PALATIN TECHNOLOGIES INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10 - K
☑
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
fiscal year ended June 30, 2021
or
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
transition period from ___________ to __________
Commission
file number: 001-15543
PALATIN TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
95-4078884
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
|
|
4B Cedar Brook Drive
Cranbury, New Jersey
|
|
08512
|
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(609) 495-2200
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
|
Title of Each Class
|
Trading Symbol
|
Name of Each Exchange
on Which Registered
|
|
Common
Stock, par value $.01 per share
|
PTN
|
NYSE
American
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☑
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☑
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
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to
submit).
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.
Non-accelerated
filer
☑
Smaller reporting
company ☑
Emerging growth
company
☐
If an
emerging growth company, indicate 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) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☑
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates, computed by reference to the price
at which the common equity was last sold, or the average bid and
asked price of such common equity, as of the last business day of
the registrant’s most recently completed second fiscal
quarter (December 31, 2020): $156,423,329
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date
(September 24, 2021): 231,258,137
PALATIN TECHNOLOGIES, INC
.
Table of Contents
|
|
Page
|
|
|
PART
I
|
||
|
PART
II
|
||
|
PART
III
|
||
|
PART
IV
|
||
Special Note Regarding Forward-Looking Statements
In this
Annual Report on Form 10-K (this “Annual Report”)
references to “we,” “our,”
“us,” the “Company” or
“Palatin” means Palatin Technologies, Inc. and its
subsidiary.
Statements
in this Annual Report, 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 (the “Exchange Act”). The
forward-looking statements in this Annual Report do not constitute
guarantees of future performance. Investors are cautioned that
statements that are not strictly historical facts contained in this
Annual Report, including, without limitation, the following are
forward looking statements:
●
our business,
financial condition, and results of operations may be adversely
affected by global health epidemics, including the novel strain of
coronavirus (“COVID-19”) pandemic, such as, for
example, increase in costs of and delays in conducting human
clinical trials and the performance of our contractors and
suppliers, and reduction in our productivity or the productivity of
our contractors and suppliers;
●
our ability to
successfully commercialize Vyleesi® (the trade name for
bremelanotide) for the treatment of premenopausal women with
hypoactive sexual desire disorder (“HSDD”) in the
United States, which may be adversely affected by delays or
disruptions related to the ongoing COVID-19 pandemic;
●
our ability to
manage the infrastructure to successfully manufacture, through
contract manufacturers, Vyleesi, and to successfully market and
distribute Vyleesi in the United States;
●
our ability to meet
postmarketing commitments of the U.S. Food and Drug Administration
(“FDA”);
●
our expectations
regarding the potential market size and market acceptance for
Vyleesi for HSDD in the United States and elsewhere in the
world;
●
our expectations
regarding performance of our exclusive licensees of Vyleesi for the
treatment of premenopausal women with HSDD, which is a type of
female sexual dysfunction (“FSD”),
including:
o
Shanghai Fosun
Pharmaceutical Industrial Development Co. Ltd.
(“Fosun”), a subsidiary of Shanghai Fosun
Pharmaceutical (Group) Co., Ltd., for the territories of the
People’s Republic of China, Taiwan, Hong Kong S.A.R. and
Macau S.A.R. (collectively, “China”), and
o
Kwangdong
Pharmaceutical Co., Ltd. (“Kwangdong”) for the Republic
of Korea (“Korea”);
●
our expectations
and the ability of our licensees to timely obtain approvals and
successfully commercialize Vyleesi in countries other than the
United States;
●
the results of
clinical trials with our late stage products, including PL9643, an
ophthalmic peptide solution for dry eye disease
(“DED”), which is scheduled to enter Phase 3 clinical
trials in the fourth quarter of calendar year 2021, and PL8177, an
oral peptide formulation for treatment of ulcerative colitis, which
is also scheduled to enter Phase 2 clinical trials in the first
half of calendar year 2022;
●
estimates of our
expenses, future revenue and capital requirements;
●
our ability to
achieve profitability;
●
our ability to
obtain additional financing on terms acceptable to us, or at all,
including unavailability of funds or delays in receiving funds as a
result of the ongoing COVID-19 pandemic;
●
our ability to
advance product candidates into, and successfully complete,
clinical trials;
●
the initiation,
timing, progress and results of future preclinical studies and
clinical trials, and our research and development
programs;
●
the timing or
likelihood of regulatory filings and approvals;
●
our expectations
regarding the clinical efficacy and utility of our melanocortin
agonist product candidates for treatment of inflammatory and
autoimmune related diseases and disorders, including ocular
indications;
●
our ability to
compete with other products and technologies treating the same or
similar indications as our product candidates;
●
the ability of our
third-party collaborators to timely carry out their duties under
their agreements with us;
●
the ability of our
contract manufacturers to perform their manufacturing activities
for us in compliance with applicable regulations;
●
our ability to
recognize the potential value of our licensing arrangements with
third parties;
●
the potential to
achieve revenues from the sale of our product
candidates;
●
our ability to
obtain adequate reimbursement from private insurers and other
healthcare payers;
●
our ability to
maintain product liability insurance at a reasonable cost or in
sufficient amounts, if at all;
●
the performance of
our management team, senior staff professionals, and third-party
contractors and consultants;
●
the retention of
key management, employees and third-party contractors;
●
the scope of
protection we are able to establish and maintain for intellectual
property rights covering our product candidates and technology in
the United States and throughout the world;
●
our compliance with
federal and state laws and regulations;
●
the timing and
costs associated with obtaining regulatory approval for our product
candidates, including delays and additional costs related to the
ongoing COVID-19 pandemic;
●
the impact of
fluctuations in foreign exchange rates;
●
the impact of
legislative or regulatory healthcare reforms in the United
States;
●
our ability to
adapt to changes in global economic conditions as well as competing
products and technologies; and
●
our ability to
remain listed on the NYSE American stock exchange.
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 under the caption “Risk Factors” and
elsewhere in this Annual Report, and any of those made in our other
reports filed with the U.S. Securities and Exchange Commission (the
“SEC”). Except as required by law, we do not intend,
and undertake no obligation, to publicly update forward-looking
statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated
events.
Trademarks and Trade Names
Palatin
Technologies® and Vyleesi® are registered trademarks of
Palatin Technologies, Inc., and Palatin™ and the Palatin logo
are trademarks of Palatin Technologies, Inc. Other trademarks
referred to in this report are the property of their respective
owners.
Risk Factors Summary
The
following is a summary of the principal risks that could adversely
affect our business, financial condition, operating results, cash
flows or stock price. Discussion of the risks listed below, and
other risks that we face, are discussed in the section titled
“Risk Factors” in Part I, Item 1A of this Annual Report
on Form 10-K.
Risks Related to Our Financial Results and Need for
Financing
●
We have a history
of substantial net losses, including a net loss of $33.6 million
for the year ended June 30, 2021, and expect to incur substantial
net losses over the next few years, and we may never achieve or
maintain profitability.
●
We will need
additional funding, including funding to complete clinical trials
for our product candidates, which additional funding may not be
available on acceptable terms, if at all.
●
We have a limited
operating history upon which to base an investment
decision.
●
We have limited
authorized shares available to raise additional capital through
public or private equity offerings, which limits our ability to
raise additional capital.
●
Raising additional
capital may cause dilution to existing shareholders, restrict our
operations or require us to relinquish rights.
Risks Related to Our Business, Strategy, and Industry
●
The commercial
success of Vyleesi for HSDD is a component of our corporate
strategy, but we and our licensees may never successfully
commercialize Vyleesi for HSDD or obtain approvals in countries
other than the United States.
●
Production and
supply of Vyleesi and our product supplies depend on contract
manufacturers over whom we do not have any control, and there may
not be adequate supplies of Vyleesi.
●
The effect of
COVID-19 and other possible pandemics and outbreaks could result in
material adverse effects on our clinical trials, business,
financial condition, and results of operations.
●
Our product
candidates other than Vyleesi, including PL9643 for dry eye disease
and PL8177 for the treatment of ulcerative colitis, are still in
the early stages of development and remain subject to clinical
testing and regulatory approval. If we are unable to successfully
develop and test our product candidates, we will not be
successful.
●
If clinical trials
for our product candidates are prolonged or delayed, we may be
unable to commercialize our product candidates on a timely basis,
which would require us to incur additional costs and delay our
receipt of any revenue from potential product sales.
