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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

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

 

In this Quarterly Report on Form 10-Q, references to “we”, “our”, “us” or “Palatin” means Palatin Technologies, Inc. and its subsidiary.

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.

 

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

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

The Company’s primary product in development is bremelanotide for the treatment of HSDD,hypoactive sexual desire disorder (“HSDD”), which is a type of FSD.female sexual dysfunction (“FSD”). The Company also has drug candidates andor development programs for cardiovascular diseases, including heart failure and fibrosis, and inflammatory diseases, obesityincluding 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 itthe Company is developing; and partially funding its product candidate development programs with the cash flow generated from current and future agreementsits relationships with third parties; and completing development and seeking regulatory approval of its other product candidates.parties.

On January 8,September 6, 2017, the Company entered into an exclusivea license agreement (License Agreement) with AMAGFosun for exclusive rights to develop and commercialize bremelanotide for North Americain the territories of mainland China, Taiwan, Hong Kong S.A.R. and Macau S.A.R. (“License Agreement with Fosun”) (Note 6). The License Agreement became effective on February 2, 2017 (Effective Date), and the Company received an upfront payment of $60,000,000 pursuant to the License Agreement on the Effective Date.

As of March 31,September 30, 2017, the Company’s cash, cash equivalents, accounts receivable and investments were $55,430,005$49,348,264 and current liabilities were $17,373,806,$19,282,506, net of deferred revenue of $53,833,828.$20,160,381. The Company intends to utilize existing capital resources for general corporate purposes and working capital, including required ancillary studies with bremelanotide for HSDD preparatory to filing a New Drug Application (NDA)(“NDA”) with the U.S. Food and Drug Administration (FDA)(“FDA”), and preclinical and clinical development of ourthe Company’s other product candidates and programs, including natriuretic peptide receptor and melanocortin receptor programs.

Management believes that with the proceeds from the License Agreement with AMAG and the proceeds from the financing transactions on August 4, 2016 and December 6, 2016, the Company hasits existing capital resources will be sufficient resources to fund its planned operations through at least the 2018 calendar year. The Company will need additional funding to complete required clinical trials for its other product candidates and, assuming those clinical trials are successful, as to which there can be no assurance, to complete submission of required applications to the FDA. If the Company is unable to obtain approval or otherwise advance in the FDA approval process, the Company’s ability to sustain its operations would be materially adversely affected.

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP)(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnote disclosures required to be presented for complete financial statements. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation. The results of operations for the three and nine months ended March 31,September 30, 2017 may not necessarily be indicative of the results of operations expected for the full year.

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

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

 

 

Under FASB ASC Topic 605-25, if both of the criteria above are not met, then separate accounting for the individual deliverables is not appropriate.

The Company has determined that it is appropriate to recognize such revenue using the input-based proportional method during the period of the Palatin Development Obligation as defined in the AMAG arrangement. Refer to Note 65 for additional information.information on this topic.

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

Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue on the Company’s consolidated balance sheet. Amounts expected to be recognized as revenue in the next 12 months following the balance sheet date are classified as current liabilities.

 

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 computing basic and diluted net income (loss) per common share until September 27, 2012, the date the Company received stockholder approval for the increase in the authorized underlying common stock. As of 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 on December 23, 2014 and therefore were 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. As of September 30, 2017 and 2016, Series C warrants to purchase up to 11,116,667 and 24,949,325 shares of common stock, respectively, were outstanding.

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

 

 

The Series E 2015 warrants to purchase up to 21,917,808 shares of common stock were exercisable starting at July 2, 2015 and, therefore are included inFor the weighted average number of common shares outstanding used in computing basic and diluted net loss per common share starting on July 2, 2015.

 

 

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 $37,847,$36,478, and $105,332,$32,293, respectively, of stock-based compensation expense related to these options during the three and nine months ended March 31,September 30, 2017 and $62,443 and $187,328, respectively, during the three and nine months ended March 31, 2016.

Unless otherwise stated, stock options granted to the Company’s executive officers and employees vest over a 48-month period, while stock options granted to its non-employee directors vest over a 12-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 $76,822$63,992 and $177,554,$20,504, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 2017.

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. This performance condition was deemed met as of February 2, 2017, the Effective Dateeffective date of the License Agreement on bremelanotide with AMAG. Prior to meeting the performance condition, the Company determined that it was not probable of achievement on the date of grant since meeting the condition was outside the control of the Company. The fair value of these awards, as calculated under a multifactor Monte Carlo simulation, was $338,250 and was recognized over the derived service period 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. The Company recognized $364,364 of stock-based compensation expense related to these restricted stock units during the nine months ended March 31, 2017. The Company recognized $86,879 and $109,082, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 2016.

Also, in December 2015, the Company granted 625,000 restricted stock units to its executive officers, 340,000 restricted stock units to its non-employee directors and 200,000 restricted stock units to its employees under the Company’s 2011 Stock Incentive Plan. For executive officers and employees, the restricted stock units vest 25% on the date of grant and 25% on the first, second and third anniversary dates from the date of grant. For non-employee directors, the restricted stock units vest 50% on the first and second anniversary dates from the date of grant. The Company is amortizing the fair value of these restricted stock units isof $425,000, $231,200 and $136,000, respectively.respectively, over the vesting period of the restricted stock units. The Company recognized $41,079$41,455 and $228,331,$101,256, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 2017. The Company recognized $107,631September 30, 2017 and $275,387, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 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 $35,336$6,887 and $116,195,$40,429, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 2017. The Company recognized $150,328September 30, 2017 and $450,984, respectively, of stock-based compensation expense related to these restricted stock units during the three and nine months ended March 31, 2016.

