PROTAGONIST THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements and related notes included in Part I, Item 1 of this quarterly report (this "Quarterly Report") on Form 10-Q and with our Audited Consolidated Financial Statements and related notes thereto for the year endedDecember 31, 2022 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 15, 2023 .
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical fact are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "intends," "may," "plans," "potential," "predicts," "projects," "should," "targets," "will," "would,", "seeks" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. In particular, statements, whether expressed or implied, concerning, among other things, the potential for our programs, the timing of our clinical trials, the timing of enrollment in our clinical trials, our cash runway, the potential for eventual regulatory approval and commercialization of our product candidates and our potential receipt of milestone payments and royalties under our collaboration agreements, future operating results or the ability to generate sales, income or cash flow, the impact of the COVID-19 pandemic, the military conflict betweenUkraine andRussia , rising tensions betweenChina andTaiwan , inflationary pressures, availability of credit and our exposure to banking or other financial institution failures are forward-looking statements. They involve risks, uncertainties and assumptions that are beyond our ability to control or predict, including those discussed in Part II, Item 1A, of this Quarterly Report. While we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future developments, changes in assumptions or otherwise. "Protagonist," the Protagonist logo and other trademarks, service marks and trade names of Protagonist are registered and unregistered marks ofProtagonist Therapeutics, Inc. inthe United States and other jurisdictions. 19 Table of Contents Overview
We are a biopharmaceutical company with peptide-based new chemical entities rusfertide and JNJ-2113 (formerly known as PN-235) in different stages of development, all derived from the Company's proprietary discovery technology platform. Our clinical programs fall into two broad categories of diseases; (i) hematology and blood disorders, and (ii) inflammatory and immunomodulatory
diseases.
Our Product Pipeline
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Rusfertide
Our most advanced clinical asset, rusfertide (generic name for PTG-300), is an
injectable hepcidin mimetic in development for the potential treatment of
erythrocytosis, iron overload and other blood disorders and is wholly owned.
Hepcidin is a key hormone in regulating iron equilibrium and is critical to the
proper development of red blood cells. Rusfertide mimics the effect of the
natural hormone hepcidin, but with greater potency, solubility and stability.
Data from our rusfertide Phase 2 clinical trials presented at medical
conferences in 2021 and 2022 provided evidence regarding the potential of
rusfertide for managing hematocrit, reducing thrombotic risk and improving iron
deficiency symptoms. Rusfertide has a unique mechanism of action in the
potential treatment of the blood disorder polycythemia vera ("PV"), which may
enable it to specifically decrease and maintain hematocrit levels within the
range of recommended clinical guidelines without causing the iron deficiency
that can occur with frequent phlebotomy. Our rusfertide Phase 2 clinical trials
include the following:
REVIVE, a Phase 2 proof of concept ("POC") trial, was initiated in the fourth
quarter of 2019. We completed enrollment of patients in the first quarter of
? 2022 with a target of approximately 50 patients to be enrolled through the end
of the randomization portion of the trial, which was completed during the first
quarter of 2023 and will continue in open label extension.
PACIFIC, another Phase 2 trial for rusfertide for patients diagnosed with PV
? and with routinely elevated hematocrit levels (>48%), was initiated during the
first quarter of 2021 and completion of the 52-week trial is expected during
the second quarter of 2023.
At theJune 2022 American Society of Clinical Oncology ("ASCO") Annual Meeting, we presented updated interim results for REVIVE and PACIFIC demonstrating the effects of dosing interruption and resumption. Rusfertide dosing interruption led to loss of effect, including increased phlebotomy rate and increases in
hematocrit and red blood
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cells. Rusfertide restart restored therapeutic benefits. Following a brief clinical hold, over 90% of patients in the REVIVE trial provided reconsent and returned to rusfertide treatment after dosing interruption and reinitiation. At theJune 2022 European Hematology Association Congress , we presented interim data as ofMay 2022 showing that rusfertide treatment interruption reverses hematologic gains and re-initiation of treatment restores therapeutic benefits in patients with PV. At theDecember 2022 American Society of Hematology meeting, we presented data as ofOctober 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
The double-blind, placebo-controlled, 12-week randomized withdrawal portion was
included as Part 2 of the REVIVE trial study to evaluate rusfertide in PV
patients with frequent phlebotomy requirements. In the REVIVE trial, subjects
were initially enrolled in the 28-week open label dose-titration and efficacy
evaluation Part 1 of the study, followed by 1:1 randomization of 53 subjects to
placebo versus rusfertide therapy for a subsequent duration of 12 weeks. More
subjects receiving rusfertide during the blinded randomized withdrawal portion
of the REVIVE trial were responders compared with placebo (69.2% versus 18.5%,
p=0.0003). A study subject was defined as a responder if the subject completed
12 weeks of double-blind treatment while maintaining hematocrit control without
phlebotomy eligibility and without phlebotomy. During the 12 weeks of the
blinded randomized withdrawal, only 2 of 26 subjects on rusfertide were
phlebotomized.
