Protagonist Therapeutics, Inc annual report, FY2021

Protagonist Therapeutics, Inc. — FY2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021; filed February 28, 2022. Protagonist is a clinical-stage biopharmaceutical company developing constrained peptide therapeutics for hematology, blood disorders, inflammatory bowel disease and other immunomodulatory conditions. It has no approved products and no product-sales revenue.

Business Context and Pipeline

Rusfertide (PTG-300): Injectable hepcidin mimetic in Phase 2 studies for polycythemia vera (PV) and hereditary hemochromatosis (HH). The HH Phase 2 study was completed in Q4 2021. Management expected to initiate the global Phase 3 VERIFY PV study in Q1 2022 and complete enrollment in the first half of 2023.
PN-943: Oral, gut-restricted alpha-4-beta-7 antagonist in the Phase 2 IDEAL ulcerative colitis study. Enrollment was completed in Q1 2022, with topline data expected in Q2 2022.
PN-235: Oral IL-23 receptor antagonist partnered with Janssen. Phase 1 was completed in Q4 2021; Janssen initiated a Phase 2b psoriasis study in early 2022 and expected to initiate an IBD Phase 2 study in the second half of 2022.
Janssen discontinued further development of PTG-200 and PN-232 during Q4 2021 in favor of PN-235.

Financial Results and Key Metrics

Metric	FY2021	FY2020	Change
License and collaboration revenue	$27.4 million	$28.6 million	Down 4%
Research and development expense	$126.0 million	$74.5 million	Up 69%
General and administrative expense	$27.2 million	$18.6 million	Up 46%
Loss from operations	$125.8 million	$64.5 million	Loss increased 95%
Net loss	$125.6 million	$66.2 million	Loss increased 90%
Net loss per share	$2.71	$1.92	Loss per share increased
Operating cash flow	$(107.9) million	$(72.5) million	Cash use increased
Capital expenditures	$1.1 million	$0.5 million	Increased

Approximate operating and net margins were both negative at roughly 460% of reported collaboration revenue; these percentages are not economically representative of a commercial product business because revenue is primarily collaboration-related.
R&D spending included $55.4 million for rusfertide, $37.7 million for PN-943, $4.8 million for PN-235, $2.0 million for PN-232, $24.9 million for preclinical and discovery research, and a $4.0 million milestone obligation to former collaboration partner Zealand Pharma.
Stock-based compensation was $16.4 million, compared with $7.9 million in FY2020.
There was no income tax expense in FY2021; the company maintained a full valuation allowance on its deferred tax assets.

Liquidity, Capitalization and Cash Flow

Cash, cash equivalents and marketable securities totaled $326.9 million at December 31, 2021, including $123.7 million of cash and cash equivalents and $203.2 million of current marketable securities.
Total assets were $347.7 million, total liabilities were $47.7 million and stockholders’ equity was $300.0 million.
The company had no outstanding debt at December 31, 2021. Its prior term loan was repaid in 2020 and the related agreement was released in 2021.
Financing activities provided $129.9 million, primarily from a June 2021 public offering that generated net proceeds of $123.8 million.
Management stated that existing liquidity was sufficient to fund operations and capital expenditures for at least the next 12 months from the filing date, but substantial additional funding will be required for continued clinical development and potential commercialization.
Potential future financing may include equity, debt, collaborations or licensing transactions and could dilute shareholders or impose restrictive terms.

Material Changes Versus FY2020

Net loss widened by $59.4 million as clinical development and discovery spending accelerated.
R&D expense increased by $51.5 million, primarily due to progressing rusfertide and PN-943 trials, initiating PN-235 and PN-232 Phase 1 activities, and increased preclinical research.
License and collaboration revenue declined modestly, although FY2021 included an $8.0 million cumulative catch-up adjustment related to the amended Janssen agreement.
The July 2021 amended and restated Janssen agreement reduced Protagonist’s future development-cost obligations and shifted additional future development responsibility to Janssen.
Protagonist received a $7.5 million Janssen milestone during Q4 2021. It remained eligible for approximately $900 million of development-related milestones in addition to $87.5 million received since inception of the collaboration.
Common shares outstanding increased to 47.8 million at year-end from 43.7 million at year-end 2020, primarily reflecting the 2021 equity offering and equity compensation activity.

Guidance, Outlook, Risks and Unusual Items

The FDA placed rusfertide studies on a full clinical hold on September 16, 2021 after findings of benign and malignant subcutaneous skin tumors in a 26-week rasH2 transgenic mouse carcinogenicity study. The hold was removed on October 8, 2021 after the company submitted additional safety reports, revised study materials, enhanced monitoring and new stopping rules. The safety signal remains a key development risk.
Rusfertide clinical data were preliminary and included reported adverse events such as injection-site reactions, syncope, peripheral artery aneurysm, chest pain and cancers. The filing states that one myeloproliferative neoplasm blast-phase case was deemed unrelated to rusfertide.
The company has never conducted a Phase 3 trial or submitted an NDA. All product candidates remain subject to clinical, regulatory, manufacturing, reimbursement and commercialization risks.
COVID-19 caused clinical-trial enrollment and operational delays and could continue to affect recruitment, trial-site operations, manufacturing and supply chains.
The company relies on Janssen for development and potential commercialization of collaboration compounds. Janssen may terminate the agreement, and its development decisions control the timing of potential milestones and royalties.
The Zealand arbitration resolution requires a further $1.5 million payment in August 2022, reduced certain rusfertide milestones and royalties by 50%, and could require up to $2.75 million of additional future development milestones.
The company relies on third-party contract research organizations and manufacturers and has no internal manufacturing facilities or commercial sales organization.
In January 2022 through the filing date, the company sold 422,367 shares under its ATM facility for net proceeds of $14.6 million.

Important Facts for Investors to Verify

Whether VERIFY was initiated on schedule and whether rusfertide’s clinical-hold-related safety monitoring affects enrollment, trial design or regulatory prospects.
Results from the completed rusfertide HH study and the Phase 2 REVIVE and PACIFIC PV studies, including durability, cancer surveillance and adverse-event outcomes.
PN-943 IDEAL topline results and the timing and design of Janssen’s PN-235 Phase 2 studies.
Actual cash-burn rate, remaining runway and the timing and terms of future financing.
Janssen’s continued commitment, milestone achievement, cost-sharing obligations, royalty economics and any potential termination or amendment of the collaboration.
Outstanding obligations to Zealand and the effect of the arbitration resolution on future rusfertide economics.
Potential dilution from additional equity offerings, outstanding options, warrants, restricted stock units and performance stock units.