Proteon logo     Print Page | Close Window

SEC Filings

S-1/A
PROTEON THERAPEUTICS INC filed this Form S-1/A on 10/07/2014
Entire Document
 

Use these links to rapidly review the document
TABLE OF CONTENTS
Proteon Therapeutics, Inc.

Table of Contents

As filed with the Securities and Exchange Commission on October 7, 2014.

Registration No. 333-198777


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



Proteon Therapeutics, Inc.
(Exact name of Registrant as specified in its charter)



Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  2836
(Primary Standard Industrial
Classification Code Number)
  20-4580525
(I.R.S. Employer
Identification Number)



200 West Street
Waltham, MA 02451
(781) 890-0102
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Timothy P. Noyes
Chief Executive Officer
Proteon Therapeutics, Inc.
200 West Street
Waltham, MA 02451
(781) 890-0102 x1021
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Please send copies of all communications to:

Julio E. Vega, Esq.
William S. Perkins, Esq.
Bingham McCutchen LLP
One Federal Street
Boston, MA 02110
(617) 951-8000

 

Patrick O'Brien, Esq.
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-3600
(617) 951-7527

          Approximate date of commencement of the proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities to be Registered
  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(3)

 

Common Stock, $0.001 par value per share

  $75,670,000   $9,664

 

(1)
Includes additional shares of common stock that the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.

(3)
Of this amount, $8,888 was previously paid in connection with the initial filing of the Registration Statement on September 16, 2014.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED OCTOBER 7, 2014

PRELIMINARY PROSPECTUS


GRAPHIC

4,700,000 Shares

Common Stock

$            per share


This is the initial public offering of Proteon Therapeutics, Inc. We are offering 4,700,000 shares of our common stock. Prior to this offering, there has been no public market for our common stock. We estimate that the initial public offering price of our common stock will be between $12.00 and $14.00 per share.

We intend to apply to have our common stock listed on The NASDAQ Global Market under the symbol "PRTO."

We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.


Investing in our common stock involves risks. See "Risk Factors" beginning on page 12.


 
  Per Share
  Total
 

Initial public offering price

  $     $    

Underwriting discount and commissions(1)

  $     $    

Proceeds, before expenses, to us

  $     $    

(1)
We have agreed to reimburse the underwriters for certain expenses. See "Underwriting."

We have granted the underwriters a 30-day option to purchase up to a total of 705,000 additional shares of common stock on the same terms and conditions set forth above.

The underwriters expect to deliver the shares of common stock to purchasers on                        , 2014.

Certain of our existing stockholders and their affiliated entities, including holders of more than 5% of our common stock, have indicated an interest in purchasing an aggregate of approximately $30.4 million in shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these existing stockholders and any of these existing stockholders could determine to purchase more, less or no shares in this offering.


Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


Stifel   JMP Securities

Baird

 

Oppenheimer & Co.

   

The date of this prospectus is                        , 2014


Table of Contents


TABLE OF CONTENTS



        Unless the context requires otherwise, references in this prospectus to "Proteon," "the Company," "we," "us" and "our" refer to Proteon Therapeutics, Inc.

        In this prospectus, we refer to our subsidiary Proteon Therapeutics Limited as "Proteon UK."

        You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus, or of any sale of our common stock.

        Through and including                        , 2014 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

        For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.

i


Table of Contents

 


PROSPECTUS SUMMARY

        This summary highlights information contained elsewhere in this prospectus and does not contain all the information that you should consider in making your investment decision. You should read the entire prospectus, including our financial statements and related notes and the information set forth in the sections titled "Risk Factors," "Special Note Regarding Forward-Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, we use the terms "Proteon," "our company," "we," "us" and "our" in this prospectus to refer to Proteon Therapeutics, Inc.

Company Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease. Our product candidate, PRT-201, is a recombinant human elastase that we are developing to reduce vascular access failure in patients with chronic kidney disease undergoing or preparing for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe the data from our completed Phase 2 trial of PRT-201 in patients undergoing creation of an arteriovenous fistula, or AVF, support that a one-time, local application of PRT-201 during AVF surgical placement reduces AVF failure, thereby improving patient outcomes and reducing the burden on patients and the healthcare system. We are not aware of any approved preventative treatments to reduce the failure rate of AVFs.

        In May 2014, following the results from our Phase 2 trial and to fund our first Phase 3 trial, we closed on the $25.0 million first tranche of a $45.0 million total financing. The financing was led by Abingworth, Deerfield and Pharmstandard and included investments from our existing venture investors. We initiated the first of two Phase 3 trials for PRT-201 in radiocephalic AVFs, our initial indication, in the third quarter of 2014 and expect to initiate the second Phase 3 trial in the first half of 2015. PRT-201 has received fast track designation which is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need, from the United States Food and Drug Administration, or FDA, and orphan drug designation in the United States and European Union, for hemodialysis vascular access indications.

        We retain worldwide commercial rights to PRT-201. If approved by regulatory authorities, we intend to commercialize this product in the United States ourselves with a specialty hospital sales force, focused primarily on vascular surgeons, and intend to seek one or more collaborators to commercialize the product in additional markets. Our patents include claims covering formulations, methods of manufacturing and uses of elastases, providing protection in the United States through mid 2029 and the European Union through 2028, and with potential extension through 2032 in the United States and the European Union.

Established Medical Need

        The need to improve vascular access outcomes is well established in the hemodialysis community. A 2014 publication estimated the total cost of managing hemodialysis vascular access dysfunction in the United States to be approximately $2.9 billion annually. AVFs are the gold standard of vascular access for hemodialysis, as they are associated with fewer complications and reduced rates of hospitalization. However AVFs have a greater than 50% failure rate in their first year after surgical placement, resulting in frequent surgical or interventional procedures and a high rate of abandonment, leading to increased morbidity, mortality and costs of care.

        We estimate there are approximately 130,000 AVFs created in the United States annually. In an AVF procedure a surgeon transects a vein and sutures it to the side of a nearby artery, typically in the arm. There are a limited number of potential artery-vein combinations in the arm that can be used by surgeons to create an AVF. The medical community endorses radiocephalic AVFs, in which the cephalic vein is sutured to the radial artery in the wrist, as the optimal form of vascular access and the recommended first

 

1


Table of Contents

choice for new hemodialysis patients. A radiocephalic AVF as compared to other forms of vascular access preserves the potential future use of other access further up in the arm, is simpler to create and is less likely to result in serious complications, including heart failure, central stenosis, which is the narrowing of blood vessels in shoulder or chest, and reduced blood flow to the hand. Unfortunately, radiocephalic AVFs suffer from high failure rates, with up to 70% failing within 12 months after their surgical placement. We estimate approximately 40% of all AVF placements are radiocephalic.

        AVF failure can usually be restored via an intervention such as balloon angioplasty, which is dilation of a blood vessel with a balloon, or a surgical revision. However, these procedures are costly, invasive, painful, and associated with a number of complications and often need to be repeated. AVF patients in the United States on average require greater than 1.5 procedures per year. Procedures to restore function typically cost Medicare between $5,000 and $13,000 per procedure. A recent publication indicates that maintaining a radiocephalic AVF can cost on average more than $17,000 in the first year after surgical placement.

PRT-201

        We demonstrated that PRT-201, a recombinant human elastase, generates fragments of elastin, a protein present in blood vessel walls. We believe the fragments of elastin inhibit formation of neointimal hyperplasia, which is the growth of tissue inside vessels that narrows AVFs and reduces blood flow. We believe that a one-time, local application of PRT-201 to the external surface of the vessels during AVF surgical placement can modify the injury response, or scarring, resulting from surgery and thereby reduce the severity of neointimal hyperplasia and AVF failure following surgery. During the AVF placement surgery, the surgeon administers drops of PRT-201 onto the surface of the artery and vein of the AVF for 10 minutes followed by a saline irrigation. We believe that, if our Phase 3 clinical program is successful, PRT-201 will potentially become the standard of care for patients with chronic kidney disease who are undergoing surgical placement of a radiocephalic AVF.

    Phase 2 AVF Trial Results

        In 2013, we completed a multicenter, randomized, double-blind, placebo-controlled Phase 2 trial of PRT-201, which treated 151 patients with chronic kidney disease undergoing surgical creation of a radiocephalic AVF (n=67) or brachiocephalic AVF (n=84), which is performed by suturing the brachial artery to the cephalic vein at the elbow. Of these 151 patients, 51 patients received placebo, 51 patients received a dose of 10 micrograms of PRT-201, and 49 patients received a dose of 30 micrograms of PRT-201. The primary efficacy endpoint was AVF primary unassisted patency, defined as the time from surgical creation of the AVF to occurrence of a thrombosis or an intervention, such as angioplasty to restore or maintain patency, or function. Other efficacy endpoints included unassisted maturation, which is defined as increased vessel diameter and blood flow at the AVF without the need for an intervention such as angioplasty, average rate of procedures to restore or maintain AVF patency, secondary patency, which is defined as abandonment of the AVF and the need for creation of a new vascular access, use for hemodialysis and hemodynamically significant stenosis, or narrowing of blood vessels.

    Primary Endpoint

        Both doses of PRT-201 showed a trend toward efficacy, although neither dose met the primary endpoint with statistical significance. Median patency, the time at which 50% of patients in a group lost primary unassisted patency, was 224 days in the placebo group and greater than 365 days in each of the PRT-201 treatment groups indicating that PRT-201 prolonged primary unassisted patency. The risk of primary unassisted patency loss was reduced by 31% for the 10 microgram dose group and by 33% for the 30 microgram dose group versus placebo.

 

2


Table of Contents

        An analysis of the primary endpoint data revealed an uneven distribution in primary unassisted patency loss events due to central stenosis, which occur remote from the site of an AVF. Central stenoses commonly exist prior to AVF placement and are unmasked following placement of brachiocephalic AVFs, which have higher blood flow than radiocephalic AVFs. These stenoses are unrelated to treatment with PRT-201. To correct for this uneven distribution, we conducted a non-prespecified analysis of the primary endpoint that excluded patency loss events due to central stenoses. In that analysis, the risk of primary unassisted patency loss was reduced by 31% for the 10 microgram dose group and by 48% for the 30 microgram dose group versus placebo. The comparison of the 30 microgram dose versus placebo was significant from a statistical point of view.

        The benefit of PRT-201 on primary unassisted patency was most pronounced in the subset of patients undergoing placement of a radiocephalic AVF. Recent publications indicate that radiocephalic AVFs suffer from higher rates of patency loss and maturation failure, with up to 70% of AVFs in the wrist being subject to patency loss within 12 months after their surgical placement. The subset analysis of this endpoint was not prespecified. The risk of primary unassisted patency loss was reduced by 41% for the 10 microgram dose group and by 63% for the 30 microgram dose group versus placebo. Median patency was 125 days in the placebo group and 377 days in the 30 microgram group (in some cases the 12 month follow up occured after day 365 due to patient schedules), indicating an improvement in primary unassisted patency that was significant from a statistical point of view.

    Secondary Endpoints

        In one of our prespecified secondary endpoints, unassisted maturation, which is defined as adequate vessel diameter and blood flow without the need for an intervention such as angioplasty, PRT-201 showed a significant benefit from a statistical point of view at three months in the 30 microgram dose using the two commonly accepted measures of maturation, namely, the Robbin criteria and the Kidney Disease Outcomes Quality Initiative, or KDOQI, criteria.

        The effect of PRT-201 on maturation was more pronounced in the subset of patients who underwent creation of a radiocephalic AVF. For the 30 microgram dose of PRT-201, unassisted maturation of the radiocephalic AVFs, a prespecified analysis, showed an increase in the percentage of patients with mature AVFs compared with placebo using the Robbin criteria (93% versus 47%) which is significant from a statistical point of view and a trend toward improvement using the KDOQI criteria (57% versus 24%).

    Safety and Tolerability

        In the trial, patients treated with PRT-201 reported adverse events comparable to placebo. These events were consistent with the medical events experienced by chronic kidney disease patients undergoing AVF placement surgery. The most common adverse events were AVF incision pain, venous stenosis, AVF thrombosis, steal syndrome and hypoesthesia. Serious adverse events, or SAEs, reported by the investigator as possibly drug-related occurred in two 10 microgram PRT-201 patients, both AVF thrombosis, and two 30 microgram patients (one chest pain and one swelling at the surgical incision). There were no SAEs reported by the investigator as possibly drug-related in the placebo group. There was one SAE reported by the investigator to be drug-related in the 10 microgram PRT-201 group, AVF maturation failure, and there were none in the other treatment groups.

    Phase 3 Trial Design

        In April 2013, we held an end of Phase 2 meeting with the FDA during which we confirmed elements of our Phase 3 development plan, including the primary endpoint. We plan to perform two Phase 3 trials of PRT-201 using a 30 microgram dose, enrolling patients undergoing surgical placement of a radiocephalic AVF. In our Phase 2 trial, PRT-201 showed the greatest benefit in radiocephalic AVFs.

 

3


Table of Contents

 

        The Phase 3 trials will use the same primary endpoint, primary unassisted patency over 12 months, used in our Phase 2 trial. In our end of Phase 2 meeting with the FDA, the FDA agreed that primary unassisted patency could be used as the primary endpoint. Our secondary endpoint, secondary patency over 12 months, and tertiary endpoints, unassisted maturation, use for hemodialysis and average procedure rates, in our Phase 3 trials were all endpoints in our Phase 2 trial.

        We began enrolling patients in our first 300 patient Phase 3 clinical trial in the third quarter of 2014, and anticipate that results will be available in the first quarter of 2017. This Phase 3 clinical trial includes two groups, one receiving PRT-201 (n=200) and the other receiving placebo (n=100). We expect to initiate the second, substantially similar, Phase 3 clinical trial in the first half of 2015. If the results of the first Phase 3 trial are sufficiently compelling, we intend to meet with the FDA to discuss the possibility of submitting a Biologics License Application, or BLA, supported by the single Phase 3 trial and may decide to submit a BLA to the FDA prior to completing the second Phase 3 trial.

Additional PRT-201 Indications

        We believe that PRT-201 has potential benefits for hemodialysis patients undergoing other types of vascular access procedures. In 2013, we completed a successful Phase 1/2 trial in patients undergoing surgical placement of an arteriovenous graft, or AVG, which is a synthetic tube a surgeon uses to connect a vein and an artery. We may develop PRT-201 for additional hemodialysis indications including AVGs or brachiocephalic AVFs.

        We believe PRT-201 also has the potential to treat a number of renal and vascular diseases for which therapeutic options are limited. We are currently enrolling patients with symptomatic peripheral artery disease, or PAD, in a Phase 1 dose-escalation trial in which patients are treated with PRT-201 via a drug delivery catheter following balloon angioplasty.

Commercial Opportunity

        We estimate approximately 130,000 AVFs are created in the United States annually, of which 40% are radiocephalic. We believe that the number of radiocephalic AVFs created annually may rise significantly if PRT-201 gains FDA approval, as this would allow surgeons to place radiocephalic AVFs in patients that they previously considered at an unacceptably high risk of AVF failure.

        If approved, PRT-201 will be administered primarily by vascular surgeons, who we believe are acutely aware of the clinical need and are receptive to new therapies. We believe PRT-201 will be reimbursed appropriately as costs related to AVF surgical placement, which is typically performed in the hospital outpatient setting, are not included in the end stage renal disease, or ESRD, bundle, the single bundled payment from Medicare for a number of the costs of hemodialysis treatments, medications, labs and supplies for patients with end stage renal disease. We believe that PRT-201 adoption will be supported by key stakeholders, including referring nephrologists, patient advocacy groups, large dialysis organizations and payors. We plan to target our marketing and sales efforts to vascular surgeons who create AVFs. There are approximately 2,800 vascular surgeons in the United States. We believe a specialty hospital sales force of approximately 75-100 representatives will enable us to call on the approximately 1,300 hospitals that account for more than 90% of the AVF surgical placements performed in the United States annually.

Our Strengths

        We believe our company and PRT-201 possess the following attributes that increase the likelihood that we will be successful in developing and commercializing PRT-201:

    Entering Phase 3 trials for radiocephalic AVF placement.  We are conducting our first Phase 3 clinical trial and plan to conduct our second Phase 3 clinical trial in radiocephalic AVFs using a 30

 

4


Table of Contents

      microgram dose of PRT-201, the population and dose in which, in a non-prespecified analysis, we observed an improvement in primary unassisted patency with PRT-201 in our Phase 2 trial.

    Phase 3 endpoints same as our Phase 2 trial.  The primary endpoint in our Phase 3 trials, primary unassisted patency, will be the same as that used in our Phase 2 trial. In April 2013, we held an end of Phase 2 meeting with the FDA during which we confirmed elements of our Phase 3 development plan including the primary endpoint.
    Safety profile supports approval.  Based on results from our clinical trials and preclinical studies, we believe PRT-201, which is administered once and only acts locally, has demonstrated a safety profile that will support approval if our planned Phase 3 clinical program is successful. At our end of Phase 2 meeting with the FDA, we confirmed that we do not need to conduct any additional preclinical studies to support a BLA filing.
    Unmet medical need.  A 2014 publication estimated the total cost of managing hemodialysis vascular access dysfunction in the United States to be approximately $2.9 billion annually. We are not aware of any approved preventative treatments to reduce the AVF failure rate. PRT-201 has received fast track designation from the FDA, which is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need.
    Substantial and readily-addressable market opportunity.  We estimate a sales force of approximately 75-100 representatives will enable us to call on the approximately 1,300 hospitals that account for more than 90% of the AVF surgical placements performed in the United States annually. We believe PRT-201 will be reimbursed adequately as costs related to AVF surgical placement, which is typically performed in the hospital outpatient setting, are not included in the ESRD bundle.
    Experienced team.  Both our Chief Executive Officer and Chief Medical Officer were senior executives at GelTex, a biopharmaceutical company, where they played leading roles in the development and commercialization of Renagel, a treatment for hemodialysis patients that led to Genzyme's acquisition of GelTex for more than $1 billion.

Our Strategy

        Our strategy is to develop and commercialize PRT-201 for patients suffering from renal and vascular diseases, beginning with patients undergoing surgical creation of a radiocephalic AVF. Key elements of our strategy include our plans to:

    complete clinical development of PRT-201 and seek regulatory approval in its lead indication in the United States;
    commercialize PRT-201 directly in the United States;
    undertake clinical development of PRT-201 in Europe and establish partnerships for commercialization of PRT-201 in all or parts of Europe;
    pursue additional indications for PRT-201;
    establish partnerships for development and commercialization of PRT-201 in Japan and other Asian countries; and
    in-license or acquire additional product opportunities.

Risks Associated with Our Business

        Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others, the following:

    we have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future;
    we will require substantial additional financing to achieve our goals, and failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations;

 

5


Table of Contents

    we are substantially dependent on the success of our current product candidate, PRT-201, and cannot guarantee that this product candidate will successfully complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized;
    in our Phase 2 AVF trial, neither dose of PRT-201 met the primary endpoint with statistical significance;
    PRT-201 may not have favorable results in later clinical trials or receive regulatory approval;
    the denial or delay of regulatory approval of PRT-201 or any additional product candidates would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our results of operations;
    if we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate product revenues;
    even if PRT-201 or any additional product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption necessary for commercial success;
    PRT-201 or any additional product candidates, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion;
    we and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity; and
    if our efforts to protect our intellectual property related to PRT-201 or any additional product candidates are not adequate, we may not be able to compete effectively in our market.

Corporate Information

        Proteon was incorporated under the laws of the State of Delaware in March 2006, and at that time, acquired Proteon Therapeutics, LLC, our predecessor, which was formed in June 2001. Our executive offices are located at 200 West Street, Waltham, Massachusetts 02451, and our telephone number is (781) 890-0102. Our website address is www.ProteonTherapeutics.com. The information contained on, or accessible through, our website does not constitute part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.


Implications of Being an Emerging Growth Company

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the "JOBS Act," and references in this prospectus to "emerging growth company" shall have the meaning ascribed to it in the JOBS Act.

        As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

    reduced disclosure about our executive compensation arrangements;
    exemption from the non-binding shareholder advisory votes on executive compensation or golden parachute arrangements;
    exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and

 

6


Table of Contents

    reduced disclosure of financial information in this prospectus, such as being permitted to include only two years of audited financial information and two years of selected financial information in addition to any required unaudited interim financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure.

        We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

 

7


Table of Contents

 


THE OFFERING

Common stock we are offering

  4,700,000 shares

Common stock outstanding after giving effect to this offering

 

14,045,374 shares

Option to purchase additional shares

 

The underwriters have a 30-day option to purchase a total of 705,000 additional shares of common stock.

Use of proceeds

 

We estimate that our net proceeds from this offering will be approximately $54.2 million, or approximately $62.7 million if the underwriters exercise their option to purchase additional shares in full, at an assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds of this offering to accelerate the commencement of our second Phase 3 clinical trial of PRT-201, to accelerate our chemistry and manufacturing controls activities, to fund additional research and development activities and for other general corporate purposes. See "Use of Proceeds."

Risk factors

 

See "Risk Factors" beginning on page 12 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NASDAQ Global Market Symbol

 

"PRTO"



        Certain of our existing stockholders and their affiliated entities, including holders of more than 5% of our common stock, have indicated an interest in purchasing an aggregate of approximately $30.4 million in shares of our common stock in this offering at the initial public offering price. Assuming an initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, these entities would purchase an aggregate of up to approximately 2,341,215 of the 4,700,000 shares in this offering based on these indications of interest. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these existing stockholders and any of these existing stockholders could determine to purchase, more, less or no shares in this offering.

        In this prospectus, unless otherwise indicated, the number of shares of common stock outstanding and the other information based thereon is based on 9,345,374 shares of common stock outstanding as of September 30, 2014 and does not reflect:

    1,133,052 shares of common stock issuable upon exercise of stock options outstanding as of September 30, 2014 at a weighted-average exercise price of $3.45 per share;
    659,806 shares of our common stock issuable upon exercise of warrants with a weighted-average exercise price of $4.60 per share that we expect to be exercised prior to the closing of this offering;
    1,156 shares of common stock reserved for issuance pursuant to future equity awards under our 2006 Equity Incentive Plan;
    704,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective immediately prior to effectiveness of this offering; and

 

8


Table of Contents

    140,500 shares of common stock reserved for future issuance under 2014 Employee Stock Purchase Plan, which will become effective upon the closing of this offering.

        Unless otherwise indicated, all information in this prospectus reflects or assumes the following:

    the amendment and restatement of our certificate of incorporation and bylaws, which will occur immediately prior to the closing of this offering;
    the conversion of all of our outstanding shares of our preferred stock into 9,103,815 shares of common stock, including the conversion of our Series D convertible preferred stock, assuming the full issuance of incremental shares upon its conversion based on the midpoint of the price range set forth on the cover page of this prospectus, which will occur automatically upon the closing of this offering. See "Capitalization—Series D Convertible Preferred Stock" for applicable conversion price adjustments;
    a one-for-15.87 reverse stock split of our common stock that we effected on October 6, 2014 prior to completion of this offering;
    no exercise of stock options on or after September 30, 2014; and
    no exercise by the underwriters of their option to purchase up to a total of 705,000 additional shares of common stock in this offering.

 

9


Table of Contents

 


SUMMARY FINANCIAL DATA

        The following summary financial data for the years ended December 31, 2012 and 2013 have been derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the six months ended June 30, 2013 and 2014 and the selected balance sheet data as of June 30, 2014 were derived from our unaudited financial statements appearing elsewhere in this prospectus. These unaudited financial statements have been prepared on a basis consistent with our financial statements and, in our opinion, contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read this data together with our audited financial statements and related notes included elsewhere in this prospectus and the information under the captions "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our historical results are not necessarily indicative of our future results, and our operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014 or any other interim periods or any future year or period.

 
  Proteon Therapeutics, Inc.  
 