VERIFY, a global Phase 3 clinical trial of rusfertide in PV for approximately
250 patients, was initiated in the first quarter of 2022. Significant efforts
have been taken toward the goal of full enrollment and a high degree of interest
has been observed from physicians and patient communities. We expect enrollment
completion in the fourth quarter of 2023.
In keeping with our organizational prioritization of rusfertide in PV, plans to
initiate trials of rusfertide in additional disease indications have been
paused. This decision was influenced in part by the enactment of the Inflation
Reduction Act ("IRA") in the United States and includes previously planned
trials of rusfertide in the subset of hereditary hemochromatosis patients with
chronic arthropathy.
JNJ-2113 (formerly known as PN-235)
Our partnered Interleukin-23 receptor ("IL-23R") antagonist compound JNJ-2113 is
an orally delivered investigational drug that is designed to block biological
pathways currently targeted by marketed injectable antibody drugs. Our orally
stable peptide approach may offer a targeted therapeutic approach for
gastrointestinal ("GI") and systemic compartments as needed. We believe that,
compared to antibody drugs, JNJ-2113 has the potential to provide clinical
improvement in an oral medication with increased convenience and compliance and
the opportunity for the earlier introduction of targeted oral therapy.
In May 2017 , we entered into a worldwide license and collaboration agreement
with Janssen Biotech, Inc. ("Janssen"), a Johnson & Johnson company, to
co-develop and co-detail our IL-23R antagonist compounds, including PTG-200
(JNJ-67864238) and certain related compounds for all indications, including
inflammatory bowel disease ("IBD"). PTG-200 was a first-generation
investigational, orally delivered, IL-23R antagonist for the treatment of IBD.
The agreement with Janssen was amended in May 2019 to expand the collaboration
by supporting efforts towards second-generation IL-23R antagonists; and in July
2021 to, among other things, enable Janssen to independently research and
develop collaboration compounds for multiple indications in the IL-23 pathway
and further align our financial interests.
During the fourth quarter of 2021, following a pre-specified interim analysis
criteria, a portfolio decision was made by Janssen to advance second-generation
product candidate JNJ-2113 (JNJ-77242113) based on its superior
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potency and overall pharmacokinetic and pharmacodynamic profile. A JNJ-2113 Phase 1 trial was completed in the fourth quarter of 2021.