●
Even if our product
candidates receive regulatory approval in the United States, they
may never achieve market acceptance in the United States or
approval outside the United States, in which case our business,
financial condition and results of operation will be materially
adversely affected.
●
If side effects
emerge that can be linked to Vyleesi or any of our product
candidates (either while they are in development or after they are
approved and on the market), we may be required to perform lengthy
additional clinical trials, change the labeling of any such
products, or withdraw such products from the market, any of which
would hinder or preclude our ability to generate
revenues.
Risks Related to Government Regulation
●
Both before and
after marketing approval, our product candidates are subject to
ongoing regulatory requirements and, if we fail to comply with
these continuing requirements, we could be subject to a variety of
sanctions and the sale of any approved commercial products could be
suspended.
●
The FDA has
required that two postmarketing studies and a clinical trial be
conducted on Vyleesi, and our failure to timely complete studies or
the clinical trial, and any adverse outcomes of the studies or
trial, could result in withdrawal of Vyleesi from the
market.
Risks Related to the Ownership of Our Common Stock
●
Our stock price is
volatile and may fluctuate in a way that is disproportionate to our
operating performance and we expect it to remain volatile, which
could limit investors’ ability to sell stock at a
profit.
●
Because we do not
anticipate paying any cash dividends on our common stock in the
foreseeable future, capital appreciation, if any, will be your sole
source of gains.
●
As of September 24,
2021 there were 39,896,902 shares of common stock underlying
outstanding convertible preferred stock, options, restricted stock
units and warrants. Stockholders may experience dilution from the
conversion of preferred stock, exercise of outstanding options and
warrants and vesting and delivery of restricted stock
units.
PART I
Item 1.
B
usiness.
Our Business Overview
Palatin™
is a 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. Palatin’s strategy is to develop products and then
form marketing collaborations with industry leaders to maximize
product commercial potential.
Melanocortin Receptor System.
The melanocortin receptor
(“MCr”) system has effects on inflammation and immune
system response, food intake, metabolism, and sexual function.
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 new
product development activities in inflammation disease indications
focus primarily on development of MCr peptides for ocular
conditions, but also include conditions in the gut and kidney.
Utilizing peptides which are agonists at MC1r, and in some
instances agonists at additional melanocortin receptors, we are
developing products to treat inflammatory and autoimmune diseases
such as dry eye disease, which is also known as
keratoconjunctivitis sicca, uveitis, diabetic retinopathy, and
inflammatory bowel disease. We believe that our MC1r agonist
peptides have broad anti-inflammatory effects and 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 small molecule MCr
agonists.
Our
U.S. Food and Drug Administration (“FDA”) approved
melanocortin receptor agonist, Vyleesi® (bremelanotide
injection), is an “as needed” therapy used in
anticipation of sexual activity and self-administered in the thigh
or abdomen via a single-use subcutaneous auto-injector by
premenopausal women with hypoactive sexual desire disorder
(“HSDD”). Vyleesi is the first FDA-approved
melanocortin agent and the first and only FDA-approved as-needed
treatment for premenopausal women with HSDD.
Natriuretic Peptide Receptor System
. The natriuretic peptide
receptor (“NPR”) system regulates cardiovascular
functions, and therapeutic agents modulating this system have
potential to treat fibrotic diseases, cardiovascular diseases,
including reducing cardiac hypertrophy and fibrosis, heart failure,
acute asthma, pulmonary diseases, and hypertension. We have
designed and are developing potential NPR candidate drugs selective
for one or more of the natriuretic peptide receptors, including
natriuretic peptide receptor-A (“NPR-A”), natriuretic
peptide receptor B (“NPR-B”), and natriuretic peptide
receptor C (“NPR-C”).
Our Business Strategy.
Key elements of our business strategy
include:
●
Maximizing revenue
from Vyleesi by marketing Vyleesi in the United States, supporting
our existing licensees for China and South Korea, and licensing
Vyleesi for the United States and additional regions;
●
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
Vyleesi and 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.
Pipeline Overview
The
following chart illustrates the status of our drug development
programs and Vyleesi, which has been approved by the FDA for the
treatment of premenopausal women with acquired, generalized
HSDD.
1
2
Melanocortin Receptor Programs
Our Current Product Development Strategy.
We are designing
and developing potent and highly selective MC1r agonist peptides
and agonist peptides specific for more than one melanocortin
receptor for treatment of a variety of inflammatory and autoimmune
indications. We believe that our agonist peptides suppress certain
inflammatory cytokines, and modulate the activities of immune
cells, such as monocytes and T cells, to reduce immune response,
and may utilize mechanisms engaged by the endogenous melanocortin
system in regulation of the immune system and resolution of
inflammatory responses.
We have
conducted preclinical animal studies with MC1r and multiple MCr
peptide drug candidates for selected inflammatory disease and
autoimmune indications. MC1r plays a role in many diseases,
including inflammatory bowel disease and ocular indications such as
uveitis, diabetic retinopathy, and dry eye disease. Work with
rodent animal models have demonstrated therapeutic responses that
are statistically significant compared to placebo, and that are
equal to or superior to established positive controls in animal
models. However, success in animal models does not necessarily mean
that any of our drug candidates will be able to successfully treat
diseases in human patients.
PL9643 for Dry Eye Disease and Anti-Inflammatory Ocular
Indications.
PL9643, a peptide melanocortin agonist active
at multiple MCrs, including MC1r and MC5r, is our lead clinical
development candidate for anti-inflammatory ocular indications,
including dry eye disease, which is also known as
keratoconjunctivitis sicca. Dry eye disease is a syndrome with
symptoms including irritation, redness, discharge and blurred
vision. It may result from an autoimmune disease such
Sjögren’s syndrome, an ocular lipid or mucin deficiency,
blink disorders, abnormal corneal sensitivity, or environmental
factors. It is estimated to affect over 30 million people in the
United States.
We have
developed a PL9643 ophthalmic solution (topical eye drops) in a
single use delivery device, and a Phase 3 clinical trial designed
to support a New Drug Application (“NDA”) will start in
the fourth quarter of calendar year 2021. Our Phase 2 clinical
trial demonstrated improvements in both the signs and symptoms of
dry eye disease in moderate to severe patients after just two weeks
of treatment, with no adverse safety signals and excellent
tolerability. We held an end-of-Phase 2 meeting with the FDA in
June 2021, which included all aspects of the PL9643 development
plan, including study design, endpoints, interim assessment, and
patient population for the Phase 3 program. Preliminary data
readout from the Phase 3 clinical trial is expected in the second
half of calendar year 2022. If results of the initial Phase 3
clinical trial are positive, we will initiate a second Phase 3
clinical trial, with an NDA submitted to the FDA as early as the
second half of calendar year 2023.
Oral PL8177 for Inflammatory Bowel Diseases.
PL8177, a
selective MC1r agonist peptide, is our lead clinical development
candidate for inflammatory bowel diseases, including ulcerative
colitis. We have completed subcutaneous dosing of human subjects in
a Phase 1 single and multiple ascending dose clinical safety study,
and a human microdose pharmacokinetic study to evaluate a
polymer-enabled, delayed-release, oral formulation of
PL8177.
For
ulcerative colitis and other inflammatory bowel diseases we will
administer PL8177 in our oral formulation to deliver PL8177 to the
interior wall of the diseased bowel. PL8177 activates MC1r present
on the interior wall of the bowel in ulcerative colitis and other
inflammatory bowel diseases. We believe that delivering PL8177
directly to MC1r in the bowel wall will maximize treatment effect
while minimizing any systemic or off-target effects.
A Phase
2 study in ulcerative colitis using our polymer-enabled,
delayed-release, oral formulation of PL8177 is scheduled to start
in the first half of calendar year 2022, and may take up to one
year to complete.
Melanocortin Peptides for Diabetic Retinopathy.
We conducted
preclinical studies with melanocortin peptides in diabetic
retinopathy models and have selected a peptide candidate for
further development work. We are working on a formulation for
administration. If results support advancing the program, we will
conduct required safety studies and manufacture drug product under
Good Manufacturing Practices (“GMP”) regulations
preparatory to filing an IND and initiating clinical
studies.
Ocular Research Programs.
We are conducting research in
several additional ocular areas, including both front of the eye
and back of the eye indications, exploring use of our compounds to
treat additional indications.
