UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

 

 

(609) 495-2200

 

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 ☑☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☑☒   No ☐

 

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

 

As of February 9, 2017, 137,947,0822018, 195,373,239 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

Table of Contents

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q, as well as oral statements that may be made by us or by our officers, directors, or employees acting on our behalf, that are not historical facts constitute “forward-looking statements”, which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”). The forward-looking statements in this Quarterly Report on Form 10-Q do not constitute guarantees of future performance. Investors are cautioned that statements that are not strictly historical statements contained in this Quarterly Report on Form 10-Q, including, without limitation, the following are forward looking statements:

 

Such forward-looking statements involve risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Our future operating results are subject to risks and uncertainties and are dependent upon many factors, including, without limitation, the risks identified in this report, in our Annual Report on Form 10-K for the year ended June 30, 2016,2017, and in our other Securities and Exchange Commission (SEC)(“SEC”) filings.

We expect to incur losses in the future as a result of spending on our planned development programs and results may fluctuate significantly from quarter to quarter.

 

Rekynda™ is a trademark of Palatin Technologies, Inc. Palatin Technologies® is a registered trademark of Palatin Technologies, Inc.

 

 

 

 

 

 

Key elements of the Company’s business strategy include using its technology and expertise to develop and commercialize therapeutic products; entering into alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale and distribution of product candidates that the Company is developing; and partially funding its product candidate development programs with the cash flow generated from its relationships with third parties.

On November 21, 2017, the Company closed on an underwritten public offeringentered into a license agreement with Kwangdong for exclusive rights to develop and commercialize bremelanotide in the Republic of units resulting in gross proceeds of $16,500,000,Korea. (“License Agreement with net proceeds, after deducting underwriting discounts and commissions and offering expenses, of $15,386,075.Kwangdong”) (Note 7).

Management believes that the Company’sits existing capital resources will be adequatesufficient to fund its planned operations through at least one year after the fiscal year ending June 30, 2018.date that these financial statements are issued. The Company will also need additional funding to complete required clinical trials for its other product candidates and, assuming those clinical trials are successful, as to which there can be no assurance, to complete submission of required applications to the FDA. If the Company is unable to obtain approval or otherwise advance in the FDA approval process, the Company’s ability to sustain its operations would be materially adversely affected.

The Company may seek the additional capital necessary to fund its operations through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements. Additional capital that is required by the Company may not be available on reasonable terms, or at all.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnote disclosures required to be presented for complete financial statements. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation. The results of operations for the three and six months ended December 31, 20162017 may not necessarily be indicative of the results of operations expected for the full year.

The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016,2017, filed with the SEC, which includes consolidated financial statements as of June 30, 20162017 and 20152016 and for each of the fiscal years in the three-year period ended June 30, 2016.2017.

The fair value of substantially all securities is determined by quoted market prices. The estimated fair value of securities for which there are no quoted market prices is based on similar types of securities that are traded in the market.

Under our license, co-development and commercialization agreementFASB ASC Topic 605-25, if both of the criteria above are not met, then separate accounting for the individual deliverables is not appropriate.

The Company has determined that it is appropriate to recognize the consideration received under its License Agreement with Gedeon RichterAMAG as revenue using the input-based proportional method during the period of the Palatin Development Obligation as defined in the License Agreement with AMAG. Refer to Note 5 for additional information on this topic.

Under its License Agreement with Fosun (Note 5)6), wethe Company received consideration in the form of a license fee and development milestone payment.

Revenue resulting from the achievement of development milestones is recorded in accordance with the accounting guidance for the milestone method of revenue recognition.

The Series A 2012 warrants issued on July 3, 2012 to purchase up to 31,988,151following table is a reconciliation of net income (loss) and the shares of common stock are included in the weighted average number of common shares outstanding used in computingcalculating basic and diluted net lossincome (loss) per common share for all periods presented in the consolidated statements of operations.three and six months ended December 30, 2017 and 2016:

For the weighted average number of common shares outstanding used in computing basicthree and diluted net loss per common share for all periods presented in the consolidated statements of operations.

