UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

or

 

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to

Commission File Number: 001-36694

 

 

PROTEON THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

  

Delaware	20-4580525
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

200 West Street
Waltham, MA

(Address of principal executive offices)

02451

(Zip Code)

(781) 890-0102

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ]	Smaller reporting company [X]
Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ]   No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value per share	PRTO	Nasdaq Capital Market

 

As of October 28, 2019 there were 19,585,394 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION		4
Item 1.	Condensed Consolidated Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II – OTHER INFORMATION		23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 5.	Other Information	30
Item 6.	Exhibits	30
SIGNATURES		31
EXHIBIT INDEX		32

 

 

 

 

 

 

 

 

CAUTIONARY NOTE FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. 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. These forward-looking statements include, but are not limited to, statements about:

 

	•	the proposed merger with ArTara Therapeutics, Inc. and private placement expected to occur concurrently therewith;
	•	our evaluation of strategic alternatives with a goal to enhance stockholder value, including the proposed merger with ArTara Therapeutics, Inc., or if the proposed merger with ArTara Therapeutics, Inc, is not consummated, the possibility of a different merger or sale of the company, the sale of the company’s assets in one or more transactions to one or more third parties or a liquidation and dissolution of the company;

 

•

our estimates regarding the amount of funds we require to fund our operations;

 

•

our interpretation of the data from our completed Phase 2 and Phase 3 clinical trials for vonapanitase;

 

•

our ability to continue as a going concern;

 

•

our estimates regarding expenses, future revenues, capital requirements, the sufficiency of our current and expected cash resources and our need for additional financing and plans for additional financing;

 

•

our ability to remain listed on a national securities exchange;

 

•

our estimates regarding general and administrative costs and salary and personnel costs and costs associated with being a public company;

 

•

our intellectual property position;

 

•

our plans to retain key personnel;

 

•

future payment of dividends;

 

•

the impact of accounting policies;

 

•

the impact of changes in interest rates; and

 

•

exposure to foreign currency exchange risks and our purchase of forward foreign currency contracts in the future.

  

All forward-looking statements in this Quarterly Report on Form 10-Q involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the risk factors set forth below in Part II, Item 1A, Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain medical conditions, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Proteon Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Proteon Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

(Unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

Proteon Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share data)

(Unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statement

 

 

Proteon Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

Proteon Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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 the unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

 

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

 

Overview

 

We are a biopharmaceutical company that has historically focused on the development of novel, first-in-class pharmaceuticals to address the medical needs of patients with kidney and vascular disease. Our product candidate, vonapanitase, is a recombinant human elastase that we developed to improve vascular access outcomes in patients with chronic kidney disease, or CKD, undergoing or preparing for hemodialysis, a lifesaving treatment that cannot be conducted without a functioning vascular access.

 

On March 28, 2019, we announced that our second Phase 3 trial, PATENCY-2, for vonapanitase in radiocephalic fistulas did not meet its co-primary endpoints of fistula use for hemodialysis (p=0.328) and secondary patency (p=0.932). The PATENCY-2 clinical trial was the second of two randomized, double-blind Phase 3 trials, comparing a 30 microgram dose of investigational vonapanitase to placebo. We reported top-line results for the first Phase 3 clinical trial, PATENCY-1, in December 2016 and published these results in the Journal of Vascular Surgery in January 2019. As in PATENCY-1, the PATENCY-2 clinical trial enrolled patients with chronic kidney disease undergoing surgical creation of a radiocephalic fistula for hemodialysis. Patients were randomized 2:1, vonapanitase to placebo, and were followed for a period of twelve months. In March 2018, we completed enrollment of a total of 603 treated patients at 39 centers in the U.S. and Canada. Based on the top-line results of the PATENCY-2 clinical trial, we are no longer planning to submit a Biologics License Application, or BLA, to the U.S. Food and Drug Administration, or FDA, or a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, for investigational vonapanitase.

 

Due to the results of the PATENCY-2 clinical trial, we started taking steps beginning in April 2019 to reduce operating expenses while we evaluate our strategic alternatives with a goal to enhance stockholder value. To assist with this process, our Board engaged a financial advisory firm, H.C. Wainwright & Co. LLC, to help explore its strategic alternatives, including a possible merger or sale of the Company, a sale of part or all of its assets, and collaboration and licensing arrangements as further discussed in the section titled “Merger Agreement.” On September 23, 2019, the Company and ArTara announced the signing of the Merger Agreement. Although we have entered into the Merger Agreement and intend to consummate the Merger, there is no assurance that it will be able to successfully consummate the Merger on a timely basis, or at all.

 

We also began a plan in April 2019 to reduce personnel and expenses to preserve capital and further reduce our operations consistent with our decision to discontinue research and development activities. As of September 30, 2019, we have terminated all but one of our employees. In 2019, we expect to incur severance costs of $2.9 million related to these terminations. These severance related expenses were fully recorded in the three months ending June 30, 2019.

 

We commenced business operations in June 2001 and incorporated in March 2006. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and clinical trials of vonapanitase, 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 our initial public offering, or IPO, completed in October 2014.

 

As of September 30, 2019, we had received an aggregate of $200.1 million in net proceeds comprised of $115.5 million from the issuance of private equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from our IPO and $4.2 million from the sale of Common Stock under our now-terminated at-the-market, or ATM, program with Cowen and Company, LLC.