3
Vyleesi for HSDD.
Vyleesi, the registered trademark for
bremelanotide injection, was approved by the FDA on June 21, 2019
for the treatment of premenopausal women with acquired, generalized
HSDD. AMAG Pharmaceuticals, Inc. (“AMAG”), which had
exclusively licensed Vyleesi for North America, initiated sales and
marketing efforts for Vyleesi in the United States in August 2019,
with a national launch in September 2019. In July 2020, Palatin and
AMAG entered into a termination agreement, pursuant to which the
license agreement was terminated, Palatin regained all North
America rights for Vyleesi, and AMAG made a $12.0 million payment
to Palatin at closing and a $4.3 million payment to Palatin in the
first quarter of calendar 2021. Palatin assumed Vyleesi
manufacturing agreements, and AMAG transferred information, data
and assets related exclusively to Vyleesi, including existing
inventory. AMAG provided certain transition services to Palatin for
a period to ensure continued patient access to Vyleesi during the
transition period, for which Palatin reimbursed AMAG for the agreed
upon costs of the transition services.
Vyleesi
faces competition primarily from Addyi® (flibanserin), which
was introduced into the market in October 2015 for the treatment of
HSDD in pre-menopausal women and is marketed by Sprout
Pharmaceuticals, Inc. We are not aware of any company actively
developing another melanocortin receptor agonist drug for the
treatment of HSDD. However, we are aware of several other drugs at
various stages of development, most of which are being developed
for the treatment of HSDD that are to be taken on a chronic,
typically once-daily, basis. There may be other companies
developing new drugs for FSD indications other than HSDD, which may
compete with Vyleesi, some of which may be in clinical trials in
the U.S. or elsewhere. Vyleesi may also face competition with
products prescribed “off-label” by healthcare
providers.
Vyleesi
is distributed nationally through specialty pharmacies. Our
marketing strategy focuses on efforts to establish Vyleesi as the
preferred option for women and healthcare providers seeking a
treatment for HSDD, which we implement through media such as
direct-to-consumer marketing in search and social media channels.
We also focus our Vyleesi marketing efforts towards healthcare
professionals, who play a significant role in increasing HSDD and
Vyleesi awareness among their patients. As the commercial potential
of Vyleesi is demonstrated, Palatin will explore licensing
marketing and distribution rights for the United States to a
marketing partner.
In
early September 2017, we entered into a license agreement with
Fosun for exclusive rights to commercialize Vyleesi in China. We
received an upfront payment of $5.0 million, less required tax
withholding, and when regulatory approval for a Vyleesi product is
obtained in China we will receive a $7.5 million milestone payment.
We may receive up to $92.5 million in sales related milestones and
will receive high-single digit to low double-digit royalties on net
sales in China. In November 2017, we entered into a license
agreement with Kwangdong for exclusive rights to commercialize
Vyleesi in Korea, and received an upfront payment of $0.5 million,
less required tax withholding. Upon the first commercial sale of
Vyleesi in Korea we will receive a $3.0 million milestone payment
and will receive mid-single digit to low double-digit royalties on
all net sales and may receive up to $37.5 million in sales related
milestones.
We
retain worldwide rights for Vyleesi for HSDD and all other
indications outside Korea and China. We are actively seeking
potential partners for marketing and commercialization rights for
Vyleesi for HSDD outside the licensed territories, including
entering into a license agreement for marketing and
commercialization rights for Vyleesi in the United States. However,
we may not be able to enter into suitable agreements with potential
partners on acceptable terms, if at all.
The
most common adverse events which may occur with use of Vyleesi are
nausea, flushing, injection site reactions, headache, and vomiting.
Vyleesi is contraindicated in women with uncontrolled hypertension
or known cardiovascular disease. In addition, the Vyleesi label
includes precautions that it may cause (i) small, transient
increases in blood pressure with a corresponding decrease in heart
rate; (ii) focal hyperpigmentation (darkening of the skin on
certain parts of the body), including the face, gums (gingiva) and
breasts; and (iii) nausea.
Natriuretic Peptide Receptor Programs
Natriuretic Peptide Receptor Systems.
The NPR system has
numerous cardiovascular functions, and therapeutic agents
modulating this system may be useful in treatment of cardiovascular
and fibrotic diseases. 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 made
potential NPR candidate drugs that are selective for one or more
different natriuretic peptide receptors, including NPR-A, NPR-B,
and NPR-C.
PL3994 for Mechanism of Action Studies.
PL3994 is an NPR-A
agonist and synthetic mimetic of the endogenous neuropeptide
hormone atrial natriuretic peptide (“ANP”). PL3994
activates NPR-A, a receptor known to play a role in cardiovascular
homeostasis. Consistent with being an NPR-A agonist, PL3994
increases plasma cyclic guanosine monophosphate
(“cGMP”) levels, a pharmacological response consistent
with the effects of endogenous natriuretic peptides on
cardiovascular function and smooth muscle relaxation. PL3994 also
decreases activity of the renin-angiotensin-aldosterone system
(“RAAS”), a hormone system that regulates blood
pressure and fluid balance. The RAAS system is frequently
over-activated in heart failure patients, leading to worsening of
cardiovascular function.
In
conjunction with clinicians at a major research institution, we
have entered into a Phase 2A clinical trial with PL3994 supported
by a grant from the American Heart Association. We have conducted
Phase 1 safety studies with PL3994, with no serious or severe
adverse events. Consistent with the PL3994 mechanism of action,
elevations in plasma cGMP levels, increased diuresis and increased
natriuresis were all observed for several hours after single
subcutaneous doses.
4
Because
of the limited patent term remaining on PL3994, we do not intend to
pursue PL3994 as a pharmaceutical product but are utilizing it to
establish the mechanism of action and pharmaceutical utility of
synthetic mimetics of ANP.
PL5028 for Cardiovascular and Fibrotic Disease.
PL5028, an
NPR-A agonist and NPR-binder we developed, is in preclinical
development for cardiovascular and fibrotic diseases, including
reducing cardiac hypertrophy and fibrosis. We have ongoing academic
collaborations with several institutions with PL5028.
Technologies We Use
We used
a rational drug design approach to discover and develop proprietary
peptide, peptide mimetic and small molecule agonist compounds,
focusing on melanocortin and natriuretic peptide receptor systems.
Computer-aided drug design models of receptors are optimized based
on experimental results obtained with peptides and small molecules
that we develop. With our approach, we believe we are developing an
advanced understanding of the factors which drive
agonism.
We have
developed a series of proprietary technologies used in our drug
development programs. One technology employs novel amino acid
mimetics in place of selected amino acids. These mimetics provide
the receptor-binding functions of conventional amino acids while
providing structural, functional and physiochemical advantages. The
amino acid mimetic technology is employed in PL3994.
Competition
General.
Our products under development will compete on the
basis of quality, performance, cost effectiveness and application
suitability with numerous established products and technologies. We
have many competitors, including pharmaceutical, biopharmaceutical
and biotechnology companies. Furthermore, there are several
well-established products in our target markets that we will have
to compete against. Other companies may also introduce products
using new technologies that may be competitive with our proposed
products. Most of the companies selling or developing competitive
products have financial, technological, manufacturing and
distribution resources significantly greater than ours and may
represent significant competition for us. In addition, approved
products such as Vyleesi may eventually face competition from
generic versions that will sell at significantly reduced prices, be
preferred by managed care and health insurance payers, and be
eligible for automatic pharmacy substitution even when a prescriber
writes a prescription for our product. The timing and extent of
future generic competition is dependent upon both our intellectual
property rights and the FDA regulatory process but cannot be
accurately predicted.
The
pharmaceutical and biotechnology industries are characterized by
extensive research efforts and rapid technological change. Many
biopharmaceutical companies have developed or are working to
develop products similar to ours or that address the same markets.
Such companies may succeed in developing technologies and products
that are more effective or less costly than any of those that we
may develop. Such companies may be more successful than us in
developing, manufacturing, and marketing products.
We
cannot guarantee that we will be able to compete successfully in
the future or that developments by others will not render our
proposed products under development or any future product
candidates obsolete or noncompetitive or that our collaborators or
customers will not choose to use competing technologies or
products.
Vyleesi for Treatment of HSDD.
