UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
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
(State or other jurisdiction of
incorporation or organization)
7707 Gateway Boulevard, Suite 140
Newark, California 94560
(Address, including zip code, of registrant’s
principal executive offices)
98-0505495
(I.R.S. Employer
Identification No.)
(510) 474-0170
(Telephone number, including area code, of registrant’s
principal executive offices)
Title of each class
Common Stock, $0.00001 par value
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
PTGX
Securities registered pursuant to Section 12(g) of the Act:
None
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S- T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b - 2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
☐
☒
Accelerated Filer
Smaller Reporting Company
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b - 2 of the Exchange Act of 1934). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $379.5 million as of June 30, 2022, based upon the closing sale price on The
Nasdaq Stock Market LLC reported on June 30, 2022. Excludes an aggregate of 706,756 shares of the registrant’s common stock held by officers, directors and affiliated stockholders. For
purposes of determining whether a stockholder was an affiliate of the registrant at June 30, 2022, the registrant assumed that a stockholder was an affiliate of the registrant at June 30, 2022 if
such stockholder (i) beneficially owned 10% or more of the registrant’s common stock, as determined based on public filings and/or (ii) was an executive officer or director or was affiliated
with an executive officer or director of the registrant at June 30, 2022. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect,
to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.
There were 51,275,166 shares of registrant’s Common Stock, par value $0.00001 per share, outstanding as of March 2, 2023.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive Proxy Statement for the registrant’s 2023 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. Such proxy
statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2022.
Auditor Firm ID:
42
Auditor Name:
Ernst & Young LLP
Auditor Location:
San Mateo, California, USA
PROTAGONIST THERAPEUTICS, INC.
2022 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers, and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Item 16.
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PART I
Statements made in this Annual Report on Form 10 - K contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,”
“continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “forecast,” “target,” “could,” “would,”
“potentially” or the negative of these terms or similar expressions. You should read these statements carefully because
they discuss current expectations about future events, contain projections of future results of operations or financial
condition, or state other “forward-looking” information. In addition, any statements other than statements of historical
facts are forward-looking statements. These statements relate to our plans, objectives, goals, targets, expectations,
intentions, priorities and projections of financial performance and the assumptions that underlie these statements. These
forward-looking statements are subject to certain known and unknown risks, uncertainties and other factors that could
cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in this report below, in “Item 1A. Risk Factors”
and elsewhere in this Annual Report. In addition, statements that “we believe” and similar statements reflect our beliefs
and opinions on the relevant subject. These statements are based upon information available to us as of the date of this
report, and while we believe such information forms a reasonable basis for such statements, such information may be
limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors
are cautioned not to unduly rely upon these statements. Forward-looking statements are based on our management’s
belief, estimates and assumptions and on information currently available to our management. These statements, like all
statements in this report, speak only as of their date, and except as required by law, we undertake no obligation to update
or revise these statements in light of future developments. We caution investors that our business and financial
performance are subject to substantial risks and uncertainties.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This
summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor
summary, and other risks that we face, can be found below under the heading “Item 1A. Risk Factors” and should be
carefully considered, together with other information in this Annual Report on Form 10-K 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.
1
• We expect to require substantial additional funding.
• Raising additional capital may cause dilution to our existing stockholders.
• We rely on Janssen Biotech, Inc. (“Janssen”) to continue the development of product candidates subject to our
license and collaboration with Janssen, and to successfully commercialize any resulting products.
• Our existing or future collaborations with third parties may not be successful.
• We rely on third parties to conduct our pre-clinical studies and clinical trials and are subject to risks associated
with their businesses and performance of their obligations to us.
• We rely on third-party contract manufacturers to manufacture our drug substance and clinical drug product.
•
If we are ultimately unable to obtain regulatory approval for our product candidates in the United States or
other jurisdictions, our business will be substantially harmed.
• We have no marketing and sales organization and may not be able to effectively market and sell any products
or generate product revenue if any of our product candidates are approved for marketing.
•
If we commercialize our product candidates abroad, we will be subject to the risks of doing business outside
of the United States.
• We face significant competition from other biotechnology and pharmaceutical companies.
• We face risks to our business arising from the COVID-19 pandemic, including risks to our ongoing and
planned clinical trials and pre-clinical and discovery research.
• Unstable market and economic conditions, including elevated and sustained inflation, may have serious
adverse consequences on our business, financial condition and stock price.
• Our success depends on our ability to attract, retain and motivate qualified executives and other personnel.
• We may experience difficulties in managing the growth of our organization.
• We are subject to risks associated with information technology systems or breaches of data security.
• Any misconduct by our employees, independent contractors, principal investigators, consultants and vendors
could have a material adverse effect on our business.
• Our headquarters is located near known earthquake fault zones.
•
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.
2
Item 1.
Business
Overview
We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly
known as PN-235) in different stages of development, all derived from our proprietary discovery technology platform.
Our clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and
(ii) inflammatory and immunomodulatory diseases.
Figure 1: Our Product Pipeline
HEMATOLOGY & BLOOD DISORDERS
POLYCYTHEMIA VERA (PV)
VERIFY
PV Ph3 trial
Hepcidin
Mimetic
Rusfertide
(PTG-300)
REVIVE
PV Ph2 PoC trial
• ~250 patient, randomized, double-blind, placebo-
controlled study
• Enrollment completion expected by Q4 2023
• ~70 patient enrollment completed
• Randomized portion completed, continuing in OLE
PACIFIC
PV Ph2 elevated HcT (>48%) trial
• 52-wk OLE study completion by Q2 2023
INFLAMMATORY & IMMUNOMODULATORY DISEASES
FRONTIER-1
Psoriasis Ph2b PoC trial
FRONTIER-2
Psoriasis Ph2b PoC trial
Oral IL-23R
Antagonist
JNJ-2113
(PN-235)
SUMMIT
Psoriasis Ph2b PoC trial
NCT05062200
Phase 1 trial
NCT05703841
Phase 1 trial
Rusfertide
• FRONTIER 1: 255 patient psoriasis study is
completed
• FRONTIER 2: LTE study of FRONTIER 1 is
recruiting
• SUMMIT: 80 patient psoriasis study with delayed
release tablet; estimated completion in Mar 2023
• NCT05062200: Ph1 study in healthy Japanese and
Chinese participants is completed
• NCT05703841: Ph1 study in healthy adult Chinese
participants is recruiting
Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an injectable hepcidin mimetic in
development for the potential treatment of erythrocytosis, iron overload and other blood disorders and is wholly owned.
Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells.
Rusfertide mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability. Data
from our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 provided evidence
regarding the potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency
symptoms. Rusfertide has a unique mechanism of action in the potential treatment of the blood disorder polycythemia
vera (“PV”), which may enable it to specifically decrease and maintain hematocrit levels within the range of
recommended clinical guidelines without causing the iron deficiency that can occur with frequent phlebotomy. Our
rusfertide Phase 2 clinical trials include the following:
• REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019. We completed
enrollment of patients in the first quarter of 2022 with a target of approximately 50 patients to be enrolled
through the end of the randomization portion of the trial, which was completed during the first quarter of
2023, and will continue in open label extension.
• PACIFIC, another Phase 2 trial for rusfertide patients diagnosed with PV and with routinely elevated
hematocrit levels (>48%), was initiated during the first quarter of 2021 and completion of the 52-week trial is
expected during the second quarter of 2023.
3
At the June 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting, we presented updated
interim results for REVIVE and PACIFIC demonstrating the effects of dosing interruption and resumption. Rusfertide
dosing interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood
cells. Rusfertide restart restored therapeutic benefits. Following the brief clinical hold described below, over 90% of
patients in the REVIVE trial provided reconsent and returned to rusfertide treatment after dosing interruption and
reinitiation. At the June 2022 European Hematology Association Congress, we presented interim data as of May 2022
showing that rusfertide treatment interruption reverses hematologic gains and re-initiation of treatment restores
therapeutic benefits in patients with PV. At the December 2022 American Society of Hematology (“ASH”) meeting, we
presented data as of October 2022 related to rusfertide, including a subgroup of analyses of the adverse event profile
from the REVIVE trial. These preliminary results indicated that 84% of treatment-emergent adverse events (“TEAEs”)
were Grade 2 or below. 16% of patients experienced Grade 3 TEAEs and there were no Grade 4 TEAEs.
On March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized
withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements
versus placebo in the trial’s primary endpoint.
The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the
REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial,
subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study,
followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks.
More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were
responders compared with placebo (69.2% versus 18.5%, p=0.0003). A study subject was defined as a responder if the
subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy
eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, only 2 of 26 subjects on
rusfertide were phlebotomized.
VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately 250 patients, was initiated in the first
quarter of 2022. Significant efforts have been taken toward the goal of full enrollment and a high degree of interest has
been observed from physicians and patient communities. We expect enrollment completion in the fourth quarter of 2023.
On September 16, 2021, the U.S. Food and Drug Administration (“FDA”) placed a clinical hold on our then
ongoing rusfertide clinical trials following our submission to the FDA of findings in a 26-week rasH2 transgenic mouse
carcinogenicity study. In October 2021, we submitted a Complete Response to the FDA related to the clinical hold, and
the FDA removed the clinical hold on October 8, 2021. In our Complete Response, we provided the individual patient
clinical safety reports the FDA requested for human cancers observed in rusfertide clinical trials, updated the investigator
brochure and patient informed consent forms for ongoing rusfertide trials, proposed new safety and stopping rules in trial
protocols for our ongoing rusfertide clinical trials, and performed a comprehensive review of our rusfertide safety
database. Dosing of patients and enrollment in ongoing clinical trials with rusfertide resumed in the fourth quarter of
2021.
The FDA granted orphan drug designation for rusfertide for the treatment of PV in June 2020, and Fast Track
designation for rusfertide for the treatment of PV in December 2020. The EMA granted orphan drug designation for
rusfertide for treatment of PV in October 2020. The FDA granted Breakthrough Therapy Designation for rusfertide for
the treatment of PV in June 2021. In April 2022, we received a letter from the FDA indicating the FDA’s intent to rescind
Breakthrough Therapy Designation for rusfertide in PV. In June 2022, we voluntarily withdrew our Breakthrough
Therapy Designation following correspondence with FDA and based on our internal analysis of the relative utility of
Breakthrough Therapy Designation for Phase 3 trials and beyond. The FDA correspondence relating to the Breakthrough
Therapy designation does not address the rusfertide Fast Track Designation, which remains active.
In keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in
additional disease indications have been paused. This decision was influenced in part by the enactment of the Inflation
Reduction Act (“IRA”) in the United States and includes previously planned trials of rusfertide in the subset of
hereditary hemochromatosis patients with chronic arthropathy.
4
JNJ-2113 (formerly known as PN-235)
Our partnered Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113 is an orally delivered
investigational drug that is designed to block biological pathways currently targeted by marketed injectable antibody
drugs. Our orally stable peptide approach may offer a targeted therapeutic approach for gastrointestinal (“GI”) and
systemic compartments as needed. We believe that, compared to antibody drugs, JNJ-2113 has the potential to provide
clinical improvement in an oral medication with increased convenience and compliance and the opportunity for the
earlier introduction of targeted oral therapy.
In May 2017, we entered into a worldwide license and collaboration agreement with Janssen Biotech, Inc.
(“Janssen”), a Johnson & Johnson company, to co-develop and co-detail our IL-23R antagonist compounds, including
PTG-200 (JNJ-67864238) and certain related compounds for all indications, including inflammatory bowel disease
(“IBD”). PTG-200 was a first-generation investigational, orally delivered, IL-23R antagonist for the treatment of IBD.
The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards
second-generation IL-23R antagonists; and in July 2021 to, among other things, enable Janssen to independently
research and develop collaboration compounds for multiple indications in the IL-23 pathway and further align our
financial interests.
During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was
made by Janssen to advance second-generation product candidate JNJ-2113 (JNJ-77242113) based on its superior
potency and overall pharmacokinetic and pharmacodynamic profile. A JNJ-2113 Phase 1 trial was completed in the
fourth quarter of 2021.
In February 2022, Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-
to-severe plaque psoriasis, which was completed in December 2022. FRONTIER1 was a randomized, multicenter,
double-blind, placebo-controlled study that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113
taken orally. The primary endpoint of the study is the proportion of patients achieving PASI-75 (a 75% improvement in
skin lesions as measured by the Psoriasis Area and Severity Index) at 16 weeks. In March 2023, we announced positive
topline results from the trial. JNJ-2113 achieved the study’s primary efficacy endpoint, with a statistically significant
greater proportion of patients who received JNJ-2113 achieving PASI-75 responses compared to placebo at Week 16 in
all five of the study’s treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment
was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo.
It is our expectation that JNJ-2113 will progress into a Phase 3 registrational study in plaque psoriasis on the strength of
the FRONTIER1 data. Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study
would qualify us for milestone payments of $50 million and $115 million, respectively. Data will be presented from
various pre-clinical and clinical studies on JNJ-2113 at medical conferences beginning in the second quarter of 2023.
Other Phase 2 studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the
treatment of moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023 and
FRONTIER2, a long-term extension study. A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy
Japanese and Chinese adult participants is currently recruiting. Following the completion of Phase 2 studies of JNJ-2113
in plaque psoriasis, we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication. Additional
indications may include any or all of psoriatic arthritis, UC and CD.
During the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by the
completion of data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a $25.0 million
milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. We
will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the
second Phase 2 trial of a second-generation candidate, a $50 million milestone payment upon dosing of a third patient in
a Phase 3 trial for a second-generation compound for any indication, and a $115.0 million milestone payment upon a
Phase 3 clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint. We
5
remain eligible for up to approximately $855.0 million in future development and sales milestone payments, in addition
to the $112.5 million in nonrefundable payments from Janssen received to date. We also remain eligible to receive tiered
royalties on net product sales at percentages ranging from mid-single digits to ten percent.
PN-943
PN-943 is a wholly owned, investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin
antagonist for IBD. During the second quarter of 2020, we initiated IDEAL, a 159 patient Phase 2 trial evaluating the
safety, tolerability and efficacy of PN-943 in patients with moderate to severe UC. Enrollment in IDEAL was completed
during the first quarter of 2022. The trial includes a 12-week induction period, which has been completed, and a 40-week
extended treatment period. With the exception of completing the 40-week extended treatment period for eligible patients
in the IDEAL trial, which is expected to be completed in the first quarter of 2023, we do not intend to dedicate further
internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.
Discovery Platform
Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer
novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small
molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents.
Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in
traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to
use our peptide technology platform to discover product candidates against targets in disease areas with significant
unmet medical needs. For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic,
which we believe will be complementary to the injectable rusfertide for offering the best treatment options for PV,
hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.
RUSFERTIDE: AN INJECTABLE HEPCIDIN MIMETIC
Rusfertide, an injectable hepcidin mimetic, was discovered through our peptide technology platform. Hepcidin is a
natural hormone that regulates iron metabolism. We are developing rusfertide for the treatment of certain disorders
characterized by excessive red blood cells (“RBCs”), iron overload or imbalance. In healthy individuals, hepcidin
regulates iron levels by limiting release of iron from macrophages and inhibiting iron absorption from the GI tract. In
diseases of excessive RBCs, such as PV, the body consumes iron in the production of cells, leading to iron deficiency,
which can be exacerbated by phlebotomy. In diseases of iron overload, such as hereditary hemochromatosis, there may
be insufficient hepcidin to maintain appropriate iron levels. In other disorders, iron imbalance can benefit from increased
levels of hepcidin-like activity to restore proper balance. Native hepcidin is not a practical therapeutic approach because
of stability issues, complexity of synthesis and solubility limitations. We developed rusfertide as a more potent, stable,
and soluble injectable hepcidin mimetic.
Mechanism of Action and Rationale
The molecular target of the hormone hepcidin is the cellular trans-membrane protein ferroportin, which functions
as the major export channel for intracellular iron in splenic macrophages, liver Kupffer cells, hepatocytes, and duodenal
enterocytes. Hepcidin binds to the extracellular domain of ferroportin to block the export of iron from inside these cells
to the systemic circulation. As a hepcidin mimetic, rusfertide also downregulates ferroportin to control the supply of iron
to the bone marrow, thereby normalizing RBC production. In addition, by limiting excessive absorption of dietary iron
by enterocytes and rapid sequestration of iron into the macrophages, vital organs can be protected from the accumulation
of toxic iron.
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Polycythemia Vera (“PV”)
PV Overview and Market Opportunity
PV is a rare myeloproliferative neoplasm characterized primarily by the overproduction of RBCs. PV is typically
caused by a form of Janus Kinase (“JAK”) 2 mutation. PV is a serious chronic condition as the increased RBC count
causes the blood to thicken from increased number of smaller rigid RBCs, putting patients at higher risk of
cardiovascular and thrombotic events such as heart attack and stroke. According to National Comprehensive Cancer
Network (“NCCN”) guidelines, age and thrombosis history determine a patient’s risk classification as either low-risk or
high-risk. Regardless of risk categorization, treatment guidelines for PV are consistent: to control the patient’s
hematocrit (RBCs as a percentage of whole blood) below 45% in order to reduce the risk of cardiovascular or thrombotic
events. PV may progress to myelofibrosis or leukemia.
Currently earlier stage patients are typically treated with low dose aspirin and therapeutic phlebotomy alone or
hydroxyurea alone or in combination with phlebotomy. At later stages, patients may receive interferons, marketed as
Besrami® or Pegasus®, or JAK inhibitor ruxolitinib, marketed as Jakafi®. Cytoreductive therapies such as hydroxyurea,
interferons and ruxolitinib can have challenging side effect profiles as they reduce all cell types, not just RBCs. Current
treatments are effective in some patients but have distinct limitations, such as cytopenia and cancer. We believe there are
substantial PV patient groups that could benefit from a new non-cytoreductive therapeutic option which focuses on
RBCs. NCCN guidelines state that hematocrit levels should be maintained below 45% to reduce risk of cardiovascular
and thrombotic events. However, analysis of a large medical claims database indicated that 78% of patients were
uncontrolled, with hematocrit test results above 45%. This analysis reveals that current therapies do not offer adequate
hematocrit control, indicating a significant unmet need in the United States alone where patients may have an elevated
risk of cardiovascular and thrombotic events.
There are approximately 100,000 diagnosed and treated patients living in the United States, with a similar number
in Europe, representing an estimated market opportunity of approximately $1.0 billion to $2.0 billion. Patients are
typically diagnosed between the ages of 50 and 70 and median survival is approximately 20 years. Analysis of a large
medical claims database indicates that the predominant treatment for PV is phlebotomy. Cytoreductive agents, such as
hydroxyurea, are also commonly used to control blood count in PV patients. Approximately 60% of PV patients are
considered to have moderate treatment burden with treatments including frequent phlebotomy and hydroxyurea. We
believe rusfertide can potentially benefit a broad spectrum of patients both as a monotherapy or in combination across
the continuum of care.
We believe that rusfertide has the potential to provide substantial benefit to patients by offering a treatment focused
on managing hematocrit in a consistent and predictable manner, dramatically decreasing the need for phlebotomy.
Rusfertide is a non-cytoreductive mimetic of the natural hormone hepcidin, the master regulator of iron homeostasis in
the body. Since high RBC production consumes iron stores, PV can cause iron deficiency, which is often exacerbated by
phlebotomy. Rusfertide has a unique iron regulatory mechanism, which data from our Phase 2 REVIVE study suggests
allows for persistent control of hematocrit without causing iron deficiency. Rusfertide acts by redistributing iron away
from the bone marrow, where iron is essential for RBC production, thereby limiting excess RBC production while still
providing sufficient iron levels to support other normal cellular and organ functions.
Clinical Development of Rusfertide in PV
In the fourth quarter of 2019, we initiated REVIVE, a Phase 2 study of rusfertide in PV designed to evaluate
safety and preliminary efficacy in patients requiring phlebotomy (Figure 2). The REVIVE study was expected to enroll
approximately 60 patients and consisted of a 16-week open-label dose finding stage every 4 weeks from 10 mg to 80 mg
and a 12-week maintenance period at doses which generate desired hematocrit levels, followed by a 12-week
randomized and blinded withdrawal stage. The study has an open-label extension for up to three years to monitor long
term safety and benefits of the drug. The endpoints of this clinical POC study include measurement of blood parameters
(hematocrit and hemoglobin levels), reductions or delay in phlebotomy requirements, and improvements in quality-of-
life symptoms.
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Figure 2. REVIVE: Rusfertide Phase 2 PV Study Design
Clinical Proof-of-Concept Study with Add-On
PART 1 (28 wks; Wks 1-29)
PART 2 (up to 12 wks)
PART 3 (52 wks1)
Dose Finding*
Efficacy Evaluation*
Randomized Withdrawal
Open Label Extension1
80 mg
Dose ± Titration
Fixed Active/Placebo Dose
(1:1)
Dose ± Titration
40 mg
20 mg
1OLE increased from
52 weeks to 3 years
• 10 Pts for >2yrs
• >30 Pts for >18 Mos
• >50 Pts for >1yr
• *Titrate every 4 weeks to maintain hematocrit < 45%
STUDY HIGHLIGHTS:
Phlebotomy dependent PV patients diagnosed as per 2016 WHO criteria
≥3 phlebotomies in 6 months with or without concurrent cytoreductive therapy
Rusfertide (PTG-300) administered subcutaneously, added to prior standard
therapy
KEY ENDPOINTS:
Safety
Maintain Hematocrit <45%
Responder analysis
Reduction in Phlebotomies
Symptom Scores: MPN-SAF TSS
During the first quarter of 2021, we initiated PACIFIC, a Phase 2 study for rusfertide in up to 20 patients
diagnosed with PV and with routinely elevated hematocrit levels (>48%). Rusfertide dosed twice a week was able to
reduce patient mean hematocrit from 53% to below 45% in less than 8 weeks for most patients and within 4-6 weeks for
a few patients. Once the patient’s hematocrit was below 45%, dosing was adjusted and weekly dosing was maintained to
control hematocrit without phlebotomy.
We currently have the following designations for rusfertide in PV:
•
•
•
The FDA granted orphan drug designation for rusfertide for the treatment of PV in June 2020;
The EMA granted orphan drug designation for rusfertide for the treatment of PV in October 2020; and
The FDA granted Fast Track designation for rusfertide for the treatment of PV in December 2020.
In consultation with the FDA, we implemented new safety monitoring procedures, including cancer surveillance
measures (augmented dermatological examinations) and new stopping rules following a prior 21-day clinical hold on the
rusfertide clinical development program. Following the brief clinical hold, over 92% of patients in the REVIVE trial
provided reconsent and returned to rusfertide treatment after dosing interruption and re-initiation.
We enrolled 63 patients in the ongoing REVIVE Phase 2 clinical trial of rusfertide in PV prior to the clinical hold
and we enrolled seven additional patients to target approximately 50 patients to complete the randomized withdrawal
part of the study. The vast majority of patients treated with rusfertide were able to eliminate therapeutic phlebotomies
and maintain a target hematocrit level of less than 45 percent. Treatment with rusfertide was also shown to reverse iron
deficiency, an important side effect of regular therapeutic phlebotomies as a treatment for PV. Early observations suggest
a decreased symptom burden over time, including overall burden (myeloproliferative neoplasm total symptom score), as
well as measurements specific to mental function, fatigue and itching.
Preliminary results indicated that rusfertide therapy resulted in rapid, sustained and durable hematocrit control
without clinically meaningful changes in white blood cell and platelet counts. Subjects have been under treatment for a
median of 1.5 years with the majority of subjects remaining essentially phlebotomy-free. Rusfertide demonstrated
similar efficacy in all categories of patients, independent of the PV patient risk category or concurrent therapy with
hydroxyurea, interferon or ruxolitinib. Study participation was halted in one patient due to asymptomatic
thrombocytosis. One patient developed acute myelogenous leukemia (“AML”), which was deemed not to be related to
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rusfertide. Significant adverse events included syncope, peripheral artery aneurysm, gastroenteritis, chest pain, AML,
squamous cell carcinoma (skin), melanoma & basal cell carcinoma. Injection site reaction (“ISRs”) were most common
and associated with 28.1% of injections and are transient in nature.
At the June 2022 ASCO Annual Meeting, we presented updated interim results for REVIVE and PACIFIC
demonstrating the effects of dosing interruption and resumption. Rusfertide dosing interruption led to loss of effect,
including increased phlebotomy rate and increases in hematocrit and red blood cells. Rusfertide restart restored
therapeutic benefits. Following the brief clinical hold described above, over 90% of patients in the REVIVE trial
provided reconsent and returned to rusfertide treatment after dosing interruption and reinitiation. At the June 2022
European Hematology Association Congress, we presented interim data as of May 2022 showing that rusfertide
treatment interruption reverses hematologic gains and re-initiation of treatment restores therapeutic benefits in patients
with PV. At the December 2022 ASH meeting, we presented data as of October 2022 related to rusfertide, including a
subgroup of analyses of the adverse event profile from the REVIVE trial. These preliminary results indicated that 84%
of treatment-emergent adverse events (“TEAEs”) were Grade 2 or below. 16% of patients experienced Grade 3 TEAEs
and there were no Grade 4 TEAEs.
On March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized
withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements
versus placebo in the trial’s primary endpoint.
The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the
REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial,
subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study,
followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks.
More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were
responders compared with placebo (69.2% versus 18.5%, p=0.0003). A study subject was defined as a responder if the
subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy
eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, only 2 of 26 subjects on
rusfertide were phlebotomized.
In addition, in subjects with moderate or severe Myeloproliferative Neoplasm-Symptom Assessment Form
(MPN- SAF) symptom scores at baseline, the change from baseline was statistically significant in fatigue, problems with
concentration, inactivity and itching during the 28-week open label Part 1 of the trial. Meaningful comparison of
symptoms assessments in Part 2 are not possible since a majority of subjects randomized to placebo discontinued prior to
the 12-week assessment of MPN-SAF symptoms.
Rusfertide continued to be generally well tolerated in the REVIVE trial, with localized injection site reactions
comprising the majority of reported adverse events. No new safety signals were observed in safety data disclosed in
connection with the Part 2 efficacy results, relative to the safety data from the REVIVE trial presented at the December
2022 ASH Annual Meeting.
Based on end of Phase 2 feedback provided by the FDA’s Division of Nonmalignant Hematology and written
comments from the EMA, we activated sites and initiated patient screening for VERIFY, a global Phase 3 clinical trial of
rusfertide in PV for approximately 250 patients, in the first quarter of 2022 (Figure 3). Significant efforts have been
taken toward the goal of full enrollment and a high degree of interest has been observed from physicians and patient
communities. We expect enrollment completion in the fourth quarter of of 2023.
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Figure 3. VERIFY: Rusfertide Phase 3 PV Study Design
Screening
(Up to 4
weeks)
Double Blind (Weeks 0-32)
Dose Titration
(Weeks 0-20)
Primary Efficacy
(Weeks 20-32)
Durability of Response
(Weeks 32-52)
2 yrs safety
follow-up
Part 1a
Part 1b
Rusfertide + Ongoing Therapy (n~125)
Screening
Placebo + Ongoing Therapy (n~125)
Rusfertide
+
Ongoing Therapy
NDA
MAA
filings
Week 0
Randomize (1:1)
Week 32
1° EP: phlebotomy free
2° EPs: # phlebotomies,
symptoms, etc.
Week 52
Durability of
Response
Ph3 study design capitalizes on the successful outcome to date of the Ph2 REVIVE Study
In consultation with the U.S. Food and Drug Administration, Protagonist has implemented a set of safety monitoring procedures in all
ongoing clinical studies, including cancer surveillance measures (dermatological examinations) and stopping rules.
OVERVIEW OF DISEASES DRIVEN BY THE IL-23 PATHWAY: PSORIASIS AND INFLAMMATORY
BOWEL DISEASE
IL-23 is a member of the IL - 12 family of cytokines with pro-inflammatory and immune stimulatory properties.
Cytokines are cell signaling proteins that are released by cells and affect the behavior of other cells. Binding of the IL- 23
ligand to the IL - 23R receptor leads to an expression of pro-inflammatory cytokines involved in the local tissue autocrine
cascade that is an important pathway of many inflammatory diseases, including psoriasis and IBD. The injectable
antibody drug Stelara® (marketed for psoriasis, psoriatic arthritis, UC and CD) is a p40 antagonist antibody that inhibits
both the IL-23 and IL-12 pathways. Next-generation antibody drugs, such as Tremfya® and Skyrizi®, target the p19
subunit of the IL - 23 ligand and are specific inhibitors of the IL-23 pathway, which is believed to be the critical driver of
local tissue pathology. Tremfya® and Skyrizi® are approved in psoriasis and psoriatic arthritis (“PsA”) and are in
Phase 3 clinical trials in UC and CD. Eli Lilly and Company’s anti-IL-23 antibody mirikizumab has reported positive
results from a Phase 3 program in UC.
Psoriasis
Psoriasis is a chronic inflammatory disease of the skin that affects 130 million people worldwide and 8 million in
the United States, translating to 2-3% of the adult population. Psoriasis is associated with several comorbid conditions
including cardiovascular disease, obesity, and 30% of psoriasis patients develop arthritic complications. Psoriasis is also
associated with significantly decreased quality of life for patients.
Plaque psoriasis is the most common form of psoriasis, which is recognized as the most prevalent immune-
mediated inflammatory disease, involving skin and joints and associated with abnormalities of other systems. Several
factors, such as surface area covered and symptom burden, impact whether one’s psoriasis is considered mild, moderate,
or severe. Typically, 3-10% of affected body surface area is considered moderate psoriasis, and more than 10% is
considered severe psoriasis. Global market sales for psoriasis therapies in 2020 was $13.2 billion, with U.S. market sales
of $10.8 billion. The global market forecast for 2030 anticipates $25.3 billion, with U.S. market sales of $20.9 billion.
Identification of the IL-23/IL-17 axis as the key pathway driving psoriatic inflammation has led to the development of
more effective and safer systemic therapies that inhibit IL-17 (e.g., Taltz®, Cosentyx®) and IL-23 (e.g., Tremfya®,
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Skyrizi®). These biologics have revolutionized the treatment of moderate to severe psoriasis, with superior efficacy and
safety compared to conventional oral therapies (e.g., methotrexate, cyclosporin), and first-generation biologics (e.g.,
anti-TNFs, Stelara®). The anti-IL-17 and anti-IL-23 classes are associated with Psoriasis Area Skin Index (“PASI”)
75 scores (75% improvement in skin inflammation) in 90% of patients, and complete clearance of the skin (PASI 100) in
30-40% of patients. The anti-IL-17 class is ineffective in IBD, surprisingly showing overall worsening of disease in
Phase 2 studies and is reflected in the product labels. There is still unmet need for new therapies. Only 25% of biologic
eligible moderate to severe psoriasis patients are treated with a biologic. The parenteral route of administration for these
advanced biologics poses a patient level barrier to entry. Two oral medicines have been approved in moderate to severe
psoriasis. Otezla® was approved in 2014. It is the least effective of all drugs approved since 2004 with PASI 75 of
approximately 30% but is used widely because of a perceived positive safety profile. In 2022, the first TYK2 inhibitor,
Sotyktu®, was approved. In Phase 3 studies, it has demonstrated approximately 55% PASI 75 scores. There is still
significant need for safe and effective oral therapies in moderate to severe psoriasis.
Psoriatic Arthritis (“PsA”)
PsA is an inflammatory disease of the peripheral and axial joints that complicates psoriasis in up to 30% of
patients. Among the 8 million patients in the United States with psoriasis in 2022, it is estimated that approximately
1 million patients have PsA. Many patients with active PsA may have mild psoriasis and many patients with severe
psoriasis may have only mild PsA symptoms. PsA is associated with several chronic conditions. PsA may present even
before skin symptoms in 10% to 15% of patients. Cardiovascular comorbidities have a higher prevalence in PsA than
psoriasis and can impact lifespan and quality of life. Several new targeted therapies have been approved for use in PsA,
with additional therapies in development. These advances have improved outcomes, including reductions in
musculoskeletal symptoms, skin manifestations and radiographic joint damage. The same drugs approved in psoriasis are
also approved in PsA. One notable exception is that the JAK inhibitors, Xeljanz® and Rinvoq®, are approved in PsA
without the respective label in psoriasis.
Inflammatory Bowel Disease (“IBD”)
IBD is a group of chronic autoimmune and inflammatory conditions of the colon and small intestine, consisting
primarily of UC and CD. In UC, inflammation may be limited to part of the colon or extend through its entirety. UC is
primarily characterized by ulceration of the intestinal surface, accompanied by rectal bleeding and frequent, urgent
bowel movements. CD occurs anywhere along the GI tract, commonly affecting the small intestine and the proximal
large intestine. CD complications may include strictures and fistula, which penetrate all layers of the intestine. UC is
usually diagnosed earlier than CD due to bleeding symptoms. Patients with CD may initially present with abdominal
pain, fatigue and anorexia, which can be misdiagnosed. Both diseases’ peak diagnosis years are in young adulthood and
are found about equally in both males and females. Management is lifelong and affects school attendance, graduation
rates, childbearing and work productivity. IBD prevalence is increasing worldwide and is correlated with the adoption of
western diets and lifestyle, as well as genetic factors (5 to 20% of affected patients have a first degree relative with the
disease).
According to the Crohn’s & Colitis Foundation of America, there are more than 1.6 million IBD patients in the
United States alone, an increase of approximately 200,000 patients since 2011. As many as 70,000 new cases of IBD are
diagnosed in the United States each year, and there may be as many as 80,000 children in the United States with IBD. In
2020, GlobalData estimated that the UC market was approximately $6.8 billion across eight major markets: United
States, Canada, France, Germany, Italy, Spain, United Kingdom and Japan. This is expected to increase at a compound
annual growth rate of approximately 6.0% to $12.3 billion by 2029. In 2020, GlobalData estimated that the CD market
reached approximately $7.4 billion across those same eight major markets and is expected to grow approximately 5.5%
per year to $12.6 billion by 2029.
For many years, tumor necrosis factor-alpha (“TNF-α”) antibody drugs were the primary treatment for moderate-
to-severe IBD. Humira® and Remicade® are injectable and infused, respectively. Approximately one third of IBD
patients do not respond to TNF-α antibody drugs and approximately another 30% to 40% become refractory within the
first year of treatment. Additionally, TNF-α antibody drugs may predispose patients to an increased risk of serious
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infection and the development of anti-drug antibodies, which over time can cause loss of drug response. More recently,
antibody products focused on potentially safer mechanisms of action have been gaining market share. One such product
is Takeda Pharmaceuticals’ Entyvio®, which targets the α4β7 integrin pathway. Takada Pharmaceuticals reported 2021
sales of Entyvio® of approximately $5.0 billion. Similarly, Johnson & Johnson’s Stelara®, which targets the
Interleukin 12 (“IL-12”) and Interleukin 23 (“IL-23”) pathways, has gained significant traction. Johnson & Johnson
global sales of Stelara® (approved for psoriasis, psoriatic arthritis, moderate-to-severe CD and UC) exceeded
$9.2 billion in 2021. Three anti-IL-23 mAbs are in Phase 3 studies or beyond in IBD: Tremfya®, Skyrizi® and Ely Lilly
and Company’s mirikizumab. The development of oral medicine has been an unmet need and priority in IBD. The
pan- JAK inhibitor Xeljanz® was approved in UC but not CD in 2018. The label contains black box warnings for “an
increased risk of serious heart-related events such as heart attack or stroke, cancer, blood clots, and death”. The more
selective JAK1/3 inhibitor Rinvoq® was approved in 2022 for UC and CD. The label carries the same black box
warnings. The S1P1 modulator class of oral small molecules has also demonstrated efficacy in IBD, with Zeposia®
approved in UC (but not CD) in 2021, and etrasimod completing a successful Phase 3 program in UC. The S1P1 class is
associated with immunosuppression, cardiac, pulmonary and ocular toxicities.
The development of new, potent and targeted orally delivered therapies for IBD may offer safer and more effective
treatment options, alone or in combination, for moderate-to-severe IBD patients. In addition, many clinicians continue to
advocate for earlier introduction of targeted therapeutics in mild-to-moderate IBD to prevent disease progression and
irreversible gastrointestinal damage. Given that the most effective agents in IBD induce remission in no more than 30%
of patients, there has been much recent interest in combination therapies to break through this “therapeutic ceiling”. In
2022, Janssen reported results of the VEGA study, the first randomized double bind clinical trial to assess the
combination of an anti-TNF (Simponi®) with and anti-IL-23 (Tremfya®) in moderate to severe UC. In the Phase 2a
proof-of-concept trial, investigators found 83.1% of patients in the treatment group achieved a clinical response and
36.6% of patients treated with the combination therapy achieved clinical remission. The high rates of clinical response
and remission are both higher than the response and remission rates of patients treated with guselkumab alone (74.6%;
21.1%) and golimumab alone (61.1%; 22.2%). Hence, the IL-23 inhibition mechanism is a potentially paradigm shifting
combination strategy to improve remission rates in UC.
JNJ-2113: AN ORALLY DELIVERED IL - 23R ANTAGONIST
Janssen License and Collaboration Agreement
We have a worldwide license and collaboration agreement with Janssen to research, develop and co-detail our
IL- 23 receptor (“IL-23R”) antagonist compounds for all indications, including IBD. The agreement with Janssen was
amended in May 2019 to expand the collaboration by supporting efforts towards second-generation IL-23R antagonists;
and in July 2021 to, among other things, enable Janssen to independently research and develop collaboration compounds
for multiple indications in the IL-23 pathway and further align our financial interests. See Part II, “Item 7. Management’s
Discussion and Analysis—Overview” and Note 3 to the Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K for additional information. Janssen is an experienced innovator in therapeutics targeting
the IL-23 pathway. Stelara® is a monoclonal antibody targeting IL-12 and IL-23 through their common p40 subunit is
approved in psoriasis, psoriatic arthritis, CD and UC. Stelara® generated $9.1 billion in sales in 2021. Tremfya® is a
specific IL-23 monoclonal antibody. It is approved in psoriasis and psoriatic arthritis, with Phase 3 study results in CD
and UC expected in 2023. Tremfya® generated $2.1 billion in sales in 2021. In both psoriasis and IBD, there is an urgent
need for safe and effective oral therapies. It is notable that Stelara® loses patent exclusivity in 2023 with biosimilar
competition expected.
JNJ-2113 (formerly known as PN-235), an orally delivered IL - 23R specific antagonist for the potential treatment
of psoriasis, psoriatic arthritis and IBD indications, was discovered through our peptide technology platform. IL-23, a
member of the IL - 12 family of pro-inflammatory cytokines, is a protein that regulates inflammatory and immune
function and plays a key role in the development of IBD. By blocking IL - 23R, we believe JNJ-2113 may improve
disease symptoms while potentially minimizing the risk of systemic side effects. During the fourth quarter of 2021, a
portfolio decision was made by Janssen to advance development of our IL-R antagonist JNJ-2113. For JNJ-2113,
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Janssen is primarily responsible for the conduct of all further development, and we were primarily responsible for the
discovery, IND-enabling studies and the initial Phase 1 study.
Clinical Development of JNJ-2113
A Phase 1 study was initiated for JNJ-2113 in December 2020. The Phase 1 study for JNJ-2113 was designed to
determine the safety, tolerability and pharmacokinetics of JNJ-2113 in 107 healthy volunteers. The study was conducted
in three parts: a SAD component, a MAD component, and a randomized, crossover solid dose comparison component.
The primary endpoint was safety as measured by number and severity of adverse events. Secondary outcomes included
pharmacokinetics measurements of peak concentration and area under the curve. The Phase 1 study was completed in
September 2021. Results of the Phase 1 study demonstrated that administration of JNJ-2113 was well-tolerated. No
serious adverse events or dose-limiting toxicities were observed. The pharmacokinetic and pharmacodynamic parameters
of JNJ-2113 were consistent with those predicted by pre-clinical studies.
FRONTIER1, a Phase 2b study in moderate-to-severe plaque psoriasis, was initiated by Janssen in February 2022
and was completed in December 2022. In February 2022, Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical
trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed in December 2022. FRONTIER1 was a
randomized, multicenter, double-blind, placebo-controlled study that evaluated three once-daily dosages and two twice-
daily dosages of JNJ-2113 taken orally. The primary endpoint of the study is the proportion of patients achieving
PASI- 75 (a 75% improvement in skin lesions as measured by the Psoriasis Area and Severity Index) at 16 weeks. In
March 2023, we announced positive topline results from the trial. JNJ-2113 achieved the study’s primary efficacy
endpoint, with a statistically significant greater proportion of patients who received JNJ-2113 achieving PASI-75
responses compared to placebo at Week 16 in all five of the study’s treatment groups. A clear dose response was
observed across an eight-fold dose range. Treatment was well tolerated, with no meaningful difference in frequency of
adverse events across treatment groups versus placebo. It is our expectation that JNJ-2113 will progress into a Phase 3
registrational study in plaque psoriasis on the strength of the FRONTIER1 data. Advancement of JNJ-2113 into a
Phase 3 study and meeting the primary endpoint in that study would qualify us for milestone payments of $50 million
and $115 million, respectively. Data will be presented from various pre-clinical and clinical studies on JNJ-2113 at
medical conferences beginning in the second quarter of 2023.
Other studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the treatment of
moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023, and FRONTIER2, a long-
term extension study. A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy Japanese and Chinese
adult participants is currently recruiting. Following the completion of Phase 2 studies of JNJ-2113 in plaque psoriasis,
we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication.
OUR PEPTIDE TECHNOLOGY PLATFORM
Our proprietary technology platform is purposefully built to exploit the advantages of constrained peptides, which
are much smaller than antibody-based drugs and may be delivered orally but are big enough to bind and block the
difficult targets that antibodies bind and modulate. The platform has been successfully applied to a diverse set of
biological targets that has led to several pre-clinical and clinical stage peptide-based new chemical entities, including our
clinical stage product candidates, for a variety of clinical indications. Our platform is comprised of a series of tools and
methods, including a combination of molecular design, phage display, stability assays, medicinal chemistry, surrogate
biomarkers, formulations, in vitro biochemical, cell and tissue-based assays, and in vivo pharmacology and
pharmacokinetic approaches. We apply this platform to the discovery and development of constrained peptides as new
drug candidates.
The platform is used to develop potential drug candidates (agonists and antagonists): (i) using the structure of a
target, when available, (ii) de novo when no target structure exists, or (iii) from publicly disclosed peptide starting points.
In a structure-based approach, our proprietary molecular design software and structural database of several thousand
constrained peptides, termed Vectrix™, are screened to identify suitable scaffolds. The scaffolds identified form the basis
of designing and constructing the first set of phage or chemical libraries. The initial hits are identified by
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either panning or screening such libraries, respectively. When structural information is unavailable for a target, hits are
identified by panning a set of 34 proprietary cluster-based phage libraries consisting of millions of constrained peptides.
Once the hits are identified, they are optimized using a set of peptide, peptide mimetic and medicinal chemistry
techniques that include the incorporation of new or manipulation of existing cyclization-constraints, as well as natural or
unnatural amino acids and chemical conjugation or acylation techniques. These techniques are applied to optimize
potency, selectivity, stability, exposure and ultimately efficacy. For rusfertide, hit discovery and optimization relied
exclusively on medicinal and computational chemistry, with no phage display, to develop potent and selective injectable
candidates with enhanced stability and exposure in blood. For injectable products, stability in blood is determined using
in vitro assay techniques to identify chemical and biological sites of degradation, which are then optimized while still
maintaining potency and selectivity. Conjugation strategies are used to optimize the exposure of the injected peptide. For
JNJ-2113, phage display is tightly coupled to medicinal chemistry, structural biology and oral stability techniques to
develop potent, selective and orally delivered molecules. Oral stability is profiled in a series of in vitro and ex vivo
assays that portray the chemical and metabolic barriers a peptide will encounter as it transits the GI and systemic
compartments as needed. These metabolically labile spots in the peptides are optimized using medicinal chemistry-based
approaches to engineer oral stability while maintaining selectivity and potency. Various in vivo pharmacology tools are
then used to quantify peptide exposure in relevant GI and systemic compartments as needed organs and tissues. This data
can be used to optimize required exposure over the required time frame to achieve in vivo efficacy. This is
complemented by formulation technologies to enhance GI and systemic exposure by exploiting the intrinsic stability of
our oral peptides. Finally, various biomarkers are also developed to correlate exposure with efficacy to guide candidate
selection, dose selection and provide preliminary proof-of-concept of target engagement in clinical trials.
