either of which would materially and adversely affect our business, financial condition and results of operations.

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

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

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

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

As of June 30, 2023,March 31, 2024, we had 106124 full-time equivalent employees, including 8197 full-time equivalent employees engaged in research and development. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, scientific, sales, marketing, research, development, regulatory, manufacturing, financial and other resources. In addition, as our operations expand, we expect that we will need to manage relationships with strategic collaborators, CROs, contract manufacturers, suppliers, vendors and other third parties. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. We may not be successful in accomplishing these tasks in growing our company, and our failure to accomplish any of them could adversely affect our business and operations.

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

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

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

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

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

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

We may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict

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liability and a breach of warranties. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to stop development or, if approved, limit commercialization of our product candidates.

Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our product candidates. We currently carry clinical trial liability insurance for our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

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

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

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

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

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

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

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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.

Risks Related to our Intellectual Property

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

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

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

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

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

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

We also rely on trade secret protection and confidentiality agreements to protect proprietary scientific, business and technical information and know-how that is not or may not be patentable or that we elect not to patent. For example, we primarily rely on trade secrets and confidentiality agreements to protect our peptide therapeutics

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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.

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

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

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

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

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

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

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

causing us to lose patent rights in the relevant jurisdiction(s);
subjecting Janssenour collaboration partners or us to litigation, or otherwise preventing the commercialization of product candidates in the relevant jurisdiction(s); or
requiring Janssenour collaboration partners or us to obtain licenses to the disputed patents, cease using the disputed technology or develop or obtain alternative technologies.

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An adverse outcome in a patent dispute could severely harm our collaboration with Janssencollaborations or cause Janssenour collaboration partners to terminate the Restated Agreement.their respective agreements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

others may be able to make compounds or formulations that are similar to our product candidates, but that are not covered by the claims of any patents that we own, license or control;
we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own;
we may not have been the first to file patent applications covering certain of our inventions;
others may independently develop the same, similar, or alternative technologies without infringing, misappropriating or violating our intellectual property rights;
it is possible that our pending patent applications will not lead to issued patents;
issued patents may not provide us with any competitive advantages, or may be narrowed or held invalid or unenforceable, including as a result of legal challenges;
our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights, and may then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such trade secrets or know-how; and
the patents of others may have an adverse effect on our business.

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

Risks Related to Ownership of our Common Stock

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

Our stock price has fluctuated in the past and is likely to be volatile in the future. From January 1, 20232024 through June 30, 2023,March 31, 2024, the reported sale price of our common stock has fluctuated between $10.62$21.43 and $30.10$33.34 per share. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock, including due to the factors discussed in these “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.Report.

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

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

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

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

Maintaining adequate internal controls in place so that we would receive an adverse opinion.

can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and continue the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not complete our continued evaluation, testing and any required remediation in a timely fashion. During our evaluation of our internal control, if we identify one or more material weaknesses in our internal control over financial reporting or fail to remediate any material weaknesses, we will be unable to assert that our internal control over financial reporting is effective. In addition, if we have a material weakness, we will receive an adverse opinion regarding our internal control over financial reporting from our independent registered public accounting firm. Any material weakness or other failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are not able to comply with the requirements of Section 404 or if we or our independent registered public accounting firm are unable to attest to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities, which would require additional financial and management resources.

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

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

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

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

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person

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acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our Certificate of Incorporation, our Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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General Risk Factors

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

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

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

We may have additional tax liabilities.

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

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

Recent Sales of Unregistered Securities

None.

Repurchases of Shares or of Company Equity Securities

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

(a)Entry into a Material Definitive Agreement

None.On May 6, 2024, we amended our facility lease agreement (the lease as amended, the “Amended Lease”) with BMR-Pacific Research Center LP to lease 60,575 rentable square feet of office and laboratory space located within the Newark, California facility the Company has occupied since 2017. The term of the Amended Lease commences on July 1, 2024 (or such later date when tenant improvements in newly leased office space within the facility are substantially

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complete). The term of the Amended Lease is 65 months. The initial monthly base rent under the Amended Lease is $3.53 per square foot. Base rent will increase 3.5% annually. The Amended Lease provides for an agreed-upon period of rent abatement. We are responsible for our proportional share of operating expenses and tax obligations throughout the lease term. No additional security deposit was required pursuant to the Amended Lease.

The foregoing description of the Amended Lease does not purport to be complete and is qualified in its entirety by reference to the Amended Lease, a copy of which will be filed as an exhibit to the Company’s quarterly report on Form 10-Q for the period ending June 30, 2024.

(c)Trading Plans

During the fiscal quarter ended March 31, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case as defined in Item 408(a) of Regulation S-K.

ITEM 6.EXHIBITS

EXHIBIT INDEX

Exhibit

Incorporation By Reference

Number

    

Exhibit Description

    

Form

    

SEC File No.

    

Exhibit

    

Filing Date

3.1

Amended and Restated Certificate of Incorporation

8-K

001-37852

3.1

8/16/2016

3.2

Amended and Restated Bylaws

S-1/A

333-212476

3.2b

8/1/2016

10.1+

License and Collaboration Agreement by and between Protagonist Therapeutics, Inc. and Takeda Pharmaceuticals USA, Inc. dated January 31, 2024

31.1+

Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2+

Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+*

Certification of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EXHIBIT INDEX

Exhibit

Incorporation By Reference

Number

    

Exhibit Description

    

Form

    

SEC File No.

    

Exhibit

    

Filing Date

3.1

Amended and Restated Certificate of Incorporation

8-K

001-37852

3.1

8/16/2016

3.2

Amended and Restated Bylaws

S-1/A

333-212476

3.2b

8/1/2016

31.1+

Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2+

Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1+*

Certification of Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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+     Filed herewith.

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

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SIGNATURES

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

PROTAGONIST THERAPEUTICS, INC.

Date:  August 3, 2023May 7, 2024

By:

/s/ Dinesh V. Patel, Ph.D.

Dinesh V. Patel, Ph.D.

President, Chief Executive Officer and Director

(Principal Executive Officer)

Date:  August 3, 2023May 7, 2024

By:

/s/ Asif Ali

Asif Ali

Executive Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

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