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 ☑☒

 

 

 

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.

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

The Company’s primary product in development is bremelanotide for the treatment of hypoactive sexual desire disorder (HSDD)(“HSDD”), which is a type of female sexual dysfunction (FSD)(“FSD”). The Company also has drug candidates or development programs for obesity, erectile dysfunction, cardiovascular diseases, pulmonary diseases,including heart failure and fibrosis, and inflammatory diseases, including inflammatory bowel disease and dermatologic diseases.ocular indications.

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 September 6, 2017, the Company continues asentered into a going concern, which contemplates the realization of assetslicense agreement with Fosun for exclusive rights to develop and the satisfaction of liabilitiescommercialize bremelanotide in the normal courseterritories of business. The consolidated financial statements do not include any adjustments relating to the recoverabilitymainland China, Taiwan, Hong Kong S.A.R. and classification of recorded asset amounts or the amount or classification of liabilities that might result from the outcome of this uncertainty.Macau S.A.R. (“License Agreement with Fosun”) (Note 6).

As of September 30, 2016,2017, the Company’s cash, cash equivalents, accounts receivable and investments were $10,245,644$49,348,264 and current liabilities were $20,470,919.$19,282,506, net of deferred revenue of $20,160,381. The Company intends to utilize existing capital resources for general corporate purposes and working capital, including the Phase 3 clinical trial programrequired ancillary studies with bremelanotide for HSDD preparatory to filing a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”), and preclinical and clinical development of ourthe Company’s other product candidates and programs, including PL­3994natriuretic peptide receptor and melanocortin receptor­1 and melanocortin receptor­4receptor programs. Management believes that the Phase 3 clinical trial program with bremelanotide for HSDD, including regulatory filings for product approval, but excluding required ancillary studies and clinical trials and launch readiness commercialization efforts, will cost at least $87,000,000.

Management believes that the Company’sits existing capital resources will be adequatesufficient to fund its planned operations through at least the quarter ending December 31, 2016.2018 calendar year. The Company will need additional funding to complete required ancillary studies and clinical trials of bremelanotide for HSDD, prepare and submit regulatory filings for product approval, and establish commercial scale manufacturing capability. 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 U.S.accounting principles generally accepted accounting principlesin the United States of America (“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 months ended September 30, 20162017 may not necessarily be indicative of the results of operations expected for the full year, except that the Company expects to incur a significant loss for the fiscal year ending June 30, 2017.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 Securities and Exchange Commission (SEC),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.

Under its License Agreement with Gedeon RichterFosun (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 31,988,151 shares of common stock arewere included in the weighted average number of common shares outstanding used in computing basic and diluted net lossincome (loss) per common share for all periods presented in the consolidated statementsstarting on July 3, 2012. As of operations.September 30, 2017 and 2016, there were no Series A 2012 warrants outstanding.

The Series B 2012 warrants issued on July 3, 2012 to purchase up to 35,488,380 shares of common stock arewere considered contingently issuable shares and were not included in the weighted average number of common shares outstanding used in computing basic and diluted net lossincome (loss) per common share until September 27, 2012, the date the Company received stockholder approval for all periods presentedthe increase in the consolidated statementsauthorized underlying common stock. As of operations.September 30, 2017, there were no Series B 2012 warrants outstanding. As of September 30, 2016, Series B 2012 warrants to purchase up to 30,679,631 shares of common stock were outstanding.

The Series C 2014 warrants to purchase up to 24,949,325 shares of common stock were exercisable starting aton December 23, 2014 and therefore arewere included in the weighted average number of common shares outstanding used in computing basic and diluted net lossincome (loss) per common share starting on December 23, 2014.

The Series E 2015 warrants to purchase up to 21,917,808 shares of common stock were exercisable starting aton July 2, 2015 and therefore arewere included in the weighted average number of common shares outstanding used in computing basic and diluted net lossincome (loss) per common share starting on July 2, 2015. As of September 30, 2017, there were no Series E 2015 warrants outstanding. As of September 30, 2016, Series E 2015 warrants to purchase up to 21,917,808 shares of common stock were outstanding.