Discovery and Preclinical Activities
We believe we have built a versatile, well-validated and unique discovery platform. For example, this peptide
technology platform has been used to develop product candidates for diverse target classes including G-protein-coupled
receptors, ion channels, transporters, cytokines and their receptors for a variety of therapeutic areas. In the future we may
tackle other GI and blood disorders and expand our technology platform to provide potential opportunities to pursue a
wider variety of diseases that may include topical and systemic approaches. As an example, the gut may communicate
with the immune, central nervous, and endocrine systems, providing the potential of our GI-restricted approach to treat
systemic autoimmune, metabolic, cancer and cardiovascular diseases. We also intend to progress our platform to achieve
systemic bioavailability and activity with oral peptides, macrocycles and peptidomimetics, thereby enabling us to
address systemic diseases. Examples of this approach are our pre-clinical stage program to identify an orally active
hepcidin mimetic, as was reported at the American Society for Hematology’s virtual annual meeting in December 2020,
and the discovery and development of JNJ-2113, our IL-23R antagonist in collaboration with Janssen. We believe the
oral hepcidin mimetic will be complementary to the injectable rusfertide for offering the best treatment options for PV,
hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.
Competition
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant
technological change. While we believe that our product candidates, technology, knowledge and experience provide us
with certain competitive advantages, we face competition from established and emerging pharmaceutical and
biotechnology companies, academic institutions, governmental agencies and public and private research institutions,
among others.
Rusfertide
Ruxolitinib, marketed as Jakafi®, was approved in 2014 for the treatment of adults with PV who have inadequate
response to or are intolerant to HU. Approximately 5,300 PV patients are treated with Jakafi® each year. Besremi®, a
ropeginterferon alfa-2b product indicated for the treatment of adults with PV, was approved with a black box warning in
November 2021.
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We are aware of other investigational compounds under clinical development for treatment of PV, including short
interfering RNA approaches aimed at modulating or increasing endogenous hepcidin levels.
JNJ-2113
In psoriasis and psoriatic arthritis, competition will come from companies with approved injectable agents in the
IL-17 and IL-12/23 pathway including Cosentyx®, Taltz®, Siliq®, Tremfya®, and Skyrizi®. Bimekizumab (anti-
IL- 17A and F, UCB) has completed a positive Phase 3 program in psoriasis. Otezla® (Amgen) was the first oral agent
approved in both psoriasis and PsA. The oral JAK inhibitors Xeljanz® (Pfizer) and Rinvoq® are approved in PsA but
not psoriasis. Several oral small molecules that inhibit the Janus kinase Tyk2 are advancing in development. The Bristol
Myers Squibb (“BMS”) TYK2 inhibitor, Sotyktu®, was approved for psoriasis in 2022. Second generation allosteric
TYK2 inhibitors from Nimbus Therapeutics (recently in-licensed by Takeda Pharmaceuticals) are moving into Phase 3
development, and a molecule from Ventyx Biosciences has initiated Phase 2. Several small molecules that inhibit IL-17
have completed Phase 1 clinical development.
In IBD, competition will come from companies with injectable agents in the anti-integrin class (Entyvio®, Takeda®,
approved) and the anti-IL-12/23 class that may be approved in the next several years, including Janssen’s Stelara®
(approved in UC and CD), Abbvie’s risankizumab (Skyrizi®) (UC and CD Phase 3), Janssen’s guselkumab (Tremfya®)
(UC and CD); and Eli Lilly’s mirikizumab (UC and CD).
In addition, orally delivered agents with novel mechanisms of action that are approved for or in development and
may be approved for UC and/or CD prior to or shortly after the launch of our product candidates can have significant
impact in the competitive environment, including,
•
JAK inhibitors: The pan-JAK tofacitinib (Xeljanz®) is approved in UC. The next-generation selective JAK1/3
inhibitors, including Abbvie’s upadacitinib (Rinvoq®) was approved in UC and CD in 2022. Pfizer’s selective
JAK1/TEC inhibitor ritlecitinib is in Phase 2 development for UC and CD; and
• S1P1 receptor modulators: Bristol Myers Squibb ozanimod (Zeposia®) is approved in UC. Second-generation
agents including Pfizer’s etrasimod (Phase 3 UC, Phase 2b CD) are in development.
Morphic Therapeutics is developing MORF-057, an oral small molecule targeting α4β7 entering Phase 2
development in UC. Other oral small molecules targeting α4β7 from Gilead and EA Pharma are in early clinical
development. Many other agents are in early-stage development in IBD, including injectable anti-TLIA antibodies by
Pfizer and Prometheus, which have both recently presented positive Phase 2 results in UC.
Both the psoriasis and IBD market will be impacted by the launch of biosimilars for Humira® and Stelara® in
2023.
Material Agreements
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, 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 thereto, effective
May 7, 2019 (the “First Amendment”). Janssen is a related party to us as Johnson & Johnson Innovation—JJDC, Inc., a
significant stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. 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 in 2019, we received a $25.0 million payment from Janssen in 2019. We received a
$5.0 million payment triggered by the successful nomination of a second-generation IL-23R antagonist development
compound during the first quarter of 2020, and we received a $7.5 million payment for completion of data collection
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activities for the first Phase 1 clinical trial of a second-generation compound during the fourth quarter of 2021. We
received a $25.0 million payment during the second quarter of 2022 triggered by the dosing of a third patient in
FRONTIER1. See Part II, Item 7. “Management’s Discussion and Analysis—Overview” and Note 3 to the Consolidated
Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.
Research Collaboration and License Agreement with Zealand Pharma A/S
In June 2012, we entered into a Research Collaboration and License Agreement (the “Zealand Agreement”) with
Zealand Pharma A/S (“Zealand”) to identify, optimize and develop novel disulfide-rich peptides to discover a hepcidin
mimetic. We amended this agreement on February 28, 2014, at which point Protagonist assumed responsibility for the
development program. See Part II, Item 7. “Management’s Discussion and Analysis—Contractual Obligations and Other
Commitments” and Note 7 and Note 11 to the Consolidated Financial Statements included elsewhere in this Annual
Report on Form 10-K for additional information.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially
important to the development of our business, including seeking, maintaining, and defending patent rights, whether
developed internally or licensed from third parties. We also rely on trade secrets relating to our proprietary technology
platform and on know-how, and continuing technological innovation to develop, strengthen, and maintain our
proprietary position in the field of peptide-based therapeutics that may be important for the development of our business.
We will also take advantage of regulatory protection afforded through data exclusivity, market exclusivity and patent
term extensions where available.
Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary
protection for commercially important technology, inventions and know-how related to our business; defend and enforce
our patents; preserve the confidentiality of our trade secrets; and operate without infringing the valid enforceable patents
and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or
importing our products may depend on the extent to which we have rights under valid and enforceable patents or trade
secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending
patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our
existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our
commercial products and methods of manufacturing the same. For more information, please see Item 1A. “Risk
Factors—Risks Related to Our Intellectual Property.”
We own or co-own 15 issued U.S. patents, over 60 granted ex-U.S. patents, and numerous U.S. and ex-U.S. patent
applications related to our clinical assets. We possess substantial know-how and trade secrets relating to the discovery,
development and commercialization of peptide based therapeutic products. Our proprietary intellectual property,
including patent and non-patent intellectual property, is generally directed to, for example, peptide-based therapeutic
compounds and compositions, methods of using these peptide-based therapeutic compounds and compositions to treat or
prevent disease, methods of manufacturing peptide-based therapeutic compounds and compositions, and other
proprietary technologies and processes related to our lead product development candidates. Specific patents and patent
applications are directed to compositions of α4β7 integrin peptides, IL-23R antagonist peptides, and hepcidin and
enkephalin mimetics peptides, as well as methods of synthesizing and using these peptides to treat inflammatory
disorders. Applications are currently pending in the United States and other major jurisdictions, including Australia,
Canada, China, Japan, and Europe. We expect our patents and patent applications, if issued, and if the appropriate
maintenance, renewal, annuity, or other governmental fees are paid, to expire from October 2033 to July 2041 (excluding
possible patent term extensions).
Our objective is to continue to expand our portfolio of patents and patent applications in order to protect our
clinical assets and related peptide-based drug technologies.
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We also license patents and patent applications directed to processes and methods related to our technology
platform. These patents have issued in the United States and other major jurisdictions, including Australia and Europe.
Some licensed patents are expired, and others are expected to expire before or by February 2023. Material aspects of our
technology platform are protected by trade secrets and confidentiality agreements.
In addition to the above, we have established expertise and development capabilities focused in the areas of pre-
clinical research and development, manufacturing and manufacturing process scale-up, quality control, quality
assurance, regulatory affairs and clinical trial design and implementation. We believe that our focus and expertise will
help us develop products based on our proprietary intellectual property.
The term of individual patents depends upon the legal term of the patents in the countries in which they are
obtained. In most countries in which we file, the patent term is 20 years from the date of filing the non-provisional
application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a
patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent or may be shortened if a
patent is terminally disclaimed over an earlier-filed patent.
The term of a patent that covers an FDA approved drug may also be eligible for patent term extension, which
permits patent term restoration of a U.S. patent as compensation for the patent term lost during the FDA regulatory
review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the
patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A
patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product
approval and only one patent applicable to an approved drug may be extended. Moreover, a patent can only be extended
once, and thus, if a single patent is applicable to multiple products, it can only be extended based on one product. Similar
provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved
drug. When possible, we expect to apply for patent term extensions for patents covering our product candidates and their
methods of use.
Trade Secrets
We rely on trade secrets to protect certain aspects of our technology, particularly in relation to our technology
platform. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes,
in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors.
We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security
of our premises and physical and electronic security of our information technology systems. While we have confidence
in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have
adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property
owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
For more information, please see Item 1A. “Risk Factors—Risks Related to Our Intellectual Property.”
Manufacturing
We contract with third parties for the manufacturing of our product candidates for pre-clinical and clinical studies
and eventually for commercial supplies and intend to continue to do so in the future. We do not own or operate any
manufacturing facilities and we have no plans to build any owned clinical or commercial scale manufacturing
capabilities. We believe that the use of contract manufacturing organizations (“CMOs”) eliminates the need for us to
directly invest in manufacturing facilities, equipment and additional staff. We have established a global supply chain for
raw material, active pharmaceutical ingredients (“API”), drug product manufacturing and distribution. We work with
contract manufacturers in the United States, Europe and Asia. Although we rely on contract manufacturers, our personnel
and consultants have extensive manufacturing and quality control experience overseeing CMOs. We regularly consider
second source or back-up manufacturers for both API and drug product manufacturing. To date, our third-party
manufacturers have met the manufacturing requirements for our product candidates. We expect third-party
manufacturers to be capable of providing supplies needed for our product candidates to meet anticipated full-scale
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commercial demands, and we have selected CMOs that can manufacture our product candidates for our ongoing and
planned clinical trials as well as commercial supplies. We currently engage CMOs on a “fee for services” basis for our
current development and clinical supplies.
Government Regulation
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose
substantial requirements upon companies involved in the clinical development, manufacture, marketing and distribution
of drugs, such as those we are developing. These agencies and other federal, state and local entities regulate, among
other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage,
record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and
export and import of our product candidates.
U.S. Government Regulation
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its
implementing regulations. The process of obtaining regulatory approvals and the compliance with applicable federal,
state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.
Failure to comply with the applicable U.S. requirements at any time during the product development process, approval
process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s
refusal to approve pending new drug applications (“NDAs”), withdrawal of an approval, imposition of a clinical hold,
issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
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•
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completion of pre-clinical laboratory tests, animal studies and formulation studies in compliance with the
FDA’s good laboratory practices regulations;
submission to the FDA of an IND application, which must become effective before human clinical trials may
begin;
approval by an independent institutional review board (“IRB”) at each clinical site before each trial may be
initiated;
performance of adequate and well-controlled human clinical trials in accordance with good clinical practice
(“GCP”) requirements to establish the safety and efficacy of the proposed drug product for each indication;
submission to the FDA of an NDA (or Biologics License Application (“BLA”) for a biologic product);
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is
produced to assess compliance with current good manufacturing practices (“cGMP”) requirements and to
assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality
and purity;
satisfactory completion of an FDA inspection of one or more clinical trial sites to assure compliance with GCP
requirements and the clinical protocol; and
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• FDA review and approval of the NDA.
Pre-clinical Studies
Pre-clinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal
studies to assess potential safety and efficacy. These pre-clinical studies must comply with good laboratory practices
(“GLP”). An IND sponsor must submit the results of the pre-clinical tests, together with manufacturing information,
analytical data and any available clinical data or literature to the FDA as part of an IND. Some pre-clinical testing may
continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA,
unless the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on a
clinical hold. In such case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial
can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision
of qualified investigators in accordance with GCP requirements. GCP requirements mandate that all research subjects
provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted
under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness
criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to
the FDA as part of the IND (or equivalent international submission). In addition, an IRB or ethics committee (“EC”)
must review and approve the plan for any clinical trial at all institutions participating in the clinical trial before it
commences at that site. Information about certain clinical trials must be submitted within specific time frames to the
National Institutes of Health (“NIH”) for public dissemination on www.clinicaltrials.gov.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
• Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or
condition and is tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if
possible, to gain an early indication of its effectiveness.
• Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety
risks, and to preliminarily evaluate the efficacy of the investigational drug product for specific targeted
diseases and to determine dosage tolerance and optimal dosage.
• Phase 3: The drug is administered to an expanded patient population to establish the overall risk-benefit
profile of the product, and to provide adequate labeling information (labeling) for the safe and efficacious
administration for the labeling of the product.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more
frequently if serious adverse events occur. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial
at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable
health risk. Similarly, an IRB or EC can suspend or terminate approval of a clinical trial at its institution if the clinical
trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with
unexpected serious harm to patients.
Marketing Approval
Following successful completion of the required clinical testing, the results of the pre-clinical and clinical studies,
together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling,
among other information, are submitted to the FDA as part of an NDA requesting approval to market the product for one
or more indications. In most cases, the submission of an NDA is subject to an application user fee. Under the
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Prescription Drug User Fee Act (“PDUFA”) guidelines, the FDA has a target of ten months from the date of “filing” of a
standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months
from the date the NDA is submitted to FDA.
In addition, under the Pediatric Research Equity Act of 2003 (“PREA”) certain NDAs or supplements to an NDA
must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all
relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which
the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for
submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers
from the pediatric data requirements.
The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) plan to ensure that
the benefits of the drug outweigh its risks. REMS plans typically include medication guides, physician communication
plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or
other risk minimization tools.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting
them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request
additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the
requested information. The resubmitted application is also subject to review before the FDA accepts it for filing. After
the submission is accepted for filing, the FDA begins a substantive review. The FDA reviews an NDA to determine
whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held
meets standards designed to assure the product’s continued safety, quality and purity.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of
independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a
recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by
the recommendations of an advisory committee, but it considers such recommendations carefully when making
decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to
assure compliance with GCP requirements.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any,
and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter
or a complete response letter. A complete response letter generally contains a statement of specific conditions that must
be met in order to secure final approval of the NDA and may require additional clinical or pre-clinical testing for the
FDA to reconsider the application. Even after submission of this additional information, the FDA may decide that the
application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s
satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the
drug with specific prescribing information for specific indications.
Even if the FDA approves a product, it may limit the approved indications for use of the product. It may also
require that contraindications, warnings or precautions be included in the product labeling or require that post-approval
studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval. In addition, the
FDA may mandate testing and surveillance programs to monitor the product after commercialization, or impose other
conditions, including distribution and use restrictions or other risk management mechanisms under a REMS. This can
materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of
a product based on the results of post-marketing studies or surveillance programs. After approval, some types of
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alterations, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further
testing requirements and FDA review and approval.
Fast Track Designation
The FDA has various programs, such as fast track designation. These programs are intended to expedite or
simplify the process for the development and FDA review of drugs for the treatment of serious or life threatening
diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is
to provide important new drugs to patients faster. The sponsor of a new drug may request fast track designation
concurrent with, or after, the filing of the IND. To be eligible for a fast track designation, the FDA must determine, based
on the request of a sponsor, that a product is intended to treat a serious or life threatening disease or condition and
demonstrates the potential to address an unmet medical need. A product will fill an unmet medical need if it will provide
a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or
safety. Fast track designation provides additional opportunities for interaction with the FDA’s review team and may
allow for rolling review of NDA components before the completed application is submitted, if the sponsor provides a
schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines
that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the
NDA. However, the FDA’s time goal for reviewing an application does not begin until the last section of the NDA is
submitted. The FDA may decide to rescind the fast track designation if it determines that the qualifying criteria no longer
apply.
Orphan Designation
The FDA may grant orphan designation to drugs or biologics intended to treat a rare disease or condition that
affects fewer than 200,000 individuals in the United States. The FDA may also grant the designation if the disease affects
more than 200,000 individuals in the United States, and there is no reasonable expectation that the cost of developing
and marketing the product for this type of disease or condition will be recovered from sales in the United States. Orphan
designation must be requested before submitting an NDA or BLA. After the FDA grants orphan designation, the identity
of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan designation does not
convey any advantage in or shorten the duration of the regulatory review and approval process.
In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant
funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA
approval for the indication for which it has orphan designation, the product is entitled to orphan exclusivity, which
means the FDA may not approve any other application to market the same product for the same indication for a period of
seven years, except in limited circumstances. Such circumstances include a showing of clinical superiority over the
product with orphan exclusivity or where the manufacturer with orphan exclusivity is unable to assure sufficient
quantities of the approved orphan designated product. Competitors, however, may receive approval of different products
for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different
indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one
of our products for seven years if a competitor obtains approval of the same product as defined by the FDA or if our
product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a
drug or biological product designated as an orphan product receives marketing approval for an indication broader than
what is designated, it may not be entitled to orphan product exclusivity.
Breakthrough Therapy Designation
A sponsor can request designation of a drug candidate as a “breakthrough therapy.” A breakthrough therapy is
defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-
threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated
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approval and priority review. The FDA must take certain actions, such as holding timely meetings and providing advice,
intended to expedite the development and review of an application for approval of a breakthrough therapy. The FDA
may decide to rescind the breakthrough designation if it determines that the qualifying criteria no longer apply.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation
by the FDA. These regulations include requirements relating to recordkeeping, periodic reporting, product sampling and
distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most
changes to the approved product, such as adding new indications or other labeling claims, are subject to FDA review and
approval. There also are continuing, annual program user fee requirements for any marketed products.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For
example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess
and monitor the product’s safety and effectiveness after commercialization.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs
are required to register their establishments with the FDA and state agencies. They are subject to periodic unannounced
inspections by the FDA and state agencies for compliance with cGMP requirements. Changes to the manufacturing
process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations require
investigation and correction of any deviations from cGMP requirements and impose reporting and documentation
requirements upon the sponsor and any third-party manufacturers. Accordingly, manufacturers must continue to expend
time, money, and effort in the area of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and
standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse side effects of unanticipated severity or frequency, problems with
manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the
approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety
risks, or imposition of distribution or other restrictions under an REMS program. Other potential consequences include:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the
market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation
of product approvals;
product seizure or detention, or refusal to permit the import or export of products; or
injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the
market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved
prescribing information. The FDA and other agencies enforce the laws and regulations prohibiting the promotion of off-
label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant
liability.
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Coverage and Reimbursement
Sales of our product candidates, if approved, will depend, in part, on the extent to which the cost of such products
will be covered and adequately reimbursed by third-party payors, such as government healthcare programs, commercial
insurance and managed health care organizations. These third-party payors are increasingly limiting coverage and
reducing reimbursements for medical products and services by challenging the prices and examining the medical
necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-
party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our
products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us
to sell our products on a profitable basis.
There is no uniform policy requirement for coverage and reimbursement for drug products among third-party
payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor
to payor. Coverage determination can be a time-consuming and costly process that may require us to provide scientific
and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate
reimbursement will be obtained or applied consistently. Even if reimbursement is provided, market acceptance of our
products may be adversely affected if the amount of payment for our products proves to be unprofitable for health care
providers or less profitable than alternative treatments, or due to administrative burdens.
In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-
containment programs, including price controls, restrictions on reimbursement and requirements for substitution of
generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in
jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party
reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could
reduce physician usage of our products candidates, once approved, and have a material adverse effect on our sales.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
of 2010, collectively referred to as the ACA, enacted in March 2010, has had and is expected to continue to have a
significant impact on the health care industry. The ACA imposes a significant annual fee on certain companies that
manufacture or import branded prescription drug products. The ACA also increased the Medicaid rebate rate and
expanded the rebate program to include Medicaid managed care organizations. It also contains substantial new
provisions intended to broaden access to health insurance, reduce the growth of health care spending, enhance remedies
against health care fraud and abuse, add new transparency requirements for the health care industry, impose new taxes
and fees on pharmaceutical manufacturers, and impose additional health policy reforms, any or all of which may affect
our business.
There have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example,
President Trump signed several Executive Orders and other directives designed to delay the implementation of certain
ACA requirements or otherwise circumvent some of the health insurance mandates. Concurrently, Congress considered
legislation to repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal
legislation, several bills affecting the implementation of certain taxes under the ACA have been enacted. The Tax Cuts
and Jobs Act of 2017, or the Tax Act, included a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by the ACA on some individuals who do not maintain qualifying health coverage for all
or part of a year. Additionally, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the
ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and the medical device tax, and also
eliminated the health insurance tax. The Bipartisan Budget Act of 2018 amends the ACA to close the coverage gap in
most Medicare drug plans, commonly referred to as the “donut hole”, and increase from 50% to 70% the point-of-sale
discount that is owed by pharmaceutical manufacturers who participate in the Medicare Part D program. The IRA,
enacted August 16, 2022, aims to control prescription drug prices in the upcoming years. The IRA will allow the Centers
for Medicare & Medicaid Services (“CMS”) to cap out-of-pocket costs in 2025 and to negotiate prescription drug prices
in 2026 for the first time. Additionally, the IRA provides a new “inflation rebate” covering Medicare patients to take
effect in 2023 to prevent rapid and arbitrary price increases in prescription drugs. These and any other legislation or
healthcare reform measures of the Biden administration may impact the ACA and our business. There may also be
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further challenges to the ACA, and new laws may also result in additional reductions in Medicare and other health care
funding.
Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their marketed products. This scrutiny has resulted in several Congressional inquiries and proposed and enacted federal
and state legislation designed to bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for products. At the
federal level, the Trump administration implemented drug pricing reform through federal budget proposals, executive
orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration
announced several executive orders related to prescription drug pricing that attempt to implement several of the
administration’s proposals The FDA also released a final rule, effective November 30, 2020, implementing a portion of
the importation executive order providing guidance for states to build and submit importation plans for drugs from
Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price
reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy
benefit managers, unless the price reduction is required by law. The implementation of the rule was delayed by the Biden
administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a safe
harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements
between pharmacy benefit managers and manufacturers.
Federal and state legislatures have become increasingly aggressive in passing legislation and implementing
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures,
and, in some cases, designed to encourage importation from other countries and bulk purchasing.
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. Further, it is possible that
additional governmental action is taken in response to the COVID-19 pandemic.
It is uncertain whether and how future legislation, whether domestic or foreign, could affect prospects for our
product candidates or what actions payors for health care treatment and services may take in response to such health care
reform proposals or legislation. Adoption of price controls and other cost-containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and measures reforms may prevent or limit our ability to
generate revenue, attain profitability or commercialize our product candidates.
Other Health Care Laws and Compliance Requirements
We will also be subject to health care regulation and enforcement by the federal and state government and foreign
governments in which we will conduct our business once our products are approved. The laws that may affect our ability
to operate include the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by
the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain
electronic health care transactions and protects the security and privacy of protected health information; the criminal
health care fraud statutes under HIPAA also prohibits persons and entities from knowingly and willfully executing a
scheme to defraud any health care benefit program, including private payors, or knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection
with the delivery of or payment for health care benefits, items or services; the Anti-Kickback Statute, which prohibits
persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in
exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good
or service for which payment may be made under federal health care programs such as the Medicare and Medicaid
programs; federal false claims laws and civil monetary penalties laws that prohibit any person or entity from knowingly
presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or
causing to be made, a false statement to have a false claim paid; and the Physician Payments Sunshine Act, which
requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under
Medicare, Medicaid, or Children’s Health Insurance Program to report annually to the HHS information related to
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payments and other transfers of value made to various healthcare professionals including physicians, physician
assistants, nurse practitioners and teaching hospitals, and ownership and investment interests held by physicians and
their immediate family members.
The majority of states also have statutes or regulations similar to the federal anti-kickback and false claims laws,
which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply
regardless of the payor. We may be subject to state laws governing the privacy and security of health information in
certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts. In addition, we may be subject to reporting requirements under state transparency
laws, as well as state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance
guidelines and the applicable compliance guidance promulgated by the federal government that otherwise restricts
certain payments that may be made to health care providers and entities. In addition, certain states and local jurisdictions
require the registration of pharmaceutical sales representatives.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exceptions, it is
possible that some of our business activities could be subject to challenge under one or more of such laws. If we are
found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we
may be subject to penalties, including significant administrative, civil and criminal penalties, damages, fines,
imprisonment, disgorgement, additional reporting requirements and oversight if we become subject to a corporate
integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, exclusion of products
from reimbursement under U.S. federal or state health care programs, and the curtailment or restructuring of our
operations.
Government Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions
governing clinical studies and any commercial sales and distribution of our products.
Drug and Biologic Development Process in the European Union (“EU”)
All clinical trials included in applications for marketing authorization for human medicines in the EU must be
carried out in accordance with EU regulations. This means that such clinical trials must comply with EU clinical trial
legislation, as well as ethical principles equivalent to those set out in the EEA, including adhering to international good
clinical practice and the Declaration of Helsinki. The conduct of clinical trials in the EU is governed by the EU Clinical
Trials Regulation (EU) No. 536/2014 (“CTR”) which entered into force on January 31, 2022.
Under the CTR, a sponsor may submit a single application for approval of a clinical trial through a centralized EU
clinical trials portal. One national regulatory authority (the reporting EU Member State proposed by the applicant) will
take the lead in validating and evaluating the application consult and coordinate with the other concerned Member
States. If an application is rejected, it may be amended and resubmitted through the EU clinical trials portal. If an
approval is issued, the sponsor may start the clinical trial in all concerned Member States. However, a concerned EU
Member State may in limited circumstances declare an “opt-out” from an approval and prevent the clinical trial from
being conducted in such Member State. The CTR also aims to streamline and simplify the rules on safety reporting, and
introduces enhanced transparency requirements such as mandatory submission of a summary of the clinical trial results
to the EU Database.
National laws, regulations, and the applicable GCP and Good Laboratory Practice standards must also be respected
during the conduct of the trials, including the International Council for Harmonization of Technical Requirements for
Pharmaceuticals for Human Use (“ICH”) guidelines on Good Clinical Practice and the ethical principles that have their
origin in the Declaration of Helsinki.
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Drug Marketing Authorization
In the EU and in Iceland, Norway and Liechtenstein (together, the European Economic Area or “EEA”), after
completion of all required clinical testing, pharmaceutical products may only be placed on the market after obtaining a
Marketing Authorization (“MA”). To obtain an MA of a drug under EU regulatory systems, an applicant can submit a
Marketing Authorization Application (“MAA”) through, amongst others, a centralized or decentralized procedure.
The centralized procedure provides for the grant of a single MA that is issued by the European Commission (“EC”)
following the scientific assessment of the application by the EMA that is valid for all EU Member States as well as in the
three additional EEA Member States. The centralized procedure is compulsory for specific medicinal products, including
for medicines developed by means of certain biotechnological processes, products designated as orphan medicinal
products, advanced therapy medicinal products (“ATMP”) and medicinal products with a new active substance indicated
for the treatment of certain diseases (AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune and viral
diseases). For medicinal products containing a new active substance not yet authorized in the EEA before May 20, 2004
and indicated for the treatment of other diseases, medicinal products that constitute significant therapeutic, scientific or
technical innovations or for which the grant of a MA through the centralized procedure would be in the interest of public
health at EU level, an applicant may voluntarily submit an application for a marketing authorization through the
centralized procedure.
Under the centralized procedure, the Committee for Medicinal Products for Human Use (“CHMP”), established at
the EMA, is responsible for conducting the initial assessment of a drug. The timeframe for the evaluation of an MAA by
the CHMP is, in principle, 210 days from receipt of a valid MAA. However, this timeline excludes clock stops, when
additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP, so
the overall process typically takes a year or more, unless the application is eligible for an accelerated assessment.
Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be
of a major public health interest, particularly from the point of view of therapeutic innovation. Upon request, the CHMP
can reduce the time frame to 150 days if the applicant provides sufficient justification for an accelerated assessment. The
CHMP will provide a positive opinion regarding the application only if it meets certain quality, safety and efficacy
requirements. This opinion is then transmitted to the EC, which has the ultimate authority for granting MA within
67 days after receipt of the CHMP opinion.
Medicines that fall outside the mandatory scope of the centralized procedure have three routes to authorization:
(i) they can be authorized under the centralized procedure if they concern a significant therapeutic, scientific or technical
innovation, or if their authorization would be in the interest of public health; (ii) they can be authorized under a
decentralized procedure where an applicant applies for simultaneous authorization in more than one EU Member State;
or (iii) they can be authorized in an EU Member State in accordance with that state’s national procedures and then be
authorized in other EU countries by a procedure whereby the countries concerned agree to recognize the validity of the
original, national marketing authorization (mutual recognition procedure).
The decentralized procedure permits companies to file identical MA applications for a medicinal product to the
competent authorities in various EU Member States simultaneously if such medicinal product has not received marketing
approval in any EU Member State before. The competent authority of a single EU Member State, known as the reference
EU Member State, is appointed to review the application and provide an assessment report. Under this procedure, an
applicant submits an application based on identical dossiers and related materials, including a draft summary of product
characteristics, and draft labeling and package leaflet, to the reference EU Member State and concerned EU Member
States. The reference EU Member State prepares a draft assessment report and drafts of the related materials within
120 days after receipt of a valid application. Subsequently, each concerned EU Member State must decide whether to
approve the assessment report and related materials. If an EU Member State cannot approve the assessment report and
related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute
resolution mechanism and may eventually be referred to the EC, whose decision is binding for all EU Member States.
All new MAAs must include a Risk Management Plan (“RMP”), describing the risk management system that the
company will put in place and documenting measures to prevent or minimize the risks associated with the product.
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RMPs are continually modified and updated throughout the lifetime of the medicine as new information becomes
available. The regulatory authorities may also impose specific obligations as a condition of the MA.
Marketing Authorizations have an initial duration of five years. After these five years, the authorization may
subsequently be renewed on the basis of a reevaluation of the risk-benefit balance. Once renewed, the MA is valid for an
unlimited period unless the EC or the national competent authority decides, on justified grounds relating to
pharmacovigilance, to proceed with only one additional five-year renewal. Applications for renewal must be made to the
EMA at least nine months before the five-year period expires.
European Data Protection Laws
The collection and use of personal health data and other personal data in the EU is governed by the provisions of
the European General Data Protection Regulation (EU) 2016/679 (“GDPR”). The GDPR imposes strict requirements on
the processing of personal data, including the legal basis for the processing, the information that has to be provided to
individuals before their data is processed, notification obligations to national data protection authorities, and the
technical and organization measures to ensure the security and confidentiality of the personal data. EU Member States
may also have additional requirements for health, genetic, and biometric data through their national legislation. The
GDPR also imposes restrictions on the transfer of personal data to countries outside of the EU that do not provide an
adequate level of data protection. To enable such transfers, appropriate safeguards, such as standard contractual clauses
(“SCCs”), must be in place.
Environmental, Social, Governance and Human Capital Disclosures
Governance and Leadership
Our commitment to integrating sustainability across our organization begins with our board of directors, which has
oversight of strategy and risk management related to Environmental, Social and Governance (“ESG”).
Business Ethics
We are committed to creating an environment where we are able to excel in our business while maintaining the
highest standards of business conduct and ethics. Our Code of Business Conduct and Ethics (“Code of Conduct”)
reflects the business practices and principles of behavior that supports this commitment, including our policies on
bribery, corruption, conflicts of interest, insider trading, and our whistleblower program. We expect all of our directors,
officers, and employees to read, understand, and comply with the Code of Conduct and its application to the
performance of his or her business responsibilities.
Environmental Commitment
We are committed to protecting the environment and attempt to mitigate any negative impact of our operations,
promoting reuse and recycling and conserving resources, where feasible. We have safety protocols in place for handling
biohazardous waste in our operations, including in our clinical trials, and we use third-party vendors for biohazardous
waste and chemical disposal.
Social Responsibility
We are committed to providing patients with access to our investigational therapies, to the extent appropriate at the
development stage. We are currently focused on our clinical programs and getting our therapies through the approval
process and approved as rapidly as possible provided they are shown to be safe and effective. We provide access to our
investigational therapies through our clinical trials, including in some cases long-term extensions of those trials that
provide access to our therapies for up to several years. We also support educational efforts related to therapeutic areas in
focus for our company, and life sciences education more broadly. In addition to financial support of continuing
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education, we are active sponsors, mentors, and hosts for students seeking to broaden their understanding of life sciences
in the interest of advancing human health.
Human Capital
As of December 31, 2022, we had 105 full-time equivalent employees, 82 of whom were in research and
development, of which 3 hold an M.D. and 24 hold Ph.D. degrees. The remaining 23 employees worked in finance,
legal, business development, human resources and administrative support, of which one holds a Ph.D. 97 of our full-time
equivalent employees are located in the United States and 8 are located in Australia. None of our employees are
represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our
employees to be good. We track and report internally on key talent metrics including workforce demographics, diversity
data and the status of open positions. We are committed to equality, inclusion and diversity in the workplace. As of
December 31, 2022, nearly 70% of our workforce identify as members of underrepresented ethnic communities and 55%
identify as female. We strive to interview diverse candidates for our open positions.
Attracting, developing and retaining talented employees to support the growth of our business is an integral part of
our human capital strategy and critical to our long-term success. We continue to seek targeted additions to our staff,
although the competition in our industry and in the San Francisco Bay Area where our headquarters is located is
significant. The principal purpose of our equity incentive and annual bonus programs is to attract, retain and motivate
personnel through the granting of stock-based compensation awards and cash-based performance bonus awards. As a
biopharmaceutical company, we recognize the importance of access to high quality healthcare and as such we cover
100% of our employees’ monthly healthcare premiums. We offer a package of competitive employee benefits, including
401(k) plan matching contributions and an employee stock purchase plan.
We have a performance development review process in which managers provide regular feedback to assist with the
development of our employees, including the use of individual plans to assist with career development. We also invest in
the growth and development of our employees through various training and development programs that help build and
strengthen our employees’ leadership and professional skills. Approximately 20% of our employees are promoted each
year. This reflects the quality and readiness of our people to take on new roles, as well as our intentional focus on
growing and developing careers, as well as promoting within.
Safeguarding the health and safety of our employees is a top priority. We are committed to providing a safe
working environment for all of our employees. Our cross-functional safety committee meets regularly to discuss policies
and protocols, strategic planning, business continuity and other matters related to the COVID-19 pandemic and its
potential impacts on our company, employees and external stakeholders. In response to the COVID-19 pandemic, we
implemented significant changes that we determined were in the best interest of our employees, as well as the
communities in which we operate, and which comply with government regulations. This includes having our non-
laboratory employees work remotely at least part-time, while implementing additional safety measures for laboratory
and other employees continuing critical on-site work. To support our employees personally and professionally, we have
Employee Assistance Programs to address employee challenges and needs.
Corporate and Other Information
Our website address is www.protagonist-inc.com. References to our website address do not constitute
incorporation by reference of the information contained on the website, and the information contained on the website is
not part of this document.
We make available, free of charge on our corporate website, copies of our Annual Reports on Form 10 - K,
Quarterly Reports on Form 10 - Q, Current Reports on Form 8 - K, Proxy Statements, and all amendments to these reports,
as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and
Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(“Exchange Act”).
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Item 1A.
Risk Factors
We have identified the following risks and uncertainties that may have a material adverse effect on our business,
financial condition or results of operations. Investors should carefully consider the risks described below before making
an investment decision. Our business faces significant risks and the risks described below may not be the only risks we
face. If any of these risks occur, our business, results of operations or financial condition could suffer, and the market
price of our common stock could decline.
Risks Related to Clinical Development
We are a biopharmaceutical company with no approved products and no historical commercial revenue, which makes
it difficult to assess our future prospects and financial results.
We are a biopharmaceutical company with a somewhat limited operating history as a publicly traded company.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of
uncertainty. Our operations to date have been limited to developing our technology, undertaking pre-clinical studies and
clinical trials of our pipeline candidates and conducting research to identify additional product candidates. We have not
yet successfully developed an approved product or generated revenue from product sales or successfully conducted a
pivotal registration trial for one of our product candidates. Consequently, the ability to accurately assess our future
operating results or business prospects is significantly more limited than if we had a longer operating history or approved
products on the market.
We expect that our financial condition and operating results will fluctuate significantly from period to period due
to a variety of factors, many of which are beyond our control, including the success of our programs, decisions by
regulatory bodies, actions taken by competitors or current or future licensees or collaborative partners, market conditions
and other factors identified in these risk factors. Accordingly, the likelihood of our success must be evaluated in light of
many potential challenges and variables associated with a clinical-stage biopharmaceutical company, many of which are
outside of our control, and past results, including operating or financial results, should not be relied on as an indication
of future results.
We are heavily dependent on the success of our product candidates in clinical development, and if any of these
products fail to receive regulatory approval or are not successfully commercialized, our business would be adversely
affected.
We currently have no product candidates that are approved for commercial sale, and we may never develop a
marketable product. We expect that a substantial portion of our efforts and expenditures over the next few years will be
devoted to our current product candidates and the development of other product candidates. We cannot be certain that
our product candidates will receive regulatory approval or, if approved, be successfully commercialized. The research,
testing, manufacturing, labeling, approval, sale, marketing and distribution of our product candidates will be subject to
extensive regulation by the FDA and other regulatory authorities in the United States and other countries. In addition,
even if approved, our pricing and reimbursement will be subject to further review and discussions with payors. We are
not permitted to market any product candidate in the United States until after approval of a new drug application
(“NDA”) from the FDA, or in any foreign countries until approval by corresponding regulatory authorities. We will need
to successfully conduct and complete large, extensive clinical trials in the target patient populations to support a potential
application for regulatory approval by the FDA or corresponding regulatory authorities. Those trials, such as our ongoing
VERIFY Phase 3 trial evaluating rusfertide for the treatment of 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
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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 ulcerative colitis.
Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and
trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure
can occur at any time during the clinical development process. The results of pre-clinical studies and early clinical trials
of our product candidates and studies and trials of other products may not be predictive of the results of later-stage
clinical trials. Any hypothesis formed from pre-clinical or early clinical observations for any of our product candidates
may prove to be incorrect, and the data generated in animal models or observed in limited patient populations may be of
limited value and may not be applicable in clinical trials conducted under the controlled conditions required by
applicable regulatory requirements.
In addition to our planned pre-clinical studies and clinical trials, we will be required to complete one or more large
scale, well-controlled clinical trials to demonstrate substantial evidence of efficacy and safety for each product candidate
we intend to commercialize. Further, given the patient populations for which we are developing therapeutics, we expect
to have to evaluate long-term exposure to establish the safety of our therapeutics in a chronic-dose setting. We have not
yet completed a Phase 3 clinical trial or submitted an NDA. As a result, we have no corporate history or track record of
successfully completing these phases of the development cycle. Product candidates in later stages of clinical trials may
fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial
clinical trials. Clinical trial failures may result from a multitude of factors including, but not limited to, flaws in trial
design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety and/or
efficacy traits of the product candidate. Based upon negative or inconclusive results, we may decide, or regulators may
require us, to conduct additional clinical trials or pre-clinical studies.
We may experience delays in ongoing clinical trials, and we do not know whether planned clinical trials will begin
on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. For example, we initially
experienced slower than expected patient enrollment in VERIFY, a global Phase 3 clinical trial of rusfertide in PV.
Clinical trials can be delayed for a variety of reasons, including if a clinical trial is modified, suspended or terminated by
us. For example, in keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide
in additional disease indications have been paused. Clinical trials can also be delayed by the institutional review boards
or ethics committees of the institutions in which such clinical trials are being conducted, by a Data Safety Monitoring
Board, for such trial or by the FDA or other regulatory authorities. Such authorities may impose a modification,
suspension or termination due to a number of factors.
For example, our rusfertide clinical studies were subject to a three-week clinical hold by the FDA beginning in
September 2021. The clinical hold was triggered by a non-clinical finding in a 26-week rasH2 transgenic mouse model
indicating benign and malignant subcutaneous skin tumors. Also, in April 2022, the FDA indicated that it intended to
rescind Breakthrough Therapy Designation for rusfertide in PV. For additional information, see the risk factor entitled
“Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that
delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial
opportunity” below.
In addition, there are a significant number of global clinical trials in hematologic disorders that are currently
ongoing, especially in Phases 2 and 3, making it highly competitive and challenging to recruit subjects. Additionally,
other companies targeting the same patient populations as our clinical trials for such medicines may make it more
difficult for us to complete enrollment in our clinical trials. Furthermore, any negative results we may report in clinical
trials of our product candidate may make it difficult or impossible to recruit and retain patients in other ongoing or
subsequent clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention
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may result in increased costs, program delays or both. In addition, we are subject to risks and uncertainties as a result of
the ongoing military conflict in Ukraine and Russia. For example, in 2022 we closed down Clinical trial sites in Russia
and Ukraine at which a limited number of subjects were enrolled in our PN-943 Phase 2 IDEAL trial.
If we experience material delays in the completion of any clinical trial, the reduction in remaining patent term
would harm the commercial prospects for that product candidate and our ability to generate product revenue from any of
these product candidates will be delayed. Any of these occurrences may harm our business, financial condition and
prospects significantly.
If we are unable to discover and develop new product candidates, our business will be adversely affected.
As part of our strategy, we seek to discover and develop new product candidates. Research programs to identify
appropriate biological targets, pathways and product candidates require substantial scientific, technical, financial and
human resources, whether or not any product candidates are ultimately identified. Our research programs may initially
show promise in identifying potential product candidates yet fail to yield product candidates for clinical development for
many reasons.
Our proprietary peptide platform may not result in any products of commercial value.
We have developed a proprietary peptide technology platform to enable the identification, testing, design and
development of new product candidates. Our peptide platform may not yield additional product candidates that enter
clinical development and, ultimately, become commercially valuable. Although we expect to continue to enhance the
capabilities of our platform by developing and integrating existing and new research technologies, our enhancement and
development efforts may not succeed. As a result, we may not be able to advance our drug discovery capabilities as
quickly as we expect or identify as many potential drug candidates as we desire.
Our product candidates may cause undesirable side effects or have other properties adversely impacting safety that
delay or prevent their regulatory approval, restrict their approved labeling, or otherwise limit their commercial
opportunity.
If undesirable side effects or adverse events are caused by our product candidates or by other companies’ similar
approved drugs or product candidates, then we may elect to, or be required by an independent data monitoring
committee or regulatory authorities to, delay or halt our clinical trials. If such side effects or adverse events are
sufficiently severe or prevalent, the FDA or comparable foreign regulatory authorities could order us to suspend or cease
altogether further development of our product candidates. Even if our product candidates are approved, side effects or
adverse events could result in significant delay in or denial of, regulatory approval, restrictive labeling, or potential
product liability claims. Moreover, for our product candidates that are in development for indications for which
injectable antibody drugs have been approved, clinical trials for those product candidates may need to show a
risk/benefit profile that is competitive with those existing products in order to obtain regulatory approval or, if approved,
a product label that is favorable for commercialization.
For example, on September 16, 2021 our clinical studies for rusfertide were placed on a full clinical hold by the
FDA. On October 8, 2021, the FDA lifted the full clinical hold and dosing in all clinical studies of rusfertide could be
resumed after we provided the FDA with all requested information as the basis for a Complete Response and subsequent
removal of the clinical hold. In particular, we provided the requested individual patient clinical safety reports, updated
the investigator brochure and patient informed consent forms, performed a comprehensive review of the most recent
safety database, and included new safety and stopping rules in the study protocols. The clinical hold was initially
triggered by a non-clinical finding in a 26-week rasH2 transgenic mouse model indicating benign and malignant
subcutaneous skin tumors. The rasH2 signal also prompted a re-examination of the four cases of cancer observed across
all rusfertide clinical trials involving over 160 patients, and a comprehensive review of the safety database, including
cases of suspected unexpected serious adverse reactions.
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We have focused our limited resources to pursue particular product candidates and indications, and consequently, we
may fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater
likelihood of success.
Because we have limited financial and managerial resources, we have historically focused on research programs
and product candidates mainly on the development of rusfertide, the product candidates subject to our Janssen
collaboration and, through early 2022, PN-943. Going forward, we have no plans to devote further resources to PN-943
as part of our ongoing commitment to optimize and focus resources toward our rusfertide program in PV. In addition, in
keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in additional disease
indications have been paused. As a result, we may forego or delay pursuit of opportunities with other product candidates
or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may
cause us to fail to capitalize on viable commercial products or profitable market opportunities. If we do not accurately
evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights
to that product candidate through collaboration partnerships, licensing or other royalty arrangements in cases in which it
would have been more advantageous for us to retain sole development and commercialization rights to such product
candidate.