  Years Ended
December 31,
  Six Months Ended
June 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands except share and per share data)
 

Operating expenses:

                         

Research and development

  $ 5,907   $ 3,994   $ 2,003   $ 2,785  

General and administrative

    2,089     3,128     1,417     1,656  

Acquired in-process research and development

                 
                   

Total operating expenses

    7,996     7,122     3,420     4,441  
                   

Loss from operations

    (7,996 )   (7,122 )   (3,420 )   (4,441 )

Other income (expense):

                         

Investment income

    20     4     3     3  

Interest expense

        (861 )       (857 )

Other income (expense)

    6     67     5     (99 )
                   

Total other income (expense)

    26     (790 )   8     (953 )
                   

Net loss

  $ (7,970 ) $ (7,912 ) $ (3,412 ) $ (5,394 )
                   
                   

Unrealized (loss) gain on available-for-sale investments

    (5 )   (1 )       (23 )
                   

Comprehensive loss

  $ (7,975 ) $ (7,913 ) $ (3,412 ) $ (5,417 )
                   
                   

Reconciliation of net loss to net loss attributable to common stockholders

                         

Net loss

  $ (7,970 ) $ (7,912 ) $ (3,412 ) $ (5,394 )

Accretion of redeemable convertible preferred stock to redemption value

    (6,133 )   (6,119 )   (3,039 )   (3,409 )

Extinguishment of Series B redeemable convertible preferred stock

                 
                   

Net loss attributable to common stockholders

  $ (14,103 ) $ (14,031 ) $ (6,451 ) $ (8,803 )
                   
                   

Net loss per share attributable to common stockholders—basic and diluted

  $ (61.16 ) $ (59.66 ) $ (27.97 ) $ (36.64 )
                   
                   

Weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted

    230,607     235,184     230,607     240,254  
                   
                   

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)

        $ (1.54 )       $ (0.66 )
                       
                       

Pro forma weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted (unaudited)

          4,565,620           6,763,218  
                       
                       

 

10


Table of Contents

 

 
  As of June 30, 2014  
 
  Actual   Pro Forma(2)   Pro Forma
As Adjusted(3)(4)(5)
 
 
  (unaudited)
(in thousands)

 

Balance Sheet Data:

                   

Cash, cash equivalents and available-for-sale investments

  $ 25,416   $ 25,416   $ 79,914  

Working capital

    19,915     19,915     75,325  

Total assets

    27,142     27,142     80,446  

Preferred stock

    123,904          

Common stock and additional paid in capital

    0     123,904     178,121  

Total stockholders' (deficit) equity

    (109,290 )   21,194     75,411  

(1)
See Note 2 within the notes to our financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per common share and pro forma basic and diluted net loss per common share.

(2)
Pro forma to reflect the conversion of all outstanding shares of our preferred stock into shares of common stock upon the closing of this offering and the extinguishment of the liability related to the Series D investors' purchase rights.

(3)
Pro forma as adjusted to reflect the pro forma adjustments described in (2) above, and to further reflect (i) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur immediately prior to the closing of this offering and (ii) the sale of shares of our common stock offered in this offering, assuming an initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(4)
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets, common stock and additional paid-in-capital and total stockholders' (deficit) equity by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(5)
A 1,000,000 share increase in the number of shares offered by us together with a concomitant $1.00 increase in the assumed initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase the pro forma as adjusted amount of each of cash and cash equivalents, and total stockholders' (deficit) equity by approximately $17.4 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

11


Table of Contents


RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our financial statements and related notes, before deciding whether to purchase shares of our common stock. If any of the following risks are realized, our business, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.


Risks Related to Our Financial Condition and Need for Additional Capital

We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future.

        We are a clinical-stage biotechnology company, and we have not commercialized any products or generated any revenues from the sale of products. We have incurred losses from operations in each year since our inception, and our net losses were $8.0 million and $7.9 million for the years ended December 31, 2012 and 2013, respectively, and $3.4 million and $5.4 million for the six months ended June 30, 2013 and 2014, respectively. As of June 30, 2014, we had an accumulated deficit of $109.3 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.

        We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and convertible debt. Our current product candidate, PRT-201, is in clinical trials and we have no commercial sales, which, together with our limited operating history, make it difficult to assess our future viability. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings or strategic collaborations. We have not completed pivotal clinical trials for any product candidate and it will be several years, if ever, before we have PRT-201 or any future product candidates ready for commercialization. Even if we obtain regulatory approval to market PRT-201 or any additional product candidates, our future revenues will depend upon the size of any markets in which PRT-201 or any additional product candidates have received approval, our ability to achieve sufficient market acceptance, reimbursement from third-party payors and other factors.

        We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

    continue our clinical development and seek regulatory approval of PRT-201, particularly with respect to its lead indication of radiocephalic AVFs;
    commercialize PRT-201 directly in the United States;
    undertake clinical development of PRT-201 in Europe and establish partnerships for commercialization of PRT-201 in all or parts of Europe;
    pursue additional indications for PRT-201 including clinical development of PRT-201 for brachiocephalic AVFs, patients requiring placement of an AVG and peripheral artery disease, or PAD;
    in-license or acquire additional product opportunities and make milestone or other payments under any in-license agreements;
    establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
    maintain, protect and expand our intellectual property portfolio;
    attract and retain skilled personnel;

12


Table of Contents

    create additional infrastructure to support our operations as a public company and our product development and planned future; and
    experience any delays or encounter issues with any of the above.

        The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, any commercialization efforts or other operations.

        Our operations have consumed substantial amounts of cash since inception. As of June 30, 2014, our cash, cash equivalents and investments were $25.4 million. Our research and development expenses were $5.9 million and $4.0 million for the fiscal years ended December 31, 2012 and December 31, 2013, respectively, and $2.0 million and $2.8 million for the six-months ended June 30, 2013 and June 30, 2014, respectively. We believe that we will continue to expend substantial resources for the foreseeable future developing PRT-201 and any additional product candidates. These expenditures will include costs associated with research and development, potentially acquiring new technologies, potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of PRT-201 or any additional product candidates.

        We began enrolling patients in our first Phase 3 clinical trial of PRT-201 during the third quarter of 2014 for patients undergoing placement of radiocephalic AVFs. Prior to completing enrollment in our first Phase 3 trial, we expect to initiate the second Phase 3 trial. Based on our current operating plan, and absent any future financings or strategic partnerships, we believe that the net proceeds we receive from this offering, and our existing cash and cash equivalents and investments will be sufficient to fund our projected operating expenses and capital expenditure requirements through the end of 2017, allowing us to obtain results from our first Phase 3 clinical trial of PRT-201 in radiocephalic AVFs. This period could be shortened if there are any significant increases beyond our expectations in spending on development programs or more rapid progress of development programs than anticipated. We do not expect our existing capital resources, including the net proceeds from this offering, to be sufficient to enable us to complete our second Phase 3 trial. Moreover, we do not expect to be able to initiate any other trials, including those for other indications of PRT-201, prior to receiving and reviewing data from our first Phase 3 clinical trial. Furthermore, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

        Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize PRT-201 or any additional product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, or at all. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than would otherwise be ideal and we may be required to relinquish rights to PRT-201 or any additional product candidates, or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

13


Table of Contents

        If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any approved products or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially adversely affect our business, financial condition and results of operations.

We have never generated any revenue from product sales and may never be profitable.

        As a company, we have never obtained regulatory approval for, or commercialized, any product candidate. Our ability to generate substantial revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize PRT-201 or any additional product candidates. We do not anticipate generating revenues from product sales for at least the next several years, if ever. If PRT-201 or any additional product candidates fail in clinical trials or do not gain regulatory approval, or if PRT-201 or any additional product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily on our success in:

    completing clinical development of PRT-201 for one or more indications and research and preclinical and clinical development of any additional product candidates;
    seeking and obtaining regulatory and marketing approvals for PRT-201 if and when we complete clinical trials;
    establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for PRT-201, if approved;
    launching and commercializing PRT-201 if we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales, marketing and distribution infrastructure;
    obtaining and maintaining adequate coverage and reimbursement from third-party payors for PRT-201;
    obtaining market acceptance of PRT-201 as a viable treatment option;
    addressing any competing technological and market developments;
    implementing additional internal systems and infrastructure, as needed;
    identifying and validating new product candidates;
    negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
    maintaining, protecting and expanding our portfolio of intellectual property rights, including patents and know-how;
    developing PRT-201 such that, if approved, it can be commercialized without infringing the intellectual property rights of third parties; and
    attracting, hiring and retaining qualified personnel.

        Even if PRT-201 or any additional product candidates that we may develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA, the European Medicines Agency, or EMA, or other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our

14


Table of Contents

business, diversify our product offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.


Risks Related to Clinical Development, Regulatory Review and Approval of Our Product

We are substantially dependent on the success of our current product candidate, PRT-201, and cannot guarantee that this product candidate will successfully complete Phase 3 clinical trials, receive regulatory approval or be successfully commercialized.

        We currently have no products approved for commercial distribution. We have invested substantially all of our efforts and financial resources in the development of our current product candidate, PRT-201. Our business depends entirely on the successful development and commercialization of PRT-201, in vascular access or additional indications, which may never occur. Our ability to generate revenues in the near term is substantially dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize PRT-201. We currently generate no revenues from sales of any products, and we may never be able to develop or commercialize a marketable product.

        PRT-201 will require additional clinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significant marketing efforts and further investment before we generate any revenues from product sales. We are not permitted to market or promote PRT-201 for any indication before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates. If we do not receive FDA approval for, and successfully commercialize, PRT-201, we will not be able to generate revenue from PRT-201 in the United States in the foreseeable future, or at all. Any significant delays in obtaining approval for and commercializing PRT-201 will have a substantial adverse impact on our business and financial condition.

        We have not previously submitted a BLA to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that PRT-201 or any additional product candidates will be successful in clinical trials or receive regulatory approval. In our Phase 2 clinical trial, our primary efficacy endpoint of primary unassisted patency did not show statistically significant benefit for the 30 microgram dose versus placebo with regard to primary unassisted patency. While statistical analyses of the subset of patients with radiocephalic AVFs suggested a clinically significant benefit over placebo for that patient subset, those analyses were not prespecified, and we cannot assure you that these results will be repeated in our Phase 3 trials. Following completion of the trial, we analyzed the data in a number of ways in addition to the analysis specified in the protocol for the Phase 2 clinical trial of PRT-201. For example, we analyzed the data from the subset of patients undergoing placement of a radiocephalic AVF. Analysis of data in a manner or from subsets that were not prespecified in the protocol is typically not sufficient to serve as the basis for regulatory approval and is generally not considered as reliable as analyses which were prespecified in the protocol. Even though our Phase 3 trials will enroll patients undergoing a surgical procedure to create a radiocephalic AVF (i.e., that subset of patients in which PRT-201 showed a greater benefit in our Phase 2 clinical trial), there are risks of failure inherent at any stage of product development, and we may not demonstrate efficacy with regard to the primary endpoint of our ongoing and planned Phase 3 clinical trials, or unexpected adverse events may appear. Further, PRT-201 or any additional product candidates, may not receive regulatory approval even if they are successful in clinical trials. If approved for marketing by applicable regulatory authorities, our ability to generate revenues from PRT-201 will depend on our ability to:

    create market demand for PRT-201 through our own marketing and sales organization, and any other arrangements to promote this product candidate we may otherwise establish;
    hire, train and deploy a specialty hospital sales force, focused primarily on vascular surgeons, to commercialize PRT-201 in the United States;

15


Table of Contents

    manufacture PRT-201 in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial demand at launch and thereafter and establish and maintain agreements with wholesalers, distributors and group purchasing organizations on commercially reasonable terms;
    create partnerships with third parties to promote and sell PRT-201 in any foreign markets where we receive marketing approval;
    maintain patent protection and regulatory exclusivity for PRT-201;
    launch commercial sales of PRT-201, whether alone or in collaboration with others;
    achieve appropriate reimbursement for PRT-201;
    effectively compete with other products; and
    maintain a continued acceptable safety profile of PRT-201 following launch.

        As we continue to develop PRT-201 for other indications, including AVG, brachiocephalic AVF and PAD, or additional product candidates, we will face similar risks and challenges.

Clinical development is a lengthy and expensive process with an uncertain outcome due to many factors. Because the results of early clinical trials are not necessarily predictive of future results, PRT-201 may not have favorable results in later clinical trials or receive regulatory approval.

        Clinical development is expensive, difficult to design and implement, takes many years to complete and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and PRT-201 is subject to the risks of failure inherent in drug and biological development, including failure to demonstrate efficacy in a pivotal clinical trial or in the patient population we intend to enroll, the occurrence of severe or medically or commercially unacceptable adverse events, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a drug and biological product is not approvable. Trends and results observed in earlier stage clinical trials, particularly trends and results observed through analysis of the data which was not prespecified in the protocol, may not be replicated in later stage clinical trials. For example, as is common with Phase 2 trials, we explored a number of endpoints and analyzed the data from our Phase 2 clinical trial of PRT-201 in a number of ways, some of which were not prespecified. Product candidates such as PRT-201 in Phase 3 clinical trials may fail to demonstrate sufficient efficacy despite having progressed through initial clinical trials, even if certain non-prespecified analyses of primary or secondary endpoints in those early trials showed trends toward efficacy or, in some analyses, statistical significance. Companies frequently suffer significant setbacks in late-stage clinical trials due to lack of efficacy, manufacturing or formulation changes or adverse safety profiles, even after earlier clinical trials have shown promising results. During the course of our clinical development, we modified our PRT-201 finished product formulation for our Phase 3 trials and commercial launch in order to facilitate ease of administration and fill and finish of vials at our 30 microgram dose. Our formulation changes could adversely affect results in our clinical trials, requiring us to make further formulation changes. Additional changes could cause us to delay or repeat clinical trials, and we could incur unexpected costs that would have an adverse effect on our business, operating results and prospects.

        The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. Proteon has limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable non-United States regulatory authorities may disagree and may not grant marketing approval of PRT-201 or any additional product candidates.

        In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures

16


Table of Contents

set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Any Phase 3 or other clinical trial that we may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market PRT-201 or any additional product candidate.

        Any delay or failure in our clinical trials would delay our obtaining, or make us unable to obtain, applicable regulatory approvals, which would prevent us from commercializing PRT-201 or any additional product candidates, generating revenues and achieving and sustaining profitability.

If clinical trials of PRT-201 or any additional product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable non-United States regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of PRT-201 or any additional product candidates.

        We are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable non-United States regulatory authorities, such as the EMA, impose similar restrictions. We may never receive such approvals. We must have completed extensive preclinical development and clinical trials to demonstrate the safety and efficacy of the product candidate in humans before we will be able to obtain these approvals. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.

        Any inability to successfully complete clinical development could result in additional costs to us and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if (1) we are required to conduct additional clinical trials or other testing of PRT-201 beyond the trials and testing that we contemplate, (2) we are unable to successfully complete clinical trials of PRT-201 or any additional product candidates or other testing, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable or (4) there are unacceptable safety concerns associated with PRT-201 or any additional product candidates, we, in addition to incurring additional costs, may:

    be delayed in obtaining marketing approval for PRT-201 or any additional product candidates;
    not obtain marketing approval at all;
    obtain approval for indications or patient populations that are not as broad as we intended or desired;
    obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
    be subject to additional post-marketing testing or other requirements; or
    be required to remove the product from the market after obtaining marketing approval.

        In general, the FDA requires two adequate and well-controlled clinical trials to demonstrate the effectiveness of a product candidate. If the results of our first Phase 3 clinical trial are sufficiently compelling, we intend to meet with the FDA to discuss the possibility of submitting a BLA supported by the single Phase 3 trial and may decide to submit a BLA to the FDA prior to completing the second Phase 3 trial. If we attempt to rely on a single Phase 3 trial to demonstrate the effectiveness of PRT-201, the usual demonstration of the statistical significance in the primary efficacy endpoint (p=0.05) is unlikely to be sufficient to obtain approval of PRT-201, and we would likely be required to demonstrate more robust statistical significance. Even with a robust p-value, the FDA may not consider the results of the single Phase 3 trial to be sufficient for BLA filing or approval, and may require that we conduct additional trials.

17


Table of Contents

We may be unable to obtain regulatory approval for PRT-201 or any additional product candidates under applicable regulatory requirements. The denial or delay of any approvals would prevent or delay commercialization and have a material adverse effect on our potential to generate revenue, our business and our results of operations.

        PRT-201 and any additional product candidates are subject to extensive governmental regulations relating to, among other things, research, clinical trials, approval, manufacturing, recordkeeping, labeling, storage, advertising, promotion, distribution, import, export and commercialization. In order to obtain regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. PRT-201 is still in development and is subject to the risks of failure inherent in drug or biologic development. We have not received approval to market any product candidate from regulatory authorities in any jurisdiction. Proteon has only limited experience in conducting and managing the clinical trials, and in submitting and supporting the applications necessary to gain marketing approvals, and we expect to rely on third-party clinical research organizations to assist us in this process. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. PRT-201 may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use. We may gain regulatory approval for PRT-201 or any additional product candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the product, or we may never obtain regulatory approval for PRT-201 or any additional product candidates in any jurisdiction.

        The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and foreign regulatory authorities also have substantial discretion in the drug and biologics approval process. The number and types of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions, and there may be varying interpretations of data obtained from preclinical studies or clinical trials, either of which may cause delays or limitations in the approval or the decision not to approve an application. Regulatory agencies can delay, limit or deny approval of a product candidate for many reasons, including:

    the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
    we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indications;
    the results of later-stage clinical trials may not meet the level of statistical or clinical significance required by the FDA or comparable foreign regulatory authorities for approval;
    the results of later-stage clinical trials may not confirm the positive results from earlier preclinical studies or clinical trials;
    we may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;
    the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

18


Table of Contents

    the data collected from clinical trials of PRT-201 or any additional product candidate may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of a BLA, or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;
    our manufacturing processes or facilities may not be adequate to support approval of our product candidates; or
    regulatory agencies may change their approval policies or adopt new regulations in a manner rendering our clinical data insufficient for approval.

        It is possible that neither PRT-201 nor any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or any future collaborators to commence product sales. Any delay in obtaining, or failure to obtain, required approvals would materially adversely affect our ability to generate revenue from the particular product candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.

We may face difficulty in enrolling patients for clinical trials.

        We may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of PRT-201 or any additional product candidates. We have never previously limited a trial to patients undergoing a surgical procedure to create a radiocephalic AVF, as we will do in our ongoing and planned Phase 3 trials. Identifying and qualifying patients to participate in clinical trials of PRT-201 or any additional product candidates are critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing product candidates. The enrollment timeline for radiocephalic AVF patients is lengthy and there are limited numbers of sites from which we can enroll pre-hemodialysis or hemodialysis patients. If patients are unwilling to participate in our trials because of negative publicity from adverse events or for other reasons, including competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed or prevented. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of the clinical trials altogether. We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. Patient enrollment is affected by factors including:

    severity of the disease under investigation;
    design of the trial protocol;
    size of the patient population;
    eligibility criteria for the trial in question;
    perceived risks and benefits of the product candidate under study;
    proximity and availability of clinical trial sites for prospective patients;
    availability of competing therapies and clinical trials;
    efforts to facilitate timely enrollment in clinical trials;
    patient referral practices of physicians; and
    ability to monitor patients adequately during and after treatment.

        We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business.

19


Table of Contents

If we experience any of a number of possible unforeseen events in connection with clinical trials of PRT-201 or any additional product candidates, potential marketing approval or commercialization of PRT-201 or any additional product candidates could be delayed or prevented.

        We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent marketing approval of PRT-201 or any additional product candidates, including:

    trials of PRT-201 or any additional product candidates may produce unfavorable or inconclusive results;
    we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
    our third party contractors, including those manufacturing PRT-201 or any additional product candidates or components for commercial use or ingredients thereof or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;
    regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
    we may have to suspend or terminate clinical trials of PRT-201 or any additional product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of a product candidate;
    regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their respective standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar biologic or biologic candidate;
    we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
    patient enrollment in these clinical trials may be slower than we anticipate and is limited to a select number of sites, which could cause significant delays given the prolonged enrollment period;
    participants may drop out of these clinical trials at a higher rate than we anticipate and we may not be able to obtain the follow up data for the 12 month period planned in our Phase 3 trials;
    patients who enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the clinical trial, increase the needed enrollment size for the clinical trial beyond the 300 proposed for each Phase 3 trial or may extend the clinical trial's duration;
    the FDA or comparable foreign regulatory authorities may disagree with our clinical trial design or our interpretation of data from preclinical studies and clinical trials;
    the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third party manufacturers with which we enter into agreements for clinical and commercial supplies;
    our finished product that has been manufactured for the PRT-201 Phase 3 trials may be inadequate, or the materials or manufactured product candidates necessary to conduct future clinical trials of PRT-201 or any additional product candidates may be insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply; and
    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval.

        Product development costs for us will increase if we experience delays in testing or pursuing marketing approvals and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of PRT-201 or any additional product candidates. We do not know whether any

20


Table of Contents

clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize PRT-201 or any additional product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize PRT-201 or any additional product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of marketing approval of PRT-201 or any additional product candidates.

Any product for which we obtain FDA approval will be subject to extensive ongoing regulatory requirements, and Proteon may be subject to penalties if it fails to comply with regulatory requirements or if it experiences unanticipated problems with its products, when and if any of them are approved.

        Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical research, labeling, advertising and promotional activities for such product, will be subject to continual requirements of, and review by, the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, current good manufacturing practices, or cGMP, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. We must also comply with requirements concerning advertising and promotion for PRT-201 or any additional product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs, including biologics, are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved.

        Even if regulatory approval of a product is granted, the approval will be subject to limitations on the indicated uses for which the product may be marketed and may be subject to other conditions of approval. We and our contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs. In addition, approval may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of previously unknown problems with any such products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

    restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;
    restrictions on such products' manufacturing processes;
    restrictions on the marketing of a product;
    restrictions on product distribution;
    requirements to conduct post-marketing clinical trials;
    untitled or Warning Letters;
    withdrawal of the products from the market;
    refusal to approve pending applications or supplements to approved applications that we submit;
    recall of products;
    fines, restitution or disgorgement of profits or revenue;
    suspension or withdrawal of regulatory approvals;
    refusal to permit the import or export of our products;
    product seizure;
    injunctions; or
    imposition of civil or criminal penalties.

        Accordingly, assuming we receive marketing approval for PRT-201 or any additional product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, post-marketing studies and quality control.

21


Table of Contents

PRT-201 may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of approved labeling, or result in significant negative consequences following any potential marketing approval.

        As with many pharmaceutical and biological products, treatment with PRT-201 or any additional product candidates may produce undesirable side effects or adverse reactions or events. These adverse events may occur despite our belief, based on our preclinical and clinical trials to date, that PRT-201 has a safety profile that will support approval if we successfully complete of our planned Phase 3 clinical program. For instance, PRT-201 shows a high degree of structural similarity with other human serine proteases, which are proteins that cut other proteins to activate, inactivate or degrade these other proteins, and it is theoretically possible that if anti-PRT-201 antibodies developed that they could cross-react with one or more of those other proteases because of the structural similarity, and prompt an adverse reaction. However, we have not seen any evidence of such cross-reactivity in our preclinical or clinical trials to date.

        Based on our Phase 2 trial, adverse side effects that could occur with treatment with PRT-201 include AVF surgical incision pain, venous stenosis, AVF thrombosis, steal syndrome and hypoesthesia. If any of these adverse events occur in rates or severity exceeding placebo and unacceptable to regulatory authorities, if anti-PRT-201 antibodies develop and are associated with cross-reactivity to other proteases, or unknown serious events emerge, our clinical trials could be suspended or terminated and the FDA, the EMA or other foreign regulatory authorities could order us to cease further development of, or deny approval of, PRT-201 or any additional product candidates for any or all targeted indications, or they could require limitations or onerous warnings on the product label. The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial. If we elect or are required to delay, suspend or terminate any clinical trial of PRT-201 or any additional product candidates, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly.

We may not be able to maintain orphan drug designation or obtain or maintain orphan drug exclusivity for PRT-201.