InFebruary 2022 , Janssen initiated FRONTIER1, a 255-patient Phase 2b clinical trial of JNJ-2113 in moderate-to-severe plaque psoriasis, which was completed inDecember 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. InMarch 2023 , we announced positive topline results from the trial. JNJ-2113 achieved the study's primary efficacy endpoint, with a statistically significant greater proportion of patients who received JNJ-2113 achieving PASI-75 responses compared to placebo at Week 16 in all five of the study's treatment groups. A clear dose response was observed across an eight-fold dose range. Treatment was well tolerated, with no meaningful difference in frequency of adverse events across treatment groups versus placebo. It is our expectation that JNJ-2113 will progress into a Phase 3 registrational study in plaque psoriasis on the strength of the FRONTIER1 data. Advancement of JNJ-2113 into a Phase 3 study and meeting the primary endpoint in that study would qualify us for milestone payments of$50 million and$115 million , respectively. Data will be presented from various pre-clinical and clinical studies on JNJ-2113 at medical conferences beginning in the second quarter of 2023. Other Phase 2 studies of JNJ-2113 that Janssen has initiated include the SUMMIT study of JNJ-2113 for the treatment of moderate-to-severe plaque psoriasis expected to be completed in the second quarter of 2023, and FRONTIER 2, a long-term extension study. A Phase 1 trial of an immediate release formulation of JNJ-2113 in healthy Chinese adult participants is currently recruiting. Following the completion of Phase 2 studies of JNJ-2113 in plaque psoriasis, we expect Janssen to initiate a separate Phase 2 trial of JNJ-2113 in a second indication. Additional indications may include any or all of psoriatic arthritis, ulcerative colitis ("UC") and Crohn's disease ("CD"). During the fourth quarter of 2021, we received a$7.5 million milestone payment from Janssen triggered by the completion of data collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we received a$25.0 million milestone payment in connection with the dosing of a third patient in FRONTIER1 during the first quarter of 2022. We will be eligible to receive a$10.0 million milestone payment in connection with the dosing of a third patient in the first Phase 2 trial of a second-generation candidate, a$50 million milestone upon dosing of a third patient in a Phase 3 trial for a second-generation compound for any indication, and a$115.0 million milestone payment upon a Phase 3 clinical trial for a second-generation compound for any indication meeting its primarily clinical endpoint. We remain eligible for up to approximately$855.0 million in future development and sales milestone payments, in addition to the$112.5 million in nonrefundable payments from Janssen already received as of today. We also remain eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten percent.
PN-943
PN-943 is a wholly owned, investigational, orally delivered, gut-restricted
alpha 4 beta 7 ("?4?7") specific integrin antagonist for IBD. During the second
quarter of 2020, we initiated IDEAL, a 159 patient Phase 2 trial evaluating the
safety, tolerability and efficacy of PN-943 in patients with moderate to severe
UC. Enrollment in IDEAL was completed during the first quarter of 2022. The
trial included a 12-week induction period and a 40-week extended treatment
period, which have been completed. We do not intend to dedicate further internal
resources to clinical development or contract manufacturing activities for
our
PN-943 clinical program.
Discovery Platform
Our clinical assets are all derived from our proprietary discovery platform. Our
platform enables us to engineer novel, structurally constrained peptides that
are designed to retain key advantages of both orally delivered small molecules
and injectable antibody drugs in an effort to overcome many of their limitations
as therapeutic agents. Importantly, constrained peptides can be designed to
potentially alleviate the fundamental instability inherent in traditional
peptides to allow different delivery forms, such as oral, subcutaneous,
intravenous, and rectal. We continue to use our peptide technology platform to
discover product candidates against targets in disease areas with significant
unmet medical needs. For example, we have a pre-clinical stage program to
identify an orally active hepcidin mimetic,
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which we believe will be complementary to the injectable rusfertide for offering the best treatment options for PV, hereditary hemochromatosis and other potential erythropoietic and iron imbalance disorders.
Business Update
We are subject to risks and uncertainties as a result of the prolonged nature of the COVID-19 pandemic and emergent variants with increased transmissibility, even in those who are fully vaccinated. Some of the workforce trends starting during the pandemic have continued to lead to staffing shortages in settings such as clinical trial sites and healthcare offices. The future impact of COVID-19 on our activities will depend on a number of factors, including, but not limited to, the scope and magnitude of any resurgences in the outbreak and the spread of COVID-19 variants; the timing, extent, effectiveness and durability of COVID-19 vaccine programs or other treatments; and new travel and other restrictions and public health measures. We have experienced delays in our existing and planned clinical trials due to the worldwide impacts of the pandemic. Our future results of operations and liquidity could be adversely impacted by further delays in existing and planned clinical trials, continued difficulty in recruiting patients for these clinical trials, delays in manufacturing and collaboration activities, supply chain disruptions, and the ongoing impact on our operating activities and employees. In addition, a recession or market correction related to or amplified by COVID-19 could materially affect our business. We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability, including an ongoing military conflict betweenRussia andUkraine and the rising tensions betweenChina andTaiwan , a recessionary environment and historically high domestic and global inflation. In particular, the conflict inUkraine has exacerbated market disruptions, including significant volatility in commodity prices, as well as supply chain interruptions, and has contributed to record inflation globally. TheU.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 ofSilicon Valley Bank and other regional banks inthe United States between March and May of 2023 has given rise to uncertainty in the security of amounts in deposit accounts uninsured by theFederal 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 betweenRussia andUkraine , and such factors may lead to increases in the cost of manufacturing our product candidates and delays in initiating trials.