Risks Related to our Financial Position and Capital Requirements
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses
for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.
We have incurred significant operating losses every year since inception and expect to continue to incur operating
losses for the foreseeable future. As of December 31, 2022, we had an accumulated deficit of $536.8 million. We expect
to continue to incur significant research, development and other expenses related to our ongoing operations and product
development. As a result, we expect to continue to incur losses in the future as we continue our development of, and seek
regulatory approvals for, our product candidates.
We do not anticipate generating revenue from sales of products for a number of years, if ever, and we have not yet
successfully completed registrational or pivotal clinical trials for our product candidates. If any of our product candidates
fail in clinical trials or do not gain regulatory approval or fail to achieve market acceptance, we may never become
profitable. Revenue we generate from our collaboration with Janssen, and any future collaboration arrangements may not
be sufficient to sustain our operations. Failure to become and remain profitable may adversely affect the market price of
our common stock and our ability to raise capital and continue operations.
We expect to require substantial additional funding, which may not be available to us on acceptable terms, or at all.
Our operations have consumed substantial amounts of cash since inception. Developing pharmaceutical product
candidates, including conducting pre-clinical studies and clinical trials, is expensive. We expect to require substantial
additional future capital in order to complete clinical development and, if we are successful, to commercialize any of our
current product candidates. Further, in the event that the Restated Agreement with Janssen is terminated, we may not
receive any additional fees or milestone payments under that agreement. Absent the funding support obtained under the
Restated Agreement, our further development of the collaboration product candidates would require significant
additional capital from us, or the establishment of alternative collaborations with third parties, which may not be
possible.
As of December 31, 2022, we had cash, cash equivalents and marketable securities of $237.4 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 will need to have access to substantial additional funds in the future in order to complete clinical development or
commercialize our product candidates to a point where our operations generate net cash inflows.
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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to
relinquish rights to our product candidates or technologies.
We may seek additional funding through a combination of equity offerings, including use of our ATM facility, debt
financings, collaborations and/or licensing arrangements. Additional funding may not be available to us on acceptable
terms, or at all. Our ability to raise additional capital may be adversely impacted by adverse economic conditions and
market volatility. The incurrence of indebtedness and/or the issuance of certain equity securities could result in fixed
payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to
incur debt and/or issue additional equity, limitations on our ability to acquire or license intellectual property rights and
other operating restrictions that could adversely impact our ability to conduct our business. In addition, the issuance of
additional equity securities by us, or the possibility of such issuance, may cause the market price of our common stock to
decline. In the event that we enter into additional collaborations and/or licensing arrangements in order to raise capital,
we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable
terms our rights to our proprietary technology platform or product candidates. To the extent that we raise additional
capital through the sale of equity securities, your ownership interest will be diluted, and the terms may include
liquidation or other preferences that adversely affect your rights as a stockholder. If we issue common stock or securities
convertible into common stock, our common stockholders would experience additional dilution and, as a result, our
stock price may decline.
Risks Related to our Reliance on Third Parties
If Janssen does not elect to continue the development of JNJ-2113, our business and business prospects would be
adversely affected.
JNJ-2113 (formerly known as PN-235), the product candidate in development pursuant to our Janssen
collaboration, may prove to have undesirable or unintended side effects or other characteristics adversely affecting its
safety, efficacy or cost effectiveness that could prevent or limit its approval for marketing and successful commercial
use, or that could delay or prevent the commencement and/or completion of clinical trials. Under the terms of the
Restated Agreement with Janssen, Janssen may terminate the agreement for convenience and without cause on written
notice of a certain period. In addition, prior to any termination of the agreement, Janssen will generally have control over
the further clinical development of JNJ-2113 and any other licensed compounds. Janssen’s decisions with respect to such
development will affect the timing and availability of potential future payments under the agreement, if any. For
example, during the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was
made by Janssen to stop further development of both PTG-200 and PN-232 in favor of JNJ-2113. If the Restated
Agreement with Janssen is terminated early, or if Janssen’s development activities are terminated early or suspended for
an extended period of time, or are otherwise unsuccessful, our business and business prospects would be materially and
adversely affected.
We may have disagreements with Janssen during the term of the Janssen License and Collaboration Agreement, and
if they are not settled amicably or in the favor of Protagonist, the result may harm our business.
We are subject to the risk of possible disagreements with Janssen regarding the development of JNJ-2113 or other
matters under the Restated Agreement with Janssen, such as the interpretation of the agreement or ownership of
proprietary rights. Also, because the period of collaborative development under the agreement has ended, Janssen has
sole decision-making authority for product candidates resulting from the collaboration, which could lead to disputes with
Janssen. Disagreements with Janssen could lead to litigation or arbitration, which would be expensive and would be
time-consuming for our management and employees.
We may not be successful in obtaining or maintaining development and commercialization collaborations, any
collaboration arrangements we enter into in the future may not be successful.
Other than our Restated Agreement with Janssen, we have no active collaborations for any of our product
candidates. Even if we establish other collaboration arrangements, any such collaboration may not ultimately be
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successful, which could have a negative impact on our business, results of operations, financial condition and growth
prospects. If we enter into collaborations limited to certain territories, we may not maintain significant rights or control
of future development and commercialization of any product candidate subject to the collaboration and potential disputes
could develop in the future over the terms of the collaboration and the respective rights of the parties.
If our strategic collaborations do not result in the successful development and commercialization of product
candidates or if one of our collaborators fails to act under the collaboration agreement or terminates its agreement with
us, we may not receive any future research funding or milestone or royalty payments under the applicable collaboration
agreement. In addition, if a collaboration is terminated, it may result in a need for additional capital to pursue further
development or commercialization of the applicable product candidates.
We rely on third parties to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully
carry out their contractual obligations or do not meet regulatory requirements or expected deadlines, we may not be
able to obtain timely regulatory approval for or commercialize our product candidates and our business could be
substantially harmed.
We have relied upon and plan to continue to rely upon third-party contract research organizations (“CROs”) to
execute, monitor and manage clinical trials and collect data for our pre-clinical studies and clinical programs. We control
only certain aspects of their activities. We and our CROs are required to comply with GCPs, which are regulations and
guidelines promulgated by the FDA, the 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 ensure the proper and timely conduct of our clinical trials and compliance with
applicable regulations, including GCPs.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements
with alternative CROs or do so on commercially reasonable terms. If CROs do not successfully carry out their
contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of
the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements
or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain
regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and
the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our
ability to generate revenue could be delayed significantly.
We face a variety of manufacturing risks and rely on third parties to manufacture our drug substance and clinical
drug product and we intend to rely on third parties to produce commercial supplies of any approved product
candidate.
We rely on contract manufacturers to manufacture and provide product for us that meets applicable regulatory
requirements. We do not currently have, nor do we plan to develop, the infrastructure or capability internally to
manufacture our drug supplies and we expect to continue to depend on contract manufacturers for the foreseeable future.
As we proceed with the development and potential commercialization of our product candidates, we will need to
increase the scale at which the drug is manufactured which will require the development of new manufacturing processes
to potentially reduce the cost of goods. We will rely on our internal process research and development efforts and those
of contract manufacturers to develop the good manufacturing processes (“GMPs”) required for cost-effective, 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
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manufacturing, supply or storage issues, natural disasters, the COVID-19 pandemic or otherwise, we could experience
delays, disruptions, suspensions or termination of our clinical trial and planned development program, or be required to
restart or repeat, any ongoing clinical trials.
We also rely on our contract manufacturers to purchase from third-party suppliers the materials necessary to
produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that our
vendors use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible
disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if
approved, for commercial sale. Moreover, we currently do not have any agreements for the commercial production of
these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of
a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate, or the raw
material components thereof, for an ongoing clinical trial due to the need to replace a contract manufacturer or other
third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential
regulatory approval of our product candidates.
Risks Related to Regulatory Approval
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy and time consuming,
and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be
substantially harmed.
Our business is substantially dependent on our ability to successfully develop, obtain regulatory approval for and
then successfully commercialize our product candidates. We are not permitted to market or promote any of our product
candidates before we receive regulatory approval from the FDA, the EMA or any other foreign regulatory authority, and
we may never receive such regulatory approval for any of our product candidates. The time required to obtain approval
by the FDA and comparable foreign authorities is difficult to predict, typically takes many years following the
commencement of clinical trials and depends upon numerous factors. Approval policies, regulations and the types and
amount of clinical and manufacturing data necessary to gain approval may change during the course of clinical
development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and
it is possible that none of our existing product candidates or any product candidates we have in development or may seek
to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
•
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our
clinical trials, or our interpretation of the data submitted in support of regulatory approval:
• we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities
that a product candidate is safe and effective for its proposed indication or that a product candidate’s clinical
and other benefits outweigh its safety risks;
•
•
the results of clinical trials may fail to achieve the level of statistical significance required by the FDA or
comparable foreign regulatory authorities for approval;
the data collected from pre-clinical studies and clinical trials of our product candidates may not be sufficient to
support the submission of an NDA, supplemental NDA, or other regulatory submissions necessary to obtain
regulatory approval;
• 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
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•
changes to the approval policies or regulations of the FDA or comparable foreign regulatory authorities with
respect to our product candidates may result in our clinical data becoming insufficient for approval.
In addition, even if we were to obtain regulatory approval, regulatory authorities may approve our product
candidates for fewer or more limited indications than what we requested approval for, may include safety warnings or
other restrictions that may negatively impact the commercial viability of our product candidates, including the potential
for a favorable price or reimbursement at a level that we would otherwise intend to charge for our products. Likewise,
regulatory authorities may grant approval contingent on the performance of costly post-marketing clinical trials or the
conduct of an expensive risk-evaluation and mitigation system, which could significantly reduce the potential for
commercial success or viability of our product candidates. Any of the foregoing possibilities could materially harm the
prospects for our product candidates and business and operations.
We may fail to obtain orphan drug designations from the FDA and/or the EMA for our product candidates, as
applicable, and even if we obtain such designations, we may be unable to maintain the benefits associated with
orphan drug designation, including the potential for market exclusivity.
Our strategy includes filing for orphan drug designation where available for our product candidates. Rusfertide has
received orphan drug designation for the treatment of patients with PV from the FDA and the EMA. Despite this
designation, we may be unable to maintain the benefits associated with orphan drug status, including market exclusivity.
We may not be the first to obtain regulatory approval of a product candidate for a given orphan-designated indication. In
addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader
than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was
materially defective or if we are unable to assure sufficient quantities of the product to meet patient needs. Further, even
if we obtain orphan drug designation exclusivity for a product, that exclusivity may not effectively protect the product
from competition because different drugs with different active moieties may receive and be approved for the same
condition, and only the first applicant to receive approval for a given active ingredient will receive the benefits of
marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later
drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if
it is shown to be safer, more effective or makes a major contribution to patient care.
Risks Related to Commercialization of our Product Candidates
We currently have no marketing and sales organization. To the extent any of our product candidates for which we
maintain commercial rights is approved for marketing, if we are unable to establish marketing and sales capabilities
or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively
market and sell any products or generate product revenue.
We currently do not have a marketing or sales organization for the marketing, sales and distribution of
pharmaceutical products. In order to commercialize any of our product candidates that receive marketing approval, we
will have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements
with third parties to perform these services, and we may not be successful in doing so. In the event of successful
development of any of our product candidates, we may elect to build a targeted specialty sales force which will be
expensive and time consuming. Any failure or delay in the development of our internal sales, marketing and distribution
capabilities would adversely impact the commercialization of these products. With respect to our product candidates, we
may choose to partner with third parties that have direct sales forces and established distribution systems, either to
augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems, and in
the case of the Restated Agreement with Janssen, we may elect to exercise our Co-Detailing Option (allows us to elect to
provide up to 30% of the selling effort in the United States for any IL-23R antagonist compounds approved for
commercial sale), which would require us to establish a U.S. sales team. If we are not 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.
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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—Coverage and Reimbursement” 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.
We may fail or elect not to commercialize our product candidates, even if approved.
We cannot be sure that, if our clinical trials for any of our product candidates are successfully completed, we will
be able to submit an NDA to the FDA or that any NDA we submit will be approved by the FDA in a timely manner, if at
all. After completing clinical trials for a product candidate in humans, a drug dossier is prepared and submitted to the
FDA as an NDA, and includes all pre-clinical studies and clinical trial data relevant to the safety and effectiveness of the
product at the suggested dose and duration of use for the proposed indication as well as manufacturing information, in
order to allow the FDA to review such drug dossier and to consider a product candidate for approval for
commercialization in the United States. If we are unable to submit an NDA with respect to any of our current product
candidates, if any NDA we submit is not approved by the FDA, or we elect not to file an NDA, or if we are unable to
obtain any required state and local distribution licenses or similar authorizations, we will be unable to commercialize
that product. The FDA can and does reject NDAs and require additional clinical trials, even when product candidates
achieve favorable results in Phase 3 clinical trials. Also, we may be subject to pricing pressures from competitive
products that could make it difficult or impossible for us to commercialize the product candidate successfully. If we fail
to commercialize any of our product candidates, our business, financial condition, results of operations and prospects
may be materially and adversely affected.
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The commercial success of any current or future product candidate will depend upon the degree of market
acceptance by physicians, patients, third-party payors and others in the medical community.
We or our collaboration partners in any potential commercial launch of our product candidates may not be
successful in achieving widespread patient or physician awareness or acceptance of such product candidate. Even though
we expect that our product candidate will be priced responsibly, if approved, there is no guarantee that it or any other
product that we bring to the market directly or through a strategic partner will gain market acceptance by physicians,
patients, third-party payors and others in the medical community. The degree of market acceptance of any of our product
candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the safety and efficacy of the product in clinical trials, and potential advantages over competing treatments;
the publication of unfavorable safety or efficacy data concerning our product by third parties;
the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s
approved labeling;
the clinical indications for which approval is granted;
recognition and acceptance of our product candidates over our competitors’ products;
prevalence of the disease or condition for which the product is approved;
the cost of treatment, particularly in relation to competing treatments;
the willingness of the target patient population to try our therapies and of physicians to prescribe these
therapies;
the strength of marketing and distribution support and timing of market introduction of competitive products;
the extent to which the product is approved for inclusion on formularies of hospitals and managed care
organizations;
publicity concerning our products or competing products and treatments;
the extent to which third-party payors provide coverage and adequate reimbursement for the product
candidate, or any other product candidates we may pursue, if approved;
our ability to maintain compliance with regulatory requirements; and
labeling or naming imposed by FDA or other regulatory agencies.
Even if a product candidate we may develop in the future displays an equivalent or more favorable efficacy and
safety profile in pre-clinical and clinical trials, market acceptance of the product candidate will not be fully known until
after it is launched and may be negatively affected by a potential poor safety experience and the track record of other
product candidates. Our efforts, or those of any strategic licensing or collaboration partner, to educate the medical
community and third-party payors on the benefits of our product candidates may require significant resources, may be
under-resourced compared to large well-funded pharmaceutical entities and may never be successful. If ay product
candidates we may develop in the future are approved but fail to achieve an adequate level of acceptance by physicians,
patients, third-party payors and others in the medical community, we will not be able to generate sufficient revenue to
become or remain profitable.
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Risks Related to our Business and Industry
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results
will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant
technological change. We have competitors worldwide, including major multinational pharmaceutical companies,
biotechnology companies, specialty pharmaceutical and generic pharmaceutical companies as well as universities and
other research institutions.
Many of our competitors have substantially greater financial, technical and other resources, such as larger research
and development staff, and experienced marketing and manufacturing organizations. As a result, these companies may
obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their
products. Smaller or early-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large, established companies. Competition may increase further as a result of advances
in the commercial applicability of newer technologies and greater availability of capital for investment in these
industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, pharmaceutical
products that are easier to develop, more effective or less costly than any product candidates that we are currently
developing or that we may develop. If approved, our product candidates are expected to face competition from
commercially available drugs as well as drugs that are in the development pipelines of our competitors.
Pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to
in-license novel compounds that could make our product candidates less competitive. In addition, any new product that
competes with an approved product must demonstrate advantages in efficacy, convenience, tolerability or safety in order
to overcome price competition and to be commercially successful. If our competitors succeed in obtaining FDA, EMA or
other regulatory approval or discovering, developing and commercializing drugs before we do, there would be a material
adverse impact on the future prospects for our product candidates and business. For example, in November 2021, the
FDA approved a Biologics License Application for ropeginterferon alfa-2b for use in treatment for patients with PV in
the absence of symptomatic splenomegaly from PharmaEssentia Corporation, the manufacturer of the novel pegylated
interferon. We also face competition in certain instances from the existing standards of care, which may be significantly
less expensive than our expected drug prices. For example, one widely used treatment for patients is phlebotomy and/or
chelation therapy. While patients may not like therapies that involve frequent blood draws, these therapies are
inexpensive and may present pricing challenges for us if our drug candidates are successfully developed and approved.
See Item 1. “Business—Competition” for additional information.
The COVID-19 pandemic has and could continue to adversely impact our business, including our ongoing and
planned clinical trials and pre-clinical and discovery research.
The extent to which the COVID-19 pandemic will continue to impact our business is uncertain and cannot be
predicted. The pandemic’s impact on our business will depend on a variety of factors, including the timing, extent,
effectiveness and durability of vaccine programs or other treatments, new or continuing travel and other restrictions and
public health measures, such as social distancing, business closures or disruptions, and the development and spread of
COVID-19 variants. As the COVI-19 pandemic evolves, we could experience additional disruptions or increased
expenses that may adversely impact our business, including:
•
•
•
delays or difficulties in enrolling patients in our ongoing clinical trials and our future clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and
clinical site staff, or maintaining ongoing operations at such sites; and
delays in manufacturing, receiving the supplies, materials and services needed to conduct clinical trials and
pre-clinical research.
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While the extent of the impact of the COVID-19 pandemic on our business and financial results is uncertain, a
continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on
our business, financial condition, and operating results.
Unstable market and economic conditions, including elevated and sustained inflation, may have serious adverse
consequences on our business, financial condition and stock price.
As has been widely reported, we are currently operating in a period of economic uncertainty and capital markets
disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical
instability, including an ongoing military conflict between Russia and Ukraine, the rising tensions between China and
Taiwan, and historically high domestic and global inflation. In particular, the conflict in Ukraine has exacerbated market
disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has
contributed to record inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain
inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged period of time.
Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation
costs may adversely affect our operating results. We continue to monitor these events and the potential impact on our
business. Although we do not believe that inflation has had a material impact on our financial position or results of
operations to date, we may be adversely affected in the future due to domestic and global monetary and fiscal policy,
supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and
Ukraine, and such factors may lead to increases in the cost of manufacturing our product candidates and delays in
initiating trials. In addition, global credit and financial markets have experienced extreme volatility and disruptions in
the past several years and the foregoing factors have led to and may continue to cause diminished liquidity and credit
availability, declines in consumer confidence, declines in economic growth, uncertainty about economic stability and
increased inflation.
There can be no assurance that further deterioration in credit and financial markets and confidence in economic
conditions will not occur. A future recession or market correction or other significant geopolitical events could materially
affect our business and the value of our common stock. Our general business strategy may be adversely affected by any
such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If
the current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing
more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on
favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and
could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our
current service providers, manufacturers and other partners may not survive these difficult economic times, which could
directly affect our ability to attain our operating goals.
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:
•
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the federal Anti-Kickback Statute;
the federal false claims laws, including the False Claims Act;
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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”);
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their
implementing regulations, which also imposes obligations, including mandatory contractual terms, on HIPAA-
covered entities, their business associates as well as their covered subcontractors with respect to safeguarding
the privacy, security and transmission of individually identifiable health information;
•
•
•
the federal civil monetary penalties statute;
the federal Physician Payments Sunshine Act; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws.
Further, the ACA, among other things, amended the intent requirements of the federal Anti-Kickback Statute and
certain criminal statutes governing healthcare fraud. Any violations of these laws, or any action against us for violation
of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation,
business, results of operations and financial condition.
We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare
providers, including some who could influence the use of our product candidates, if approved. While we have worked to
structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these
laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or
discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if
regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use our
product candidates, if approved, to be in violation of applicable laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current
environment of healthcare reform. Federal and state enforcement bodies have continued to increase their scrutiny of
interactions between healthcare companies and healthcare providers, which has led to a number of significant
investigations, prosecutions, convictions and settlements in the healthcare industry. Additionally, as a result of these
investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting
requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could
significantly increase our costs or otherwise have an adverse effect on our business.
If our operations are found to be in violation of any of these laws or any other governmental laws and regulations
that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines,
disgorgement, imprisonment, integrity oversight and reporting obligations, exclusion from government funded
healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished
profits and the curtailment or restructuring of our operations. If, and to the extent that, Janssen or we are unable to
comply with these regulations, our ability to earn potential royalties from worldwide net sales of Janssen collaboration
product candidates would be materially and adversely impacted. If any of the physicians or other healthcare providers or
entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject
to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs. The imposition of any of these penalties or other commercial limitations could negatively impact our
collaboration with Janssen or cause Janssen to terminate the Restated Agreement with Janssen, either of which would
materially and adversely affect our business, financial condition and results of operations.
Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified
personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to
successfully implement our business strategy.
We are highly dependent on our existing senior management team. The loss of the services of any of our executive
officers or other key employees and our inability to find suitable replacements would harm our research and
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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 our development and commercialization plans and strategies develop, we expect to need additional managerial,
operational, scientific, sales, marketing, research, development, regulatory, manufacturing, financial and other resources.
In addition, as our operations expand, we expect that we will need to manage relationships with strategic collaborators,
CROs, contract manufacturers, suppliers, vendors and other third parties. Our future financial performance and our
ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our
ability to manage any future growth effectively. We may not be successful in accomplishing these tasks in growing our
company, and our failure to accomplish any of them could adversely affect our business and operations.
Significant disruptions of information technology systems or breaches of data security could adversely affect our
business.
Our business is increasingly dependent on critical, complex and interdependent information technology systems,
including Internet-based systems, to support business processes as well as internal and external communications. The
size and complexity of our internal computer systems and those of our CROs, contract manufacturers, collaboration
partner, and other third parties on which we rely may make them potentially vulnerable to breakdown,
telecommunications and electrical failures, malicious intrusion such as ransomware and computer viruses that may result
in the impairment of key business processes. Our systems are potentially vulnerable to data security breaches, by
employees or others, that may expose sensitive data to unauthorized persons. Such data security breaches could lead to
the loss of trade secrets or other intellectual property or could lead to the public exposure of personally identifiable
information (including sensitive personal information) of our employees, collaborators, clinical trial patients, and others.
A malicious intrusion, email compromise or other data security breach or privacy violation that leads to disclosure or
modification of or prevents access to patient information, including personally identifiable information or protected
health information, could harm our reputation, compel us to comply with federal and/or state breach notification laws,
subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject
us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. If we
are unable to prevent such data security breaches or privacy violations or implement satisfactory remedial measures, our
operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or
penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our
operations involve the use of hazardous and flammable materials, including chemicals and biological materials, and
produce hazardous waste products. We generally contract with third parties for the disposal of these materials and
42
wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or
injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability
could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Our employees, independent contractors, principal investigators, consultants and vendors may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements, which could have
a material adverse effect on our business.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants or
vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and
regulations or those of comparable foreign regulatory authorities, (ii) manufacturing standards, (iii) federal and state data
privacy, security, fraud and abuse and other healthcare laws and regulations established and enforced by comparable
foreign regulatory authorities, or (iv) laws that require the true, complete and accurate reporting of financial information
or data. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct,
even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business and results of operations, including the
imposition of significant fines or other sanctions.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit
commercialization of our product candidates.
We may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during
product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in
manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a
breach of warranties. If we cannot successfully defend ourselves against product liability claims, we may incur
substantial liabilities or be required to stop development or, if approved, limit commercialization of our product
candidates.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against
potential product liability claims could prevent or inhibit the development or commercialization of our product
candidates. We currently carry clinical trial liability insurance for our clinical trials. Although we maintain such
insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is
not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our
insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no
coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage
limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay
such amounts.
Our headquarters is located near known earthquake fault zones. The occurrence of an earthquake, fire or any other
catastrophic event could disrupt our operations or the operations of third parties who provide vital support functions
to us, which could have a material adverse effect on our business and financial condition.
We and some of the third-party service providers on which we depend for various support functions are vulnerable
to damage from catastrophic events, such as power loss, natural disasters, terrorism, pandemics and similar unforeseen
events beyond our control. Our corporate headquarters, including our laboratory facilities, are located in the San
Francisco Bay Area, which in the past has experienced severe earthquakes and fires. We do not carry earthquake
insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse
effect on our business, results of operations, financial condition and prospects.
43
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 EU, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in
some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product
candidates to other available therapies. In general, the prices of products under such systems are substantially lower than
in the United States. Additional foreign price controls or other changes in pricing regulation could restrict the amount
that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the
reimbursement for our products may be reduced compared with the United States and may be insufficient to generate
commercially reasonable revenues and profits.
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
44
threatened by third parties. Any successful opposition or other challenge to our patents or patent applications could
significantly diminish the commercial prospects of any products that we develop.
In addition, patents have a limited lifespan. In the United States and in many other countries, the natural expiration
of a patent is generally 20 years after it is filed, and once any patents covering a product expire, generic competitors may
enter the market. Our granted U.S. patent covering rusfertide expires in 2034, but is eligible for extension of up to five
years for a portion of the time spent in development. Although the life of a patent can be increased based on certain
delays caused by the U.S. Patent and Trademark Office (the “PTO”), this increase can be reduced or eliminated based on
certain delays caused by the patent applicant during patent prosecution. If we encounter delays in our clinical trials or in
gaining regulatory approval, the period of time during which we could market any of our product candidates under
patent protection, if approved, would be reduced.
We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and
defending patents on all of our product candidates throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States may be less extensive than those in the United
States. In addition, the laws of some foreign countries do not protect intellectual property rights, including trade secrets,
to the same extent as federal and state laws of the United States and many countries limit the enforceability of patents
against third parties, including government agencies or government contractors.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop
their own products and, further, may export otherwise infringing products to territories where we have patent protection
but enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions
where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective
or sufficient to prevent them from so competing. Also, if our trade secrets are disclosed in a foreign jurisdiction,
competitors worldwide could have access to our proprietary information and we may be without satisfactory recourse.
Such disclosure could have a material adverse effect on our business.
We also rely on trade secret protection and confidentiality agreements to protect proprietary scientific, business
and technical information and know-how that is not or may not be patentable or that we elect not to patent. For example,
we primarily rely on trade secrets and confidentiality agreements to protect our peptide therapeutics technology
platform. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable
competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive 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.
45
We may be involved in lawsuits and other legal proceedings to protect or enforce our intellectual property, which
could be expensive, time consuming and unsuccessful.
Competitors may infringe our issued patents or any patents issued as a result of our pending or future patent
applications. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be
expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is
not valid or is unenforceable or may refuse to stop the other party in such infringement proceeding from using the
technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any
litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or
interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.
Issued patents and patent applications may be challenged in the courts and in the patent office in the United States
and abroad. An adverse determination in any such challenge could prevent the issuance of, reduce the scope of,
invalidate or render unenforceable our patent rights, result in the loss of exclusivity, or limit our ability to stop others
from using or commercializing our platform technology and products. Any of the foregoing could have a material
adverse effect on our business, financial condition, results of operations and prospects.
Any issued patents covering our product candidates, including any patent that may issue as a result of our pending or
future patent applications, could be found invalid or unenforceable if challenged in court in the United States or
abroad.
As more groups become engaged in scientific research and product development in fields related to our product
candidates, such as hepcidin mimetics or IL-23R, the risk of our patents, or patents that we have in-licensed, being
challenged through patent interferences, derivation proceedings, oppositions, re-examinations, litigation or other means
will likely increase. An adverse outcome in a patent dispute could have a material adverse effect on our business by:
•
•
•
causing us to lose patent rights in the relevant jurisdiction(s);
subjecting Janssen or us to litigation, or otherwise preventing the commercialization of product candidates in
the relevant jurisdiction(s); or
requiring Janssen or us to obtain licenses to the disputed patents, cease using the disputed technology or
develop or obtain alternative technologies.
An adverse outcome in a patent dispute could severely harm our collaboration with Janssen or cause Janssen to
terminate the Restated Agreement.
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.
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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.
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.
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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.
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;
48
•
•
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. Volatility in our share price could subject us to securities class action litigation.
Our stock price has fluctuated in the past and is likely to be volatile in the future. From January 1, 2022 through
December 31, 2022, the reported sale price of our common stock has fluctuated between $6.91 and $37.05 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 Annual Report.
In addition, 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.
We are required to develop and maintain proper and effective internal controls over financial reporting and any
failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company
and, as a result, the value of our common stock.
We are required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by
management on the effectiveness of our internal control over financial reporting. This assessment needs to include
disclosure of any material weaknesses identified by our management in our internal control over financial reporting. If
we have a material weakness and our independent registered public accounting firm is required to attest to the
effectiveness of our internal control over financial reporting, we would receive an adverse opinion.
We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff
with appropriate public company experience and technical accounting knowledge and continue the costly and
challenging process of compiling the system and processing documentation necessary to perform the evaluation needed
to comply with Section 404. We may not complete our continued evaluation, testing and any required remediation in a
timely fashion. During our evaluation of our internal control, if we identify one or more material weaknesses in our
internal control over financial reporting or fail to remediate any material weaknesses, we will be unable to assert that our
internal control over financial reporting is effective. Any material weakness or other failure to maintain internal control
over financial reporting could severely inhibit our ability to accurately report our financial condition or results of
operations.
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Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum
for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation (“Certificate of Incorporation”) provides that the Court of
Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings. Furthermore,
Section 22 of the Securities Act of 1933, as amended, creates concurrent jurisdiction for federal and state courts over all
Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. The choice of
forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes,
which may discourage such lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our
Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated
with resolving such action in other jurisdictions.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an
acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts
by our stockholders to replace or remove our current management.
There are provisions in our Certificate of Incorporation and Bylaws, such as the existence of a classified board and
the authorization of “blank-check” preferred stock, that may make it difficult for a third party to acquire, or attempt to
acquire, control of our company, even if a change in control was considered favorable by our stockholders. These
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors, who are responsible for
appointing the members of our management.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock
from merging or combining with us for a period of three years after the date of the transaction in which the person
acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed
manner. Any provision in our Certificate of Incorporation, our Bylaws or Delaware law that has the effect of delaying or
deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our
common stock and could also affect the price that some investors are willing to pay for our common stock.
General Risk Factors
Our ability to use net operating loss carryforwards to offset future taxable income, and our ability to use tax credit
carryforwards, may be subject to certain limitations.
Our ability to use our federal and state net operating losses (“NOLs”) to offset potential future taxable income and
related income taxes that would otherwise be due is dependent upon our generation of future taxable income, and we
cannot predict with certainty when, or whether, we will generate sufficient taxable income to use our NOLs. To the
extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if
any, until such unused losses expire.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an
“ownership change”, generally defined as a greater than fifty percentage point change (by value) in its equity ownership
by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss
carryforwards, or NOLs, and other pre-change tax attributes (such as research and development tax credits) to offset its
post-change taxable income or tax liability may be limited. We have experienced ownership changes in the past,
resulting in annual limitations in our ability to use our NOLs and credits. In addition, we may experience subsequent
ownership changes as a result of future equity offerings or other changes in the ownership of our stock, some of which
are beyond our control. As a result, the amount of the NOLs and tax credit carryforwards presented in our financial
statements could be limited and may expire unused. Any such material limitation or expiration of our NOLs may harm
our future operating results by effectively increasing our future tax obligations.
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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 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
We lease approximately 57,900 square feet of office and laboratory space in Newark, California under a lease
agreement, as amended, that expires in May 2024. We believe that our existing facilities are adequate to meet our current
business needs. We anticipate that additional space will be available on commercially reasonable terms, if required.
Item 3.
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 currently 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. Refer to Note 11 to the Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K for additional information on our historical legal proceedings.
Item 4.
Mine Safety Disclosures
Not applicable.
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PART II
Market Information
Our common stock trades on The Nasdaq Stock Market, LLC under the symbol “PTGX.”
Stockholders
As of the close of business on March 2, 2023, there were two stockholders of record of our common stock. The
number of stockholders of record is based upon the actual number of stockholders registered at such date and does not
include holders of shares in “street names” or persons, partnerships, associates, or corporations, or other entities
identified in security listings maintained by depositories.
Dividends
We have never declared or paid any cash dividends. We currently expect to retain all future earnings, if any, for use
in the operation and expansion of our business, and therefore do not anticipate paying any cash dividends in the
foreseeable future.
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Performance Graph
The following is not deemed “filed” with the Securities and Exchange Commission and shall not be incorporated
by reference into any filing we make under the Securities and Exchange Act of 1934, as amended, or the Securities Act
of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by
reference language in such filing. The graph below shows the cumulative total stockholder return assuming an
investment on December 31, 2017 in each of our common stock, the Nasdaq Composite Index, the Nasdaq
Biotechnology Index, and the Nasdaq Pharmaceutical Index. The graph compares the performance of a $100 investment
in our common stock and in each index (assuming reinvestment of all dividends) from December 31, 2017 to
December 31, 2022.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Protagonist Therapeutics, Inc., the NASDAQ Composite Index,
the NASDAQ Biotechnology Index and the NASDAQ Pharmaceutical Index
$250
$200
$150
$100
$100
$50
$0
$216
$164
$114
$41
$32
$49
$32
$60 $58 $58
$34
$34
$125
$97
$94
$85
$85
$52
$38
$41
12/17
3/18 6/18 9/18 12/18 3/19 6/19 9/19 12/19 3/20 6/20 9/20 12/20 3/21 6/21 9/21 12/21
3/22 6/22 9/22
12/22
Protagonist Therapeutics, Inc.
NASDAQ Composite
NASDAQ Biotechnology
NASDAQ Pharmaceutical
*The comparisons in the graph are based on historical data and are not indicative of, or
intended to forecast, future performance of our common stock.
Sale of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
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Item 6.
Reserved
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113
(formerly known as PN-235) in different stages of development, all derived from our proprietary discovery technology
platform. Our clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and
(ii) inflammatory and immunomodulatory diseases.
Rusfertide
Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an injectable hepcidin mimetic in
development for the potential treatment of erythrocytosis, iron overload and other blood disorders and is wholly owned.
Hepcidin is a key hormone in regulating iron equilibrium and is critical to the proper development of red blood cells.
Rusfertide mimics the effect of the natural hormone hepcidin, but with greater potency, solubility and stability. Data
from our rusfertide Phase 2 clinical trials presented at medical conferences in 2021 and 2022 provided evidence
regarding the potential of rusfertide for managing hematocrit, reducing thrombotic risk and improving iron deficiency
symptoms. Rusfertide has a unique mechanism of action in the potential treatment of the blood disorder polycythemia
vera (“PV”), which may enable it to specifically decrease and maintain hematocrit levels within the range of
recommended clinical guidelines without causing the iron deficiency that can occur with frequent phlebotomy. Our
rusfertide Phase 2 clinical trials include the following:
• REVIVE, a Phase 2 proof of concept (“POC”) trial, was initiated in the fourth quarter of 2019. We completed
enrollment of patients in the first quarter of 2022 with a target of approximately 50 patients to be enrolled
through the end of the randomization portion of the trial, which was completed during the first quarter of
2023, and will continue in open label extension.
• PACIFIC, another Phase 2 trial for rusfertide patients diagnosed with PV and with routinely elevated
hematocrit levels (>48%), was initiated during the first quarter of 2021 and completion of the 52-week trial is
expected during the second quarter of 2023.
At the June 2022 American Society of Clinical Oncology (“ASCO”) Annual Meeting, we presented updated
interim results for REVIVE and PACIFIC demonstrating the effects of dosing interruption and resumption. Rusfertide
dosing interruption led to loss of effect, including increased phlebotomy rate and increases in hematocrit and red blood
cells. Rusfertide restart restored therapeutic benefits. Following the brief clinical hold described below, over 90% of
patients in the REVIVE trial provided reconsent and returned to rusfertide treatment after dosing interruption and
reinitiation. At the June 2022 European Hematology Association Congress, we presented interim data as of May 2022
showing that rusfertide treatment interruption reverses hematologic gains and re-initiation of treatment restores
therapeutic benefits in patients with PV. At the December 2022 American Society of Hematology meeting, we presented
data as of October 2022 related to rusfertide, including a subgroup of analyses of the adverse event profile from the
REVIVE trial. These preliminary results indicated that 84% of treatment-emergent adverse events (“TEAEs”) were
Grade 2 or below. 16% of patients experienced Grade 3 TEAEs and there were no Grade 4 TEAEs.
On March 15, 2023, we announced positive topline results from the blinded, placebo-controlled, randomized
withdrawal portion of the REVIVE trial. Subjects receiving rusfertide achieved statistically significant improvements
versus placebo in the trial’s primary endpoint.
The double-blind, placebo-controlled, 12-week randomized withdrawal portion was included as Part 2 of the
REVIVE trial study to evaluate rusfertide in PV patients with frequent phlebotomy requirements. In the REVIVE trial,
subjects were initially enrolled in the 28-week open label dose-titration and efficacy evaluation Part 1 of the study,
followed by 1:1 randomization of 53 subjects to placebo versus rusfertide therapy for a subsequent duration of 12 weeks.
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More subjects receiving rusfertide during the blinded randomized withdrawal portion of the REVIVE trial were
responders compared with placebo (69.2% versus 18.5%, p=0.0003). A study subject was defined as a responder if the
subject completed 12 weeks of double-blind treatment while maintaining hematocrit control without phlebotomy
eligibility and without phlebotomy. During the 12 weeks of the blinded randomized withdrawal, only 2 of 26 subjects on
rusfertide were phlebotomized.
VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately 250 patients, was initiated in the first
quarter of 2022. Significant efforts have been taken toward the goal of full enrollment and a high degree of interest has
been observed from physicians and patient communities. We expect enrollment completion in the fourth quarter of 2023.
On September 16, 2021, the U.S. Food and Drug Administration (“FDA”) placed a clinical hold on our then
ongoing rusfertide clinical trials following our submission to the FDA of findings in a 26-week rasH2 transgenic mouse
carcinogenicity study. In October 2021, we submitted a Complete Response to the FDA related to the clinical hold, and
the FDA removed the clinical hold on October 8, 2021. In our Complete Response, we provided the individual patient
clinical safety reports the FDA requested for human cancers observed in rusfertide clinical trials, updated the investigator
brochure and patient informed consent forms for ongoing rusfertide trials, proposed new safety and stopping rules in trial
protocols for our ongoing rusfertide clinical trials, and performed a comprehensive review of our rusfertide safety
database. Dosing of patients and enrollment in ongoing clinical trials with rusfertide resumed in the fourth quarter of
2021.
The FDA granted orphan drug designation for rusfertide for the treatment of PV in June 2020, and Fast Track
designation for rusfertide for the treatment of PV in December 2020. The EMA granted orphan drug designation for
rusfertide for treatment of PV in October 2020. The FDA granted Breakthrough Therapy Designation for rusfertide for
the treatment of PV in June 2021. In April 2022, we received a letter from the FDA indicating the FDA’s intent to rescind
Breakthrough Therapy Designation for rusfertide in PV. In June 2022, we voluntarily withdrew our Breakthrough
Therapy Designation following correspondence with FDA and based on our internal analysis of the relative utility of
Breakthrough Therapy Designation for Phase 3 trials and beyond. The FDA correspondence relating to the Breakthrough
Therapy designation does not address the rusfertide Fast Track Designation, which remains active.
In keeping with our organizational prioritization of rusfertide in PV, plans to initiate trials of rusfertide in
additional disease indications have been paused. This decision was influenced in part by the enactment of the Inflation
Reduction Act (“IRA”) in the United States and includes previously planned trials of rusfertide in the subset of
hereditary hemochromatosis patients with chronic arthropathy.
JNJ-2113 (formerly known as PN-235)
Our partnered Interleukin-23 receptor (“IL-23R”) antagonist compound JNJ-2113 is an orally delivered
investigational drug that is designed to block biological pathways currently targeted by marketed injectable antibody
drugs. Our orally stable peptide approach may offer a targeted therapeutic approach for gastrointestinal (“GI”) and
systemic compartments as needed. We believe that, compared to antibody drugs, JNJ-2113 has the potential to provide
clinical improvement in an oral medication with increased convenience and compliance and the opportunity for the
earlier introduction of targeted oral therapy.
In May 2017, we entered into a worldwide license and collaboration agreement with Janssen Biotech, Inc.
(“Janssen”), a Johnson & Johnson company, to co-develop and co-detail our IL-23R antagonist compounds, including
PTG-200 (JNJ-67864238) and certain related compounds for all indications, including inflammatory bowel disease
(“IBD”). PTG-200 was a first-generation investigational, orally delivered, IL-23R antagonist for the treatment of IBD.
The agreement with Janssen was amended in May 2019 to expand the collaboration by supporting efforts towards
second-generation IL-23R antagonists; and in July 2021 to, among other things, enable Janssen to independently
research and develop collaboration compounds for multiple indications in the IL-23 pathway and further align our
financial interests.
55
During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision was made
by Janssen to advance second-generation product candidate JNJ-2113 (JNJ-77242113) based on its superior potency and
overall pharmacokinetic and pharmacodynamic profile. A JNJ-2113 Phase 1 trial was completed in the fourth quarter of
2021.
In February 2022, Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-
severe plaque psoriasis, which was completed in December 2022. FRONTIER1 was a randomized, multicenter, double-
blind, placebo-controlled study that evaluated three once-daily dosages and two twice-daily dosages of JNJ-2113 taken
orally. The primary endpoint of the study is the proportion of patients achieving PASI-75 (a 75% improvement in skin
lesions as measured by the Psoriasis Area and Severity Index) at 16 weeks. In March 2023, we announced positive
topline results from the trial. JNJ-2113 achieved the study’s primary efficacy endpoint, with a statistically significant
greater proportion of patients who received JNJ-2113 achieving PASI-75 responses compared to placebo at Week 16 in
all five of the study’s treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment
was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo.
It is our expectation that JNJ-2113 will progress into a Phase 3 registrational study in plaque psoriasis on the strength of
the FRONTIER1 data. Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study
would qualify us for milestone payments of $50 million and $115 million, respectively. Data will be presented from
various pre-clinical and clinical studies on JNJ-2113 at medical conferences beginning in the second quarter of 2023.
Other Phase 2 studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the
treatment of moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023 and
FRONTIER2, a long-term extension study. A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy
Japanese and Chinese adult participants is currently recruiting. Following the completion of Phase 2 studies of JNJ-2113
in plaque psoriasis, we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication. Additional
indications may include any or all of psoriatic arthritis, UC and CD.
During the fourth quarter of 2021, we received a $7.5 million milestone payment from Janssen triggered by the
completion of data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a $25.0 million
milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. We
will be eligible to receive a $10.0 million milestone payment in connection with the dosing of a third patient in the
second Phase 2 trial of a second-generation candidate, a $50 million milestone upon dosing of a third patient in a Phase 3
trial for a second-generation compound for any indication, and a $115.0 million milestone payment upon a Phase 3
clinical trial for a second-generation compound for any indication meeting its primary clinical endpoint. We remain
eligible for up to approximately $855.0 million in future development and sales milestone payments, in addition to the
$112.5 million in nonrefundable payments from Janssen received to date. We also remain eligible to receive tiered
royalties on net product sales at percentages ranging from mid-single digits to ten percent.
PN-943
PN-943 is a wholly owned, investigational, orally delivered, gut-restricted alpha 4 beta 7 (“α4β7”) specific integrin
antagonist for IBD. During the second quarter of 2020, we initiated IDEAL, a 159 patient Phase 2 trial evaluating the
safety, tolerability and efficacy of PN-943 in patients with moderate to severe UC. Enrollment in IDEAL was completed
during the first quarter of 2022. The trial includes a 12-week induction period, which has been completed, and a 40-week
extended treatment period. With the exception of completing the 40-week extended treatment period for eligible patients
in the IDEAL trial, which is expected to be completed in the first quarter of 2023, we do not intend to dedicate further
internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.
Discovery Platform
Our clinical assets are all derived from our proprietary discovery platform. Our platform enables us to engineer
novel, structurally constrained peptides that are designed to retain key advantages of both orally delivered small
molecules and injectable antibody drugs in an effort to overcome many of their limitations as therapeutic agents.