        We have obtained orphan drug designation from the FDA for PRT-201. In the United States, under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States.

        Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

        Even if we obtain orphan drug exclusivity for PRT-201, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. Even after an orphan product is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

        Because we have limited financial and managerial resources, we have focused on developing one product candidate, PRT-201, and have focused on developing this product candidate for specific indications that we identify as most likely to succeed, in terms of both its regulatory approval and commercialization. As such, we are currently primarily focused on the development of PRT-201 for vascular access, and our Phase 3 trials will be limited to the application of PRT-201 in radiocephalic AVFs.

22


Table of Contents

In the future we intend to pursue additional indications such as the application of PRT-201 in brachiocephalic AVF placement and/or patients undergoing placement of an AVG. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

Even if we obtain and maintain approval for PRT-201 or additional product candidates from the FDA, we may never obtain approval for PRT-201 or additional product candidates outside of the United States, which would limit our market opportunities and adversely affect our business.

        Even if we obtain approval of a product candidate in the United States by the FDA, such approval does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of PRT-201 or any additional product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products, if approved, is also subject to approval.

        Based on additional data including the data from our Phase 3 clinical trials and assuming sufficient funds become available, we plan to commence a clinical trial of PRT-201 in Europe for patients undergoing placement of radiocephalic AVFs. Prior to enrolling our first patient in Europe, we plan to formally seek guidance from the EMA regarding its requirements for regulatory approval. We expect results from this trial to be available two to three years after the first patient is enrolled. If results of this European trial successfully meet its primary endpoint and depending on the guidance obtained from the EMA, we would expect to submit a Marketing Authorization Application, or MAA, following our receipt of the trial results. Obtaining an approval is a lengthy and expensive process and the EMA has its own procedures for approval of product candidates. Even if a product candidate is approved, the EMA may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of product candidates with which we must comply prior to marketing in those countries. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of PRT-201 or any additional product candidates in certain countries.

If we are found in violation of federal or state "fraud and abuse" laws or other healthcare laws and regulations, we may be required to pay a penalty and/or be suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial condition and results of operation.

        We may also be subject to various federal and state laws pertaining to healthcare "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription

23


Table of Contents

drug or biologic manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug or biologic. Due to the breadth of the statutory provisions, it is possible that our practices might be challenged under anti-kickback or other fraud and abuse laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the recently enacted Patient Protection and Affordable Care Act, or ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment, to government third-party payors (including Medicare and Medicaid) claims for reimbursed drugs, or biologics or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws. Violations of fraud and abuse laws are punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid) and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies.

        Given the significant penalties and fines that can be imposed on companies and individuals if convicted, allegations of violations often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. In addition, private individuals have the ability to bring similar actions under the False Claims Act. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Further, an increasing number of state laws require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities.

        Similar rigid restrictions are imposed on the promotion and marketing of medicinal products in the European Union and other countries. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we are not directly responsible for the promotion and marketing of our products, inappropriate activity by our international distribution partners can have adverse implications for us.

We may not be able to comply with requirements of foreign jurisdictions in conducting trials outside of the United States.

        To date, we have not conducted any clinical trials outside of the United States. Our ability to successfully initiate, enroll and complete a clinical trial in any foreign country, should we attempt to do so, is subject to numerous risks unique to conducting business in foreign countries, including:

    difficulty in establishing or managing relationships with contract research organizations, or CROs, and physicians;
    different standards for the conduct of clinical trials;
    our inability to locate qualified local consultants, physicians and partners;
    the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment; and

24


Table of Contents

    the acceptability of data obtained from trials conducted outside the United States to the FDA in support of a BLA.


Risks Related to Commercialization of Our Product

If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, if they are approved, we may be unable to generate product revenues.

        We currently do not have a commercial infrastructure for the marketing, sale and distribution of biological products. If approved, in order to commercialize our products, we must build our marketing, sales and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. If PRT-201 is approved by the FDA, we plan to build a specialty hospital sales force in the United States of approximately 75-100 representatives, supported by reimbursement specialists and a medical affairs team. We may seek to further penetrate the U.S. market in the future by expanding our sales force or through collaborations with other pharmaceutical or biotechnology companies or third party manufacturing and sales organizations. If approved for marketing outside the United States, we may commercialize outside the United States with our own specialty hospital sales force and/or with a commercial partner.

        As a company we have no prior experience in the marketing, sale and distribution of biological products, and there are significant risks involved in the building and managing of a commercial infrastructure. The establishment and development of our own sales force and related compliance plans to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We, or our future collaborators, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel. In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize PRT-201 or any additional product candidates, which would limit our ability to generate product revenues. Our ability to generate product revenues would be impaired by:

    our inability to recruit, train, manage and retain adequate numbers of effective sales and marketing personnel;
    the inability of sales personnel to obtain access to vascular surgeons or persuade adequate numbers of vascular surgeons to use PRT-201 or any additional product candidates;
    our inability to effectively oversee a geographically dispersed sales and marketing team; and
    unforeseen costs and expenses associated with creating an independent sales and marketing organization.

        Although our current plan is to hire most of our sales and marketing personnel only if PRT-201 is approved by the FDA, we will incur expenses prior to product launch in recruiting this sales force and developing a marketing and sales infrastructure. If the commercial launch of PRT-201 is delayed as a result of FDA requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of PRT-201. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing PRT-201 or any additional product candidates.

        In the event we are unable to hire a sales force or collaborate with a third-party marketing and sales organization to commercialize any approved product candidates outside the United States, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts.

25


Table of Contents

Even if PRT-201 or any additional product candidates receive regulatory approval, they may fail to achieve the broad degree of physician adoption and use necessary for commercial success.

        The commercial success of PRT-201 and any product candidates that we may develop will depend upon the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community. Even if the FDA approves PRT-201 or one or more of our future product candidates, physicians and patients may not accept and use them. Acceptance and use of any of our products will depend upon a number of factors including:

    perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of our products;
    cost-effectiveness of our products relative to any competing products;
    availability of coverage and reimbursement for our products from government or other healthcare payors; and
    effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.

        Because we expect sales of PRT-201, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of PRT-201 to gain market acceptance would harm our business and would require us to seek additional financing.

PRT-201 or any additional product candidates, if approved, may face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration and expansion.

        The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, medical device companies, academic institutions, governmental agencies and public and private research institutions. While we believe that PRT-201's features, safety and efficacy, will differentiate it from any competitive products that may become available in the future, we expect to face potential competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and biotechnology companies and medical device companies, as well as from academic institutions and governmental agencies and public and private research institutions that may develop potentially competitive products or technologies.

        Some of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

        The key competitive factors affecting the success of PRT-201, if approved, are likely to be its efficacy, safety, convenience, price, and the availability of reimbursement from government and other third party payors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, more convenient or less expensive than any products that we may develop. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours.

        We are not aware of any therapeutic products approved in the United States or Europe for the prevention of vascular access failure. We are aware of other therapies in development with companies including Vascular Therapies and Celladon. PRT-201 could face competition from companies developing vascular access technologies, including BioConnect Systems, Caymus Medical, Phraxis, CreatiVasc, and TVA Medical. Other potential competition includes new synthetic grafts, including those that may be developed by companies that currently compete in the graft market, such as W.L. Gore, C.R. Bard and Maquet, as well as tissue engineered grafts, including those in development by Cytograft and Humacyte.

26


Table of Contents

Finally, PRT-201's commercial success could be affected by the development of technologies to improve the outcomes of interventions to restore patency, including stents, stent grafts and drug eluting balloons.

PRT-201 or any additional product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

        With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as "interchangeable" based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

        We believe that PRT-201 or any additional product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that the FDA will not consider PRT-201 or any additional product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval via their own traditional BLA, rather than via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

If the government or third-party payors fail to provide coverage and adequate coverage and payment rates for PRT-201 or any additional product candidates or if surgeons or hospitals choose not to use PRT-201, our revenue and prospects for profitability will be limited.

        In both domestic and foreign markets, sales of our future products will depend in part upon the availability of coverage and reimbursement from third-party payors. The majority of incident and prevalent hemodialysis patients have Medicare coverage and other third-party payors include other government health programs such as Medicaid, managed care providers, private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate. Accordingly, PRT-201 or any of our other product candidates, if approved, will face competition from other therapies and drugs for limited financial resources. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to the satisfaction of outpatient clinics, hospitals, other target customers and their third-party payors. Such studies might require us to commit a significant amount of management time and financial and other resources. Our future products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.

27


Table of Contents

        Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third-party coverage and reimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a negative effect on our business, results of operations, financial condition and prospects.


Risks Related to Dependence on Third Parties

We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.

        We currently have a relationship with only one supplier, Lonza AG, for the manufacturing of active pharmaceutical ingredient, or API, for PRT-201 for clinical testing purposes, and intend to continue to utilize Lonza as our sole or primary supplier in the future. We have used two companies, Jubilant HollisterStier and DSM Pharmaceuticals, to vial and make our PRT-201 finished product. We also expect to rely upon third parties to produce materials required for the commercial production of PRT-201 or any additional product candidates if we succeed in obtaining the necessary regulatory approvals.

        All entities involved in the preparation of drugs or biologics for clinical trials or commercial sale, including our existing contract manufacturers, are subject to extensive regulation. Ingredients of a finished therapeutic biologic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP and equivalent foreign standards. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of product candidate that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA's good laboratory practices, or GLPs, and cGMP regulations enforced by the FDA through its facilities inspection program. Any failure by our third-party manufacturers to comply with cGMP or failure to scale-up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner for the process validation required in connection with a BLA filing, could lead to a delay in, or failure to obtain, regulatory approval of PRT-201 or any additional product candidates. For example, on November 27, 2013, our third-party supplier of finished biological product, Jubilant HollisterStier, received a Warning Letter from the FDA alleging that the company was not complying with cGMPs. We received a letter from the FDA on February 13, 2014, stating that the Warning Letter does not impact the batch of finished product we intend to use for our Phase 3 clinical trials. However, this third party or other third parties could encounter similar difficulties that could impede our clinical trials or commercialization. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must also pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of PRT-201 or any additional product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities and quality systems do not pass a pre-approval plant inspection from the FDA or a comparable foreign authority, approval of our product candidate by the FDA or the equivalent approvals in other jurisdictions will not be granted until the regulatory authority is satisfied that the facility complies with applicable regulations.

28


Table of Contents

        Regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

        If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug or biologic product or revocation of a pre-existing approval. If any such event occurs, our business, financial condition and results of operations may be materially harmed.

We rely on third parties to conduct some or all aspects of our product manufacturing, protocol development, research, and preclinical and clinical testing, and these third parties may not perform satisfactorily.

        We do not currently, and do not expect in the future, to independently conduct all aspects of our product manufacturing, protocol development, research and monitoring and management of our clinical programs. PRT-201 API is produced by our contract manufacturer, Lonza. PRT-201 finished product is produced by our contract fill/finish provider, Jubilant HollisterStier. Release testing and stability for API and finished product is performed by PPD, Inc. We currently rely, and expect to continue to rely, on third parties with respect to these items. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that the manufacturing is conducted in accordance with regulatory requirements such as cGMPs. Our reliance on the third parties does not relieve us of our regulatory responsibilities.

        Any of these third parties may terminate their engagements with us under the terms of our agreements upon notice to us. If we need to enter into alternative arrangements, our product candidate development activities may be delayed. Our reliance on these third parties for research and development activities reduces our day-to-day control over these activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards and any applicable trial protocols. For example, for PRT-201 or any additional product candidates that we develop and commercialize on our own, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with its protocol and analyzed in accordance with its statistical analysis plan for the clinical trial.

        If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our protocols, we may be delayed in completing, or unable to complete, the clinical trials required to support future approval of PRT-201 or any additional product candidates.

        We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidate, PRT-201, for our clinical trials. There are a small number of suppliers for certain raw materials that we use to manufacture PRT-201. These suppliers may not sell these raw materials to our manufacturers at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although the API and the finished product for each of our Phase 3 trials has already been manufactured and is held in storage, we will need supply of finished product as part of the process validation and for any stability or other tests in connection with a BLA application and also to conduct additional clinical trials, for example for additional PRT-201 indications. Any significant delay in the supply of the ingredients thereof due to the need to replace a third-party manufacturer could considerably delay completion of our

29


Table of Contents

clinical trials, product testing and potential regulatory approval of PRT-201 or any additional product candidate as we believe that replacing Lonza as the manufacturer of our API would take one to two years. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidate, our ability to commercially launch and/or generate revenues from the sale of any approved product would be impaired. Reliance on third-party manufacturers entails exposure to risks to which we would not be subject if we manufactured the product candidate ourselves, including:

    failure to negotiate manufacturing agreements with third parties under commercially reasonable terms;
    reduced day-to-day control over the manufacturing process for our product candidates as a result of using third-party manufacturers for all aspects of manufacturing activities;
    reduced control over the protection of our trade secrets and know-how from misappropriation or inadvertent disclosure;
    termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that may be costly or damaging to us or result in delays in the development or commercialization of our product candidates; and
    disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.

        Any of these events could lead to delays in the development of PRT-201 or any additional product candidates, including delays in our clinical trials, or failure to obtain regulatory approval for our product candidates, or it could impact our ability to successfully commercialize PRT-201 or any additional product candidates. Some of these events could be the basis for FDA or other regulatory action, including warning letters, injunction, recall, seizure or total or partial suspension of production. Any of these events could have a material adverse effect on our business.

We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for, or commercialize, PRT-201 or any additional product candidates and our business could be substantially harmed.

        We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual day-to-day performance. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, and legal, regulatory and scientific standards and recognize that our reliance on the CROs does not relieve us of our regulatory responsibilities.

        We and our CROs are required to comply with the FDA's good clinical practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of PRT-201 or any additional product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

        Our CROs are not our employees, and we are therefore unable to monitor on a day-to-day basis whether or not they devote sufficient time and resources to our clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom

30


Table of Contents

they may also be conducting clinical trials or other product development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, PRT-201 or any additional product candidates. If any such event were to occur, our financial results and the commercial prospects for PRT-201 or any additional product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

        If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, a transition period may be required when a new CRO commences work. As a result, delays may occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

        We also rely on other third parties to store and distribute our products for the clinical trials that we conduct. Any performance failure on the part of our distributors could delay clinical development or marketing approval of PRT-201 or any additional product candidates or commercialization of our product, if approved, producing additional losses and depriving us of potential product revenue.

We may seek to form partnerships in the future with respect to PRT-201 or any additional product candidates, and we may not realize the benefits of such partnerships.

        We may form partnerships, create joint ventures or collaborations or enter into licensing arrangements with third parties for the development and commercialization of PRT-201 or any additional product candidates. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. Moreover, we may not be successful in our efforts to establish a strategic partnership or other collaborative arrangement for any additional product candidates because the potential partner may consider that our research and development pipeline is insufficiently developed to justify a collaborative effort, or that PRT-201 or any additional product candidates and programs do not have the requisite potential to demonstrate safety and efficacy in the target population. Even if we are successful in establishing such a strategic partnership or collaboration, we cannot be certain that, following such a strategic transaction or license, we will be able to progress the development and commercialization of the applicable product candidates as envisioned, or that we will achieve the revenues that would justify such transaction.


Risks Related to Our Intellectual Property

If our efforts to protect our intellectual property related to PRT-201 or any additional product candidates are not adequate, we may not be able to compete effectively in our market.

        We rely upon a combination of patents, patent applications, know-how and confidentiality agreements to protect the intellectual property related to our only product candidate, PRT-201, and will use a similar strategy to protect any additional product candidates. The patent position of biotechnology companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy

31


Table of Contents

regarding patentable subject matter or the scope of claims allowable in biotechnology patents. The patent applications that we own may fail to result in issued patents with claims that cover PRT-201 or any additional product candidates in the United States or in other countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and prior art that is not before the patent examiners, as well as prior art that is before the patent examiners, could be used by a third party to invalidate a patent or could be relied on to prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if these patents cover PRT-201 or any additional product candidates, third parties may challenge their validity, enforceability or scope, which may result in our patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately provide exclusivity for PRT-201 or any additional product candidates, prevent others from designing around our patents with similar products that are outside the scope of our patents, or prevent others from operating in jurisdictions in which we did not pursue patent protection. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

        If patent applications we hold with respect to PRT-201 or any additional product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for PRT-201 or any additional product candidates, it could dissuade companies from collaborating with us. We own 20 issued patents and own 26 pending patent applications, most of which cover aspects of PRT-201 or its use. We cannot offer any assurances about which, if any, of the pending patent applications will issue as patents, the breadth of any such patents or any of our currently issued patents, or whether any issued patents will be challenged by third parties or will be found invalid and unenforceable if challenged. Any successful challenge to these patent applications, or patents that may issue from them, or to currently issued patents owned by us, could deprive us of rights necessary for the successful commercialization of PRT-201 or any other product candidate that we may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file a patent application relating to any particular aspect of a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by these third parties, or by the USPTO itself, to determine who was the first to invent any of the subject matter covered by the patent claims of our patents and patent applications.

        In the United States, for patent applications filed prior to March 16, 2013, assuming the other requirements for patentability are met, the first to invent is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. Our currently pending patent applications are examined under the system in place before March 16, 2013. Third parties are allowed to submit prior art prior to the issuance of a patent by the USPTO, and may become involved in reexamination, inter partes review or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position with respect to third parties.

        In addition, patents have a limited lifespan. In most countries, the statutory term of a patent is 20 years from the earliest domestic priority date claimed. In the United States, for applications filed after June 7, 1995, the statutory term of a patent is 20 years from earliest non-provisional priority date claimed. Various extensions of patent protection may be available in particular countries; however, in all circumstances, the life of a patent, and the protection it affords, has a limited term. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. We expect to seek extensions of patent protection where these are available in any countries where we are prosecuting patents. Such possible extensions include those permitted under the Drug Price Competition and Patent Term Restoration Act of 1984 in the United States, which permits up to five years' extension of patent protection. The scope of protection available during an extension of a patent claiming a product is limited to the approved product itself for approved uses, and the scope of

32


Table of Contents

protection available during an extension of a patent claiming a method of using a product is limited to the uses claimed in the patent and approved for the product. The actual length of the extension will depend on the amount of patent term lost while the product was in clinical trials and while the BLA was under review by the FDA. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data, and then may be able to launch their product earlier than might otherwise be the case.

        Any loss of, or failure to obtain, patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of proprietary information.

        We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Nonetheless, despite these precautions, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our know-how may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

        Enforcing a claim that a third party illegally obtained and is using any of our know-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than United States courts to protect know-how. Misappropriation or unauthorized disclosure of our know-how could impair our competitive position and may have a material adverse effect on our business.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful, and which may lead to a finding that our patents are invalid and/or unenforceable.

        Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary to enforce or defend our intellectual property rights, to protect our know-how and/or to determine the validity and scope of our own intellectual property rights. Intellectual property litigation can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to litigate intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that our patents are invalid or unenforceable, and may refuse to stop the other party from using the technology at issue, including on the grounds that our patents are invalid or unenforceable or do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

33


Table of Contents

Third-party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.

        Our commercial success depends in part on our ability to develop, manufacture, market and sell PRT-201 or any additional product candidates, and to use proprietary technologies without infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation and adversarial proceedings, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, reexamination, and inter partes review proceedings before the USPTO and corresponding foreign patent offices. Third parties own patent rights both within and outside the U.S. in the fields in which we are developing and may develop PRT-201 or any additional product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that PRT-201 or any additional product candidates may be subject to claims of infringement of the patent rights of third parties.

        Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims that may cover PRT-201 or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of PRT-201 or any additional product candidates. We are aware of European Patent No. EP 1 012 307 B1, or the '307 patent, which claims, among other things, autocatalytically cleavable zymogenic precursor of a serine protease wherein a naturally occurring non-autocatalytic cleavage site is replaced in the zymogenic precursor by an autocatalytic cleavage site. The '307 patent expires on August 12, 2018. We currently estimate that the soonest that we will market PRT-201 is after this date.

        In some cases, we may have failed to identify relevant third-party patents or patent applications. For example, applications filed before November 29, 2000, and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published but, only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering PRT-201 or future product candidates could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover PRT-201 or any additional product candidates and/or the use, manufacture, sale and/or offer for sale of PRT-201 or any additional product candidates.

        If any valid and enforceable third-party patents were held by a court of competent jurisdiction to cover PRT-201 or any additional product candidates and/or their use, manufacture, sale, and/or offer for sale, the holders of any of these patents may be able to block our ability to develop and commercialize the applicable product candidate until the patent expired or unless we obtain a license. Licenses may not be available on acceptable terms, if at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

        Some of our early research of recombinant expression of PRT-201, but not the corresponding development work, utilized some technology under license from a third party. The third party may contend that we use the licensed technology for our commercial recombinant expression of PRT-201. Litigation may be necessary to defend against such a claim. Even if we are successful in defending against such a claim, litigation could result in substantial costs and be a distraction to management. If we are not successful in defending against such a claim, in addition to paying monetary damages, we may have to reconfigure the PRT-201 expression system, which would materially adversely affect our commercial development efforts.

34


Table of Contents

        Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to commercialize PRT-201 or any additional product candidates. We may face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of that third party. If we are found to have misappropriated a third party's trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop PRT-201 or any additional product candidates, and we may be required to pay damages.

        Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, any litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

        During the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs, or intellectual property could be diminished. Accordingly, the market price of our common stock may decline.

If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents which are sufficient to protect our current product candidate, PRT-201, or any additional product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects.

        We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use and any other inventions that are important to the development of our business. We also rely on know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

        Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our current patents and any future patents that may issue, preserve the confidentiality of our know-how and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how and in-licensing opportunities to develop, strengthen and maintain the proprietary position of PRT-201 or any additional product candidates.

        We cannot provide any assurances that any of our pending patent applications will mature into issued patents and, if they do, that such patents or our currently issued patents will include claims with a scope sufficient to protect PRT-201 or any additional product candidates or otherwise provide any competitive advantage. For example, one of our patents that may provide coverage for PRT-201 only covers particular formulations. As a result, this patent would not prevent third-party competitors from creating, making and marketing alternative formulations that fall outside the scope of our patent claims. There can be no assurance that any such alternative formulations will not be equally effective.

        Moreover, other parties have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. Such third party patent positions may limit or even eliminate our ability to obtain patent protection for certain inventions.

35


Table of Contents

        The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. United States patents and patent applications may also be subject to interference proceedings, ex parte reexamination, or inter partes review proceedings, and challenges in district court. Patents may be subjected to opposition, revocation proceedings, or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize PRT-201 or any additional product candidates.

        Furthermore, though a patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or know-how by consultants, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our sales.

        In addition, proceedings to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and when issued, covering PRT-201, or any additional product candidates, are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered PRT-201, or any additional product candidates, our financial position and results of operations would also be materially and adversely impacted.

        The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

    any of our patents or pending patent applications, if issued, will include claims having a scope sufficient to protect PRT-201 or any additional product candidates;
    any of our pending patent applications will issue as patents at all;
    we will be able to successfully commercialize product candidates, if approved, before our relevant patents expire;
    we were the first to make the inventions covered by each of our patents and pending patent applications;
    we were the first to file patent applications for these inventions;
    others will not develop similar or alternative technologies that do not infringe our patents;
    others will not use pre-existing technology to effectively compete against us;
    any of our patents will be found ultimately to be valid and enforceable;
    any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
    we will develop additional proprietary technologies or product candidates that are separately patentable; or
    that our commercial activities or products will not infringe the patents or proprietary rights of others.

36


Table of Contents

        We rely upon unpatented know-how to maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and our confidential know-how could become known to others through such breaches or violations. Further, our know-how could otherwise become known or be independently discovered by our competitors. Further, the term of confidentiality requirements for current and terminated agreements with some of our consultants, contract manufacturing or research organizations and other third parties is finite.

We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

        We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which such academic advisor is required to assign any inventions developed in connection with providing services to us, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to assign all such intellectual property to his or her employing institution.