Operations
We have incurred net losses in each year since inception and we do not anticipate achieving sustained profitability in the foreseeable future. Our net loss was$33.7 million and$20.9 million for the three months endedMarch 31, 2023 and 2022, respectively. As ofMarch 31, 2023 , we had an accumulated deficit of$570.5 million . Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant research and development expenses and other expenses related to our ongoing operations, product development, and pre-commercialization activities. As a result, we expect to continue to incur losses in the future as we continue our development of, and seek regulatory approval for, our product candidates.
Janssen License and Collaboration Agreement
OnJuly 27, 2021 , we entered into an Amended and Restated License and Collaboration Agreement (the "Restated Agreement") withJanssen Biotech, Inc. , aPennsylvania corporation ("Janssen"), which amended and restated the License and Collaboration Agreement, effectiveJuly 13, 2017 , by and between us and Janssen (the "Original Agreement'), as amended by the first amendment, effectiveMay 7, 2019 (the "First Amendment"). Prior toJanuary 1, 2023 , Janssen was a related party to us asJohnson & Johnson Innovation - JJDC, Inc. was a significant (greater than 5%) stockholder of the Company, and both companies are subsidiaries of Johnson & Johnson. OnJuly 27 , 23
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2021, we entered into the Restated Agreement ("Restated Agreement") with
Janssen, which amends and restates the Original Agreement, as amended by the
First Amendment. Upon the effectiveness of the Original Agreement, we received a
non-refundable, upfront cash payment of $50.0 million from Janssen. Upon the
effectiveness of the First Amendment, we received a $25.0 million payment from
Janssen in 2019. In the first quarter of 2020, we received a $5.0 million
payment triggered by the successful nomination of a second-generation IL-23R
antagonist development compound. In the fourth quarter of 2021, we received a
$7.5 million milestone payment from Janssen triggered by completion of the data
collection for JNJ-2113 Phase 1 activities. In the second quarter of 2022, we
received a $25.0 million milestone payment in connection with the dosing of a
third patient in FRONTIER1 during the first quarter of 2022. See Note 3 to the
condensed consolidated financial statements included elsewhere in this report
for additional information.
Critical Accounting Polices and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. There have been no material changes to our critical accounting policies during the three months endedMarch 31, 2023 , as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report for the year endedDecember 31, 2022 filed with theSEC onMarch 15, 2023 .
Components of Our Results of Operations
License and Collaboration Revenue
Our license and collaboration revenue is derived from payments we receive under the Restated Agreement with Janssen. See Note 3 to the condensed consolidated financial statements included elsewhere in this report for additional information.
Research and Development Expenses
Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred, unless there is an alternative future use in other research and development projects or otherwise. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when payment has been made. In instances where we enter into agreements with third parties to provide research and development services to us, costs are expensed as services are performed. Amounts due under such arrangements may be either fixed fee or fee for service and may include upfront payments, monthly payments, and payments upon the completion of milestones or the receipt of deliverables.
Research and development expenses consist primarily of the following:
? expenses incurred under agreements with clinical trial sites that conduct
research and development activities on our behalf;
? employee-related expenses, which include salaries, benefits and stock-based
compensation;
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? laboratory vendor expenses related to the preparation and conduct of
pre-clinical, non-clinical and clinical studies;
? costs related to production of clinical supplies and non-clinical materials,
including fees paid to contract manufacturers;
? license fees and milestone payments under license and collaboration agreements;
and
facilities and other allocated expenses, which include expenses for rent and
? maintenance of facilities, information technology, depreciation and
amortization expense and other supplies.