The Series I 2016 warrants to purchase up to 2,218,045 shares of common stock were exercisable starting aton August 4, 2016 and, therefore arewere included in the weighted average number of common shares outstanding used in computing basic and diluted net lossincome (loss) per common share starting on August 4, 2016 (Note 11)12).

The following table is a reconciliation of net income (loss) and 2015,the shares used in calculating basic and diluted net income (loss) per common share for the three months ended September 30, 2017 and 2016:

For the three months ended September 30, 2017 and 2016, common shares issuable upon conversion of Series A Convertible Preferred Stock, the exercise of outstanding options and warrants (excluding the Series A 2012, Series B 2012, Series C 2014, Series E 2015 and Series I 2016 warrants issued in connection with the July 3, 2012, December 23, 2014, and July 2, 2015 private placement offerings and the August 4, 2016 underwritten offering)offering as such warrants, to the extent not yet exercised, are already included in weighted average number of common shares outstanding used in computing basic net income (loss) per common share since they are exercisable for nominal consideration), and the vesting of restricted stock units amounted to an aggregate of 40,626,830 and 44,479,663 shares, respectively, and 32,908,798 shares, respectively. These share amounts have beenare excluded from the calculationweighted average number of common shares outstanding used in computing basic net lossincome (loss) per share ascommon share. For the impactthree months ended September 30, 2017, an additional 4,248,336 of common shares have been included in the computation of diluted EPS using the treasury stock method. However, for the three months ended September 30, 2016, no additional common shares were added in the computation of diluted EPS because to do so would be anti­dilutive.have been anti-dilutive.

On January 8, 2017, the Company entered into a license, co-development and commercialization agreementthe License Agreement with Gedeon Richter on bremelanotide for FSD in Europe and selected countries. On September 16, 2015,AMAG. Under the terms of the License Agreement with AMAG, the Company granted to AMAG (i) an exclusive license in all countries of North America (the “Territory”), with the right to grant sub-licenses, to research, develop and Gedeon Richter mutuallycommercialize products containing bremelanotide (each a “Product,” and amicably agreedcollectively, “Products”), (ii) a non-exclusive license in the Territory, with the right to terminategrant sub-licenses, to manufacture Products, and (iii) a non-exclusive license in all countries outside the license, co-developmentTerritory, with the right to grant sub-licenses, to research, develop and commercialization agreement. Inmanufacture (but not commercialize) the Products.

Following the satisfaction of certain conditions to closing, the License Agreement with AMAG became effective on February 2, 2017. On that date, AMAG paid the Company $60,000,000 as a one-time initial payment. Pursuant to the terms of and subject to the conditions in the License Agreement with AMAG, AMAG is required to reimburse the Company up to an aggregate amount of $25,000,000 for reasonable, documented, direct out-of-pocket expenses incurred by the Company following February 2, 2017, in connection with the termination of the license agreement, all rightsdevelopment and licensesregulatory activities necessary to co-develop and commercializefile an NDA for bremelanotide for FSD indications granted byHSDD in the Company under the license agreementUnited States related to Gedeon Richter terminated Palatin’s development obligations.

The Company viewedhas determined there is no stand-alone value for the deliverylicense, and that the license and the reimbursable direct out-of-pocket expenses, pursuant to the terms of the license for bremelanotide asLicense Agreement with AMAG, represent a revenue generating activity thatcombined unit of accounting which totals $85,000,000. The Company is part of its ongoing and central operations. The other elementsrecognizing revenue of the agreement with Gedeon Richter were considered non-revenue activities associated withcombined unit of accounting over the collaborative arrangement. Thearrangement using the input-based proportional method as the Company believes the license had standalone value from the other elements of the collaborative arrangement because it conveyed all of the rights necessary to develop and commercialize bremelanotide in the licensed territory.completes its development obligations. For the three months ended September 30, 2016, and 2015,2017, the Company hadrecognized $21,941,508 as license and contract revenue related to this transaction. As of September 30, 2017 and June 30, 2017, there was $20,160,381 and $35,050,572, respectively, of current deferred revenue on the consolidated balance sheet related to this transaction.