        Litigation may be necessary to defend against these and other claims challenging inventorship or ownership of inventions. If we are unsuccessful in defending against any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

        The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

Issued patents covering PRT-201 or covering any additional product candidates could be found invalid or unenforceable if challenged in court.

        If we initiated legal proceedings against a third party to enforce a patent, if and when issued, covering PRT-201 or any additional product candidate, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include reexamination and inter partes review in the United States and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of

37


Table of Contents

our patents in such a way that they no longer cover, for example, PRT-201 or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, including prior art of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on the applicable product candidate. Such a loss of patent protection would have a material adverse impact on our business.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

        Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.

        Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

        The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

        Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts

38


Table of Contents

to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Some of our intellectual property may have been discovered through government funded programs and thus may be subject to federal regulations such as government "march-in" rights, certain reporting requirements, and a preference for United States industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-United States manufacturers.

        Some of our intellectual property rights may have been generated through the use of United States government funding and therefore are subject to certain federal regulations. For example, our patents relating to some therapeutic uses of PRT-201 and associated systems and kits that include a catheter, which we refer to as the "therapy family," arose from research funded by the United States government. As a result, the United States government has certain rights to this intellectual property pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These United States government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the United States government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations, also referred to as "march-in rights." The United States government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the United States government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the United States government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for United States manufacturers may limit our ability to contract with non-United States product manufacturers for products covered by such intellectual property.

        We currently do not plan to apply for additional United States government funding, but if we do, and we discover compounds or drug or biological candidates as a result of such funding, intellectual property rights to such discoveries may be subject to the applicable provisions of the Bayh-Dole Act.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent protection for PRT-201, our business may be materially harmed.

        Depending upon the timing, duration and specifics of the first FDA marketing approval of PRT-201 and, if applicable, any additional product candidates, a United States patent that we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit extension of patent protection for up to five years as compensation for patent term lost during product development and the FDA regulatory review process. During this period of extension, the scope of protection is limited to the approved product for approved uses (for patents claiming a product) and any use claimed by the patent and approved for the product (for patents claiming a method of using a product).

39


Table of Contents

        Although we plan on seeking patent term restoration for our products, it may not be granted if, for example, we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term restoration or the term of any such patent restoration is less than we request, our competitors may be able to enter the market and compete against us sooner than we anticipate, and our ability to generate revenues could be materially adversely affected.

Changes in United States patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

        As is the case with other biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation: the Leahy-Smith America Invents Act. The America Invents Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications will be prosecuted, provides expanded opportunities for post-grant administrative review of patents before the USPTO, and may also affect patent litigation. It is not yet clear what, if any, impact the America Invents Act will have on the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents that may issue from our patent applications, all of which could have a material adverse effect on our business and financial condition.

        In addition, recent United States Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012 in Mayo Collaborative Services v. Prometheus Laboratories, Inc., the Court held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drug doses were not patent-eligible subject matter. The decision appears to impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013 in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic DNA are not patent-eligible, but claims to complementary DNA molecules are patent-eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products is uncertain. However, on March 4, 2014, the USPTO issued a memorandum to patent examiners providing guidance for examining claims that recite laws of nature, natural phenomena or natural products under the Myriad and Prometheus decisions. This guidance did not limit the application of Myriad to DNA but, rather, applied the decision to other natural products.

        In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our current or future patents.

We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

        Our employees have been previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors, or at universities or academic medical centers. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities. Although we are not aware of any claims currently pending against us, we may be subject to

40


Table of Contents

claims that we or our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. We may in the future also be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person's obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we are unsuccessful in defending against such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize PRT-201 or any additional product candidates, which would materially adversely affect our commercial development efforts.

Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.

        The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to exercise or extract value from our intellectual property rights fully or at all. The following examples are illustrative:

    we might not have been the first to make the inventions covered by a patent or pending patent application that we own;
    we might not have been the first to file patent applications covering an invention;
    others may independently develop similar or alternative technologies without infringing our intellectual property rights;
    third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
    pending patent applications that we own may not lead to issued patents;
    patents that we own may not provide us with any competitive advantages, or may be held invalid or unenforceable;
    third parties may assert an ownership interest in our intellectual property;
    we may not develop or in-license additional proprietary technologies that are patentable; and
    the patents or proprietary rights of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business and results of operations.


Risks Related to Our Business and Industry

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our products, conduct our clinical trials and commercialize our product candidates.

        Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team, in particular, Timothy Noyes, our President and Chief Executive Officer, Steven Burke, our Senior Vice President and Chief Medical Officer, George Eldridge, our Senior Vice President, Chief Financial Officer, Treasurer and Secretary and Daniel Gottlieb, our Vice President, Marketing and Business Development, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

41


Table of Contents

        Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. We do not currently carry "key person" insurance on the lives of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy including, F. Nicholas Franano, our scientific founder. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.

        We are currently a small company with 11 full-time employees and one part-time employee as of September 30, 2014. In order to commercialize our potential products, we will need to increase our operations and expand our use of our third-party contractors. We plan to continue to build our compliance, financial and operating infrastructure to ensure the maintenance of a well-managed company including hiring additional staff within our regulatory and clinical groups after Phase 3 is complete. We intend to recruit an in-house commercial organization in the United States focused on promoting PRT-201, if it is approved. We currently do not have a sales and marketing capability and therefore intend to recruit a specialty hospital sales force of approximately 75-100 representatives in anticipation of PRT-201's approval. We estimate it will take three to six months to recruit this specialty hospital sales force. We will need to expand our employment base when we are in the full commercial stages of our current potential product's life cycle.

        Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our future financial performance and our ability to commercialize our potential products and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

    manage our clinical trials and the regulatory process effectively;
    manage the manufacturing of product candidates and potential products for clinical and commercial use;
    integrate current and additional management, administrative, financial and sales and marketing personnel;
    develop a marketing and sales infrastructure;
    hire new personnel necessary to effectively commercialize PRT-201 and any additional product candidates;
    develop our administrative, accounting and management information systems and controls; and
    hire and train additional qualified personnel.

        Product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

42


Table of Contents

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

        Upon completion of this offering, we will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

        These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.

        We face an inherent risk of product liability claims as a result of the clinical testing of PRT-201 or any additional product candidates. We will face an even greater risk if we commercially sell PRT-201 or any additional product candidate that we develop. We maintain primary product liability insurance and excess product liability insurance that cover our clinical trials, and we plan to maintain insurance against product liability lawsuits for commercial sale of our potential products. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of our potential products, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.

        For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs or biologics that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of PRT-201 or any additional product candidates. Regardless of the merits or eventual outcome, liability claims may result in:

    reduced resources of our management to pursue our business strategy;
    decreased demand for our product candidates or products that we may develop;
    injury to our reputation and significant negative media attention;
    withdrawal of clinical trial participants;
    termination of clinical trial sites or entire trial programs;
    initiation of investigations by regulators;
    product recalls, withdrawals or labeling, marketing or promotional restrictions;
    significant costs to defend resulting litigation;
    diversion of management and scientific resources from our business operations;
    substantial monetary awards to trial participants or patients;
    loss of revenue; and
    the inability to commercialize any products that we may develop.

43


Table of Contents

        We currently have a $5 million product liability insurance coverage in connection with our clinical trials and we will need to increase our insurance coverage if and when we begin selling PRT-201 or any additional product candidates if and when they receive marketing approval. However, the product liability insurance we will need to obtain in connection with the commercial sales of PRT-201 or any additional product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of PRT-201 or any additional product candidates if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

        Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers' compensation, products liability and directors' and officers' insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.

If we engage in acquisitions in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.

        We may attempt to acquire businesses, technologies, services, products or product candidates in the future that we believe are a strategic fit with our business. We have no present agreement regarding any material acquisitions. If we do undertake any acquisitions, however, the process of integrating an acquired business, technology, service, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management's attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition.

We currently have our API produced for us by a contract manufacturer exclusively in one manufacturing facility and if this or any future facility, any facility we use for storage of the finished product or our equipment were damaged or destroyed, our ability to continue to operate our business would be materially harmed.

        Our executive offices are located at 200 Waltham, Massachusetts, and our API is manufactured at Lonza's facility located at Visp, Switzerland. We expect that Lonza plans to utilize this facility in the future to support commercial production if our product candidate is approved. We have manufactured all our finished product for the planned Phase 3 clinical trials of PRT-201 and currently store the finished product in only one location. Extended delays in our Phase 3 clinical trials causing us to need to manufacture new clinical supply would cause a significant disruption in our operations and cause us to incur unexpected costs to manufacture new finished product. We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our operations. We do not carry insurance for natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. If the current manufacturing facility or any future facility, stored product or equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business would be materially harmed.

        If supply is interrupted, there could be a significant disruption in our clinical development and commercial supply. If the supply is interrupted after approval of the BLA, an alternative manufacturer

44


Table of Contents

would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and would likely result in a delay in our desired clinical and commercial timelines.

        These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of PRT-201 or any additional product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Our business and operations would suffer in the event of system failures.

        Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug and biologic development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of PRT-201 or any additional product candidates could be delayed.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

        We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and non-United States regulators, provide accurate information to the FDA and non-United States regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, and report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We intend to adopt a code of conduct prior to completion of this offering, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Recent federal legislation may increase the difficulty and cost for us to commercialize PRT-201 and may affect the prices we may obtain, and impair our ability to profitably sell PRT-201, if approved.

        In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for PRT-201, restrict or regulate post-approval activities and affect our ability to profitably sell PRT-201, if approved. Legislative and regulatory proposals have been made to expand

45


Table of Contents

post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, targets or interpretations will be changed, or what the impact of such changes on the marketing approvals of PRT-201, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

        In the United States, the pharmaceutical industry has been significantly affected by legislative initiatives. For example, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for drugs. Cost reduction initiatives and other provisions of this legislation could decrease the coverage of, or the reimbursement rate that we receive for, PRT-201, if approved, and could seriously harm our business. While the MMA applies only to reimbursement of drugs under the Medicare program, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from non-governmental payors.

        In March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 or, collectively, the Affordable Care Act, which substantially changes the way healthcare will be financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. Among the provisions of the Affordable Care Act of importance to our business, including, without limitation, our ability to commercialize, and the prices we may obtain for, PRT-201, if approved for sale, are the following:

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
    increases in the statutory minimum rebates a manufacturer must pay as a condition to having a drug available for coverage under the Medicaid program;
    expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, and the addition of new government investigative powers and enhanced penalties for non-compliance;
    extension of a manufacturer's Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
    expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new eligibility categories for certain individuals with income at or below 133% of the federal poverty level beginning in 2014, thereby potentially increasing a manufacturer's Medicaid rebate liability;
    expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
    new requirements under the federal Open Payments program and its implementing regulations;
    a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
    a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

        In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The full impact on our business of the Affordable Care

46


Table of Contents

Act and other new laws is uncertain but may result in additional reductions in Medicare and other healthcare funding. Nor is it clear whether other legislative changes will be adopted, if any, or how such changes would affect the demand for PRT-201, if approved.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

        In international markets, reimbursement and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. There can be no assurance that our products will be considered cost-effective by third-party payors, that an adequate level of reimbursement will be available or that the third-party payors' reimbursement policies will not adversely affect our ability to sell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.


Risks Related to Our Common Stock and This Offering

We are an "emerging growth company" and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

        We are an "emerging growth company" as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including: not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

        We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

        We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

47


Table of Contents

        Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company" which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

There has been no public market for our common stock prior to this offering, and you may not be able to resell our shares at or above the price you paid, or at all.

        Prior to this offering, there has been no public market for our common stock. We intend to apply to list our common stock on The NASDAQ Global Market, or NASDAQ, but an active trading market for our common stock may never develop or be sustained following this offering. If an active trading market for our common stock does not develop after this offering, the market price and liquidity of our common stock will be materially and adversely affected. You may not be able to sell your shares quickly or at the market price if trading in our common shares is not active. The offering price for our common stock will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our common stock after this offering. An active trading market for our common stock may not develop and the market price of our common stock may decline below the offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

        Certain of our existing stockholders and their affiliated entities, including holders of more than 5% of our common stock, have indicated an interest in purchasing an aggregate of approximately $30.4 million in shares of our common stock in this offering at the initial public offering price. To the extent these existing stockholders are allocated and purchase shares in this offering, such purchases would reduce the available public float for our shares because these stockholders will be restricted from selling the shares by restrictions under applicable securities laws described in the "Shares Eligible for Future Sale" section of this prospectus. As a result, the liquidity of our common stock could be significantly reduced from what it would have been if these shares had not been purchased by investors that were not affiliated with us.

The market price for our common stock may be volatile, which could contribute to the loss of your investment.

        Fluctuations in the price of our common stock could contribute to the loss of all or part of your investment. Prior to this offering, there has not been a public market for our common stock. Accordingly, the initial public offering price for the shares of our common stock may not be indicative of the price that will prevail in the trading market, if any, that develops following this offering. If an active market for our common stock develops and continues, the trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our common stock and our common stock may trade at prices significantly below the initial public offering price. In such circumstances the trading price of our common stock may not recover and may experience a further decline.

        Factors affecting the trading price of our common stock may include:

    our failure to develop and commercialize PRT-201 or any additional product candidates;

48


Table of Contents

    actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
    changes in the market's expectations about our operating results;
    adverse results or delays in preclinical studies or clinical trials;
    our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
    adverse regulatory decisions, including failure to receive regulatory approval for PRT-201 or any additional product candidates;
    success of competitive products;
    adverse developments concerning our collaborations and our manufacturers;
    inability to obtain adequate product supply for any product candidate for clinical trials or commercial sale or inability to do so at acceptable prices;
    the termination of a collaboration or the inability to establish additional collaborations;
    unanticipated serious safety concerns related to the use of any of PRT-201 or any additional product candidates;
    our ability to effectively manage our growth;
    the size and growth, if any, of the targeted market;
    our operating results failing to meet the expectation of securities analysts or investors in a particular period or failure of securities analysts to publish reports about us or our business;
    changes in financial estimates and recommendations by securities analysts concerning our company, our market opportunity, or the biotechnology and pharmaceutical industries in general;
    operating and stock price performance of other companies that investors deem comparable to us;
    overall performance of the equity markets;
    announcements by us or our competitors of acquisitions, new product candidates or programs, significant contracts, commercial relationships or capital commitments;
    our ability to successfully market PRT-201 or any additional product candidates;
    changes in laws and regulations affecting our business, including but not limited to clinical trial requirements for approvals;
    disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for PRT-201 or any additional product candidates;
    commencement of, or involvement in, litigation involving our company, our general industry, or both;
    changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
    the volume of shares of our common stock available for public sale;
    additions or departures of key scientific or management personnel;
    any major change in our board or management;
    changes in accounting practices;
    ineffectiveness of our internal control over financial reporting;
    sales of substantial amounts of common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and
    general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

        Broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for technology or software stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the digital simulation market or the stock market

49


Table of Contents

in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.

Raising additional funds through debt or equity financing could be dilutive and may cause the market price of our common stock to decline.

        Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings and debt financings, and potentially through license and development agreements with strategic partnerships with third parties. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders may not agree with our financing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and could impose restrictions on our operations, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additional funding may not be available to us on acceptable terms, or at all.

If securities analysts do not publish research or reports about our business or if they downgrade our stock, the price of our common stock could decline.

        The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our common stock after the closing of this offering, the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if one or more of the analysts who do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair our ability to expand our business with existing customers and attract new customers.

The concentration of our capital stock ownership with insiders upon the closing of this offering will likely limit your ability to influence corporate matters.

        We anticipate that our executive officers, directors, current 5% or greater stockholders, and their respective affiliates will together beneficially own or control, in aggregate, approximately 65.9% of the shares of our outstanding common stock, after giving effect to the conversion of all outstanding preferred stock and assuming the exercise of outstanding options and warrants following the closing of this offering (assuming no exercise of the underwriters' option to purchase additional shares). Assuming an initial offering price of $13.00 per share, if our 5% or greater stockholders and their respective affiliates purchase all they have indicated an interest in purchasing in this offering, the number of shares of our common stock beneficially owned by our executive officers, directors, current 5% or greater stockholders, and their respective affiliates will, in the aggregate, increase to 70.6% of our capital stock. As a result, these executive officers, directors and principal stockholders, acting together, will have substantial influence over most matters that require approval by our stockholders, including the election of directors, any merger, consolidation or sale of all or substantially all or of our assets or any other significant corporate transaction. Corporate action might be taken even if other stockholders, including those who purchase shares in this offering, oppose such action. These stockholders may delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of our company, even if such change of control would benefit our other stockholders. This concentration of stock ownership may

50


Table of Contents

adversely affect investors' perception of our corporate governance or delay, prevent or cause a change in control of our company, any of which could adversely affect the market price of our common stock.

Sales of a substantial number of shares of our common stock by our existing stockholders in the public market may cause our stock price to decline.

        Sales of our common stock in the public market after this offering, or the perception that these sales may occur, could cause the market price of our common stock to decline. Upon the closing of this offering, we will have 14,045,374 shares of common stock outstanding, assuming no exercise of the underwriters' option to purchase additional shares. Of these, only the shares of our common stock sold in this offering, plus any shares sold upon exercise of the underwriters' option to purchase additional shares, will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining shares outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, if applicable, subject to volume and other restrictions as applicable under Rule 144 under the Securities Act. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the lead underwriters for this offering. After the lock-up agreements expire, up to an additional 9,345,374 shares of common stock will be eligible for sale in the public market, of which 8,027,984 shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, assuming an initial public offering price of $13.00 per share (the midpoint of the price range set forth on the cover page of this prospectus). In addition, 1,977,552 shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. To the extent these shares are sold, or if it is perceived that they will be sold, into the market, the market price of our common stock could decline. For a further description of the dilution that you will experience immediately after this offering, see the section entitled "Share Eligible for Future Sale."

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

        We expect that significant additional capital will be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock, including shares of common stock sold in this offering.

You will experience immediate and substantial dilution in the net tangible book value of the shares you purchase in this offering.

        If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution, as the initial public offering price of our common stock will be substantially greater than the net tangible book value per share of our common stock. Based on an initial offering price of $13.00 per share, which is the midpoint of the range on the cover page of this prospectus, if you purchase our common stock in this offering, you will suffer immediate and substantial dilution of approximately $7.63 per share. Further, investors purchasing common stock in this offering will contribute approximately 37% of the total amount invested by stockholders since our inception, but will own only approximately 33% of the shares of common stock outstanding after giving effect to this offering. If the underwriters

51


Table of Contents

exercise their option to purchase additional shares, or if outstanding options and warrants to purchase our common stock are exercised, you will experience additional dilution. For a further description of the dilution that you will experience immediately after this offering, see the section entitled "Dilution."

We have broad discretion in the use of net proceeds from this offering and may not use them effectively.

        We currently intend to use the net proceeds from this offering to fund the continued development of PRT-201 and for working capital and other general corporate purposes, including funding the costs of operating a public company. We may also use the proceeds to acquire and develop other products, including other drugs and biologics. For a further description of our use of proceeds from this offering, see the section entitled "Use of Proceeds." Any remaining amounts will be used for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property. Although we currently intend to use the net proceeds from this offering in such a manner, we will have broad discretion in the application of the net proceeds. Our failure to apply these funds effectively could affect our ability to continue to develop and commercialize our product candidate.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

        As a newly public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, and rules of the SEC and those of NASDAQ have imposed various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting the later of our second annual report on Form 10-K or the first annual report on Form 10-K following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would require additional financial and management resources.

        Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in

52


Table of Contents

turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.

We do not expect to pay any cash dividends for the foreseeable future.

        You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.

Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.

        As described above under "—Risks Related to Our Financial Condition and Need for Additional Capital," we have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. Under the Internal Revenue Code of 1986, as amended, or the Code, a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under that provision, we can carry forward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits. The amounts of our unused carryovers of NOLs and tax credits as of December 31, 2013, and a description of the valuation allowance we have recorded with respect to those items, are set forth below under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

        If a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, Sections 382 and 383 of the Code limit the corporation's ability to use carryovers of its pre-change NOLs, credits and certain other tax attributes to reduce its tax liability for periods after the ownership change. Our issuance of common stock pursuant to this offering may result in a limitation under Sections 382 and 383, either separately or in combination with certain prior or subsequent shifts in the ownership of our common stock. As a result, our ability to use carryovers of our pre-change NOLs and credits to reduce our future U.S. federal income tax liability may be subject to limitations. This could result in increased U.S. federal income tax liability for us if we generate taxable income in a future period. Limitations on the use of NOLs and other tax attributes could also increase our state tax liability. The use of our tax attributes will also be limited to the extent that we do not generate positive taxable income in future tax periods.

We could be subject to securities class action litigation.

        In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business.

Provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

        Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that may have the effect of delaying or preventing a change in control of us or

53


Table of Contents

changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:

    authorize "blank check" preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;
    create a classified board of directors whose members serve staggered three-year terms;
    specify that special meetings of our stockholders can be called only by our board of directors;
    prohibit stockholder action by written consent;
    establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors;
    provide that our directors may be removed only for cause;
    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
    specify that no stockholder is permitted to cumulate votes at any election of directors;
    expressly authorize our board of directors to modify, alter or repeal our amended and restated bylaws; and
    require supermajority votes of the holders of our common stock to amend specified provisions of our amended and restated certificate of incorporation and amended and restated bylaws.

        These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

        In addition, because we are incorporated in the State of Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.

        Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

        Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and federal court within the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

        Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State of Delaware will be exclusive forums for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

54


Table of Contents


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. These forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Risk Factors" and include, among other things:

    the timing of results of our ongoing and planned clinical trials for PRT-201;
    our estimates regarding the amount of funds we require to complete our two planned Phase 3 clinical trials for PRT-201;
    our estimate of when we will require additional funding;
    our plans to commercialize PRT-201;
    the timing of, and our ability to, obtain and maintain regulatory approvals for our product candidates;
    the rate and degree of market acceptance and clinical utility of any approved product candidate;
    the potential benefits of strategic partnership agreements and our ability to enter into selective strategic partnership arrangements;
    our ability to quickly and efficiently identify and develop product candidates;
    our commercialization, marketing and manufacturing capabilities and strategy;
    our intellectual property position; and
    our estimates regarding expenses, future revenues, capital requirements, the sufficiency of our current and expected cash resources and our need for additional financing.

        These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

55


Table of Contents


USE OF PROCEEDS

        We estimate that our net proceeds from this offering will be approximately $54.2 million, assuming an initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full, we estimate that our net proceeds from this offering will be approximately $62.7 million.

        Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would result in an approximately $4.4 million increase or decrease in our net proceeds from this offering, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase or decrease of one million shares in the number of shares to be offered by us would increase or decrease our net proceeds from this offering by approximately $12.1 million, assuming that the public offering price is $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        We expect to use the net proceeds of this offering as follows:

    approximately $9.4 million to accelerate the commencement of the second of our Phase 3 trials for PRT-201 in its lead indication;
    approximately $28.4 million to accelerate our chemistry and manufacturing controls, or CMC, activities;
    approximately $1.6 million to fund additional research and development activities; and
    the remainder for working capital and general corporate purposes and the costs associated with being a public company.

        We believe that the net proceeds from the offering, together with our existing cash and cash equivalents and investments, will be sufficient to fund our projected operating expenses and capital expenditure requirements through the end of 2017, allowing us to obtain results from our first Phase 3 clinical trial of PRT-201 in radiocephalic AVFs and complete our anticipated chemistry, manufacturing and controls activities required for a BLA submission. However, this may change if there are any significant increases beyond our expectations in spending on development programs or more rapid progress of development programs than anticipated. We do not expect the proceeds to be sufficient to obtain the results from our second Phase 3 trial.

        Our expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. The amount and timing of our actual expenditures will depend upon numerous factors, including the results of our ongoing clinical trials and clinical trials that we may commence, feedback from regulatory agencies, the timing of approval of any of our product candidates, the results of any commercialization efforts and other factors. As a result, our management will have broad discretion over the use of the net proceeds from this offering.

        Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends to holders of our common stock in the foreseeable future.