We recognize the amount related to our Australian research and development refundable cash tax incentive that are not subject to refund provisions as a reduction of research and development expenses. The research and development tax incentives are recognized when there is reasonable assurance that the incentives will be received, the relevant expenditure has been incurred and the amount of the consideration can be reliably measured. We evaluate our eligibility under the tax incentive program as of each balance sheet date and make accruals and related adjustments based on the most current and relevant data available. We may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive. We recognize the amounts from grants under government programs as a reduction of research and development expenses when the related research costs are incurred. We allocate direct costs and indirect costs incurred to product candidates when they enter clinical development. For product candidates in clinical development, direct costs consist primarily of clinical, pre-clinical, and drug discovery costs, costs of supplying drug substance and drug product for use in clinical and pre-clinical studies, including clinical manufacturing costs, contract research organization fees, and other contracted services pertaining to specific clinical and pre-clinical studies. Indirect costs allocated to our product candidates on a program-specific basis include research and development employee salaries, benefits, and stock-based compensation, and indirect overhead and other administrative support costs. Program-specific costs are unallocated when the clinical expenses are incurred for our early-stage research and drug discovery projects as our internal resources, employees and infrastructure are not tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not provide financial information regarding the costs incurred for early-stage pre-clinical and drug discovery programs on a program-specific basis prior to the clinical development stage. We expect our research and development expenses to decrease in the near term as we focus our resources toward progressing our rusfertide program into later stage clinical trials and preparing for commercialization. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program. The process of conducting research, identifying potential product candidates and conducting pre-clinical and clinical trials necessary to obtain regulatory approval and commencing pre-commercialization activities is costly and time intensive. We may never succeed in achieving marketing approval for our product candidates regardless of our costs and efforts. The probability of success of our product candidates may be affected by numerous factors, including pre-clinical data, clinical data, competition, manufacturing capability, our cost of goods to be sold, our ability to receive, and the timing of, regulatory approvals, market conditions, and our ability to successfully commercialize our products if they are approved for marketing. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. Our research and development programs are subject to change from time to time as we evaluate our priorities and available resources.
General and Administrative Expenses
General and administrative expenses consist of personnel costs, allocated
facilities costs and other expenses for outside professional services, including
legal, human resources, audit and accounting services, and pre-commercialization
expenses, including selling and marketing costs. Personnel costs consist of
salaries, benefits and stock-based compensation. Allocated expenses consist of
expenses for rent and maintenance of facilities, information technology,
depreciation and amortization expense and other administrative supplies. We
expect to continue to incur expenses supporting our continued operations as a
public company, including expenses related to compliance with the
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rules and regulations of the
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and marketable securities, which is comprised of contractual interest, premium amortization and discount accretion.
Other (Expense) Income, Net
Other (expense) income, net consists primarily of amounts related to foreign exchange gains and losses and related items.
Results of Operations
Comparison of the Three Months Ended
Three Months Ended March 31, Dollar %
2023 2022 Change Change
(Dollars in thousands)License and collaboration revenue $ -$ 25,722 $ (25,722) (100) Operating expenses: Research and development (1) 27,416 36,318 (8,902) (25) General and administrative (2) 8,605 10,515
(1,910) (18) Total operating expenses 36,021 46,833 (10,812) (23) Loss from operations (36,021) (21,111) (14,910) 71 Interest income 2,491 168 2,323 * Other (expense) income, net (195) 13 (208) * Net loss$ (33,725) $ (20,930) $ (12,795) 61 *Percentage not meaningful
(1) Includes
expense for the three months ended
(2) Includes
expense for the three months ended
License and Collaboration Revenue