There is competition and
financial incentive to develop, market and sell drugs for the
treatment of HSDD and other forms of FSD. Flibanserin, sold under
the trade name Addyi, is the only drug other than Vyleesi currently
approved in the United States for treatment of HSDD. Flibanserin, a
non-hormonal oral serotonin 5-HT1A agonist, 5-HT2A antagonist,
which requires chronic dosing, was approved by the FDA on August
18, 2015 for treatment of premenopausal women with HSDD. The FDA
approval included a risk evaluation and mitigation strategy
(“REMS”) because of the increased risk of severe
hypotension and syncope due to the interaction between flibanserin
and alcohol, and a Boxed Warning to highlight the risks of severe
hypotension and syncope in patients who drink alcohol during
treatment with flibanserin, in those who also use moderate or
strong CYP3A4 inhibitors, and in those who have liver impairment.
The Boxed Warning was modified by FDA in April 2019 to clarify that
there remains a concern about consuming alcohol close in time to
taking flibanserin, but that alcohol does not have to be avoided
completely. Specifically, the Boxed Warning reflects women should
discontinue drinking alcohol at least two hours before taking
flibanserin at bedtime, or to skip the flibanserin dose that
evening. We are aware of several other drugs at various stages of
development, most of which are taken on a chronic, typically
once-daily, basis. There are other companies reported to be
developing new drugs for FSD indications, some of which may be in
clinical trials in the United States or elsewhere. We are not aware
of any other company actively developing a melanocortin receptor
agonist drug for HSDD.
5
PL9643 for Anti-Inflammatory Ocular Indications.
PL9643 is
under development for dry eye diseases and may also have utility
for other inflammatory ocular indications. Currently mild to
moderate dry eye disease and other ocular inflammatory diseases may
be treated with artificial tear eye drops, lubricating tear
ointments, hot compresses or punctual plugs, and more severe
disease may be treated with topical immunosuppressants such as
cyclosporine ophthalmic emulsions, including Restasis®
marketed in the United States by Allergan, Inc., or with drugs
inhibiting inflammatory cell binding, such as lifitegrast,
including Xiidra® marketed in the United States by Novartis.
In addition, there are a number of drugs in clinical development
for treatment of dry eye disease, with over 20 agents reported to
be in or have completed Phase 2 development. Products under
development include tumor necrosis factor agonists, alpha-2
adrenergic receptor agonist, calcineurin inhibitors, and nicotinic
receptor agonists, among others. There are no reported MC1r agonist
drugs in clinical trials by third parties for dry eye disease. If
one or more of these competing product candidates is approved and
either treats the signs and symptoms of dry eye disease or reduces
the frequency of flares of dry eye in patients, it could reduce the
market for PL9643 for dry eye disease.
Oral PL8177 for Inflammatory Bowel Diseases/Ulcerative
Colitis.
FDA-approved drugs used in treatment of ulcerative
colitis include aminosalicylates such as mesalazine and related
drugs, immunosuppressive drugs such as cyclosporine and
azathioprine, corticosteroids such as prednisone and other
steroids, and various biologic drugs, including tumor necrosis
factor inhibitors such as infliximab and adalimumab. There are a
number of drugs in development for ulcerative colitis, including
Janus kinase inhibitors, monoclonal antibodies specific for one or
more immune system cytokine signaling molecules, and additional
classes of immunomodulatory drugs. There are no reported MC1r
agonist drugs in clinical trials for inflammatory bowel diseases,
including ulcerative colitis. If one or more of the competing
products under development are approved and can effectively treat
ulcerative colitis with an acceptable side effect profile, such
products could reduce the market for oral PL8177 for inflammatory
bowel diseases, including ulcerative colitis.
Diabetic Retinopathy.
FDA-approved drugs used in treatment
of diabetic retinopathy include steroids and anti-vascular
endothelial growth factor compounds. At least two different
antibody fragment products are marketed in the United States in
which either aflibercept or ranibizumab is the active
pharmaceutical ingredient. Additional vascular endothelial growth
factor inhibitors are in clinical trials or in preclinical
development. There are no reported MC1r agonist drugs in clinical
trials for diabetic retinopathy. If one or more of the competing
product candidates under development is approved and can treat
diabetic retinopathy with an acceptable side effect profile, it
could reduce the market for MC1r peptide products for this
indication.
Melanocortin Receptor 1 Agonist Drug Products for Inflammatory and
Autoimmune Diseases.
Many inflammatory disease-related
indications are treated using systemic steroids or
immunosuppressant drugs, all of which have side effects that can be
dose limiting. There are a number of approved biological drugs and
other biological drugs under development for treatment of
inflammatory disease-related indications, which typically affect
only one pathway in the inflammatory response. Many of these drugs
address symptoms, but do not resolve the underlying inflammatory or
autoimmune disease process.
PL5028 for Cardiovascular and Fibrotic Indications.
We are
evaluating potential clinical indications for PL5028 and have not
determined a specific indication for initial studies. There are
many approved drugs and drugs in clinical studies for
cardiovascular diseases, including drugs that directly modulate the
NPR system, such as nesiritide (sold under the trade name
Natrecor®), a recombinant NPR-B peptide drug, and a
combination drug comprised of sacubitril and valsartan (sold under
the trade name Entresto®), which inhibits both the angiotensin
II receptor and neprilysin, which is an enzyme that inactivates
endogenous active natriuretic peptides. This combination drug
results in increases of endogenous active natriuretic peptide
levels. In addition, there are a number of approved drugs and drugs
in development for treatment of cardiovascular and fibrotic
diseases through mechanisms or pathways other than agonism of
NPR-A.
6
Patents and Proprietary Information
Patent Protection.
Our success will depend in substantial
part on our ability to obtain, defend and enforce patents, maintain
trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and abroad. We own a
number of issued United States patents and have pending United
States patent applications, many with issued or pending counterpart
patents in selected foreign countries. We seek patent protection
for our technologies and products in the United States and those
foreign countries where we believe patent protection is
commercially important.
We own
three issued United States patents and a pending patent application
in the United States for methods of treating FSD with Vyleesi, with
related patents issued or pending in selected countries in Europe
and Asia and in Australia and New Zealand. We do not know the full
scope of patent coverage we will obtain, or whether any patents
will issue other than the patents already issued. Issued patents
and pending applications in the United States and elsewhere in the
world have a presumptive term, if a patent is issued, until
2033.
We own
two issued United States patents claiming the Vyleesi drug
substance. One patent has expired, and the other patent, which
would have otherwise expired in 2020, has been granted a five-year
extension, the maximum period as compensation for patent term lost
during drug development and the FDA regulatory review process,
pursuant to the Drug Price Competition and Patent Term Restoration
Act of 1984, or the Hatch-Waxman Amendments. This patent now
expires on June 28, 2025. In addition, the claims of the
outstanding patent covering Vyleesi may not provide meaningful
protection. Further, third parties may challenge the validity or
scope of any issued patent, and under the Hatch-Waxman Amendments,
potentially receive approval of a competing generic version of our
product or products even before a court rules on the validity or
infringement of our patents.
We own
patents on an alternative class of melanocortin receptor-specific
peptides for treatment of sexual dysfunction and other indications,
including obesity, consisting of two issued patents in the United
States. The presumptive term of the issued patents is until 2029.
We also have patents and pending patent applications for a second
class of alternative melanocortin receptor-specific peptides for
treatment of sexual dysfunction and other indications, including
obesity, consisting of three issued patents in the United States
and issued patents in Australia, Canada, China, France, Germany,
Ireland, Japan, Israel, Korea, New Zealand, Russia, South Africa,
Switzerland and the United Kingdom and pending patent applications
on the same class in Brazil, China, India, and Mexico. The
presumptive term of the issued patents and pending patent
applications is until 2030. Until one or more product candidates
covered by a claim of one of these patents and patent applications
are developed for commercialization, which may never occur, we
cannot evaluate the duration of any potential patent term extension
under the Hatch-Waxman Amendments.
We own
five issued patents in the United States, and issued patents in
Australia, Belgium, Canada, China, France, Germany, Ireland,
Israel, Japan, Korea, Mexico, New Zealand, Russia, South Africa,
Sweden, Switzerland and the United Kingdom claiming highly
selective MC1r agonist peptides, including for treatment of
inflammation-related diseases and disorders and related
indications, and pending patent applications in Australia, Brazil,
and India. The presumptive term of the issued patents and pending
patent applications is until 2030. Until one or more product
candidates covered by a claim of one of these patent applications
are developed for commercialization, which may never occur, we
cannot evaluate the duration of any potential patent term extension
under the Hatch-Waxman Amendments.