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

Stock-based compensation costexpense for the three and nine months ended March 31,September 30, 2017 for stock options and equity-based instruments issued other than the stock options and restricted stock units described above was $52,354$28,749 and $178,983, respectively, and $110,269 and $295,517,$111,874, respectively, for the three and nine months ended March 31,September 30, 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 March 31,September 30, 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, receptor­-specificreceptor-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 HSDD,hypoactive sexual desire disorder (“HSDD”), which is a type of FSD,female sexual dysfunction (“FSD”), defined as low desire with associated distress. In addition, we have drug candidates and development programs for cardiovascular diseases inflammatory diseases, obesity and dermatologicinflammatory 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 subject to the conditions in the License Agreement with AMAG, AMAG is required to payreimburse us up to $25,000,000 in reimbursement 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 $7,904,690 and $25,206,757, respectively,$13,185,106 for the three and nine months ended March 31,September 30, 2017, compared to $9,630,951 and $29,999,237, respectively,$10,098,974 for the three and nine months ended March 31,September 30, 2016. Spending to date has been primarily related to our bremelanotide for the treatment of HSDD program. The decreaseincrease in research and development expenses is mainly attributable to the completioncontinued progress of the Phase 3 clinical trialstrial and development of our 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 was $1,157,626 and $3,216,218, respectively,$977,991 for the three and nine months ended March 31,September 30, 2017 compared to $1,045,391 and $2,547,126, respectively,$1,127,110 for the three and nine months ended March 31,September 30, 2016. The increasedecrease in general research and development spending is primarily attributable to additional staffing and secondarily to the recognition of stock-­based compensation.employee related expenses.

Cumulative spending from inception to March 31,September 30, 2017 is approximately $262,200,000$292,100,000 on our bremelanotide program and approximately $124,900,000$126,500,000 on all our other programs (which include PL­PL-­3994, PL­8177,-8177, other melanocortin receptor agonists, obesity programs, 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 larger­ scalelarger-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 ninethree months ended March 31,September 30, 2017, cash provided by operating activities was $25,768,523,$1,434,855, compared to cash used in operating activities of $33,664,217$6,598,928 for the ninethree months ended March 31,September 30, 2016. The difference of cash provided by and cash used in operations in the ninethree months ended March 31,September 30, 2017 compared to the ninethree months ended March 31,September 30, 2016 was primarily the result of the receipt ofcash payments received in the initial payment of $60,000,000period 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 ninethree months ended March 31,September 30, 2017, cash provided by investing activities was $450,000 consisting primarily of proceeds from matured investments. During the nine months ended March 31, 2016, net cash used for investing activities was $1,404,717 consisting primarily of$9,500, which was used for the purchase of investments.equipment. There were no investing activities during the three months ended September 30, 2016.

During the ninethree months ended March 31,September 30, 2017, net cash provided byused for financing activities was $20,284,024,$1,917,106, which consisted of net proceeds from our underwritten offerings in August and December 2016 of $23,856,972 and proceeds from the exercise of warrants of $114,358, offset by $3,687,306$2,000,000 for the payment on notes payable, and $31,490 for capital lease payments and the payment of withholding taxes. During the nine months ended March 31, 2016, net cash provided by financing activities of $29,536,942 consisted of net proceeds of $19,834,278 from a private placement and a loan of $9,853,885, net of related debt issuance costs, offset by $151,221 for the payment of withholding taxes related to restricted stock units, offset by proceeds from the exercise of warrants of $114,384. During the three months ended September 30, 2016, net cash provided by financing activities of $7,464,190 consisted of net proceeds of $8,470,897 from a private placement of equity, offset by $1,006,707 for the payment of principal on notes payable and capital lease payments.

We have incurred cumulative negative cash flows from operations since our inception, and have expended, and expect to continue to expend in the future, substantial funds to complete our planned product development efforts. Continued operations are dependent upon our ability to complete equity or debt financing activities, entering into licensing agreements or collaboration arrangements. As of March 31,September 30, 2017, our cash, cash equivalents, accounts receivable and investments were $55,430,005$49,348,264 and our current liabilities were $17,373,806,$19,282,506, net of deferred revenue of $53,833,828.$20,160,381.

We intend to utilize existing capital resources for general corporate purposes and working capital, including required ancillary studies withof bremelanotide 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.

 

We believe that with the proceeds from our License Agreement with AMAG and the proceeds from the financing transactions on August 4, 2016 and December 6, 2016, we have sufficient fundsexisting capital resources will be adequate to fund our planned operations through at least the 2018 calendar year. We will need additional funding to complete required clinical trials for our other product candidates and development programs and, if those clinical trials are successful (which we cannot predict), to complete submission of required regulatory applications to the FDA.

 

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

 

Not required to be provided by smaller reporting companies.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31,September 30, 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.

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.

Below, we are providing, in supplemental form, theThere have been no material changes to our risk factors that occurred during the past quarter. Our risk factors disclosed in Part I, Item 1A, of our Annual Report, on Form 10-K for the year ended June 30, 2016, provide additional disclosure for these supplemental risks and are incorporated herein by reference.2017.

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.