 

We have never been profitable and have incurred net losses in each year since inception. As of September 30, 2019, we had an accumulated deficit of $223.9 million and our net loss for the three and nine months ended September 30, 2019 was $1.5 million and $13.4 million, respectively. While we expect to incur significant expenses for the foreseeable future, we expect our research and development expenses to decrease significantly as we continue to discontinue research and development activities and focus on evaluating our strategic alternatives with the goal to enhance stockholder value, including the Merger or, if the Merger is not completed, the possibility of another merger or sale of the Company.

 

As of September 30, 2019, we had approximately $9.3 million in existing cash and cash equivalents. Although we believe that our cash and cash equivalents at September 30, 2019 will be sufficient to fund our operating expenses and capital expenditure requirements into 2020 and enable us to complete the Merger with ArTara, we may not have sufficient cash on hand to fund our current operations for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q. However, if there is a delay in completing the Merger, we will require additional capital to sustain our operations through such completion or we will need to pursue an immediate dissolution. If we need additional capital, we would need to raise such capital through debt or equity financings, asset sales or other strategic transactions. However, there can be no assurances that we will be able to complete any such transaction on acceptable terms or otherwise. The failure to obtain sufficient funds on commercially acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition and may prevent us from completing the Merger. Accordingly, these factors, among others, raise substantial doubt about our ability to continue as a going concern. For more information, refer to “—Liquidity and Capital Resources” below and Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

We do not expect to generate revenue from product sales. We have no manufacturing facilities and all of our manufacturing activities were contracted out to third parties. Additionally, we have used third-party clinical research organizations, or CROs, to carry out its clinical development activities and we do not yet have a sales organization.

 

Recent Events

 

Merger Agreement

 

After we conducted a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic transaction, which included the careful evaluation and consideration of proposals from interested parties, and following extensive negotiation with ArTara, on September 23, 2019, we entered into the Merger Agreement with ArTara. Pursuant to the Merger Agreement, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Merger sub will merge with and into ArTara, with ArTara surviving as our wholly owned subsidiary.

 

Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of ArTara common stock outstanding immediately prior to the Effective Time (excluding certain shares to be canceled pursuant to the Merger Agreement and shares held by stockholders who have exercised and perfected appraisal rights will be converted into the right to receive a number of shares of our common stock equal to the exchange ratio, as more fully described below.

 

The Merger is intended to qualify for U.S. federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

Under the exchange ratio formula in the Merger Agreement and after giving effect to the Reverse Split assuming that the reverse split ratio is equal to one new share of our common stock for every 40 shares of issued common stock outstanding immediately prior to the split effective time, as of immediately after the closing of the Merger, but prior to the consummation of the Private Placement, as more fully described below, the former ArTara equity holders immediately before the Merger are expected to own approximately 73.39% of the Fully-Diluted Common Stock of the Company, and our equity holders immediately before the Merger are expected to own approximately 26.61% of the Fully-Diluted Common Stock of the Company. The exchange ratio will be adjusted to the extent that our net cash is greater than $3,550,000 or less than $2,950,000 (collectively, the “Target Parent Net Cash Range”); provided, however, that (i) if the initial filing of the Registration Statement is made after October 15, 2019, then the lower limit of the Target Parent Net Cash Range shall be decreased by $200,000, (ii) if the initial filing of the Registration Statement is made by us after October 30, 2019, then the lower limit of the Target Parent Net Cash Range shall be decreased by an additional $250,000 (with additional decreases of $250,000 to be made for delayed filings each 16th and 1st of each month, commencing November 1, 2019), (iii) if ArTara does not provide us with the Company No Divestiture Notice and, if prior to receipt of the Company No Divestiture Notice, we have not provided to ArTara the Parent Divestiture Notice, then the lower limit of the Target Parent Net Cash Range shall be decreased by 100% of the costs and expenses that we incur to maintain the divestiture assets through closing and (iv) if ArTara provides the Company No Divestiture Notice to us, and if, prior to receipt of the Company No Divesture Notice, we have not provided a Parent Divestiture Notice, then the lower limit of the Target Parent Net Cash Range shall be decreased by $0.4 million. The exchange ratio formula includes ArTara’s outstanding stock options and our outstanding stock options and the number of shares of our common stock issuable upon conversion of all outstanding shares of our Series A Preferred Stock. After the consummation of the Merger, the Private Placement and the Series A Preferred Automatic Conversion, and after giving effect to the Reverse Split assuming that the reverse split ratio is equal to one new share of our common stock for every 40 shares of issued common stock outstanding immediately prior to the split effective time, certain institutional investors participating in the Private Placement are expected to own 60.93% of the Fully-Diluted Common Stock of the Company, the former ArTara equity holders immediately before the Merger are expected to own approximately 28.67% of the Fully-Diluted Common Stock of the Company, and our equity holders immediately before the Merger are expected to own approximately 10.39% of the Fully-Diluted Common Stock of the Company, subject to the adjustments described above.

 

As promptly as practicable after the date of the Merger Agreement (but in no event later than 50 days following the date of the Merger Agreement), the parties will prepare and we will file with the SEC the Registration Statement to register the shares of our common stock to be issued at the Effective Time under the Securities Act, and we will seek the approval of its stockholders with respect to certain actions, including the following:

 

·

the issuance of shares of our common stock to ArTara's stockholders in connection with the transactions contemplated by the Merger Agreement and shares of our capital stock to the institutional investors in the Private Placement, pursuant to Nasdaq rules;

 

·

the amendment of our certificate of incorporation (i) to effect immediately prior to the closing of the Merger the Reverse Split and (ii) to effect immediately after the consummation of the Private Placement the Series A Preferred Automatic Conversion; and

 

·

the EIP Amendment.

