PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
The following table provides the assets carried at fair value:
| | Quoted prices in active markets (Level 1) | Other quoted/observable inputs (Level 2) | Significant unobservable inputs (Level 3) |
December 31, 2019: | | | | |
Money Market Account | $91,257,600 | $91,257,600 | $- | $- |
June 30, 2019: | | | | |
Money Market Account | $43,381,556 | $43,831,556 | $- | $- |
| | | | |
The Company has operating leases of office and laboratory space, each of which expires on June 30, 2020. The Company also has operating leases of copier equipment that expire October 15, 2021.
The components of lease expense are as follows:
Lease cost | Three months ended December 31, 2019 | Six months ended December 31, 2019 |
Operating lease cost | $50,394 | $99,258 |
Variable lease cost | 17,824 | 35,649 |
Short-term lease cost | 3,600 | 12,120 |
Total lease cost | $71,818 | $147,027 |
Supplemental balance sheet information related to leases was as follows:
| |
Operating lease ROU asset and liability | $173,666 |
Supplemental lease term and discount rate information related to leases was as follows:
Weighted-average remaining lease term (years) | 0.7 |
Weighted-average discount rate | 6.25% |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Supplemental cash flow information related to leases was as follows:
| Three months ended December 31, 2019 | Six months ended December 31, 2019 |
Cash paid for the amounts included in the measurement of lease liabilities: | | |
Operating cash flows for operating leases | $77,096 | $148,935 |
Supplemental non-cash information on lease liabilities arisng from obtaining right-of-use assets: | | |
Right-of-use assets obtained in exchange for new lease obligation | $36,720 | $93,435 |
The following table summarizes the maturity of the Company’s operating lease liability as of December 31, 2019:
| |
Year Ending June 30 | |
2020 | $154,194 |
2021 | 18,360 |
2022 | 4,590 |
Less imputed interest | (3,478) |
Total | $173,666 |
As of June 30, 2019, the Company had $225,120 in future lease payments for the year ending June 30, 2020 under ASC Topic 840.
Accrued expenses consist of the following:
| | |
| | |
Clinical / Regulatory costs | $520,470 | $943,721 |
Other research related expenses | 504,337 | 1,361,414 |
Professional services | 32,000 | 317,500 |
Other | 22,784 | 226,057 |
| $1,079,591 | $2,848,692 |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Notes payable consist of the following:
| | |
Notes payable under venture loan | $1,333,333 | $6,333,334 |
Unamortized related debt discount | (2,948) | (33,535) |
Unamortized debt issuance costs | (1,412) | (18,138) |
Notes payable | 1,328,973 | 6,281,661 |
| | |
Less: current portion | 1,328,973 | 5,948,763 |
| | |
Long-term portion | $- | $332,898 |
| |
| |
Notes payable under venture loan | $333,333 |
Unamortized related debt discount | (295) |
Unamortized debt issuance costs | (142) |
Notes payable | 332,896 |
| |
Less: current portion | 332,896 |
| |
Long-term portion | $- |
On December 23, 2014, the Company closed on a $10,000,000 venture loan which was led by Horizon Technology Finance Corporation (“Horizon”). The debt facility was a four-year senior secured term loan that bore interest at a floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50%, and provided for interest-only payments for the first eighteen months followed by monthly payments of principal of $333,333 plus accrued interest through January 1, 2019. The lenders also received five-year immediately exercisable Series D 2014 warrants to purchase 666,666 shares of common stock exercisable at an exercise price of $0.75 per share. The Company recorded a debt discount of $267,820 equal to the fair value of these warrants at issuance, which was amortized to interest expense over the term of the related debt. This debt discount was offset against the note payable balance and included in additional paid-in capital on the Company’s balance sheet. In addition, a final incremental payment of $500,000 was due on January 1, 2019, or upon early repayment of the loan. This final incremental payment was accreted to interest expense over the term of the related debt and included in other liabilities on the consolidated balance sheet. The Company incurred $209,367 of costs in connection with the loan. These costs were capitalized as deferred financing costs and were offset against the note payable balance. These debt issuance costs were amortized to interest expense over the term of the related debt. During the three months ended December 31, 2018, the loan matured, and on December 31, 2018, the Company made the final incremental payment of $500,000.
On July 2, 2015, the Company closed on a $10,000,000 venture loan led by Horizon. The debt facility iswas a four-year senior secured term loan that bearsbore interest at a floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50% and providesprovided for interest-only payments for the first eighteen months followed by monthly payments of principal of $333,333 plus accrued interest through August 1, 2019. The lenders also received five-year immediately exercisable Series G warrants to purchase 549,450 shares of the Company’s common stock exercisable at an exercise price of $0.91 per share. The Company has recorded a debt discount of $305,196 equal to the fair value of these warrants at issuance, which is beingwere amortized to interest expense over the term of the related debt. This debt discount iswas offset against the note payable balance and iswas included in additional paid-in capital on the Company’s balance sheet at March 31, 2019 and June 30, 2018.sheet. In addition, a final incremental payment of $500,000 iswas due on August 1, 2019, or upon early repayment of the loan.2019. This final incremental payment is beingwas accreted to interest expense over the term of the related debt and iswas included in other current liabilities on the consolidated balance sheet as of March 31, 2019.sheet. The Company incurred $146,115 of costs in connection with the loan agreement. These costs were capitalized as deferred financing costs and arewere offset against the note payable balance. These debt issuance costs are beingwere amortized to interest expense over the term of the related debt.