AMAG is also obligated to pay the Company tiered royalties on annual net sales of Products, on a product-by-product basis, in the Territory ranging from the high single-digits to the low double-digits. The royalties will expire on a product-by-product and country-by-country basis until the latest to occur of (i) the earliest date on which there are no revenues reported.valid claims of the Company’s patent rights covering such Product in such country, (ii) the expiration of the regulatory exclusivity period for such Product in such country and (iii) ten years following the first commercial sale of such Product in such country. Such royalties are subject to reductions in the event that: (a) AMAG must license additional third party intellectual property in order to develop, manufacture or commercialize a Product, or (b) generic competition occurs with respect to a Product in a given country, subject to an aggregate cap on such deductions of royalties otherwise payable to the Company. After the expiration of the applicable royalties for any Product in a given country, the license for such Product in such country will become a fully paid-up, royalty-free, perpetual and irrevocable license.

Prepaid expenses and other current assets consist of the following:

The following summarizes the carrying value of our available­for­salethe Company’s available-for-sale investments, which consist of corporate debt securities:

The fair value of cash equivalents is classified using a hierarchy prioritized based on inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets carried at fair value:value measured on a recurring basis:

 

Accrued expenses consist of the following:

 

Notes payable consist of the following:

The Company’s obligations under the 2015 amended and restated loan agreement, which includes both the 2014 venture loan and 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 has agreed to specified limitations on pledging or otherwise encumbering its intellectual property assets.

On August 4, 2016, the Company closed on an underwritten offering of units, with each unit consisting of a share of common stock and a Series H warrant to purchase 0.75 of a share of common stock. Investors whose purchase of units in the offering would result in them beneficially owning more than 9.99% of the Company’s outstanding common stock following the completion of the offering had the opportunityoption to acquire units with Series I prefunded warrants substituted for any common stock they would have otherwise acquired. Gross proceeds were $9,225,000, with net proceeds to the Company, after deducting offering expenses, of $8,470,897. The Company issued 11,481,481 shares of common stock and ten yearten-year prefunded Series I warrants to purchase 2,218,045 shares of common stock at an exercise price of $0.01, together with Series H warrants to purchase 10,274,646 shares of common stock at an exercise price of $0.70 per share.

The Series I warrants are exercisable at an initial exercise price of $0.01 per share, exercisable immediately upon issuance and expire onwere exercised during the tenth anniversary of the date of issuance. The Series I warrants are subject to limitation on exercise if the holder and its affiliates would beneficially own more than 9.99% of the total number of the Company’s shares of common stock following such exercise.fiscal year ended June 30, 2017. The Series H warrants are exercisable at an initial exercise price of $0.70 per share, are exercisable commencing six months following the date of issuance and expire on the fifth anniversary of the date of issuance. The Series H warrants are subject to a limitation on their exercise if the same beneficial ownership limitation asholder and its affiliates would beneficially own more than 9.99% of the Series I warrants.total number of the Company’s shares of common stock following such exercise.

On July 2, 2015, the Company closed on a private placement of Series E warrants to purchase 21,917,808 shares of Palatin common stock and Series F warrants to purchase 2,191,781 shares of the Company’s common stock. Certain funds managed by QVT Financial LP (QVT)(“QVT”) invested $5,000,000 and another accredited investment fund invested $15,000,000. The funds paid $0.90 for each Series E warrant and $0.125 for each Series F warrant, resulting in gross proceeds to the Company of $20,000,000, with net proceeds, after deducting estimated offering expenses, of $19,834,278.

The Series E warrants, which may be exercised on a cashless basis, are exercisable immediately upon issuance at an initial exercise price of $0.01 per share and expire on the tenth anniversary of the date of issuance. The Series E warrants are subject to limitation on exercise if QVT and its affiliates would beneficially own more than 9.99% (4.99% for the other accredited investment fund holder) of the total number of the Company'sCompany’s shares of common stock following such exercise. The Series F warrants are exercisable at an initial exercise price of $0.91 per share, exercisable immediately upon issuance and expire on the fifth anniversary of the date of issuance. The Series F warrants are subject to the same beneficial ownership limitation as the Series E warrants.

The purchase agreement for the private placement provides that the purchasers have certain rights until the earlier of approval of bremelanotide for FSD by the U.S. Food and Drug AdministrationFDA and July 3, 2018, including rights of first refusal and participation in any subsequent equity or debt financing. The purchase agreement also contains certain restrictive covenants so long as the funds continue to hold specified amounts of warrants or beneficially own specified amounts of the outstanding shares of common stock.