 

Concurrently with the execution of the Merger Agreement, we delivered to ArTara the written consent of the holders of 92.7% of the shares of our Series A Preferred Stock outstanding as of September 23, 2019 approving the Series A Preferred Automatic Conversion.

 

The consummation of the Merger is also subject to the satisfaction or waiver of certain conditions, including, among other things, (i) approval by our stockholders and ArTara’s stockholder (other than with respect to the EIP Amendment), (ii) Nasdaq approval of the listing of the shares to be issued to ArTara equity holders in connection with the consummation of the Merger, (iii) satisfaction of all conditions precedent to the closing of the Private Placement (other than the consummation of the Merger and appointment of certain board members), (iv) absence of a material adverse effect since the date of the Merger Agreement, (v) the accuracy of the representations and warranties, subject to material adverse effect qualifications, (vi) compliance by the parties with their respective covenants in all material respects, (vii) the Subscription Agreement (as defined below) being in full force and effect and no less than $40.0 million to be committed thereunder and (viii) us having at least $0 in net cash as of the closing date of the Merger.

 

The Merger Agreement contains certain termination rights for both us and ArTara, and further provides that, upon termination of the Merger Agreement under specified circumstances, we may be required to pay to ArTara a termination fee of $0.8 million or ArTara may be required to pay to us a termination fee of $0.8 million, and in other circumstances each party may be required to reimburse the other party's expenses incurred, up to a maximum of $0.4 million.

 

In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and stockholders of ArTara (solely in their respective capacities as ArTara stockholders) have entered into support agreements with ArTara and us to vote all of their shares of ArTara capital stock in favor of adoption of the Merger Agreement and (ii) certain of our executive officers, directors and stockholders (solely in their respective capacities as our stockholders) have entered into support agreements with ArTara and us to vote all of their shares of our common stock in favor of the our Stockholder Matters. Concurrently with the execution of the Merger Agreement, our stockholder and certain officers, directors and stockholders of ArTara have entered into lock-up agreements pursuant to which they accepted certain restrictions on transfer of shares of our common stock for the 180-day period following the closing of the Merger.

 

At the Effective Time, we will effect a name change and it is anticipated that trading for our securities will be listed on The Nasdaq Capital Market. Additionally, at the Effective Time, our board of directors is expected to consist of seven members, with five such members designated by ArTara, one such member designated by us, and one such member who will be Mr. Jesse Shefferman, the Chief Executive Officer of the combined company.

 

Private Placement

 

In connection with the Merger, on September 23, 2019, we entered into a Subscription Agreement (the “Subscription Agreement”) with certain institutional investors (the “Investors”), pursuant to which we have agreed to issue in a private placement (the “Private Placement”) (i) up to 27,200 shares of our Series 1 Convertible Non-Voting Preferred Stock, par value $0.001 per share (the “Series 1 Preferred Stock”), at a purchase price equal to 1,000 times the Common Stock Purchase Price (as defined below) and (ii) up to 15,300 shares of our common stock (together with the Series 1 Preferred Stock, the “Private Placement Shares”), at a purchase price equal to (x) the Aggregate Valuation (as defined in the Merger Agreement) divided by the (y) the Post-Closing Parent Shares (as defined in the Merger Agreement) (the “Common Stock Purchase Price”).

 

Pursuant to the Subscription Agreement, the holders of Series 1 Preferred Stock have preemptive rights to participate pro rata in our future equity financings, subject to certain exceptions and limitations. In addition, following the issuance of the Private Placement Shares pursuant to the Subscription Agreement, certain of the Investors have rights to nominate directors to our board of directors and non-voting board observers. We have also agreed not to take certain actions related to the business without the consent of the lead investor for so long as such lead investor continues to hold a minimum amount of the Private Placement Shares purchased under the Subscription Agreement.

 

Prior to the issuance of the Private Placement Shares, we intend to file a Certificate of Designation of Preferences, Rights and Limitations of Series 1 Convertible Non-Voting Preferred Stock (the "Certificate of Designation") with the Delaware Secretary of State. Thereunder, each share of Series 1 Preferred Stock will be convertible into 1,000 shares of our common stock, at a conversion price initially equal to the Common Stock Purchase Price, subject to adjustment for any stock splits, stock dividends and similar events, at any time at the option of the holder, provided that any conversion of Series 1 Preferred Stock by a holder into shares of our common stock would be prohibited if, as a result of such conversion, the holder, together with its affiliates and any other person or entity whose beneficial ownership of the common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act would beneficially own more than 9.99% of the total number of shares of our common stock issued and outstanding after giving effect to such conversion. Upon written notice to us, the holder may from time to time increase or decrease such limitation to any other percentage not in excess of 19.99% specified in such notice.

 

Each share of Series 1 Preferred Stock will be entitled to a preference of $10.00 per share upon our liquidation, and thereafter will share ratably in any distributions or payments on an as-converted basis with the holders of our common stock. In addition, upon the occurrence of certain transactions that involve our merger or consolidation, an exchange or tender offer, a sale of all or substantially all of our assets or a reclassification of our common stock, each share of Series 1 Preferred Stock will be convertible into the kind and amount of securities, cash and/or other property that the holder of a number of shares of our common stock issuable upon conversion of one share of Series 1 Preferred Stock would receive in connection with such transaction.