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Importantly, constrained peptides can be designed to potentially alleviate the fundamental instability inherent in
traditional peptides to allow different delivery forms, such as oral, subcutaneous, intravenous, and rectal. We continue to
use our peptide technology platform to discover product candidates against targets in disease areas with significant
unmet medical needs. For example, we have a pre-clinical stage program to identify an orally active hepcidin mimetic,
which we believe will be complementary to the injectable rusfertide for offering the best treatment options for PV,
hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.
Business Outlook
We are subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and
emergent variants with increased transmissibility, even in those who are fully vaccinated. Some of the workforce trends
starting during the pandemic have continued to lead to staffing shortages in settings such as clinical trial sites and
healthcare offices. The future impact of COVID-19 on our activities will depend on a number of factors, including, but
not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants; the
timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments; and new travel and other
restrictions and public health measures. We have experienced delays in our existing and planned clinical trials due to the
worldwide impacts of the pandemic. Our future results of operations and liquidity could be adversely impacted by
further delays in existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials,
delays in manufacturing and collaboration activities, supply chain disruptions and the ongoing impact on our operating
activities and employees. In addition, a recession or market correction related to or amplified by COVID-19 could
materially affect our business.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been
impacted by domestic and global monetary and fiscal policy, geopolitical instability, the ongoing military conflict
between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment and
historically high domestic and global inflation. In particular, the conflict in Ukraine has exacerbated market disruptions,
including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record
inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more
restrictive monetary policy and inflation may increase or continue for a prolonged period of time. Inflationary factors,
such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely
affect our operating results. Also, the failure of Silicon Valley Bank and other banks in the United States in March 2023
has given rise to uncertainty in the security of amounts in deposit accounts uninsured by the Federal Deposit Insurance
Corporation. We continue to monitor these events and the potential impact on our business. Although we do not believe
that inflation has had a material impact on our financial position or results of operations to date, we may be adversely
affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences
associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and such factors may lead to increases
in the cost of manufacturing our product candidates and delays in initiating trials.
Operations
We have incurred net losses in each year since inception and we do not anticipate achieving sustained profitability
in the foreseeable future. Our net losses were $127.4 million, $125.6 million and $66.2 million for the years ended
December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, we had an accumulated deficit of
$536.8 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and
development programs and from general and administrative costs associated with our operations. We expect to continue
to incur significant research and development expenses and other expenses related to our ongoing operations, product
development, and pre-commercialization activities. As a result, we expect to continue to incur losses in the future as we
continue our development of, and seek regulatory approval for, our product candidates.
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Janssen License and Collaboration Agreement
On July 27, 2021, we entered into the Restated Agreement with Janssen, which amends and restates the Original
Agreement, as amended by the First Amendment. Janssen is a related party to us as Johnson & Johnson Innovation—
JJDC, Inc., a significant stockholder of ours, and Janssen are both subsidiaries of Johnson & Johnson. 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 Consolidated Financial Statements included elsewhere
in this Annual Report on Form 10-K 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
consolidated financial statements, which have been prepared in accordance with United States generally accepted
accounting principles. The preparation of these 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 consolidated financial statements, as well as the reported revenue generated, and the 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. We believe that the accounting policies discussed below are critical
to understanding our historical and future performance, as these policies relate to the more significant areas involving
management’s judgments and estimates.
Use of Estimates
The preparation of the 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, we evaluate our 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 our deliverables to determine percentage of completion in addition to the application and estimates of potential
revenue constraints in the determination of the transaction price under its license and collaboration agreements. We base
these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable
under the circumstances, including assumptions as to forecasted amounts and future events.
Due to the COVID-19 pandemic, military conflict between Ukraine and Russia, rising tensions between China and
Taiwan and inflationary pressures, among other factors, there has been uncertainty and disruption in the global economy
and financial markets. We have taken into consideration any known impacts in our accounting estimates to date and are
not aware of any additional specific events or circumstances that would require any additional updates to our estimates
or judgments or a revision of the carrying value of our assets or liabilities as of the date of the filing of this Annual
Report on Form 10-K. 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.
Revenue Recognition
Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), we
recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the
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consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for
arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the
contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as)
we satisfy a performance obligation. We apply the five-step model to contracts when it is probable that we will collect
the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract
inception, we assess the goods or services promised within each contract, determine those that are performance
obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of
the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations
are satisfied. We constrain our estimate of the transaction price up to the amount (the “variable consideration constraint”)
that a significant reversal of recognized revenue is not probable.
Licenses of intellectual property: If a license to our intellectual property is determined to be distinct from the other
performance obligations identified in an arrangement, we recognize revenue from non-refundable, upfront fees allocated
to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.
For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance
obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if
over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from
non-refundable, upfront fees. We evaluate the measure of proportional performance each reporting period and, if
necessary, adjust the measure of performance and related revenue recognition.
Milestone payments: At the inception of each arrangement or amendment that includes development, regulatory or
commercial milestone payments, we evaluate whether the milestones are considered probable of being reached and
estimate the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating
the amount of variable consideration: the expected value method and the most likely amount method. Under the
expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration
amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible
consideration amounts. Whichever method is used should be consistently applied throughout the life of the contract;
however, it is not necessary for us to use the same approach for all contracts. We expect to use the most likely amount
method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would
not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our
control or the control of the licensee, such as regulatory approvals, are not considered probable of being achieved until
those approvals are received. If there is more than one performance obligation, the transaction price is then allocated to
each performance obligation on a relative stand-alone selling price basis. We recognize revenue as or when the
performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate
the probability or achievement of each such milestone and any related constraint, and if necessary, adjust our estimates
of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect
revenues and earnings in the period of adjustment.
Any potential milestone payments that we determine are not associated with performance obligations as defined
under the contract are excluded from the transaction price and are recognized as the triggering event occurs.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of
sales, where the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the
later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has
been allocated has been satisfied (or partially satisfied).
Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of
revenue recognition to a future period until we perform our obligations under these arrangements. Amounts payable to us
are recorded as accounts receivable when our right to consideration is unconditional. Amounts payable to us and not yet
billed to the collaboration partner are recorded as contract assets. We do not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the period between payment by the customer
and the transfer of the promised goods or services to the customer will be one year or less.
59
Contractual cost sharing payments made to a customer or collaboration partner are accounted for as a reduction to
the transaction price if such payments are not related to distinct goods or services received from the customer or
collaboration partner.
Contracts may be amended to account for changes in contract specifications and requirements. Contract
modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations.
When contract modifications create new performance obligations and the increase in consideration approximates the
standalone selling price for goods and services related to such new performance obligations, as adjusted for specific facts
and circumstances of the contract, the modification is considered to be a separate contract and revenue is recognized
prospectively. If a contract modification is not accounted for as a separate contract, we account for the promised goods
or services not yet transferred at the date of the contract modification (the remaining promised goods or services)
prospectively, as if it were a termination of the existing contract and the creation of a new contract, if the remaining
goods or services are distinct from the goods or services transferred on or before the date of the contract modification.
We account for a contract modification as if it were a part of the existing contract if the remaining goods or services are
not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the
contract modification. In such case the effect that the contract modification has on the transaction price, and on the
entity’s measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment
to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to
revenue is made on a cumulative catch-up basis).
Research and Development Costs
Research and development costs are expensed as incurred, unless there is an alternate future use in other research
and development projects or otherwise. Research and development costs include salaries and benefits, stock-based
compensation expense, laboratory supplies and facility-related overhead, outside contracted services, including clinical
trial costs, manufacturing and process development costs for both clinical and pre-clinical materials, research costs,
development milestone payments under license and collaboration agreements, and other consulting services.
We accrue for estimated costs of research and development activities conducted by third-party service providers,
which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities. We record the
estimated costs of research and development activities based upon the estimated services provided but not yet invoiced
and we include these costs in accrued expenses and other payables in our consolidated balance sheets and within
research and development expense in our consolidated statements of operations. We accrue for these costs based on
various factors such as estimates of the work completed and in accordance with agreements established with our third-
party service providers. As actual costs become known, we adjust our accrued liabilities. We have not experienced any
material differences between accrued liabilities and actual costs incurred. However, the status and timing of actual
services performed, number of patients enrolled, the rate of patient enrollment and the number and location of sites
activated may vary from our estimates and may result in adjustments to our research and development expenses in future
periods. Changes in these estimates that result in material changes to our accruals could materially affect our results of
operations.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements applicable to us is included in Note 2 to the
Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Components of Our Results of Operations
License and Collaboration Revenue
Our license and collaboration revenue is derived from payments we receive under the Janssen License and
Collaboration Agreement. See Note 3 to the Consolidated Financial Statements included elsewhere in this Annual Report
on Form 10-K for additional information.
60
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 study sites that conduct research and development activities
on our behalf;
employee-related expenses, which include salaries, benefits and stock-based compensation;
laboratory vendor expenses related to the preparation and conduct of pre-clinical, non-clinical, and clinical
studies;
costs related to production of clinical supplies and non-clinical materials, including fees paid to contract
manufacturers;
license fees and milestone payments under license and collaboration agreements; and
facilities and other allocated expenses, which include expenses for rent and maintenance of facilities,
information technology, depreciation and amortization expense and other supplies.
We recognize the amounts related to our Australian research and development refundable cash tax incentive that
are not subject to refund provisions as a reduction of research and development expenses. The research and development
tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant
expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility
under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the
most current and relevant data available. We may alternatively be eligible for a taxable credit in the form of a non-cash
tax incentive. We recognize the amounts from grants under government programs as a reduction of research and
development expenses when the related research costs are incurred.
We allocate direct and indirect costs incurred to product candidates when they enter clinical development. For
product candidates in clinical development, direct costs consist primarily of clinical, pre-clinical, and drug discovery
costs, costs of supplying drug substance and drug product for use in clinical and pre-clinical studies, including clinical
manufacturing costs, contract research organization fees, and other contracted services pertaining to specific clinical and
pre-clinical studies. Indirect costs allocated to our product candidates on a program-specific basis include research and
development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative
support costs. Program-specific costs are unallocated when the clinical expenses are incurred for our early-stage research
and drug discovery projects as our internal resources, employees and infrastructure are not tied to any one research or
drug discovery project and are typically deployed across multiple projects. As such, we do not provide financial
information regarding the costs incurred for early stage pre-clinical and drug discovery programs on a program-specific
basis prior to the clinical development stage.
61
We expect our research and development expenses to decrease in the near term as we continue to de-prioritize our
PN-943 clinical program and streamline certain discovery programs to focus our resources toward progressing our
rusfertide program into later stage clinical trials and preparing for commercialization. The process of conducting
research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain
regulatory approval and commencing pre-commercialization activities is costly and time intensive. We may never
succeed in achieving marketing approval for our product candidates regardless of our costs and efforts. The probability
of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data,
competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory
approvals, market conditions, and our ability to successfully commercialize our products if they are approved for
marketing. As a result, we are unable to determine the duration and completion costs of our research and development
projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product
candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities
and available resources. With the exception of completing the 40-week extended treatment period for eligible patients in
the Phase 2 IDEAL trial, which we expect to be completed in the first quarter of 2023, we do not intend to dedicate
further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program.
We will continue to explore out-licensing opportunities globally.
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.
Interest Expense
Interest expense consists of interest recognized on our long-term debt, which is comprised of contractual interest,
amortization of origination fees and other issuance costs, and accretion of final payment fees.
Loss on Early Repayment of Debt
Loss on early repayment of debt consists of prepayment and final payment fees paid upon the early repayment of
our long-term debt.
Other Expense, Net
Other expense, net consists primarily of amounts related to foreign exchange gains and losses and related items.
62
Results of Operations
Year Ended December 31,
License and collaboration revenue—related party . . . . . . . . . . .
Operating expenses:
Research and development (1) . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative (2) . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dollar
Change
%
Change
2022
2021
(Dollars in thousands)
27,357 $
$
$
26,581
126,215
31,739
157,954
(131,373)
4,060
(80)
126,006
27,196
153,202
(125,845)
443
(149)
$ (127,393) $ (125,551) $
(776)
209
4,543
4,752
(5,528)
3,617
69
(1,842)
(3)
—
17
3
4
*
(46)
1
(1) Includes $14.7 million and $9.0 million of non-cash stock-based compensation expense for the years ended
December 31, 2022 and 2021, respectively.
(2) Includes $9.5 million and $7.4 million of non-cash stock-based compensation expense for the years ended
December 31, 2022 and 2021, respectively.
*Percentage not meaningful
License and Collaboration Revenue
License and collaboration revenue decreased $0.8 million, or 3%, from $27.4 million for the year ended
December 31, 2021 to $26.6 million for the year ended December 31, 2022. The decrease in revenue was primarily due
to a decrease in services under the Janssen License and Collaboration Agreement recognized based on proportional
performance. We completed our performance obligation pursuant to the collaboration as of June 30, 2022.
We determined that the final transaction price of the initial performance obligation under the Restated Agreement
is $131.7 million as of December 31, 2022, an increase of $25.2 million from the transaction price of $106.5 million as
of December 31, 2021. In order to determine the transaction price, we evaluated all payments to be received during the
duration of the contract, net of development costs reimbursement expected to be payable to Janssen. The transaction
price as of December 31, 2022 includes $112.5 million of nonrefundable payments received as of June 30, 2022,
$17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research
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.
Research and Development Expenses
Year Ended December 31,
Clinical and development expense—rusfertide (PTG-300) . . . .
Clinical and development expense—PN-943 . . . . . . . . . . . . . . .
Clinical and development expense—JNJ-2113 (PN-235) . . . . .
Clinical and development expense—PN-232 . . . . . . . . . . . . . . .
Clinical and development expense—PTG-200 . . . . . . . . . . . . . .
Clinical and development expense—PTG-100 . . . . . . . . . . . . . .
Preclinical and drug discovery research expense . . . . . . . . . . . .
Milestone payment obligation to former collaboration partner .
Grants and tax incentives expense reimbursement, net . . . . . . .
Total research and development expenses . . . . . . . . . . . . . . . . . .
$
$
63
2022
$
2021
(Dollars in thousands)
55,382 $
37,655
4,777
2,037
23
374
24,943
4,000
(3,185)
126,006 $
$
64,789
36,906
201
356
53
248
23,704
—
(42)
126,215
Dollar
Change
%
Change
9,407
(749)
(4,576)
(1,681)
30
(126)
(1,239)
(4,000)
3,143
209
17
(2)
(96)
(83)
130
(34)
(5)
(100)
(99)
—
We had 82 and 92 full-time equivalent research and development employees as of December 31, 2022 and 2021,
respectively. Research and development expenses for the year ended December 31, 2022 included increases of
$5.7 million in stock-based compensation expense and $4.7 million of other personnel-related expenses compared to the
year ended December 31, 2021.
General and Administrative Expenses
General and administrative expenses increased $4.5 million, or 17%, from $27.2 million for the year ended
December 31, 2021 to $31.7 million for the year ended December 31, 2022, primarily due to increases of $2.2 million in
personnel-related expenses and $2.3 million in other expenses to support the growth of our business. The increase in
personnel-related expenses was primarily due to an increase of $2.1 million in stock-based compensation expense.
We had 23 and 26 full-time equivalent general and administrative employees as of December 31, 2022 and 2021,
respectively.
Interest Income
Interest income increased $3.6 million, from $0.4 million for the year ended December 31, 2021 to $4.1 million for
the year ended December 31, 2022. This increase was primarily due to higher yields on invested balances during a
period of increasing interest rates compared to the prior year period.
Comparison of the Years Ended December 31, 2021 and 2020
Year Ended December 31,
2021
2020
(Dollars in thousands)
Dollar
Change
%
Change
License and collaboration revenue—related party . . . . . . . .
Operating expenses:
Research and development (1) . . . . . . . . . . . . . . . . . . . . . .
General and administrative (2) . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early repayment of debt . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
27,357
$
28,628 $
(1,271)
126,006
27,196
153,202
(125,845)
443
—
—
(149)
(125,551)
—
(125,551) $
$
74,506
18,638
93,144
(64,516)
900
(598)
(585)
(46)
(64,845)
(1,305)
(66,150) $
51,500
8,558
60,058
(61,329)
(457)
598
585
(103)
(60,706)
1,305
(59,401)
(4)
69
46
64
95
(51)
(100)
(100)
224
94
(100)
90
(1) Includes $9.0 million and $4.1 million of non-cash stock-based compensation expense for the years ended
December 31, 2021 and 2020, respectively.
(2) Includes $7.4 million and $3.8 million of non-cash stock-based compensation expense for the years ended
December 31, 2021 and 2020, respectively.
License and Collaboration Revenue
License and collaboration revenue decreased $1.3 million, or 4%, from $28.6 million for the year ended
December 31, 2020 to $27.4 million for the year ended December 31, 2021. The decrease in license and collaboration
revenue was primarily related to a decrease in services provided under the Janssen License and Collaboration Agreement
recognized based on proportional performance, partially offset by an $8.0 million cumulative catch-up amount
recognized during the year ended December 31, 2021. This cumulative catch-up was primarily the result of an
64
acceleration of our cumulative performance completed, following the execution of the Restated Agreement, which
reduced our remaining performance obligation. Revenue for the year ended December 31, 2020 included an update in
the amounts forecasted for future services remaining to be performed under the Janssen License and Collaboration
Agreement which correspondingly increased our overall cumulative percentage of completion of our performance
obligation during year ended December 31, 2020, along with continued performance and delivery of services under the
Janssen License and Collaboration Agreement.
We determined that the transaction price of the initial performance obligation under the Restated Agreement was
$106.5 million as of December 31, 2021, an increase of $7.9 million from the transaction price of $98.6 million as of
December 31, 2020, under the Original Agreement. In order to determine the transaction price, we evaluated all
payments expected to be received during the duration of the contract, net of development costs reimbursement expected
to be payable to Janssen. We determined that the transaction price included $87.5 million of nonrefundable payments
received as of December 31, 2021, $17.9 million of reimbursement from Janssen for services performed for IL-23
receptor antagonist compound research and other services and estimated variable consideration consisting of
$8.2 million of development cost reimbursement from Janssen, partially offset by $7.1 million of net cost reimbursement
due to Janssen for services performed. The increase in transaction price from December 31, 2020 to December 31, 2021
was due primarily to reductions in both the remaining services to be performed by us under the Restated Agreement and
the remaining shared development costs under the Restated Agreement.
Research and Development Expenses
Year Ended December 31,
Clinical and development expense—rusfertide (PTG-300) . . . .
Clinical and development expense—PN-943 . . . . . . . . . . . . . . .
Clinical and development expense—JNJ-2113 (PN-235) . . . . .
Clinical and development expense—PN-232 . . . . . . . . . . . . . . .
Clinical and development expense—PTG-200 . . . . . . . . . . . . . .
Clinical and development expense—PTG-100 . . . . . . . . . . . . . .
Pre-clinical and drug discovery research expense. . . . . . . . . . . .
Milestone payment obligation to former collaboration partner .
Grants and tax incentives expense reimbursement, net . . . . . . .
Total research and development expenses . . . . . . . . . . . . . . . . . .
$
$
*Percentage not meaningful
2021
$
2020
(Dollars in thousands)
32,395 $
23,354
317
—
925
540
18,453
—
(1,478)
74,506 $
$
55,382
37,655
4,777
2,037
23
374
24,943
4,000
(3,185)
126,006
Dollar
Change
%
Change
22,987
14,301
4,460
2,037
(902)
(166)
6,490
4,000
(1,707)
51,500
71
61
*
*
(98)
(31)
35
*
115
69
Research and development expenses increased $51.5 million, or 69%, from $74.5 million for the year ended
December 31, 2020 to $126.0 million for the year ended December 31, 2021. The increase was primarily due to an
increase of $23.0 million in rusfertide clinical trial and development costs as clinical trials have enrolled and progressed,
including the ongoing REVIVE and PACIFIC Phase 2 trials in PV, which began in December 2019 and the first quarter
of 2021, respectively, and HH, which began in early 2020, and clinical and contract manufacturing activities incurred in
2021 in support of the REVIVE and PACIFIC Phase 2 trials and planned VERIFY global Phase 3 clinical trial of
rusfertide in PV; an increase of $14.3 million in PN-943 clinical trial and development costs and contract manufacturing
costs primarily related to the Phase 2 IDEAL trial in UC initiated during the second quarter of 2020; an increase of
$6.5 million in preclinical and drug discovery research expenses; an increase of $4.5 million of clinical trial and
development costs for the Phase 1 JNJ-2113 initiated in December 2020; an increase of $4.0 million of expenses related
to milestone payments and obligations under the Zealand Agreement for rusfertide pursuant to the resolution of related
arbitration; and an increase of $2.0 million of clinical trial and development costs for the Phase 1 PN-232 study initiated
in May 2021. These increases were partially offset by a $1.7 million increase in grant and accrued refundable cash tax
incentives and a decrease of $0.9 million in PTG-200 clinical trial and development expenses under the Janssen License
65
and Collaboration Agreement due to our delivery of substantially all agreed-upon services for the PTG-200 Phase 2
clinical trial prior to 2021.
We had 92 and 59 full-time equivalent research and development employees as of December 31, 2021 and 2020,
respectively. Research and development expenses for the year ended December 31, 2021 included increases of
$4.9 million in stock-based compensation expense and $5.3 million of other personnel-related expenses compared to the
year ended December 31, 2020.
General and Administrative Expenses
General and administrative expenses increased $8.6 million, or 46%, from $18.6 million for the year ended
December 31, 2020 to $27.2 million for the year ended December 31, 2021, primarily due to increases of $5.2 million in
personnel-related expenses, $1.6 million in consulting expenses, $0.9 million in market research expenses, $0.5 million
in recruiting expenses to support the growth of our business, and $0.3 million in insurance expense. The increase in
personnel-related expenses was primarily due to an increase of $3.6 million in stock-based compensation expense and
$1.6 million in wages and salaries.
We had 26 and 20 full-time equivalent general and administrative employees as of December 31, 2021 and 2020,
respectively.
Interest Income
Interest income decreased $0.5 million, or 51%, from $0.9 million for the year ended December 31, 2020 to
$0.4 million for the year ended December 31, 2021. This decrease was primarily due to the low interest rate environment
in 2021 and a change in the mix of marketable securities compared to the prior year period, despite higher interest-
earning asset balances.
Interest Expense
Interest expense of $0.6 million for the year ended December 31, 2020 was comprised of interest expense on our
long-term debt under our term credit facility. We prepaid our outstanding long-term debt under our term credit facility
during the second quarter of 2020. We executed a payoff letter to release all obligations under the term credit facility
during the third quarter of 2021.
Loss on Early Repayment of Debt
Loss on early repayment of debt of $0.6 million for the year ended December 31, 2020 was comprised of
prepayment and final payment fees paid in connection with the early repayment of our term loan in June 2020. We had
no debt outstanding at December 31, 2021.
Other Expense, Net
Other expense, net was $0.1 million for the year ended December 31, 2021 compared to zero for the year ended
December 31, 2020. The change was due primarily to an increase in foreign exchange losses.
Income Tax Expense
Income tax expense decreased $1.3 million, or 100%, from $1.3 million for the year ended December 31, 2020 to
zero for the year ended December 31, 2021. Our effective income tax rate was 0% for the year ended December 31, 2021
as compared to 2.0% for the year ended December 31, 2020. Our effective income tax rate differed from our federal
statutory rate of 21% primarily because our losses could not be benefited due to our full valuation allowance position.
During the second quarter of 2020, our Australia subsidiary sold beneficial rights to discovery intellectual property to
our U.S. entity, and the U.S. entity reimbursed the Australia subsidiary for certain direct development costs.
66
Upon completion of the sale, we analyzed tax planning strategies and future income and concluded that a valuation
allowance was necessary for our Australia subsidiary. Income tax expense for the year ended December 31, 2020
reflected the sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset,
establishment of a valuation allowance and certain uncertain tax position liabilities. We maintained a full valuation
allowance on our tax position at December 31, 2021.
Liquidity and Capital Resources
Liquidity and Capital Expenditures
Sources of Liquidity
Historically, we have funded our operations primarily from net proceeds from the sale of shares of our common
stock and receipt of payments under collaboration agreements.
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”). As of December 31, 2022, no sales were made under the 2022 ATM Facility.
In June 2021, we completed an underwritten public offering of 3,046,358 shares of common stock at a public
offering price of $37.75 per share and issued an additional 456,953 shares of common stock at a public offering price of
$37.75 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after
deducting underwriting commission and offering costs paid by us, were $123.8 million.
In December 2020, we completed an underwritten public offering of 4,761,904 shares of common stock at a public
offering price of $21.00 per share and issued an additional 714,285 shares of our common stock at a price of $21.00 per
share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after deducting
underwriting commissions and offering costs paid by us, were $107.6 million.
In May 2020, we completed an underwritten public offering of 7,000,000 shares of our common stock at a public
offering price of $14.00 per share, and we issued an additional 1,050,000 shares of our common stock at a price of
$14.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after
deducting underwriting commissions and offering costs paid by us, were $105.3 million.
In November 2019, we entered into an Open Market Sale AgreementSM (the “Prior Sales Agreement”), pursuant to
which we could offer and sell up to $75.0 million of shares of our common stock from time to time in “at-the-market”
offerings (the “2019 ATM Facility”). During the year ended December 31, 2020, we sold 2,483,719 shares under the
2019 ATM Facility for net proceeds of $41.9 million. No shares were sold under the 2019 ATM Facility during the year
ended December 31, 2021. During the year ended December 31, 2022, we sold 422,367 shares of our common stock
under the 2019 ATM Facility for net proceeds of $14.6 million. The Prior Sales Agreement was terminated in connection
with and replaced by the Sales Agreement in August 2022.
We have received a total of $112.5 million in non-refundable payments from Janssen since the inception of the
Janssen License and Collaboration Agreement in 2017 through December 31, 2022, 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;
67
•
•
•
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 $7.5 million milestone payment from Janssen triggered by
completion of the data collection for JNJ-2113 (formerly known as PN-235) Phase 1 activities, which was
received during the fourth quarter of 2021; and
In March 2022, we became eligible to receive a $25.0 million milestone payment in connection with the
dosing of the third patient in the Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis
during the first quarter of 2022, which was received during the second quarter of 2022.
We also expect to receive payments for services provided under the collaboration agreement and we may make in-
kind payment reimbursements to Janssen for certain costs they have incurred pursuant to the cost sharing terms of the
agreement.
Pursuant to the Restated Agreement, we may be eligible to receive clinical development, regulatory and sales
milestones, if and when achieved. Upcoming potential development milestones for second-generation products include:
•
•
•
•
$10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation
product for a second indication (i.e., an indication different than the indication which triggered the
$25.0 million milestone payment received during the first quarter of 2022 described above);
$50.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound
for any indication;
$15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound
for a second indication; and
$115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its
primary clinical endpoint.
Capital Requirements
As of December 31, 2022, we had $237.4 million of cash, cash equivalents and marketable securities and an
accumulated deficit of $536.8 million. Our capital expenditures were $0.8 million, $1.1 million and $0.5 million for the
years ended December 31, 2022, 2021 and 2020, respectively. Our primary uses of cash are to fund our operating
expenses, primarily related to our research and development expenditures, general and administrative costs and pre-
commercialization costs. Cash used 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 that our existing cash, cash
equivalents and marketable securities will be sufficient to meet our anticipated operating and capital expenditure
requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong.
We could utilize our available capital resources sooner than we currently expect if, for instance, our planned pre-clinical
and clinical trials are successful or expanded, our product candidates enter new and more advanced stages of clinical
development, we experience significant delays or difficulties in commencing, enrolling or completing clinical studies,
our newer product clinical trials advance beyond the discovery stage, or various other factors. We expect that our cash
burn will be lower in 2023 due to our research and development expenses decreasing in the near term as we continue to
de-prioritize our PN-943 clinical program and streamline certain discovery programs to focus our resources toward
progressing our rusfertide program into later stage clinical trials and preparing for commercialization.
68
We anticipate that we will need to raise substantial additional funding to advance rusfertide through clinical
development and toward potential regulatory approval and to develop, acquire, or in-license other potential product
candidates. Our future funding requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
the progress, timing, scope, results and costs of advancing our clinical trials for our product candidates,
including the ability to enroll patients in a timely manner for our clinical trials;
the costs of and our ability to obtain clinical and commercial supplies and any other product candidates we
may identify and develop;
our ability to successfully commercialize the product candidates we may identify and develop;
the selling and marketing costs associated with our current product candidates and any other product
candidates we may identify and develop, including the costs and timing of expanding our sales and marketing
capabilities;
the achievement of development, regulatory and sales milestones resulting in payments to us from Janssen
under the Restated Agreement or other such arrangements that we may enter into, and the timing of such
payments, if any;
the timing, receipt and amount of royalties under the Restated Agreement on worldwide net sales of IL-23
receptor antagonist compounds, upon regulatory approval or clearance, if any;
the amount and timing of sales and other revenues from our current product candidates and any other product
candidates we may identify and develop, including the sales price and the availability of adequate third-party
reimbursement;
the cash requirements of any future acquisitions or discoveries of product candidates;
the time and costs necessary to respond to technological and market developments;
the extent to which we may acquire or in-license other product candidates and technologies;
the costs necessary to attract, hire and retain qualified personnel;
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 I, Item1A.”Risk Factors”, we are currently operating in a period of
economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global
monetary and fiscal policy, and geopolitical instability, among other factors. A future recession or market correction
related to COVID-19 or due to other factors, including significant geopolitical or macroeconomic events, could
materially affect our business and our access to credit and financial markets.
Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our
ability to pursue our business plans and strategies. Further, our operating plans may change, and we may need additional
funds to meet operational needs and capital requirements for clinical trials, other research and development activities and
pre-commercialization costs. If we do raise additional capital through public or private equity offerings or convertible
debt securities, the ownership interest of our existing stockholders could be diluted, and the terms of these securities
69
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 I, Item 1A, Risk Factors—“Risks
Related to our Financial Position and Capital Requirements”.
The following table includes our cash flow data for the periods indicated (in thousands):
Consolidated Statements of Cash Flows Data:
2022
Year Ended December 31,
2021
(Dollars in thousands)
Cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by (used in) investing activities. . . . . . . . . . . .. . . .
Cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
(108,137) $
$
$
$
91,468
18,838
24,202
(107,865) $
(15,860) $
129,923 $
16,395 $
2020
(72,484)
(90,965)
247,626
7,899
Cash Used in Operating Activities
Cash used in operating activities during the year ended December 31, 2022, was $108.1 million, consisting
primarily of our net loss of $127.4 million and a net change of $7.8 million in net operating assets and liabilities,
partially offset by certain non-cash items, including $24.2 million of stock-based compensation expense. The
$0.3 million increase in cash flow used in operating activities during the year ended December 31, 2022, as compared to
the year ended December 31, 2021, was primarily due to a $1.8 million increase in our net loss, a $4.5 million net
change in net operating assets and liabilities, and a $1.8 million net change in other non-cash items, partially offset by a
$7.8 million increase in stock-based compensation expense.
Cash used in operating activities during the year ended December 31, 2021, of $107.9 million consisted primarily
of our net loss of $125.6 million, partially offset by certain non-cash items including $16.4 million of stock-based
compensation expense. The $35.4 million increase in cash flow used in operating activities during the year ended
December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to a $59.4 million increase in
our net loss, partially offset by certain non-cash items including an increase of $8.5 million of stock-based compensation
expense, and a $14.2 million change in decrease in deferred revenue.
Cash Provided by (Used in) Investing Activities
Cash provided by investing activities for the year ended December 31, 2022, was $91.5 million, consisting of
proceeds from maturities of marketable securities of $307.1 million, partially offset by purchases of marketable
securities of $214.9 million and purchases of property and equipment of $0.8 million. The $107.3 million increase in
cash provided by investing activities for the year ended December 31, 2022, as compared to the year ended December
31, 2021, was primarily related to a decrease of $71.7 million in purchases of marketable securities and an increase of
$35.3 million in proceeds from maturities of marketable securities. Purchases of property and equipment were primarily
related to purchases of laboratory and computer equipment.
Cash used in investing activities for the year ended December 31, 2021, was $15.9 million, consisting of purchases
of marketable securities of $286.6 million and purchases of property and equipment of $1.1 million, partially offset by
proceeds from maturities of marketable securities of $271.8 million. The $75.1 million decrease in cash used in investing
activities for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due
to an increase of $82.3 million in proceeds from maturities of marketable securities. Purchases of property and
equipment were primarily related to purchases of laboratory equipment, furniture and computer equipment.
70
Cash Provided by Financing Activities
Cash provided by financing activities for the year ended December 31, 2022, was $18.8 million, consisting
primarily of net cash proceeds from sales of $14.6 million under the 2019 ATM Facility and proceeds from the issuance
of common stock upon the exercise of stock options and purchases of common stock under our employee stock purchase
plan of $4.4 million. The $111.1 million decrease in cash provided by financing activities for the year ended
December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $123.8 million decrease
in cash proceeds from our public offerings of common stock, and a $1.8 million decrease in proceeds from the issuance
of common stock upon exercise of stock options and purchases of common stock under our employee stock purchase
plan. These decreases were partially offset by $14.6 million increase in cash proceeds from ATM sales.
Cash provided by financing activities for the year ended December 31, 2021, was $129.9 million, consisting
primarily of cash proceeds from our public offerings of common stock of $123.8 million and proceeds from the issuance
of common stock upon the exercise of stock options and purchases of common stock under our employee stock purchase
plan of $6.3 million. The $117.7 million decrease in cash provided by financing activities for the year ended
December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to an $89.5 million decrease
in cash proceeds from our public offerings of common stock, a $42.1 million decrease in cash proceeds from ATM sales.
These decreases were partially offset by $10.5 million related to the early repayment of long-term debt in 2020 and a
$3.5 million increase in proceeds from the issuance of common stock upon exercise of stock options and purchases of
common stock under our employee stock purchase plan.
Contractual Obligations and Other Commitments
In the normal course of business, we enter into agreements with contract service providers to assist in the
performance of our research and development activities and clinical and commercial manufacturing activities. Subject to
required notice periods and our obligations under binding commitments, we can elect to discontinue the work under
these agreements at any time. We expect to enter into additional clinical development, contract research, clinical and
commercial manufacturing, supplier agreements and collaborative research agreements in the future, which may require
upfront payments and long-term commitments of capital resources.
Our contractual obligations include minimum lease payments under our operating lease obligations. On July 2,
2021, we entered into a second amendment to our facility lease agreement dated as of March 2017, to lease
approximately 15,000 square feet of additional office space in Newark, California. See Note 10 to the Consolidated
Financial Statements elsewhere in this Annual Report on Form 10-K for additional information.
Under the Restated Agreement, we share with Janssen certain development, regulatory and compound supply
costs. The actual amounts that we pay Janssen or that Janssen pays us will depend on numerous factors, some of which
are outside of our control and some of which are contingent upon the success, if achieved, of certain development and
regulatory activities. See Note 3 to the Consolidated Financial Statements elsewhere in this Annual Report on
Form 10- K for additional information.
In June 2012, we entered into the Zealand Agreement to identify, optimize and develop novel disulfide-rich
peptides to discover a hepcidin mimetic. We amended the Zealand Agreement on February 28, 2014, at which point we
assumed responsibility for the development program. On January 23, 2020, we initiated arbitration proceedings with the
International Court of Arbitration of the International Chamber of Commerce against Zealand. On August 4, 2021, we
and Zealand agreed to resolve the dispute and reached an Arbitration Resolution Agreement. See Note 7 and Note 11 to
the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional
information.
71
Item 7A.
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 $237.4 million and $326.9 million in cash, cash equivalents and marketable securities at December 31,
2022 and 2021, respectively. Our cash and cash equivalents consist of cash, money market funds, commercial paper and
government bonds. Marketable securities consist of corporate bonds, commercial paper, government bonds and highly
rated supranational and sovereign government securities. A portion of our investments may be subject to interest rate risk
and could fall in value if market interest rates continue to increase. Based on our interest rate sensitivity analysis, a
hypothetical 100 basis point increase in interest rates would increase our interest income by approximately $1.8 million,
while an immediate 100 basis point decrease in interest rates would decrease our interest income by approximately
$2.3 million.
Approximately $2.5 million and $1.1 million of our cash balance was located in Australia at December 31, 2022
and 2021, respectively. Our expenses, except those related to our Australian operations, are generally denominated in
U.S. dollars. For our operations in Australia, the majority of our expenses are denominated in Australian dollars. To date,
we have not had a formal hedging program with respect to foreign currency, but we may do so in the future if our
exposure to foreign currency becomes more significant. A 10% increase or decrease in current exchange rates would not
have a material effect on our results of operations.
Inflation Fluctuation Risk
Inflation has increased during the period covered by this report and is expected to continue to at elevated levels or
even increase for the near future. Inflation generally affects us by increasing our costs, such as the cost of labor and
research and development contract costs. We do not believe inflation has had a material effect on our results of
operations during the year ended December 31, 2022.
72
Item 8. Financial Statements and Supplementary Data
PROTAGONIST THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
74
76
77
78
79
80
81
73
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Protagonist Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Protagonist Therapeutics, Inc. (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or
complex judgments. The communication of critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
74
Accrued clinical and research related expenses
Description of the
Matter
At December 31, 2022, the Company has accrued $19.1 million of clinical and research related
expenses. As described in Note 2 to the consolidated financial statements, the Company
records estimated costs of research and development activities conducted by third-party service
providers, which include the conduct of pre-clinical studies and clinical trials, and contract
manufacturing activities, based upon the estimated amount of services provided but not yet
invoiced. The Company accrues for these costs based on factors such as estimates of the work
completed and in accordance with agreements established with its third-party service providers.
How We Addressed
the Matter in Our
Audit
Auditing management’s accounting for accrued clinical development cost is especially
challenging because the evaluation is dependent on a high volume of data exchanged between
third-party service providers, internal clinical personnel, and the Company’s finance
department. The accrued amounts are determined based on an evaluation of the unique terms
and conditions set forth in each respective agreement. Additionally, due to the duration of
clinical trial activities and the timing of invoices received from third parties, the calculation of
the accrual for services incurred requires management to determine that they have complete and
accurate information from its vendors.
To test accrued clinical development costs, our audit procedures included, among others, testing
the accuracy and completeness of the inputs used in management’s analysis to determine costs
incurred. We also inspected terms and conditions for selected research and development
contracts and change orders and compared these to the cost models management used in
tracking progress of service agreements. We met with the Company’s internal clinical personnel
to understand the status of significant clinical activities. We evaluated services incurred by third
parties by understanding the terms and timeline of significant projects, and evaluating
management’s determination of work performed, subjects enrolled, sites activated and costs
incurred. Further, we inspected selected invoices received from third parties after the balance
sheet date and evaluated whether services performed prior to the balance sheet date had been
properly included in costs accrued.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
San Mateo, California
March 15, 2023
75
PROTAGONIST THERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from collaboration partner—related party . . . . . . . . . . . . . . . . . . . . .
Research and development tax incentive receivable . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to collaboration partner—related party . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue—related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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;
49,339,252 and 47,838,330 shares issued and outstanding as of
December 31, 2022 and 2021, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
December 31,
2022
2021
125,744 $
111,611
10
—
5,712
243,077
1,565
225
3,061
247,928 $
3,640 $
69
24,955
—
2,515
31,179
1,141
32,320
123,665
203,235
1,566
2,792
9,478
340,736
1,798
225
4,936
347,695
1,600
899
37,716
1,601
2,200
44,016
3,658
47,674
—
—
—
752,722
(359)
(536,755)
215,608
247,928 $
—
709,682
(299)
(409,362)
300,021
347,695
The accompanying notes are an integral part of these consolidated financial statements.
76
PROTAGONIST THERAPEUTICS, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
License and collaboration revenue—related party . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares used to compute net loss per share,
basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022
Year Ended December 31,
2021
2020
$
26,581
$
27,357 $
28,628
126,215
31,739
157,954
(131,373)
4,060
—
—
(80)
(127,393)
—
(127,393)
(2.60)
$
$
126,006
27,196
153,202
(125,845)
443
—
—
(149)
(125,551)
—
$
$
(125,551) $
(2.71) $
74,506
18,638
93,144
(64,516)
900
(598)
(585)
(46)
(64,845)
(1,305)
(66,150)
(1.92)
49,042,232
46,322,910
34,396,446
The accompanying notes are an integral part of these consolidated financial statements.
77
PROTAGONIST THERAPEUTICS, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Loss (gain) on translation of foreign operations . . . . . . . . . . . . .
Unrealized gain (loss) on marketable securities . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2021
(125,551) $
$
2022
(127,393)
(149)
89
(127,453)
$
(182)
(145)
(125,878) $
2020
(66,150)
266
(17)
(65,901)
The accompanying notes are an integral part of these consolidated financial statements.
78
PROTAGONIST THERAPEUTICS, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to public offerings,
net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to at-the-market
offering, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under equity incentive and
employee stock purchase plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to public offerings,
net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under equity incentive and
employee stock purchase plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares withheld for net settlement of tax withholding upon
vesting of restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to at-the-market
offering, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock under equity incentive and
employee stock purchase plans . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock upon exercise of Exchange
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares withheld for net settlement of tax withholding upon
vesting of restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
Issuance costs related to prior period common stock offering . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Accumulated
(Loss) Gain
Deficit
Total
Stockholders’
Equity
Common
Stock
Shares
Amount
27,217,649 $ — $ 297,846 $
(221) $ (217,661) $
79,964
13,526,189
2,483,719
517,908
—
—
—
43,745,465
3,503,311
596,614
(7,060)
—
—
—
47,838,330
422,367
686,284
399,997
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
212,974
41,871
2,799
7,899
—
—
563,389
123,804
6,283
(189)
16,395
—
—
709,682
14,553
4,448
—
(7,726)
—
—
—
—
—
—
—
—
—
49,339,252 $ — $ 752,722 $
(188)
24,202
25
—
—
—
—
—
—
249
—
28
—
—
—
—
(327)
—
(299)
—
—
—
—
—
—
(60)
—
—
—
—
—
—
(66,150)
(283,811)
212,974
41,871
2,799
7,899
249
(66,150)
279,606
—
123,804
—
6,283
—
—
—
(125,551)
(409,362)
(189)
16,395
(327)
(125,551)
300,021
—
14,553
—
4,448
—
—
—
—
—
—
(127,393)
(188)
24,202
25
(60)
(127,393)
215,608
(359) $ (536,755) $
The accompanying notes are an integral part of these consolidated financial statements.
79
PROTAGONIST THERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
2022
Year Ended December 31,
2021
2020
$
(127,393)
$
(125,551) $
(66,150)
Cash Flows from Operating Activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
Operating lease right-of-use asset amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amortization of (discount) premium on marketable securities . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on early repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Research and development tax incentive receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable from collaboration partner—related party . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payable to collaboration partner—related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue—related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows from Investing Activities
Purchase of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows from Financing Activities
Proceeds from public offering of common stock, net of issuance costs . . . . . . . . . . . . . .
Proceeds from at-the-market offering, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock upon exercise of stock options and
purchases under employee stock purchase plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax withholding payments related to net settlement of restricted stock units . . . . . . . . . .
Issuance costs related to prior period common stock offering . . . . . . . . . . . . . . . . . . . . . .
Early repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance costs related to long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . .
Net increase in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning of period . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, end of period . . . . . . . . . . . . . . . . . . . . . .
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental Disclosure of Non-Cash Financing and Investing Information:
Purchases of property and equipment in accounts payable and accrued liabilities . . . . . . $
Issuance costs related to common stock offering included in accrued liabilities
and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
Issuance costs related to at-the-market offering of common stock included in prepaid
expenses and other assets at the end of the previous year . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance costs related to common stock offering included in prepaid expenses
and other assets at the end of the previous year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
24,202
2,335
(549)
1,034
—
—
2,686
1,556
3,754
2,045
(830)
(12,715)
(1,601)
(2,661)
—
(108,137)
(214,874)
307,137
(795)
91,468
—
14,553
4,448
(188)
25
—
—
18,838
(90)
2,079
123,890
125,969
$
— $
19
$
— $
— $
— $
16,395
1,962
1,830
813
—
—
(1,775)
860
(3,227)
(1,390)
(1,833)
19,097
(12,876)
(2,049)
(121)
(107,865)
(286,589)
271,830
(1,101)
(15,860)
123,829
—
6,283
(189)
—
—
—
129,923
(126)
6,072
117,818
123,890
$
— $
143
25
$
$
— $
— $
7,899
1,775
37
948
1,438
585
(990)
4,329
(1,102)
309
1,471
5,840
(27,053)
(1,941)
121
(72,484)
(280,027)
189,533
(471)
(90,965)
213,303
42,062
2,799
—
—
(10,524)
(14)
247,626
175
84,352
33,466
117,818
438
85
205
191
124
The accompanying notes are an integral part of these consolidated financial statements.
80
PROTAGONIST THERAPEUTICS, INC.