The Company’s obligations under During the 2015 amended and restated loan agreement, which includes the 2015 venture loan, are secured by a first priority security interest in substantially all of its assets other than its intellectual property. The Company also agreed to specified limitations on pledging or otherwise encumbering its intellectual property assets. The 2015 amended and restated loan agreement includes customary affirmative and restrictive covenants, but does not include any covenants to attain or maintain specified financial metrics. The loan agreement includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change default. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth inthree months ended September 30, 2019, the loan agreement. As of Marchmatured, and on July 31, 2019, the Company was in compliance with allmade the final incremental payment of its loan covenants.$500,000.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(12) (13)
STOCKHOLDERS’ EQUITY
Financing Transactions – On June 21, 2019 and April 20, 2018, the Company entered into an equity distribution agreement (the “Equity Distribution Agreement”)agreements with Canaccord Genuity LLC (“Canaccord”) (the “2019 Equity Distribution Agreement” and the “2018 Equity Distribution Agreement”, respectively), pursuant to which the Company may, from time to time, sell shares of the Company’s common stock at market prices by methods deemed to be an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The 2018 Equity Distribution Agreement and related prospectus was limited to sales of up to an aggregate maximum $25.0 million of shares of the Company’s common stock, and the 2019 Equity Distribution Agreement and related prospectus is limited to sales of up to an aggregate maximum $40.0 million of shares of the Company’s common stock. The Company will paypays Canaccord 3.0% of the gross proceeds as a commission.
For the three and ninesix months ended MarchDecember 31, 2019, 0respectively, 1,238,040 and 2,256,4451,895,934 shares of the Company’s common stock were sold through Canaccord under the 2019 Equity Distribution Agreement for net proceeds of $0$1,001,768 and $1,581,498 after payment of commission fees of $31,756 and $51,696 and other related expenses of $25,000 and $90,000, respectively From inception of the 2019 Equity Distribution Agreement through December 31, 2019, a total of 9,460,509 shares of common Stock were sold for net proceeds of $11,870,334 after payment of commission fees of $369,907 and other related expenses of $90,000. For the three and six months ended December 31, 2018, respectively, 31,300 and 2,256,445 shares of common stock were sold through Canaccord under the 2018 Equity Distribution Agreement for net proceeds of $30,361 and $2,252,808, respectively, after payment of commission fees of $0$939 and $69,674, respectively.
The Company has no obligation to sell any shares under From inception of the 2018 Equity Distribution Agreement through June 26, 2019, a total of 18,504,993 shares of common Stock were sold for net proceeds of $24,249,997 after payment of commission fees of $750,000, and may at any time suspend solicitation and offers under the 2018 Equity Distribution Agreement.Agreement is deemed completed.
Stock Purchase Warrants – On September 13, 2019, the Company’s Board of Directors approved a plan to offer to purchase and terminate certain outstanding common stock purchase warrants through privately negotiated transactions. The purchase and termination program has no time limit and may be suspended for periods or discontinued at any time.
During the ninethree and six months ended MarchDecember 31, 2018,2019, the Company entered into several warrant termination agreements to repurchase and cancel the following previously issued Series F, Series H and Series J warrants for the following aggregate buyback prices, plus additional consideration upon any sale of the Company within six months of the respective agreement:
| Three months ended December 31, 2019 | Six months ended December 31, 2019 |
| | | | |
Series F Warrants | 297,352 | $62,712 | 297,352 | $62,712 |
Series H Warrants | 992,387 | 390,600 | 1,466,432 | 577,373 |
Series J Warrants | 1,908,080 | 760,657 | 4,774,889 | 1,907,381 |
| 3,197,819 | $1,213,969 | 6,538,673 | $2,547,466 |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
During the three months ended December 31, 2019, the Company issued 23,344,45126,861 shares of common stock pursuant toupon the cashless exercise provisions of 666,666 Series D warrants at an exercise price of $0.01$0.75 per share and received $114,384 and issued 11,438,356 shares of common stock pursuant to the exercise of warrants at an exercise price of $0.01 per share.
Stock Options – For the three and ninesix months ended MarchDecember 31, 2019, the Company recorded stock-based compensation related to stock options of $244,528$334,564 and $885,935,$678,724, respectively. For the three and ninesix months ended MarchDecember 31, 2018, the Company recorded stock-based compensation related to stock options of $403,464$317,704 and $767,971,$641,407, respectively.
In July 2018, the terms of certain options were modified to accelerate vesting and extend the option life.exercise period. As a result, the Company recorded additional stock-based compensation of $109,004 during the ninesix months ended March 31, 2019. There were no such modifications during the nine months ended MarchDecember 31, 2018.