We own
two issued United States patents claiming the PL3994 substance and
other natriuretic peptide receptor agonist compounds that we have
developed and an issued United States patent claiming a precursor
molecule to the PL3994 substance, both of which expire in 2027.
Corresponding patents on the PL3994 substance and other natriuretic
peptide receptor agonist compounds were issued in a number of
countries throughout the world, but we will cease maintaining
patents outside the United States. We also own an issued United
States patent claiming use of the PL3994 substance for treatment of
acute asthma and chronic obstructive pulmonary disease, which
expires in 2031.
We have
additional issued United States patents on melanocortin receptor
specific peptides and small molecules, and on natriuretic peptide
receptor agonist compounds, but we are not actively developing any
product candidate covered by a claim of any of these
patents.
We have
filed patent applications under the Patent Cooperation Treaty
claiming PL9643 and other peptides in development for ocular and
inflammatory disease indications. If a patent is granted, the
patents will have a presumptive term until 2041. Until one or more
product candidates covered by a claim of one of these patent
applications are developed for commercialization, which may never
occur, we cannot evaluate the duration of any potential patent term
extension under the Hatch-Waxman Amendments.
In the
event that a third party has also filed a patent application
relating to an invention we claimed in a patent application, we may
be required to participate in an interference proceeding
adjudicated by the United States Patent and Trademark Office
(“USPTO”) to determine priority of invention. The
possibility of an interference proceeding could result in
substantial uncertainties and cost, even if the eventual outcome is
favorable to us. An adverse outcome could result in the loss of
patent protection for the subject of the interference, subjecting
us to significant liabilities to third parties, the need to obtain
licenses from third parties at undetermined cost, or requiring us
to cease using the technology. Additionally, the claims of our
issued patents may be narrowed or invalidated by administrative
proceedings, such as interference or derivation,
inter partes
review, post grant review
or reexamination proceedings before the USPTO.
7
Future Patent Infringement.
We do not know for certain that
our commercial activities will not infringe upon patents or patent
applications of third parties, some of which may not even have been
issued. Although we are not aware of any valid United States
patents which are infringed by Vyleesi or our other product
candidates, we cannot exclude the possibility that such patents
might exist or arise in the future. We may be unable to avoid
infringement of any such patents and may have to seek a license,
defend an infringement action, or challenge the validity of such
patents in court. Patent litigation is costly and time consuming.
If such patents are valid and we do not obtain a license under any
such patents, or we are found liable for infringement, we may be
liable for significant monetary damages, may encounter significant
delays in bringing products to market, or may be precluded from
participating in the manufacture, use or sale of products or
methods of treatment covered by such patents.
Proprietary Information.
We rely on proprietary information,
such as trade secrets and know-how, which is not patented. We have
taken steps to protect our unpatented trade secrets and know-how,
in part with confidentiality and intellectual property agreements
with our employees, consultants and certain contractors. If our
employees, scientific consultants, collaborators or licensees
develop inventions or processes independently that may be
applicable to our product candidates, disputes may arise about the
ownership of proprietary rights to those inventions and processes.
Such inventions and processes will not necessarily become our
property but may remain the property of those persons or their
employers. Protracted and costly litigation could be necessary to
enforce and determine the scope of our proprietary
rights.
If
trade secrets are breached, our recourse will be solely against the
person who caused the secrecy breach. This might not be an adequate
remedy to us because third parties other than the person who causes
the breach will be free to use the information without
accountability to us. This is an inherent limitation of the law of
trade secret protection.
U.S. Governmental Regulation of Pharmaceutical
Products
General
Regulation
by governmental authorities in the United States and other
countries will continue to significantly impact our research,
product development, manufacturing and marketing of any
pharmaceutical products. The nature and the extent to which
regulations apply to us will vary depending on the nature of any
such products. Our potential pharmaceutical products will require
regulatory approval by governmental agencies prior to
commercialization. The products we are developing are subject to
federal regulation in the United States, principally by the FDA
under the Federal Food, Drug, and Cosmetic Act
(“FFDCA”), and by state and local governments, as well
as ministries of health and other authorities in foreign
governments. Such regulations govern or influence, among other
things, the research, development, testing, manufacture, safety and
efficacy requirements, labeling, storage, recordkeeping, licensing,
advertising, promotion, distribution and export of products,
manufacturing, and the manufacturing process. In many foreign
countries, such regulations also govern the prices charged for
products under their respective national social security systems
and availability to consumers.
All
drugs intended for human use are subject to rigorous regulation by
the FDA in the United States and similar regulatory bodies in other
countries. The steps ordinarily required by the FDA before an
innovative new drug product may be marketed in the United States
are similar to steps required in most other countries and include,
but are not limited to:
●
completion of
preclinical laboratory tests, preclinical animal testing and
formulation studies;
●
submission to the
FDA of an Investigational New Drug application (“IND”),
which must be in effect before clinical trials may
commence;
●
clinical studies to
evaluate safety and efficacy;
●
submission to the
FDA of an NDA that includes preclinical data, clinical trial data
and manufacturing information;
●
payment of
substantial user fees for filing the NDA and other recurring user
fees;
●
FDA review of the
NDA;
●
satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities; and
●
FDA approval of the
NDA, including approval of all product labeling.
8
For new
drug products or for combination products deemed to have a
“drug” primary mode of action, primary review of the
product will be conducted by the appropriate division within the
FDA’s Center for Drug Evaluation and Research
(“CDER”). For combination products, CDER will consult
with the Center for Devices and Radiological Health to ensure that
the device components of the product meet all applicable device
requirements.
The
research, development and approval process requires substantial
time, effort and financial resources, and approvals may not be
granted on a timely or commercially viable basis, if at
all.
Preclinical
testing includes laboratory evaluations to characterize the
product’s composition, impurities, stability, and mechanism
of its pharmacologic effect, as well as animal studies to assess
the potential safety and efficacy of each product. Preclinical
safety tests must be conducted by laboratories that comply with FDA
regulations regarding Good Laboratory Practices and the U.S.
Department of Agriculture’s Animal Welfare Act. Violations of
these laws and regulations can, in some cases, lead to invalidation
of the tests, requiring such tests to be repeated and delaying
approval of the NDA. The results of the preclinical tests, together
with manufacturing information and analytical data, are submitted
to the FDA as part of an IND and are reviewed by the FDA before the
commencement of human clinical trials. Unless the FDA objects to an
IND by placing the study on clinical hold, the IND will go into
effect 30 days following its receipt by the FDA. The FDA may
authorize trials only on specified terms and may suspend ongoing
clinical trials at any time on various grounds, including a finding
that patients are being exposed to unacceptable health risks. If
the FDA places a study on clinical hold, the sponsor must resolve
all of the FDA’s concerns before the study may begin or
continue. The IND application process may become extremely costly
and substantially delay development of products. Similar
restrictive requirements also apply in other countries.
Additionally, positive results of preclinical tests will not
necessarily indicate positive results in clinical
trials.
Clinical
trials involve the administration of the investigational product to
humans under the supervision of qualified principal investigators.
Our clinical trials must be conducted in accordance with Good
Clinical Practice regulations under protocols submitted to the FDA
as part of an IND. In addition, each clinical trial is approved and
conducted under the auspices of an institutional review board
(“IRB”) and requires the patients’ informed
consent. An IRB considers, among other things, ethical factors, the
safety of human subjects, and the possibility of liability of the
institutions conducting the trial. The IRB at each institution at
which a clinical trial is being performed may suspend a clinical
trial at any time for a variety of reasons, including a belief that
the test subjects are being exposed to an unacceptable health risk.
As the sponsor, we can also suspend or terminate a clinical trial
at any time.