 

The Private Placement is expected to close immediately following the consummation of the Merger.

 

Financial Overview

 

Research and Development Expenses

 

Research and development expenses consisted primarily of costs incurred for the development of vonapanitase and costs associated with the discontinuation of our research and development activities, which include:

 

•

employee-related expenses, including salaries, benefits, travel, stock-based compensation expense and severance payments;

 

	•	expenses incurred under agreements with clinical research organizations, or CROs and investigative sites that conducted 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.

 

In April 2019, we initiated plans to discontinue research and development activities to reduce operating expenses. We will continue to expense the remaining 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.

  

Our efforts to discontinue development activities include the following:

 

•

we closed the 39 clinical sites that participated in our second Phase 3 trial, PATENCY-2, and terminated the long-term follow-up patient registry;

 

•

we had planned to enroll up to an additional 16 patients in a Phase 1 clinical trial of vonapanitase in patients with peripheral artery disease, or PAD before the end of 2019 and to follow each of these patients for period of up to seven months. However, based on our current operating plan, we have decided not to continue patient enrollment in the Phase 1 trial evaluating vonapanitase in PAD; and

 

•

we have discontinued all activities relating to the manufacture of clinical trial materials in support of our clinical trials and process validation activities that were undertaken in anticipation of a potential BLA submission.

 

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, as well as expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with our NASDAQ listing and SEC requirements, director and officer liability insurance premiums and investor relations costs associated with being a public company.

 

Investment Income

 

Investment income consists of interest income earned on our cash, cash equivalents and marketable securities.

 

Other Income (Expense), Net

 

Other income (expense), net consists of the gain realized from non-cash gains and losses from currency exchange rate fluctuations on transactions or balances denominated in a foreign currency.

 

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 accounting principles generally accepted in the United States of America, 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, 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.

 

There have been no material changes to our accounting policies from those described in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 13, 2019. It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 13, 2019.

  

Results of Operations

  

Comparison of the Three Months Ended September 30, 2019 and 2018

 

The following table summarizes our results of operations for the three months ended September 30, 2019 and 2018 (in thousands):

 

		Three Months Ended September 30,
		2019				2018				Period-to-Period Change
Operating expenses:
Research and development		$	206			$	2,354			$	(2,148	)
General and administrative			1,385				2,268				(883	)
Total operating expenses			1,591				4,622				(3,031	)
Loss from operations			(1,591	)			(4,622	)			3,031
Other income:
Investment income			53				113				(60	)
Other income (expense), net			2				(1	)			3
Total other income			55				112				(57	)
Net Loss		$	(1,536	)		$	(4,510	)		$	2,974

 

Research and Development Expenses. The following table identifies research and development expenses on both an external and internal basis for the three months ended September 30, 2019 and 2018 (in thousands):

 

		Three Months Ended September 30,
		2019				2018				Period-to-Period Change
External vonapanitase research and development expenses		$	171			$	1,269			$	(1,098	)
Internal research and development expenses			35				1,085				(1,050	)
Total research and development expenses		$	206			$	2,354			$	(2,148	)

 

During the three months ended September 30, 2019, our total research and development expenses decreased by $2.1 million compared to the three months ended September 30, 2018 primarily due to $1.1 million in decreased external research and development expenses and $1.0 million in decreased internal research and development expenses. The decrease of $1.1 million in external expenses was primarily driven by $0.7 million in decreased expenses for our completed clinical trials and $0.3 million in decreased expenses in our manufacturing expenses. The decrease of our internal research and development expenses of $1.0 million in the three months ended September 30, 2019 as compared to the three months ended September 30, 2018 was primarily due to our reduction in force.

 

General and Administrative Expenses. During the three months ended September 30, 2019, our total general and administrative expenses were $0.9 million lower as compared to the three months ended September 30, 2018 primarily due to our reduction in force in the three months ended September 30, 2019 as compared to the three months ended September 30, 2018.

 

Investment Income. During the three months ended September 30, 2019, investment income decreased by an immaterial amount.

 

Other Income (Expense), Net. During the three months ended September 30, 2019, other expense, net, increased by an immaterial amount.

 

Comparison of the Nine Months Ended September 30, 2019 and 2018

 

The following table summarizes our results of operations for the nine months ended September 30, 2019 and 2018 (in thousands):

 

		Nine Months Ended September 30,
		2019				2018				Period-to-Period Change
Operating expenses:
Research and development		$	6,374			$	9,185			$	(2,811	)
General and administrative			7,240				6,802				438
Total operating expenses			13,614				15,987				(2,373	)
Loss from operations			(13,614	)			(15,987	)			2,373
Other income:
Investment income			231				311				(80	)
Other income, net			1				206				(205	)
Total other income			232				517				(285	)
Net Loss		$	(13,382	)		$	(15,470	)		$	2,088

 

Research and Development Expenses. The following table identifies research and development expenses on both an external and internal basis for the nine months ended September 30, 2019 and 2018 (in thousands):

 

		Nine Months Ended September 30,
		2019				2018				Period-to-Period Change
External vonapanitase research and development expenses		$	3,764			$	5,821			$	(2,058	)
Internal research and development expenses			2,610				3,364				(753	)
Total research and development expenses		$	6,374			$	9,185			$	(2,811	)

 

During the nine months ended September 30, 2019, our total research and development expenses decreased by $2.8 million compared to the nine months ended September 30, 2018 primarily due to $2.0 million in decreased external research and development expenses and $0.8 million in decreased internal research and development expenses. The decrease of $2.0 million in external expenses was primarily driven by $1.5 million in decreased expenses for our completed clinical trials and $0.5 million in decreased expenses in our manufacturing expenses. Internal research and development expenses decreased by $0.8 million in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018 primarily due to our reduction in force.