56


Table of Contents


CAPITALIZATION

        The following table sets forth our cash and capitalization as of June 30, 2014 on:

    an actual basis;

    a pro forma basis to give effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 9,103,815 shares of common stock upon the closing of this offering, the extinguishment of the liability related to the Series D investors' purchase rights and the filing of our amended and restated certificate of incorporation upon the closing of this offering; and

    a pro forma as adjusted basis to give further effect to the sale of 4,700,000 shares of our common stock offered in this offering, assuming an initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        You should read this table together with the information contained in this prospectus, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes included elsewhere in this prospectus.

 
  As of June 30, 2014  
 
  Actual   Pro Forma   Pro Forma as
Adjusted
 
 
  (unaudited)
 
 
  (in thousands, except share and per share data)
 

Cash, cash equivalents and available-for-sale investments

  $ 25,416   $ 25,416   $ 79,914  
               
               

Convertible Preferred Stock:

                   

Series A redeemable convertible preferred stock, par value $0.001 per share; 22,638,465 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    35,015          

Series A-1 redeemable convertible preferred stock, par value $0.001 per share; 10,909,091 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    17,790          

Series B redeemable convertible preferred stock, par value $0.001 per share; 20,754,461 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    28,573          

Series C redeemable convertible preferred stock, par value $0.001 per share; 17,550,758 shares authorized, 13,202,932 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

    17,982          

Series D redeemable preferred stock, par value $0.01 per share including associated investors' rights liability of $6,580; 86,789,527 shares authorized, 52,813,827 shares issued and outstanding, actual; no shares authorized issued or outstanding, pro forma and pro forma as adjusted

    31,124          
               

Total convertible preferred stock

    130,484          

Stockholders' deficit:

                   

Preferred stock, par value $0.001 per share; no shares authorized, issued and outstanding, actual, 10,000,000 shares authorized, no shares issued and outstanding pro forma and pro forma as adjusted

             

Common stock, par value $0.001 per share; 205,926,290 shares authorized, 241,559 shares issued and outstanding, actual; 205,926,290 shares authorized, 9,345,374 shares issued and outstanding, pro forma and 100,000,000 shares authorized, 14,045,374 shares issued and outstanding, pro forma as adjusted

    0     9     14  

Additional paid-in capital

        123,895     178,107  

Accumulated deficit

    (109,267 )   (102,687 )   (102,687 )

Accumulated other comprehensive income

    (23 )   (23 )   (23 )
               

Total stockholders' (deficit) equity

    (109,290 )   21,194     75,411  
               

Total capitalization

  $ 21,194   $ 21,194   $ 75,411  
               
               

57


Table of Contents

        Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit and total capitalization on a pro forma as adjusted basis by approximately $4.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' deficit and total capitalization on a pro forma as adjusted basis by approximately $12.1 million, assuming no change in the assumed initial public offering price of $13.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

        The table above does not include the following potentially dilutive shares of common stock outstanding at June 30, 2014:

    1,133,052 shares of our common stock issuable upon the exercise of stock options outstanding at a weighted-average exercise price of $3.45 per share;

    659,806 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $4.60 per share that we expect to be exercised in full prior to the closing of this offering;

    1,156 shares of common stock reserved for issuance pursuant to future equity awards under our 2006 Equity Incentive Plan;

    704,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective immediately prior to effectiveness of this offering; and

    140,500 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective upon the closing of this offering.

Series D Convertible Preferred Stock

        Initial issuance of Series D convertible preferred stock.    On May 13, 2014, we entered into a Series D Convertible Preferred Stock Purchase Agreement, or the Series D Purchase Agreement, pursuant to which (i) we sold and issued a total of 10,344,201 shares of Series D convertible preferred stock upon the conversion of approximately $4.5 million of principal and accrued interest outstanding under convertible promissory notes at a conversion price of $0.4414 per share, and (ii) we sold and issued 42,469,626 shares of Series D convertible preferred stock to new and existing investors for aggregate gross proceeds of $25.0 million at a price per share of $0.588656.

        Additional issuances of Series D convertible preferred stock.    The Series D Purchase Agreement also contemplates our sale in two additional subsequent closings, which we refer to as the second tranche and third tranche closings, of up to an additional 33,975,700 shares of our Series D convertible preferred stock. Our right to cause the second and third tranche closings to occur will terminate at the closing of this offering.

        Individual Purchase Rights after the closing of this offering.    Following the closing of this offering, the investors that are parties to the Series D Purchase Agreement will have individual purchase rights under the Series D Purchase Agreement to purchase from us, at any time and from time to time until May 13, 2024, an aggregate of 2,140,876 shares of our common stock, assuming an initial public offering price greater than $9.34, the Series D conversion price immediately prior to this offering, and assuming also that such individual purchase rights are not terminated, in whole or in part, as described below in this paragraph. The purchase price per share for common stock purchased pursuant to such individual purchase rights will be the lower of (i) $9.34, the Series D conversion price immediately prior to this offering and (ii) the initial public offering price. If we or our underwriters offer to the investors that are

58


Table of Contents

parties to the Series D Purchase Agreement the opportunity to purchase shares of common stock in this offering, which offer to purchase will be made only if so determined by us or our underwriters at the sole discretion of us or our underwriters, then the individual purchase rights under the Series D Purchase Agreement of such investors shall terminate at the closing of this offering to the extent of the number of shares of our common stock that such investors are offered the opportunity to purchase in this offering, regardless of whether such investors actually purchase any of such shares so offered in this offering. For example, if the individual purchase rights under the Series D Purchase Agreement of the investors that are parties to the Series D Purchase Agreement are exercisable to purchase from us an aggregate of 2,140,876 shares of our common stock, and if we or our underwriters offer to such investors the opportunity to purchase an aggregate of 1,538,452 shares of our common stock in this offering, then the individual purchase rights under the Series D Purchase Agreement of such investors shall terminate at the closing of this offering, regardless of whether such investors actually purchase any of the shares of our common stock that such investors are offered the opportunity to purchase in this offering. On the other hand, if, for example, the individual purchase rights under the Series D Purchase Agreement of the investors that are parties to the Series D Purchase Agreement are exercisable to purchase from us an aggregate of 1,538,452 shares of our common stock, and if we or our underwriters offer to such investors the opportunity to purchase an aggregate of only 1,038,452 shares of our common stock in this offering, then, regardless of whether such investors actually purchase any of such shares so offered in this offering, the individual purchase rights under the Series D Purchase Agreement of such investors shall terminate at the closing of this offering with respect to an aggregate of 1,038,452 shares of our common stock and shall remain exercisable, at any time and from time to time until May 13, 2024, with respect to an aggregate of 500,000 shares of our common stock.

        Anti-dilution protection for Series D convertible preferred stock.    At the closing of this offering, our Series D convertible preferred stock will automatically convert into a number of shares of our common stock equal to (i) 3,327,894 shares plus (ii) an incremental amount of shares. This incremental amount of shares will be applicable only if we or our underwriters offer to the holders of shares of our Series D convertible preferred stock the opportunity to purchase shares in this offering, such holders purchase shares in this offering and the initial public offering price per share is greater than $9.34, the purchase price per share of our Series D convertible preferred stock. This incremental amount of shares will be determined by multiplying (x) the number of shares of common stock purchased in this offering by the holders of our Series D convertible preferred stock up to a maximum number of shares of our common stock equal to 1,538,452 shares, which number of shares is equal to the number of shares of our Series D convertible preferred stock that such holders would have been entitled to purchase under the Series D Purchase Agreement at the second and third tranche closings if the second and third tranche closings had been consummated prior to the closing of this offering, by (y) the remainder obtained by subtracting the number one from the quotient obtained by dividing the initial public offering price per share by $9.34, the purchase price per share of our Series D convertible preferred stock.

        Upon the closing of this offering, assuming an initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming that none of the holders of our Series D convertible preferred stock purchase shares of our common stock in this offering, then the 52,813,827 shares of our Series D convertible preferred stock outstanding as of September 30, 2014 automatically will convert into 3,327,894 shares of our common stock.

        Upon the closing of this offering, assuming an initial public offering price of $13.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and assuming that the holders of our Series D convertible preferred stock purchase in this offering an aggregate of at least 1,538,452 shares of our common stock, which number of shares is equal to the number of shares of our Series D convertible preferred stock that such holders would have been entitled to purchase under the Series D Purchase Agreement at the second and third tranche closings if the second and third tranche closings had been consummated prior to the closing of this offering, then the 52,813,827 shares of our Series D convertible preferred stock outstanding as of September 30, 2014 automatically will convert into 3,930,306 shares of

59


Table of Contents

our common stock. A $1.00 decrease in the assumed initial public offering price (until the assumed initial public offering price is equal to $9.34) would decrease by an additional 128,201 shares the number of shares of our common stock that would be issued upon the conversion of our Series D convertible preferred stock at the closing of this offering. In the event of a decrease in the assumed initial public offering price to a price that is equal to or less than $9.34, the 52,813,827 shares of our Series D convertible preferred stock outstanding as of September 30, 2014 automatically will convert into 3,327,894 shares of our common stock upon the closing of this offering. Each $1.00 increase in the assumed initial public offering price above $13.00 would increase by an additional 109,894 shares the number of shares of our common stock that would be issued upon the conversion of our Series D convertible preferred stock at the closing of this offering. In the event that the assumed initial public offering price is greater than $9.34, each decrease of 500,000 shares in the number of shares purchased in this offering by holders of our Series D convertible preferred stock would decrease by an additional 195,796 shares the number of shares of our common stock that would be issued upon the conversion of our Series D convertible preferred stock at the closing of this offering.

        The following number of shares of common stock would be issued upon the conversion of our Series D convertible preferred stock, assuming the full issuance of incremental shares upon its conversion based on the midpoint of the price range set forth on the cover page of this prospectus and assuming the initial public offering prices for our common stock shown below:

 
  Assumed Initial Public Offering Price  
 
  $11.00   $12.00   $13.00   $14.00   $15.00  

Shares Outstanding

    3,650,588     3,802,103     3,930,306     4,040,198     4,135,437  

60


Table of Contents


DILUTION

        If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering.

        Our historical net tangible book deficit as of June 30, 2014 was $(109.3) million or $(452.44) per share of common stock, based on 241,559 shares of common stock outstanding as of June 30, 2014. Historical net tangible book value per share is determined by dividing our total tangible assets less total liabilities and redeemable preferred stock by the actual number of shares of common stock outstanding.

        Our pro forma net tangible book gain as of June 30, 2014 was $21.2 million, or $2.27 per share of common stock, based on 9,345,374 shares of common stock outstanding after giving effect to the automatic conversion of all of our outstanding series A, A-1, B, C and D convertible preferred stock into 9,103,815 shares of common stock upon the listing of our common stock on the NASDAQ Global Market. These shares include an additional 919,928 shares of common stock issuable upon conversion of all of our outstanding series A, A-1, B and C convertible preferred stock, which additional shares are issuable as a result of conversion price adjustments in the anti-dilution provisions of our series A, A-1, B and C convertible preferred stock, as a result of the issue price of our series D convertible preferred stock and which is described in the section of this prospectus entitled "Capitalization—Series D Preferred Stock Financing." Our pro forma net tangible book gain also includes the extinguishment of the liability related to the Series D investors' purchase rights.

        Pro forma net tangible book value per share is determined by dividing our total tangible assets less total liabilities and redeemable preferred stock by the pro forma number of shares of common stock outstanding at June 30, 2014 before giving effect to our sale of shares of common stock in this offering.

        After giving further effect to our issuance and sale of 4,700,000 shares of our common stock in this offering at an assumed initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2014 would have been $75.4 million, or $5.37 per share. This represents an immediate increase in pro forma net tangible book value per share of $3.10 to existing stockholders and immediate dilution of $7.63 in pro forma net tangible book value per share to new investors purchasing common stock in this offering.

        Dilution per share to new investors is determined by subtracting pro forma net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share of common stock basis assuming the underwriters do not exercise their option to purchase additional shares of common stock:

Assumed initial public offering price per share

        $ 13.00  

Historical net tangible book value per share as of June 30, 2014

  $ (452.44 )      

Pro forma increase per share as of June 30, 2014 attributable to conversion of convertible preferred stock

  $ 454.71        
             

Pro forma net tangible book value per share as of June 30, 2014 before giving effect to this offering

  $ 2.27        
             
             

Increase per share attributable to this offering

  $ 3.10        
             

Pro forma net tangible book value per share, as adjusted to give effect to this offering

        $ 5.37  
             

Dilution in pro forma net tangible book value per share to new investors in this offering

        $ 7.63  
             
             

61


Table of Contents

        Each $1.00 increase or decrease in the assumed initial public offering price of $13.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase or decrease our pro forma net tangible book value by approximately $4.4 million, our pro forma net tangible book value per share by approximately $0.31 and dilution per share to new investors by approximately $0.69, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of one million in the number of shares offered by us would increase the pro forma as adjusted net tangible book value by approximately $12.1 million, or $0.45 per share, and would decrease the dilution per share to new investors in this offering by $0.45 per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. Similarly, a decrease of one million shares in the number of shares offered by us would decrease the pro forma as adjusted net tangible book value by approximately $12.1 million, or $0.52 per share, and would increase the dilution per share to new investors in this offering by $0.52 per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses. The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial price to the public and other terms of this offering determined at pricing.

        If the underwriters exercise their option to purchase additional shares in full or if any additional shares are issued in connection with outstanding options, you will experience further dilution. If the underwriters exercise their option to purchase additional shares in full, the following will occur:

    the percentage of shares of our common stock held by existing stockholders will decrease to approximately 63% of the total number of shares of our common stock outstanding after this offering; and
    the number of shares of our common stock held by new investors will increase to, or approximately 37% of the total number of shares of our common stock outstanding after this offering.

        The following table summarizes, on the same pro forma basis as adjusted as of June 30, 2014, the total number of shares of common stock purchased from us, the total cash consideration paid to us and the average price per share of common stock paid by our existing owners and by new investors purchasing shares of common stock in this offering:

 
  Shares Purchased   Total Consideration   Average Price Per Share  
(in thousands, except share and per share amounts)
  Number   Percent   Amount   Percent  

Existing stockholders

    9,345,374     66.6 % $ 105,813     63.4 % $ 11.32  

Investors participating in this offering

    4,700,000     33.4     61,100     36.6     13.00  
                       

Total

    14,045,374     100.0 % $ 166,913     100.0 % $ 11.88  
                       
                       

        Each $1.00 increase or decrease in the assumed public offering price of $13.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $4,700,000 million and increase or decrease the percentage of total consideration paid by new investors by approximately 7.7%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

        The foregoing tables and calculations are based upon 9,345,374 shares of common stock outstanding as of June 30, 2014, including 9,103,815 shares of common stock after giving effect to the conversion of our outstanding series A, A-1, B, C and D convertible preferred stock, and exclude:

    1,133,052 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2014 at a weighted-average exercise price of $3.45 per share;

62


Table of Contents

    659,806 shares of our common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $4.60 per share;
    1,156 shares of common stock reserved for issuance pursuant to future equity awards under our 2006 Equity Incentive Plan;
    704,000 shares of common stock reserved for future issuance under our 2014 Equity Incentive Plan, which will become effective immediately prior to the effectiveness of this offering; and
    140,500 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective upon the closing of this offering.

        Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. New investors will experience further dilution if any of our outstanding options or warrants are exercised, new options are issued and exercised under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities for lower consideration per share than in this offering in the future.

        Certain of our existing stockholders and their affiliated entities, including holders of more than 5% of our common stock, have indicated an interest in purchasing an aggregate of approximately $30.4 million in shares of our common stock in this offering at the initial public offering price. Assuming an initial public offering price of $13.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, these entities would purchase an aggregate of up to approximately 2,341,215 of the 4,700,000 shares in this offering based on these indications of interest. However, because indications of interest are not binding agreements or commitments to purchase, the underwriters could determine to sell more, less or no shares to any of these existing stockholders and any of these existing stockholders could determine to purchase more, less or no shares in this offering. The foregoing discussion and tables do not reflect any potential purchases by these existing stockholders or their affiliated entities.

63


Table of Contents


SELECTED FINANCIAL DATA

        The selected statements of operations data for the years ended December 31, 2012 and 2013 and the balance sheet data at December 31, 2012 and 2013 have been derived from our audited financial statements included elsewhere in this prospectus. The selected statement of operations data for the six months ended June 30, 2013 and 2014 and the selected balance sheet data at June 30, 2014 were derived from our unaudited financial statements appearing elsewhere in this prospectus. These unaudited financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

        The information set forth below should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus and with our financial statements and notes thereto included elsewhere in this prospectus. The selected financial data in this section are not intended to replace the financial statements and are qualified in their entirety by the financial statements and related notes included elsewhere in this prospectus.

 
  Proteon Therapeutics, Inc.  
 
  Years Ended
December 31,
  Six Months Ended
June 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands except share and per share data)
 

Operating expenses:

                         

Research and development

  $ 5,907   $ 3,994   $ 2,003   $ 2,785  

General and administrative

    2,089     3,128     1,417     1,656  
                   

Total operating expenses

    7,996     7,122     3,420     4,441  
                   

Loss from operations

    (7,996 )   (7,122 )   (3,420 )   (4,441 )

Other income (expense):

                         

Investment income

    20     4     3     3  

Interest expense

        (861 )       (857 )

Other income (expense)

    6     67     5     (99 )
                   

Total other income (expense)

    26     (790 )   8     (953 )
                   

Net loss

  $ (7,970 ) $ (7,912 ) $ (3,412 ) $ (5,394 )
                   
                   

Unrealized (loss) gain on available-for-sale investments

    (5 )   (1 )       (23 )
                   

Comprehensive loss

  $ (7,975 ) $ (7,913 ) $ (3,412 ) $ (5,417 )
                   
                   

Reconciliation of net loss to net loss attributable to common stockholders

                         

Net loss

  $ (7,970 ) $ (7,912 ) $ (3,412 ) $ (5,394 )

Accretion of redeemable convertible preferred stock to redemption value

    (6,133 )   (6,119 )   (3,039 )   (3,409 )
                   

Net loss attributable to common stockholders

  $ (14,103 ) $ (14,031 ) $ (6,451 ) $ (8,803 )
                   
                   

Net loss per share attributable to common stockholders—basic and diluted(1)(2)

  $ (61.66 ) $ (59.66 ) $ (27.97 ) $ (36.64 )
                   
                   

Weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted

    230,607     235,184     230,607     240,254  
                   
                   

Pro forma net loss per share attributable to common stockholders—basic and diluted (unaudited)(1)(2)

        $ (1.54 )       $ (0.66 )
                       
                       

Pro forma weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted (unaudited)

          4,565,620           6,763,218  
                       
                       

64


Table of Contents

 
  December 31,   June 30,  
 
  2012   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands)
 

Balance Sheet Data:

                   

Cash, cash equivalents and available-for-sale investments

  $ 7,471   $ 5,152   $ 25,416  

Working capital

    6,499     (4,438 )   19,915  

Total assets

    7,782     5,659     27,142  

Preferred stock

    90,286     96,405     123,904  

Common stock and additional paid-in capital

    0     0     0  

Total stockholders' deficit

    (86,656 )   (100,514 )   (109,290 )

(1)
See Note 2 within the notes to our financial statements appearing elsewhere in this prospectus for a description of the method used to calculate basic and diluted net loss per common share and pro forma basic and diluted net loss per common share.

(2)
Pro forma to reflect the conversion of our preferred stock into shares of common stock upon the closing of this offering and the extinguishment of the liability related to the Series D investors' purchase rights.

65


Table of Contents


MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations together with "Summary financial data," "Selected financial data" and our financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease. Our product candidate, PRT-201, is a recombinant human elastase that we are developing to reduce vascular access failure in patients with chronic kidney disease undergoing or preparing for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe the data from our completed Phase 2 trial of PRT-201 in patients undergoing creation of an arteriovenous fistula, or AVF, support that a one-time, local application of PRT-201 during AVF surgical placement reduces AVF failure, thereby improving patient outcomes and reducing the burden on patients and the healthcare system. We are not aware of any approved preventative treatments to reduce the failure rate of AVFs. We initiated the first of two Phase 3 trials for PRT-201 in radiocephalic AVFs, our initial indication, in the third quarter of 2014 and expect to initiate the second Phase 3 trial in the first half of 2015.

        We commenced business operations in June 2001. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of PRT-201, protecting our intellectual property and providing general and administrative support for these operations. To date, we have not generated any product revenue and have primarily financed our operations through the private placement of our equity securities, business development activities, convertible note financings, and government grants. As of June 30, 2014, we had received an aggregate of $111.9 million of net proceeds comprised of $94.0 million from the issuance of equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities and $0.2 million from government grants.

        As of June 30, 2014, we had an accumulated deficit of $109.3 million. Our net losses were $8.0 million and $7.9 million for the years ended December 31, 2012 and 2013, respectively, and $3.4 million and $5.4 million, for the six months ended June 30, 2013 and 2014, respectively. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect our research and development expenses to increase as we continue the clinical trials of, and seek regulatory approval for, PRT-201. If we obtain regulatory approval for PRT-201, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, following the closing of this offering, we expect that our general and administrative costs will increase as we grow and operate as a public company. As a result, we will need to generate significant revenue if we are to achieve profitability, and we may never be able to do so.

        We believe that our available funds subsequent to this offering will be sufficient to fund our operations through the end of 2017, allowing us to obtain results from our first Phase 3 clinical trial of PRT-201 in radiocephalic AVFs and to accelerate the commencement of our second Phase 3 trial and the chemistry and manufacturing controls, or CMC, activities.

        We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for PRT-201, which we expect will take a number of years and

66


Table of Contents

is subject to significant uncertainty. We have no manufacturing facilities and all of our manufacturing activities are contracted out to third parties. Additionally, we currently use third-party clinical research organizations, or CROs, to carry out our clinical development activities and we do not yet have a sales organization. If we obtain regulatory approval for PRT-201, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. Accordingly, we may seek to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop PRT-201 or any additional product candidates, if developed.

Financial Overview

    Grant Revenue

        To date, our revenue has been derived solely from government grants. We did not receive any government grants during the reported periods and have no plans to receive additional government grants in the future.

    Research and Development Expenses

        Research and development expenses consist primarily of costs incurred for the development of PRT-201, which include:

    employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;
    expenses incurred under agreements with CROs and investigative sites that will conduct our clinical trials;
    the cost of acquiring, developing, and manufacturing clinical trial materials;
    costs associated with regulatory operations; and
    facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.

        We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

        We cannot determine with certainty the duration and completion costs of the current or future clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of PRT-201. We may never succeed in achieving regulatory approval for PRT-201. The duration, costs, and timing of clinical trials and development of PRT-201 will depend on a variety of factors, which include:

    the scope, rate of progress, and expense of our ongoing as well as any additional clinical trials and other research and development activities;
    uncertainties in clinical trial enrollment rate;
    future clinical trial results;
    significant and changing government regulation; and
    the timing and receipt of any regulatory approvals.

        A change in any of these factors could mean a significant change in the costs and timing associated with the development of PRT-201. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any of our

67


Table of Contents

clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

        We expect our research and development expenses to increase for the foreseeable future as we continue the development of PRT-201. Our current planned development activities include the following:

    we commenced our first Phase 3 clinical trial of PRT-201 for patients undergoing creation of a radiocephalic AVF in the third quarter of 2014. Prior to completing enrollment in the first Phase 3 trial, we intend to initiate our second Phase 3 trial. If the results from the first Phase 3 trial are sufficiently compelling, we intend to meet with the FDA to discuss the possibility of submitting a BLA, supported by the single Phase 3 trial and may decide to submit a BLA to the FDA prior to completing the second Phase 3 trial;
    we may, based on additional data including the data from our Phase 3 clinical trials and if sufficient funds become available, choose to conduct a clinical trial of PRT-201 in Europe;
    we may, based on additional data including the data from our Phase 3 clinical trials and if sufficient funds become available, study the effects of a 30 microgram dose of PRT-201 versus placebo on brachiocephalic AVFs and in patients undergoing placement of an arteriovenous graft, or AVG; and
    we expect to continue to manufacture clinical trial materials in support of our clinical trials.