Clinical
development is typically conducted in three sequential phases,
Phases 1, 2, and 3, involving clinical trials with increasing
numbers of human subjects. These phases may sometimes overlap or be
combined. Phase 1 trials are performed in a small number of healthy
human subjects or subjects with the targeted condition, and involve
testing for safety, dosage tolerance, absorption, distribution,
metabolism and excretion. Phase 2 studies, which may involve up to
hundreds of subjects, seek to identify possible adverse effects and
safety risks, preliminary information related to the efficacy of
the product for specific targeted diseases, dosage tolerance, and
optimal dosage. Finally, Phase 3 trials may involve up to thousands
of individuals, often at geographically dispersed clinical trial
sites, and are intended to provide the data demonstrating the
effectiveness and safety required for approval. Prior to commencing
Phase 3 clinical trials many sponsors elect to meet with FDA
officials to discuss the conduct and design of the proposed trial
or trials.
In
addition, federal law requires the listing, on a publicly available
website, of detailed information on clinical trials for
investigational drugs. Some states have similar or supplemental
clinical trial reporting laws.
Success
in early-stage animal studies and clinical trials does not
necessarily assure success in later-stage clinical trials. Data
obtained from animal studies and clinical activities are not always
conclusive and may be subject to alternative interpretations that
could delay, limit or even prevent regulatory
approval.
9
All
data obtained from the preclinical studies and clinical trials, in
addition to detailed information on the manufacture and composition
of the product, would be submitted in an NDA to the FDA for review
and approval for the manufacture, marketing and commercial
shipments of any of our products. FDA approval of the NDA is
required before commercial marketing or non-investigational
interstate shipment may begin in the United States. The FDA may
also conduct an audit of the clinical trial data used to support
the NDA.
The FDA
may deny or delay approval of an NDA that does not meet applicable
regulatory criteria. For example, the FDA may determine that the
preclinical or clinical data or the manufacturing information does
not adequately establish the safety and efficacy of the drug. The
FDA has substantial discretion in the approval process and may
disagree with an applicant’s interpretation of the data
submitted in its NDA. The FDA can request additional information,
seek clarification regarding information already provided in the
submission or ask that new additional clinical trials be conducted,
all of which can delay approval. Similar types of regulatory
processes will be encountered as efforts are made to market any
drug internationally. We will be required to assure product
performance and manufacturing processes from one country to
another.
Even if
the FDA approves a product, it may limit the approved uses for the
product as described in the product labeling, require that
contraindications, warning statements or precautions be included in
the product labeling, require that additional studies be conducted
following approval as a condition of the approval, impose
restrictions and conditions on product distribution, prescribing or
dispensing in the form of a REMS, or otherwise limit the scope of
any approval or limit labeling. Once it approves an NDA, the FDA
may revoke or suspend the product approval if compliance with
postmarketing regulatory commitments is not maintained or if
problems occur after the product reaches the marketplace. In
addition, the FDA may require postmarketing studies to monitor the
effect of approved products and may limit further marketing of the
product based on the results of these postmarketing studies. The
FDA and other government agencies have broad postmarket regulatory
and enforcement powers, including the ability to levy civil and
criminal penalties, suspend or delay issuance of approvals, seize
or recall products and revoke approvals.
Pharmaceutical
manufacturers, distributors and their subcontractors are required
to register their facilities with the FDA and state agencies.
Manufacturers are required to list their marketed drugs with the
FDA, are subject to periodic inspection by the FDA’s current
GMP regulations, and the product specifications set forth in the
approved NDA. The GMP requirements for pharmaceutical products are
extensive and compliance with them requires considerable time,
resources and ongoing investment. The regulations require
manufacturers and suppliers of raw materials and components to
establish validated systems and to employ and train qualified
employees to ensure that products meet high standards of safety,
efficacy, stability, sterility (where applicable), purity, and
potency. The requirements apply to all stages of the manufacturing
process, including the synthesis, processing, sterilization,
packaging, labeling, storage and shipment of the drug product. For
all drug products, the regulations require investigation and
correction of any deviations from GMP requirements and impose
documentation requirements upon us and any third-party
manufacturers that we may decide to use. Manufacturing
establishments are subject to mandatory user fees, and to periodic
unannounced inspections by the FDA and state agencies for
compliance with all GMP requirements. The FDA is authorized to
inspect manufacturing facilities without a warrant at reasonable
times and in a reasonable manner.
We or
our present or future suppliers may not be able to comply with GMP
and other FDA regulatory requirements. Failure to comply with the
statutory and regulatory requirements subjects the manufacturer
and/or the NDA sponsor or distributor to possible legal or
regulatory action, such as a delay or refusal to approve an NDA,
suspension of manufacturing, seizure or recall of a product, or
civil or criminal prosecution of the company or individual officers
or employees.
Postmarketing Regulation
Vyleesi
and any other drug products manufactured or distributed by us
pursuant to FDA approvals, as well as the materials and components
used in our products, are subject to pervasive and continuing
regulation by the FDA, including:
●
recordkeeping
requirements;
●
periodic reporting
requirements;
●
GMP requirements
related to all stages of manufacturing, testing, storage,
packaging, labeling and distribution of finished dosage forms of
the product;
●
monitoring and
reporting of adverse experiences with the product; and
●
advertising and
promotional reporting requirements and restrictions.
10
Adverse
experiences with the product must be reported to the FDA and could
result in the imposition of market restriction through labeling
changes or product removal. Product approvals may be revoked if
compliance with regulatory requirements is not maintained or if
problems concerning safety or effectiveness of the product occur
following approval. The FDA is developing a national electronic
drug safety tracking system known as SENTINEL that may impose
additional safety monitoring burdens, and enhanced FDA enforcement
authority, beyond the extensive requirements already in effect. As
a condition of NDA approval, the FDA may require post-approval
testing and surveillance to monitor a product’s safety or
efficacy. The FDA also may impose other conditions, including
labeling restrictions which can materially impact the potential
market and profitability of a product.
With
respect to post-market product advertising and promotion, the FDA
and other government agencies including the Department of Health
and Human Services and the Department of Justice, and individual
States, impose a number of complex regulations on entities that
advertise and promote pharmaceuticals, including, among others,
standards and restrictions on direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational
activities and promotional activities involving the Internet. The
FDA has very broad enforcement authority under the FFDCA, and
failure to abide by these regulations can result in administrative
and judicial enforcement actions, including the issuance of a
Warning Letter directing correction of deviations from FDA
standards, a requirement that future advertising and promotional
materials be pre-cleared by the FDA, False Claims Act prosecution
based on alleged off-label marketing seeking monetary and other
penalties, including potential exclusion of the drug and/or the
company from participation in government health care programs, and
state and federal civil and criminal investigations and
prosecutions. Foreign regulatory bodies also strictly enforce these
and other regulatory requirements and drug marketing may be
prohibited in whole or in part in other countries.
We, our
collaborators, licensees or third-party contract manufacturers may
not be able to comply with the applicable regulations. After
regulatory approvals are obtained, the subsequent discovery of
previously unknown problems, or the failure to maintain compliance
with existing or new regulatory requirements, may result
in:
●
restrictions on the
marketing or manufacturing of a product;
●
Warning Letters or
Untitled Letters from the FDA asking us, our collaborators or
third-party contractors to take or refrain from taking certain
actions;
●
withdrawal of the
product from the market;
●
the FDA’s
refusal to approve pending applications or supplements to approved
applications;
●
voluntary or
mandatory product recall;
●
fines or
disgorgement of profits or revenue;
●
suspension or
withdrawal of regulatory approvals;
●
refusals to permit
the import or export of products;
●
product seizure;
and
●
injunctions or the
imposition of civil or criminal penalties.
