Protagonist Therapeutics(PTGX) - 2021 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited statements present the company's financial position, results of operations, and cash flows for the periods ended September 30, 2021 Condensed Consolidated Balance Sheets Total assets grew to $373.2 million, driven by financing activities, while stockholders' equity increased to $329.7 million Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $327,687 | $315,606 | | Total assets | $373,175 | $324,468 | | Total current liabilities | $39,156 | $40,241 | | Total liabilities | $43,515 | $44,862 | | Total stockholders' equity | $329,660 | $279,606 | | Total liabilities and stockholders' equity | $373,175 | $324,468 | Condensed Consolidated Statements of Operations The company reported a net loss of $88.6 million for the nine months ended September 30, 2021, widened by increased R&D expenses Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | License and collaboration revenue | $18,740 | $22,978 | | Research and development | $87,633 | $55,020 | | General and administrative | $19,936 | $13,644 | | Loss from operations | $(88,829) | $(45,686) | | Net loss | $(88,644) | $(47,264) | | Net loss per share, basic and diluted | $(1.94) | $(1.45) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $80.9 million, while financing activities provided $127.8 million, primarily from a stock offering Net Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(80,926) | $(53,617) | | Net cash used in investing activities | $(43,727) | $(16,563) | | Net cash provided by financing activities | $127,750 | $120,645 | | Net increase in cash, cash equivalents and restricted cash | $2,949 | $50,619 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant accounting policies, the Janssen collaboration amendment, an arbitration resolution, and capital raised from stock offerings - The company is a biopharmaceutical firm with $352.5 million in cash, cash equivalents, and marketable securities, and an accumulated deficit of $372.5 million[21][22] - In July 2021, the company entered into a Restated Agreement with Janssen, modifying development milestones and expense obligations, which resulted in a cumulative catch-up adjustment that increased revenue by $8.0 million in Q3 2021[59][74] - An arbitration with Zealand Pharma was resolved in August 2021, requiring payments that were recorded as $4.0 million in R&D expense for the three and nine months ended September 30, 2021[96][114] - In June 2021, the company completed an underwritten public offering, raising net proceeds of $123.8 million[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses increased R&D expenses, strong liquidity, and the recent clinical hold and subsequent removal for its rusfertide studies Overview The company focuses on peptide-based drugs, with its lead asset rusfertide facing a temporary clinical hold that has since been lifted - The FDA placed a clinical hold on rusfertide studies on September 16, 2021, following findings in a mouse carcinogenicity study, but the hold was lifted on October 8, 2021[149][151] - A global Phase 3 clinical trial of rusfertide in polycythemia vera (PV) is expected to begin in the first quarter of 2022[152] - In the Janssen collaboration, development of the first-generation IL-23R antagonist PTG-200 was stopped in favor of advancing second-generation candidates PN-235 and PN-232[156] - The company became eligible for a $7.5 million milestone payment from Janssen in October 2021 for the completion of data collection for PN-235 Phase 1 activities[158] Results of Operations For the first nine months of 2021, revenue decreased 18% while R&D expenses rose 59%, widening the net loss to $88.6 million Comparison of Three Months Ended September 30, 2021 and 2020 (in thousands) | | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | License and collaboration revenue | $10,286 | $13,114 | $(2,828) | (22)% | | Research and development | $36,956 | $15,995 | $20,961 | 131% | | General and administrative | $7,256 | $4,891 | $2,365 | 48% | | Net loss | $(33,804) | $(7,763) | $(26,041) | 335% | Comparison of Nine Months Ended September 30, 2021 and 2020 (in thousands) | | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | License and collaboration revenue | $18,740 | $22,978 | $(4,238) | (18)% | | Research and development | $87,633 | $55,020 | $32,613 | 59% | | General and administrative | $19,936 | $13,644 | $6,292 | 46% | | Net loss | $(88,644) | $(47,264) | $(41,380) | 88% | Liquidity and Capital Resources The company holds $352.5 million in cash and marketable securities, which is deemed sufficient to fund operations for at least 12 months - The company had $352.5 million in cash, cash equivalents, and marketable securities as of September 30, 2021[223] - In June 2021, the company raised $123.8 million in net proceeds from an underwritten public offering of common stock[219] - Management believes existing capital is sufficient to meet operating requirements for at least the next 12 months[223] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate sensitivity on its investments and foreign currency exposure from Australian operations - The company's primary market risks are interest rate sensitivity on its $352.5 million of cash, cash equivalents, and marketable securities, and foreign exchange risk from its Australian operations[242][243] - A 10% change in foreign exchange rates for its Australian operations would not have a material effect on results[244] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period[246] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[247] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not party to any material legal proceedings, having resolved its arbitration with Zealand Pharma in Q3 2021 - The company reports no material legal proceedings but notes the resolution of an arbitration with Zealand Pharma during Q3 2021[249] Item 1A. Risk Factors The company faces significant risks related to clinical development, financial dependency, third-party collaborations, and regulatory challenges Risks Related to Clinical Development The company's success depends on its clinical-stage candidates, which face uncertain development processes and regulatory risks like clinical holds - The company is heavily dependent on the success of its clinical product candidates, which face uncertain outcomes in a lengthy and expensive development process[272][274] - The FDA placed a full clinical hold on rusfertide studies on September 16, 2021, due to non-clinical findings, which was lifted on October 8, 2021, underscoring the risk of trial delays[278][286] Risks Related to Financial Position and Capital Requirements The company has a history of significant losses and will require substantial additional funding for future operations and development - The company has incurred significant losses since inception, with an accumulated deficit of $372.5 million as of September 30, 2021, and anticipates continued losses[288] - Substantial additional funding will be required to complete clinical development and commercialize product candidates, which may cause dilution to existing stockholders[291][293] Risks Related to Our Reliance on Third Parties The business model relies heavily on third parties, including collaborators like Janssen and various contract research and manufacturing organizations - The company relies on Janssen to continue development under their collaboration agreement, which Janssen can terminate for convenience[294] - The company depends on third-party CROs to conduct clinical trials and on contract manufacturers for drug supply, exposing it to risks of performance failure[298][300] Other Items (Items 2, 3, 4, 5, 6) The company reports no unregistered sales of equity securities, defaults, or other material information for the period under these items - The company reported no unregistered sales of equity securities, use of proceeds, or repurchases of equity securities for the period[398][399] - There were no defaults upon senior securities, and no mine safety disclosures were applicable[400][401]