A summary of stock option activity is as follows:
| | Weighted Average Exercise Price | Weighted Average Remaining Term in Years | Aggregate Intrinsic Value |
| | | | |
Outstanding - July 1, 2018 | 12,775,462 | $0.76 | 7.7 | |
| | | | |
Granted | - | - | | |
Forfeited | (164,913) | 0.54 | | |
Expired | (129,150) | 1.77 | | |
| | | | |
Outstanding - March 31, 2019 | 12,481,399 | $0.75 | 6.8 | $2,950,910 |
| | | | |
Exercisable at March 31, 2019 | 6,870,074 | $0.78 | 5.5 | $1,560,726 |
| | | | |
Expected to vest at March 31, 2019 | 5,611,325 | $0.73 | 8.5 | $1,390,184 |
| | Weighted Average Exercise Price | Weighted Average Remaining Term in Years | Aggregate Intrinsic Value |
Outstanding - June 30, 2019 | 14,435,650 | 0.85 | 7.3 | |
| | | | |
Granted | - | - | | |
Forfeited | - | - | | |
Exercised | - | - | | |
Expired | (77,100) | 2.72 | | |
Outstanding - December 31, 2019 | 14,358,550 | $0.84 | 6.8 | $1,503,989 |
| | | | |
Exercisable at December 31, 2019 | 8,934,000 | $0.77 | 5.8 | $990,474 |
| | | | |
Expected to vest at December 31, 2019 | 5,424,550 | $0.96 | 8.5 | $513,515 |
Stock options granted to the Company’s executive officers and employees generally vest over a 48-month period, while stock options granted to its non-employee directors vest over a 12-month period.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Included in the options outstanding above are 1,075,000 and 125,000117,500 performance-based options granted in December 2017 to executive officers and employees, respectively, which vest during a performance period ending on December 31, 2020, if and upon either i) as to 100% of the target number of shares upon achievement of a closing price for the Company’s common stock equal to or greater than $1.50 per share for 20 consecutive trading days, which is considered a market condition; or ii) as to thirty percent (30%) of the target number of shares, upon the acceptance for filing by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is considered a performance condition; iii) as to fifty percent (50%) of the target number of shares, upon the approval by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is also considered a performance condition; iv) as to twenty percent (20%) of the target number of shares, upon entry into a licensing agreement during the performance period for the commercialization of Vyleesi for FSD in selectedat least two of the following geographic areas (a) four or more countries in Europe, (b) Japan, (c) two or more countries in Central and/or South America, (d) two or more countries in Asia, excluding Japan and China, and (e) Australia, which is also considered a performance condition. The fair value of these options was $602,760. The Company amortized the fair value over the derived service period of 1.1 years or upon the attainment of the performance condition. Pursuant to the FDA acceptance of the NDA filing of Vyleesi, 30% of the target number of options vested in June 2018.2018 and 50% of the target number of options vested in June 2019 upon FDA approval of Vyleesi.
Restricted Stock Units – For the three and ninesix months ended MarchDecember 31, 2019, the Company recorded stock-based compensation related to restricted stock units of $409,871$470,372 and $1,871,839,$953,947, respectively. For the three and ninesix months ended MarchDecember 31, 2018, the Company recorded stock-based compensation related to restricted stock units of $925,608$661,090 and $1,603,001$1,461,968, respectively.
A summary of restricted stock unit activity is as follows:
| |
Outstanding at July 1, 20182019 | 9,323,87610,327,833 |
Granted | - |
Forfeited | (178,851-) |
Vested and issued | (319,817523,775) |
Outstanding at MarchDecember 31, 2019 | 8,825,2089,804,058 |
| |
Included in outstanding restricted stock units in the table above are 3,952,8756,167,750 vested shares that have not been issued as of MarchDecember 31, 2019 due to a provision in the restricted stock unit agreements to delay delivery.
Time-based restricted stock units granted to the Company’s executive officers, employees and non-employee directors generally vest over 24 months, 48 months and 12 months, respectively.
In June 2019, the Company granted 438,000 performance-based restricted stock units to its executive officers and 182,725 performance-based restricted stock units to other employees which vest during a performance period ending June 24, 2023. The performance-based restricted stock units vest on performance criteria relating to advancement of MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional countries or regions.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
In December 2017, the Company granted 1,075,000 performance-based restricted stock units to its executive officers and 670,000 performance-based restricted stock units to other employees which vest during a performance period, ending on December 31, 2020, if and upon either i) as to 100% of the target number of shares upon achievement of a closing price for the Company’s common stock equal to or greater than $1.50 per share for 20 consecutive trading days, which is considered a market condition; or ii) as to thirty percent (30%) of the target number of shares, upon the acceptance for filing by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is considered a performance condition; iii) as to fifty percent (50%) of the target number of shares, upon the approval by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is also considered a performance condition; iv) as to twenty percent (20%) of the target number of shares, upon entry into a licensing agreement during the performance period for the commercialization of Vyleesi for FSD in at least two of the following geographic areas (a) four or more countries in Europe, (b) Japan, (c) two or more countries in Central and/or South America, (d) two or more countries in Asia, excluding Japan and China, and (e) Australia, which is also considered a performance condition. The fair value of these awards was $913,750 and $569,500, respectively. The Company amortized the fair value over the derived service period of 1.1 years or upon the attainment of the performance condition. Pursuant to the FDA acceptance of the NDA filing for Vyleesi, 30% of the target number of shares vested in June 2018. Pursuant to the FDA approval of Vyleesi, 50% of the target number of shares vested in June 2019.