        Our direct research and development expenses consist principally of external costs, such as fees paid to CROs, investigators, consultants and central laboratories in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials as well as of salaries and related costs for personnel, including stock-based compensation and travel expenses.

    General and Administrative Expenses

        General and administrative expenses consist principally of salaries and related costs for personnel, including stock-based compensation and travel expenses, in executive and other administrative functions. Other general and administrative expenses also include professional fees for legal, patent review, consulting and accounting services as well as facility related costs. We anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with our NASDAQ listing and Securities and Exchange Commission requirements, director and officer insurance premiums, and investor relations costs associated with being a public company.

        Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

    Interest Expense, Net

        Interest expense, net, consists of interest incurred on debt instruments, amortized deferred financing costs and amortized debt discount, as offset by any interest income earned on our cash, cash equivalents and marketable securities. The debt discount primarily consists of the fair value of the bifurcated features embedded in the convertible notes issued in September 2013. As of June 30, 2014, the debt discount had been fully amortized to interest expense.

    Other Income (Expense)

        Other income consists of the gain realized by the sale of fixed assets as well as changes in fair market value of the derivative liability associated with the convertible notes.

    Accretion of Preferred Stock

        Subsequent to the May 2014 Series D convertible preferred stock financing, our shares of preferred stock are redeemable beginning in 2019 at their original issuance price plus any declared or accrued but

68


Table of Contents

unpaid dividends upon written election of the preferred stockholders in accordance with the terms of our certificate of incorporation. Accretion of preferred stock reflects the accretion of issuance costs and cumulative dividends on our preferred stock based on their respective redemption values.

Critical Accounting Policies and Significant Judgments and Estimates

        Our management's discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates, which include estimates related to clinical trial accruals, stock-based compensation expense, embedded derivatives, and reported amounts of revenues and expenses during the reported period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

        While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

    Accrued Research and Development Expenses

        As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to CROs in connection with clinical trials and vendors related to manufacturing, development and distribution of clinical supplies.

        We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.

69


Table of Contents

    Derivative Instruments

        We occasionally issue financial instruments in which a derivative instrument is "embedded." Upon issuing the financial instrument, we assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument as defined in ASC 815 Derivatives and Hedging. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract and carried at fair value with changes in fair value recorded in current period earnings.

    Convertible Notes

        On September 4, 2013, we issued, at par value, convertible promissory notes with an aggregate principal amount of approximately $4.3 million. The notes were due March 31, 2014, upon written notice from holders of a majority of the then-outstanding aggregate principal amount, and accrued interest at an annual rate of 8%. We determined that the debt contained certain features requiring evaluation for separate accounting from the fixed interest rate host instrument including: (i) holder's optional conversion upon maturity; (ii) mandatory conversion upon a reverse acquisition; (iii) automatic conversion upon a qualified financing; (iv) holder's optional conversion upon a non-qualified financing; (v) issuer's optional redemption; (vi) redemption upon a change in control; (vii) put upon a breach; and (viii) put upon an event of default. In certain cases these features require us to either convert the notes or accelerate their repayment at a significant premium to the principal and accrued interest then outstanding.

        The embedded features requiring separate accounting were combined and valued upon issuance using a single income valuation approach. As of September 4, 2013 and December 31, 2013, we ascribed a probability to the automatic conversion upon a qualified financing of 85% and 100%, respectively. As of September 4, 2013 and December 31, 2013, we ascribed a probability to the redemption feature upon a change in control of 15% and 0%, respectively. From December 31, 2013 to the conversion of the convertible notes into Series D convertible preferred stock on May 13, 2014, as described below, the estimates of these probabilities did not change. For all other features included in the combined embedded derivative, we estimated a 0% probability of occurrence at all times.

        We recorded approximately $1.4 million as the fair value of the combined embedded derivative liability on September 4, 2013, with a corresponding amount recorded as debt discount. The debt discount has been amortized to interest expense over the life of the notes using the effective interest method. As of December 31, 2013 and June 30, 2014, the fair value of the combined embedded derivative liability was $1.4 million and $0, respectively. Changes in the estimated fair value of the embedded features were recorded in earnings in the period in which they occurred.

        In connection with the issuance of our Series D convertible preferred stock on May 13, 2014, the notes in the aggregate amount of approximately $4.6 million in principal plus accrued interest were converted into 10,344,201 shares of Series D convertible preferred stock. As the debt discount had been fully amortized prior to conversion, there was no gain or loss recognized upon conversion of the notes.

    Stock-Based Compensation

        From our inception in June 2001, until December 31, 2005, we applied the guidance in Accounting Principles Bulletin, or APB 25. Under APB 25, there is no stock-based compensation expense recognized for awards granted with an exercise price equal to the fair value of the underlying stock on the date of grant.

70


Table of Contents

        Since January 1, 2006, we have applied the fair value recognition provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification or ASC, Topic 718, Compensation—Stock Compensation, or ASC 718, to account for stock-based compensation for employees. ASC 718 applies to any awards granted, modified, repurchased, or canceled after December 31, 2005, and requires the measurement and recognition of costs for all stock-based awards made to employees and directors, including stock options, stock appreciation rights, stock units, and discounted employee stock purchases. We recognize compensation costs related to employees based on the estimated fair value of the awards on the date of grant and over the requisite service periods, using the straight-line method. The options vest periodically over various schedules and all options expire no later than ten years after the date of grant.

        We have applied the fair value recognition provisions of ASC 718 and FASB ASC 505, Equity, to account for stock-based compensation for non-employees. Stock-based compensation related to non-employee awards is re-measured at each reporting period until the awards are vested and is estimated using an expected term equal to the remaining contractual term of the award. Compensation expense is recognized for the fair value of the consideration received, or the equity instruments issued, whichever is more reliably measurable. We recorded compensation expense for non-employee awards with graded vesting using the accelerated expense attribution method.

        We estimate the fair value of our stock-based awards to employees and non-employees using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including: (1) the expected volatility of our stock, (2) the expected term of the award, (3) the risk-free interest rate and (4) expected dividends. Due to the lack of a public market for the trading of our common stock and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of comparable companies that are publicly traded. For these analyses, we selected representative companies from the life sciences industry with characteristics similar to ours, including enterprise value, risk profiles, position within the industry and historical share price information, sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We use a dividend yield of zero based on the fact that we have never declared cash dividends and have no current intention of paying cash dividends over the expected term of the option. As we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees, we have estimated the expected life of our employee stock options using the "simplified" method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. For non-employee options, we have determined the expected life based on the respective contractual life. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted and with maturity dates equivalent to the expected term of the option.

        The following table presents the grant dates of shares subject to awards from January 1, 2012 through June 30, 2014 along with the corresponding exercise price for each option grant and our current estimate of the fair value per share of our common stock on each grant date, which we utilize to calculate stock-based compensation expense:

Date of Grant
  Number of
Underlying
Options Granted
  Exercise Price
per Share
  Current Estimate
of Common
Stock Fair
Value per Share
on Grant Date
 

3/25/2013

    3,150   $ 22.22   $ 22.22  

6/24/2014

    527,718   $ 4.92   $ 4.92  

71


Table of Contents

Determination of the Fair Value of Common Stock on Grant Dates

        Following the consummation of this offering, the fair value of our common stock will be determined based on the quoted market price of our common stock. We have historically granted stock options at exercise prices not less than the fair value of our common stock. Our board of directors determined the fair value of our common stock considering, in part, the work of an independent third-party valuation specialist. The board determined the estimated per share fair value of our common stock at various dates considering contemporaneous valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, also known as the "Practice Aid".

        In conducting the valuations, the independent third-party valuation specialist considered all objective and subjective factors that it believed to be relevant for each valuation conducted in accordance with the Practice Aid, including our best estimate of our business condition, prospects and operating performance at each valuation date. Other significant factors included:

    the prices of our preferred stock sold to outside investors in arm's length transactions, and the rights, preferences and privileges of our preferred stock as compared to those of our common stock, including the liquidation preferences of our preferred stock;
    the provisions of an option agreement to acquire Proteon that has since terminated;
    our results of operations, financial position and the status of research and development efforts;
    the composition of, and changes to, our management team and board of directors;
    the lack of liquidity of our common stock;
    our stage of development and business strategy and the material risks related to our business and industry;
    the valuation of publicly traded companies in the life sciences sector, as well as recently completed mergers and acquisitions of guideline companies;
    any external market conditions affecting the life sciences industry sector; and
    the likelihood of achieving a liquidity event for the holders of our common stock and stock options, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions, and the state of the IPO market for similarly situated privately held life sciences companies.

        The dates of our contemporaneous and retrospective valuations have not always coincided with the dates of our stock option grants. In determining the exercise prices of the stock options set forth in the table above, our board of directors considered, among other things, the most recent contemporaneous and retrospective valuation of our common stock and their assessment of additional objective and subjective factors that were relevant as of the grant dates. The additional factors considered when determining whether any changes in the fair value of our common stock had occurred between the most recent contemporaneous valuation and the grant dates included our stage of research and development, our operating and financial performance and current business conditions.

        The estimates of fair value of our common stock are highly complex and subjective. There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to completing an IPO or other liquidity event, the related valuations associated with these events, and the determinations of the appropriate valuation methods at each valuation date. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per share applicable to common stockholders could have been materially different.

Common Stock Valuation Methodologies

        The valuations we obtained were prepared in accordance with the guidelines in the Practice Aid, which prescribes several valuation approaches for setting the value of an enterprise, such as the cost,

72


Table of Contents

market and income approaches, and various methodologies for allocating the value of an enterprise to its common stock. We generally used the market approach, in particular the guideline public company and guideline transaction methodologies, based on inputs from comparable public companies' equity valuations and comparable acquisition transactions, to estimate the enterprise value of our company.

Methods Used to Allocate Our Enterprise Value to Classes of Securities

        In accordance with the Practice Aid, we considered the various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock at each valuation date. The methods and scenarios considered consisted of the following:

    Probability-Weighted Expected Return Method, or PWERM.  The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. Our PWERM analyses assume a range of exit scenarios, including an IPO, and allocate the value in each scenario according to our capital structure, probability-weighting each exit and discounting the value to a present value equivalent using a risk-adjusted discount rate.
    Option Pricing Method, or OPM.  Under the option pricing method, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. Our OPM analysis evaluates a scenario where we remain private and is modeled over a weighted average term to exit using a recent financing round as the basis for fair market value determination.
    Hybrid Method.  The hybrid method employs the concepts of the PWERM and OPM merged into a single framework.

        The foregoing valuation methodologies are not the only methodologies available and they will not be used to value our common stock once this offering is complete. We cannot make assurances as to any particular valuation for our common stock. Accordingly, investors are cautioned not to place undue reliance on the foregoing valuation methodologies as an indicator of future stock prices.

Results of Operations

Comparison of the Six Months Ended June 30, 2013 and June 30, 2014

 
  Six Months
Ended June 30,
   
 
 
  Period-to-
Period Change
 
 
  2013   2014  
 
  (in thousands)
 

Operating expenses:

                   

Research and development

  $ 2,003   $ 2,785   $ 782  

General and administrative

    1,417     1,656     239  
               

Total operating expenses

    3,420     4,441     1,021  
               

Loss from operations

    (3,420 )   (4,441 )   (1,021 )
               

Other income (expense):

                   

Interest expense, net

    3     (854 )   (857 )

Other income (expense)

    5     (99 )   (104 )
               

Total other income (expense)

    8     (953 )   (961 )
               

Net loss

  $ (3,412 ) $ (5,394 ) $ (1,982 )
               
               

73


Table of Contents

        Research and Development Expenses.    The following table identifies research and development expenses on both an external and internal basis for the six months ended June 30, 2013 and 2014:


 
  Six Months Ended June 30,    
 
 
  Period-to-
Period Change
 
 
  2013   2014  
 
  (in thousands)
 

External research and development expenses

  $ 922   $ 1,706   $ 784  

Internal research and development expenses

    1,081     1,709   $ (2 )
               

Total research and development expenses

  $ 2,003   $ 2,785   $ 782  
               
               

        During the six months ended June 30, 2014, our total research and development expenses increased by $0.8 million compared to the six months ended June 30, 2013 due to $0.5 million in increased external manufacturing, process development and quality assurance expenses related to preparation for our upcoming radiocephalic AVF Phase 3 clinical trial and $0.3 million in increased external clinical expenses related to preparation for the radiocephalic AVF Phase 3 clinical trials. Our internal research and development expenses were unchanged in the six months ended June 30, 2014 as compared to the six months ended June 30, 2013.

        General and Administrative Expenses.    During the six months ended June 30, 2014, our total general and administrative expenses were $0.2 million higher as compared to the six months ended June 30, 2013. Changes from the prior period were primarily due to additional overhead and personnel costs in the six months ended June 30, 2014 of $0.2 million to support our on-going corporate activities

        Other Expense.    During the six months ended June 30, 2014, other expenses increased by $0.1 million as compared to the six months ended June 30, 2013 primarily related to the change in fair market value of the derivative liability associated with the convertible promissory notes.

        Interest Expense, Net.    During the six months ended June 30, 2014, interest expense, net increased by $0.9 million as compared to the six months ended June 30, 2013 due to the interest expense on our convertible promissory notes.

Comparison of the Years Ended December 31, 2012 and December 31, 2013

 
  Years Ended December 31,    
 
 
  Period-to-
Period Change
 
 
  2012   2013  
 
  (in thousands)
 

Operating expenses:

                   

Research and development

  $ 5,907   $ 3,994   $ (1,913 )

General and administrative

    2,089     3,128     1,039  
               

Total operating expenses

    7,996     7,122     (874 )
               

Loss from operations

    (7,996 )   (7,122 )   874  
               

Other income (expense):

                   

Interest expense, net

    20     (857 )   (877 )

Other income

    6     67     61  
               

Total other income (expense)

    26     (790 )   (816 )
               

Net loss

  $ (7,970 ) $ (7,912 ) $ 58  
               
               

74


Table of Contents

        Research and Development Expenses.    The following table identifies research and development expenses on both an external and internal basis for the years ended December 31, 2012 and 2013:

 
  Years Ended December 31,    
 
 
  Period-to-
Period Change
 
 
  2012   2013  
 
  (in thousands)
 

External research and development expenses

  $ 3,514   $ 1,962   $ (1,552 )

Internal research and development expenses

    2,393     2,032     (361 )
               

Total research and development expenses

  $ 5,907   $ 3,994   $ (1,913 )
               
               

        During the year ended December 31, 2013, our total research and development expenses decreased by $1.9 million compared to the prior year, primarily due to the completion of our AVF Phase 2 trial and our AVG Phase 1/2 trial. Our external research and development expenses decreased by $1.5 million primarily due to a reduction in expenses related to our clinical trials and our manufacturing and process development. Our internal research and development expenses decreased by $0.4 million primarily due to a reduction in our research and development employees and contractors.

        General and Administrative Expenses.    During the year ended December 31, 2013, our total general and administrative expenses increased by $1.0 million compared to the prior year. This increase was primarily due to additional overhead and personnel costs in 2013 of $0.5 million to support our ongoing corporate activities and $0.5 million related to higher legal expenses.

        Other Income (Expense).    During the year ended December 31, 2013, our other income increased by $0.1 million due to a gain from the sale of fixed assets.

        Interest Expense, Net.    During the year ended December 31, 2013, our interest expense, net increased by $0.8 million due to the interest expense on our convertible promissory notes.

Liquidity and Capital Resources

    Overview

        Since our inception and through June 30, 2014, we had received $111.9 million in net proceeds million comprised of $94.0 million from the issuance of equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities and $0.2 million from government grants. At June 30, 2014, our cash and cash equivalents and available-for-sale investments totaled $25.4 million.

    Convertible Note Financings

        In April 2013, we entered into a convertible note purchase agreement with some of our existing preferred stockholders whereby we had the option, but not the obligation, to issue convertible promissory notes in the aggregate principal amount of approximately $4.3 million, subject to meeting at least one of two pre-determined conditions. In September 2013, upon satisfying one of the conditions, we issued the notes, which accrue interest at 8% annum and mature on or after March 31, 2014 upon written notice from a majority of the outstanding note holders.

        As further described above and within our financial statements appearing elsewhere in this prospectus, in connection with the issuance of the convertible notes, we recorded $1.4 million as a discount on the convertible notes related to the estimated fair value of the combined embedded derivative liability and certain issuance costs. The discount was amortized to interest expense over the life of the convertible notes. Changes in the estimated fair value of the combined embedded derivative liability were recorded in earnings in the periods in which they occurred.

75


Table of Contents

        On May 13, 2014, upon the closing of our Series D convertible preferred stock financing described below, the convertible notes, in the aggregate amount of approximately $4.5 million principal and accrued interest automatically converted into 10,344,201 shares of our Series D convertible preferred stock at a conversion price per share of $0.4414.

    Series D Financing

        On May 13, 2014, we received net proceeds of approximately $24.7 million from the issuance of Series D convertible preferred stock to new and existing investors at a price per share of $0.588656. In aggregate, we issued 52,813,827 shares of Series D convertible preferred stock including 10,344,201 shares for the conversion of $4.6 million of convertible notes and accrued interest at a conversion price of $0.4414 per share. As provided by the Series D stock purchase agreement, the investors in the Series D convertible preferred stock have the potential opportunity to invest an additional $20.0 million in Series D convertible preferred stock at $0.588656 per share. The investors' rights to purchase additional shares of Series D convertible preferred stock will terminate with this offering.

    Operating Capital Requirements

        We expect to incur increasing operating losses for at least the next several years as we conduct our Phase 3 clinical trials for PRT-201 in radiocephalic AVFs, thereafter seeking marketing approval for PRT-201 in radiocephalic AVFs assuming successful trial outcomes, and pursue development of PRT-201 for additional indications, including in brachiocephalic AVFs and AVGs. We may not be able to complete the development and initiate commercialization of PRT-201 if, among other things, our clinical trials are not successful, the Food and Drug Administration does not approve PRT-201 when we expect, or at all.

        We believe that the net proceeds of this offering, together with our existing cash and cash equivalents and investments, will be sufficient to fund our operations through the end of 2017. Based on our planned use of the net proceeds of this offering and our existing cash resources, we believe that our available funds subsequent to this offering will be sufficient to enable us to obtain results from our first Phase 3 clinical trial of PRT-201 in radiocephalic AVFs and to accelerate the commencement of our second Phase 3 trial and the chemistry and manufacturing controls, or CMC, activities.

        Unless or until we can generate a sufficient amount of revenue from our product sales we expect to fund our operations through a combination of equity offerings debt financings or other sources including potential collaborations. Additional capital may not be available on favorable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our protein therapeutic candidates. If we raise additional funds through the issuance of debt or equity securities, it could result in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We may not be able to enter into collaboration arrangements for PRT-201 in targeted geographies. Any of these events could significantly harm our business, financial condition and prospects.

        Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including:

    the timing and costs of our planned Phase 3 clinical trials of PRT-201 in radiocephalic AVFs;

76


Table of Contents

    the timing and costs of developing PRT-201 for additional indications;
    the outcome, timing and costs of seeking regulatory approvals;
    the costs of commercialization activities for PRT-201 in radiocephalic AVFs and other indications if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
    subject to receipt of marketing approval, revenue received from commercial sales of PRT-201;
    the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;
    the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including royalty payments that we are obligated to pay to Johns Hopkins University pursuant to our assignment agreement related to PRT-201;
    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and
    the extent to which we in-license or acquire other products and technologies.

    Cash Flows

        The following table summarizes our sources and uses of cash:

 
  Years Ended
December 31,
  Six Months
Ended June 30,
 
 
  2012   2013   2013   2014  
 
  (in thousands)
 

Net cash used in operating activities

  $ (8,234 ) $ (6,657 ) $ (3,386 ) $ (4,234 )

Net cash provided by investing activities

    7,382     2,727     4,294     (14,476 )

Net cash (used in) provided by financing activities

    (9 )   4,314         24,563  
                   

Net (decrease) increase in cash and cash equivalents

  $ (861 ) $ 384   $ 908   $ 5,853  
                   
                   

    Comparison of the Six Months Ended June 30, 2013 and 2014

        Net cash used in operating activities was $3.4 million during the six months ended June 30, 2013 compared to $4.2 million during the six months ended June 30, 2014. The increase of $0.8 million in cash used in operating activities in the first six months of 2014 was primarily driven by an increase in our operating expenses of $1.0 million, offset by a decrease in working capital balances and an increase in non-cash operating expenses of $0.2 million as compared to the first six months of 2013.

        Net cash provided by investing activities was $4.3 million during the six months ended June 30, 2013 compared to a use of cash of $14.5 million during the six months ended June 30, 2014. The increase in cash used in investing activities of $18.8 million in the first six months of 2014 was driven by an increase in the purchases of available for sale investments of $15.3 million combined with a decrease in maturities of short term investments of $3.5 million compared to the first six months of 2013.

        There was no net cash provided by financing activities during the six months ended June 30, 2013 compared to $24.6 million during the first six months of 2014. This increase was a result of the Series D convertible preferred stock issuance in May 2014.

    Comparison of the Years Ended December 31, 2012 and 2013

        Net cash used in operating activities was $8.2 million for the year ended December 31, 2012 compared to $6.7 million for the year ended December 31, 2013. The decrease of $1.6 million in cash used in operating activities was primarily driven by a $0.9 million decrease in our operating expenses and the

77


Table of Contents

$0.7 million increase in the non-cash adjustment for the accretion of the debt discount and the debt issuance cost provided by convertible notes payable.

        Net cash provided by investing activities was $7.4 million for the year ended December 31, 2012 compared to net cash provided of $2.7 million for the year ended December 31, 2013. The decrease of $4.7 million in cash provided by investing activities was driven by a decrease in net proceeds from maturities of available for sale short term investments of $9.5 million offset by a decrease in purchases of available for sale short term investments of $4.8 million compared to the prior year.

        Net cash provided by financing activities during the year ended December 31, 2012 was immaterial. Net cash provided by financing activities during the year ended December 31, 2013 of approximately $4.3 million was attributable to our September 2013 convertible promissory note financing.

Off-Balance Sheet Arrangements

        We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations of the Securities and Exchange Commission, or SEC.

Net Operating Loss Carryforwards

        As of December 31, 2013, we had federal and state net operating loss carryforwards of approximately $69.9 million and $45.4 million, respectively, to offset future federal and state taxable income, which will expire at various times between 2014 and 2033. We also had federal and state research and development tax credit carryforwards of approximately $2.0 million and $1.1 million, respectively, to offset future income taxes, which will expire at various times between 2022 and 2033. Lastly, as of December 31, 2013, we had federal Orphan Drug tax credit carryforwards of approximately $7.2 million, to offset future income taxes, which will expire at various times between 2029 and 2033. Net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. On December 31, 2013, we recorded a 100% valuation allowance against our net operating loss and tax credit carryforwards, as we believe it is more likely than not that the tax benefits will not be fully realized. In the future, if we determine that a portion or all of the tax benefits associated with our tax carryforwards will be realized, net income would increase in the period of such determination.

78


Table of Contents

Contractual Obligations

        The following table summarizes our outstanding contractual obligations as of payment due date by period at December 31, 2013:

 
  Total   Less than
1 Year
  1 to 3 Years   3 to 5 Years   More than
5 Years
 
 
  (in thousands)
 

Convertible promissory notes(1)

  $ 4,452   $ 4,452   $   $   $  

Operating leases(2)

    188     188              
                       

Total obligations

  $ 4,640   $ 4,640   $   $   $  
                       
                       

(1)
The convertible promissory notes represent the aggregate $4.3 million principal amount of convertible notes issued in September of 2013 plus accrued interest totaling $0.1 million. The convertible notes were converted into Series D preferred stock in May 2014.