Notes to Consolidated Financial Statements
Note 1. Organization and Description of Business
Protagonist Therapeutics, Inc. (the “Company”) is headquartered in Newark, California. The Company is a
biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as
PN- 235) in different stages of clinical development, all derived from the Company’s proprietary technology platform.
The Company’s clinical programs fall into two broad categories of diseases: (i) hematology and blood disorders, and
(ii) inflammatory and immunomodulatory diseases. Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned
subsidiary of the Company and is located in Brisbane, Queensland, Australia.
Operating segments are components of an enterprise for which separate financial information is available and is
evaluated regularly by the Chief Executive Officer, the Company’s chief operating decision maker, in deciding how to
allocate resources and assessing performance. The Company operates and manages its business as one operating
segment. The Company’s Chief Executive Officer reviews financial information on an aggregate basis for the purposes
of allocating and evaluating financial performance.
Substantially all of the Company’s long-lived assets are maintained in the United States.
Liquidity
As of December 31, 2022, the Company had cash, cash equivalents and marketable securities of $237.4 million.
The Company has incurred net losses from operations since inception and had an accumulated deficit of $536.8 million
as of December 31, 2022. The Company’s ultimate success depends upon the outcome of its research and development
and collaboration activities. The Company expects to incur additional losses in the future and anticipates the need to
raise additional capital to continue to execute its long-range business plan. Since the Company’s initial public offering in
August 2016, it has financed its operations primarily through proceeds from offerings of common stock and payments
received under license and collaboration agreements.
Risks and Uncertainties
The Company is subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic
and emergent variants with increased transmissibility, even in those who are fully vaccinated. The future impact on the
Company’s activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any
resurgences in the outbreak and the spread of COVID-19 variants, the timing, extent, effectiveness and durability of
COVID-19 vaccine programs or other treatments; and new travel and other restrictions and public health measures. The
Company has experienced delays in its existing and planned clinical trials due to worldwide impacts related to the
pandemic. The Company’s future results of operations and liquidity could be adversely impacted by further delays in
existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials, delays in
manufacturing and collaboration activities, supply chain disruptions, and the ongoing impact on its operating activities
and employees. In addition, a recession or market correction related to or amplified by COVID-19 could materially
affect the Company’s business.
The Company is currently operating in a period of economic uncertainty and capital markets disruption, which has
been impacted by domestic and global monetary and fiscal policy, geopolitical instability, including an ongoing military
conflict between Russia and Ukraine and the rising tensions between China and Taiwan, a recessionary environment and
historically high domestic and global inflation. In particular, the conflict in Ukraine has exacerbated market disruptions,
including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record
inflation globally. The U.S. Federal Reserve and other central banks may be unable to contain inflation through more
restrictive monetary policy, and inflation may increase or continue for a prolonged period of time. Inflationary factors,
such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation costs may adversely
affect the Company’s operating results. The Company continues to monitor these events and the potential impact on its
business. Although the Company does not believe that inflation has had a material impact on its financial position or
81
results of operations to date, it may be adversely affected in the future due to domestic and global monetary and fiscal
policy, supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and
Ukraine and other factors, and such factors may lead to increases in the cost of manufacturing for and initiation of
studies in the Company’s product candidates.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned
subsidiary, Protagonist Australia, and have been prepared in conformity with accounting principles generally accepted in
the United States (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation.
The financial statements of Protagonist Australia use the Australian dollar as the functional currency since the
majority of expense transactions occur in such currency. Gains and losses from foreign currency transactions were not
material for all periods presented. The re-measurement from Australian dollar to U.S. dollars is outlined below:
a. Equity accounts, except for the change in retained earnings during the year, have been translated using
historical exchange rates.
b. All other Australian dollar denominated assets and liabilities as of December 31, 2022 and 2021 have been
translated using the year-end exchange rate.
c. The consolidated statements of operations have been translated at the weighted average exchange rates in
effect during each year.
Foreign currency translation gains and losses are reported as a component of stockholders’ equity in accumulated
other comprehensive loss on the consolidated balance sheets.
Use of Estimates
The preparation of the 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related
to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes,
marketable securities and leases. Estimates related to revenue recognition include actual costs incurred versus total
estimated costs of the Company’s deliverables to determine percentage of completion in addition to the application and
estimates of potential revenue constraints in the determination of the transaction price under its license and collaboration
agreements. Management bases these estimates on historical and anticipated results, trends and various other
assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted
amounts and future events.
Due to the prolonged nature of the COVID-19 pandemic, military conflict between Ukraine and Russia, rising
tensions between China and Taiwan and inflationary pressures, there has been uncertainty and disruption in the global
economy and financial markets. The Company has taken into consideration any known impacts in its accounting
estimates to date and is not aware of any additional specific events or circumstances that would require any additional
updates to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the filing date of
this Annual Report on Form 10-K. 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.
82
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash
equivalents and marketable securities. Substantially all of the Company’s cash is held by two financial institutions that
management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The
primary focus of the Company’s investment strategy is to preserve capital and to meet liquidity requirements. The
Company’s cash equivalents and marketable securities are managed by external managers within the guidelines of the
Company’s investment policy. The Company’s investment policy addresses the level of credit exposure by limiting
concentration in any one corporate issuer and establishing a minimum allowable credit rating. To manage its credit risk
exposure, the Company maintains its U.S. portfolio of cash equivalents and marketable securities in fixed income
securities denominated and payable in U.S. dollars. Permissible investments of fixed income securities include
obligations of the U.S. government and its agencies, money market instruments including commercial paper and
negotiable certificates of deposit, and highly rated corporate debt obligations and money market funds, and highly rated
supranational and sovereign government securities.
Cash Equivalents
Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents.
Restricted Cash
Restricted cash consists primarily of cash balances held as security in connection with a letter of credit related to
the Company’s facility lease entered into in March 2017, as subsequently amended. The letter of credit balance
decreased from $0.5 million at December 31, 2020 to $0.2 million at December 31, 2021 and 2022 pursuant to the terms
of the facility lease.
Cash as Reported in Consolidated Statements of Cash Flows
Cash as reported in the consolidated statements of cash flows includes the aggregate amounts of cash and cash
equivalents and the restricted cash as presented on the consolidated balance sheets.
Cash as reported in the consolidated statements of cash flows consisted of (in thousands):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash reported on consolidated statements of cash flows . .
$
$
Marketable Securities
2022
125,744
—
225
125,969
December 31,
2021
123,665
—
225
123,890
$
$
$
$
2020
117,358
10
450
117,818
All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as
determined based upon quoted market prices or pricing models for similar securities. Management determines the
appropriate classification of its marketable securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Short-term marketable securities have maturities greater than three months but not longer than
365 days as of the balance sheet date. Long-term marketable securities have maturities of 365 days or longer as of the
balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of
comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on
available-for-sale securities are included in interest income. The cost of securities sold is based on the specific-
identification method. Interest on marketable securities is included in interest income.
83
Fair Value of Financial Instruments
Fair value accounting is applied to all financial assets and liabilities that are recognized or disclosed at fair value in
the consolidated financial statements on a recurring basis (at least annually). The carrying amount of the Company’s
financial instruments, including cash equivalents, receivables from its collaboration partner, accounts payable, payables
to its collaboration partner and accrued expenses and other payables approximate fair value due to their short-term
maturities. See Note 4. to the Consolidated Financial Statements for additional information regarding the fair value of
the Company’s other financial assets and liabilities.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging from three to five years. Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Maintenance
and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in
operations in the period realized.
Leases
The Company determines if an arrangement is a lease at inception. Pursuant to Accounting Standards Codification
Topic 842, Leases, (“ASC 842”), operating leases are included in operating lease right-of-use (“ROU”) assets, operating
lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets. Operating lease ROU assets
and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the
lease term at commencement date. If the Company’s leases do not provide an implicit rate, the Company uses its
incremental borrowing rate based on the information available at commencement date in determining the present value
of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives
and initial direct costs incurred. Lease terms include options to extend or terminate the lease when it is reasonably
certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a
straight-line basis over the lease term.
The Company records tenant improvement allowances as a reduction to the ROU asset with the impact of the
decrease recognized prospectively over the remaining lease term. The leasehold improvements are amortized over the
shorter of their useful life or the remaining term of the lease.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, primarily comprised of property, equipment and operating lease ROU
assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net cash flows which
the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the projected discounted future net cash
flows arising from the asset. There have been no such impairments of long-lived assets for any of the periods presented.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions
and economic events other than those from stockholders. The Company’s foreign currency translation and unrealized
gains and losses on available-for-sale securities represent the only components of other comprehensive loss that are
excluded from reported net loss and that are presented in the consolidated statements of comprehensive loss.
84
Income Taxes
The Company uses the asset and liability method to account for income taxes in accordance with the authoritative
guidance for income taxes. Under this method, deferred tax assets and liabilities are determined based on future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, and tax loss and credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of
being sustained. Recognized income tax positions are measured at the largest amount that is greater than a 50%
likelihood of being realized. Changes in recognition or measurement are reflected in the period in which the change in
judgment occurs. The Company records interest and penalties related to unrecognized tax benefits in income tax
expense. To date, there have been no interest or penalties recorded in relation to unrecognized tax benefits.
Revenue Recognition
Under Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”), the
Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects
the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the
following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company applies the five-step
model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the
goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services
promised within each contract, determines those that are performance obligations, and assesses whether each promised
good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated
to the respective performance obligations when (or as) the performance obligations are satisfied. The Company
constrains its estimate of the transaction price up to the amount (the “variable consideration constraint”) that a significant
reversal of recognized revenue is not probable.
Licenses of intellectual property: If a license to the Company’s intellectual property is determined to be distinct
from the other performance obligations identified in an arrangement, the Company recognizes revenue from non-
refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able
to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to
assess the nature of the combined performance obligation to determine whether the combined performance obligation is
satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance
for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure of
proportional performance each reporting period and, if necessary, adjusts the measure of performance and related
revenue recognition.
Milestone payments: At the inception of each arrangement or amendment that includes development, regulatory or
commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached
and estimates the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when
estimating the amount of variable consideration: the expected value method and the most likely amount method. Under
the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible
consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range
of possible consideration amounts. Whichever method used should be consistently applied throughout the life of the
contract; however, it is not necessary for the Company to use the same approach for all contracts. The Company expects to
use the most likely amount method for development and regulatory milestone payments. If it is probable that a significant
revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone
85
payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered
probable of being achieved until those approvals are received. If there is more than one performance obligation, the
transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. The
Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each
subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any
related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Any potential milestone payments that the Company determines are not associated with performance obligations as
defined under the contract are excluded from the transaction price and are recognized as the triggering event occurs.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of
sales, where the license is deemed to be the predominant item to which the royalties relate, the Company recognizes
revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of
the royalty has been allocated has been satisfied (or partially satisfied).
Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of
revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts
payable to the Company are recorded as accounts receivable when the Company’s right to consideration is
unconditional. Amounts payable to the Company and not yet billed to the collaboration partner are recorded as contract
assets. The Company does not assess whether a contract has a significant financing component if the expectation at
contract inception is such that the period between payment by the customer and the transfer of the promised goods or
services to the customer will be one year or less.
Contractual cost sharing payments made to a customer or collaboration partner are accounted for as a reduction to
the transaction price if such payments are not related to distinct goods or services received from the customer or
collaboration partner.
Contracts may be amended to account for changes in contract specifications and requirements. Contract
modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations.
When contract modifications create new performance obligations and the increase in consideration approximates the
standalone selling price for goods and services related to such new performance obligations, as adjusted for specific facts
and circumstances of the contract, the modification is considered to be a separate contract. If a contract modification is
not accounted for as a separate contract, the Company accounts for the promised goods or services not yet transferred at
the date of the contract modification (the remaining promised goods or services) prospectively, as if it were a termination
of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods
or services transferred on or before the date of the contract modification. The Company accounts for a contract
modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore,
form part of a single performance obligation that is partially satisfied at the date of the contract modification. In such
case the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward
complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in
or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative
catch-up basis).
Research and Development Costs
Research and development costs (“R&D”) are expensed as incurred, unless there is an alternate future use in other
research and development projects or otherwise. Research and development costs include salaries and benefits, stock-
based compensation expense, laboratory supplies and facility-related overhead, outside contracted services, including
clinical trial costs, manufacturing and process development costs for both clinical and pre-clinical materials, research
costs, development milestone payments under license and collaboration agreements, and other consulting services.
The Company accrues for estimated costs of research and development activities conducted by third-party service
providers, which include the conduct of pre-clinical studies and clinical trials and contract manufacturing activities. The
86
Company records the estimated costs of research and development activities based upon the estimated services provided
but not yet invoiced and includes these costs in accrued expenses and other payables in the consolidated balance sheets
and within research and development expense in the consolidated statements of operations. The Company accrues for
these costs based on various factors such as estimates of the work completed and in accordance with agreements
established with its third-party service providers. As actual costs become known, the Company adjusts its accrued
liabilities. The Company has not experienced any material differences between accrued liabilities and actual costs
incurred. However, the status and timing of actual services performed, the number of patients enrolled, the rate of patient
enrollment and the number and location of sites activated may vary from the Company’s estimate and may result in
adjustments to research and development expenses in future periods. Changes in these estimates that result in material
changes to the Company’s accruals could materially affect the Company’s results of operations.
Research and Development Tax Incentive
The Company is eligible under the AusIndustry research and development tax incentive program to obtain either a
refundable cash tax incentive or a taxable credit in the form of a non-cash tax incentive from the Australian Taxation
Office (“ATO”). The refundable cash tax incentive is available to the Company on the basis of specific criteria with
which the Company must comply. Specifically, the Company must have annual turnover of less than AUD 20.0 million
and cannot be controlled by income tax exempt entities. The refundable cash tax incentive is recognized as a reduction to
research and development expense when the right to receive has been attained and funds are considered to be collectible.
The Company may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive in years when the
annual turnover exceeds the limit. The Company evaluates its eligibility under tax incentive programs as of each balance
sheet date and makes accrual and related adjustments based on the most current and relevant data available.
Stock-based Compensation
The Company measures its stock-based awards made to its equity plan participants based on the estimated fair
values of the awards as of the grant date. For stock option awards, the Company uses the Black-Scholes option-pricing
model to estimate fair values. For restricted stock unit awards, the estimated fair value is generally the fair market value
of the underlying stock on the grant date. Stock-based compensation expense is recognized over the requisite service
period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. The
Company recognizes forfeitures of stock-based awards as they occur.
The Company has granted performance share units (“PSUs”) to certain executives of the Company. 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 periods of the awards that are ultimately expected to vest when the achievement
of the related performance obligation becomes probable.
If stock-based awards are granted in contemplation of or shortly before a planned release of material nonpublic
information, and such information is expected to result in a material increase in the Company’s share price, the Company
considers whether an adjustment to the observable market price is required when estimating fair values.
Net Loss per Share
Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares
of common stock and Exchange Warrants (as defined in Note 12. Stockholders’ Equity below) outstanding during the
period, without consideration of potentially dilutive securities. In accordance with Accounting Standards Codification
Topic 260, Earnings Per Share, outstanding Exchange Warrants are included in 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.
Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of potentially
dilutive securities is anti-dilutive given the net loss of the Company in each period. See Note 12. Stockholders’ Equity
for additional information regarding the Exchange Warrants.
87
Recently Issued Accounting Pronouncements Not Yet Adopted as of December 31, 2022
In June 2016, the FASB issued ASU No. 2016 - 13, Financial Instruments—Credit Losses (Topic 326), which is
intended to provide more useful information about expected credit losses on financial assets held by a reporting entity at
each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology
that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all
expected credit losses. This guidance was originally effective for fiscal years and interim periods beginning after
December 15, 2019, with early adoption permitted for fiscal years and interim periods beginning after December 15,
2018. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the mandatory effective
date of ASU No. 2016-13 for smaller reporting companies. Based on the Company’s status as a smaller reporting
company as of November 15, 2019, ASU 2016-13 is effective for the Company for fiscal years and interim periods
beginning after December 15, 2022. The Company does not expect the adoption of this new guidance to have a material
impact on its consolidated financial statements and related disclosures.
Note 3. License and Collaboration Agreement
Agreement Terms
On July 27, 2021, the Company entered into an Amended and Restated License and Collaboration Agreement (the
“Restated Agreement”) with Janssen Biotech, Inc., a Pennsylvania corporation (“Janssen”) which amended and restated
the License and Collaboration Agreement, effective July 13, 2017, by and between the Company (the “Original
Agreement”), as amended by the first amendment, effective May 7, 2019 (the “First Amendment”). Janssen is a related
party to the Company as Johnson & Johnson Innovation—JJDC, Inc., a significant stockholder of the Company, and
Janssen are both 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 a $7.5 million
payment triggered by the completion of data collection activities for the first Phase 1 clinical trial of a second-generation
compound during the fourth quarter of 2021. The Company received a $25.0 million milestone payment in connection
with the dosing of the third patient in the first Phase 2 clinical trial for a second-generation compound during the second
quarter of 2022.
The Restated Agreement relates to the development, manufacture and commercialization of oral IL-23 receptor
antagonist drug candidates. The candidates nominated for initial development pursuant to the Restated Agreement
included PTG-200 (JNJ-67864238), PN-232 (JNJ-75105186) and JNJ-2113 (JNJ-77242113) (formerly known as
PN- 235). PTG-200 is an oral IL-23 receptor antagonist that was in Phase 2a development for the treatment of Crohn’s
disease (“CD”). During the fourth quarter of 2021, following a pre-specified interim analysis criteria, a portfolio decision
was made by Janssen to stop further development of both PTG-200 and PN-232 in favor of advancing JNJ-2113, based
on its superior potency and overall pharmacokinetic and pharmacodynamic profile. Janssen is primarily responsible for
the conduct of all future trials, including current and anticipated Phase 2 trials, and the Company is primarily responsible
for the conduct of the second-generation Phase 1 trials.
Pursuant to the Restated Agreement, the parties:
•
•
amended development milestones to reflect Janssen’s expected development of collaboration compounds for
multiple indications in the IL-23 pathway;
limited the Company’s further development and related expense obligations under the Restated Agreement to
the PTG-200 Phase 2a trial and the ongoing Phase 1 trials in PN-232 and JNJ-2113; Janssen is responsible for
all other future development and related expenses under the Restated Agreement; and
88
•
concluded the parties’ two-year research collaboration, while enabling Janssen to continue conducting
additional research through July 2024 on compounds developed pursuant to the Original Agreement.
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.
The Company’s development cost obligations in the Original Agreement for the period following the effective date
of the Original Agreement were as follows: (a) up to $20.0 million of costs related to up to three Phase 1 trials of second-
generation compounds; (b) up to $20.0 million of costs related to Phase 2a and 2b costs for PTG-200 (i.e., 20% of the
first $100.0 million in costs); and (c) up to $25.0 million in costs related to up to two Phase 2 trials evaluating second-
generation compounds.
The Company’s development cost obligations under the Restated Agreement are as follows: (a) the Company
funded 20% of the costs related to the Phase 2a trial evaluating PTG-200 for the treatment of CD (subject to a
$20.0 million cap); (b) the Company was responsible for 50% of agreed-upon costs related to the Phase 1 trial evaluating
JNJ- 2113 incurred through January 4, 2021; and (c) the Company was responsible for 100% of agreed-upon costs related
to the Phase 1 trial evaluating PN-232.
Certain of the Company’s previous development cost obligations under the Original Agreement were limited or
eliminated as follows: (a) the Company’s previous $25.0 million obligation for 20% of costs related to Phase 2 trials for
second-generation products was eliminated; (b) the Company’s previous $5.0 million obligation for 50% of the costs of a
potential third Phase 1 trial evaluating a second-generation compound was eliminated; and (c) the Company had no
obligation to fund any portion of any Phase 2b or other trial evaluating PTG-200 beyond the Phase 2a trial in CD.
One milestone for second-generation Phase 2 development was reduced from $50.0 million to $25.0 million in the
Restated Agreement; otherwise, the various milestone payment amounts in the Restated Agreement remain substantially
the same as in the Original Agreement. To reflect parallel development of multiple indications in the IL-23 pathway,
milestone payments under the Restated Agreement generally correspond to the achievement of specified milestones in:
(a) any initial indication (rather than CD, as in the Original Agreement); (b) any second indication (rather than ulcerative
colitis (“UC”), as in the Original Agreement); and (c) any third indication. With respect to second-generation
compounds, milestone payments for second and third indications may be triggered by any second-generation compound
(i.e., not necessarily the second-generation compound that triggered the initial payment for any indication, or the
payment for a second indication). In addition, the opt-in payments contemplated by the Original Agreement related to the
scope of Janssen’s license rights have been converted into development milestones in the Restated Agreement.
Upcoming potential development milestones for second-generation compounds include:
•
•
•
•
$10.0 million upon the dosing of the third patient in the first Phase 2 clinical trial for any second-generation
compound for a second indication (i.e., an indication different than the indication which triggered the
$25.0 million milestone received during the first quarter of 2022 described above);
$50.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound
for any indication;
$15.0 million upon the dosing of the third patient in a Phase 3 clinical trial for a second-generation compound
for a second indication; and
$115.0 million upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its
primary clinical endpoint.
Development milestones for PTG-200 were unchanged under the Restated Amendment, except that milestone
achievement is generally no longer indication-specific.
89
Pursuant to the Restated Agreement, the Company remains eligible to receive tiered royalties on net product sales
at percentages ranging from mid-single digits to ten percent. The sales milestone payments in the Original Agreement
also remain the same in the Restated Agreement.
Pursuant to both the Original and Restated Agreements, payments to the Company for research and development
services are generally billed and collected as services are performed or assets are delivered, including research activities
and Phase 1 and Phase 2 development activities. Janssen bills the Company for its share of the PTG-200 Phase 2a
development costs as expenses are incurred by Janssen. Milestone payments are received after the related milestones are
achieved.
Janssen retains exclusive, worldwide rights to develop and commercialize IL-23 receptor antagonist compounds
derived from the research collaboration conducted under the Original Agreement, or Janssen’s further research under the
Restated Agreement. Any further research and development will be conducted by Janssen. The Company will have the
right to co-detail (for CD and UC indications) up to two of the IL-23 receptor antagonist compounds under the
collaboration in the U.S. market.
The Restated Agreement remains in effect until the royalty obligations cease following patent and regulatory
expiry, unless terminated earlier. Upon a termination of the Restated Agreement, all rights revert back to the Company,
and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested,
provide certain financial and operational support to the Company for the completion of such trials.
Revenue Recognition
The Restated Agreement contains a single performance obligation for the development license; Phase 1
development services for PTG-200, PN-232 and JNJ-2113 (formerly known as PN-235); the Company’s services
associated with Phase 2a development for PTG-200 in CD; the initial year of second-generation compound research
services; and all other such services that the Company may perform at the request of Janssen to support the development
of PTG-200 through Phase 2a and PN-232 and JNJ-2113 through Phase 1. Under the Restated Agreement, development
services performed by the Company for PTG-200 beyond Phase 2a and PN-232 and JNJ-2113 beyond Phase 1 are no
longer required.
The Company determined that the license was not distinct from the revised development services within the
context of the agreement because the revised development services did not change the utility of the intellectual property.
The Company also concluded that the remaining development services are not distinct from the partially delivered
combined promise comprised under the agreement prior to the Restated Agreement of the development license and
PTG- 200, PN- 232 and JNJ-2113 services, including compound supply and other services. Therefore, the Restated
Agreement is treated as if it were part of the Original Agreement. The Restated Agreement was accounted for as if it
were a modification of services under the Original Agreement by applying a cumulative catch-up adjustment to revenue.
As of the effective date of the Restated Agreement, the Company calculated the adjusted cumulative revenue under the
Restated Agreement with primary updates to the transaction price, including the release of and update of prior
constraints and fewer remaining services to be provided, resulting in a cumulative adjustment that increased revenue by
$8.0 million for the year ended December 31, 2021.
The contract duration is defined as the period in which parties to the contract have present enforceable rights and
obligations. For revenue recognition purposes, the duration of the Restated Agreement for the identified single initial
performance obligations began on the Original Agreement effective date of July 13, 2017 and ended upon the completion
of Phase 1 clinical trials for PN-232 and JNJ-2113. Final activities related to these trials were completed as of June 30,
2022.
The Company uses the most likely amount method to estimate variable consideration included in the transaction
price. Variable consideration after the effective date of the Restated Agreement consisted of future milestone payments
and cost sharing payments for agreed-upon services offset by development cost reimbursable to Janssen. Cost sharing
payments from Janssen relate to the agreed-upon services for development activities that the Company performs within
the duration of the contract and are included in the transaction price at the Company’s share of estimated budgeted costs
90
for these activities, including primarily internal full-time equivalent effort and third-party contract costs. Cost sharing
payments to Janssen relate to agreed-upon services for activities that Janssen performs within the duration of the contract
are not a distinct service that Janssen transfers to the Company. Therefore, the consideration payable to Janssen is
accounted for as a reduction in the transaction price.
The transaction price of the initial performance obligation under the Restated Agreement was $131.7 million as of
December 31, 2022, an increase of $25.2 million from the transaction price of $106.5 million at December 31, 2021
under the Restated Agreement and an increase of $33.1 million from the transaction price of $98.6 million at
December 31, 2020 under the Original Agreement. In order to determine the transaction price, the Company evaluates 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 December 31, 2022 includes $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 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 is appropriately reflected in the
transaction price as of December 31, 2022, and that the achievement of future milestones is subject to additional
development and/or regulatory uncertainty and therefore it is not probable at December 31, 2022 that a material reversal
of such revenues will 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.
The Company utilized a cost-based input method to measure proportional performance and to calculate the
corresponding amount of revenue to recognize. In applying the cost-based input method of revenue recognition, the
Company used actual costs incurred relative to expected costs to fulfill the combined performance obligation. These
costs consist primarily of internal full-time equivalent effort and third-party contract costs. Revenue was recognized
based on actual costs incurred as a percentage of total estimated costs as the Company completed its performance
obligations. A cost-based input method of revenue recognition requires management to make estimates of costs to
complete the Company’s performance obligations. The Company believes this is the best measure of progress because
other measures do not reflect how the Company transfers its performance obligation to Janssen.
For the year ended December 31, 2022, the Company recognized $26.6 million of license and collaboration
revenue, which was primarily related to the transaction price under the Restated Agreement recognized based on
proportional performance. The Company completed its performance obligation under the collaboration as of June 30,
2022.
For the year ended December 31, 2021, the Company recognized $27.4 million of license and collaboration
revenue. This amount included a cumulative catch-up adjustment increasing license and collaboration revenue by
$8.0 million, and $18.6 million of license and collaboration revenue based on proportional performance following the
Restated Agreement. In addition, the Company recorded $0.8 million of revenue related to additional services provided
by the Company under the Restated Agreement.
For the year ended December 31, 2020, the Company recognized $28.6 million of license and collaboration
revenue. This amount included $27.1 million of the transaction price based on proportional performance and an update
in forecasted amounts for future services remaining to be performed and recognized under the Original Agreement. In
addition, the Company recorded $1.5 million of revenue for the year ended December 31, 2020 related to additional
services provided by the Company under the Original Agreement.
91
The following tables present changes in the Company’s contract assets and liabilities during the periods presented
(in thousands):
Year Ended December 31, 2022
Contract assets:
Receivable from collaboration partner—related party . . .
Contract liabilities:
Deferred revenue—related party . . . . . . . . . . . . . . . . . . . .
Payable to collaboration partner—related party . . . . . . . .
Year Ended December 31, 2021
Contract assets:
Receivable from collaboration partner—related party . . .
Contract liabilities:
Deferred revenue—related party . . . . . . . . . . . . . . . . . . . .
Payable to collaboration partner—related party . . . . . . . .
Balance at
Beginning of
Period
1,566
1,601
899
Balance at
Beginning of
Period
2,426
14,477
2,732
$
$
$
$
$
$
$
$
$
$
$
$
Additions
Deductions
Balance at
End of
Period
25,165
25,757
439
$
$
$
(26,721) $
(27,358) $
(1,269) $
10
—
69
Additions
Deductions
Balance at
End of
Period
14,056
25,141
10,225
$
$
$
(14,916) $
1,566
(38,017) $
(12,058) $
1,601
899
During the year ended December 31, 2022, the Company recognized revenue of $0.9 million from amounts
included in the deferred revenue balance at the beginning of the year. During the year ended December 31, 2021, the
Company recognized revenue of $2.8 million from amounts included in the deferred revenue balance at the beginning of
the year. During the year ended December 31, 2020, the Company recognized $14.1 million from amounts included in
the deferred revenue balance at the beginning of the year. None of the costs to obtain or fulfill the contract were
capitalized.
Note 4. Fair Value Measurements
Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a
framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value
measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an
exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance
establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair
value as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement
date.
Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable
for the asset or liability through correlation with market data at the measurement date and for the duration of the
instrument’s anticipated life.
Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or
liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk
inherent in the inputs to the model.
In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible
and considers counterparty credit risk in its assessment of fair value.
92
The following tables present the fair value of the Company’s financial assets determined using the inputs defined
above (in thousands).
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and agency securities . . . . . . . . . . . . . .
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and agency securities . . . . . . . . . . . . . .
Supranational and sovereign government securities . .
Total financial assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
Level 2
Level 3
Total
December 31, 2022
54,292
—
—
—
54,292
$
$
— $
110,227
10,741
57,242
178,210 $
— $
—
—
—
— $
54,292
110,227
10,741
57,242
232,502
Level 1
Level 2
Level 3
Total
December 31, 2021
39,854
—
—
—
39,854
$
$
— $
157,141
75,548
40,017
6,010
278,716 $
— $
—
—
—
—
— $
39,854
157,141
75,548
40,017
6,010
318,570
$
$
$
$
The Company’s commercial paper, corporate debt securities, U.S. Treasury and agency securities, including U.S.
Treasury bills, and supranational and sovereign government securities are classified as Level 2 as they were valued based
upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuation techniques, for which all significant inputs are observable in the
market or can be corroborated by observable market data for substantially the full term of the assets.
The carrying amount of the Company’s remaining financial assets and liabilities, including cash, receivables and
payables, approximates their fair value due to their short-term nature.
Note 5. Cash Equivalents and Marketable Securities
Cash equivalents and marketable securities consisted of the following (in thousands):
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and agency securities . . . . . . . . . . . . . .
Total cash equivalents and marketable securities . . . .
Classified as:
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash equivalents and marketable securities . . . .
Amortized
Cost
$
$
54,292
110,257
10,756
57,251
232,556
$
$
December 31, 2022
Gross Unrealized
Gains
Losses
Fair Value
— $
—
—
27
27 $
— $
(30)
(15)
(36)
(81) $
$
$
54,292
110,227
10,741
57,242
232,502
120,891
111,611
232,502
93
Amortized
Cost
December 31, 2021
Gross Unrealized
Gains
Losses
Fair Value
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury and agency securities . . . . . . . . . . . . . .
Supranational and sovereign government securities . .
Total cash equivalents and marketable securities . . .
$
$
39,854
157,157
75,598
40,093
6,011
318,713
$
$
— $
—
—
—
—
— $
Classified as:
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash equivalents and marketable securities. .
— $
(16)
(50)
(76)
(1)
(143) $
$
$
39,854
157,141
75,548
40,017
6,010
318,570
115,335
203,235
318,570
Marketable securities of $111.6 million and $203.2 million held as of December 31, 2022 and 2021, 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. Factors considered in determining whether a loss is
temporary include the length of time and extent to which the fair value has been less than the amortized cost basis and
whether the Company intends to sell the security or whether it is more likely than not that the Company would be
required to sell the security before recovery of the amortized cost basis. There were no realized gains or realized losses
on marketable securities for the periods presented.
Note 6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Prepaid clinical and research related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .
$
$
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Laboratory equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2022
2021
2,746 $
1,417
1,507
42
5,712 $
5,242
1,746
1,515
975
9,478
December 31,
2022
2021
4,817 $
1,089
913
6,819
(5,254)
1,565 $
4,156
1,023
877
6,056
(4,258)
1,798
Depreciation expense for the years ended December 31, 2022, 2021 and 2020, was $1,032,000, $813,000 and
$789,000, respectively. As of December 31, 2022, 2021 and 2020, $156,000, $262,000 and $46,000, respectively, of
property and equipment, net, was located in Australia. The remainder of the Company’s property and equipment, net is
located in the United States.
94
Accrued Expenses and Other Payables
Accrued expenses and other payables consisted of the following (in thousands):
Accrued clinical and research related expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued employee related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .
Accrued payment to former collaboration partner . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Note 7. Research Collaboration and License Agreement
December 31,
2022
2021
19,109 $
4,967
464
—
415
24,955 $
27,950
7,125
734
1,500
407
37,716
The Company and Zealand Pharma A/S entered into a collaboration agreement in June 2012. In October 2013,
Zealand Pharma abandoned the collaboration, and the collaboration agreement was terminated in 2014. The agreement
provides for certain post-termination payment obligations to Zealand with respect to compounds related to the
collaboration that meet specified conditions set forth in the collaboration agreement and which the Company elects to
further develop following Zealand’s abandonment of the collaboration. The Company has the right, but not the
obligation, to further develop and commercialize such compounds. The agreement provides for payments to Zealand for
the achievement of certain development, regulatory and sales milestone events that occur prior to a partnering
arrangement related to such compounds between the Company and a third party.
The Company previously determined that rusfertide is a compound for which the post-termination payments
described above are required under the collaboration agreement and has made three development milestone payments for
an aggregate amount of $1.0 million under the agreement. However, upon reevaluation, the Company concluded in 2019
that rusfertide is not a compound requiring post-termination payments under the agreement and initiated an arbitration
proceeding in January 2020. On August 4, 2021, the Company and Zealand agreed to resolve the dispute and entered
into an Arbitration Resolution Agreement.
See Note 11. Commitments and Contingencies—Legal Proceedings for additional information on the results of
arbitration proceedings related to this research and collaboration agreement.
Milestone payments to collaboration partners are recorded as research and development expense in the period that
the expense is incurred. For the year ended December 31, 2021, the Company recorded research and development
expense of $4.0 million under this agreement. No research and development expense was recorded under this agreement
for the years ended December 31, 2022 or 2020.
Note 8. Research and Development Tax Incentive
Research and Development Tax Incentive
The Company did not recognize any research and development cash tax incentive from the Australian Tax Office
(“ATO”) during the year ended December 31, 2022. During the years ended December 31, 2021 and 2020, the Company
recognized AUD 4.2 million ($3.1 million) and AUD 1.4 million ($1.0 million), respectively, as a reduction of research
and development expenses in connection with the research and development cash tax incentive from the ATO. As of
December 31, 2021 and 2020, the research and development tax incentive receivable was AUD 3.8 million
($2.8 million) and AUD 1.4 million ($1.1 million), respectively. There was no cash tax incentive receivable balance as of
December 31, 2022.
95
Note 9. Term Loan Facility
On October 30, 2019 (the “Closing Date”), the Company entered into a Credit and Security Agreement, by and
among the Company, MidCap Financial Trust, as a lender, Silicon Valley Bank, as a lender, the other lenders party
thereto from time to time and MidCap Financial Trust, as administrative agent and collateral agent (“Agent”), (the “Term
Loan Credit Agreement”), which provided for a $50.0 million term loan facility. The Term Loan Credit Agreement
provided for (i) on the Closing Date, $10.0 million aggregate principal amount of term loans, (ii) at the Company’s
option until December 31, 2020, an additional $20.0 million term loan facility subject to the satisfaction of certain
conditions, including clinical milestone achievement, and (iii) at the Company’s option, until September 30, 2021, an
additional $20.0 million term loan facility subject to the satisfaction of certain conditions, including clinical milestone
achievement, (collectively, the “Term Loans”). The Company intended to use any proceeds of the Term Loans for
general corporate purposes.
In June 2020, the Company prepaid its outstanding $10.0 million balance on the term loan as well as $0.6 million
for related prepayment and exit fees. Accordingly, the company accelerated amortization of $0.1 million related to
capitalized and unamortized debt issuance costs, which is included as part of the $0.6 million loss on early repayment of
debt. The Company did not exercise its option to borrow the $20.0 million second tranche of Term Loans, which expired
on December 31, 2020. In September 2021, the Company executed a payoff letter to release all obligations under the
Term Loan Credit Agreement, ending the Term Loan Credit Agreement. The Company had no outstanding balance as of
December 31, 2022, 2021 or 2020 related to the Term Loan Credit Agreement.
The Company recognized $0.6 million in interest expense related to the Term Loans during the year ended
December 31, 2020. No interest expense related to the Term Loans was recognized during the years ended December 31,
2022 and 2021. The Company accounts for interest on its long-term debt under the effective interest method, with
interest expense comprised of contractual interest, amortization of origination fees and other issuance costs, and
accretion of final payment fees.
Note 10. Leases
The Company applies ASC 842 to recognize assets and liabilities for leases with lease terms of more than
12 months on the balance sheet. The Company has elected to account for each separate lease component and non-lease
components as one single component for all lease assets. Leases with terms of 12 months or less are not recorded on the
balance sheet, and the related lease expenses are recognized on a straight-line basis over the lease term.
The Company has one operating lease agreement originally entered into in March 2017 for approximately 42,900
square feet for laboratory and office space located in Newark, California. On July 2, 2021, the Company entered into a
second amendment to its original facility lease agreement, as amended, for 15,000 square feet of additional office space
in Newark, California (the “Second Amendment”). The Company commenced operations in the additional space in
September 2021. Under the Second Amendment, the Company will pay additional base rent of approximately
$1.5 million over the lease term, which expires in May 2024. As a result of this amendment, the Company recorded an
additional right-of-use-asset and the related liability of $1.4 million as of December 31, 2021.
The Company provided the landlord with a $450,000 letter of credit collateralized by restricted cash as security
deposit for the operating lease agreement, which expires in May 2024. The security deposit for the lease was later
reduced to $225,000 in March 2021. No additional security deposit was required pursuant to the Second Amendment.
Under the terms of the lease, as amended, the Company is responsible for its proportional share of operating expenses
and tax obligations.
96
Balance sheet information related to operating leases is as follows for the periods presented (in thousands):
Operating Leases:
Operating lease right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average remaining lease term (years) . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
December 31,
2022
2021
3,061 $
2,515 $
1,141
3,656 $
1.4
10.4%
4,936
2,200
3,658
5,858
2.4
10.4%
Other information related to the Company’s operating leases is as follows for the periods presented (in thousands):
Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2,335
(123)
2,212
$
$
1,962 $
(91)
1,871 $
1,775
(89)
1,686
2022
Year Ended December 31,
2021
2020
Supplemental cash flow information is as follows for the periods presented (in thousands):
Operating cash flow used by operating leases . . . . . . . . . . . . . . .
New operating lease asset obtained in exchange for operating
lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2022
Year Ended December 31,
2021
2020
2,661
$
2,049 $
1,941
— $
1,373 $
—
Future lease payments required under lease obligations as of December 31, 2022 are as follows (in thousands):
Year Ending December 31:
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount
2,743
1,161
—
—
—
3,904
(248)
3,656
Note 11. Commitments and Contingencies
Contract Service Providers
In the normal course of business, the Company enters into agreements with contract service providers to assist in
the performance of its research and development activities and clinical and commercial manufacturing activities. Subject
to required notice periods and the Company’s obligations under binding purchase orders, the Company can elect to
discontinue the work under these agreements at any time. The Company expects to enter into additional clinical
development, contract research, clinical and commercial manufacturing, supplier and collaborative research agreements
in the future, which may require upfront payments and long-term commitments of capital resources.
97
Indemnification Agreements
In the ordinary course of business, the Company enters into agreements that may include indemnification
provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party
for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from
third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The
maximum potential amount of future payments the Company could be required to make under these provisions is not
determinable. The Company has also entered into indemnification agreements with its directors and officers that may
require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or
service as directors or officers to the fullest extent permitted by law. The Company carries a directors’ and officers’
insurance policy. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to the
indemnification agreements. The Company believes that the fair value of these indemnification agreements is minimal
and has not accrued any amounts for the obligations.
Legal Proceedings
The Company recognizes accruals for legal actions to the extent that it concludes that a loss is both probable and
reasonably estimable. The Company accrues for the best estimate of a loss within a range; however, if no estimate in the
range is better than any other, it accrues the minimum amount in the range. If the Company determines that a loss is
reasonably possible and the loss or range of loss can be estimated, it discloses the possible loss.
On January 23, 2020, the Company initiated arbitration proceedings with the International Court of Arbitration of
the International Chamber of Commerce against Zealand Pharma A/S (“Zealand”) related to a collaboration agreement
the Company and Zealand entered into in 2012 and terminated in 2014. The agreement provides for certain post-
termination payment obligations to Zealand with respect to compounds related to the collaboration that the Company
elects to further develop and meet specified conditions.
On August 4, 2021, the Company and Zealand agreed to resolve the dispute and reached an Arbitration Resolution
Agreement. Under the Arbitration Resolution Agreement, (1) the Company was required to make an additional payment
of $1.5 million to Zealand in August 2022 with respect to rusfertide; (2) all development milestones with respect of
rusfertide were reduced by 50%, except that the Company agreed to pay in full within two business days after the
effective date of the Arbitration Resolution Agreement (and timely paid): (i) a $1.0 million milestone for initiation of a
Phase 2b clinical trial; and (ii) a $1.5 million milestone for initiation of a Phase 3 clinical trial; (3) the royalty rates
payable by the Company on net sales of rusfertide were reduced by 50%; (4) all sales milestone payments on net sales of
rusfertide were reduced by 50%; (5) the parties agreed that each party will retain all payments previously made by the
other party in connection with the original collaboration agreement; and (6) the parties released claims related to the
original collaboration agreement, the abandonment agreement and the arbitration. In addition to the payments specified
in items (1) and (2) above, the Company may also be required to pay Zealand up to $2.75 million in future development
milestone payments relating to rusfertide. Those payments include up to $1.0 million in the aggregate for registrational
proposals and up to $1.75 million in the aggregate for commercial launch in the three geographic territories specified in
the original collaboration agreement.
The Company considered the outcome of these arbitration proceedings as being related to its research and
development project; therefore, payments or milestone payments were recorded as research and development expenses.
Note 12. Stockholders’ Equity
In August 2018, the Company entered into a Securities Purchase Agreement with certain accredited investors (each,
an “Investor” and, collectively, the “Investors”), pursuant to which the Company sold an aggregate of 2,750,000 shares of
its common stock at a price of $8.00 per share, for aggregate net proceeds of $21.7 million, after deducting offering
expenses payable by the Company. In a concurrent private placement, the Company issued the Investors warrants to
purchase an aggregate of 2,750,000 shares of its common stock (each, a “Warrant” and, collectively, the “Warrants”). Each
Warrant is exercisable from August 8, 2018 through August 8, 2023. Warrants to purchase 1,375,000 shares of the
Company’s common stock have an exercise price of $10.00 per share and Warrants to purchase 1,375,000 shares of the
98
Company’s common stock have an exercise price of $15.00 per share. The exercise price and number of shares of
common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to adjustment in the event
of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described
in the Warrants. Under certain circumstances, the Warrants may be exercisable on a “cashless” basis. In connection with
the issuance and sale of the common stock and Warrants, the Company granted the Investors certain registration rights
with respect to the Warrants and the Warrant Shares. The common stock and warrants are classified as equity in
accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), and
the net proceeds from the transaction were recorded as a credit to additional paid-in capital. As of December 31, 2022,
none of the Warrants have been exercised.
In December 2018, the Company entered into an exchange agreement (the “Exchange Agreement”) with an
Investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of
1,000,000 shares of the Company’s common stock, par value $0.00001 per share, owned by the Exchanging
Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,000,000 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 Exchange Warrants), with an exercise price of $0.00001 per
share. The Exchange Warrants expire ten years from the date of issuance. The Exchange Warrants were exercisable at
any time prior to expiration except that the Exchange Warrants could not be exercised by the Exchanging Stockholders
if, after giving effect thereto, the Exchanging Stockholders would beneficially own more than 9.99% of the Company’s
common stock, subject to certain exceptions. In accordance with Accounting Standards Codification Topic 505, Equity,
the Company recorded the retirement of the common stock exchanged as a reduction of common stock shares
outstanding and a corresponding debit to additional paid-in-capital at the fair value of the Exchange Warrants on the
issuance date. The Exchange Warrants were classified as equity in accordance with ASC 480, and the fair value of the
Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement. The
Company determined that the fair value of the Exchange Warrants was substantially similar to the fair value of the
retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants. During the year ended
December 31, 2019, Exchange Warrants to purchase 600,000 shares of the Company’s common stock were net
exercised, resulting in the issuance of 599,997 shares of common stock. During the year ended December 31 2022,
Exchange Warrants to purchase 400,000 shares of the Company’s common stock were net exercised, resulting in the
issuance of 399,997 shares of common stock. As of December 31, 2022, there were no outstanding Exchange Warrants.