In June 2015, the Company granted 570,000 options to its executive officers, 185,800 options to its employees and 160,000 options to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $446,748, $145,439 and $111,876, respectively, over the vesting period. The Company recognized $35,192,$36,478, and $67,485,$72,957, respectively, of stock-based compensation expense related to these options during the three and six months ended December 31, 20162017 and $62,443$35,192 and $120,020,$67,485, respectively, during the three and six months ended December 31, 2015.2016.

Unless otherwise stated, stock options granted to the Company’s executive officers and employees vest over a 48 month48-month period, while stock options granted to its non-employee directors vest over a 12 month12-month period.

In September 2016, the Company granted 558,000 restricted stock units to its executive officers, 415,000350,500 of which vest over 24 months and 143,000207,500 of which vest atvested over 12 months, and 336,000 restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of the restricted stock units of $284,580, and $171,360, respectively, over the vesting periods. The Company recognized $80,228$27,491 and $100,732,$91,483, respectively, of stock-based compensation expense related to these restricted stock units during the three and six months ended December 31, 2016.

Also, in December 2015, the Company granted 625,000 restricted stock units to its executive officers, 340,000 restricted stock units to its non-employee directors and 200,000 restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan. For executive officers and employees, the restricted stock units vest 25% on the date of grant and 25% on the first, second and third anniversary dates from the date of grant. For non-employee directors, the restricted stock units vest 50% on the first and second anniversary dates from the date of grant. The Company is amortizing the fair value of these restricted stock units isof $425,000, $231,200 and $136,000, respectively.respectively, over the vesting period of the restricted stock units. The Company recognized $85,996$35,553 and $187,252,$77,010, respectively, of stock-based compensation expense related to these restricted stock units during the three and six months ended December 31, 20162017 and $167,756$85,996 and $187,252, respectively, during the three and six months ended December 31, 2015.2016.

In June 2015, the Company granted 400,000 restricted stock units to its executive officers, 185,800 restricted stock units to its employees and 160,000 restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these restricted stock units of $432,000, $200,664, and $172,800, respectively, over the vesting period. The Company recognized $40,430$7,067 and $80,859,$13,954, respectively, of stock-based compensation expense related to these restricted stock units during the three and six months ended December 31, 20162017 and $150,328$40,430 and $300,656,$80,859, respectively, during the three and six months ended December 31, 2015.2016.

Unless otherwise stated, restricted stock units granted to the Company’s executive officers, employees and non-employee directors vest over 24 months, 48 months and 12 months, respectively.

Stock-based compensation costexpense for the three and six months ended December 31, 20162017 for stock options and equity-based instruments issued other than the stock options and restricted stock units described above was $67,926$43,277 and $126,629,$72,023, respectively, and $97,625$121,098 and $190,114,$232,972, respectively, for the three and six months ended December 31, 2015.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements filed as part of this report and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2016.2017.

Our significant accounting policies, which are described in the notes to our consolidated financial statements included in this report and in our Annual Report on Form 10-K for the year ended June 30, 2016,2017, have not changed as of December 31, 2016.2017. We believe that our accounting policies and estimates relating to revenue recognition, accrued expenses and stock-based compensation are the most critical.

The following drug development programs are actively under development:

The following chart illustrates the status of our drug development programs.

Key elements of our business strategy include:

We incorporated in Delaware in 1986 and commenced operations in the biopharmaceutical area in 1996. Our corporate offices are located at 4B Cedar Brook Drive, Cranbury, New Jersey 08512 and our telephone number is (609) 495-2200. We maintain an Internet site at http://www.palatin.com, where among other things, we make available free of charge on and through this website our Forms 3, 4 and 5, proxy statements, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d), Section 14A and Section 16 of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our website and the information contained in it or connected to it are not incorporated into this Quarterly Report on Form 10-Q.

 

Three and Six Months Ended December 31, 20162017 Compared to the Three and Six Months Ended December 31, 20152016

On January 8, 2017, we entered into the License Agreement with AMAG which provided for $60,000,000 as a one-time initial payment. Pursuant to the terms of and 2015.subject to the conditions in the License Agreement with AMAG, AMAG reimbursed us $25,000,000 for reasonable, documented, direct out-of-pocket expenses we incurred following the Effective Date of the License Agreement with AMAG in connection with the development and regulatory activities necessary to file an NDA for bremelanotide for HSDD in the United States.