 

General and Administrative Expenses. During the nine months ended September 30, 2019, our total general and administrative expenses were $0.4 million higher as compared to the nine months ended September 30, 2018 primarily due to increased expenses to support our ongoing corporate activities, including expenses related to the Merger, in the nine months ended September 30, 2019.

 

Investment Income. During the nine months ended September 30, 2019 investment income decreased by an immaterial amount.

 

Other Income, Net. During the nine months ended September 30, 2019, other income, net, decreased by $0.2 million as compared to the nine months ended September 30, 2018 primarily due to foreign currency remeasurement gain for cash denominated in Swiss Francs.

 

Liquidity and Capital Resources

 

Overview

 

Since our inception and through the nine months ended September 30, 2019, we had received $200.1 million in net proceeds comprised of $115.5 million from the issuance of private equity securities, $7.7 million from the issuance of convertible notes, $10.0 million from business development activities, $0.2 million from government grants, $62.5 million from our IPO and $4.2 million from the sale of Common Stock under our now-terminated at-the-market, or ATM, program with Cowen and Company, LLC. As of September 30, 2019, our cash and cash equivalents totaled $9.3 million.

  

Operating Capital Requirements

 

We expect to incur ongoing operating losses for the foreseeable future as we evaluate our strategic alternatives, including the Merger or, if the Merger is not completed, the possibility of another merger or sale of the Company. Even if we consummate the Merger, or another strategic transaction, the combined company may not be able to complete the clinical development of vonapanitase and obtain approval of vonapanitase from the FDA or EMA.

 

Although we believe that our cash and cash equivalents as of September 30, 2019 will be sufficient to fund our operations into 2020 and enable us to complete the Merger with ArTara, we may not have sufficient cash on hand to fund our current operations for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q. However, if there is a delay in completing the Merger, we will require additional capital to sustain our operations through such completion or we will need to pursue an immediate dissolution. If we need additional capital, we would need to raise such capital through debt or equity financings, asset sales or other strategic transactions. However, there can be no assurances that we will be able to complete any such transaction on acceptable terms or otherwise. The failure to obtain sufficient funds on commercially acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition and may prevent it from completing the Merger. Accordingly, these factors, among others, raise substantial doubt about our ability to continue as a going concern.

 

Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. See Note 1 to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our liquidity and the conditions and events which raise substantial doubt regarding our ability to continue as a going concern. 

 

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:

 

•

our ability to identify and consummate a strategic transaction for the Company;

 

•

the timing and nature of any strategic transactions that we undertake;

  

•

whether we enter into a partnership or business combination;

  

•

the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; and

 

•

the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims.

  

Cash Flows

 

The following table summarizes our sources and uses of cash for the nine months ended September 30, 2019 and 2018 (in thousands):

 

		Nine Months Ended September 30,
		2019				2018
Net cash used in operating activities		$	(12,506	)		$	(18,920	)
Net cash provided by investing activities			2,484				13,014
Net cash provided by financing activities			-				2,937
Effect of exchange rate changes on cash			-				24
Net decrease in cash, cash equivalents, and restricted cash		$	(10,022	)		$	(2,945	)

 

Comparison of the Nine Months Ended September 30, 2019 and 2018

 

Net cash used in operating activities was $12.5 million for the nine months ended September 30, 2019 compared to $18.9 million for the nine months ended September 30, 2018. The decrease of $6.4 million in cash used in operating activities was primarily driven by a $4.3 million decrease in cash outflows related to changes in the components of working capital combined with a decrease in our net loss of $2.1 million, as compared to the nine months ended September 30, 2018.

 

Net cash provided by investing activities was $2.5 million for the nine months ended September 30, 2019 compared to $13.0 million provided in the nine months ended September 30, 2018. The change of $10.5 million in cash provided by investing activities was driven by a decrease in cash inflows of $23.5 million due to lower proceeds from maturities and sales of available-for-sale investments offset by $13.0 million decrease in cash outflows in the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

  

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 SEC.

 

Contractual Obligations

 

As of September 30, 2019 there are no outstanding contractual obligations.

 

JOBS Act

 

In April 2012, the Jumpstart Our Business Startups Act, or JOBS Act was enacted in the United States. 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 for complying with new or revised accounting standards. Thus, an emerging growth company 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 non-emerging growth public companies.

 

Item 3. 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 September 30, 2019, we had cash equivalents of $9.3 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.

  

Item 4. Controls and Procedures

 

Management’s Evaluation of our Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

   

As of September 30, 2019, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, 2019, our disclosure controls and procedures were effective at the reasonable assurance level.

 

We continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

 

Changes in Internal Control Over Financial Reporting

 

During the nine months ended September 30, 2019, we implemented certain internal controls in connection with our adoption of ASC 842. There were no other changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Securities Exchange Act of 1934, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time we may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this Quarterly Report on Form 10-Q, we do not believe we are party to any claim or litigation, the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

Item 1A. Risk Factors

 

Any investment in our Common Stock involves a high degree of risk. The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. 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. We refer you to our “Cautionary Note Regarding Forward-Looking Statements,” which identifies certain forward-looking statements contained in this report that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.