License and collaboration revenue decreased$25.7 million , or 100%, from$25.7 million for the three months endedMarch 31, 2022 to zero for the three months endedMarch 31, 2023 . License and collaboration revenue for the first quarter of 2022 included a$25.0 million milestone payment we earned following the dosing of the third patient in the FRONTIER 1 clinical trial for JNJ-2113. We completed our performance obligation pursuant to the collaboration as ofJune 30, 2022 . We determined that the transaction price of the initial performance obligation under the Restated Agreement was$131.7 million as ofJune 30, 2022 , an increase of$0.2 million from the transaction price of$131.5 million as ofMarch 31, 2022 . In order to determine the transaction price, we evaluated all payments to be received during the duration of the contract, net of development costs reimbursement expected to be payable to Janssen. The transaction price as ofJune 30, 2022 included$112.5 million of nonrefundable payments received to date,$17.9 million of reimbursement from Janssen for services performed for IL-23 receptor antagonist compound research costs and other services, and variable consideration consisting of$8.2 million of development cost reimbursement from Janssen, partially offset by$6.9 million of net cost reimbursement due to Janssen for services performed. 26
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Research and Development Expenses
Three Months Ended March 31, Dollar %
2023 2022 Change Change
(Dollars in thousands) Clinical and development expense - rusfertide (PTG-300) $ 21,631
$ 13,377 $ 8,254 62 Clinical and development expense - PN-943 959 15,741 (14,782) (94) Clinical and development expense - JNJ-2113 (PN-235) 45 221 (176) (80) Clinical and development expense - PN-232 1 68 (67) (99) Clinical and development expense - PTG-200 11 (6) 17 (283) Clinical and development expense - PTG-100 (6) 190 (196) (103) Pre-clinical and drug discovery research expense 4,775 6,727 (1,952) (29) Total research and development expenses $ 27,416$ 36,318 $ (8,902) (25) Research and development expenses decreased$8.9 million , or 25%, from$36.3 million for the three months endedMarch 31, 2022 to$27.4 million for the three months endedMarch 31, 2023 . The decrease was primarily due to (i) a decrease of$14.8 million in expenses for the PN-943 program where further development work was de-prioritized to optimize and focus resources toward the rusfertide program in PV, and (ii) a decrease of$2.0 million in expenses related to pre-clinical and drug discovery research expense, partially offset by (iii) an increase of$8.3 million in rusfertide clinical and contract manufacturing expenses primarily for the Phase 3 VERIFY clinical trial. We do not intend to dedicate further internal resources to clinical development or contract manufacturing activities for our PN-943 clinical program. We had 80 and 97 full-time equivalent research and development employees as ofMarch 31, 2023 and 2022, respectively. Research and development personnel-related expenses for the three months endedMarch 31, 2023 increased by$0.7 million as compared to the three months endedMarch 31, 2022 , including an increase of$1.3 million in stock-based compensation expense partially offset by a decrease of$0.6 million in other personnel-related expenses.
General and Administrative Expenses
General and administrative expenses decreased
We had 23 and 25 full-time equivalent general and administrative employees as of
Interest Income
Interest income increased$2.3 million from$0.2 million for the three months endedMarch 31, 2022 to$2.5 million for the three months endedMarch 31, 2023 . This increase was due primarily to higher yields on invested balances during a period of increasing interest rates compared to the prior year period.
Liquidity and Capital Resources
Sources of Liquidity
Historically, we have funded our operations primarily from net proceeds from the sale of shares of our common stock and the receipt of payments under collaboration agreements.
InAugust 2022 , we entered into an Open Market Sale AgreementSM (the "Sales Agreement"), pursuant to which we could offer and sell up to$100.0 million of shares of our common stock from time to time in the "at-the-market" offerings (the "2022 ATM Facility"). As of and for the three months endedMarch 31, 2023 , we sold 1,749,199 27 Table of Contents
shares of our common stock under the 2022 ATM Facility for net proceeds of
InNovember 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 the "at-the-market" offerings (the "2019 ATM Facility"). During the year endedDecember 31, 2022 , we sold 422,367 shares of our common stock under the 2019 ATM Facility for net proceeds of$14.6 million , after deducting issuance costs. The Prior Sales Agreement was terminated in connection with and replaced by the Sales Agreement inAugust 2022 . We have received$112.5 million in non-refundable payments from Janssen since the inception of the Restated Agreement in 2017 through the date of this report as follows:
? Upon effectiveness of the Original Agreement, we received a non-refundable,
upfront cash payment of
Upon effectiveness of the First Amendment, we became eligible to receive a
?
quarter of 2019;
In
? triggered by the successful nomination of a second-generation development
compound, which was received during the first quarter of 2020;
In
? 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
? 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:
? clinical trial for any second-generation product for a second indication (i.e.,
an indication different than the indication which triggered the
milestone payment received during the second quarter of 2022 described above);
?
for a second-generation compound for any indication;
?
for a second-generation compound for a second indication; and
?
for any indication meeting its primary clinical endpoint.