During the three months ended September 30, 2016,2017, and 20152016, the Company issued 12,757,174 shares12,364,219 and 10,890,88912,757,174 shares, respectively of common stock pursuant to the cashless exercise provisions of warrants at an exercise price of $0.01 per share, and during the three months ended September 30, 2017, the Company 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. As of September 30, 2016,2017, there were 77,546,76411,116,667 warrants outstanding at an exercise price of $0.01 per share.

In September 2016, the Company granted 828,000 options to its executive officers and 336,000 options to its employees under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of the options vesting over a 48 month period, consisting of 595,000 options granted to its executive officers and all options granted to its employees, of $188,245 and $106,303, respectively, over the vesting period. The Company recognized $17,703 and $5,216, respectively, of stock-based compensation expense related to these options during the three months ended September 30, 2017 and 2016. The remaining 233,000 options granted to itsthe Company’s executive officers vest 12 months from the date of grant, and the Company is amortizing the fair value of these options of $67,160 over this vesting period. The Company recognized $11,193 and $4,757, respectively, of stock-based compensation expense related to these options during the three months ended September 30, 2017 and 2016.

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 $32,293,$36,478, and $57,577,$32,293, respectively, of stock-based compensation expense related to these options during the three months ended September 30, 20162017 and 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, 415,000 of which vest over 24 months and 143,000 of which vest at 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 $63,992 and $20,504, respectively, of stock-based compensation expense related to these restricted stock units during the three months ended September 30, 2016.

In December 2015, the Company granted 625,000 performance-based restricted stock units to its executive officers and 200,000 performance-based restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan, which vest during the performance period, ending December 31, 2017, if and upon the earlier of: i) achievement of a closing price for the Company’s common stock equal to or greater than $1.20 per share for 20 consecutive trading days, which is considered a market condition, or ii) entering into a collaboration agreement (U.S. or global) of bremelanotide for FSD, which is considered a performance condition. TheThis performance condition was deemed met as of February 2, 2017, the effective date of the License Agreement with AMAG. Prior to meeting the performance condition, the Company determined that the performance conditionit was not probable of achievement on the date of grant since suchmeeting the condition iswas outside the control of the Company. The fair value of these awards, as calculated under a multifactor Monte Carlo simulation, was $338,250. The Company is amortizing the fair value$338,250 and was recognized over the derived service period of 0.96 years.which was through December 2016. The Company recognized $86,879 of stock-based compensation expense related to these restricted stock units during the three months ended September 30, 2016. Upon the achievement of the performance condition, which occurred in the three month period ended March 31, 2017, the grant date fair value was utilized and an incremental $222,075 was recognized as stock-based compensation expense during the three months ended March 31, 2017.

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 $41,455 and $101,256, respectively, of stock-based compensation expense related to these restricted stock units during the three months ended September 30, 2017 and 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 $40,429$6,887 and $150,328,$40,429, respectively, of stock-based compensation expense related to these restricted stock units during the three months ended September 30, 20162017 and 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 months ended September 30, 20162017 for stock options and equity-based instruments issued other than the stock options and restricted stock units described above was $58,703,$28,749 and $92,489$111,874, respectively, for the three months ended September 30, 2015.2017 and 2016.

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 September 30, 2016.2017. We believe that our accounting policies and estimates relating to revenue recognition, accrued expenses and stock-based compensation are the most critical.

We are a biopharmaceutical company developing targeted, receptor­specificreceptor-specific peptide therapeutics for the treatment of diseases with significant unmet medical need and commercial potential. Our programs are based on molecules that modulate the activity of the melanocortin and natriuretic peptide receptor systems. Our primarylead product in clinical development is bremelanotide for the treatment of premenopausal women with hypoactive sexual desire disorder or HSDD,(“HSDD”), which is a type of female sexual dysfunction or FSD,(“FSD”), defined as low desire with associated distress. In addition, we have drug candidates orand development programs for obesity, erectile dysfunction, cardiovascular diseases pulmonary diseases,and inflammatory diseases and dermatologic diseases.