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, 2020, the Company sold
2,483,719 shares of its common stock under the 2019 ATM Facility for net proceeds of $41.9 million, after deducting
issuance costs. No shares were sold under the 2019 ATM Facility during the year ended December 31, 2021. During the
year ended December 31, 2022, the Company sold 422,367 shares of its common stock under the 2019 ATM Facility for
net proceeds of $14.6 million, after deducting issuance costs. The Prior Sales Agreement was terminated in connection
with and replaced by the Sales Agreement in August 2022.
In May 2020, the Company completed an underwritten public offering of 7,000,000 shares of common stock at a
public offering price of $14.00 per share and issued an additional 1,050,000 shares of its common stock at a price of
$14.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after
deducting underwriting commissions and offering costs paid by the Company, were $105.3 million.
In December 2020, the Company completed an underwritten public offering of 4,761,904 shares of common stock
at a public offering price of $21.00 per share and issued an additional 714,285 shares of its common stock at a price of
$21.00 per share following the underwriters’ exercise of their option to purchase additional shares. Net proceeds, after
deducting underwriting commissions and offering costs paid by the Company, were $107.6 million.
In June 2021, the Company completed an underwritten public offering of 3,046,358 shares of its common stock at
a public offering price of $37.75 per share and issued an additional 456,953 shares of common stock at a price of $37.75
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 $123.8 million.
99
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 its common stock from time to time in “at-
the-market” offerings (the “2022 ATM Facility”). As of December 31, 2022, no sales were made under the 2022 ATM
Facility.
Note 13. Equity Plans
Equity Incentive Plan
In May 2007, the Company established the 2007 Stock Option and Incentive Plan (“2007 Plan”) which provided
for the granting of stock options to employees and consultants of the Company. Options granted under the 2007 Plan
were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs were granted only to
Company employees. NSOs were granted to Company employees, non-employee board directors and consultants.
Options under the 2007 Plan have a term of ten years and generally vest over a four-year period.
In July 2016, the Company’s board of directors and stockholders approved the 2016 Equity Incentive Plan (“2016
Plan”) to replace the 2007 Plan. Under the 2016 Plan, 1,200,000 shares of the Company’s common stock were initially
reserved for the issuance of stock options, restricted stock units and other awards to employees, directors and
consultants. Pursuant to the “evergreen” provision contained in the 2016 Plan, the number of shares reserved for
issuance under the 2016 Plan automatically increases on January 1 of each year, starting on January 1, 2017 and
continuing through (and including) January 1, 2026, by 4% of the total number of shares of the Company’s capital stock
outstanding on December 31 of the preceding fiscal year, or a lesser number of shares determined by the Company’s
board of directors. Upon adoption of the 2016 Plan, no additional stock awards were issued under the 2007 Plan. Options
granted under the 2007 Plan that were outstanding on the date the 2016 Plan became effective remain subject to the
terms of the 2007 Plan. The number of options available for grant under the 2007 Plan was ceased and the number was
added to the common stock reserved for issuance under the 2016 Plan. As of December 31, 2022, approximately
1,350,793 shares of common stock were available for issuance under the 2016 Plan.
The 2016 Plan is administered by the board of directors, or a committee appointed by the board of directors, which
determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price
and the vesting schedule. Options granted under the 2016 Plan expire no later than ten years from the date of grant. The
exercise price of each option may not be less than 100% of the fair market value of the common stock at the date of
grant. Options may be granted to stockholders possessing more than 10% of the total combined voting power of all
classes of stocks of the Company at an exercise price at least 110% of the fair value of the common stock at the date of
grant and the options are not exercisable after the expiration of 10 years from the date of grant. Employee stock options
generally vest over a period of approximately four years. Non-employee director initial stock options generally vest
monthly over a period of approximately three years, and non-employee director annual refresher stock options generally
vest over a period of approximately one year.
Inducement Plan
In May 2018, the Company’s board of directors approved the 2018 Inducement Plan, as subsequently amended.
The 2018 Inducement Plan is a non-stockholder approved stock plan, under which awards options and restricted stock
unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period
of non-employment, as an inducement material to such persons entering into employment with the Company, within the
meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The 2018 Inducement Plan is administered by the board of
directors or the Compensation Committee of the board, which determines the types of awards to be granted, including
the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under the 2018
Inducement Plan expire no later than ten years from the date of grant. As of December 31, 2022, approximately
574,772 shares of common stock were available for issuance under the 2018 Inducement Plan, as amended.
100
Stock Options
Stock option activity under the Company’s equity incentive and inducement plans is set forth below:
Weighted-
Average
Exercise
Price Per
Share
Options
Outstanding
Weighted-
Average
Aggregate
Remaining
Contractual
Intrinsic
Life (years) Value (1)
(in millions)
Balances at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances at December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercisable—December 31, 2022 . . . . . . . . . . . . . . . .
Options vested and expected to vest—December 31, 2022 . . .
5,890,540 $
1,763,300
(519,113)
(894,218)
6,240,509 $
3,822,404 $
$
6,240,509
17.66
22.39
6.90
23.64
19.03
16.90
19.03
7.00 $
5.92 $
7.00 $
6.9
5.0
6.9
(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 December 31, 2022. The calculation excludes options with an
exercise price higher than the closing price of the Company’s common stock on December 31, 2022.
The aggregate intrinsic value of options exercised was $5.4 million, $10.5 million and $3.0 million for the years
ended December 31, 2022, 2021 and 2020, respectively.
During the years ended December 31, 2022, 2021 and 2020, the estimated weighted-average grant-date fair value
of common stock underlying options granted was $17.52, $21.94 and $7.76 per share, respectively.
For the years ended December 31, 2022, 2021 and 2020, the aggregate fair value of stock options that vested
during the year was $23.3 million, $11.3 million and $7.1 million, respectively.
Stock Options Valuation Assumptions
The fair value of stock option awards was estimated at the date of grant using a Black-Scholes option-pricing
model with the following assumptions:
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . .
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2022
5.27–6.08
96.3%–101.7%
1.64%–4.23%
—
2021
5.27–6.08
87.4%–95.2%
0.11%–1.35%
—
2020
5.27–6.08
72.1%–87.5%
0.23%–1.44%
—
In determining the fair value of the options granted, the Company uses the Black-Scholes option-pricing model
and assumptions discussed below. Each of these inputs is subjective, and generally requires judgment to determine.
Expected Term—The Company’s expected term represents the period that the Company’s options granted are
expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting
date and the end of the contractual term). The Company has limited historical exercise information to develop reasonable
expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants.
Expected Volatility—For the year ended December 31, 2020, the Company’s expected volatility was based upon a
blend of 75% of the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to
the expected term of the stock option grants and 25% of the volatility of the Company’s stock price since its initial public
101
offering in August 2016. For the year ended December 31, 2021, the Company’s expected volatility was estimated based
upon a mix of 50% of the average volatility for comparable publicly traded biopharmaceutical companies over a period
equal to the expected term of the stock option grants and 50% of the volatility of the Company’s stock price since its
initial public offering in August 2016. For the year ended December 31, 2022, the Company’s expected volatility was
estimated based upon a mix of 25% of the average volatility for comparable publicly traded biopharmaceutical
companies over a period equal to the expected term of the stock option grants and 75% of the volatility of the
Company’s stock price since its initial public offering in August 2016.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the
time of grant for periods corresponding with the expected term of option.
Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay
dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
Restricted Stock Units
A restricted stock unit award (“RSU”) is an agreement to issue shares of the Company’s common stock at the time
of vesting. RSUs generally vest annually in equal installments over three or four years on approximately the anniversary
of the grant date. RSUs granted to certain non-executive employees in 2022 vest 100% annually on approximately the
first anniversary of the grant date. RSUs granted to certain executives in 2021 vest 100% on the third anniversary of the
grant date.
RSU activity under the Company’s equity incentive plans is set forth below:
Unvested RSUs at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested RSUs at December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
405,972 $
527,700
(108,462)
(187,774)
637,436 $
Weighted
Average
Grant Date
Fair Value
20.13
18.57
15.83
20.86
19.29
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.
For the years ended December 31, 2022, 2021 and 2020, the aggregate fair value of RSUs that vested during the
year was $1.7 million, $0.8 million and $1.2 million, respectively.
Performance Stock Units
Performance stock unit award (“PSU”) activity under the Company’s equity incentive plans is set forth below:
Unvested PSUs at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested PSUs at December 31, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
Number of
Shares
105,500 $
121,000
—
(27,000)
199,500 $
Weighted
Average
Grant Date
Fair Value
23.57
8.76
—
23.57
14.59
The terms of the unvested PSUs provide for 100% of shares to be earned based on the achievement of certain pre-
determined performance objectives, subject to the participant’s continued employment. The PSUs will vest, if at all,
upon certification by the Compensation Committee of the Company’s Board of Directors of the actual achievement of
the 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 objective becomes probable. The total fair value of grant date fair value of
unvested PSUs outstanding as of December 31, 2022 was $2.9 million. As of December 31, 2022, the achievement of the
related performance objectives was deemed not probable and, accordingly, no stock-based compensation expense for the
unvested PSUs has been recognized as of December 31, 2022.
Employee Stock Purchase Plan
In July 2016, the Company’s board of directors and stockholders approved the 2016 Employee Stock Purchase
Plan (“2016 ESPP”). The 2016 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986, as amended, and is administered by the Company’s board of directors and the
Compensation Committee of the board of directors. Under the 2016 ESPP, 150,000 shares of the Company’s common
stock were initially reserved for employee purchases of the Company’s common stock. Pursuant to the “evergreen”
provision contained in the 2016 ESPP, the number of shares reserved for issuance automatically increases on January 1
of each year, starting on January 1, 2017 and continuing through (and including) January 1, 2026 by the lesser of (i) 1%
of the total number of shares of common stock outstanding on December 31 of the preceding fiscal year
(ii) 300,000 shares, or (iii) such other number of shares determined by the board of directors.
The 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 year ended
December 31, 2022, a total of 58,709 shares of common stock were issued under the 2016 ESPP, and approximately
1,255,290 shares of common stock were available for issuance as of December 31, 2022.
The fair value of the rights granted under the 2016 ESPP was calculated using the Black-Scholes option-pricing
model with the following assumptions:
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-Based Compensation
2022
0.50
117.5%–128.2%
0.75%–3.56%
—
Year Ended December 31,
2021
0.50
50.9%–69.7%
0.06%
—
2020
0.50
89.1%–120.4%
0.12%–0.43%
—
Total stock-based compensation expense was as follows (in thousands):
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . . .
$
$
14,719
9,483
24,202
$
$
8,996 $
7,399
16,395 $
4,121
3,778
7,899
2022
Year Ended December 31,
2021
2020
As of December 31, 2022, total unrecognized stock-based compensation expense was approximately
$47.6 million, which the Company expects to recognize over a weighted-average period of approximately 2.4 years.
103
Note 14. 401(k) Plan
The Company has a retirement and savings plan under Section of 401(k) of Internal Revenue Code (the “401(k)
Plan”) covering all U.S. employees. The 401(k) Plan allows employees to make pre- and post-tax contributions up to the
maximum allowable amount set by the Internal Revenue Service. The Company may make contributions to this plan at
its discretion. The Company matched 50% of each employee’s contribution up to a maximum of $4,000 for the year
ended December 31, 2022 and $3,500 for the year ended December 31, 2021, resulting in recognized expense of
approximately $0.3 million for the years ended December 31, 2022 and 2021. No matching contributions were made to
the plan by the Company for the year ended December 31, 2020.
Note 15. Income Taxes
No income tax expense was recorded by the Company for the years ended December 31, 2022, and 2021.
The Company recorded income tax expense of $1.3 million for the year ended December 31, 2020. During the
second quarter of 2020, the Company’s Australia subsidiary sold beneficial rights to discovery intellectual property to its
U.S. entity, and the U.S. entity reimbursed the Australia subsidiary for certain direct development costs. Upon
completion of the sale, the Company analyzed tax planning strategies and future income and concluded that a full
valuation allowance is necessary for its Australia subsidiary. Income tax expense for the year ended December 31, 2020
reflects this sale of intellectual property rights, cost reimbursements and related adjustments to the deferred tax asset,
establishing a valuation allowance and certain uncertain tax position liabilities. The Company’s effective income tax rate
differed from the Company’s federal statutory rate of 21%, primarily because its U.S. loss cannot be benefited due to the
full valuation position and reduced by foreign taxes.
The following table presents domestic and foreign components of net loss before income taxes (in thousands):
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net loss before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2022
(124,208)
(3,185)
(127,393)
Year Ended December 31,
2021
(125,797) $
246
(125,551) $
$
$
2020
(71,073)
6,228
(64,845)
The federal, state and foreign components of the income tax expense (benefit) are summarized as follows (in
thousands):
Current:
2022
Year Ended December 31,
2021
2020
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
— $
—
—
—
—
—
—
—
— $
$
—
—
—
—
—
—
—
—
— $
—
—
(88)
(88)
—
—
1,393
1,393
1,305
104
The effective tax rate of the provision for income taxes differs from the federal statutory rate as follows:
Federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credits . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2022
2021
2020
21.0 %
1.4
5.9
0.2
(25.8)
(2.7)
— %
21.0 %
1.9
4.3
—
(28.0)
0.8
— %
21.0 %
1.9
6.5
(0.9)
(34.3)
3.8
(2.0)%
The components of the deferred tax assets are as follows (in thousands):
December 31,
2022
2021
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .
Accruals/other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development and foreign credits . . . . . . . . . . . . . . . . . . . . . . . .
Section 174 capitalized R&D expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .
$
Deferred tax liabilities:
Operating right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,133 $
893
8,304
769
30,387
22,296
138,782
(644)
(644)
(138,138)
75,649
1,153
5,716
1,230
21,197
—
104,945
(1,037)
(1,037)
(103,908)
—
$
— $
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be
recorded as an asset to the extent that management assesses that realization is “more likely than not”. Realization of the
future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward
period. Because of the Company’s recent history of operating losses, management believes that recognition of the
deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and,
accordingly, has provided a valuation allowance. The valuation allowance increased by approximately $34.2 million,
$32.0 million and $19.4 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit
carryforwards in the event of an ownership change for tax purposes, as defined in Section 382 of the Internal Revenue
Code. As a result of such ownership changes, the annual limitation may result in the expiration of net operating losses
and credits before utilization. The Company performed a Section 382 analysis through December 31, 2022. The
Company has experienced ownership changes in the past and in the current year. The ownership changes will not result
in a limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be
utilized. Subsequent ownership changes may affect the limitation in future years.
As of December 31, 2022, the Company had $349.5 million of federal net operating loss carryforwards and
$214.8 million of state net operating loss carryforwards. $78.7 million of the federal net operating loss carryforwards
will begin to expire in 2033, if not utilized, and the remaining $270.8 million have no expiration date. The state net
operating loss carryforwards will begin to expire in 2035, if not utilized.
As of December 31, 2022, the Company had approximately AUD 0.3 million ($0.2 million) of Australian tax loss
carryforward.
105
As of December 31, 2022, the Company had $28.1 million of federal and $10.7 million of state research and
development tax credit carryforwards available to reduce future income taxes. The federal research and development tax
credits will begin to expire in 2035, if not utilized. The state research and development tax credits have no expiration
date.
As of December 31, 2022, the Company had AUD 4.4 million ($3.0 million) of Australian research and
development tax credit carryforwards available to reduce future income taxes. The Australian research and development
tax credits have no expiration date.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases based on tax positions related to prior years . . . . . . . . .
Increases based on tax positions related to current year . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
33,159
(10,779)
2,915
25,295
$
$
19,885 $
—
13,274
33,159 $
16,631
(3,799)
7,053
19,885
2022
Year Ended December 31,
2021
2020
At December 31, 2022, the Company had unrecognized tax benefits of $25.3 million, which are subject to a
valuation allowance and would not affect the effective tax rate if recognized. The Company does not anticipate that the
total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months. The Company’s
policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes, as
necessary. Management determined that no accrual for interest or penalties was required as of December 31, 2022, 2021
and 2020.
The Company files income tax returns in the United States federal jurisdiction, the State of California, the State of
Florida, and Australia. The Company is not currently under examination by income tax authorities in federal, state or
other jurisdictions. The Company’s tax returns remain open for examination for all years.
The Company’s Australia subsidiary had an accumulated deficit at December 31, 2022 and, accordingly, no
provision has been provided thereon for any unremitted earnings.
The Company has elected to recognize any potential global intangible low-taxed income (“GILTI”) obligation as
an expense in the period it is incurred.
The Company has received orphan drug designation from the U.S. Food and Drug Administration (“FDA”) for its
clinical asset rusfertide (PTG-300) for the treatment of polycythemia vera and beta-thalassemia and may qualify for a
related 25% U.S. Federal income tax credit on qualifying clinical study expenditures.
Tax Law Updates
On December 22, 2017, the U.S. enacted comprehensive tax legislation (the “Tax Act”). The Tax Act made broad
and complex changes to the U.S. tax code, including the imposition of a one-time mandatory deemed repatriation tax
(“Transition Tax”) on certain earnings accumulated offshore since 1986 and the reduction of the corporate tax rate from
35% to 21% for U.S. taxable income, resulting in a one-time remeasurement of U.S. federal deferred tax assets and
liabilities. The Tax Act also amended Internal Revenue Code Section 174 requiring capitalization of research and
experimentation expenditures. The capitalized expenses are amortized over a period of five or fifteen years.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an
Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations. Based on our
initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision
and cash taxes. We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our
business.
106
Note 16. Net Loss per Share
As the Company had a net loss for the years ended December 31, 2022, 2021 and 2020, 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):
Numerator:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(127,393) $
(125,551) $
(66,150)
Denominator:
Weighted-average shares used to compute net loss per
common share, basic and diluted . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . . . . . . . . . . . . . . . . . . . .
49,042,232
$
(2.60) $
46,322,910
(2.71) $
34,396,446
(1.92)
2022
Year Ended December 31,
2021
2020
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:
Options to purchase common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESPP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17. Subsequent Event
2022
6,240,509
2,750,000
637,436
199,500
72,598
9,900,043
December 31,
2021
5,890,540
2,750,000
405,972
105,500
18,055
9,170,067
2020
4,648,120
2,750,000
244,545
—
28,445
7,671,110
The Company sold 1,749,199 shares of its common stock under the 2022 ATM Facility pursuant to the Sales
Agreement during the period from January 1, 2023 through filing date of this Annual Report on Form 10-K. Net
proceeds were $24.3 million, after deducting issuance costs. As of the filing date of this Annual Report on Form 10-K, a
total of $275.1 million of common stock remained available for sale under the registration statement on Form S-3 (File
No. 333- 266595) that was declared effective as of August 16, 2022, $75.1 million of which remained available for sale
under the 2022 ATM facility.
107
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
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 December 31,
2022. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures as of December 31, 2022 were effective at
the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management, including our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the criteria set
forth in Internal Control-Integrated Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2022.
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 our most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
108
Item 10.
Directors, Executive Officers, and Corporate Governance
PART III
Except as set forth below, the information required by this item is incorporated herein by reference to information
in our definitive proxy statement relating to our 2023 Annual Meeting of Stockholders, which we expect to be filed with
the SEC within 120 days of the end of our fiscal year ended December 31, 2022 (the “Proxy Statement”), including
under the headings “Election of Directors,” “Executive Officers,” “Information Regarding Committees of the Board of
Directors” and, if applicable, “Delinquent Section 16(a) Reports.”
We have adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees,
including our principal executive, principal financial and principal accounting officers, or persons performing similar
functions. The Code of Business Conduct and Ethics is posted on our website at www.protagonist-inc.com.
We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and
waivers of the Code of Business Conduct and Ethics granted to executive officers and directors, on our website listed
above within four business days following the date of the amendment or waiver.
Item 11.
Executive Compensation
The information required by this item is incorporated herein by reference to information in our Proxy Statement
under the headings “Information Regarding Committees of the Board of Directors—Compensation Committee,”
“— Compensation Committee Interlocks and Insider Participation” and “Executive Compensation.”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated herein by reference to information in our Proxy Statement
under the heading “Security Ownership of Certain Beneficial Owners and Management” and “Director Compensation—
Equity Compensation Plan Information.”
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to information in our Proxy Statement
under the headings “Transactions with Related Persons and Indemnification” and “Information Regarding the Board of
Directors and Corporate Governance—Independence of the Board of Directors.”
Item 14.
Principal Accountant Fees and Services
The information required by this item is incorporated by reference to information in our Proxy Statement under the
heading “Ratification of Selection of Independent Registered Public Accounting Firm.”
109
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
The financial statements filed as part of this Annual Report on Form 10 - K are included in Part II, Item 8 of
this Annual Report on Form 10 - K.
(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted in this Annual Report on Form 10 - K because they are not
applicable, not required under the instructions, or the information requested is set forth in the financial
statements or related notes thereto.
(3) EXHIBITS
The exhibits listed in the accompanying Exhibit Index are filed as part of, or incorporated by reference into,
this Annual Report on Form 10 - K.
110
(4) EXHIBIT INDEX
Exhibit
Number
Exhibit Description
3.1
Amended and Restated Certificate of
Incorporation
3.2
4.1
Amended and Restated Bylaws
Specimen stock certificate
evidencing the shares of common
stock
4.3
Description of Protagonist
10.1+
10.2+
10.3+
10.4+
10.5+
Therapeutics, Inc.’s Securities
Registered Pursuant to Section 12 of
the Exchange Act
Protagonist Therapeutics, Inc. 2007
Stock Option and Incentive Plan, as
amended and restated, and form of
option agreement, exercise notice,
joinder, and adoption agreement
thereunder.
Protagonist Therapeutics, Inc. 2016
Equity Incentive Plan and forms of
stock option grant notice, option
agreement, notice of exercise,
restricted stock unit grant notice and
restricted stock unit agreement
thereunder.
Protagonist Therapeutics, Inc. 2016
Employee Stock Purchase Plan.
Form of Indemnity Agreement for
Directors and Officers.
Protagonist Therapeutics, Inc.
Amended and Restated 2018
Inducement Plan, and forms of stock
option grant notice, option
agreement, restricted stock unit grant
notice and restricted stock unit
agreement thereunder.
Incorporation By Reference
Form
8 - K
SEC File No.
Exhibit Filing Date Herewith
001-37852
3.1
8/16/2016
Filed
S - 1/A
S - 1/A
333-212476
333-212476
3.2(b)
4.1
8/1/2016
8/1/2016
X
S - 1
333-212476
10.1
7/11/2016
S - 1/A
333-212476
10.2
8/1/2016
S - 1/A
333-212476
10.3
8/1/2016
S - 1/A
333-212476
10.4
8/1/2016
S-8
333-263097
99.3
2/28/2022
10.6
10.7+
10.8+
Lease, dated March 6, 2017, by and
between the Registrant and BMR-
Pacific Research Center LP.
Severance Agreement, dated
August 1, 2016, by and between the
Registrant and Dinesh Patel.
Severance Agreement, dated
August 1, 2016, by and between the
Registrant and David Y. Liu, Ph.D.
10-K
001-37852
10.9
3/7/2017
S - 1/A
333-212476
10.9
8/1/2016
S - 1/A
333-212476
10.10
8/1/2016
10.9†
Research and Collaboration
S - 1
333-212476
10.17
7/11/2016
Agreement, dated June 16, 2012, by
and among the Registrant,
Protagonist Pty. Ltd. and Zealand
Pharma A/S.
111
Exhibit
Number
10.10†
Exhibit Description
Contract Extension Letter of
Form
S - 1
Agreement, dated June 1, 2013, by
and among the Registrant,
Protagonist Pty. Ltd. and Zealand
Pharma A/S.
Incorporation By Reference
Filed
Exhibit Filing Date Herewith
10.18
7/11/2016
SEC File No.
333-212476
10.11†
Agreement on Addition of Additional
S - 1
333-212476
10.19
7/11/2016
10.12†
10.13†
Collaboration Program, dated
September 16, 2013, by and among
the Registrant, Protagonist Pty. Ltd.
and Zealand Pharma A/S.
Protagonist Assumption of
Responsibility, dated January 28,
2014, by and between the Registrant
and Zealand Pharma A/S.
Agreement to Assign Patent
Applications, dated February 7,
2014, by and between the Registrant,
Protagonist Pty. Ltd. and Zealand
Pharma A/S.
S - 1
333-212476
10.20
7/11/2016
S - 1
333-212476
10.21
7/11/2016
10.14†
Abandonment Agreement, dated
S - 1
333-212476
10.22
7/11/2016
10.15
10.16
10.17
10.18
10.19+
February 28, 2014, by and among the
Registrant, Protagonist Pty. Ltd. and
Zealand Pharma A/S.
Registration Rights Agreement, dated
August 8, 2018, by and between the
Registrant and certain parties
identified on the signature pages
thereto
Securities Purchase Agreement,
dated August 6, 2018, by and
between the Registrant and certain
purchasers identified on the signature
pages thereto
Exchange Agreement, dated
December 21, 2018, by and between
the Registrant and Biotechnology
Value Fund, L.P., Biotechnology
Value Fund II, L.P. and
Biotechnology Value Trading Fund
OS, L.P.
First Amendment, dated January 31,
2019, to Lease, dated March 6, 2017,
by and between Protagonist
Therapeutics, Inc., as Tenant, and
BMR-Pacific Research Center LP, as
Landlord.
Severance Agreement, dated March
14, 2019, by and among Protagonist
Therapeutics, Inc. and Suneel Gupta,
Ph.D.
8-K
001-37852
4.3
8/7/2018
S-3
333-227216
10.1
9/7/2018
8-K
001-37852
10.1
12/31/2018
10-Q
001-37852
10.3
5/8/2019
10-Q
001-37852
10.4
5/8/2019
112
Exhibit
Number
10.20
10.21
10.22†
10.23†
10.24+
10.25+
10.26+
21.1
23.1
24.1
31.1
31.2
Exhibit Description
Open Market Sale AgreementSM,
dated August 5, 2022, by and
between Protagonist Therapeutics,
Inc. and Jefferies LLC.
Second Amendment, dated July 2,
2021, to Lease, dated March 6, 2017,
by and between Protagonist
Therapeutics, Inc., as Tenant, and
BMR-Pacific Research Center, LP as
Landlord.
Amended and Restated License and
Collaboration Agreement, dated July
27, 2021, by and between
Protagonist Therapeutics, Inc. and
Janssen Biotech, Inc.
Arbitration Resolution Agreement,
dated August 4th, 2021, by and
among Protagonist Therapeutics, Inc.
and Zealand Pharma, A/S.
Employment Offer Letter, by and
between Protagonist Therapeutics
Inc. and Asif Ali, dated March 25,
2022.
Offer Letter, by and between
Protagonist Therapeutics Inc. and
Arturo Molina, M.D., Ph.D., dated
November 1, 2022.
Severance Agreement, by and
between Protagonist Therapeutics
Inc. and Arturo Molina, M.D., Ph.D.,
dated November 7, 2022.
List of Subsidiaries
Consent of Independent Registered
Public Accounting Firm
Power of Attorney (included in
signature page of this Form 10 - K)
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
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
Incorporation By Reference
Form
S-3
SEC File No.
333-266595
Exhibit Filing Date Herewith
1.2
8/5/2022
Filed
10-Q
001-37852
10.3
11/3/2021
10-Q
001-37852
10.1
11/3/2021
10-Q
001-37852
10.2
11/3/2021
10-Q
001-37852
10.1
5/5/2022
X
X
X
X
X
X
X
113
Exhibit
Number
32.1*
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Exhibit Description
Form
SEC File No.
Exhibit Filing Date Herewith
Incorporation By Reference
Filed
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
Inline XBRL Instance Document—
the instance document does not
appear in the Interactive Data File
because its XBRL tags are embedded
within the Inline XBRL Document
Inline XBRL Taxonomy Extension
Schema Document
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
Inline XBRL Taxonomy Extension
Labels Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover Page Interactive Data File—
the cover page interactive data file
does not appear in the Interactive
Data File because its XBRL tags are
embedded within the Inline XBRL
document
X
X
X
X
X
X
X
+ Indicates management contract or compensatory plan, contract or agreement.
† Certain identified information has been omitted by means of marking such information with asterisks in reliance on
Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that the registrant treats as
private or confidential.
* This certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10 - K 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 - K, irrespective of any general
incorporation language contained in such filing.
Item 16.
Form 10-K Summary
None.
114
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.
SIGNATURES
Date: March 15, 2023
PROTAGONIST THERAPEUTICS, INC.
By:
/s/ Dinesh V. Patel, Ph.D.
Dinesh V. Patel, Ph.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Dinesh V. Patel and Asif Ali, and each of them, his true and lawful attorneys-in-fact, with full power of
substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10 - K, and
to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or any of them or their substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Dinesh V. Patel, Ph.D.
Dinesh V. Patel, Ph.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 15, 2023
/s/ Asif Ali
Asif Ali
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
March 15, 2023
/s/ Harold E. Selick, Ph.D.
Harold E. Selick, Ph.D.
/s/ Bryan Giraudo
Bryan Giraudo
/s/ Sarah Noonberg, M.D., Ph.D.
Sarah Noonberg, M.D., Ph.D.
/s/ Sarah O’Dowd
Sarah O’Dowd
/s/ William D. Waddill
William D. Waddill
/s/ Lewis T. Williams, M.D., Ph.D.
Lewis T. Williams, M.D., Ph.D.
Chairman of the Board of Directors
March 15, 2023
Director
Director
Director
Director
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
Director
March 15, 2023
115
7707 Gateway Blvd., Suite 140
Newark, California 94560
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 25, 2023
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of
Protagonist Therapeutics, Inc., a Delaware corporation (the “Company”). The meeting will be held exclusively
online via live audio webcast at www.virtualshareholdermeeting.com/PTGX2023 on Thursday, May 25, 2023
at 10:00 a.m. PDT for the following purposes:
1. To elect the Class I nominee, Dinesh V. Patel, Ph.D., to the Board of Directors to hold office until
the 2026 Annual Meeting of Stockholders and until his successor is duly elected and qualified,
subject to his earlier resignation or removal.
2. To approve, on an advisory basis, the compensation of the Company’s named executive officers.
3. To ratify the selection by the Audit Committee of the Board of Directors of Ernst & Young LLP as
the independent registered public accounting firm of the Company for its fiscal year ending
December 31, 2023.
4. To conduct any other business properly brought before the meeting.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
The Annual Meeting will be held virtually this year. Online check-in will begin at 9:45 a.m. PDT and you
should allow ample time for the check-in procedures. You will not be able to attend the Annual Meeting in
person.
The record date for the Annual Meeting is March 31, 2023. Only stockholders of record at the close of
business on that date may vote at the meeting or any adjournment or postponement thereof. To participate in
the meeting, you must have your 16-digit control number shown on your Notice of Internet Availability of
Proxy Materials or on the instructions that accompanied your proxy materials.
Instructions for accessing the virtual Annual Meeting are provided in the Proxy Statement. In the event of
a technical malfunction or other situation that the meeting chair determines may affect the ability of the
Annual Meeting to satisfy the requirements for a meeting of stockholders to be held by means of remote
communication under the Delaware General Corporation Law, or that otherwise makes it advisable to adjourn
the Annual Meeting, the meeting chair or secretary will convene the meeting at 11:00 a.m. PDT on the date
specified above and at the Company’s address specified above solely for the purpose of adjourning the meeting
to reconvene at a date, time and physical or virtual location announced by the meeting chair or secretary.
Under either of the foregoing circumstances, we will post information regarding the announcement on the
Investors page of the Company’s website at www.protagonist-inc.com.
By Order of the Board of Directors
/s/ Dinesh V. Patel
Dinesh V. Patel, Ph.D.
President and Chief Executive Officer
Newark, California
April 12, 2023
Whether or not you expect to participate in the virtual Annual Meeting, please vote as promptly as possible in
order to ensure your representation at the Annual Meeting. You may vote online or, if you requested printed
copies of the proxy materials, by telephone or by using the proxy card or voting instruction form provided with the
printed proxy materials.
7707 Gateway Blvd., Suite 140
Newark, California 94560
PROXY STATEMENT
FOR THE 2023 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On Thursday, May 25, 2023
QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING
Why did I receive a notice of internet availability of proxy materials?
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we have elected to
provide access to our proxy materials over the internet. Accordingly, we have sent you a Notice of Internet
Availability of Proxy Materials (the “Notice”) because the Board of Directors (the “Board”) of Protagonist
Therapeutics, Inc. (sometimes referred to as the “Company” or “Protagonist”) is soliciting your proxy to vote
at the 2023 Annual Meeting of Stockholders (the “Annual Meeting”), including at any adjournments or
postponements of the meeting. All stockholders will have the ability to access the proxy materials on the
website referred to in the Notice or may request a printed set of the proxy materials to be sent to them free of
charge. Instructions on how to access the proxy materials over the internet or to request a printed copy may be
found in the Notice.
We intend to mail the Notice on or about April 12, 2023 to all stockholders of record entitled to vote at
the Annual Meeting.
Will I receive any other proxy materials by mail?
We may send you a proxy card, along with a second Notice, on or after April 25, 2023.
How do I attend and participate in the Annual Meeting?
The Annual Meeting will be held virtually via live webcast at www.virtualshareholdermeeting.com/
PTGX2023 on Thursday, May 25, 2023 at 10:00 a.m. PDT. You will not be able to attend the Annual Meeting
in person. Stockholders of record as of the close of business on the record date are entitled to participate in
and vote at the Annual Meeting. To participate in the Annual Meeting, including to vote and ask questions,
stockholders of record should go to the meeting website listed above, enter the 16-digit control number found
on your proxy card or Notice, and follow the instructions on the website. Information on how to vote online at
the Annual Meeting is discussed below. Online check-in will begin at 9:45 a.m. PDT and stockholders should
allow ample time for the check-in procedures. If your shares are held in the name of your broker, bank or
other nominee (sometimes referred to as shares held in “street name”) and your voting instruction form or
Notice indicates that you may vote those shares through www.proxyvote.com, then you may access, participate
in and vote at the Annual Meeting with the 16-digit access code indicated on that voting instruction form or
Notice. Otherwise, stockholders who hold their shares in street name should contact their bank, broker or
other nominee (preferably at least five days before the Annual Meeting) and obtain a “legal proxy” in order to
be able to attend, participate in or vote at the Annual Meeting.
Conducting the Annual Meeting virtually increases the opportunity for all stockholders to participate
and communicate their views to a much wider audience. The virtual meeting is designed to provide the same
rights and advantages of a physical meeting. Stockholders will be able to submit questions online during the
meeting, providing our stockholders with the opportunity for meaningful engagement with the Company.
Questions must comply with the meeting rules of conduct; the rules of conduct will be posted on the virtual
meeting website. We will endeavor to answer as many stockholder-submitted questions as time permits that
1
comply with the Annual Meeting rules of conduct. We reserve the right to edit profanity or other inappropriate
language and to exclude questions regarding topics that are not pertinent to meeting matters or Company
business. If we receive substantially similar questions, we may group such questions together and provide a
single response to avoid repetition.
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on March 31, 2023 (the “Record Date”) will be
entitled to vote at the Annual Meeting. On the Record Date, there were 51,440,503 shares of common stock
outstanding and entitled to vote.
Stockholder of record: shares registered in your name
If on the Record Date, your shares were registered directly in your name with Protagonist’s transfer
agent, American Stock Transfer & Trust Company, LLC, then you are a stockholder of record. As a
stockholder of record, you may vote online at the Annual Meeting or vote by proxy. Whether or not you plan
to attend the Annual Meeting, we urge you to vote and submit your proxy in advance of the Annual Meeting.
For information on how to vote prior to the Annual Meeting, see “How do I vote?”.
Beneficial owner: shares registered in the name of a broker or bank
If on the Record Date, your shares were held, not in your name, but rather in an account at a brokerage
firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street
name” and the Notice is being forwarded to you by that organization. The organization holding your account
is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial
owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account.
You are also invited to attend the Annual Meeting virtually via live webcast.
What am I voting on?
There are three matters scheduled for a vote:
• Proposal No. 1 — To elect the Class I nominee to hold office until the 2026 Annual Meeting of
Stockholders;
• Proposal No. 2 — To approve, on an advisory basis, the compensation of the Company’s named
executive officers; and
• Proposal No. 3 — To ratify the selection of Ernst & Young LLP as the Company’s independent auditor
for 2023.
What if another matter is properly brought before the meeting?
The Board knows of no other matters that will be presented for consideration at the Annual Meeting. If
any other matters are properly brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on those matters in accordance with their best judgment.
How do I vote?
With respect to the election of directors, you may either vote “For” the nominee to the Board or you may
“Withhold” your vote for the nominee. For the ratification of the selection of Ernst & Young LLP as the
Company’s independent auditor for 2023 and for the advisory approval of executive compensation, you may
vote “For,” “Against” or “Abstain.”
The procedures for voting are fairly simple:
Stockholder of record: shares registered in your name
If you are a stockholder of record, you may vote online during the webcast of the Annual Meeting, vote
by proxy through the internet or, if you request paper copies of the proxy materials, vote by proxy over the
2
telephone or mailing a proxy card. Whether or not you plan to attend the meeting online, we urge you to vote
by proxy to ensure your vote is counted. You may still attend the meeting and vote online even if you have
already voted by proxy.
• To vote online at the Annual Meeting, you must be present via live webcast. To vote live during the
meeting, please visit www.virtualshareholdermeeting.com/PTGX2023 and have available the 16-digit
control number included in your Notice.
• To vote using the proxy card, simply complete, sign and date the proxy card that may be delivered and
return it promptly in the envelope provided. Your signed proxy card must be received by us before the
Annual Meeting to be counted.
• To vote over the telephone prior to the Annual Meeting, dial toll-free 1-800-690-6903 and follow the
recorded instructions. You will be asked to provide certain information from the Notice. Your telephone
vote must be received by 11:59 p.m., Eastern Time on May 24, 2023 to be counted.
• To vote through the internet prior to the Annual Meeting, go to www.proxyvote.com to complete an
electronic proxy card. You will be asked to provide certain information from the Notice. Your internet
vote must be received by 11:59 p.m., Eastern Time on May 24, 2023 to be counted.
Beneficial owner: shares registered in the name of a broker or bank
If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you
should have received a Notice containing voting instructions from that organization rather than from
Protagonist. Simply follow the voting instructions in the Notice to ensure that your vote is counted.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share of common stock you own as of the
Record Date.
What happens if I do not vote?
Stockholder of record: shares registered in your name
If you are a stockholder of record and do not vote by completing your proxy card, by telephone, through
the internet or online at the Annual Meeting, your shares will not be voted.
Beneficial owner: shares registered in the name of a broker or bank
If you are a beneficial owner of shares registered in “street name” and you do not provide the broker or
other nominee that holds your shares with voting instructions, whether your broker or nominee will still be
able to vote your shares depends on whether the particular proposal is a “routine” matter. Brokers and other
nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to
be “routine,” but not with respect to “non-routine” matters. Whether a proposal is considered routine or
non-routine is subject to stock exchange rules and final determination by the stock exchange. Even with respect
to routine matters, some brokers are choosing not to exercise discretionary voting authority. As a result, we
urge you to direct your broker, bank or other nominee how to vote your shares on all proposals to ensure that
your vote is counted.
What if I am a stockholder of record and return a proxy card or otherwise vote but do not make specific
choices?
If you are a stockholder of record and return a signed and dated proxy card or otherwise vote without
marking voting selections, your shares will be voted, as applicable:
• “For” the election of the Class I nominee for director;
• “For” the advisory approval of the compensation of the Company’s named executive officers; and
• “For” the ratification of Ernst & Young LLP as the Company’s independent auditor for 2023.
3
If any other matter is properly presented at the Annual Meeting, your proxyholder (one of the individuals
named on your proxy card) will vote your shares using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and
employees may also solicit proxies in person, by telephone or by other means of communication. Directors
and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse
brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
What does it mean if I receive more than one Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in different
accounts. Please cast your vote with respect to each set of proxy materials that you receive to ensure that all of
your shares are voted.
Can I change my vote after submitting my proxy?
Stockholder of record: shares registered in your name
Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are the record
holder of your shares, you may revoke your proxy in any one of the following ways:
• You may submit another properly completed proxy card with a later date.
• You may grant a subsequent proxy by telephone or through the internet.
• You may send a timely written notice that you are revoking your proxy to Protagonist’s Corporate
Secretary at 7707 Gateway Blvd., Suite 140, Newark, California 94560.
• You may attend the Annual Meeting and vote online by visiting www.virtualshareholdermeeting.com/
PTGX2023. To attend the meeting, you will need the 16-digit control number included in your Notice
or on the instructions that accompanied your proxy materials. Simply attending the meeting will not,
by itself, revoke your proxy.
Your last submitted vote is the one that is counted.
Beneficial owner: shares registered in the name of a broker or bank
If your shares are held by your broker, bank or other nominee, you should follow the instructions provided
by your broker, bank or other nominee.
When are stockholder proposals and director nominations due for next year’s Annual Meeting?
Pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to be
considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing to our
Corporate Secretary at the address set forth on the first page of this Proxy Statement. Such proposals must be
received by us as of the close of business (6:00 p.m. PDT) on December 14, 2023 and must comply with
Rule 14a-8 of the Exchange Act. The submission of a stockholder proposal does not guarantee that it will be
included in the proxy statement.
As set forth in our Amended and Restated Bylaws, if you intend to make a nomination for director
election or present a proposal for other business (other than pursuant to Rule 14a-8 of the Exchange Act) at
the 2024 Annual Meeting of Stockholders, you must provide specified information in writing to our Corporate
Secretary at the address above no earlier than January 26, 2024 and no later than the close of business
(6:00 p.m. PDT) on February 25, 2024; provided, however, that if our 2024 Annual Meeting of Stockholders
is held before April 25, 2024 or after June 24, 2024, notice by the stockholder to be timely must be received no
earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made. Any such director nomination or stockholder
4
proposal must be a proper matter for stockholder action and must comply with the terms and conditions set
forth in our Amended and Restated Bylaws. If you fail to meet these deadlines or fail to satisfy the
requirements of Rule 14a-4 of the Exchange Act, we may exercise discretionary voting authority under proxies
we solicit to vote on any such proposal as we determine appropriate. In addition to satisfying the deadlines in
the advance notice provisions of our Amended and Restated Bylaws, if you intend to solicit proxies in support
of nominees submitted under these advance notice provisions for the 2024 Annual Meeting of Stockholders,
you must provide the notice required under Rule 14a-19 of the Exchange Act to our Corporate Secretary in
writing not later than the close of business (6:00 p.m. PDT) on March 26, 2024. You are also advised to review
our Amended and Restated Bylaws, which contain additional requirements about advance notice of
stockholder proposals and director nominations. We reserve the right to reject, rule out of order or take other
appropriate action with respect to any nomination or proposal that does not comply with these and other
applicable requirements.
Who will count the votes?
Votes will be counted by Broadridge Financial Solutions, the inspector of election appointed for the
meeting
What are “broker non-votes”?
As discussed above, when a beneficial owner of shares held in “street name” does not give instructions to
the broker or other nominee holding the shares as to how to vote, the broker or other nominee cannot vote
those shares on matters deemed to be “non-routine” and may choose not to vote those shares on matters
deemed to be “routine.” These unvoted shares are considered “broker non-votes.”
How many votes are needed to approve each proposal?
The following table summarizes the minimum vote needed to approve each proposal and the effect of
abstentions and broker non-votes.
Proposal Description
Vote Required for Approval
Effect of Abstentions
Proposal
Number
1
2
3
Election of director
nominee
Advisory approval of the
compensation of our
named executive officers
Ratification of the
selection of Ernst &
Young LLP as the
Company’s independent
auditor for fiscal year
ending December 31,
2023
Nominee receiving the most
“For” votes; withheld votes
will have no effect.
“For” votes from the
holders of a majority of
shares present online during
the virtual meeting or
represented by proxy and
entitled to vote on the
matter.
“For” votes from the
holders of a majority of
shares present online during
the virtual meeting or
represented by proxy and
entitled to vote on the
matter.
Effect of
Broker
Non-Votes
None
Under plurality voting,
there are no abstentions.
Against
None
Against
None
What is the quorum requirement?
A quorum of stockholders is necessary to transact business at the meeting. A quorum will be present if
stockholders holding a majority of the outstanding shares entitled to vote are present at the meeting online or
represented by proxy.
5
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on
your behalf by your broker, bank or other nominee) or if you vote online at the meeting. Abstentions and
broker non-votes will be counted towards the quorum requirement. If there is no quorum, the meeting chair
or the holders of a majority of shares present at the meeting online or represented by proxy may adjourn the
meeting to another time or date.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. In addition, final voting results will
be published in a Current Report on Form 8-K that we expect to file within four business days after the
Annual Meeting.