(2)
In July 2009 we entered into a multi-year non-cancelable lease for our offices in Waltham, Massachusetts. In October 2011, we amended the lease extending its expiration to December 2014. In August 2014 we amended the lease extending its expiration to June 2018 with one optional one-year extension period. The minimum lease payments above do not include common area maintenance charges or real estate taxes.

        The contractual obligations table does not include any potential future royalty payments we may be required to make under our license assignment with Johns Hopkins University, due to the uncertainty of the occurrence of the events requiring payment under that agreement.

        We enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts are not included in the table above as they provide for termination on notice, and therefore are cancelable contracts and do not include any minimum purchase commitments.

Qualitative and Quantitative Disclosures about Market Risk

        The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of June 30, 2014, we had cash equivalents of $8.6 million consisting primarily of investments in U.S. Treasuries and certificates of deposit. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our marketable securities are subject to interest rate risk and could fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments.

        We contract with CROs and contract manufacturers internationally. Transactions with these providers are predominantly settled in U.S. dollars and, therefore, we believe that we have only minimal exposure to foreign currency exchange risks. We do not hedge against foreign currency risks.

The JOBS Act

        In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. As a result, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

79


Table of Contents


BUSINESS

Overview

        We are a late-stage biopharmaceutical company focused on the development of novel, first-in-class pharmaceuticals to address the needs of patients with renal and vascular disease. Our product candidate, PRT-201, is a recombinant human elastase that we are developing to reduce vascular access failure in patients with chronic kidney disease undergoing or planning for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access. We believe the data from our completed Phase 2 trial of PRT-201 in patients undergoing creation of an arteriovenous fistula, or AVF, support that a one-time, local application of PRT-201 during AVF surgical placement reduces AVF failure, thereby improving patient outcomes and reducing the burden on patients and the healthcare system. We are not aware of any approved preventative treatments to reduce the failure rate of AVFs. We initiated the first of two Phase 3 trials for PRT-201 in radiocephalic AVFs, our initial indication, in the third quarter of 2014 and expect to initiate the second Phase 3 trial in the first half of 2015.

        The need to improve vascular access outcomes is well established in the hemodialysis community. A 2014 publication estimated the total cost of managing hemodialysis vascular access dysfunction in the United States to be approximately $2.9 billion annually. AVFs are the gold standard of vascular access for hemodialysis, given they are associated with fewer complications and reduced rates of hospitalization than other forms of vascular access. We estimate there are approximately 130,000 AVFs created in the United States annually, a procedure in which a surgeon transects a vein and sutures it to the side of a nearby artery, typically in the arm. However AVFs have a greater than 50% failure rate in their first year after placement, resulting in frequent surgical or interventional procedures and a high rate of abandonment, leading to increased morbidity, mortality and costs of care. Function can usually be restored via additional procedures, either an intervention such as angioplasty, which is dilation of a blood vessel with a balloon, or a surgical revision. However, these procedures are costly, invasive, painful, associated with a number of complications and often need to be repeated. AVF patients in the United States on average require greater than 1.5 procedures per year, each of which typically costs Medicare between $5,000 and $13,000.

        We demonstrated that PRT-201 generates fragments of elastin, a protein present in blood vessels, and we believe the fragments of elastin inhibit formation of neointimal hyperplasia, which is the growth of tissue inside vessels that narrows AVFs and reduces blood flow. During the AVF placement surgery, the surgeon administers drops of PRT-201 onto the surface of the artery and vein of the AVF for 10 minutes followed by a saline irrigation. We believe that a one-time, local application of PRT-201 to the external surface of the vessels during AVF surgical placement can modify the injury response, or scarring, resulting from surgery and thereby reduce the severity of neointimal hyperplasia and AVF failure following surgery.

        We have completed a multicenter, randomized double-blind, placebo-controlled Phase 2 trial of PRT-201 in 151 patients undergoing surgical creation of AVFs in the wrist, known as radiocephalic AVF, or upper arm, known as brachiocephalic AVF. The primary efficacy endpoint was primary unassisted patency, defined as the time from surgical creation of the AVF to occurrence of a thrombosis or an intervention such as angioplasty, to restore or maintain patency, or functionality. Both the 10 microgram and 30 microgram doses of PRT-201 showed a trend toward efficacy on the primary endpoint, although neither dose met the primary endpoint with statistical significance. For all AVFs, median patency, the time at which 50% of patients in a group lost primary unassisted patency, was 224 days in the placebo group and greater than 365 days in each of the PRT-201 treatment groups, indicating that PRT-201 prolonged primary unassisted patency. In the trial, patients treated with PRT-201 reported adverse events comparable to placebo. These events were consistent with the medical events experienced by chronic kidney disease patients undergoing AVF placement surgery.

        An analysis of the primary endpoint data revealed an uneven distribution in patency loss events in patients with a brachiocephalic AVF due to central stenosis in the shoulder and chest, remote from the site of an AVF. Central stenoses commonly exist prior to AVF placement and are unmasked following placement of brachiocephalic AVFs, which have higher blood flow than radiocephalic AVFs. These

80


Table of Contents

stenoses are unrelated to treatment with PRT-201. To correct for this uneven distribution, we conducted a non-prespecified analysis of the primary endpoint that excluded patency loss events due to central stenoses. This analysis demonstrated a significant reduction in the risk of primary unassisted patency loss in the 30 microgram PRT-201 dose group (p=0.04) compared to placebo.

        The benefit of PRT-201 on primary unassisted patency was most pronounced in the subset of patients undergoing placement of a radiocephalic AVF. The subset analysis of this endpoint for radiocephalic AVF patients receiving the 30 microgram dose, which was not prespecified, showed a significant increase in median primary unassisted patency of >365 days as compared to 125 days in the placebo group. In addition, we observed beneficial drug effects on additional efficacy endpoints, including unassisted maturation, defined as increased vessel diameter and blood flow without the need for an intervention such as angioplasty; rate of procedures to restore or maintain AVF patency; secondary patency, defined as abandonment of the AVF and the need for creation of a new vascular access; use for hemodialysis and hemodynamically significant stenosis, or narrowing of blood vessels.

        In April 2013, we held an end of Phase 2 meeting with the United States Food and Drug Administration, or FDA, during which we confirmed elements of our Phase 3 development plan, including the primary endpoint. We plan to perform two 300-patient Phase 3 trials of PRT-201 using a 30 microgram dose, which will enroll patients undergoing a surgical procedure to create a radiocephalic AVF. We began enrolling patients in our first Phase 3 clinical trial in the third quarter of 2014, and anticipate that results will be available in the first quarter of 2017. We expect to initiate our second Phase 3 clinical trial in the first half of 2015. In May 2014, following the results from our Phase 2 trial and to fund our first Phase 3 trial, we closed on the $25.0 million first tranche of a $45.0 million total financing. The financing was led by Abingworth, Deerfield and Pharmstandard and included investments from our existing venture investors. While the FDA offered no assurances that it will not require us to conduct any additional clinical studies, we believe we will not need to conduct any additional clinical studies after our Phase 3 trials. Further, if the results of the first Phase 3 trial are sufficiently compelling, we intend to meet with the FDA to discuss the possibility of submitting a Biologics License Application, or BLA, supported by the single Phase 3 trial and may decide to submit a BLA to the FDA prior to completing the second Phase 3 trial. PRT-201 has received fast track designation which is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need, from the FDA and orphan drug designation in the United States and European Union, for hemodialysis vascular access indications.

        We believe that if our Phase 3 clinical program is successful PRT-201 will potentially become the standard of care for patients with chronic kidney disease who are undergoing surgical placement of a radiocephalic AVF. We retain worldwide commercial rights to PRT-201. If approved by regulatory authorities, we intend to commercialize this product in the United States ourselves with a specialty hospital sales force, focused primarily on vascular surgeons, and intend to seek one or more collaborators to commercialize the product in additional markets. Our patents include claims covering formulations, methods of manufacturing and use of elastases, providing protection in the United States through mid 2029 and European Union through 2028, with potential extension through 2032 in the United States and the European Union.

Our Strengths

        We believe our company and PRT-201 possess the following attributes that increase the likelihood that we will be successful in developing and commercializing PRT-201:

    Entering Phase 3 trials for radiocephalic AVF placement.  We are conducting our first Phase 3 clinical trial and plan to conduct our second Phase 3 clinical trial in radiocephalic AVF placement using a 30 microgram dose of PRT-201, the population and dose in which, in a non-prespecified analysis, we observed an improvement in primary unassisted patency with PRT-201 in our Phase 2 trial.
    Phase 3 endpoints same as our Phase 2 trial.  The primary endpoint in our Phase 3 trials, primary unassisted patency, will be the same as we used in our Phase 2 trial. In addition, our secondary

81


Table of Contents

      endpoint (secondary patency) and tertiary endpoints (unassisted maturation, use for hemodialysis and average procedure rates) in our Phase 3 trials were all endpoints in our Phase 2 trial. In April 2013, we held an end of Phase 2 meeting with the FDA during which we confirmed elements of our Phase 3 development plan, including the primary endpoint.

    Safety profile supports approval.  Based on results from our clinical trials and preclinical studies, we believe PRT-201, which is administered once and only acts locally, has demonstrated a safety profile that will support approval if our planned Phase 3 clinical program is successful. Because PRT-201 is administered in a one-time, local application and is inactivated by antiproteases, substances that inhibit the activity of a protease, in the blood, there is no systemic activity. In clinical trials assessing safety, there were no material increases in adverse events in the PRT-201 treatment groups as compared to placebo and no material findings related to physical examinations or clinical laboratory testing including chemistry, hematology and coagulation panels or antibodies to PRT-201. At our end of Phase 2 meeting with the FDA, we confirmed that we do not need to conduct any additional preclinical studies to support a BLA filing.
    Unmet medical need.  While AVFs are considered the most desirable form of vascular access by the medical community, they are also associated with high failure rates, a serious complication for hemodialysis patients that results in substantially higher healthcare costs. A 2014 publication estimated the total cost of managing hemodialysis vascular access dysfunction in the United States to be approximately $2.9 billion annually. We are not aware of any approved preventative treatments to reduce AVF failure rate. PRT-201 has received fast track designation from the FDA, which is designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. We believe PRT-201 reduces vascular access failure in patients with chronic kidney disease, or CKD, undergoing hemodialysis and, if approved, could become the standard of care by reducing the cycle of interventions, improving patient outcomes and reducing the overall burden on patients and the healthcare system.
    Substantial and readily-addressable market opportunity.  If PRT-201 is approved, we intend to commercialize this product in the United States and potentially certain European countries ourselves with a specialty hospital sales force, focused primarily on vascular surgeons, and intend to seek one or more collaborators to commercialize the product in additional markets. We estimate a sales force of approximately 75-100 representatives will enable us to call on the approximately 1,300 hospitals that account for more than 90% of the AVF surgical placements performed in the United States annually. We believe PRT-201 will be supported by key stakeholders, including referring nephrologists, patient advocacy groups, large dialysis organizations and payors. We believe PRT-201 will be reimbursed adequately as costs related to AVF surgical placement, which is typically performed in the hospital outpatient setting, are not included in the ESRD bundle, the single bundled payment from Medicare for a number of the costs of hemodialysis treatments, medications, labs and supplies for patients with end stage renal disease.
    Experienced team.  Our executive management team has extensive experience in the renal and vascular disease fields through their substantial involvement in companies such as Abbott, GelTex, Genzyme, Glaxo, and Merck. Our Chief Executive Officer and Chief Medical Officer were senior executives at GelTex, a biopharmaceutical company, where they played leading roles in the development and commercialization of Renagel, a treatment for hemodialysis patients that led to Genzyme's acquisition of GelTex for more than $1 billion.

Our Strategy

        Our strategy is to develop and commercialize PRT-201 for patients suffering from renal and vascular diseases, beginning with patients with CKD undergoing surgical creation of a radiocephalic AVF. Key elements of our strategy include our plans to:

    Complete clinical development of PRT-201 and seek regulatory approval in the United States in its lead indication.  We commenced our first Phase 3 clinical trial of PRT-201 for patients with CKD

82


Table of Contents

      undergoing creation of a radiocephalic AVF in the third quarter of 2014. Prior to completing enrollment in the first Phase 3 trial, we will initiate our second Phase 3 trial in the first half of 2015. If the results of the first Phase 3 trial are sufficiently compelling, we intend to meet with the FDA to discuss the possibility of submitting a BLA supported by the single Phase 3 trial and may decide to submit a BLA to the FDA prior to completing the second Phase 3 trial.

    Commercialize PRT-201 directly in the United States.  If PRT-201 is approved by the FDA, we intend to commercialize it ourselves in the United States with a specialty hospital sales force focused primarily on vascular surgeons. There are approximately 2,800 vascular surgeons in the United States. In 2011, according to the U.S. Renal Data System 2013 Annual Data Report, there were approximately 395,000 hemodialysis patients in the United States at the end of the year. Based on various third-party sources, we estimate that approximately 130,000 AVFs are placed annually. We believe a specialty hospital sales force of approximately 75-100 representatives will enable us to call on the approximately 1,300 hospitals that account for more than 90% of the AVF surgical placements performed in the United States annually. We believe that PRT-201's potential benefits to patients undergoing surgical creation of an AVF will result in its broad adoption.
    Undertake clinical development of PRT-201 in Europe and establish partnerships for commercialization of PRT-201 in all or parts of Europe.  We are currently evaluating our existing clinical program to support filing in Europe. We may, based on additional data including the data from our Phase 3 clinical trials in the United States and if sufficient funds become available, choose to conduct a clinical trial of PRT-201 in Europe. We estimate that there are approximately 316,000 hemodialysis patients in Europe. Prior to enrolling our first patient in Europe, we plan to formally seek guidance from the European Medicines Agency, or EMA, regarding its requirements for regulatory approval. We expect results from this trial to be available two to three years after the first patient is enrolled. If this European trial successfully meets its primary endpoint and depending on the guidance obtained from the EMA, we would expect to submit a Marketing Authorization Application, or MAA. If PRT-201 is approved by the EMA, we intend to commercialize it in some European countries with our own specialty hospital sales force and/or with a commercial partner in the other European countries. Like in the United States, we intend to target both vascular surgeons who create AVFs as well as key referring nephrologists.
    Pursue additional indications for PRT-201.  We believe that our Phase 2 clinical data support further development of PRT-201 in brachiocephalic AVF placement. We may, based on additional data including the data from our Phase 3 clinical trials and if sufficient funds become available, study the effects of a 30 microgram dose of PRT-201 versus placebo on brachiocephalic AVFs. If this trial successfully meets its primary endpoint, we would expect to submit a supplemental BLA, or sBLA, to the FDA and a supplemental MAA, or sMAA, to the EMA. Further, if sufficient funds become available and after reviewing the results from our Phase 3 clinical trials, we may commence a clinical trial of PRT-201 in patients undergoing placement of an arteriovenous graft, or AVG. We believe PRT-201's potential to reduce neointimal hyperplasia could offer a significant medical benefit in these patients.
    Establish partnerships for development and commercialization of PRT-201 in Japan and other Asian countries.  We estimate that there are approximately 295,000 patients on hemodialysis in Japan and more than 750,000 throughout all of Asia. Approximately 90% of Japanese hemodialysis patients receive AVFs. We may enter into collaborations for the development and commercialization of PRT-201 in Asia.
    In-license or acquire additional product opportunities.  We plan to search for additional product opportunities that could be sold and marketed by the specialty hospital sales force required to successfully launch PRT-201 in the United States if it is approved for marketing.

Background on Hemodialysis

        Healthy kidneys serve many functions, including removing waste and excess water, helping to control blood pressure and keeping electrolytes, such as sodium and potassium, in balance. Patients with CKD,

83


Table of Contents

have lost most or all kidney function, most commonly due to diabetes or hypertension. Kidney disease is progressive and once a patient has reached end-stage CKD, the kidneys are no longer able to remove waste and fluids from the body. At this point, some form of renal replacement therapy is required, such as hemodialysis, in which blood is processed by a hemodialysis machine, peritoneal dialysis, a process using a cavity in the abdomen called the peritoneum as a membrane across which fluids are exchanged from the blood, or kidney transplant.

        According to the U.S. Renal Data System 2013 Annual Data Report, in 2011 there were approximately 395,000 hemodialysis patients in the United States, and an incremental 104,000 patients initiated hemodialysis in the United States. As reported by Fresenius Medical, a major provider of hemodialysis services and renal care products, there are approximately 316,000 hemodialysis patients in Europe, 295,000 hemodialysis patients in Japan and 2 million hemodialysis patients worldwide, with an annual worldwide growth rate of 6-7%.

        Hemodialysis is the most common form of treatment for end-stage CKD. Hemodialysis is a chronic therapy performed by cannulating, or piercing, a vein with a large bore needle so that blood can be pumped through a hemodialysis machine, which removes waste and excess fluid normally excreted by the kidney. The cleansed blood is then returned to the same vein via a second needle. A hemodialysis session typically lasts three to four hours and is performed three times a week in an outpatient dialysis clinic.

        To enable sufficient blood to pass through the hemodialysis machine to complete treatment within four hours, a vein must have blood flow of at least 500 milliliters per minute. The arm is the most convenient location for accessing the blood stream on a recurring basis, but blood flow in the arm is approximately 50 milliliters per minute. Therefore, most hemodialysis patients undergo a surgical procedure in which a surgeon establishes a direct connection between an artery and a vein to create a high flow circuit of sufficient diameter, most often in an arm. The direct artery-vein connection effectively bypasses the capillary circulation in the hand and leads to a process known as maturation, where the internal diameter, or lumen, of the vein and blood flow increase over a period of weeks, resulting in a lumen diameter greater than 4 millimeters and blood flow of 500-2,000 milliliters per minute in successful cases.

        The gold standard for vascular access is an AVF, in which a surgeon transects a vein in the arm and sutures it to the side of a nearby artery. AVFs are preferred because they are less prone to patency loss than arteriovenous grafts, or AVGs; approximately 50% of AVFs and up to 75% of AVGs will lose primary patency and 20-30% of AVFs and 28-35% of AVGs will lose secondary patency in the first year after surgical placement. As compared to AVGs, AVFs require approximately 40% fewer interventional or surgical procedures and suffer from a rate of vascular access infection that is 54% lower. Patients dialyzing with an AVF have lower rates of thrombosis and hospitalization, longer survival, reduced mortality and lower cost of care. Beyond the substantial medical advantages of an AVF, available data from the U.S. Renal Data System show that patients who dialyze with an AVF cost Medicare approximately $15,000 less annually than patients who dialyze with an AVG and approximately $25,000 less annually than patients who dialyze with a catheter. According to published data, approximately 60% of hemodialysis patients in the United States dialyze with an AVF compared to 67-83% of patients in the major European countries and approximately 90% of patients in Japan.

        Based on various third-party sources, we estimate there are approximately 130,000 AVFs created in the United States annually. There are a limited number of potential artery-vein combinations in the arm that can be used to create an AVF, principally the following:

    radiocephalic AVF at the wrist (radial artery sutured to cephalic vein), which we estimate is created in 40% of new AVF placements;
    brachiocephalic AVF at the elbow (brachial artery sutured to cephalic vein), which we estimate is created in 50% of new AVF placements; and
    brachiobasilic AVF in the upper arm (brachial artery sutured to basilic vein), which we estimate is created in 10% of new AVF placements.

84


Table of Contents

        The medical community endorses radiocephalic AVFs as the optimal form of vascular access and the recommended first choice for new hemodialysis patients. Creating the vascular access site at the wrist preserves the potential future use of other access further up in the arm, is simpler to create, and is less likely to create heart failure or steal syndrome, where the diversion of flow through the AVF reduces blood to the hand. Radiocephalic AVFs are also less likely to suffer from central stenoses in the shoulder and chest, remote from the site of the AVF. The Kidney Disease Outcome Quality Initiative Guidelines, or KDOQI Guidelines, authored by the National Kidney Foundation, or NKF, specifically recommend starting with a radiocephalic AVF if possible, stating that "starting [closer to the hand] and moving [further up the arm] provides for the possibility of preserving as many potential sites as possible for future access creation." If a radiocephalic AVF must be abandoned, a surgeon can create a new vascular access higher up the arm, most likely a brachiocephalic AVF. However, if a brachiocephalic AVF is placed first, the surgeon cannot later move down that same arm to create a radiocephalic AVF because the cephalic vein has already been transected for use in the brachiocephalic AVF.

        Radiocephalic (wrist) AVFs suffer from high rates of patency loss and maturation failure, with up to 70% being subject to primary unassisted patency loss and up to 35% being abandoned within twelve months after their surgical placement. Patency loss in radiocephalic AVFs occurs due to stenosis formation at or near the AVF 75% - 95% of the time. Some patients never receive a radiocephalic AVF because the surgeon believes the risk of failure is too high for those patients. These patients will typically undergo placement of an AVF higher up on the arm and permanently lose at least one of their access sites. We believe that the number of radiocephalic AVFs created annually may rise significantly if PRT-201 improves outcomes and allows vascular surgeons to create radiocephalic AVFs in sites that they previously considered to pose an unacceptably high risk of failure.

        The second choice for vascular access after AVF is an AVG in which a surgeon connects an artery and vein using a synthetic tube. Based on reported data, approximately 20% of hemodialysis patients in the United States dialyze with an AVG, compared to approximately 5-12% of patients in the major European countries and approximately 7% of patients in Japan.

        The least desirable type of vascular access is a catheter, a plastic tube that is placed directly through the skin into a vein, typically via an incision in the neck enabling placement of the catheter into a large vein that leads directly to the heart. The catheter connects the patient's vasculature to the hemodialysis machine. Because the catheter penetrates the skin continuously, it is subject to a high risk of infection and increased mortality. One of the primary goals of hemodialysis care is to keep patients off catheters. However, patients most often initiate hemodialysis through a catheter until an AVG or AVF is ready to be used, and are dialyzed temporarily through a catheter when the AVF or AVG they have been using fails and a new one has to be created. Approximately 20% of hemodialysis patients in the United States dialyze with a catheter, compared to 10-28% of patients in the major European countries and 2% of patients in Japan, based on published data.

Established Medical Need

        The need to improve vascular access outcomes is well established in the hemodialysis community. The health-related and economic cost of creating and maintaining vascular access for hemodialysis has led to a global effort to address the problem. Over the last ten years, the NKF has established guidelines in an effort to increase the use of AVFs while reducing the rate of complications, mostly through the identification and promulgation of best practices. The National Institutes of Health joined the effort in 2000 with the creation of a multi-center consortium of medical centers, the Dialysis Access Clinical Trials Consortium to coordinate the testing of new treatments designed to improve AVF and AVG outcomes. The intensity of these efforts increased markedly in 2004, when the Centers for Medicare and Medicaid Services, or CMS, reacting to health and economic data, announced the "Fistula First" initiative to increase the use of AVFs while reducing complications. According to Fistula First, AVFs should be considered for every patient needing hemodialysis because AVFs last longer than AVGs, require fewer surgical and endovascular interventions, are associated with lower rates of infection, hospitalization and

85


Table of Contents

death, and are less costly. As a result of these efforts, AVF use has approximately doubled since 2004 to 60% of United States hemodialysis patients.

        A major problem with AVFs and AVGs is patency loss, in which the access experiences either a significant or complete reduction in blood flow, precluding hemodialysis and placing the access at risk of abandonment. However, the increased use of AVFs has led to a concurrent increase in AVF patency loss as AVFs are placed in patients with higher risks of AVF failure, such as the elderly, diabetics or patients with smaller blood vessels. Additionally, physicians have become more aggressive in monitoring and intervening earlier upon AVFs in an attempt to treat patency loss before it results in abandonment of that access site. These factors have resulted in an approximate doubling in the rate of AVF interventions in less than a decade.

        We are not aware of any approved preventative measures to reduce the rate of vascular access patency loss, and the clinical implications of patency loss are severe. An episode of patency loss must be addressed urgently to restore blood flow, enable the patient to resume hemodialysis and avoid access abandonment. Treatment of patency loss typically involves an outpatient procedure, either an endovascular intervention, such as balloon angioplasty, stenting or thrombectomy, or a surgical revision.