 

Risks Related to our Business

 

For risks related to our business, please refer to the section titled “Item 1A. Risk Factors” set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the SEC on March 13, 2019, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as filed with the SEC on May 8, 2019 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, as filed with the SEC on August 7, 2019, which report is incorporated by reference herein.

 

 

Risks Related to the Proposed Merger

 

If the Merger with ArTara is not consummated, our business could suffer materially and our stock price could decline.

 

The consummation of the Merger with ArTara is subject to the satisfaction of a number of closing conditions, including the receipt of approvals from our stockholder at a special meeting of the stockholders, our successful application for initial listing with Nasdaq, the satisfaction of the Company Net Cash condition and other closing conditions. For a more detailed discussion of the Proteon Net Cash condition and other closing conditions, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—Merger Agreement.” We are targeting a closing of the Merger by year end 2019.

If the Merger is not consummated, we may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:

 

•

we have incurred and expects to continue to incur significant expenses related to the Merger with ArTara, even if the Merger is not consummated.

 

•

The Merger Agreement contains covenants restricting our solicitation of competing acquisition proposals and the conduct of our business between the date of signing the Merger Agreement and the closing of the Merger. As a result, significant business decisions and transactions before the closing of the Merger require the consent of ArTara. Accordingly, we may be unable to pursue business opportunities that would otherwise be in its best interest as a standalone company.

 

•

we have invested significant time and resources in the transaction process and if the Merger Agreement is terminated we will have limited prospects.

 

•

we could be obligated to pay ArTara a $750,000 termination fee in connection with the termination of the Merger Agreement and could be required to reimburse ArTara’s expenses incurred, up to a maximum of $350,000, depending on the reason for the termination.

 

•

Subject to and in accordance with the Merger Agreement, we may divest certain of its assets in anticipation of the consummation of the Merger, and if the Merger Agreement is terminated such divestiture may result in having a negative impact on our prospects as a standalone company.

 

In addition, if the Merger Agreement is terminated and our board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive benefit to our stockholders that is currently expected to be derived from the Merger. Due to the lengthy nature of the strategic process, the further passage of time will diminish cash available. In such circumstances, our board of directors may elect to, among other things, divest all or a portion of our business, or take the steps necessary to liquidate all of our business and assets, and in either such case, the consideration that we receive may be less attractive than the benefit to our stockholders that is currently expected to be derived from the Merger.

 

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

 

In general, either party can refuse to complete the Merger if there is a material adverse change affecting the other party following September 23, 2019, the date of the Merger Agreement. However, some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on us or ArTara, to the extent they resulted from the following (unless, in some cases, they have a disproportionate effect on us or ArTara, as the case may be):

 

•

changes in the general business or economic conditions affecting the industry in which we and ArTara, and our and their respective affiliates, operate;

 

•

any natural disaster or any acts of war, armed hostilities or terrorism;

 

•

changes in financial, banking or securities markets;

 

•

the taking of any action required to be taken by the Merger Agreement;

 

•

any change in the stock price or trading volume of our common stock (except that any effect causing or contributing to any change in stock price or trading volume of our common stock may be taken into account in determining whether a material adverse effect on us has occurred, unless such effects are otherwise excepted);

 

•

the failure to meet internal or analysts’ expectations or projections or the results of operations ;

 

•

any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies;

 

•

any change in, or any compliance with or action taken for the purpose of complying with, any law or GAAP (or interpretations of any law or GAAP);

 

•

resulting from the announcement of the Merger Agreement or the pendency of the Contemplated Transactions (including, without limitation, any action, suit or proceeding against us or any of its officers or directors that is seeking to challenge or restrain the Merger or related transactions); or

 

•

resulting from the taking of any action or the failure to take any action that is required to be taken or not to be taken by the Merger Agreement.

 

If adverse changes occur but we and ArTara must still complete the Merger, the combined company’s stock price may suffer.

 

The market price of the combined company’s common stock may decline as a result of the Merger.

 

The market price of the combined company’s common stock may decline as a result of the Merger for a number of reasons, including if:

 

•

the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts;

 

•

the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

•

investors react negatively to the effect on the combined company’s business and prospects from the Merger.

 

Our stockholders may not realize the benefit currently anticipated to be derived from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

 

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Merger, our current stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit currently anticipated to be derived from the Merger. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the Merger. Even if the combined company is able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time. The combined company will incur significant transaction costs as a result of the Merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed estimates and may have an adverse effect on the combined company’s financial condition and operating results.

 

During the pendency of the Merger, we will be subject to contractual limitations set forth in the Merger Agreement that restrict our ability to enter into business combination transactions with another party.

 

Covenants in the Merger Agreement impede our ability to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, we may be at a disadvantage to our competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, we are prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of our common stock, a tender offer for our common stock, a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to our stockholders.

 

Because the Merger will result in an ownership change under Section 382 of the Internal Revenue Code (the “Code”) for us, our pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitations. The net operating loss carryforwards and other tax attributes of the combined company may also be subject to limitations as a result of ownership changes.

 

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code (“Section 382”), the corporation’s net operating loss carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. The amount of the annual limitation is determined based on a corporation’s value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Similar rules may apply under state tax laws. The Merger will result in an ownership change for us and, accordingly, our net operating loss carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use after the Merger. Additional ownership changes in the future could result in additional limitations on our and the combined organization’s net operating loss carryforwards. Consequently, even if the combined organization achieves profitability, it may not be able to utilize a material portion of our or the combined organization’s net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.

