Protagonist Therapeutics, Inc quarterly report, Q2 FY2020

Protagonist Therapeutics, Inc. — Q2 2020 Form 10-Q Summary

Business context and reporting period

Protagonist is a clinical-stage biopharmaceutical company developing peptide-based therapies. The filing covers the three and six months ended June 30, 2020, with unaudited results. Key programs were PTG-300 for blood disorders, PTG-200 and PN-943 for inflammatory bowel disease, and additional discovery programs developed through the Company’s peptide platform.

PTG-300 was in Phase 2 studies for polycythemia vera and hereditary hemochromatosis. The Company discontinued development in beta-thalassemia and myelodysplastic syndromes and redirected resources primarily to polycythemia vera.
PTG-200 was being developed with Janssen under a worldwide license and collaboration agreement. The Company suspended timeline guidance for the Phase 2 Crohn’s disease study because of COVID-19.
PN-943 had completed Phase 1 testing, and the planned Phase 2 ulcerative colitis study remained subject to COVID-19-related review; timing guidance was suspended.

Financial performance and liquidity

Metric	Three months ended June 30, 2020	Three months ended June 30, 2019	Six months ended June 30, 2020	Six months ended June 30, 2019
License and collaboration revenue	$6.2 million	$(8.2) million	$9.9 million	$(6.6) million
Research and development expense	$20.3 million	$19.4 million	$39.0 million	$31.8 million
General and administrative expense	$4.2 million	$3.9 million	$8.8 million	$7.6 million
Loss from operations	$(18.2) million	$(31.4) million	$(37.9) million	$(46.1) million
Net loss	$(19.4) million	$(29.2) million	$(39.5) million	$(43.3) million
Net loss per share	$(0.59)	$(1.18)	$(1.31)	$(1.77)
Net cash used in operating activities	Not provided for the quarter	Not provided for the quarter	$(37.3) million	$(13.0) million

Revenue was derived from the Janssen collaboration; the Company had no product sales revenue.
The prior-year negative revenue reflected a $9.4 million cumulative catch-up adjustment associated with the 2019 amendment to the Janssen agreement, making period-over-period revenue comparisons less representative.
Operating expenses increased 5% in the quarter and 21% for the first six months, primarily from higher preclinical and discovery research, PN-943 development, and general corporate costs.
Operating margin and net margin were negative; a conventional gross margin was not meaningful because the Company is a clinical-stage business with collaboration revenue and no product sales.
At June 30, 2020, cash and cash equivalents were $146.2 million, marketable securities were $62.4 million, and total cash, cash equivalents and marketable securities were approximately $208.7 million.
Operating cash burn for the first six months was $37.3 million, compared with $13.0 million in the prior-year period.
The Company reported an accumulated deficit of $257.2 million and stated that existing liquidity was expected to fund operations and capital expenditures for at least the next 12 months under its current plan, while also acknowledging the need for substantial additional capital over time.

Debt, financing and balance-sheet changes

The Company prepaid the outstanding $10.0 million term loan in June 2020 and paid approximately $0.6 million of related prepayment and final payment fees. No long-term debt remained at June 30, 2020.
The debt repayment generated a $0.6 million loss on early repayment and $0.2 million of interest expense during the quarter.
A May 2020 underwritten offering generated $105.3 million of net proceeds from 8.05 million shares.
At-the-market sales generated $16.6 million of net proceeds from 1.23 million shares during the first six months.
Shares outstanding increased to 36.8 million at June 30, 2020 from 27.2 million at December 31, 2019, creating material equity dilution but substantially strengthening liquidity.
Deferred revenue related to Janssen was $34.0 million at June 30, 2020, including $17.2 million current and $16.8 million noncurrent.

Material changes versus the prior comparable period

Net loss improved by $9.8 million in the second quarter and by $3.8 million for the first six months, primarily because the prior-year period included the negative Janssen revenue catch-up adjustment.
Research and development spending increased by $0.9 million in the quarter and $7.2 million year to date. Six-month increases included $7.6 million in preclinical and discovery research and $3.7 million in PN-943 development.
PTG-200 spending declined because Janssen was responsible for 80% of Phase 2 development costs.
The Company recognized income tax expense of $1.1 million in the quarter and $1.3 million year to date, compared with tax benefits in the prior-year periods. The change primarily reflected Australian intellectual-property transactions, valuation allowances, and uncertain tax-position adjustments.
The Company completed a reduction in force affecting approximately 12% of employees, with approximately $0.3 million of cash severance and benefit costs.
In June 2020, the FDA granted orphan drug designation to PTG-300 for polycythemia vera.

Guidance, outlook, commentary and risks

Management did not provide quantitative financial guidance. It expects continued operating losses and additional research, development and capital requirements.
Timeline guidance for the PTG-200 Crohn’s disease study and the PN-943 ulcerative colitis Phase 2 study was suspended because of the COVID-19 pandemic.
The Janssen agreement had an estimated initial performance-obligation transaction price of $113.9 million at June 30, 2020. The Company could receive future milestones, including a potential $7.5 million Phase 1 milestone and larger development, regulatory and sales milestones, but these payments remain contingent and are not assured.
COVID-19 risks include clinical-trial enrollment and site delays, supply-chain interruptions, employee and facility constraints, regulatory delays, and potential impacts on liquidity and collaboration activities.
The Company remains dependent on clinical and regulatory success, third-party contract research organizations and manufacturers, and Janssen’s continued development of PTG-200 and related compounds.
The Company has no approved products, no product revenue, no pivotal or registrational trials, and may never achieve profitability or commercialize a product.
Additional financing may be required. Future equity financing could dilute shareholders, while debt financing could impose covenants and security interests.
No material legal proceedings were reported. Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting.

Important facts investors should verify

Whether COVID-19 caused material delays or changes in enrollment, study execution, data quality, manufacturing, or regulatory timelines after June 30, 2020.
The status and results of PTG-300 polycythemia vera and hereditary hemochromatosis studies, including the basis for selecting polycythemia vera for a potential pivotal study in 2021.
Janssen’s continued commitment to PTG-200 and second-generation IL-23R compounds, including achievement and timing of contingent milestones.
Cash-burn trends and the estimated duration of the approximately $208.7 million liquidity balance under updated development plans.
Potential dilution from the remaining shelf and ATM capacity, outstanding options, and 2.75 million common-stock warrants.
The consequences of the June 2020 reduction in force for research capacity and program execution.
Whether the Australian tax restructuring and valuation allowance create additional tax liabilities or materially affect future tax benefits.
The August 4, 2020 severance agreement with the Chief Financial Officer, including potential cash and equity obligations upon termination or a change in control.