We may
also be subject to healthcare laws, regulations and enforcement and
our failure to comply with any such laws, regulations or
enforcement could adversely affect our business, operations and
financial condition. Certain federal and state healthcare laws and
regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. We are subject
to regulation by both the federal government and the states in
which we or our partners conduct our business. The laws and
regulations that may affect our ability to operate
include:
●
the federal
Anti-Kickback Statute, which prohibits, among other things, any
person or entity from knowingly and willfully offering, soliciting,
receiving or providing any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in
cash or in kind, to induce either the referral of an individual or
in return for the purchase, lease, or order of any good, facility
item or service, for which payment may be made, in whole or in
part, under federal healthcare programs such as the Medicare and
Medicaid programs;
11
●
federal civil and
criminal false claims laws and civil monetary penalty laws,
including, for example, the federal civil False Claims Act, which
impose criminal and civil penalties, including civil whistleblower
or qui tam actions, against individuals or entities for, among
other things, knowingly presenting, or causing to be presented, to
the federal government, including the Medicare and Medicaid
programs, claims for payment that are false or fraudulent or making
a false statement to avoid, decrease or conceal an obligation to
pay money to the federal government;
●
the federal Health
Insurance Portability and Accountability Act of 1996
(“HIPAA”), which created new federal criminal statutes
that prohibit knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program or
obtain, by means of false or fraudulent pretenses, representations
or promises, any of the money or property owned by, or under the
custody or control of, any healthcare benefit program, regardless
of the payer (e.g., public or private), knowingly and willfully
embezzling or stealing from a health care benefit program,
willfully obstructing a criminal investigation of a health care
offense and knowingly and willfully falsifying, concealing or
covering up by any trick or device a material fact or making any
materially false statements in connection with the delivery of, or
payment for, healthcare benefits, items or services relating to
healthcare matters;
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act, and their implementing regulations, which impose
obligations on covered entities, including healthcare providers,
health plans, and healthcare clearinghouses, as well as their
respective business associates that create, receive, maintain or
transmit individually identifiable health information for or on
behalf of a covered entity, with respect to safeguarding the
privacy, security and transmission of individually identifiable
health information;
●
the federal
physician sunshine requirements under the Patient Protection and
Affordable Care Act (“Affordable Care Act”), which
require manufacturers of drugs, devices, biologics and medical
supplies to report annually to the Centers for Medicare &
Medicaid Services information related to payments and other
transfers of value provided to physicians and teaching hospitals,
and ownership and investment interests held by physicians and their
immediate family members; and
●
state law
equivalents of each of the above federal laws, such as
anti-kickback and false claims laws, which may apply to items or
services reimbursed by any third-party payer, including commercial
insurers; state laws that require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary
compliance guidelines and the applicable compliance guidance
promulgated by the federal government, or otherwise restrict
payments that may be provided to healthcare providers and other
potential referral sources; state laws that require drug
manufacturers to report information related to payments and other
transfers of value to healthcare providers or marketing
expenditures; and state laws governing the privacy and security of
health information in certain circumstances, many of which differ
from each other in significant ways and may not have the same
effect, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory
exceptions and safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or
more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the
Affordable Care Act, among other things, amended the intent
requirement of the federal Anti-Kickback Statute and certain
criminal healthcare fraud statutes. A person or entity no longer
needs to have actual knowledge of the statute or specific intent to
violate it. In addition, the Affordable Care Act provided that the
government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal
civil False Claims Act.
Achieving
and sustaining compliance with these laws may prove costly. In
addition, any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management’s
attention from the operation of our business. If our operations are
found to be in violation of any of the laws described above or any
other governmental laws or regulations that apply to us, we may be
subject to penalties, including administrative, civil and criminal
penalties, damages, fines, disgorgement, the exclusion from
participation in federal and state healthcare programs, individual
imprisonment or the curtailment or restructuring of our operations,
any of which could adversely affect our ability to operate our
business and our financial results.
12
Generic Competition
Orange Book Listing.
In seeking approval for a drug through
an NDA, applicants are required to list with the FDA each patent
whose claims cover the applicant’s product. Upon approval of
a drug, the applicant identifies all patents that claim the
approved product’s active ingredient(s), the drug
product’s approved formulation, or an approved method of use
of the drug. Each of the identified patents are then published in
the FDA’s Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the Orange Book. Drugs listed in the
Orange Book can, in turn, be cited by potential generic competitors
in support of approval of an abbreviated new drug application
(“ANDA”). An ANDA provides for marketing of a drug
product that has the same active ingredients in the same strengths
and dosage form as the listed drug and has been shown through
bioequivalence testing, unless such testing is waived by the FDA,
as is the case with some injectable drug products, to be
therapeutically equivalent to the listed drug. Other than
bioequivalence testing, ANDA applicants are not required to
conduct, or submit results of, preclinical or clinical tests to
prove the safety or effectiveness of their drug product. Drugs
approved in this way are commonly referred to as “generic
equivalents” to the listed drug, and can usually be
substituted by pharmacists under prescriptions written for the
original listed drug.
The
ANDA applicant is required to certify to the FDA concerning any
patents listed for the approved product in the FDA’s Orange
Book. Specifically, the applicant must certify either that: (1) the
required patent information has not been filed (a Paragraph I
Certification); (2) the listed patent has expired (a Paragraph II
Certification); (3) the listed patent has not expired, but will
expire on a particular date and the generic approval is being
sought only after patent expiration (a Paragraph III
Certification); or (4) the listed patent is invalid, unenforceable,
or will not be infringed by the proposed generic product (a
Paragraph IV Certification). In certain circumstances, the ANDA
applicant may also elect to submit a “section (viii)”
statement instead of a Paragraph IV Certification, certifying that
its proposed ANDA label does not contain (or carves out) any
language regarding the patented method-of-use rather than certify
to a listed method-of-use patent. If the application contains only
Paragraph I or Paragraph II Certifications, the ANDA may be
approved as soon as FDA completes its review and concludes that all
approval requirements have been met. If the ANDA contains one or
more Paragraph III Certifications, the ANDA cannot not be approved
until each listed patent for which a Paragraph III Certification
was filed have expired.
If the
ANDA applicant has provided a Paragraph IV certification to the
FDA, the applicant must also send notice of the Paragraph IV
certification to the NDA holder and patent owner once the ANDA has
been accepted for filing by the FDA. The patent owner or NDA holder
may then commence a patent infringement lawsuit in response to the
notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph
IV certification automatically prevents the FDA from approving the
ANDA until the earlier of 30 months (the “30-month
stay”), expiration of the patent, settlement of the lawsuit
in which the patent owner admits that the patent is invalid or not
infringed by the ANDA product, or a decision in the infringement
case that holds the patent to be invalid or not infringed, or an
order by the court shortening the 30-month stay due to actions by
the patent holder to delay the litigation. In most circumstances,
the NDA holder is only eligible for one 30-month stay against an
ANDA.
If a
patent infringement action is filed against an ANDA applicant, any
settlement of the litigation must be submitted to the Federal Trade
Commission (“FTC”). If the FTC believes the terms or
effects of the settlement are anticompetitive, the FTC may bring an
antitrust enforcement action against the parties. Private parties
may also bring antitrust lawsuits against drug companies based on
such patent litigation settlements.
The
ANDA also will not be approved until any applicable non-patent
regulatory exclusivity listed in the Orange Book for the referenced
product has expired.
Regulatory Exclusivity.
Upon NDA approval of a new chemical
entity (“NCE”), which is a drug that contains no active
moiety that has been approved by the FDA in any other NDA, that
drug receives five years of marketing exclusivity during which the
FDA cannot receive for review any ANDA seeking approval of a
generic version of that drug. An ANDA containing a Paragraph IV
Certification may be received by the FDA 4 years after the NCE
drug’s approval, but any 30-month stay that ensues would be
extended so that it expires seven and one half years after the NCE
approval date, subject to early termination by reason of a court
decision or settlement as described above.
13
Certain
changes to an NDA drug, such as the addition of a new indication to
the package insert, for which new clinical trials, conducted or
sponsored by the applicant are deemed by the FDA to be essential to
the approval of the change, can be eligible for a three-year period
of exclusivity during which the FDA cannot approve an ANDA for a
generic drug that includes the change. An ANDA that contains a
section (viii) statement to a method of use patent may be approved
with labeling that omits the patented use before the use patent
expires. Generic drugs approved with such a labeling carve out may
be substituted by pharmacists for the original branded drug before
the method of use patent expires.
Section 505(b)(2) NDAs.
Most drug products obtain FDA
marketing approval pursuant to an NDA or an ANDA. A third
alternative is a special type of NDA, commonly referred to as a
505(b)(2) NDA, which enables the applicant to rely, in part, on the
FDA’s previous approval of a similar product, or published
literature, in support of its application.
505(b)(2)
NDAs often provide an alternate path to FDA approval for new or
improved formulations or new uses of previously approved products.
A 505(b)(2) NDA may be used where at least some of the information
required for approval comes from studies not conducted by, or for,
the applicant and for which the applicant has not obtained a right
of reference. If the 505(b)(2) applicant can establish that
reliance on the FDA’s previous approval is scientifically
appropriate, it may eliminate the need to conduct certain
preclinical or clinical studies of the new product. The FDA may
also require companies to perform additional studies or
measurements to support the change from the approved product. The
FDA may then approve the new product candidate for all, or some, of
the label indications for which the referenced product has been
approved, as well as for any new indication or conditions of use
sought by the Section 505(b)(2) applicant.