Important Notice Regarding the Availability of Proxy Materials for the 2023 Annual Meeting of
Stockholders to Be Held on May 25, 2023. The Proxy Statement and Annual Report on Form 10-K for the year
ended December 31, 2022 are available at www.proxyvote.com.
LEGAL MATTERS
Forward-Looking Statements. The Proxy Statement may contain “forward-looking statements” within
the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, which
statements are subject to substantial risks and uncertainties and are based on estimates and assumptions. All
statements other than statements of historical fact included in the Proxy Statement are forward-looking
statements, including statements about the Company’s Board of Directors, corporate governance practices,
executive compensation program, equity compensation utilization and environmental, social and governance
(“ESG”) initiatives. In some cases, you can identify forward-looking statements by terms such as “may,”
“might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,”
“estimate,” “predict,” “potential,” “plan” or the negative of these terms, and similar expressions intended to
identify forward-looking statements. These statements involve known and unknown risks, uncertainties and
other factors that could cause our actual results to differ materially from the forward-looking statements
expressed or implied in the Proxy Statement. Such risks, uncertainties and other factors include those identified
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC and
other subsequent documents we file with the SEC. The Company expressly disclaims any obligation to update
or alter any statements whether as a result of new information, future events or otherwise, except as required
by law.
Website References. Website references throughout this document are inactive textual references and
provided for convenience only, and the content on the referenced websites is not incorporated herein by
reference and does not constitute a part of the Proxy Statement.
Use of Trademarks. Protagonist Therapeutics is the trademark of Protagonist Therapeutics, Inc. Other
names and brands may be claimed as the property of others.
6
PROPOSAL 1
ELECTION OF DIRECTOR NOMINEE
Protagonist’s Board is divided into three classes. Each class consists of approximately one-third of the
total number of directors, and each class is elected for a three-year term. Vacancies on the Board may be filled
only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a
vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the
remainder of the full term of that class and until the director’s successor is duly elected and qualified.
The Board currently consists of seven members. The terms of office of our two Class I directors expire at
this Annual Meeting. Sarah Noonberg, M.D., Ph.D., one of our Class I directors, is not standing for re-
election at the Annual Meeting and will cease to be a director upon the expiration of her term. In accordance
with our Amended and Restated Bylaws, the Board has determined to decrease its size to six directors effective
as of such time. The Nominating and Corporate Governance Committee has recommended Dr. Patel for
election to the Board at this Annual Meeting. Dr. Patel is currently a director of the Company and was
previously elected by stockholders at the 2020 Annual Meeting of Stockholders. If elected at the Annual
Meeting, Dr. Patel would serve until the 2026 Annual Meeting of Stockholders and until his successor has
been duly elected and qualified, or, if sooner, until his death, resignation or removal. It is the Company’s
policy to encourage directors and director nominees to attend Annual Meetings of Stockholders. Five of our
directors then serving on the Board attended the 2022 Annual Meeting of Stockholders.
Directors are elected by a plurality of the votes cast. Accordingly, the nominee receiving the highest
number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority
to do so is not withheld, for the election of Dr. Patel. If he becomes unavailable for election or unable to serve,
shares that would have been voted for him will instead be voted for the election of a substitute nominee
proposed by the Board or the Board may decrease the size of the Board. Dr. Patel has agreed to serve if
elected. The Company’s management has no reason to believe that he will be unable to serve.
The brief biographies below include information, as of the date of this Proxy Statement, regarding the
specific and particular experiences, qualifications, attributes or skills of the director nominee and each director
continuing in office that caused the Nominating and Corporate Governance Committee and the Board to
determine that the applicable nominee or director should serve as a member of the Board.
CLASS I DIRECTOR NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT
THE 2026 ANNUAL MEETING
Dinesh V. Patel, Ph.D.
Dr. Patel, 66, has served as a member of the Board and as the Company’s President and Chief Executive
Officer since December 2008. Dr. Patel has more than 37 years of executive, entrepreneurial and scientific
experience spanning the pharmaceutical, biotechnology and biopharmaceutical industries. Prior to joining
Protagonist, he served from 2006 to 2008 as the President and Chief Executive Officer of Arête Therapeutics,
a privately held company focused on the development of novel drugs for metabolic syndrome. Prior to that,
Dr. Patel was President, Chief Executive Officer and co-founder of Miikana Therapeutics, an oncology-based
company, from 2003 until it was acquired by Entremed (later renamed CASI Pharmaceuticals) in 2005. Prior
to Miikana, he held positions of increasing responsibility at Versicor, a biotechnology company, (later renamed
Vicuron and which was acquired by Pfizer in 2005), from 1996 to 2003, most recently as Senior Vice President
of Drug Discovery and Licensing. Prior to Vicuron, Dr. Patel was a director of chemistry at the combinatorial
chemistry company Affymax (OTCMKTS: AFFY), from 1993 to 1996. He was also a medicinal chemist at
Bristol Myers Squibb (NYSE: BMY) from 1985 to 1993. Dr. Patel received a Ph.D. in Chemistry from Rutgers
University, New Jersey and a B.S. in Industrial Chemistry from S. P. University, Vallabh Vidyanagar, India.
The Company believes that because of his expertise, extensive knowledge of the Company and experience as
an executive officer of biotechnology companies, Dr. Patel is able to make valuable contributions to the Board.
7
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE “FOR” THE NAMED NOMINEE.
In addition to the Class I director nominee, Protagonist has five other directors who will continue in
office after the Annual Meeting, with terms expiring in 2024 and 2025.
CLASS II DIRECTORS CONTINUING IN OFFICE UNTIL THE 2024 ANNUAL MEETING
Sarah A. O’Dowd
Ms. O’Dowd, 73, has served as a member of the Board since August 2020. Ms. O’Dowd is a member of
the board of directors of Ichor Holdings, Ltd., a leader in the design, engineering and manufacturing of
critical fluid delivery subsystems and components for semiconductor capital equipment, and is a director of
the Independent Institute, a non-profit, non-partisan, public policy research and communications
organization. Until her retirement in March 2020, she was Senior Vice President and Chief Legal Officer at
Lam Research Corporation (Nasdaq: LRCX), an S&P 500 technology company. For 11 years at Lam, she
served as Chief Legal Officer and Secretary. From 2009 to 2012 she also served as Group Vice President of
Human Resources at Lam. From February 2007 to September 2008, she served as Vice President of FibroGen,
Inc. (Nasdaq: FGEN), a biopharmaceutical company. Ms. O’Dowd received a J.D. from Stanford Law School,
an M.A. in Communications from Stanford University and an A.B. in Mathematics from Immaculata College.
The Company believes that because of her executive business experience as well as her experience in the
biotechnology field and at public companies, Ms. O’Dowd is well positioned to make valuable contributions
and provide valuable guidance to the Board.
William D. Waddill
Mr. Waddill, 66, has served as a member of the Board since July 2016. From April 2014 to
December 2016, Mr. Waddill served as Senior Vice President and Chief Financial Officer, Treasurer and
Secretary of Calithera Biosciences, Inc. (Nasdaq: CALA), a biotechnology company. From October 2007 to
March 2014, he served as Senior Vice President and Chief Financial Officer of OncoMed Pharmaceuticals,
Inc., a biopharmaceutical company. From October 2006 to September 2007, Mr. Waddill served as the Senior
Vice President, Chief Financial Officer of Ilypsa, Inc., a biotechnology company that was acquired in 2007 by
Amgen, Inc. From February 2000 to September 2006, he served as a Principal at Square One Finance, a
financial consulting business. He has served as a director of Arrowhead Pharmaceuticals, Inc. (Nasdaq:
ARWR), a biopharmaceutical company, since January 2018 and Annexon, Inc. (Nasdaq: ANNX), a
biopharmaceutical company, since August 2021. Mr. Waddill received a B.S. in Accounting from the
University of Illinois, Chicago, and a certification as a public accountant, which is currently inactive, after
working at PricewaterhouseCoopers LLP and Deloitte LLP. The Company believes that Mr. Waddill is
qualified to serve on the Board because of his financial expertise and extensive experience in the biotechnology
field.
Lewis T. “Rusty” Williams, M.D., Ph.D.
Dr. Williams, 73, has served as a member of the Board since June 2017. He has served as Chairman and
Chief Executive Officer of Walking Fish Therapeutics, a biotechnology start-up company, since
February 2019. Dr. Williams has also served as a venture partner of Quan Capital, LLP, a healthcare-focused
venture capital firm, since October 2018. Dr. Williams founded and served as a director of Five Prime
Therapeutics, Inc., a former public biotechnology company acquired by Amgen, Inc. from January 2002 until
January 2020, and served as its President and Chief Executive Officer from April 2011 to December 2017.
Previously, Dr. Williams spent seven years at Chiron Corporation, a biopharmaceutical company now known
as Novartis Vaccines and Diagnostics, Inc., where he served most recently as its Chief Scientific Officer. He
also served on Chiron’s board of directors from 1999 to 2001. Prior to joining Chiron, Dr. Williams was a
professor of medicine at the University of California, San Francisco, and served as Director of the University’s
Cardiovascular Research Institution and Daiichi Research Center. Dr. Williams also has served on the faculties
of Harvard Medical School and Massachusetts General Hospital and co-founded COR Therapeutics, Inc., a
biotechnology company focused on cardiovascular disease. He is a member of the National Academy of
Sciences and a fellow of the American Academy of Arts and Sciences. Dr. Williams was previously a member
8
of the board of directors of Neoleukin Therapeutics, Inc. (Nasdaq: NLTX), COR Therapeutics, Inc., and
Beckman Coulter, Inc., each of which was a public company during his service as a director. Dr. Williams
received a B.S. from Rice University and an M.D. and a Ph.D. from Duke University. The Company believes
that Dr. Williams’ extensive experience in drug discovery and development, his executive experience with
several pharmaceutical companies and his service as a director of other publicly traded healthcare companies
have provided him the qualifications, skills and financial expertise to serve on the Board.
CLASS III DIRECTORS CONTINUING IN OFFICE UNTIL THE 2025 ANNUAL MEETING
Harold E. Selick, Ph.D.
Dr. Selick, 68, has served as a member of the Board since February 2009. Dr. Selick is currently Chief
Executive Officer and board member of Hinge Bio, Inc., a private biotechnology company focused on
developing therapeutics for patients living with cancer. He previously served as Vice Chancellor of Business
Development, Innovation and Partnerships at the University of California, San Francisco, from April 2017 to
December 2022. Dr. Selick was a Venture Partner at Mission Bay Capital, a venture capital firm, from 2018
until his resignation at the end of 2022. Previously, he was the Chief Executive Officer of Threshold
Pharmaceuticals, Inc., a biotechnology company, from June 2002 until the company’s merger with Molecular
Templates Inc. in April 2017. From June 2002 until July 2007, Dr. Selick was also a Venture Partner of
Sofinnova Ventures, Inc., a venture capital firm. From January 1999 to April 2002, he was Chief Executive
Officer of Camitro Corporation, a biotechnology company, which was acquired two years after its founding.
From 1992 to 1999, he was at Affymax Research Institute, the drug discovery technology development center
for Glaxo Wellcome plc, most recently as Vice President of Research. Prior to working at Affymax he held
scientific positions at Protein Design Labs, Inc. and Anergen, Inc. Dr. Selick serves as Chairman of the board
of directors of Molecular Templates, Inc. (Nasdaq: MTEM), a biopharmaceutical company. Dr. Selick
previously served as Lead Director and then Chairman of PDL BioPharma, Inc., a biopharmaceutical
company, from 2009 to December 2019, and served as Chairman of the board of directors of Threshold
Pharmaceuticals, Inc. until it merged with Molecular Templates Inc. in April 2017. Dr. Selick received a B.A.
in Biophysics and a Ph.D. in Biology from the University of Pennsylvania and was a Damon Runyon-Walter
Winchell Cancer Fund Fellow and an American Cancer Society Senior Fellow at the University of California,
San Francisco. The Company believes that because of his broad experience in building and running both
private and public companies and serving on the boards of directors of a variety of biotechnology companies,
Dr. Selick is well positioned to provide guidance and insight to the Board and management team.
Bryan Giraudo
Mr. Giraudo, 47, has served as a member of the Board since May 2018. Mr. Giraudo has also served as
Chief Financial Officer of Gossamer Bio, Inc. (Nasdaq: GOSS), a biotechnology company, since May 2018
and Chief Operating Officer since September 2021. He has completed nearly $1.0 billion in financings for
Gossamer Bio since inception, from Series B financing through its initial public offering and additional debt
and equity financings. Prior to joining Gossamer Bio, Mr. Giraudo was a Senior Managing Director at Leerink
Partners (now known as SVB Leerink) from 2009 to April 2018, where he was responsible for their western
North America and Asia Pacific biotechnology and medical technology banking practice. Before joining
Leerink, he was a Managing Director with Merrill Lynch and Co.’s Global Healthcare Investment Banking
Group. Mr. Giraudo joined Merrill Lynch in 1997. As a banker, he completed over 200 corporate finance,
corporate partnership and strategic advisory transactions. Mr. Giraudo has been a member of the board of
directors of Onxeo SA (EPA: ALONX), a biotechnology company, since November 2021. He received a B.A.
from Georgetown University. The Company believes Mr. Giraudo is qualified to serve on the Board because
of his extensive experience in the investment banking field, financial expertise and experience in the
biotechnology field.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND
CORPORATE GOVERNANCE
INDEPENDENCE OF THE BOARD OF DIRECTORS
As required under the Nasdaq Stock Market (“Nasdaq”) listing standards, a majority of the members of
a listed company’s board must qualify as “independent,” as affirmatively determined by the board. The Board
9
consults with the Company’s counsel to ensure that the Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition of “independent,” including those set forth
under the listing standards of Nasdaq, as in effect from time to time.
Consistent with these considerations, after a review of all relevant identified transactions or relationships
between each director, or any of his or her family members, and the Company, its senior management and its
independent auditor, the Board has affirmatively determined that the following five directors are independent
directors within the meaning of the applicable Nasdaq listing standards: Mr. Giraudo, Dr. Selick,
Ms. O’Dowd, Mr. Waddill and Dr. Williams. Dr. Noonberg, who is not standing for re-election at the Annual
Meeting, is also deemed to be independent. In making this determination, the Board found that none of these
directors had material or other disqualifying relationships with the Company. Dr. Patel is not considered
independent because he is an executive officer of the Company.
In making the above independence determinations, the Board takes into account certain relationships
and transactions that occur in the ordinary course of business between the Company and entities with which
some of its directors are or have been affiliated.
BOARD LEADERSHIP STRUCTURE
The Board has an independent Chairperson of the Board (“Chairperson”), Dr. Selick, who has authority,
among other things, to call and preside over meetings of the Board, including meetings of the independent
directors, to set meeting agendas and to determine materials to be distributed to the Board. Accordingly, the
Chairperson has substantial ability to shape the work of the Board. The Company believes that separation of
the positions of Chairperson and Chief Executive Officer reinforces the independence of the Board in its
oversight of the business and affairs of the Company. In addition, the Company believes that having an
independent Chairperson creates an environment that is more conducive to objective evaluation and oversight
of management’s performance, increases management accountability and improves the ability of the Board to
monitor whether management’s actions are in the best interests of the Company and its stockholders. As a
result, the Company believes that having an independent Chairperson can enhance the effectiveness of the
Board as a whole.
ROLE OF THE BOARD IN RISK OVERSIGHT
The Board has responsibility for the oversight of the Company’s risk management processes and, either
as a whole or through its committees, regularly discusses with management the Company’s major risk
exposures, their potential impact on the Company’s business and the steps taken to manage them. The risk
oversight process includes receiving regular reports from Board committees and members of senior
management to enable the Board to understand the Company’s risk identification, risk management and risk
mitigation strategies with respect to areas of potential material risk, including operations, finance, legal,
regulatory, strategic and reputational risk. The Audit Committee reviews information regarding liquidity and
operations and oversees the Company’s management of financial risks. Periodically, the Audit Committee
reviews the Company’s policies with respect to risk assessment, risk management, loss prevention and
regulatory compliance. Oversight by the Audit Committee includes direct communication with the Company’s
external auditor, and discussions with management regarding significant risk exposures and the actions
management has taken to limit, monitor or control such exposures. The Compensation Committee is
responsible for assessing whether any of the Company’s compensation policies or programs has the potential
to encourage excessive risk taking. The Nominating and Corporate Governance Committee manages risks
associated with the independence of the Board, corporate disclosure practices and potential conflicts of
interest. While each committee is responsible for evaluating certain risks and overseeing the management of
such risks, the entire Board is regularly informed through committee reports about such risks. Matters of
significant strategic risk are considered by the Board as a whole.
MEETINGS OF THE BOARD OF DIRECTORS
The Board met six times during the last fiscal year. Each Board member attended 75% or more of the
aggregate number of meetings of the Board and of the committees on which he or she served during the
portion of the last fiscal year for which he or she was a director or committee member.
10
The independent directors have the opportunity to meet in executive sessions without management
present at every regular Board meeting and at such other times as may be determined by the Chairperson. The
purpose of these executive sessions is to encourage and enhance communication among independent directors.
In fiscal 2022, the Company’s independent directors met four times in executive sessions at which only
independent directors were present. Dr. Selick, the Chairperson, presides over the executive sessions.
INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS
The Board has three committees: an Audit Committee, a Compensation Committee and a Nominating
and Corporate Governance Committee. The following table provides current membership and meeting
information for fiscal 2022 for each of the Board committees:
Name
Audit
Compensation
Nominating
and Corporate
Governance
X
Bryan Giraudo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah Noonberg, M.D., Ph.D.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
X
Sarah A. O’Dowd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Dinesh V. Patel, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Harold E. Selick, Ph.D.
William D. Waddill
X*
Lewis T. Williams, M.D., Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
6
Total meetings in fiscal 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
X*
X
X
3
X*
—
X
—
X
—
—
4
*
(1)
Committee Chairperson
Following the Annual Meeting, Dr. Noonberg will no longer serve as a director and will cease to be a member of the Audit
Committee.
Each of the committees has authority to engage legal counsel or other experts or consultants, as it deems
appropriate to carry out its responsibilities. The Board has determined that each member of each committee
meets the applicable Nasdaq and SEC rules and regulations regarding “independence” for service on such
committee (and, in the case of Compensation Committee members, qualifies as a “non-employee director”)
and each member is free of any relationship that would impair his or her individual exercise of independent
judgment with regard to the Company. The Board has adopted written charters for each committee that are
available to stockholders in the “Corporate Governance” section of
the Company’s website at
www.protagonist-inc.com. Below is a description of each committee of the Board.
Audit Committee
The Audit Committee oversees the Company’s corporate accounting and financial reporting processes
and audits of its financial statements. For this purpose, the Audit Committee performs several functions. The
Audit Committee evaluates the performance of and assesses the qualifications of the independent auditor;
determines and approves the engagement of the independent auditor; determines whether to retain or
terminate the existing independent auditor or to appoint and engage a new independent auditor; reviews and
approves the retention of the independent auditor to perform any proposed permissible non-audit services;
monitors the rotation of partners of the independent auditor on the Company’s audit engagement team as
required by law; reviews and approves or rejects transactions between the Company and any related persons;
confers with management and the independent auditor regarding the effectiveness of internal control over
financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal accounting controls or
auditing matters and the confidential and anonymous submission by employees of concerns regarding
questionable accounting or auditing matters; and meets to review the Company’s annual audited financial
statements and quarterly financial statements with management and the independent auditor, including a
review of the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
11
The Board has determined that Mr. Waddill qualifies as an “audit committee financial expert,” as defined
in applicable SEC rules. The Board made a qualitative assessment of Mr. Waddill’s level of knowledge and
experience based on a number of factors, including his formal education and experience as a chief financial
officer for public companies. The Board has also determined that all members of the Audit Committee are
“financially literate” under Nasdaq listing rules.
Report of the Audit Committee of the Board of Directors
The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year
ended December 31, 2022 with management of the Company and with Ernst & Young LLP, the Company’s
independent registered public accounting firm. The Audit Committee has discussed with Ernst & Young LLP
the matters required to be discussed by the applicable requirements of the Public Company Accounting
Oversight Board (“PCAOB”) and the SEC. The Audit Committee has also received the written disclosures
and the letter from Ernst & Young LLP required by applicable requirements of the PCAOB regarding the
independent accountant’s communications with the Audit Committee concerning independence and has
discussed with Ernst & Young LLP the accounting firm’s independence. Based on the foregoing, the Audit
Committee has recommended to the Board that the audited financial statements be included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Mr. William D. Waddill
Mr. Bryan Giraudo
Dr. Sarah Noonberg
Compensation Committee
The Compensation Committee acts on behalf of the Board to review, adopt and oversee the Company’s
compensation strategy, policies, plans and programs, including:
• determining the compensation and other terms of employment of the Chief Executive Officer and the
other executive officers and reviewing and approving corporate performance goals and objectives
relevant to such compensation;
• reviewing and recommending to the full Board the compensation of the Company’s directors;
• evaluating and administering the equity incentive plans, compensation plans and similar programs
advisable for us, as well as reviewing and recommending to the Board the adoption, modification or
termination of the Company’s plans and programs;
• establishing policies with respect to equity compensation arrangements; and
• conducting an annual assessment of the performance of the Compensation Committee and its
members, and the adequacy of its charter.
Compensation Committee Processes and Procedures
Typically, the Compensation Committee meets as often as its members deem necessary or appropriate.
The agenda for each meeting is usually developed by the Chairperson of the Compensation Committee, in
consultation with the Company’s Chief Executive Officer. The Compensation Committee meets regularly in
executive session. However, from time to time, various members of management and other employees as well
as outside advisors or consultants may be invited by the Compensation Committee to make presentations, to
provide financial or other background information or advice or to otherwise participate in Compensation
Committee meetings. The Chief Executive Officer may not participate in, or be present during, any
deliberations or determinations of the Compensation Committee regarding his compensation or individual
performance objectives. The charter of the Compensation Committee grants the Compensation Committee
full access to all books, records, facilities and personnel of the Company. In addition, under the charter, the
Compensation Committee has the authority to obtain, at the expense of the Company, advice and assistance
from compensation consultants and internal and external legal, accounting or other advisors and other
external resources that the Compensation Committee considers necessary or appropriate in the performance
of its duties. The Compensation Committee has direct responsibility for the oversight of the work of any
consultants or advisers engaged for the purpose of advising the committee. In particular, the Compensation
12
Committee has the sole authority to retain, in its sole discretion, compensation consultants to assist in its
evaluation of executive and director compensation, including the authority to approve the consultant’s
reasonable fees and other retention terms. Under the charter, the Compensation Committee may select, or
receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee,
other than in-house legal counsel and certain other types of advisers, only after taking into consideration six
factors, prescribed by the SEC and Nasdaq, that bear upon the adviser’s independence; however, there is no
requirement that any adviser be independent.
During the past fiscal year, after taking into consideration the six factors prescribed by the SEC and
Nasdaq described above, the Compensation Committee engaged Radford, an Aon Hewitt Company, as
compensation consultant. Radford was selected because it is a well-known and respected national
compensation consulting firm that commonly provides information, recommendations and other executive
compensation advice to compensation committees and management. The Compensation Committee has
determined that (1) Radford satisfies applicable independence criteria and (2) Radford’s work does not raise
any conflicts of interest, in each case under applicable Nasdaq and SEC rules and regulations. The
Compensation Committee requested that Radford:
• evaluate the efficacy of the Company’s existing compensation strategy and practices in supporting and
reinforcing the Company’s long-term strategic goals; and
• assist in refining the Company’s compensation strategy and in developing and implementing an
executive compensation program to execute that strategy.
As part of its engagement, Radford was requested by the Compensation Committee to develop a
comparative group of companies and to perform analyses of competitive performance and compensation
levels for that group; as well as conduct market research and analysis on annual and long-term incentive
programs, salaries, and equity plans; assist in developing target grant levels, target bonus levels, and annual
salaries for executive officers and other employees; provide the committee with advice and ongoing
recommendations regarding material executive compensation decisions; and review the director compensation
program. Radford ultimately developed recommendations that were presented to the Compensation
Committee for its consideration. Following an active dialogue with Radford and resulting modifications, the
Compensation Committee approved the modified Radford recommendations.
On May 25, 2017, the Compensation Committee amended its New Hire and Merit Equity Grant
Delegation Policy pursuant to which delegated authority was granted to Dr. Patel, as the sole member of the
Equity Award Committee of the Board, the full authority of the Board, to grant equity-based awards, within
Board-approved guidelines, under the Company’s 2016 Equity Incentive Plan (the “2016 Plan”). The purpose
of this delegation of authority is to enhance the flexibility of option administration within the Company and
to facilitate the timely grants of equity-based awards to service providers of the Company.
During fiscal 2022, Dr. Patel exercised his authority to grant options to purchase an aggregate of
1,057,125 shares to employees.
The Compensation Committee and the Board retain concurrent authority to make equity-based awards
to employees and consultants who are eligible recipients under this policy pursuant to the 2016 Plan. The
Compensation Committee receives periodic reports of grants made pursuant to this delegated authority.
Historically, the Compensation Committee has made most of the significant adjustments to annual
compensation, determined bonus and equity-based awards and established new performance objectives at one
or more meetings held during the first quarter of the year. However, the Compensation Committee also
considers matters related to individual compensation, such as compensation for new executive hires, as well as
high-level strategic issues, such as the efficacy of
the Company’s compensation strategy, potential
modifications to that strategy and new trends, plans or approaches to compensation, at various meetings
throughout the year. Generally, the Compensation Committee’s process comprises two related elements: the
determination of compensation levels and the establishment of performance objectives for the current year.
For executives other than the Chief Executive Officer, the Compensation Committee solicits and considers
evaluations and recommendations submitted to the committee by the Chief Executive Officer. In the case of
the Chief Executive Officer, the evaluation of his performance is conducted by the Compensation Committee,
which determines any adjustments to his compensation as well as awards to be granted. For all executives and
13
directors as part of its deliberations, the Compensation Committee may review and consider, as appropriate,
materials such as financial reports and projections, operational data, tax and accounting information, tally
sheets that set forth the total compensation that may become payable to executives in various hypothetical
scenarios, executive and director stock ownership information, Company stock performance data, analyses of
historical
compensation levels and
recommendations of the Compensation Committee’s compensation consultant, including analyses of
executive and director compensation paid at other companies identified by the consultant.
compensation levels and current Company-wide
executive
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is currently or has been at any time one of the
Company’s officers or employees. None of the Company’s executive officers currently serves, or has served
during the last year, as a member of the board or compensation committee of any entity that has one or more
executive officers serving as a member of the Board or Compensation Committee.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for identifying, reviewing and
evaluating candidates to serve as directors of the Company (consistent with criteria approved by the Board);
recommending to the Board for selection candidates for election to the Board; making recommendations to
the Board regarding the membership of the committees of the Board; assessing the performance of the Board;
and developing a set of corporate governance principles for the Company.
The Nominating and Corporate Governance Committee believes that candidates for director should
have certain minimum qualifications, including the ability to read and understand basic financial statements
and having the highest personal integrity and ethics. The Nominating and Corporate Governance Committee
also considers such factors as possessing relevant expertise upon which to be able to offer advice and guidance
to management, having sufficient time to devote to the affairs of the Company, demonstrated excellence in his
or her field, having the ability to exercise sound business judgment and having the commitment to rigorously
represent the long-term interests of the Company’s stockholders. However, the Nominating and Corporate
Governance Committee retains the right to modify these qualifications from time to time. Candidates for
director nominees are reviewed in the context of the current composition of the Board, the operating
requirements of the Company and the long-term interests of stockholders. In conducting this assessment, the
Nominating and Corporate Governance Committee typically considers diversity (as discussed below), age,
skills and such other factors as it deems appropriate, given the current needs of the Board and the Company,
to maintain a balance of knowledge, experience and capability.
The Nominating and Corporate Governance Committee appreciates the value of thoughtful Board
refreshment, and regularly identifies and considers qualities, skills and other director attributes that would
enhance the composition of the Board. In the case of incumbent directors whose terms of office are set to
expire, the Nominating and Corporate Governance Committee reviews these directors’ overall service to the
Company during their terms, including the number of meetings attended, level of participation, quality of
performance and any other relationships and transactions that might impair the directors’ independence. The
committee also takes into account the results of the Board’s self-evaluation. In the case of new director
candidates, the Nominating and Corporate Governance Committee also determines whether the nominee is
independent based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the
advice of counsel, if necessary. The Nominating and Corporate Governance Committee then uses its network
of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional
search firm (though it did not do so in 2022). The Nominating and Corporate Governance Committee
conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible
candidates after considering the function and needs of the Board. The Nominating and Corporate Governance
Committee meets to discuss and consider the candidates’ qualifications and then selects a nominee for
recommendation to the Board.
The Nominating and Corporate Governance Committee will consider director candidates recommended
by stockholders. The Nominating and Corporate Governance Committee evaluates candidates recommended
by stockholders in the same manner, including applying the minimum criteria set forth above, as candidates
recommended by other sources. Stockholders who wish to recommend individuals for consideration by the
14
Nominating and Corporate Governance Committee to become nominees for election to the Board may do so
by delivering a written recommendation to the Nominating and Corporate Governance Committee as
described under “Stockholder Communications with the Board of Directors”. Submissions must include the
same information required under our Amended and Restated Bylaws for nominating a director.
BOARD DIVERSITY
In addition to the factors discussed above, the Board and the Nominating and Corporate Governance
Committee actively seek to achieve a diversity of occupational and personal backgrounds on the Board. The
Nominating and Corporate Governance Committee considers a potential director candidate’s ability to
contribute to the diversity of personal backgrounds on the Board, including with respect to gender, race,
ethnic and national background, geography, age and sexual orientation. The Nominating and Corporate
Governance Committee assesses its effectiveness in balancing these considerations in connection with its
annual evaluation of the composition of the Board. In this regard, our current Board of seven directors
includes two directors (28%) who self-identify as female and one director (14%) who self-identifies as racially/
ethnically diverse.
In accordance with Nasdaq’s board diversity listing standards, we are disclosing aggregated statistical
information about our Board’s self-identified gender and racial/ethnic characteristics and LGBTQ+ status as
voluntarily confirmed to us by each of our directors.
Board Diversity Matrix
(as of April 12)
Total number of directors – 7
Gender identity:
Female Male
Non-
Binary
Did not
Disclose
Gender
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of directors who identify in any of the categories below:
2
African American or Black . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Alaskan Native or Native American . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Asian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Hispanic or Latinx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Native Hawaiian or Pacific Islander . . . . . . . . . . . . . . . . . . . . . . . . . . . —
2
White . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Two or More Races or Ethnicities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
LGBTQ+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
5
—
—
1
—
—
4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders and other interested parties may communicate with our Board or a particular director by
sending a letter addressed to the Board or a particular director to our Corporate Secretary at the address set
forth on the first page of this Proxy Statement. These communications will be compiled and reviewed by our
Corporate Secretary, who will determine whether the communication is appropriate for presentation to the
Board or the particular director. The purpose of this screening is to allow the Board to avoid having to consider
irrelevant or
solicitations and hostile
communications).
(such as advertisements,
communications
inappropriate
To enable the Company to speak with a single voice, as a general matter, senior management serves as the
primary spokesperson for the Company and is responsible for communicating with various constituencies,
including stockholders, on behalf of the Company. Directors may participate in discussions with stockholders
and other constituencies on issues where Board-level involvement is appropriate. In addition, the Board is
kept informed by senior management of the Company’s stockholder engagement efforts.
15
CODE OF ETHICS
The Company has adopted the Protagonist Therapeutics, Inc. Code of Business Conduct and Ethics that
applies to all officers, directors and employees. The Code of Business Conduct and Ethics is available in the
“Investors — Governance” section of the Company’s website at www.protagonist-inc.com. If the Company
makes any substantive amendments to the Code of Business Conduct and Ethics or grants any waiver from a
provision of the Code to any executive officer or director, the Company intends to promptly disclose the
nature of the amendment or waiver on its website, to the extent required by applicable rules.
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted the Corporate Governance Guidelines to serve as a framework for the governance
of the Company. The guidelines are also intended to align the interests of directors and management with
those of the Company’s stockholders. The Corporate Governance Guidelines set forth the Board’s practices
with respect to board composition and selection, Board diversity, Board meetings, oversight of senior
management, Chief Executive Officer performance evaluation and succession planning, and Board
committees and compensation. The Corporate Governance Guidelines, as well as the charters for each
committee of the Board, may be viewed on the “Investors — Governance” section of the Company’s website
at www.protagonist-inc.com.
ANTI-HEDGING POLICY
Our insider trading policy prohibits our directors, executive officers and employees from engaging in the
trading of derivative securities, short sales, transactions in put or call options, hedging transactions, pledges,
holding equity securities in margin accounts or other inherently speculative transactions relating to our equity
securities.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Environmental, social and governance (“ESG”) matters are a priority to us. The Nominating and
Corporate Governance Committee oversees this commitment, our ESG initiatives and progress towards
related goals and targets. We report on these programs and initiatives, including our drug access and pricing
program, our diversity and inclusion priorities, and our community and stakeholder educational efforts related
to our therapeutic focus areas. Additional information about our ESG initiatives is available in the
“Community” section of the Company’s website at www.protagonist-inc.com.
16
PROPOSAL 2
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Section 14A of the Exchange Act requires that stockholders have the opportunity to cast an advisory
(non-binding) vote to approve the compensation of our named executive officers (the “say-on-pay vote”).
The say-on-pay vote is a non-binding vote on the compensation of our “named executive officers,” as
described in this Proxy Statement in the “Executive Compensation” section, the tabular disclosure regarding
such compensation and the accompanying narrative disclosure. The say-on-pay vote is not a vote on our
general compensation policies or compensation of our Board.
Our philosophy in setting compensation policies for executive compensation is to strongly align our
compensation program with stockholder interests, reflect market-best practices, continue to support our
long-term business objectives and support talent retention. The “Executive Compensation” section provides a
more detailed discussion of our executive compensation program and our compensation philosophy.
The vote under this Proposal 2 is advisory and therefore not binding on us, the Board or our
Compensation Committee. However, our Board, including our Compensation Committee, values the opinions
of our stockholders and we will consider the outcome of the say-on-pay vote when making future
compensation decisions for our named executive officers. We are required to hold the say-on-pay vote at least
once every three years, and we have determined to hold a say-on-pay vote every year. Unless the Board modifies
its policy on the frequency of holding say-on-pay advisory votes, the next say-on-pay vote is expected to occur
in 2024.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE “FOR” PROPOSAL 2.
17
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Audit Committee has selected Ernst & Young LLP as the Company’s independent auditor for the
fiscal year ending December 31, 2023 and has further directed that management submit the selection of
Ernst & Young LLP for ratification by stockholders at the Annual Meeting. Representatives of Ernst & Young
LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if
they so desire and are expected to be available to respond to appropriate stockholder questions.
Neither the Company’s Amended and Restated Bylaws nor other governing documents or law require
stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered
public accounting firm. However, the Audit Committee is submitting the selection of Ernst & Young LLP to
stockholders for ratification as a matter of good corporate practice. If stockholders fail to ratify the selection,
the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the
Audit Committee in its discretion may direct the appointment of a different independent auditor at any time
during the year if it determines that such a change would be in the best interests of the Company and its
stockholders.
FEES BILLED BY ERNST & YOUNG LLP DURING FISCAL 2022 AND 2021
The following table summarizes the audit fees billed and expected to be billed by Ernst & Young LLP for
the indicated fiscal years and the fees billed by Ernst & Young LLP for all other services rendered during the
indicated fiscal years.
Fiscal Year Ended
December 31,
2022
2021
Audit Fees(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-Related Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,035,150
$1,507,376
—
20,639
3,405
—
27,605
—
$1,059,194
$1,534,981
(1)
(2)
(3)
“Audit Fees” consist of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements
included in the Company’s Annual Report on Form 10-K and for the review of the financial statements included in the Company’s
Quarterly Reports on Form 10-Q, as well as services as are normally provided by the Company’s auditor, including statutory audits
and services rendered in connection with statutory and regulatory filings or engagements for the indicated fiscal years, and related
expenses. The Audit Fees incurred in 2022 also included fees of $135,000 related to services performed in connection with the
Company’s at-the-market offerings and a shelf registration statement on Form S-3, including comfort letters, consents and review
of documents filed with the SEC. The Audit Fees incurred in 2021 also included fees of $205,000 related to services performed in
connection with the Company’s at-the-market offerings and a shelf registration statement on Form S-3, including comfort letters,
consents and review of documents filed with the SEC.
“Audit-Related Fees” consist of fees billed for assurance and related services by the auditor that are reasonably related to the
performance of the audit or review of the Company’s financial statements and are not reported under the Audit Fees category.
“Tax Fees” in 2022 and 2021 consist primarily of fees billed for professional services rendered in connection with indirect tax
compliance in foreign tax jurisdictions (Australia).
(4)
“All Other Fees” consist of fees related to products and services provided by the auditor, other than the services reported above.
All fees described above were pre-approved by the Audit Committee.
PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit
services rendered by the Company’s independent registered public accounting firm, Ernst & Young LLP. The
policy generally allows pre-approval of specified services in the categories of audit services, audit-related
18
services and tax services, up to specified amounts. Pre-approval may also be given as part of the Audit
Committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit,
case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of
services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported
to the full Audit Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of limited non-audit services by Ernst & Young
LLP is compatible with maintaining Ernst & Young LLP’s independence.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE “FOR” PROPOSAL 3.
19
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the Company’s current executive officers.
There are no family relationships among any of our directors or executive officers.
Name
Age
Position
. . . . . . . . . . . . . . . . . . .
Dinesh V. Patel, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asif Ali
. . . . . . . . . . . . . . . . . . . .
Suneel Gupta, Ph.D.
Arturo Molina, M.D., M.S., F.A.C.P. . . . . . . . . .
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
66
49
65 Chief Development Officer
64 Chief Medical Officer
Dinesh V. Patel, Ph.D.
Biographical information for Dr. Patel is included above with the director biographies under the caption
“Class I Director Nominee for Election for a Three-Year Term Expiring at the 2026 Annual Meeting.”
Asif Ali
(Nasdaq: TBPH), a multinational biopharmaceutical company,
Mr. Ali has served as the Company’s Executive Vice President, Chief Financial Officer since April 2022.
Prior to joining Protagonist, he served as Vice President, Finance and Chief Accounting Officer for
Theravance Biopharma, Inc.
from
September 2018 to February 2022, where he was responsible for equity and asset-backed financings, strategic
collaborations, finance operations and long-term business strategy. Prior to Theravance, Mr. Ali served as
Vice President and Corporate Controller for Depomed, Inc. (now Assertio Holdings, Inc. (Nasdaq: ASRT)),
a specialty pharmaceutical company, from June 2012 to June 2018, where he oversaw and contributed to
product launches, product acquisitions and financing projects. From 2010 to 2011, he served as Director of
Finance and Accounting for Nevada Property 1 LLC, a former public company that owned and operated the
Cosmopolitan of Las Vegas, Nevada. From 2004 to 2009, Mr. Ali worked in public accounting in the life
sciences practice of PricewaterhouseCoopers LLP, an accounting firm, where he held various positions of
responsibility and left as a Senior Manager. Mr. Ali is a fellow of the Institute of Chartered Accountants in
England & Wales, a qualification that he obtained in conjunction with studying accounting at the University
of North London, United Kingdom (the combined studies are the U.S. equivalent of a B.S. in Business
Administration with concentration in accounting).
Suneel Gupta, Ph.D.
Dr. Gupta has served as the Company’s Chief Development Officer since May 2019, and previously, as
the Company’s Executive Vice President of Clinical Pharmacology and Clinical Operations from January 2019
to May 2019. Prior to joining Protagonist, he was Chief Scientific Officer of Impax Pharmaceuticals, a
pharmaceutical company, where he was responsible for all aspects of the company’s neurology and psychiatry
research and development efforts, including research, development, clinical, regulatory and medical affairs,
from 2008 to January 2019. Prior to Impax, Dr. Gupta was Senior Vice President and Distinguished Research
Fellow at Johnson & Johnson (NYSE: JNJ), a multinational corporation, where he led early development
from 2002 through 2008. Prior to Johnson & Johnson, he held positions at ALZA Corporation, a
pharmaceutical and medical systems company, from 1989 through 2001, where he held roles of increasing
responsibility, including serving as Vice President of Clinical Pharmacology & Product Discovery. Dr. Gupta
serves on the scientific advisory boards of several pharmaceutical companies. Dr. Gupta received a Ph.D. in
Pharmacokinetics from the University of Manchester, UK in 1987 and did a postdoctoral fellowship in
Clinical Pharmacology at the University of California, San Francisco.
Arturo Molina, M.D., M.S., F.A.C.P.
Dr. Molina has served as the Company’s Chief Medical Officer since November 2022. Prior to joining
Protagonist, he served as Chief Medical Officer for Sutro Biopharma, Inc. (Nasdaq: STRO), a biotechnology
company, where he established a world-class, Cross-Functional Clinical Development, Regulatory, Clinical
Operations and Biometrics Team (CDRT) to advance development candidates and optimized leads towards
Investigational New Drug and registration-enabling clinical studies, from 2016 to 2022. Prior to Sutro,
20
Dr. Molina was Vice President, Oncology Scientific Innovation at Johnson & Johnson (NYSE: JNJ), a
multinational corporation. Earlier in his career, Dr Molina was Chief Medical Officer at Cougar
Biotechnology Inc., until it was acquired by Johnson & Johnson in 2009. Dr. Molina was an Adjunct Professor
in the Department of Hematology/Bone Marrow Transplantation at City of Hope Comprehensive Cancer
Center, from 2002 to 2004. Prior to that, he served as a faculty staff physician in the Department of
Hematology/Bone Marrow Transplantation and Medical Oncology/Therapeutics Research from 1991 to 2002.
Dr. Molina received his M.D. and M.S. in Physiology from Stanford University Medical Center, and a B.A. in
Psychology and B.S. in Zoology from the University of Texas, Austin. Dr. Molina maintains an Adjunct
Clinical Faculty appointment in the Department of Medicine, division of Oncology, Stanford University
School Medicine.
21
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of the Company’s common
stock as of March 15, 2023 by: (i) each director and nominee for director; (ii) each of the named executive
officers named in the Summary Compensation Table; (iii) all current executive officers and directors of the
Company as a group; and (iv) all persons and entities known by the Company to be beneficial owners of more
than five percent of its common stock.
Beneficial Owner
Beneficial Ownership(1)
Number of
Shares
Percent of
Total
5% Stockholders:
Farallon Partners, L.L.C. and its affiliated entities(2) . . . . . . . . . . . . . . . . . . . . . . .
Biotechnology Value Fund, L.P. and its affiliated entities(3) . . . . . . . . . . . . . . . . . .
State Street Corporation and its affiliated entities(4)
. . . . . . . . . . . . . . . . . . . . . . .
BlackRock, Inc.(5)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RTW Investments, L.P.(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Vanguard Group, Inc.(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Citadel Advisors LLC and its affiliated entities(8) . . . . . . . . . . . . . . . . . . . . . . . . .
Named Executive Officers and Directors:
Dinesh V. Patel, Ph.D.(9)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suneel Gupta, Ph.D.(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David Y. Liu, Ph.D.(11)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harold E. Selick, Ph.D.(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bryan Giraudo(13)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah Noonberg, M.D., Ph.D.(14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah A. O’Dowd(15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William D. Waddill(16)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lewis T. Williams, M.D., Ph.D.(17)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current executive officers and directors as a group (10 persons)(18)
. . . . . . . . . . . .
5,151,887
5,025,900
3,792,926
3,652,157
3,591,986
3,097,714
2,682,814
1,706,580
354,461
483,479
153,520
106,500
80,100
53,000
113,475
88,500
2,681,916
9.7%
9.5%
7.4%
7.1%
7.0%
6.0%
5.2%
3.2%
*
*
*
*
*
*
*
*
5.0%
*
(1)
(2)
Represents beneficial ownership of less than one percent of the outstanding common stock.
This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13G filed with the
SEC. Beneficial ownership is determined in accordance with the rules promulgated by the SEC. Under such rules, beneficial
ownership includes any shares of common stock over which the person or group has sole or shared voting power or investment
power as well as any shares of common stock that the person or group has the right to acquire within 60 days after March 15, 2023.
Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company
believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 51,415,299 shares outstanding on March 15, 2023 adjusted as required
by rules promulgated by the SEC. Pursuant to the rules of the SEC, the number of shares of common stock deemed outstanding for
a person or group includes shares of common stock such person or group has the right to acquire within 60 days of March 15, 2023.
Unless otherwise indicated, the address for each of beneficial owner is c/o Protagonist Therapeutics, Inc., 7707 Gateway Blvd.,
Suite 140, Newark, California 94560.
