Protagonist Therapeutics, Inc. — Q2 2021 Form 10-Q Summary
Business Context and Reporting Period
Protagonist Therapeutics is a clinical-stage biopharmaceutical company developing peptide-based therapies for hematology, blood disorders, inflammatory diseases and immunomodulatory conditions. The company operates as one segment and has no approved products or product-sales revenue. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
- Lead programs: rusfertide (PTG-300) for polycythemia vera and other blood disorders; PN-943 for ulcerative colitis; and Janssen-collaboration programs PTG-200, PN-235 and PN-232 targeting the IL-23 pathway.
- Employees: 101 full-time equivalents at June 30, 2021, including 81 in research and development.
Financial Results and Key Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| License and collaboration revenue | $2.3 million in 2021 vs. $6.2 million in 2020 | $8.5 million in 2021 vs. $9.9 million in 2020 |
| Research and development expense | $26.4 million vs. $20.3 million | $50.7 million vs. $39.0 million |
| General and administrative expense | $6.7 million vs. $4.2 million | $12.7 million vs. $8.8 million |
| Loss from operations | $(30.9) million vs. $(18.2) million | $(54.9) million vs. $(37.9) million |
| Net loss | $(30.8) million vs. $(19.4) million | $(54.8) million vs. $(39.5) million |
| Net loss per share | $(0.69) vs. $(0.59) | $(1.23) vs. $(1.31) |
| Net cash used in operating activities | $52.5 million for the six months ended June 30, 2021 vs. $37.3 million in 2020 |
Research and development spending increased primarily because of higher rusfertide clinical and manufacturing costs, initiation of PN-235 development, increased PN-943 activity and additional discovery research. Six-month stock-based compensation was $6.6 million, compared with $4.0 million in 2020.
At June 30, 2021, the company had cash and cash equivalents of $192.4 million, marketable securities of $188.0 million and total cash, cash equivalents and marketable securities of approximately $380.4 million. Total assets were $404.2 million, stockholders’ equity was $357.4 million and accumulated deficit was $338.7 million.
The company had no outstanding term-loan balance at June 30, 2021. It retained access to up to $20.0 million under the existing facility through September 30, 2021, subject to conditions. The company reported compliance with debt covenants and no event of default.
Material Changes Versus the Prior Comparable Period
- Revenue declined 64% in the second quarter and 14% year to date, reflecting lower services performed under the Janssen agreement as the company approached completion of certain collaboration obligations.
- Research and development expense rose 30% in both the quarter and year-to-date period. Six-month rusfertide expense increased to $22.2 million from $14.6 million, while PN-235 expense was $3.2 million compared with none in 2020.
- General and administrative expense increased 61% in the quarter and 45% year to date, driven by higher personnel, market research, consulting, recruiting and legal costs.
- Net loss increased $11.4 million in the quarter and $15.3 million year to date, primarily because operating expenses grew faster than collaboration revenue.
- Operating cash burn increased by $15.1 million year over year to $52.5 million for the first six months of 2021.
- In June 2021, the company completed an underwritten equity offering generating $123.8 million of net proceeds and issued approximately 3.5 million shares. Shares outstanding increased to 47.5 million at June 30, 2021 from 43.7 million at December 31, 2020.
Guidance, Outlook, Risks and Unusual Items
- Clinical outlook: Enrollment in the pivotal Phase 2 rusfertide polycythemia vera trial was completed in April 2021. Management expected to initiate a global Phase 3 trial in early 2022. Preliminary hereditary hemochromatosis Phase 2 data were expected in the fourth quarter of 2021.
- Other programs: The PN-943 ulcerative colitis Phase 2 study was expected to complete in the second quarter of 2022, subject to COVID-19-related delays. PN-235 Phase 1 was expected to complete in the fourth quarter of 2021, and PN-232 Phase 1 in the second quarter of 2022.
- Janssen amendment: On July 27, 2021, after quarter-end, the parties entered into an amended and restated agreement. The company’s future development obligations were narrowed primarily to ongoing PTG-200, PN-232 and PN-235 studies, while Janssen assumed most other future development expenses. Certain potential milestones were revised, including a reduction of one second-generation Phase 2 milestone from $50.0 million to $25.0 million.
- Liquidity: Management believed existing cash, cash equivalents, marketable securities and access to the debt facility would fund anticipated requirements for at least 12 months from the filing date. Management also expects to require substantial additional funding to advance clinical development and potentially commercialize products.
- COVID-19: The pandemic had caused clinical-trial delays and could further affect patient recruitment, site operations, manufacturing, supply chains, collaboration activities and liquidity.
- Legal contingency: Arbitration with Zealand Pharma remains pending over whether rusfertide is subject to post-termination milestone and royalty obligations. Management considered the probability of loss remote and recorded no accrual. If Zealand prevails, potential obligations could include up to $28.0 million of development and regulatory milestones, up to $100.0 million of sales milestones and a low-single-digit royalty on worldwide net sales.
- Facility expansion: A July 2021 lease amendment added approximately 15,000 square feet of office space and approximately $1.5 million of additional base rent through May 2024.
- Unusual prior-period item: The 2020 comparison period included a $0.6 million loss on early repayment of debt and $1.1 million of quarterly income tax expense; neither item occurred in the second quarter of 2021.
Most Important Facts for Investors to Verify
- Progress, timing and results of the planned rusfertide Phase 3 program, including regulatory interactions and manufacturing readiness.
- Clinical results and enrollment timelines for rusfertide, PN-943, PN-232 and PN-235, including any continuing COVID-19 effects.
- Economic terms and milestone eligibility under the July 2021 amended and restated Janssen agreement, including remaining company funding obligations.
- Cash-burn rate, expected operating runway and timing or terms of any future equity, debt or collaboration financing.
- Outcome and potential financial exposure from the Zealand arbitration.
- Future revenue recognition under the Janssen arrangement, which depends on estimated costs, proportional performance and variable consideration.
- Potential dilution from future equity offerings, outstanding options, warrants and other equity awards.