Research and development expenses related to $11,272,307our bremelanotide, PL-3994, MC1r, MC4r and $21,870,021,other preclinical programs were $4,850,502 and $18,035,608, respectively, for the three and six months ended December 31, 2015.

The amounts of project spending noted above exclude general research and development spending, which werewas $1,195,382 and $2,173,373, respectively, for the three and six months ended December 31, 2017 compared to $931,481 and $2,058,592, respectively, for the three and six months ended December 31, 2016 compared to $791,561 and $1,501,735, respectively, for the three and six months ended December 31, 2015.2016. The increase in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock-­based compensation.employee related expenses.

Since inception, we have incurred net operating losses, primarily related to spending on our research and development programs. We have financed our net operating losses primarily through debt and equity financings and amounts received under collaborativecollaboration and license agreements.

Our product candidates are at various stages of development and will require significant further research, development and testing and some may never be successfully developed or commercialized. We may experience uncertainties, delays, difficulties and expenses commonly experienced by early stage biopharmaceutical companies, which may include unanticipated problems and additional costs relating to:

Failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and could make it more difficult to attract investment capital for funding our operations. Any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs.

During the six months ended December 31, 2016,2017, cash used forin operating activities was $17,731,525,$1,558,456, compared to $23,447,401$17,731,525 for the six months ended December 31, 2015.2016. Lower net cash outflows from operations in the six months ended December 31, 2016 compared to the six months ended December 31, 2015 were2017 was primarily the result of a decreasethe cash payments received in researchthe period relating to our license agreements with AMAG, Fosun and development expenses and an increase in accounts payable.Kwangdong. Our periodic prepaid expenses, accounts payable and accrued expenses balances will continue to be highly dependent on the timing of our operating costs.

During the six months ended December 31, 2016 there2017, cash provided by investing activities was $240,500, consisting of $250,000 in proceeds from the maturity of investments offset by $9,500, which was used for the purchase of equipment. There were no investing activities. activities during the six months ended December 31, 2016.

During the six months ended December 31, 2015,2017, net cash used for investingin financing activities was $1,404,717 consisting primarily$3,924,320, which consisted of $4,000,000 for the purchasepayment on notes payable, and $38,704 for capital lease payments and the payment of investments.

We have incurred cumulative negative cash flows from operations since our inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. Continued operations are dependent upon our ability to complete equity or debt financing activities, entering into licensing agreements or collaboration arrangements. As of December 31, 2016,2017, our cash and cash equivalents and investments were $13,490,540$34,958,048 and our current liabilities were $19,608,498.$14,120,695, net of deferred revenue of $9,548,228.

We intend to utilize existing capital resources for general corporate purposes and working capital, including required ancillary studies with Rekynda for HSDDpreparation and preparing and filing of an NDA on Rekynda,bremelanotide for HSDD with the FDA, and preclinical and clinical development of our MC1r and MC4r peptide programs and PL­3994PL-3994 natriuretic peptide, and development of other portfolio products.

We believe that our existing capital resources including the $60,000,000 we received on the Effective Date of the License Agreement with AMAG, will be adequate to fund our planned operations through at least one year after the fiscal year ending June 30, 2018.date that these financial statements are issued. We will need additional funding to complete required clinical trials for our other product candidates and development programs and, if those clinical trials are successful (which we cannot predict), to complete submission of required regulatory applications to the FDA.

We anticipate incurring additional losses over at least the next several years. To achieve sustainedor maintain profitability, if ever, we, alone or with others, must successfully develop and commercialize our technologies and proposed products, conduct preclinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market suchour technologies and proposed products. The time required to reach sustained profitability is highly uncertain, and we do not know whether we will be able to achieve profitability on a sustained basis, if at all.

Not required to be provided by smaller reporting companies.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2016.2017. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

We may be involved, from time to time, in various claims and legal proceedings arising in the ordinary course of our business. We are not currently a party to any claim or legal proceeding.

None.

Not applicable.

None.

Exhibits filed or furnished with this report:

 

 

 

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.