This information is based solely upon a Schedule 13G/A filed with the SEC on February 9, 2023 by entities affiliated with Farallon
Partners, L.L.C. (“Farallon General Partner”). Consists of (i) 341,600 shares held by Farallon Capital Partners, L.P. (“FCP”),
(ii) 263,800 shares held by Farallon Capital Institutional Partners, L.P. (“FCIP”), (iii) 75,600 shares held by Farallon Capital
Institutional Partners II, L.P. (“FCIP II”), (iv) 37,400 shares held by Farallon Capital Institutional Partners III, L.P. (“FCIP III”),
(v) 50,400 shares held by Four Crossings Institutional Partners V, L.P. (“FCIP V”), (vi) 619,300 shares held by Farallon Capital
Offshore Investors II, L.P. (“FCOI II”), (vii) 35,279 shares held by Farallon Capital (AM) Investors, L.P. (“FCAMI”), (viii) 128,370
shares held by Farallon Capital F5 Master I, L.P. (“F5MI”), (ix) 2,100,138 shares held by Farallon Healthcare Partners Master, L.P.
(“FHPM,” and together with FCP, FCIP, FCIP II, FCIP III, FCIP V, FCOI II, FCAMI and F5MI, the “Farallon Funds”) and
(x) 1,500,000 shares underlying certain exercisable warrants. Farallon General Partner, as the (i) general partner of each of FCP,
FCIP, FCIP II, FCIP III, FCOI II and FCAMI and (ii) the sole member of each of Farallon Institutional (GP) V, L.L.C. (“FCIP
22
(3)
(4)
(5)
(6)
(7)
(8)
V General Partner”) and Farallon Healthcare Partners (GP), L.L.C. (“FHPM General Partner”), is deemed to be the beneficial
owner of the shares held by each of the Farallon Funds other than F5MI. FCIP V General Partner, as the general partner of
FCIP V, may be deemed to beneficially own the shares held by FCIP V. Farallon F5 (GP), L.L.C. (“F5MI General Partner”), as
general partner of F5MI, may be deemed to beneficially own the shares held by F5MI. FHPM General Partner, as general partner
of FHPM, may be deemed to beneficially own the shares held by FHPM. Joshua J. Dapice, Philip D. Dreyfuss, Hannah E. Dunn,
Michael B. Fisch, Richard B. Fried, Varun N. Gehani, Nicolas Giauque, David T. Kim, Michael G. Linn, Rajiv A. Patel, Thomas G.
Roberts, Jr., Edric C. Saito, William Seybold, Daniel S. Short, Andrew J. M. Spokes, John R. Warren and Mark C. Wehrly, each of
whom is a managing member or senior managing member of Farallon General Partner, and a manager or senior manager, as the
case may be, of FCIP V General Partner, F5MI General Partner and FHPM General Partner, may each be deemed to beneficially
own the shares held by the Farallon Funds. The address of each of the entities and persons above is c/o Farallon Capital
Management, L.L.C., One Maritime Plaza, Suite 2100, San Francisco, CA 94111.
This information is based solely upon a Schedule 13G filed with the SEC on March 20, 2023 by entities affiliated with Biotechnology
Value Fund, L.P. (“BVF”). Consists of (i) 2,053,109 shares held by BVF, (ii) 1,550,785 shares held by Biotechnology Value Fund II,
L.P. (“BVF2”), (iii) 156,716 shares held by Biotechnology Value Trading Fund OS LP (“Trading Fund OS”), (iv) 15,290 shares held
in certain Partners Managed Accounts, (v) 625,001 shares underlying certain Class A Warrants and (vi) 624,999 shares underlying
certain Class B Warrants. BVF I GP LLC (“BVF GP”), as the general partner of BVF, may be deemed to beneficially own the
shares beneficially owned by BVF. BVF II GP LLC (“BVF2 GP”), as the general partner of BVF2, may be deemed to beneficially
own the shares beneficially owned by BVF2. BVF Partners OS Ltd. (“Partners OS”), as the general partner of Trading Fund OS,
may be deemed to beneficially own the shares beneficially owned by Trading Fund OS. BVF GP Holdings LLC (“BVF GPH”), as
the sole member of each of BVF GP and BVF2 GP, may be deemed to beneficially own the shares beneficially owned in the
aggregate by BVF and BVF2. BVF Partners L.P. (“Partners”), as the investment manager of BVF, BVF2 and Trading Fund OS,
and the sole member of Partners OS, may be deemed to beneficially own the shares beneficially owned in the aggregate by BVF,
BVF2 and Trading Fund OS, and the shares held in the Partners Managed Accounts. BVF Inc., as the general partner of Partners,
may be deemed to beneficially own the shares beneficially owned by Partners. Mark N. Lampert, as a director and officer of BVF
Inc., may be deemed to beneficially own the shares beneficially owned by BVF Inc. BVF GP disclaims beneficial ownership of the
shares beneficially owned by BVF. BVF2 GP disclaims beneficial ownership of the shares beneficially owned by BVF2. Partners OS
disclaims beneficial ownership of the shares beneficially owned by Trading Fund OS. BVF GPH disclaims beneficial ownership of
the shares beneficially owned by BVF and BVF2. Each of Partners, BVF Inc. and Mr. Lampert disclaims beneficial ownership of
the shares beneficially owned by BVF, BVF2 and Trading Fund OS and held in the Partners Managed Accounts. The address for
BVF, BVF GP, BVF2, BVF2 GP, BVF GPH, Partners, BVF Inc. and Mr. Lampert is 44 Montgomery Street, 40th Floor, San
Francisco, CA 94104. The address of Trading Fund OS and Partners OS is PO Box 309 Ugland House, Grand Cayman, KY1-1104,
Cayman Islands.
This information is based solely upon a Schedule 13G/A filed with the SEC on January 10, 2023 by entities affiliated with State
Street Corporation (“State Street”). State Street has shared voting power with respect to 3,706,781 shares and shared dispositive
power with respect to 3,792,926 shares. SSGA Funds Management, Inc., as investment advisor, has shared voting power with
respect to 2,882,021 shares and shared dispositive power with respect to 2,892,121 shares. Shares are beneficially held by subsidiaries
of State Street. The address of State Street and SSGA Funds Management, Inc. is State Street Financial Center, 1 Lincoln Street,
Boston, MA 02111.
This information is based solely upon a Schedule 13G/A filed with the SEC on January 31, 2023 by BlackRock, Inc. (“BlackRock”).
BlackRock has sole voting power with respect to 3,560,703 shares and sole dispositive power with respect to 3,652,157 shares. The
address of BlackRock is 55 East 52nd Street, New York, NY 10055.
This information is based solely upon a Schedule 13G/A jointly filed with the SEC on February 14, 2023 by RTW Investments LP
and Roderick Wong. RTW Investments, LP and Mr. Wong have shared voting and dispositive power with respect to 3,591,986
shares directly held by certain funds to which RTW Investments, LP is the investment adviser. Mr. Wong is the Managing Partner
and Chief Investment Officer of RTW Investments LP. The address of RTW Investments, LP and Mr. Wong is 40 10th Avenue,
Floor 7, New York, NY 10014.
This information is based solely upon a Schedule 13G filed with the SEC on February 9, 2023 by the Vanguard Group, Inc
(“Vanguard”). Vanguard has shared voting power with respect to 38,846 shares, sole dispositive power with respect to 3,023,287
shares and shared dispositive power with respect to 74,427 shares. The address of Vanguard is 100 Vanguard Boulevard, Malvern,
PA 19355.
This information is based solely upon a Schedule 13G filed with the SEC on January 3, 2023 by entities affiliated with Citadel
Advisors LLC (“Citadel Advisors”). Consists of shares held by Citadel Equity Fund Ltd. (“CEFL”), Citadel Multi-Strategy
Equities Master Fund Ltd. (“CM”), Citadel Securities LLC (“Citadel Securities”) and CRBU Holdings LLC (“CRBH”). Citadel
Advisors is the portfolio manager for CEFL and CM. Citadel Advisors Holdings LP (“CAH”) is the sole member of Citadel
Advisors. Citadel GP LLC (“CGP”) is the general partner of CAH. Citadel Securities Group LP (“CALC4”) is the non-member
manager of Citadel Securities and CRBH. Citadel Securities GP LLC (“CSGP”) is the general partner of CALC4. Kenneth Griffin
is the President and Chief Executive Officer of CGP, and owns a controlling interest in CGP and CSGP. Each of Citadel Advisors,
CAH and CGP has shared voting power and shared dispositive power with respect to 1,783,520 shares. Citadel Securities has
shared voting power and shared dispositive power with respect to 502,892 shares. Each of CALC4 and CSGP has shared voting
power and shared dispositive power with respect to 899,294 shares. Mr. Griffin has shared voting and shared dispositive power with
respect to 2,682,814 shares. The address of each of the entities and persons above is Southeast Financial Center, 200 South Biscayne
Boulevard, Suite 3300, Miami, FL 33131.
(9)
Includes 1,157,303 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
(10)
Includes 225,233 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
23
(11)
Includes 338,792 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023. Dr. Liu transitioned to a
role as part-time R&D Strategy Advisor, effective January 1, 2023.
(12)
Includes 138,210 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
(13)
Includes 18,000 shares held indirectly by the Bryan and Courtney Giraudo Trust and 88,500 shares issuable pursuant to stock
options exercisable within 60 days of March 15, 2023.
(14) Consists of 80,100 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023. Dr. Noonberg is not
standing for re-election at the Annual Meeting.
(15) Consists of 53,000 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
(16) Consists of 101,475 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
(17) Consists of 88,500 shares issuable pursuant to stock options exercisable within 60 days of March 15, 2023.
(18)
Includes 1,988,101 shares that certain executive officers and directors of the Company have the right to acquire within 60 days of
March 15, 2023 pursuant to the exercise of outstanding options and vesting of restricted stock units.
24
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation awarded to or earned by the executive
officers listed below during the years ended December 31, 2022 and 2021.
Our named executive officers (“Named Executive Officers”) for 2022, which consist of our principal
executive officer and the two most highly compensated executive officers other than the principal executive
officer at December 31, 2022 include Dr. Patel, our President and Chief Executive Officer; Dr. Gupta, our
Chief Development Officer, and Dr. Liu, our former Chief Research and Development Strategy Officer.
SUMMARY COMPENSATION TABLE FOR FISCAL 2022
Salary
($)(1)
Stock
Awards
($)(2)(3)
Option
Awards
($)(2)
630,000
600,000
897,813
589,250
4,211,963
3,919,365
500,000
455,000
359,125
282,840
1,684,785
1,393,552
475,000
455,000
287,300
235,700
1,347,828
1,132,261
Year
2022
2021
2022
2021
2022
2021
Non-Equity
Incentive Plan
Compensation
($)(4)
All Other
Compensation
($)(5)
242,550
429,000
130,000
236,600
123,500
233,188
10,912
7,118
10,894
7,118
15,178
14,678
Total ($)
5,993,238
5,544,733
2,684,804
2,375,110
2,248,806
2,070,827
Non-Equity Principal Position
Dinesh V. Patel, Ph.D.. . .
President and Chief
Executive Officer
Suneel Gupta, Ph.D.. . . .
Chief Development
Officer
David Y. Liu, Ph.D. . . . .
Former Chief Research
and Development
Strategy Officer(6)
(1)
(2)
(3)
(4)
The amounts in the “Salary” column reflect each Named Executive Officer’s base salary.
The amounts in the “Stock Awards” and “Option Awards” columns reflect the aggregate grant date fair value of RSUs, performance
share awards (“PSUs”) and stock options, as applicable, granted during the calendar year and computed in accordance with the
provisions of Accounting Standards Codification (ASC) 718, Compensation — Stock Compensation. The valuation methodology
of these awards is described in the notes to the Company’s financial statements included in its Annual Report on Form 10-K for the
year ended December 31, 2022. These amounts do not reflect the actual economic value that will be realized by the Named Executive
Officer upon the vesting of the RSUs, PSUs and stock options, the exercise of the stock options, or the sale of the common stock
underlying such awards. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. With respect to option awards only, the Named Executive Officers will only realize compensation
to the extent the trading price of the common stock is greater than the exercise price of such stock options.
PSUs granted in 2022 and 2021 were deemed to have no reportable accounting grant date value because the performance goal was
not likely to be achieved as of the grant date. The PSUs granted in 2022 vest 100% upon the date that the Compensation Committee
determines, in its sole discretion and not later than December 31, 2023, that the Company’s forecasted cash and cash equivalents are
sufficient to fund the Company’s operations through at least December 31, 2025. The PSUs granted in 2021 vest 100% upon the
first to occur of a submission of i) a New Drug Application to the U.S. Food and Drug Administration or ii) a European Union
marketing authorization for a product candidate. The maximum value of the PSUs at grant date for each of 2022 and 2021,
respectively, assuming the performance conditions are achieved is $262,800 and $539,250 for Dr. Patel, $105,120 and $282,840 for
Dr. Gupta and $105,120 and $235,700 for Dr. Liu.
The amounts in the “Non-Equity Incentive Plan Compensation” column for 2022 reflect cash bonuses earned for the 2022 fiscal
year, which were paid in 2023, based on the achievement of certain predetermined corporate objectives specified by the Board,
including operating targets and research and development outcomes. In January 2023, the Compensation Committee determined
that the Company met 70% of its 2022 corporate objectives and approved the amount of each Named Executive Officer’s bonus.
The amount of the bonus that each Named Executive Officer earned for the fiscal year ended on December 31, 2022 is listed in the
table below.
Name
Target
Bonus
(as a% of
base salary)
2022 Base
Salary ($)
Dinesh V. Patel, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
630,000
Suneel Gupta, Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
500,000
David Y. Liu, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
475,000
55%
40%
40%
Amount of
Bonus
Earned ($)
242,550
130,000
123,500
25
(5)
The amounts noted for 2022 include $6,858 in group term life insurance for Dr. Patel, $6,858 in group term life insurance for
Dr. Gupta and $11,124 in group term life insurance for Dr. Liu, and $4,000 in 401(k) plan matching contributions paid by the
Company for each of Dr. Patel, Dr. Gupta and Dr. Liu. The amounts for 2022 also include premiums paid for LifeLock identity
protection services pursuant to Company-wide policy.
(6) Dr. Liu previously served as our Chief Scientific Officer and Head of Discovery and Clinical Development until January 2022,
when he became our Chief Research and Development Strategy Officer. Effective January 1, 2023, Dr. Liu transitioned to a part-
time R&D Strategy Advisor. In his new role, Dr. Liu is no longer a Section 16 or executive officer.
26
NARRATIVE TO SUMMARY COMPENSATION TABLE
EXECUTIVE EMPLOYMENT ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
Employment Agreement with Dinesh V. Patel, Ph.D.
In December 2008, the Company entered into an employment agreement with Dinesh V. Patel. Ph.D., the
Company’s President and Chief Executive Officer, as amended in December 2015, pursuant to which he
commenced employment. For 2023, Dr. Patel will receive an annual base salary of $655,200, with an annual
target bonus of 55% of that base salary. The amount, if any, of such bonus with respect to any calendar year
is based on the achievement of predetermined corporate and personal objectives as determined by the Board
in its discretion.
Offer Letter Agreement with Suneel Gupta, Ph.D.
In December 2018, the Company entered into an offer letter agreement with Suneel Gupta, Ph.D., the
Company’s Chief Development Officer, pursuant to which he commenced employment. For 2023, Dr. Gupta
will receive an annual base salary of $515,000, with an annual target bonus of 40% of that base salary. The
amount, if any, of such bonus with respect to any calendar year is based on the achievement of predetermined
corporate and personal objectives as determined by the Board in its discretion.
Offer Letter Agreement with David Y. Liu, Ph.D.
In May 2013, the Company entered into an offer letter agreement with David Liu, Ph.D., the Company’s
former Chief Research and Development Strategy Officer (formerly our Chief Scientific Officer and Head of
Discovery & Pre-Clinical Development until January 2022), pursuant to which he commenced employment.
Effective January 1, 2023, Dr. Liu, transitioned to a part-time R&D Strategy Advisor. In his new role, Dr. Liu
is no longer a Section 16 or executive officer.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The Company is party to an Employee Severance Agreement with each of its Named Executive Officers
and certain of its other executives. If the Company terminates the employee’s employment without “cause” or
the employee terminates employment for “good reason” (each as defined in the agreement), the employee will
receive: (a) salary continuation for 12 months, for the Chief Executive Officer, or nine months, for the other
Named Executive Officers (18 months and 12 months, respectively, in the case of a change in control
termination); (b) COBRA continuation for the salary continuation period (or an equivalent cash payment if
required by law); (c) in the case of a change in control termination only, a monthly payment equal to one
twelfth of the target bonus for the severance period; and (d) in the case of a change in control termination
only, acceleration of the vesting (and exercisability, if relevant) of equity awards held as of the date of
termination. A “change in control termination” is a termination by the Company without “cause” or the
employee for “good reason” that occurs within twelve months following the date of a “change in control,” as
defined in the agreement. Payments and benefits under the agreement are subject to the execution of an
effective release.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows for the fiscal year ended December 31, 2022, certain information regarding
outstanding equity awards at fiscal year end for the Named Executive Officers.
27
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2022
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Vesting
Commencement
Date
Option
Expiration
Date
Number of
Shares or
Units of
Stock
That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
Equity Incentive
Plan Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not Yet
Vested
($)
Number of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
(#)
60,000
320,000
150,000
54,700
165,312
166,458
103,125
39,062
—
67,708
43,125
60,208
36,666
15,625
—
65,000
56,500
17,200
86,250
49,583
29,791
12,500
—
—
—
—
—
7,188
68,542
121,875
148,438
—
2,292
1,875
27,792
43,334
59,375
—
—
—
—
3,750
20,417
35,209
47,500
—
$ 4.21
$21.58
$16.95
$ 8.58
$ 8.02
$ 7.80
$23.57
$28.73
—
$ 7.38
$ 8.02
$ 7.80
$23.57
$28.73
—
$21.58
$16.95
$ 8.58
$ 8.02
$ 7.80
$23.57
$28.73
—
04/25/2016
04/28/2026
08/10/2016
10/10/2026
02/28/2018
02/27/2028
08/05/2018
08/14/2028
—
—
—
—
—
—
—
—
02/28/2019
02/27/2029
7,188
78,421
02/28/2020
02/27/2030
—
—
—
—
—
—
—
—
—
—
—
—
—
—
02/26/2021
02/25/2031
25,000
272,750
25,000
272,750
02/15/2022
02/14/2032
31,250
340,938
—
—
—
—
01/07/2019
01/14/2029
—
—
02/28/2019
02/27/2029
1,875
20,456
02/28/2020
02/27/2030
—
—
— 30,000
327,300
—
—
—
—
—
—
02/26/2021
02/25/2031
12,000
130,920
12,000
130,920
02/15/2022
02/14/2032
12,000
136,375
—
—
— 12,000
130,920
—
—
08/10/2016
10/10/2026
02/28/2018
02/27/2028
08/05/2018
08/14/2028
—
—
—
—
02/28/2019
02/27/2029
3,750
40,913
02/28/2020
02/27/2030
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
02/26/2021
02/25/2031
10,000
109,100
10,000
109,100
02/15/2022
02/14/2032
10,000
109,100
—
—
—
—
—
— 12,000
130,920
Dinesh V. Patel, Ph.D.
. . . 04/29/2016
Grant Date
10/11/2016
02/28/2018
08/15/2018
02/28/2019(1)(2)
02/28/2020(1)
02/26/2021(1)(3)(4)
02/15/2022(1)(5)
05/31/2022(6)
. . . . 01/15/2019(7)
02/28/2019(1)(2)
02/28/2020(1)
02/26/2021(1)(3)(4)
02/15/2022(1)(5)
05/31/2022(6)
Suneel Gupta, Ph.D.
David Y. Liu, Ph.D. . . . . . 10/11/2016
02/28/2018
08/15/2018
02/28/2019(1)(2)
02/28/2020(1)
02/26/2021(1)(3)(4)
02/15/2022(1)(5)
05/31/2022(6)
(1)
(2)
(3)
The shares subject to the option vest as to 1/48 of the shares in equal monthly installments following the vesting commencement
date, subject to the holder continuing to provide services through the applicable vesting date. The option is subject to accelerated
vesting in the event of an acquisition and in the event of a qualifying termination that occurs in the twelve months following the
acquisition as described in “— Potential Payments upon Termination or Change in Control” above.
25% of the stock award shares vest in equal yearly installments over four years subject to the holder continuing to provide services
through the applicable vesting date. The award is subject to accelerated vesting in the event of an acquisition and in the event of a
qualifying termination that occurs in the twelve months following the acquisition as described in “— Potential Payments upon
Termination or Change in Control” above.
100% of the stock award vests three years from the grant date subject to the holder continuing to provide services through the
applicable vesting date. The award is subject to accelerated vesting in the event of an acquisition and in the event of a qualifying
termination that occurs in the twelve months following the acquisition as described in “— Potential Payments upon Termination or
Change in Control” above.
(4)
100% of the equity incentive plan award vests upon the first to occur of a submission of i) a New Drug Application to the U.S. Food
and Drug Administration or ii) a European Union marketing authorization for a product candidate, subject to the holder continuing
28
(5)
(6)
(7)
to provide services through the applicable vesting date. The award is subject to accelerated vesting in the event of an acquisition and
in the event of a qualifying termination that occurs in the twelve months following the acquisition as described in “— Potential
Payments upon Termination or Change in Control” above.
1/3 of the stock award shares vest in equal yearly installments over three years subject to the holder continuing to provide services
through the applicable vesting date. The award is subject to accelerated vesting in the event of an acquisition and in the event of a
qualifying termination that occurs in the twelve months following the acquisition as described in “— Potential Payments upon
Termination or Change in Control” above.
100% of the equity incentive plan award vests upon the date that the Compensation Committee determines in its sole discretion and
not later than December 31, 2023, that the Company’s forecasted cash and cash equivalents are sufficient to fund the Company’s
operations through at least December 31, 2025, subject to the holder continuing to provide services through the applicable vesting
date. The award is subject to accelerated vesting in the event of an acquisition and in the event of a qualifying termination that
occurs in the twelve months following the acquisition as described in “— Potential Payments upon Termination or Change in
Control” above.
25% of the shares subject to the option vest on the first anniversary of the vesting commencement date, and the remainder vests in
36 equal monthly installments thereafter, subject to the holder continuing to provide services through the applicable vesting date.
The option is subject to accelerated vesting in the event of an acquisition and in the event of a qualifying termination that occurs in
the twelve months following the acquisition as described in “— Potential Payments upon Termination or Change in Control” above.
NONQUALIFIED DEFERRED COMPENSATION
The Company does not maintain any nonqualified deferred compensation plans. The Board may elect to
provide the Company’s officers and other employees with nonqualified deferred compensation benefits in the
future if it determines that doing so is in the Company’s best interests.
401(K) PLAN
The Company maintains a tax-qualified retirement plan that provides eligible U.S. employees with an
opportunity to save for retirement on a tax advantaged basis. Eligible employees may defer eligible
compensation subject to applicable annual Internal Revenue Code of 1986, as amended (the “Code”), limits.
The 401(k) plan permits participants to make both pre-tax and certain after-tax (Roth) deferral contributions.
These contributions are allocated to each participant’s individual account and are then invested in selected
investment alternatives according to the participant’s directions. Employees are immediately and fully vested
in their contributions. The Company may make contributions to this plan at its discretion. For the years ended
December 31, 2022 and 2021, the Company matched 50% of each employee’s contribution up to a maximum
of $4,000 and $3,500, respectively. The 401(k) plan is intended to be qualified under Section 401(a) of the
Code with the 401(k) plan’s related trust intended to be exempt under Section 501(a) of the Code. As a tax
qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable
to the employees until distributed from the 401(k) plan.
PAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and
Item 402(v) of Regulation S-K, we are providing the following information about the relationship between
executive compensation actually paid and certain financial performance of the Company.
Summary
Compensation
Table
Total for
PEO(1)
Compensation
Actually
Paid to
PEO(2)
Average
Summary
Compensation
Table Total
for Non-PEO
NEOs(3)
Average
Compensation
Actually
Paid to
Non-PEO
NEOs(4)
Value of
Initial
Fixed $100
Investment
Based On
Total
Shareholder
Return(5)
Net Loss(6)
Year
2022 . . . . . . . . . . . .
$5,993,238
$ (5,174,369) $2,466,805
$(1,687,548)
$ 54.12
$(127,393,315)
2021 . . . . . . . . . . . .
$5,544,733
$12,111,993
$2,222,969
$ 4,761,991
$169.64
$(125,550,748)
(1)
(2)
The dollar amounts reported are the amounts of total compensation reported in our Summary Compensation Table for each of
2022 and 2021 for Dr. Patel, our President and Chief Executive Officer.
The dollar amounts reported represent the amount of “compensation actually paid”, as computed in accordance with SEC rules.
The dollar amounts do not reflect the actual amount of compensation earned by or paid during the applicable year. In accordance
with SEC rules, the following adjustments were made to total compensation to determine the compensation actually paid:
29
Year
Reported
Summary
Compensation
Table Total
for PEO
Reported
Value of
Equity
Awards(a)
Equity
Award
Adjustments(b)
Compensation
Actually
Paid to
PEO
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,993,238
$(5,109,776)
$ (6,057,831)
$ (5,174,369)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,544,733
$(4,508,615)
$11,075,875
$12,111,993
(a)
The grant date fair value of equity awards represents the total of the amounts reported in the “Stock Awards” and “Option
Awards” columns in the Summary Compensation Table for the applicable year.
(b) The equity award adjustments for each applicable year include the addition (or subtraction, as applicable) of the following:
(i) the year-end fair value of any equity awards granted in the applicable year that are outstanding and unvested as of the end
of the year; (ii) the amount of change as of the end of the applicable year (from the end of the prior fiscal year) in fair value
of any awards granted in prior years that are outstanding and unvested as of the end of the applicable year; (iii) for awards
that are granted and vest in same applicable year, the fair value as of the vesting date; (iv) for awards granted in prior years
that vest in the applicable year, the amount equal to the change as of the vesting date (from the end of the prior fiscal year) in
fair value; (v) for awards granted in prior years that are determined to fail to meet the applicable vesting conditions during the
applicable year, a deduction for the amount equal to the fair value at the end of the prior fiscal year; and (vi) the dollar value
of any dividends or other earnings paid on stock or option awards in the applicable year prior to the vesting date that are not
otherwise reflected in the fair value of such award or included in any other component of total compensation for the applicable
year. The valuation assumptions used to calculate fair values did not materially differ from those disclosed at the time of
grant. The amounts deducted or added in calculating the equity award adjustments are as follows:
Year End
Fair
Value of
Outstanding
and Unvested
Equity
Awards
Granted
During
the Year
Year over
Year Change
in Fair
Value of
Outstanding
and Unvested
Equity
Awards
Granted in
Prior Years
Fair
Value as
of Vesting
Date of
Equity
Awards
Granted and
Vested in
the Year
Year over
Year Change
in Fair
Value of
Equity
Awards
Granted
in Prior
Years that
Vested in
the Year
Total
Equity
Award
Adjustments
Year
2022 . . . . . . . . . . . . . . . . . . . . .
$1,538,304
$(4,758,042)
$ 328,901
$(3,166,994)
$ (6,057,831)
2021 . . . . . . . . . . . . . . . . . . . . .
$5,481,885
$ 2,690,740
$1,252,857
$ 1,650,393
$11,075,875
(3)
(4)
The dollar amounts reported represent the average of the amounts reported for the Company’s named executive officers (NEOs) as
a group (excluding our CEO) in the “Total” column of the Summary Compensation Table in each applicable year. The names of
each of the NEOs (excluding our CEO) included for purposes of calculating the average amounts in 2022 and 2021 are Suneel
Gupta, Ph.D. and David Y. Liu, Ph.D.
The dollar amounts reported represent the average amount of “compensation actually paid” to the NEOs as a group (excluding our
CEO), as computed in accordance with SEC rules. The dollar amounts do not reflect the actual average amount of compensation
earned by or paid to the NEOs as a group (excluding our CEO) during the applicable year. In accordance with the SEC rules, the
following adjustments were made to average total compensation for the NEOs as a group (excluding our CEO) for each year to
determine the compensation actually paid, using the same methodology described above in Note 2:
Year
Average
Reported
Summary
Compensation
Table
Total for
Non-PEO
NEOs
Average
Reported
Value of
Equity
Awards
Average
Equity
Award
Adjustments(a)
Average
Compensation
Actually
Paid to
Non-PEO
NEOs
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,466,805
$(1,839,519)
$(2,314,834)
$(1,687,548)
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,222,969
$(1,522,177)
$ 4,061,199
4,761,991
30
(a)
The amounts deducted or added in calculating the total average equity award adjustments are as follows:
Average
Year End
Fair
Value of
Outstanding
and Unvested
Equity
Awards
Granted
During the
Year
Year over
Year Average
Change in
Fair
Value of
Outstanding
and Unvested
Equity
Awards
Granted in
Prior Years
Average
Fair Value
as of
Vesting
Date of
Equity
Awards
Granted and
Vested in
the Year
Year over
Year Average
Change in
Fair Value
of Equity
Awards
Granted in
Prior Years
that Vested
in the Year
Total
Average
Equity
Award
Adjustments
Year
2022 . . . . . . . . . . . . . . . . . . . . .
$ 553,787
$(1,661,551)
$118,408
$(1,325,478)
$(2,314,834)
2021 . . . . . . . . . . . . . . . . . . . . .
$1,867,101
1,110,914
$403,689
$
679,495
$ 4,061,199
(5) Cumulative TSR is calculated by dividing the sum of the cumulative amount of dividends for the measurement period, assuming
dividend reinvestment, and the difference between the Company’s share price at the end and the beginning of the measurement
period by the Company’s share price at the beginning of the measurement period.
(6)
The dollar amounts reported represent the amount of net loss reflected in the Company’s audited financial statements for the
applicable year.
Analysis of the Information Presented in the Pay versus Performance Table
The Company’s executive compensation program reflects a variable pay-for-performance philosophy.
While the Company utilizes several performance measures to align executive compensation with Company
performance, all of those Company measures are not presented in the Pay versus Performance table. Moreover,
the Company generally seeks to incentivize long-term performance, and therefore does not specifically align
the Company’s performance measures with compensation that is actually paid (as computed in accordance
with SEC rules) for a particular year. In accordance with SEC rules, the Company is providing the following
graphs depicting the relationships between information presented in the Pay versus Performance table.
Compensation Actually Paid and Cumulative TSR
Compensation Actually Paid vs. Cumulative TSR
d
i
a
P
y
l
l
a
u
t
c
A
n
o
i
t
a
s
n
e
p
m
o
C
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
($2,000,000)
($4,000,000)
($6,000,000)
($8,000,000)
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
)
t
n
e
m
t
s
e
v
n
i
0
0
1
$
l
a
i
t
i
n
i
f
o
e
u
l
a
v
(
R
S
T
e
v
i
t
a
l
u
m
u
C
$169.64
$54.12
2021
2022
PEO
Average for Non-PEO NEOs
TSR
31
Compensation Actually Paid and Net Loss
Compensation Actually Paid vs. Net Loss
d
i
a
P
y
l
l
a
u
t
c
A
n
o
i
t
a
s
n
e
p
m
o
C
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
($2,000,000)
($4,000,000)
($6,000,000)
($8,000,000)
$0
($25)
($50)
($75)
($100)
($125)
($150)
($175)
)
s
n
o
i
l
l
i
m
(
s
s
o
L
t
e
N
($125.60)
($127.40)
2021
2022
PEO
Average for Non-PEO NEOs
Net Loss
32
DIRECTOR COMPENSATION
The following table shows for the fiscal year ended December 31, 2022 certain information with respect to
the compensation of all non-employee directors of the Company:
NON-EMPLOYEE DIRECTOR COMPENSATION FOR FISCAL 2022
Name
Fees Earned
or Paid
in Cash ($)
Option
Awards
($)(1)(2)
Bryan Giraudo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah Noonberg, M.D., Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah A. O’Dowd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harold E. Selick, Ph.D.
William D. Waddill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lewis T. Williams, M.D., Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,000
50,000
45,000
95,000
67,500
47,500
128,940
128,940
128,940
128,940
128,940
128,940
Total ($)
188,940
178,940
173,940
223,940
196,440
176,440
(1) The amounts in the “Option Awards” column reflect the aggregate grant date fair value of stock options
granted during the calendar year computed in accordance with the provisions of Accounting Standards
Codification (ASC) 718, Compensation — Stock Compensation. The valuation assumptions used in
determining such amounts are described in the notes to the Company’s financial statements included in
its Annual Report on Form 10-K for the year ended December 31, 2022. These amounts do not reflect the
actual economic value that will be realized by the directors upon the vesting of the stock options, the
exercise of the stock options, or the sale of the common stock underlying such stock options.
(2) The aggregate number of stock option awards for each non-employee director that were outstanding as
of the end of fiscal year 2022 is shown in the table below. Our non-employee directors did not hold any
other outstanding stock awards as of such date.
Name
Aggregate Number
of Option Awards
Outstanding as of
December 31, 2022
Bryan Giraudo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah Noonberg, M.D., Ph.D.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sarah A. O’Dowd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Harold E. Selick, Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
William D. Waddill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lewis T. Williams, M.D. Ph.D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,000
92,600
68,000
150,710
113,975
101,000
In September 2016, the Board adopted a non-employee director compensation policy. The Compensation
Committee made certain changes to the non-employee director compensation policy effective as of January 1,
2020 and May 16, 2022 (increasing the number of options granted as part of the annual equity award from
18,000 to 20,000). Pursuant to this policy, the Company compensates its non-employee directors with a
combination of cash and equity. The annual cash compensation contained in this policy, set forth below, is
payable in equal quarterly installments, in advance during the last month of each quarter in which service
occurred, prorated for any months of partial service.
• Annual Board Service Retainer:
• Non-employee directors other than the non-executive chairperson: $40,000
• Non-executive chairperson: $75,000
• Annual Committee Service Retainer (Chairperson):
• Chairperson of the Audit Committee: $20,000
33
• Chairperson of the Compensation Committee: $15,000
• Chairperson of the Nominating and Corporate Governance Committee: $10,000
• Annual Committee Service Retainer (Non-Chairperson):
• Audit Committee: $10,000
• Compensation Committee: $7,500
• Nominating and Corporate Governance Committee: $5,000
The Company’s non-employee director compensation policy also provides for equity compensation to
each non-employee director as follows:
• Initial Grant: At the time he or she joins the Board, each new non-employee director will receive an
initial stock option grant to purchase 30,000 shares of common stock and shall vest in equal monthly
installments over three years.
• Annual Grant: Each non-employee director will also be granted an option to purchase 20,000 shares of
common stock on the date of each Annual Meeting of stockholders which shall vest at the earlier of
(i) one year or (ii) the next Annual Meeting of stockholders.
All options granted to the Company’s non-employee directors under the policy will vest in full upon the
completion of a change in control.
NON-EMPLOYEE DIRECTOR COMPENSATION FOR FISCAL 2023
After consultation with Radford and pursuant to the compensation review process described above,
effective January 1, 2023, the number of shares subject to the annual option grant to be awarded in fiscal year
2023 to non-employee directors was increased to 30,000 shares. The annual option grant to non-employee
directors shall be granted on the same day as the annual employee refresher awards and shall vest in equal
monthly installments over twelve months.
34
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to all of
the Company’s equity
compensation plans in effect as of December 31, 2022.
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants
and rights
(a)
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights(6)
(b)
Number of
securities
remaining
available
for issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)
Plan Category(1)
Equity compensation plans approved by securities holders:
2007 Stock Option and Incentive Plan . . . . . . . . . . . . . . . . . .
2016 Equity Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . .
2016 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . .
167,828(3)
5,914,150(4)
—
$ 3.78
$19.20
—
—
1,350,793(7)
1,255,290(8)
Equity compensation plans not approved by securities holders:
2018 Inducement Plan(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
995,467(5)
7,077,445
$20.85
$19.03
574,772
3,180,855
(1)
(2)
The equity compensation plans are described in Note 13 to our financial statements included in our Annual Report on Form 10-K
for the year ended December 31, 2022.
In February 2020, the Board approved the Amended and Restated 2018 Inducement Plan, a non-stockholder approved stock plan,
under which it reserved and authorized up to 1,250,000 shares of the Company’s common stock in order to award options and
RSUs to persons that were not previously employees or directors of the Company, or following a bona fide period of non-
employment, as an inducement material to such persons entering into employment with the Company, within the meaning of
Rule 5635(c)(4) of the Nasdaq Listing Rules. The Board approved a further amendment and restatement in February 2022 to
reserve and authorize an additional 500,000 shares of the Company’s common stock thereunder (as amended and restated in
February 2022, the “2018 Inducement Plan”). The 2018 Inducement Plan is administered by the Board or the Compensation
Committee of the Board, which determines the types of awards to be granted, including the number of shares subject to the awards,
the exercise price and the vesting schedule. Awards granted under the 2018 Inducement Plan expire no later than ten years from the
date of grant.
(3) As of December 31, 2022, there were 167,828 shares of common stock subject to outstanding stock options under the 2007 Stock
Option and Incentive Plan.
(4) As of December 31, 2022, there were 5,123,464 shares of common stock subject to outstanding stock options, 709,186 shares to be
issued pursuant to the vesting of unvested RSUs, and 81,500 shares to be issued pursuant to the vesting of unvested PSUs upon
achievement of performance conditions under the 2016 Equity Incentive Plan (the “2016 Plan”).
(5) As of December 31, 2022, there were 949,217 shares of common stock subject to outstanding stock options and 46,250 shares to be
issued pursuant to the vesting of unvested RSUs under the 2018 Inducement Plan.
(6)
(7)
(8)
The weighted-average exercise price of outstanding stock options granted under equity compensation plans approved by securities
holders was $18.71. The weighted-average exercise price of outstanding options granted under all equity compensation plans was
$19.03. RSUs and PSUs do not have an exercise price and therefore have not been included in the calculations.
The reserve for shares available under the 2016 Plan will automatically increase on January 1st each year by an amount equal to
4 percent of the total number of outstanding shares of our capital stock on December 31st of the preceding fiscal year, or a lesser
number of shares determined by the Board. Shares subject to stock awards granted under our 2016 Plan that expire or cancel
without being exercised in full, or that are paid out in cash rather than in shares, do not reduce the number of shares available for
issuance under our 2016 Plan. Additionally, shares issued pursuant to stock awards under our 2016 Plan that we repurchase or that
are forfeited, as well as shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to
a stock award, become available for future grant under our 2016 Plan.
The reserve for shares available under the 2016 Employee Stock Purchase Plan (the “2016 ESPP”) will automatically increase on
January 1st each year by the lesser of: (i) one percent of the total number of outstanding shares of our capital stock outstanding on
December 31st of the preceding fiscal year, (ii) 300,000 shares, or (iii) such other number of shares determined by the Board. As of
December 31, 2022, an aggregate of 1,255,290 shares remained available for future issuance under the 2016 ESPP, including 68,605
shares subject to purchase during the purchase period in effect on December 31, 2022.
35
TRANSACTIONS WITH RELATED PERSONS AND INDEMNIFICATION
RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES
The Company has adopted a written Related-Person Transactions Policy that sets forth the Company’s
policies and procedures regarding the identification, review, consideration and approval or ratification of
“related-persons transactions.” For purposes of the Company’s policy only, a “related-person transaction” is
a transaction, arrangement or relationship (or any series of similar transactions, arrangements or
relationships) in which the Company and any “related person” are participants involving an amount that
exceeds $120,000. Transactions involving compensation for services provided to the Company as an employee,
director, consultant or similar capacity by a related person are not covered by this policy. A related person is
any executive officer, director, or more than 5% stockholder of the Company, including any of their immediate
family members, and any entity owned or controlled by such persons.
CERTAIN RELATED-PERSON TRANSACTIONS
The following is a summary of transactions since January 1, 2021 in which the Company participated, in
which the amount involved exceeded or will exceed $120,000, and in which any of the Company’s directors,
executive officers or beneficial owners of more than 5% of the Company’s common stock or any members of
their immediate family had or will have a direct or indirect material interest, other than compensation
arrangements which are described under “Executive Compensation” and “Director Compensation.”
2018 OFFERING
On August 6, 2018, the Company entered into a securities purchase agreement (the “Securities Purchase
Agreement”) with certain accredited investors, including entities affiliated with Biotechnology Value Fund,
L.P. (collectively, “BVF”) and entities affiliated with Farallon Partners, LLC, each a holder of more than 5%
of the Company’s common stock, relating to the issuance and sale of 2,750,000 shares of the Company’s
common stock at a negotiated purchase price of $8.00 per share, for aggregate net proceeds of $21.7 million,
after deducting offering expenses payable by us. In concurrent private placements, the Company issued such
investors warrants to purchase an aggregate of 2,750,000 shares of the Company’s common stock (each, a
“Warrant” and, collectively, the “Warrants”). Each Warrant is exercisable from August 8, 2018 through
August 8, 2023. Warrants to purchase 1,375,000 shares of the Company’s common stock have an exercise
price of $10.00 per share (“Class A Warrants”) and Warrants to purchase 1,375,000 shares of the Company’s
common stock have an exercise price of $15.00 per share (“Class B Warrants”). The exercise price and number
of shares of common stock issuable upon the exercise of the Warrants (the “Warrant Shares”) are subject to
adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization
or similar transaction, as described in the Warrants. Under certain circumstances, the Warrants may be
exercisable on a “cashless” basis. As of December 31, 2022, none of the Warrants have been exercised.
In connection with the issuance and sale of the common stock and Warrants, the Company granted the
investors certain registration rights with respect to the Warrants and the Warrant Shares.
WARRANT EXCHANGE
On December 21, 2018, the Company entered into an exchange agreement with entities affiliated with
BVF (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,000,000
shares of common stock owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange
Warrants”) to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment in the event
of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of
$0.00001 per share. The Exchange Warrants expire ten years from the date of issuance. The Exchange Warrants
are exercisable at any time prior to expiration except that the Exchange Warrants cannot be exercised by the
Exchanging Stockholders if, after giving effect thereto, the Exchanging Stockholders would beneficially own
more than 9.99% of the Company’s common stock, subject to certain exceptions. The holders of the Exchange
Warrants will not have the right to vote on any matter except to the extent required by Delaware law. The
Exchange Warrants were issued without registration under the Securities Act in reliance on the exemption
from registration contained in Section 3(a)(9) of the Securities Act. During the year ended December 31,
2019, Exchange Warrants to purchase 600,000 shares were net exercised, resulting in the issuance of
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599,997 shares of common stock. During the year ended December 31, 2022, Exchange Warrants to purchase
400,000 shares were net exercised, resulting in the issuance of 399,997 shares of common stock. As of
December 31, 2022, there were no outstanding Exchange Warrants.
INDEMNIFICATION
The Company provides indemnification for its directors and executive officers so that they will be free
from undue concern about personal liability in connection with their service to the Company. Under the
Company’s Amended and Restated Bylaws, the Company is required to indemnify its directors and executive
officers to the extent not prohibited under Delaware or other applicable law. The Company has also entered
into indemnity agreements with certain officers and directors. These agreements provide, among other things,
that the Company will indemnify the officer or director, under the circumstances and to the extent provided
for in the agreement, for expenses, damages, judgments, fines and settlements he or she may be required to pay
in actions or proceedings which he or she is or may be made a party by reason of his or her position as a
director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware
law and the Amended and Restated Bylaws.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery
requirements for Notices of Internet Availability of Proxy Materials or other Annual Meeting materials with
respect to two or more stockholders sharing the same address by delivering a single Notice of Internet
Availability of Proxy Materials or other Annual Meeting materials addressed to those stockholders. This
process, which is commonly referred to as “householding,” potentially means extra convenience for
stockholders and cost savings for companies.
This year, a number of brokers with account holders who are Protagonist stockholders will be
“householding” the Company’s proxy materials. A single Notice of Internet Availability of Proxy Materials
will be delivered to multiple stockholders sharing an address unless contrary instructions have been received
from the affected stockholders. Once you have received notice from your broker that they will be
“householding” communications to your address, “householding” will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding”
and would prefer to receive a separate Notice of Internet Availability of Proxy Materials, please notify your
broker or Protagonist, and we will promptly deliver a separate Notice of Internet Availability of Proxy
Materials to you. Direct your written request to Protagonist Therapeutics, Inc., c/o Matthew Gosling,
Executive Vice President, General Counsel, at 7707 Gateway Blvd., Suite 140, Newark, California 94560 or
contact Matthew Gosling at (510) 474-0932. Stockholders who currently receive multiple copies of the Notices
of Internet Availability of Proxy Materials at their addresses and would like to request “householding” of
their communications should contact their brokers.
We will provide a copy of the Company’s Annual Report on Form 10-K for the year ended December 31,
2022 without charge upon the written or oral request of a stockholder. Please send a written request to: Corporate
Secretary, Protagonist Therapeutics, Inc., 7707 Gateway Blvd., Suite 140, Newark, California 94560 or
call 510-474-0170.
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