On January 9, 2020, AMAG announced plans to divest Vyleesi and Intrarosa® (prasterone), both women’s healthcare products. While AMAG indicated that it has received preliminary expressions of interest to acquire or sublicense rights to these products, there have been no public disclosures of any potential licensees of AMAG’s rights to Vyleesi in North America. We licensed all rights to commercialize Vyleesi in North America to AMAG, and subsequent to FDA approval of Vyleesi in June 2019, AMAG launched Vyleesi nationally in September 2019 through select specialty pharmacies with its women’s health sales force. Under the license agreement, AMAG has a contractual obligation to use commercially reasonable efforts to commercialize Vyleesi, and if AMAG materially breaches its obligations, we could have the right to terminate the license agreement and require AMAG to assign and transfer certain Vyleesi rights to Palatin. In the event AMAG assigns its Vyleesi license to a third party, the assignee must expressly agree to be bound by the license agreement between AMAG and Palatin. The Company is currently assessing the potential impact on the Company’s operations caused by this announcement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2018.2019.
The following discussion and analysis contain forward-looking statements within the meaning of the federal securities laws. You are urged to carefully review our description and examples of forward-looking statements included earlier in this Quarterly Report immediately prior to Part I, under the heading “Special Note Regarding Forward-Looking Statements.” Forward-looking statements are subject to risk that could cause actual results to differ materially from those expressed in the forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in this Quarterly Report and our Annual Report on Form 10-K for the year ended June 30, 2019, as well as any of those made in our other reports filed with the SEC. You are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as of the date of this document. We do not intend, and undertake no obligation, to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.
Critical Accounting Policies and Estimates
Except for the adoption of ASCAccounting Standards Codification (“ASC”) Topic 606,842, 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, 2018,2019, have not changed during the ninesix months ended MarchDecember 31, 2019. We believe that our accounting policies and estimates relating to revenue recognition, accrued expenses and stock-based compensation are the most critical.
Overview
We are a specialized biopharmaceutical company developing first-in-class medicines based on molecules that modulate the activity of the melanocortin and natriuretic peptide receptor systems. Our product candidates are targeted, receptor-specific therapeutics for the treatment of diseases with significant unmet medical need and commercial potential. Our most advanced product candidate is Vyleesi™, the trade name for bremelanotide, a peptide melanocortin receptor 4 (MC4r) agonist, for the treatment of premenopausal women with acquired, generalized HSDD, which is a type of FSD, defined as low desire with associated distress or interpersonal difficulty.
Vyleesi. Vyleesi is a subcutaneous injectable product for the treatment of HSDD in premenopausal women. Vyleesi is a synthetic peptide analog of the naturally occurring hormone alpha-MSH (melanocyte-stimulating hormone). In March 2018, our exclusive North American licensee for Vyleesi, AMAG, submitted an NDA to the FDA for Vyleesi for the treatment of HSDD in premenopausal women, which was accepted for filing and review by the FDA. In November 2018, AMAG announced that the FDA requested additional data assessing 24-hour ambulatory blood pressure with short term daily use of Vyleesi, which study has been completed and data submitted to the FDA. The Prescription Drug User Fee Act (“PDUFA”) date for completion of FDA review of the Vyleesi NDA was extended by three months to June 23, 2019. We have also licensed rights to Vyleesi to Fosun for the Chinese Territories and Kwangdong for Korea.
Our Phase 3 studies for HSDD in premenopausal women, called the RECONNECT studies, consisted of two double-blind placebo-controlled, randomized parallel group studies comparing the on demand use of 1.75 mg of Vyleesi versus placebo, in each case, delivered via a subcutaneous auto-injector. Each trial consisted of more than 600 patients randomized in a 1:1 ratio to either the treatment arm or placebo with a 24-week evaluation period. In both clinical trials, Vyleesi met the pre-specified co-primary efficacy endpoints of improvement in desire and decrease in distress associated with low sexual desire as measured using validated patient-reported outcome instruments.
After completing the studies, patients had the option to continue in an open-label safety extension study for an additional 52 weeks. Nearly 80% of patients who completed the randomized portion of the study elected to remain in the open-label portion of the study. In the Phase 3 clinical trials, the most frequent adverse events were nausea, flushing, injection site reactions and headache, which were generally mild-to-moderate in intensity and were transient.
We retain worldwide rights for Vyleesi for HSDD and all other indications outside North America, Korea and the Chinese Territories. We are actively seeking potential partners for marketing and commercialization rights for Vyleesi for HSDD outside the licensed territories. However, we may not be able to enter into suitable agreements with potential partners on acceptable terms, if at all.
Melanocortin Receptor Systems.System. The melanocortin receptor (“MCr”) system is hormone driven, with effects on food intake, metabolism, sexual function, inflammation and immune system responses. There are five melanocortin receptors, MC1r through MC5r. Modulation of these receptors, through use of receptor-specific agonists, which activate receptor function, or receptor-specific antagonists, which block receptor function, can have significant pharmacological effects.
Our lead product, Vyleesi®, was approved by the U.S. Food and Drug Administration (“FDA”) on June 21, 2019, and is being marketed in North America by AMAG, with product availability in the United States starting in August 2019. Vyleesi is indicated for the treatment of premenopausal women with acquired, generalized HSDD, characterized by low sexual desire that causes marked distress or interpersonal difficulty not due to a co-existing medical or psychiatric condition, relationship problems, or effects of a medication or drug substance.