The following drug development programs are actively under development:

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.

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 is required to reimburse us up to $25,000,000 for reasonable, documented, direct out-of-pocket expenses we incur 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 our bremelanotide, PL-3994, MC1r, MC4r and other preclinical programs were $13,185,106 for the three months ended September 30, 2017, compared to $10,098,974 for the three months ended September 30, 2016 compared to $9,887,540 for the three months ended September 30, 2015.2016. Spending to date has been primarily related to our bremelanotide for the treatment of HSDD program. The increase in research and development expenses is mainly attributable to the continued progress of ourthe Phase 3 clinical trial and development of bremelanotide program for HSDD.HSDD program. 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 bremelanotide and PL-3994 into human clinical trials.

The amounts of project spending noted above exclude general research and development spending, which werewas $977,991 for the three months ended September 30, 2017 compared to $1,127,110 for the three months ended September 30, 2016 compared to $710,174 for the three months ended September 30, 2015.2016. The increasedecrease in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock­based compensation.employee related expenses.

Cumulative spending from inception to September 30, 20162017 is approximately $245,600,000$292,100,000 on our bremelanotide program and approximately $124,300,000$126,500,000 on all our other programs (which include PL­PL-­3994, PL­8177,-8177, other melanocortin receptor agonists, obesity, other discovery programs and terminated programs). Due to various risk factors described herein and in our Annual Report on Form 10-K for the year ended June 30, 2016,2017, under “Risk Factors,” including the difficulty in estimating the costs and timing of future Phase 1 clinical trials and larger­scalelarger-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, be successfully completed, or generate net cash inflows.

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 three months ended September 30, 2016,2017, cash used forprovided by operating activities was $6,598,928,$1,434,855, compared to $9,398,414cash used in operating activities of $6,598,928 for the three months ended September 30, 2015. Lower net2016. The difference of cash outflows fromprovided by and cash used in operations in the three months ended September 30, 20162017 compared to the three months ended September 30, 2015 were2016 was primarily the result of an increasethe cash payments received in accrued expenses and an increase in accounts payable.the period relating to the License Agreement with AMAG. 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 three months ended September 30, 2016 there2017, cash used for investing activities was $9,500, which was used for the purchase of equipment. There were no investing activities. activities during the three months ended September 30, 2016.

During the three months ended September 30, 2015,2017, net cash used for investingfinancing activities was $17,695$1,917,106, which consisted of $2,000,000 for the payment on notes payable, and $31,490 for capital expenditures.

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. As a result, there is substantial doubt about our ability to continue as a going concern. Continued operations are dependent upon our ability to complete equity or debt financing activities, entering into licensing agreements or collaboration arrangements. We believe that if we do not have sufficient funding, we may have to curtail or cease certain programs or operations within twelve months. As of September 30, 2016,2017, our cash, cash equivalents, accounts receivable and investments were $10,245,644$49,348,264 and our current liabilities were $20,470,919.$19,282,506, net of deferred revenue of $20,160,381.

We intend to utilize existing capital resources for general corporate purposes and working capital, including ourrequired ancillary studies of bremelanotide program for HSDD and preparing and filing an NDA on bremelanotide, preclinical and clinical development of our MC1r and MC4r peptide programs and PL­3994PL-3994 natriuretic peptide, and development of other portfolio products. Based on our current plan, we believe that the Phase 3 clinical trial program with bremelanotide for HSDD, including regulatory filings for product approval, but excluding required ancillary studies and clinical trials and launch readiness commercialization efforts, will cost at least $87,000,000. We intend to seek additional capital to support the Phase 3 program through collaborative arrangements on bremelanotide, public or private equity or debt financings, or other sources.

We believe that our existing capital resources will be adequate to fund our planned operations through at least the quarter ending December 31, 2016. To submit an NDA to FDA for bremelanotide for HSDD, we will need additional funding to complete required ancillary studies and clinical trials, prepare and submit regulatory filings for product approval, and establish commercial scale manufacturing capability.2018 calendar year. We will also 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 fewseveral years. To achieve or 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 September 30, 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.

None.

Not applicable.

None.

Exhibits filed or furnished with this report:

 

 

 

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.