 

The exchange ratio is not adjustable based on the market price of our common stock so the merger consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

 

At the Effective Time, outstanding shares of ArTara capital stock will be converted into shares of our common stock. Applying the exchange ratio, as of immediately after the closing of the Merger and after giving effect to the Reverse Split, but prior to the consummation of the Private Placement, the former ArTara equity holders immediately before the Merger are expected to own approximately 73.39% of the Fully-Diluted Common Stock of the Company, and our equity holders immediately before the Merger are expected to own approximately 26.61% of the Fully-Diluted Common Stock of the Company. After the consummation of the Reverse Split, the Merger, the Private Placement and the Series A Preferred Automatic Conversion, the Investors participating in the Private Placement are expected to own 60.93% of the Fully-Diluted Common Stock of the Company, the former ArTara equity holders immediately before the Merger are expected to own approximately 28.67] of the Fully-Diluted Common Stock of the Company, and our equity holders immediately before the Merger are expected to own approximately 10.39% of the Fully-Diluted Common Stock of the Company, subject to adjustment based on the our net cash balance (as described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Events—Merger Agreement”) prior to the completion of the Merger.

 

Any changes in the market price of our common stock before the completion of the Merger will not affect the number of shares ArTara stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of our common stock declines from the market price on the date of the Merger Agreement, then ArTara equity holders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Merger the market price of our common stock increases from the market price on the date of the Merger Agreement, then ArTara equity holders could receive merger consideration with substantially more value for their shares of ArTara capital stock than the parties had negotiated for in the establishment of the exchange ratio. The Merger Agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the value of our common stock, for each one percentage point that the market value of our common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to ArTara equity holders.

We may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of our management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

 

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We may become involved in this type of litigation in connection with the Merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect our business and the business of the combined company, and insurance coverage may not be sufficient to cover all related costs and damages.

 

Risks Related to the Proposed Reverse Split

 

The Reverse Split may not increase the combined company’s stock price over the long-term.

 

The principal purpose of the Reverse Split is to increase the per-share market price of the combined company’s common stock above the minimum bid price requirement under the Nasdaq rules so that the listing of the combined company and the shares of the combined company common stock being issued in the Merger on Nasdaq will be approved. It cannot be assured, however, that the Reverse Split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of the combined company’s common stock, it cannot be assured that the Reverse Split will increase the market price of its common stock by a multiple of the reverse stock split ratio mutually agreed by ArTara and us, or result in any permanent or sustained increase in the market price of the combined company’s common stock, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

 

The Reverse Split may decrease the liquidity of the combined company’s common stock.

 

Although our board of directors believes that the anticipated increase in the market price of the combined company’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for the combined company’s common stock.

 

The Reverse Split may lead to a decrease in the combined company’s overall market capitalization.

 

Should the market price of the combined company’s common stock decline after the Reverse Split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the Reverse Split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of the combined company’s common stock will remain the same after the Reverse Split is effected, or that the Reverse Split will not have an adverse effect on the combined company’s stock price due to the reduced number of shares outstanding after the Reverse Split.

 

Risks Related to Our Common Stock

 

Our common stock may be delisted from the Nasdaq Capital Market if we are unable to maintain compliance with Nasdaq’s continued listing standards.

 

Nasdaq imposes, among other requirements, continued listing standards including minimum bid and public float requirements. The price of our common stock must trade at or above $1.00 to comply with Nasdaq’s minimum bid requirement for continued listing on the Nasdaq Capital Market.

 

On May 10, 2019, we received a deficiency letter from Nasdaq, which indicated that we were not in compliance with the minimum bid price requirement set forth in Nasdaq rules for continued listing on The Nasdaq Global Market. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were granted a grace period of 180 calendar days, or until November 6, 2019, to regain compliance with the minimum bid price requirement. During the compliance period, our common stock continued to be listed and traded on The Nasdaq Global Market. Because we do not anticipate being able to regain compliance with the minimum bid price requirement during the compliance period, we submitted an application to transfer the listing of our common stock to The Nasdaq Capital Market, which, according to Nasdaq listing rules, affords us an additional 180-day compliance period to comply with the minimum bid price requirement. The transfer application also requires us to submit a letter stating our intention to effect the Reverse Split during the second compliance period, which we have done. The application to transfer the listing of our common stock was granted on September 30, 2019, effective October 7, 2019. If we fail to regain compliance with the minimum bid price requirement during the second compliance period, our common stock could be subject to delisting. Additionally, if we fail to comply with any other continued listing standards of Nasdaq, our common stock will also be subject to delisting. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria

Any delisting of our common stock could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease. Furthermore, if our common stock were delisted it could adversely affect our ability to complete one or more strategic transactions for the company, to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

 

If the proposed Merger is not completed, the market price of our common stock may continue to be volatile and may fluctuate in a way that is disproportionate to our operating performance.

 

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

 

•		our failure to consummate another strategic transaction and the value of such other transaction including whether it is deemed to enhance stockholder value or deliver expected benefits;
•		our failure to develop and commercialize vonapanitase or any additional product candidates;
•		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 vonapanitase 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 vonapanitase 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 us, 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 vonapanitase 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 vonapanitase or any additional product candidates;
•		commencement of, or involvement in, litigation involving us, 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 our 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 pharmaceutical, biopharmaceutical and biotechnology stocks or the stocks of other companies which investors perceive to be similar to us, or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.