Our new product development activities focus primarily focus on MC1r agonists, with potential to treat a number of inflammatory and autoimmune diseases such as dry eye disease, which is also known as keratoconjunctivitis sicca, uveitis, diabetic retinopathy and inflammatory bowel disease. An investigational new drug application for PL9643, a peptide we developed, to treat dry eye disease was filed with the FDA in December 2019, with a phase 2 study expected to commence in the first quarter of calendar year 2020. A phase 2 proof-of-concept study of PL8177 in ulcerative colitis patients is anticipated to commence in mid-calendar year 2020. We believe that MC1r agonists, including the MC1r agonist peptides we are developing have broad anti-inflammatory effects and appear to utilize mechanisms engaged by the endogenous melanocortin system in regulation of the immune system and resolution of inflammatory responses. We are also developing peptides that are active at more than one melanocortin receptor, and MC4r peptide and small molecule agonists with potential utility in a number of obesity and metabolic-related disorders, including rare disease and orphan indications.
●
PL-8177, a selective MC1r agonist peptide, is our lead clinical development candidate for inflammatory bowel diseases, including ulcerative colitis, with potential applicability for a number of other diseases. We filed an Investigational New Drug (“IND”) application on PL-8177 in late 2017 and have completed subcutaneous dosing of human subjects in a Phase 1 single and multiple ascending dose clinical safety study, with favorable results announced in a press release issued November 8, 2018. We completed a clinical study with oral dosing of PL-8177 in human subjects in the fourth quarter of calendar year 2018, with positive results announced in a press release issued April 4, 2019. Phase 2 clinical trials with oral PL-8177 in ulcerative colitis patients are anticipated to commence in the fourth quarter of calendar year 2019. A phase 2 clinical trial with systemic PL-8177 in non-infectious uveitis, an ocular indication, is also planned to start in the fourth quarter of calendar 2019.
●
PL-9643, a pan-melanocortin peptide agonist, is a preclinical development candidate for treating ocular inflammation. We have determined to move forward with PL-9643 rather than PL-8331 because PL-9643 has a significantly later potential patent expiration date and has shown superior results in some preclinical evaluations. We have ongoing IND-enabling preclinical activities with PL-9643, and if results continue to be favorable, we anticipate filing an IND.
●
We have initiated preclinical programs with MC4r peptides and orally-active small molecules for treatment of rare genetic metabolic and obesity disorders, and if results are favorable, anticipate selecting a lead clinical development candidate and completing IND-enabling activities in calendar year 2019.
Natriuretic Peptide Receptor Systems.System. The natriuretic peptide receptor (“NPR”) system has numerousregulates cardiovascular functions, and therapeutic agents modulating this system may be useful in treatment ofhave potential to treat fibrotic diseases, cardiovascular diseases, including reducing cardiac hypertrophy and fibrosis, heart failure, acute asthma, other pulmonary diseases and hypertension. While the therapeutic potential of modulating this system is well appreciated, development of therapeutic agents has been difficult due, in part, to the short biological half-life of native peptide agonists. We have designed and are developing potential NPR candidate drugs that are selective for one or more different natriuretic peptide receptors, including natriuretic peptide receptor-A (“NPR-A”), natriuretic peptide receptor B (“NPR-B”), and natriuretic peptide receptor C (“NPR-C”).
●
PL-3994 is an NPR-A agonist we developed which has completed Phase 1 clinical safety studies. It has potential utility in treatment of a number of cardiovascular diseases, including genetic and orphan diseases resulting from a deficiency of endogenous active NPR-A. We have ongoing academic collaborations with several institutions with PL-3994.
●
PL-5028, a dual NPR-A and NPR-C agonist we developed, is in preclinical development for cardiovascular diseases, including reducing cardiac hypertrophy and fibrosis. We have ongoing academic collaborations with several institutions related to PL-5028, and seek to enter into a development partnership by the end of calendar year 2019.
The following chart illustrates the status of our drug development programs.programs and Vyleesi, which has been approved by the FDA for the treatment of premenopausal women with acquired, generalized HSDD.
Our Strategy
Key elements of our business strategy include:
●
UsingMaximizing revenue from Vyleesi by supporting our technologyexisting licensees and expertise to developlicensing Vyleesi for global areas outside of North America, China and commercialize products in our active drug development programs;South Korea;
●
Assembling and maintaining a team to create, develop and commercialize MCr and NPR products addressing unmet medical needs;
●
Entering into strategic alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale and distribution of product candidates that we are developing;
●
Partially funding our product development programs with the cash flow generated from existing license agreements, as well as any future research, collaboration or license agreements; and
●
Completing development and seeking regulatory approval of certain of our other product candidates.
We were incorporated under the laws of the State of Delaware on November 21, 1986 and commenced operations in the biopharmaceutical area in 1996. Our corporate offices are located at 4B Cedar Brook Drive, Cedar Brook Corporate Center, Cranbury, New Jersey 08512 and our telephone number is (609) 495-2200. We maintain an Internet site at www.palatin.com, where among other things, we make available free of charge on and through this website our Forms 3, 4 and 5, 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) 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. The reference to our website is an inactive textual reference only.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (www.sec.gov).
