Organization and Operations

The Company

Proteon Therapeutics, Inc. (the “Company”) is a late-stage biopharmaceutical company focused on the development of novel,

first

-in-class pharmaceuticals to address the medical needs of patients with kidney and vascular disease. The Company was formed in

June 2001

and incorporated on

March 24, 2006.

The Company devotes substantially all of its efforts to product research and development, initial market development and raising capital. The Company has

not

generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other development stage companies, including dependence on key individuals, competition from other companies, the need for development of commercially viable products and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the biotechnology industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from therapeutic alternatives and larger companies, compliance with government regulations, protection of proprietary technology, dependence on

third

parties and product liability.

Liquidity and Going Concern

As of

December 31, 2018,

the Company had cash, cash equivalents and available-for-sale investments of

$21.9

million. The Company believes that its existing cash, cash equivalents and available-for-sale investments will be sufficient to fund operations and capital expenditures into the

first

quarter of

2020.

The Company had an accumulated deficit of

$210.5

million as of

December 31, 2018.

Based on these available cash resources, the Company does

not

have sufficient cash on hand to support current operations for at least the next

twelve

months from the date of filing this Annual Report on Form

-K. This condition raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s plans to address this condition include pursuing

one

or more of the following options to secure additional funding,

none

of which can be guaranteed or are entirely within our control:

•

raise additional funding through the possible sale of additional shares of the Company’s common stock, including public or private equity financings, and/or possible debt financings; and

•

use the worldwide commercial rights to vonapanitase currently held by the Company to establish partnerships for the development and commercialization of vonapanitase in all or parts of Europe and other countries outside of the United States to secure additional funding.

There can be

assurance, however, that the Company will receive cash proceeds from any of these potential sources or to the extent cash proceeds are received those proceeds would be sufficient to support our current operating plan for at least the next

twelve

months from the date of filing this Annual Report on Form

-K.

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 the Company’s 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 the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (

) it is probable that the plans will be effectively implemented within

one

year after the date that the financial statements are issued, and (

) 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.

Under ASC

2015

40,

the future receipt of potential funding from the Company’s partners and other resources cannot be considered probable at this time because

none

of the Company’s current plans have been finalized at the time of filing this Annual Report on Form

-K and the implementation of any such plan is

not

probable of being effectively implemented as

none

of the plans are entirely within the Company’s control. Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within

one

year after the date these financial statements are issued.

The Company believes that its approximate

$21.9

million in cash, cash equivalents and marketable securities at

December

31,

2018,

as described above, would allow it to fund its planned operations into the

first

quarter of

2020.

This estimate assumes

equity financings,

debt financings and

funding from new partnership agreements. Accordingly, the timing and nature of activities contemplated for the remainder of

2019

and thereafter will be conducted subject to the availability of sufficient financial resources.

If the Company is unable to obtain sufficient capital to continue to advance its programs, the Company would be forced to delay, reduce or eliminate its ongoing development and other activities.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do

not

include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

At-The-Market Equity Offering Program

November 12, 2015,

the Company filed a shelf registration statement on Form S-

(the “Registration Statement”), and entered into a Sales Agreement with Cowen and Company, LLC (the “Sales Agreement”) to establish an at-the-market (“ATM”) equity offering program pursuant to which they are able, with the Company’s authorization, to offer and sell up to

$40

million of the Company’s Common Stock at prevailing market prices from time to time. The Registration Statement became effective on

January 12, 2016.

The Company paid Cowen a commission equal to

of the gross proceeds of the sales price of all shares sold through it as sales agent under the Sales Agreement. The offering costs were offset against proceeds from the sale of common stock under this agreement. The Company filed a prospectus supplement on

March 16, 2017

because the Company is currently subject to General Instruction

I.B.6

of Form S-

which limits the amounts that the Company

may

sell under the Registration Statement. The Company’s ATM program was terminated effective as of

February 7, 2019,

when its new shelf registration statement on Form S-

File

No.

333

228865,

was declared effective by the SEC. For the year ended

December 31, 2017,

the Company sold

896,811

shares of Common Stock under the Sales Agreement for aggregate gross proceeds of

$1.4

million offset by total offering costs of

$0.1

million. For the year ended

December 31, 2018,

the Company sold

1,494,579

shares of Common Stock under the Sales Agreement for aggregate gross proceeds of

$3.0

million. For the year ended

December 31, 2018,

total offering costs of

$46,000,

were offset against the proceeds from the sale of common stock. The

1,494,579

shares of Common Stock sold under the ATM program during the year ended

December 31, 2018

were all sold on

September 25, 2018

to New Leaf Venture Partners LLC.

Series A Preferred Financing

June 22, 2017,

the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a syndicate of current and new institutional investors, led by an affiliate of Deerfield Management Company, L.P., pursuant to which the Company agreed to issue and sell to the “Investors” an aggregate of

22,000

shares of the Company’s Series A Convertible Preferred Stock, par value

$0.001

per share (the “Transaction”), for a purchase price of

$1,000

per share, or an aggregate gross purchase price of

$22.0

million, all upon the terms and conditions set forth in the Purchase Agreement. The Company closed this Transaction on

August 2, 2017 (

see Note

August 2, 2017,

the Company entered into a registration rights agreement with the Investors (the “Registration Rights Agreement”). On

August 3, 2017,

in accordance with the Registration Rights Agreement, the Company filed a registration statement on Form S-

to register the common stock issuable upon conversion of the Preferred Shares. The registration statement became effective on

August 21, 2017.