        Procedures to address patency loss are invasive, painful, and associated with a number of complications, and there are a number of problems associated with them:

      The procedures are not always successful in restoring patency.  Procedures to address AVF patency loss are unsuccessful up to 27% of the time. When these procedures are unsuccessful or the physician determines that a procedure to restore patency is futile, the access site must be abandoned, resulting in the urgent need for catheter placement to enable hemodialysis. Recent data indicate that hemodialysis patients who switch from a permanent vascular access to a catheter have a mortality rate that is double those who remain on a permanent access. Access abandonment also results in surgical placement of a new AVF or AVG, reducing the number of future access sites available to the patient.
      The procedures often fail to provide a durable benefit, resulting in a cycle of interventions for the patient.  Recent data indicate that 50% of AVFs that undergo angioplasty to treat patency loss experience another episode of patency loss within 12 months, resulting in the need for additional procedures to restore patency. AVF patients in the United States on average require greater than 1.5 procedures per year, each of which typically costs Medicare between $5,000 and $13,000. A United States hospital recently published data indicating that maintaining a radiocephalic AVF can cost on average more than $17,000 in the first year after surgical placement. A 2014 publication estimated the total cost of managing vascular access dysfunction in the United States to be approximately $2.9 billion annually.

        AVFs and AVGs are also prone to secondary patency loss, in which the access must be abandoned. Patients on hemodialysis must dialyze with a catheter until a new permanent access can be surgically placed and becomes usable for hemodialysis, a process that typically requires a minimum of three months for AVFs. During this time, patients are at a heightened risk of serious infection, hospitalization and death. According to the U.S. Renal Data System, in 2011 hemodialysis patients averaged approximately 12 hospital days per year.

86


Table of Contents

PRT-201

        PRT-201 is a recombinant human elastase under development as a treatment to prevent AVF and AVG patency loss. We initiated the first of two Phase 3 trials for PRT-201 in radiocephalic AVF, our lead indication, in the third quarter of 2014 and expect to initiate the second Phase 3 trial in the first half of 2015.

    Mechanism of Action

        AVF patency loss occurs most commonly due to progressive scarring in the wall of the outflow vein near the lumen, resulting in stenosis of the lumen of the vein and obstruction of blood flow in the AVF. This form of vascular scarring is commonly known as neointimal hyperplasia. When surgeons create an AVF they handle and manipulate blood vessels resulting in mechanical vessel injury. Furthermore, after AVF creation the rapid flow of blood from the artery into the outflow vein results in unnatural physiologic changes and mechanical stresses in the vein wall. The response of the vein to this injury and stress results in activation and recruitment of scar forming cells, which multiply and migrate from the outside wall to the inside wall of the blood vessel and produce a thick layer of tissue, creating a narrowing in the vein lumen and a reduction in AVF blood flow. This blood vessel response to injury occurs during the first two to three weeks following vascular surgery and is shown in the following figure.

Vessel Injury During AVF and AVG Surgical Placement Results in Stenosis Formation

GRAPHIC

        We demonstrated that PRT-201 fragments elastin, a protein present in blood vessel walls. The fragmentation of elastin in the outside wall of the blood vessel is thought to inhibit formation of neointimal hyperplasia thereby reducing the risk of patency loss. Elastase causes localized fragmentation of elastin protein fibers present in blood vessel walls. The elastin fragments generated by elastase are chemoattractants for scar forming cells, meaning that the fragments attract these scar forming cells, inhibiting their migration to the lumen. The cells recognize the elastin fragments via receptors present on the cell surface that bind to specific elastin fragment sub-types. The importance of elastin fragments in vascular biology, including the response to vascular injury has been established in the scientific literature over three decades. Published academic studies conducted in animals provide evidence that fragmentation of elastin in the outer wall of the blood vessels from administration of elastase after vascular injury resulted in a 38-42% reduction in neointimal hyperplasia at 28 days following the surgical procedure. Based on our preclinical in vivo and ex vivo studies in human vessels, applying PRT-201 to the external surface of the blood vessels generates localized elastin fragments in the outside wall of injured blood vessels. We have established this effect in the doses we plan to advance in our clinical trials. We believe that a one-time, local application of a 30 microgram dose of PRT-201 to the external surface of the vessels during AVF surgical placement can reduce the vascular scarring on the inside of the vessel wall resulting from surgery and thereby reduce the severity of neointimal hyperplasia and the risk of AVF failure. During the AVF placement surgery, the surgeon administers drops of PRT-201 onto the surface of the artery and vein at the

87


Table of Contents

AVF for 10 minutes followed by a saline irrigation. We believe the elastin fragments that are generated by PRT-201 attract scar forming cells to the outside wall of the injured vessel, reducing their movement to the inside wall of the vessel, thereby inhibiting lumen stenosis. This mechanism is portrayed in the following figure:

PRT-201 Treatment Inhibits Stenosis Formation

GRAPHIC

        This injury response and the role of elastase-generated fragments are operative in other cardiovascular surgeries, such as bypass, and interventional procedures, such as angioplasty.

Clinical Development of PRT-201

    Our Phase 2 AVF Clinical Trial

        We completed a multicenter, randomized, double-blind, placebo-controlled Phase 2 trial of PRT-201 in AVF that treated 151 patients with CKD undergoing creation of a radiocephalic AVF (n=67) or brachiocephalic AVF (n=84). Patients were treated with PRT-201 at doses of 10 or 30 micrograms or placebo at the time of AVF placement and were followed for up to 12 months.

    Primary endpoint

        The primary efficacy endpoint was primary unassisted patency over 12 months. Primary unassisted patency was defined as the time from access creation until the first occurrence of either AVF thrombosis or a procedure, such as balloon angioplasty, to restore or maintain patency.

        Both doses of PRT-201 showed a trend toward efficacy, although neither dose met the primary endpoint with statistical significance. Median patency, the time at which 50% of patients in a group lost primary unassisted patency, was 224 days in the placebo group and greater than 365 days in each of the PRT-201 treatment groups indicating patency in the PRT-201 treatment groups was prolonged by PRT-201. Treatment with PRT-201 at 10 and 30 microgram doses was associated with a reduction of 31% and 33%, respectively, in the risk of primary unassisted patency loss. After adjusting for differences in baseline characteristics associated with the risk of primary unassisted patency loss, treatment with PRT-201 at 10 and 30 microgram doses was associated with a reduction of 24% and 41%, respectively, in the risk of primary unassisted patency loss. The following Kaplan-Meier curves and table display primary unassisted patency for all AVFs.

88


Table of Contents

Primary Unassisted Patency—All AVFs

GRAPHIC

        The table below shows the primary unassisted patency data in the placebo and PRT-201 treatment groups.

Reduction in Risk of Primary Unassisted Patency Loss vs. Placebo—All AVFs

 
  PRT-201
10 microgram
dose
  PRT-201
30 microgram
dose

Number of Patients

  N=51   N=49

Unadjusted Risk vs. Placebo

  -31% (p=0.19)   -33% (p=0.17)

Adjusted Risk(1) vs. Placebo

  -24% (p=0.35)   -41% (p=0.10)

Note:    Prespecified analysis.

(1)
Adjusted for differences in baseline characteristics associated with the risk of primary unassisted patency loss between treatment groups using a prespecified Cox regression analysis.

        Patients completing 12 months of follow-up in the initial trial were followed in a registry to obtain additional data related to the efficacy endpoints. In this follow-up, the PRT-201 benefit on primary unassisted patency persisted out to 900 days.

        Radiocephalic AVFs.    The benefit of PRT-201 on primary unassisted patency was more pronounced in the subset of patients undergoing placement of a radiocephalic AVF than in the subset of patients undergoing placement of a brachiocephalic AVF or all patients undergoing placement of an AVF. The subset analysis of this endpoint was not prespecified. The following Kaplan-Meier curves and table summarize the reduction in risk of primary unassisted patency loss in the subset of patients with radiocephalic AVFs. Treatment with PRT-201 at doses of 10 and 30 micrograms was associated with a reduction of 41% and 63%, respectively, in the risk of primary unassisted patency loss. Median patency was 125 days in the placebo group and 377 days in the 30 microgram group (in some cases the 12 month follow up occurred after day 365 due to patient schedules), indicating a significant improvement in primary unassisted patency.

89


Table of Contents

Primary Unassisted Patency—Radiocephalic AVFs

CHART

Reduction in Risk of Primary Unassisted Patency Loss vs. Placebo—Radiocephalic AVFs

 
  PRT-201
10 micrograms
  PRT-201
30 micrograms

Number of Patients

  N=23   N=20

Unadjusted Risk vs. Placebo

  -41% (p=0.18)   -63% (p=0.02)

Adjusted Risk(1) vs. Placebo

  -40% (p=0.20)   -61% (p=0.04)

Note:    Not prespecified analysis.

(1)
Adjusted for differences in baseline characteristics associated with the risk of primary unassisted patency loss between treatment groups using a prespecified Cox regression analysis.

        Brachiocephalic AVFs.    The benefit of PRT-201 on primary unassisted patency was less pronounced in the subset of patients undergoing placement of a brachiocephalic AVF. This was in part due to an uneven distribution between brachiocephalic AVF groups in the number of patency loss events occurring in the central veins and cephalic arch, also known as central stenosis, which are remote from the site of the AVF. Patency loss in brachiocephalic AVFs occurs due to central stenosis 50% of the time. Central stenoses commonly exist prior to surgery due to the venous anatomy or scarring from a prior hemodialysis catheter, but are typically unmasked following placement of the higher blood flow brachiocephalic AVFs. Since PRT-201 is active locally at the site where it is applied on the AVF, and because we have demonstrated that PRT-201 is not active remotely, we believe that central stenoses are unrelated to PRT-201. Therefore, to correct for this uneven distribution, we conducted a non-prespecified analysis of the primary endpoint in brachiocephalic AVFs which excluded patency loss events due to central stenoses. The following table summarizes the risk of primary unassisted patency loss in brachiocephalic AVFs including and then excluding patency loss events related to central stenoses.

90


Table of Contents

Reduction in Risk of Primary Unassisted Patency Loss vs. Placebo—Brachiocephalic AVFs

 
  PRT-201
10 micrograms
  PRT-201
30 micrograms

Number of Patients

  N=28   N=29

Unadjusted Risk vs. Placebo

  -14% (p=0.72)   +10% (p=0.82)

Unadjusted Risk vs. Placebo Excluding Central Stenoses

  -12% (p=0.76)   -26% (p=0.46)

Note:    Not prespecified analysis.

        We also conducted a non-prespecified analysis across all patients of the primary endpoint correcting for this uneven distribution in central stenoses. The following Kaplan-Meier curves for primary unassisted patency for all AVFs (excluding central stenoses) and table demonstrate a significant reduction in the risk of primary unassisted patency loss for the 30 microgram dose (p=0.04, for the 30 microgram dose) versus placebo. Treatment with PRT-201 at doses of 10 and 30 micrograms was associated with a reduction of 31% and 48%, respectively, in the risk of primary unassisted patency loss. After adjusting for differences in baseline characteristics associated with the risk of primary unassisted patency loss, treatment with PRT-201 at doses of 10 and 30 micrograms was associated with a reduction of 25% and 52%, respectively, in the risk of primary unassisted patency loss.

Primary Unassisted Patency—All AVFs
(Excluding Central Stenoses)

CHART

Reduction in Risk of Primary Unassisted Patency Loss vs. Placebo—All AVFs
(Excluding Central Stenoses)

 
  PRT-201
10 micrograms
  PRT-201
30 micrograms

Number of Patients

  N=51   N=49

Unadjusted Risk vs. Placebo

  -31% (p=0.20)   -48% (p=0.04)

Adjusted Risk vs. Placebo(1)

  -25% (p=0.33)   -52% (p=0.02)

Note:    Not prespecified analysis.

(1)
Adjusted for differences in baseline characteristics associated with the risk of primary unassisted patency loss between treatment groups using a prespecified Cox regression analysis.

91


Table of Contents

        In a larger trial of brachiocephalic AVFs, we expect that the occurrence of patency loss due to central stenosis would be evenly distributed between treatment groups. In the ongoing Phase 3 clinical trial and the planned Phase 3 clinical trial, we expect that patency loss due to central stenosis would be rare since we intend to enroll radiocephalic AVF patients exclusively and radiocephalic AVFs rarely suffer from patency loss due to central stenosis because of lower blood flow. In our Phase 2 trial, no radiocephalic AVF in any group lost primary patency due to central stenosis.

    Secondary and other endpoints

        PRT-201 showed results consistent with a beneficial drug effect on multiple secondary efficacy endpoints. The prespecified efficacy endpoints were unassisted maturation, secondary patency, use for hemodialysis and hemodynamically significant lumen stenosis. In addition, we performed a prespecified efficacy analysis of average rate of procedures to restore or maintain AVF patency, a component of our primary endpoint. As with the primary efficacy analyses, we performed a number of prespecified and exploratory analyses of the data from this Phase 2 trial.

    Unassisted maturation.  Maturation is necessary for use of an AVF for hemodialysis. Unassisted maturation was defined as achieving maturation at three months without an intervention. Maturation was assessed using ultrasound measuring blood flow and lumen vein diameter. All ultrasounds were reviewed by a central reader masked to treatment assignment and AVF outcome. Two well-accepted criteria for measuring maturation were used, as shown in the footnotes in the table below. The 30 microgram dose, which we intend to study in our Phase 3 trials, showed statistically significant improvement in maturation at Month 3, with more benefit seen in patients receiving radiocephalic AVFs (figure below) than in patients receiving brachiocephalic AVFs. In the subset of patients with brachiocephalic AVFs, there was a trend toward improvement in unassisted maturation at both the 10 and 30 microgram doses.

Unassisted Maturation at Three Months—% of Patients (p-Value vs. Placebo)

 
  Placebo   PRT-201
10 micrograms
  PRT-201
30 micrograms

All AVFs

           

Number of Patients

  N=39   N=39   N=37

Percentage Mature NKF-KDOQI(1)

  46%   64% (p=0.11)   70% (p=0.03)

Percentage Mature Robbin(2)

  67%   87% (p=0.03)   92% (p<0.01)

Radiocephalic AVFs

           

Number of Patients

  N=17   N=19   N=14

Percentage Mature NKF-KDOQI(1)

  24%   37% (p=0.48)   57% (p=0.08)

Percentage Mature Robbin(2)

  47%   74% (p=0.17)   93% (p<0.01)

Brachiocephalic AVFs

           

Number of Patients

  N=22   N=20   N=23

Percentage Mature NKF-KDOQI(1)

  64%   90% (p=0.07)   78% (p=0.34)

Percentage Mature Robbin(2)

  82%   100% (p=0.11)   91% (p=0.41)

Note:    Prespecified analysis.

(1)
National Kidney Foundation Kidney Disease Outcomes Quality Initiative (NKF-KDOQI) maturation is defined as average vein lumen diameter ³6 millimeters and an outflow vein blood flow rate ³600 milliliters/minute.

(2)
Robbin maturation is defined as average vein lumen diameter ³4 millimeters and an outflow vein blood flow rate ³500 milliliters/minute.

92


Table of Contents

Unassisted Maturation—Radiocephalic AVFs

CHART


              (1)
              p-value=0.08 vs. placebo

              (2)
              p-value<0.01 vs. placebo

    The average rate of procedures to restore or maintain patency per patient year at risk.  Patients undergoing a procedure often require repeated procedures over time because procedures such as balloon angioplasty can restore blood flow acutely but also damage the blood vessel. These data can be expressed as a procedure rate calculated as the number of days in which procedure to restore or maintain patency was performed per patient divided by the patient's time on the trial. Procedures included thrombectomy, angioplasty, stent deployment and surgical revision. There was a 56% reduction in the rate of procedures in the 30 microgram group versus the placebo group. In the radiocephalic subset there was a 69% reduction in the average rate of procedures in the 30 microgram group versus the placebo group. In the brachiocephalic subset there was a 43% reduction in the average rate of procedure in the 30 microgram group versus the placebo group. Excluding procedures to treat central stenosis, in the brachiocephalic subset there was an 86% reduction in the average rate of procedures in the 30 microgram group versus the placebo group.

Average Procedure Rate to Restore/Maintain Patency (p-Value vs. Placebo)

 
  Placebo   PRT-201
10 micrograms
  PRT-201
30 micrograms

All AVFs (Prespecified)

           

Number of Patients

  N=51   N=50   N=48

Procedures per Year

  0.9   0.8 (p=0.53)   0.4 (p=0.07)

All AVFs Excluding Central Stenoses (Non-prespecified)

           

Number of Patients

  N=51   N=50   N=48

Procedures per Year

  0.8   0.7 (p=0.44)   0.2 (p<0.01)

Radiocephalic AVFs (Non-prespecified)

           

Number of Patients

  N=24   N=23   N=20

Procedures per Year

  1.0   0.8 (p=0.63)   0.3 (p=0.06)

Brachiocephalic AVFs (Non-prespecified)

           

Number of Patients

  N=27   N=27   N=28

Procedures per Year

  0.7   0.7 (p=0.72)   0.4 (p=0.50)

Brachiocephalic AVFs Excluding Central Stenoses (Non-prespecified)

           

Number of Patients

  N=27   N=27   N=28

Procedures per Year

  0.7   0.7 (p=0.54)   0.1 (p=0.07)

93


Table of Contents

        Patients completing 12 months of follow-up in the initial trial were followed in a registry to obtain additional data related to the efficacy endpoints. In this follow up, the PRT-201 benefit on procedure rates persisted out to 900 days as set out in the following table.

Average Procedure Rate to Restore/Maintain Patency Including Registry Data (p-Value vs. Placebo)

 
  Placebo   PRT-201
10 micrograms
  PRT-201
30 micrograms

All AVFs (Prespecified analysis)

           

Number of Patients

  N=51   N=50   N=48

Procedures per Year

  0.8   0.8 (p=0.61)   0.3 (p=0.03)

Radiocephalic AVFs (Non-prespecified analysis)

           

Number of Patients

  N=24   N=23   N=20

Procedures per Year

  1.0   0.8 (p=0.47)   0.2 (p=0.03)

Brachiocephalic AVFs (Non-prespecified analysis)

           

Number of Patients

  N=27   N=27   N=28

Procedures per Year

  0.7   0.8 (p=1.00)   0.4 (p=0.40)
    Secondary patency.  Secondary patency loss was defined as abandonment of the AVF, which typically occurs following loss of primary unassisted patency due to thrombosis or failure of a procedure to restore patency and leads to additional surgery to create a new vascular access. We observed no significant differences in the risk of secondary patency loss in the overall AVF population or the subset of patients receiving brachiocephalic AVFs. However, as seen in the Kaplan-Meier curves and table below, a trend toward prolonged secondary patency was seen in patients receiving radiocephalic AVFs. In this non-prespecified subset analysis, treatment with PRT-201 at doses of 10 and 30 micrograms was associated with reductions of 55% and 73%, respectively, in the risk of secondary patency loss.

Secondary Patency—Radiocephalic AVFs

CHART

 
  PRT-201
10 microgram dose
  PRT-201
30 microgram dose
 

Number of Patients

    N=23     N=20  

Unadjusted Risk vs. Placebo

    -55% (p=0.19)     -73% (p=0.08)
 

Note: Not prespecified analysis.

              Patients completing 12 months of follow-up in the initial trial were followed in a registry to obtain additional data related to the efficacy endpoints. In this follow-up, the PRT-201 benefit on secondary patency in radiocephalic AVFs persisted out to 900 days.

94


Table of Contents

    Use for hemodialysis.  Use was defined as use of the AVF for hemodialysis at any time without a previous intervention. Although the results were not statistically significant, there was a trend to more patients using the AVF for hemodialysis in the 30 microgram group (69%) compared with the placebo group (53%).
    Hemodynamically significant lumen stenosis.  Hemodynamically significant lumen stenosis, or narrowing of blood vessels, impairs AVF maturation and contributes to AVF patency loss. Hemodynamically significant stenosis was defined as a 50% or greater stenosis and a significant elevation in peak blood flow velocity across the stenosis detected by ultrasound. Ultrasounds were performed using a standard protocol and reviewed by a central reader masked to treatment assignment and AVF outcome. Although the results were not statistically significant, there was a trend to fewer patients with a hemodynamically significant stenosis in the patients receiving 10 micrograms (30%) and 30 micrograms (39%) of PRT-201 compared with the placebo group (51%) at 6 weeks. Detecting hemodynamically significant stenosis is technically challenging and often confounded by the performance of procedures, such as angioplasty to treat stenosis prior to the ultrasound examination.

    Safety and tolerability

        PRT-201 is administered topically at the vascular access and only acts locally. We have not observed systemic activity or toxicity in our preclinical animal studies, even following intravenous administration at very high multiples of the Phase 2 clinical trial doses. Safety evaluations in Phase 2 included ascertainment of adverse events, physical examinations, ultrasounds of the AVFs and nearby vessels, vital signs and laboratory studies. No significant safety signals were identified. In the trial, patients treated with PRT-201 reported adverse events, the most common of which are summarized in the following table, comparable to placebo. These events were consistent with the medical events experienced by CKD patients undergoing AVF placement surgery. The most common adverse events were AVF incision pain, venous stenosis, AVF thrombosis, steal syndrome and hypoesthesia. Serious adverse events, or SAEs, reported by the investigator as possibly drug-related occurred in two 10 microgram PRT-201 patients (both AVF thrombosis), and two 30 microgram patients (one chest pain and one swelling at the surgical incision). There were no SAEs reported by the investigator as possibly drug-related in the placebo group. There was one SAE reported by the investigator to be drug-related in the 10 microgram PRT-201 group (AVF maturation failure), and there were none in the other treatment groups.


Number and Proportion (%) of Patients with
Common Adverse Events
(1)

N (%)
  Placebo
N=51
  PRT-201
10 micrograms
N=51
  PRT-201
30 micrograms
N=49
 

Any adverse event

    42 (82 )   39 (77 )   43 (88 )

AVF thrombosis

    13 (26 )   8 (16 )   7 (14 )

Venous stenosis

    10 (20 )   7 (14 )   8 (16 )

Steal syndrome

    7 (14 )   2 (4 )   6 (12 )

Hypoesthesia

    7 (14 )   6 (12 )   6 (12 )

AVF incisional pain

    5 (10 )   9 (18 )   9 (18 )

AVF site complication

    5 (10 )   4 (8 )   4 (8 )

Nausea

    5 (10 )   1 (2 )   2 (4 )

Peripheral edema

    5 (10 )   0 (0 )   2 (4 )

Arterial stenosis

    4 (8 )   5 (10 )   0 (0 )

Paresthesia

    1 (2 )   1 (2 )   5 (10 )

Pain in extremity(2)

    0 (0 )   1 (2 )   5 (10 )

Note: None of the differences between groups were statistically significant.

(1)
Adverse events occurring in at least 10% of placebo or either PRT-201 treatment groups.

(2)
All but one unrelated to limb used in AVF surgery.

95


Table of Contents

    Phase 1/2 AVF Clinical Trial

        We submitted an investigational new drug application, IND, for PRT-201 as a treatment for patients undergoing AVF placement on April 30, 2008. Our initial clinical trial of PRT-201 was a Phase 1/2, randomized, double-blind, placebo-controlled, dose-escalation safety and exploratory efficacy trial in 66 patients undergoing creation of a radiocephalic or brachiocephalic AVF. Patients were treated with PRT-201 at nine dose levels ranging from 3.3 micrograms to 9 milligrams or placebo at the time of AVF placement and were followed for up to one year. This trial did not meet its primary endpoint, an endpoint we did not pursue in our Phase 2 trial. However, consistent with our mechanism of action that involves partial fragmentation of elastin, doses of PRT-201 at 3.3, 10 and 33 micrograms were associated with a trend toward prolonged primary unassisted patency (secondary endpoint p=0.66 in the All Treated population and p=0.15 in the All Treated Minus 3 population), fewer procedures to restore or maintain patency (collected as supportive data) and less hemodynamically significant AVF lumen stenosis (collected as supportive data) compared with placebo treated patients or patients treated with higher PRT-201 doses. Higher doses showe