Results of Operations
Three and NineSix Months Ended MarchDecember 31, 2019 Compared to the Three and NineSix Months Ended MarchDecember 31, 2018:
Revenue – For the three and ninesix months ended MarchDecember 31, 2019, we recognized $0$20,610 and $117,989, respectively, in license and contract revenue compared to zero and $34,505 in license and contract revenue for the three and six months ended December 31, 2018, respectively, pursuant to our license agreement with AMAG compared to $8,962,709 and $46,516,370 in revenue for the three and nine months ended March 31, 2018 pursuant to our license agreements with AMAG and Fosun.AMAG.
On January 8, 2017, we entered into the AMAG License Agreement that provided for $60,000,000 as a one-time initial payment. Pursuant to the terms of and subject to the conditions in the AMAG License Agreement, AMAG reimbursed us $25,000,000, less certain expenses directly paid or to be paid by AMAG, for reasonable, documented, direct out-of-pocket expenses we incurred following the effective date of the License Agreement in connection with development and regulatory activities necessary to file an NDA for Vyleesi for HSDD in the United States. For the three and nine months ended March 31, 2018, we recognized $8,962,709 and $41,516,370, respectively, of revenue related to this agreement under the input-based proportional method.
On September 6, 2017, we entered into the Fosun License Agreement for exclusive rights to commercialize Vyleesi in the Chinese Territories, which provided for $5,000,000 as a one-time non-refundable upfront payment, which was recorded as revenue during the nine months ended March 31, 2018. Pursuant to the Fosun License Agreement, $500,000 was withheld in accordance with tax withholding requirements in the Chinese Territories and was recorded as an expense during the year ended June 30, 2018.
Research and Development – Research and development expenses were $3,943,982$3,257,624 and $10,528,329, respectively,$6,385,113 for the three and ninesix months ended MarchDecember 31, 2019, respectively, compared to $7,068,849$2,961,656 and $27,277,830, respectively$6,584,347 for the three and ninesix months ended MarchDecember 31, 2018.2018, respectively. The increase for the three months ended December 31, 2019 as compared to the three months ended December 31, 2018 is primarily related to an increase in spending on our PL8177 program. The decrease for the six months ended December 31, 2019 as compared to the six months ended December 31, 2018, is primarily related primarily to completion ofa decrease in stock-based compensation offset by an increase in spending on our Vyleesi Phase 3 clinical trial program and ancillary studies necessary to file an NDA for Vyleesi for HSDD in March 2018.PL8177 program.
Research and development expenses related to our Vyleesi, PL-3994, PL-8177,PL3994, PL8177, MC1r, MC4r and other preclinical programs were $3,217,387$2,359,516 and $7,335,994, respectively,$4,657,058 for the three and ninesix months ended MarchDecember 31, 2019, respectively, compared to $5,342,113$2,174,366 and $23,377,721, respectively,$4,118,606 for the three and ninesix months ended MarchDecember 31, 2018. Spending to date has been2018, respectively. The increase is primarily related to an increase in spending on our Vyleesi for the treatment of HSDDPL8177 program. The decrease in research and development expenses is mainly attributable to the conclusion of Phase 3 clinical trial and development of Vyleesi for HSDD in March 2018. The amount of such spending and the nature of future development activities are dependent on a number of factors, including primarily the availability of funds to support future development activities, success of our clinical trials and preclinical and discovery programs, and our ability to progress compounds in addition to Vyleesi, PL-8177 and PL-3994 into human clinical trials.
The amounts of project spending above exclude general research and development spending, which was $726,595$898,108 and $3,192,335, respectively,$1,728,055 for the three and ninesix months ended MarchDecember 31, 2019, respectively, compared to $1,726,736$787,290 and $3,900,109, respectively$2,465,741 for the three and ninesix months ended MarchDecember 31, 2018.2018, respectively. The fiscal year to date decrease in general research and development spending is primarily attributable to a decrease in stock-based compensation.
compensation and salaries.
Cumulative spending from inception to MarchDecember 31, 2019 was approximately $309,500,000$310,700,000 on our Vyleesi program and approximately $138,200,000$147,900,000 on all our other programs (which include PL-3994, PL-8177,PL3994, PL8177, other melanocortin receptor agonists, other discovery programs and terminated programs). Due to various risk factors described in our Annual Report on Form 10-K for the year ended June 30, 2018,2019, under “Risk Factors,” including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and larger-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever, related net cash inflows will be generated.
General and Administrative – General and administrative expenses, which consist mainly of compensation and related costs, were $1,818,796$2,404,093 and $5,947,943, respectively,$4,236,535 for the three and ninesix months ended MarchDecember 31, 2019, respectively, compared to $2,411,302$2,088,585 and $5,581,066, respectively,$4,129,147 for the three and ninesix months ended MarchDecember 31, 2018. The decrease in general and administrative expenses for the three months ended March 31, 2019 is primarily attributable to a decrease in employee-related expenses.2018, respectively. The increase in general and administrative expenses for the ninethree and six months ended MarchDecember 31, 2019 is relatedprimarily attributable to an increasethe final payment made in connection with the Greenhill agreement offset by a decrease in stock-based compensation.