The resale of the shares of our common stock issuable upon the conversion of our Series A Convertible Preferred Stock could adversely affect the prevailing market price of our common stock and cause stockholders to experience dilution.

 

On August 2, 2017, we issued and sold 22,000 shares of our Series A Convertible Preferred Stock, par value $0.001 per share, for a purchase price of $1,000 per share, or an aggregate purchase price of $22.0 million. Each share of Series A Convertible Preferred Stock is convertible into approximately 1,005 shares of our common stock at a conversion price of $0.9949 per share, provided that any conversion of Series A Convertible Preferred Stock by a holder into shares of Common Stock is prohibited if, as a result of such conversion, the holder, together with our affiliates and any other person or entity whose beneficial ownership of our common stock would be aggregated with such holder’s for purposes of Section 13(d) of the Exchange Act, would beneficially own more than 9.985% of the total number of shares of our common stock issued and outstanding after giving effect to such conversion (the “Blocker”). Pursuant to the registration statement that we filed with the SEC for the resale by holders of our Series A Preferred Convertible Stock, as selling stockholders, of the aggregate 22,112,775 shares of our common stock that are issuable upon conversion of the Series A Convertible Preferred Stock, the outstanding shares of Series A Convertible Preferred Stock may, at each holder’s election, be converted into our common stock, subject to the Blocker. Although we cannot predict if and when the holders of Series A Convertible Preferred Stock may sell such shares in the public market, any converted shares of our common stock will be available for immediate resale and be able to be freely sold in the open market. The conversion of shares of Series A Convertible Preferred Stock into shares of our common stock will result in substantial dilution to holders of our common stock. Further, the sale of a significant amount of these shares of our common stock in the open market or the perception that these sales may occur could adversely affect prevailing market prices of our common stock, including causing the market price of our common stock to decline or become highly volatile.

 

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

 

As of December 31, 2018, our executive officers, directors, current 5% or greater stockholders, and their respective affiliates together beneficially own or control, in aggregate, more than 50% of the shares of our outstanding common 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 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 us, even if such change of control would benefit our other stockholders. This concentration of stock ownership may adversely affect investors’ perception of our corporate governance or delay, prevent or cause a change in control of us, any of which could adversely affect the market price of our common stock.

 

We will continue to incur substantial costs as a result of operating as a public company, and our management will continue to devote substantial time to new compliance initiatives and corporation governance policies.

 

As a public company, we have incurred and will continue to 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 impose various requirements on public companies including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel 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 it is no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that it 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 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.

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, including us, 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 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 by laws.

 

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 courts 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 such 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 courts 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.  

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Use of Proceeds from Unregistered Securities

 

None.

 

Purchase of Equity Securities

 

We did not purchase any of our registered equity securities during the period covered by this Quarterly Report on Form 10-Q.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which Exhibit Index is incorporated herein by reference.

 

 

 

 

 

 

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: October 31, 2019	PROTEON THERAPEUTICS, INC.
	By:	/s/ Timothy P. Noyes
		Timothy P. Noyes President, Chief Executive Officer and Director
		(Principal Executive Officer)
Date: October 31, 2019	By:	/s/ George A. Eldridge
		George A. Eldridge Senior Vice President, Chief Financial Officer, Treasurer and Secretary
		(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.		Description
31.1	*	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	*	Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	**	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	*	Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and the Consolidated Balance Sheets as of December 31, 2018; (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the nine months ended September 30, 2019 and 2018; and (iii) the Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30th, 2019 and 2018; and (iv) the notes to the Condensed Consolidated Financial Statements (unaudited).

 

 

*Exhibits filed herewith

** Exhibits furnished herewith.

 

 

 

 

 

 

 

 

 

32

Exhibit 31.1 

  

CERTIFICATION PURSUANT TO 

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a) 

AS ADOPTED PURSUANT TO 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

  

I, Timothy P. Noyes, certify that: 

  

1.

I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2019 of Proteon Therapeutics, Inc.;

  

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

  

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

  

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

  

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

  

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

	/s/ Timothy P. Noyes
	Timothy P. Noyes  President, Chief Executive Officer and Director  (Principal Executive Officer)
Date: October 31, 2019

Exhibit 31.2 

  

CERTIFICATION PURSUANT TO 

SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a) 

AS ADOPTED PURSUANT TO 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

  

I, George A. Eldridge, certify that: 

  

1.

I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2019 of Proteon Therapeutics, Inc.;

  

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

  

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

  

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

  

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

  

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

  

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

	/s/ George A. Eldridge
	George A. Eldridge  Senior Vice President, Chief Financial Officer, Treasurer and Secretary  (Principal Financial Officer)
Date: October 31, 2019

  

  

Exhibit 32.1 

  

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

  

In connection with the Quarterly Report of Proteon Therapeutics, Inc. (the “Corporation”) on Form 10-Q for the fiscal quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy P. Noyes, as President and Chief Executive Officer of the Corporation, and I, George A. Eldridge, Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 

  

	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

  

Date: October 31, 2019	By:	/s/ Timothy P. Noyes
		Timothy P. Noyes
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
Date: October 31, 2019	By:	/s/ George A. Eldridge
		George A. Eldridge
		Senior Vice President, Chief Financial Officer, Treasurer and Secretary
		(Principal Financial Officer)

  

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.