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Capital Requirements
As of March 31, 2023 , we had $230.8 million of cash, cash equivalents and
marketable securities and an accumulated deficit of $570.5 million . Our capital
expenditures for the three months ended March 31, 2023 were $10,000 . Our capital
expenditures for the years ended December 31, 2022 and 2021 were $0.8 million
and $1.1 million , respectively. Our primary uses of cash are to fund our
operating expenses, primarily related to our research and development
expenditures, general and administrative costs and pre-commercialization costs.
Cash used to operating activities is impacted by the timing of when we pay these
expenses. As of the date of this filing, we believe, based on our current
operating plan and assumptions, that our existing cash, cash equivalents and
marketable securities will be sufficient to meet our anticipated operating and
capital expenditure requirements for at least the next 12 months. We have based
this estimate on assumptions that may prove to be wrong. We could utilize our
available capital resources sooner than we currently expect if, for instance,
our planned pre-clinical and clinical trials are successful or expanded, our
product candidates enter new and more advanced stages of clinical development,
we experience significant delays or difficulties in commencing, enrolling or
completing clinical studies, our newer product clinical trials advance beyond
the discovery stage or various other factors. We expect that our cash burn will
be lower in 2023 due to our research and development expenses decreasing in the
near term as we continue to focus our resources toward progressing our
rusfertide program into later stage clinical trials and preparing for
commercialization. We do not intend to dedicate further internal resources to
clinical development or contract manufacturing activities for our PN-943
clinical program.
We anticipate that we will need to raise substantial additional funding to advance rusfertide through clinical development and toward potential regulatory approval and to develop, acquire, or in-license other potential product candidates. Our future funding requirements will depend on many factors, including:
the progress, timing, scope, results and costs of advancing our clinical trials
? for our product candidates, including the ability to enroll patients in a
timely manner for our clinical trials;
? the costs of and our ability to obtain clinical and commercial supplies and any
other product candidates we may identify and develop;
? our ability to successfully commercialize the product candidates we may
identify and develop;
the selling and marketing costs associated with our current product candidates
? and any other product candidates we may identify and develop, including the
costs and timing of expanding our sales and marketing capabilities;
the achievement of development, regulatory and sales milestones resulting in
? payments to us from Janssen under the Restated Agreement, or other such
arrangements that we may enter into, and the timing of receipt of such
payments, if any;
the timing, receipt and amount of royalties under the Restated Agreement on
? worldwide net sales of IL-23 receptor antagonist compounds, upon regulatory
approval or clearance, if any;
the amount and timing of sales and other revenues from our current product
? candidates and any other product candidates we may identify and develop,
including the sales price and the availability of adequate third-party
reimbursement;
? the cash requirements of any future acquisitions or discoveries of product
candidates;
? the time and costs necessary to respond to technological and market
developments;
? the extent to which we may acquire or in-license other product candidates and
technologies;
? the costs necessary to attract, hire and retain qualified personnel;
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? the costs of maintaining, expanding and protecting our intellectual property
portfolio; and
? the costs of ongoing general and administrative activities to support the
growth of our business.
Such additional funding may come from various sources, including raising additional capital, seeking access to debt, and seeking additional collaborative or other arrangements with partners, but such funding may not be available on terms acceptable to us, if at all. As discussed in Part II, Item1A. "Risk Factors", we are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary and fiscal policy, geopolitical instability and banking and other financial institution failures, among other factors. A future recession or market correction related to COVID-19 or due to other factors, including significant geopolitical or macroeconomic events, could materially affect our business and our access to credit and financial markets. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials, other research and development activities and pre-commercialization costs. If we do raise additional capital through public or private equity offerings or convertible debt securities, the ownership interest of our existing stockholders could be diluted, and the terms of these securities could include liquidation or other preferences that could adversely affect our stockholders' rights. If we raise additional capital through debt financing, we could be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to fully estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs. For additional information, see Part II, Item 1A. "Risk Factors" - "Risks Related to our Financial Position and Capital Requirements".
The following table summarizes our cash flows for the periods indicated:
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