Other Income (Expense) – Total other income (expense), net was $35,648$397,480 and $(9,769), respectively,$759,083 for the three and ninesix months ended MarchDecember 31, 2019, respectively, compared with $(240,487)$7,871 and $(955,445), respectively,$(45,417) for the three and ninesix months ended MarchDecember 31, 2018.2018, respectively. For the three and six months ended MarchDecember 31, 2019, we recognized $107,460$399,982 and $770,636, respectively, of investment income offset by $(71,812) of interest expense primarily related to our venture debt$2,502 and for the nine months ended March 31, 2019 we recognized $(370,981) of interest expense offset by $361,212 of investment income. For the three and nine months ended March 31, 2018 we recognized $(326,983) and $(1,175,023),$11,553, respectively, of interest expense primarily related to our venture debt offset by $86,496debt. For the three and $219,578,six months ended December 31, 2018, we recognized $100,169 and $253,752, respectively, of investment income.income offset by $92,298 and $299,169, respectively, of interest expense primarily related to our venture debt. Interest income has increased as a result of the Company’s increased cash position. Interest expense has decreased as we pay downhave repaid our venture debt.
Income Taxes – No income tax expense was recorded for the three and nine months ended March 31,debt as of July 2019. Income tax benefit was $18,746 and $192,611, respectively, for the three and nine months ended March 31, 2018. For the nine months ended March 31, 2018, the income tax benefit was the result of the release of a valuation allowance during the quarter ended December 31, 2017, offset by income tax expense related to foreign withholding tax requirements. The tax benefit recorded during the three months ended March 31, 2018 was based on the Company’s estimated effective tax rate.
Liquidity and Capital Resources
Since inception, we have generally 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 collaborative 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:
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the development and testing of products in animals and humans;
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product approval or clearance;
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good manufacturing practices (“GMP”) compliance;
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intellectual property rights;
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marketing, sales and competition; and
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obtaining sufficient capital.
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 ninesix months ended MarchDecember 31, 2019, net cash provided by operating activities was $49,914,993 compared to cash used in operations of $11,028,963 for the six months ended December 31, 2018. The difference in cash provided by operations for the six months ended December 31, 2019 compared with cash used in operating activities was $14,837,499 compared to $8,790,792 for the ninesix months ended March 31, 2018. The increase in cash used in operations for the nine months ended March 31, 2019 compared with the nine months ended MarchDecember 31, 2018 was the result of lower cash receipts relatingprimarily related to the timing of the receipt of payments related to revenue recorded for our license agreement with AMAG, License Agreement.including payments related to the FDA’s approval of Vylessi.
During the ninesix months ended MarchDecember 31, 2019, net cash used in investing activities was $36,139$62,880 compared to $0 for the six months ended December 31, 2018. The change in cash providedused by investing activities of $240,500 for the nine months ended March 31, 2018. The decrease in cash provided by investing activities and increase in cash used in investing activities for the nine months ended March 31, 2019 compared to the nine months ended March 31, 2018 was theis a result of proceeds from the maturity of investments during the nine months ended March 31, 2018 and the purchase of property and equipment during the ninesix months ended MarchDecember 31, 2019.
During the ninesix months ended MarchDecember 31, 2019, net cash used in financing activities was $3,313,184,$1,903,055, which consisted of payment on notes payable obligations of $5,500,000$832,851, repurchase and cancellation of outstanding warrants of $2,547,466 and payment of withholding taxes related to restricted stock units of $104,236 offset by net proceeds from the sale of common stock of $1,581,498 in our “at-the-market” offering program. During the six months ended December 31, 2018, net cash used in financing activities was $2,313,184, which consisted of payment on notes payable obligations of $4,500,000, payment of withholding taxes related to restricted stock units of $65,992 offset by net proceeds from the sale of common stock of $2,252,808 in our “at-the-market” offering program. During the nine months ended March 31, 2018, net cash used in financing activities was $5,913,874, which consisted of payments on notes payable obligations of $6,000,000, withholding taxes related to restricted stock units of $45,165, and capital lease obligations of $14,324, offset by proceeds from the exercise of options and warrants of $145,615.
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 generate future income from existing licenses, to complete equity or debt financing activities and to enter into additional licensing or collaboration arrangements. As of MarchDecember 31, 2019, our cash and cash equivalents were $19,813,349$91,459,480 and our current liabilities were $4,939,123.$1,374,940.
We intend to utilize existing capital resources for general corporate purposes and working capital, including Vyleesi, preclinical and clinical development of our MC1r and MC4r peptide programs and natriuretic peptide program, and development of other portfolio products.
We believe that our existing capital resources together with proceeds received from sales of common stock in our “at-the-market” program (if any), will be adequate to fund our planned operations through at least May 31, 2020.calendar year 2021. We will need additional funding to complete required clinical trials for our product candidates and development programs other than Vyleesi and, if those clinical trials are successful (which we cannot predict), to complete submission of required regulatory applications to the FDA.
We expect to incur significant expenses as we continue our development of natriuretic peptide and MC1r products. These expenses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity, total assets and working capital. 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.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required to be provided by smaller reporting companies.
Item 4. Controls and Procedures.
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 MarchDecember 31, 2019. 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
Item 1. Legal Proceedings.
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.
This report and other documents we file with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. These statements are not guarantees of future performance, and they involve certain risks, uncertainties and assumptions that are difficult to predict. You should carefully consider the risks and uncertainties facing our business.
ThereThe following information should be read in conjunction with the risk factors and uncertainties disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended June 30, 2019, filed with the SEC on September 12, 2019. Except as disclosed below, there have been no material changes to our risk factors disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended June 30, 2018.2019.
The announcement by AMAG of its intent to divest itself of its women’s healthcare products, including Vyleesi, creates significant uncertainty regarding marketing, sales and distribution of Vyleesi in the United States.
On January 9, 2020, AMAG announced plans to divest Vyleesi and Intrarosa® (prasterone), both women’s healthcare products. While AMAG indicated that it has received preliminary expressions of interest to acquire or sublicense rights to these products, there have been no public disclosures of any potential licensees of AMAG’s rights to Vyleesi in North America. In 2017, we licensed all rights to commercialize Vyleesi in North America to AMAG, and following the U.S. Food and Drug Administration approval of Vyleesi in June 2019, AMAG launched Vyleesi nationally in September 2019 through select specialty pharmacies with its women’s health sales force. Under the license agreement, AMAG has a contractual obligation to use commercially reasonable efforts to commercialize Vyleesi, and if AMAG materially breaches its obligations, we could have the right to terminate the license agreement and require AMAG to assign and transfer certain Vyleesi rights to Palatin. In the event AMAG assigns its Vyleesi license to a third party, the assignee must expressly agree to be bound by the license agreement between AMAG and Palatin.
If AMAG fails to assign or license rights to Vyleesi to a third party with the resources and capability to effectively market Vyleesi, we could experience significant delays or an inability to successfully commercialize Vyleesi. Even if AMAG assigns or licenses rights to Vyleesi to a third party with the resources and capability to effectively market Vyleesi, there may be significant delays in the successful commercialization of Vyleesi for HSDD in North America, and we may be unable to realize the potential value of the license agreement in a timely manner. If we obtain all rights to Vyleesi from AMAG, as a result of termination of the license agreement for breach or otherwise, we will need to establish sales and marketing, contract manufacturing, distribution, pharmacovigilance and related capabilities, which will be expensive and time consuming. If we are unable to establish adequate capabilities to make and sell Vyleesi, whether independently or with third parties, we may not be able to generate product revenue and our business would suffer.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
On September 13, 2019, our Board of Directors approved a plan to offer to purchase and terminate outstanding Series F, Series H and Series J common stock purchase warrants through privately negotiated transactions. The purchase and termination program has no time limit and may be suspended for periods or discontinued at any time.
The following table provides information with respect to purchase and termination of common stock purchase warrants by the Company during the fiscal quarter ended December 31, 2019.
Fiscal Month Period | Total Number of Warrant Shares Purchased (1) | Average Price per Warrant Share | Total Number of Warrant Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Warrant Shares that May Yet be Purchased Under Announced Plans or Programs (3) |
October 1, 2019 through October 31, 2019 | 3,197,819 | $0.38 | - | 14,508,924 |
November 1, 2019 through November 30, 2019 | - | - | - | - |
December 1, 2019 through December 31, 2019 | - | - | - | - |
Total | 3,197,819 | $0.38 | - | 14,508,924 |
(1)
During the fiscal quarter ended December 31, 2019, we purchased common stock purchase warrants exercisable for an aggregate of 3,197,819 shares of our common stock consisting of 297,352 Series F warrants, 992,387 Series H warrants and 1,908,080 Series J warrants in privately negotiated transactions.
(3)
As of December 31, 2019, the maximum number of common stock purchase warrants that may yet be purchased under the plan is 14,508,924.
Except as discussed above with respect to repurchase of certain warranty we have not and do not currently intend to retire or repurchase any of our capital securities other than providing our employees with the option to withhold shares to satisfy tax withholding amounts due from employees upon the vesting of restricted stock units in connection with our 2011 Stock Incentive Plan. As indicated in thetable below, 87,179 shares were withheld during the three months ended December 31, 2019 at the direction of the employees as permitted under the 2011 Stock Incentive Plan in order to pay the minimum amount of tax liability owed by the employee from the vesting of those units:
Fiscal Month Period | Total Number of Shares Purchased (1) | Weighted Average Price per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under Announced Plans or Programs |
October 1, 2019 through October 31, 2019 | 87,179 | $1.15 | - | - |
November 1, 2019 through November 30, 2019 | - | - | - | - |
December 1, 2019 through December 31, 2019 | - | - | - | - |
Total | 87,179 | $1.15 | - | - |
(1) Consists solely of 87,179 shares that were withheld to satisfy tax withholding amounts due from employees upon the vesting of previously issued restricted stock units.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Exhibits filed or furnished with this report:
Exhibit Number | | Description | | Filed Herewith | | Form | | Filing Date | | SEC File No. |
| | Certification of Chief Executive Officer. | | X | | | | | | |
| | Certification of Chief Financial Officer. | | X | | | | | | |
| | Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | X | | | | | | |
| | Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | X | | | | | | |
101.INS | | XBRL Instance Document. | | X | | | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document. | | X | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. | | X | | | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. | | X | | | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. | | X | | | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. | | X | | | | | | |
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.
| | Palatin Technologies, Inc. | |
| | (Registrant) | |
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| | /s/ Carl Spana | |
Date: May 9, 2019February 10, 2020 | | Carl Spana, Ph.D. President and Chief Executive Officer (Principal Executive Officer) | |
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| | | |
| | /s/ Stephen T. Wills | |
Date: May 9, 2019February 10, 2020 | | Stephen T. Wills, CPA, MST Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer) | |