To the
extent that the Section 505(b)(2) applicant is relying on studies
conducted for an already approved product, the applicant is
required to certify to the FDA concerning any patents listed for
the approved product in the Orange Book to the same extent that an
ANDA applicant would. As a result, approval of a 505(b)(2) NDA can
be stalled until all the listed patents claiming the referenced
product have expired, until any non-patent exclusivity, such as
exclusivity for obtaining approval of a new chemical entity, listed
in the Orange Book for the referenced product has expired, and, in
the case of a Paragraph IV certification and subsequent patent
infringement suit, until the expiration of any 30-month stay,
subject to early termination of the stay as described
above.
Changing Legal and Regulatory Landscape
Periodically,
legislation is introduced in the U.S. Congress that could change
the statutory and regulatory provisions governing the approval,
manufacturing and marketing of our drugs. In addition, the FFDCA,
FDA regulations and guidance are often revised or reinterpreted by
the FDA or the courts in ways that may significantly affect our
business and products. We cannot predict whether or when
legislation or court decisions impacting our business will be
enacted or issued, what FDA regulations, guidance or
interpretations may change, or what the impact of such changes, if
any, may be in the future.
Third-Party Reimbursements
Successful
sales of our proposed products in the United States and other
countries depend, in large part, on the availability of adequate
reimbursement from third-party payers such as governmental
entities, managed care organizations, health maintenance
organizations (“HMOs”), and private insurance plans.
Reimbursement by a third-party payer depends on a number of
factors, including the payer’s determination that the product
has been approved by the FDA for the indication for which the claim
is being made, that it is neither experimental nor investigational,
and that the use of the product is safe and efficacious, medically
necessary, appropriate for the specific patient and cost
effective.
Since
reimbursement by one payer does not guarantee reimbursement by
another, we or our licensees may be required to seek approval from
each payer individually. Seeking such approvals is a time-consuming
and costly process. Third-party payers routinely limit the products
that they will cover and the amount of money that they will pay
and, in many instances, are exerting significant pressure on
medical suppliers to lower their prices.
Payers
frequently employ a tiered system in reimbursing end users for
pharmaceutical products, with tier designation affecting copay or
deductible amounts. Vyleesi is classified as a Tier 3 drug by
insurers covering Vyleesi. Thus, reimbursement is limited for
Vyleesi for treatment of premenopausal women with HSDD.
Flibanserin, sold under the trade name Addyi, is similarly
classified as a Tier 3 drug. Less than full reimbursement by
third-party payers may adversely affect the market acceptance of
Vyleesi. Further, healthcare reimbursement systems vary from
country to country, and third-party reimbursement might not be made
available for Vyleesi for HSDD under other reimbursement
systems.
14
Manufacturing and Marketing
To be
successful, our proposed products will need to be manufactured in
commercial quantities under GMP prescribed by the FDA and at
acceptable costs. We do not have the facilities to manufacture any
of our proposed products under GMP. We intend to rely on
collaborators, licensees, or contract manufacturers for the
commercial manufacture of our proposed products.
Vyleesi
is manufactured using contract manufacturing companies. Pursuant to
the termination of the license agreement with AMAG, we have assumed
contracts relating to manufacturing, and intend to manufacture
Vyleesi for sales in the United States and to our licensees
throughout the world.
Our
PL3994 product candidate is a peptide mimetic molecule,
incorporating a proprietary amino acid mimetic structure and amino
acids. We have had a contract manufacturer make the active
pharmaceutical ingredient in quantities sufficient for Phase 1 and
Phase 2.
Our
MC1r and MCr agonist product candidates are synthetic peptides. We
have had a contract manufacturer make both the PL8177 and PL9643
peptides in suitable scale for toxicity studies and under GMP for
clinical trial use. The PL8177 drug product for uveitis has been
manufactured for clinical trial use, and manufacturing process
development is ongoing for an oral formulation of PL8177
preparatory to manufacturing oral PL8177 drug product for clinical
trial use. While the production process for making peptide active
pharmaceutical ingredient involves well-established technology,
there are a limited number of manufacturers capable of scaling up
to commercial quantities under GMP at acceptable costs.
Additionally, scaling up to commercial quantities may involve
production, purification, formulation and other problems not
present in the scale of manufacturing done to date. Manufacturing
drug product, such as the oral formulation of PL8177, similarly may
involve production, formulation and other problems not present in
manufacturing at laboratory scale.
The
failure of any manufacturer or supplier to comply with FDA
regulations, including GMP or medical device quality systems
regulations (“QSR”), or to supply the device component
or drug substance and services as agreed, would force us or our
licensees to seek alternative sources of supply and could interfere
with our and our licensees’ ability to deliver product on a
timely and cost-effective basis or at all. Establishing
relationships with new manufacturers or suppliers, any of whom must
be FDA-approved, is a time-consuming and costly
process.
Product Liability and Insurance
Our
business may be affected by potential product liability risks that
are inherent in the testing, manufacturing, marketing and use of
our proposed products. We have liability insurance providing $10
million coverage in the aggregate as to certain product liability
and commercialization risks and certain clinical trial
risks.
Employees
As of
September 24, 2021 we employed 26 people full time, of whom 17 are
engaged in research and development activities and nine are engaged
in administration and management, and did not have any part-time
employees. While we have been successful in attracting skilled and
experienced scientific personnel, competition for personnel in our
industry is intense. None of our employees are covered by a
collective bargaining agreement. All of our employees have executed
confidentiality and intellectual property agreements. We consider
relations with our employees to be good.
We rely
on contractors and scientific consultants to work on specific
research and development programs. We rely on consultants and
contractors to provide services for marketing and distribution of
Vyleesi. We also rely on independent organizations, advisors, and
consultants to provide services, including aspects of
manufacturing, testing, preclinical evaluation, clinical
management, regulatory strategy, and market research. Our
independent advisors, contractors and consultants sign agreements
that provide for confidentiality of our proprietary information and
that we have the rights to any intellectual property developed
while working for us.
Corporate Information
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,
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
Annual Report. The reference to our website is an inactive textual
reference only.
15
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
).
Item 1A.
R
isk
Factors.
Risks Related to Our Financial Results and Need for
Financing
We have a history of substantial net losses, including a net loss
of $33.6 million for the year ended June 30, 2021, and expect to
incur substantial net losses over the next few years, and we may
never achieve or maintain profitability.
As of
June 30, 2021, we had an accumulated deficit of $351.8 million. We
had $33.6 million in net loss for the year ended June 30, 2021,
compared to $22.4 million in net loss for the year ended June 30,
2020. We may not sustain profitability in future years, depending
on numerous factors, including profitability of Vyleesi, whether
and when development and sales milestones are met, whether and when
we enter into license agreements for any of our products under
development, regulatory actions by the FDA and other regulatory
bodies, the performance of our licensees, and market acceptance of
our products.
We
expect to incur significant expenses as we continue our development
of MC1r, MCr and natriuretic peptide receptor 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.
Until
we commenced selling Vyleesi in July 2020 upon termination of our
license agreement with AMAG, since 2005 we have not had any
products available for commercial sale and have not received any
revenues from the sale of our product candidates. Because our
marketing program for Vyleesi is relatively new, and because of the
impact of COVID-19 on marketing outreach, we cannot accurately
forecast sales of Vyleesi. However, we had negative sales after
product allowances for the year ended June 30, 2021, and may have
sales and marketing expenditures in excess of product sales in
future years. For the foreseeable future, we will have to fund our
operations and capital expenditures from license, royalty and
contract revenue under license agreements, existing cash balances
and outside sources of financing, which may not be available on
acceptable terms, if at all. We will not have product revenue from
our products in development unless and until we receive approval
from the FDA or other equivalent regulatory authorities outside the
United States, and to date the only approved product is Vyleesi in
the United States. We have devoted substantially all of our efforts
to research and development, including preclinical and clinical
trials. Because of the numerous risks associated with developing
drugs, we are unable to predict the extent of future losses,
whether or when any of our product candidates will become
commercially available, or when we will become profitable, if at
all.
We will need additional funding, including funding to complete
clinical trials for our product candidates other than Vyleesi,
which may not be available on acceptable terms, if at
all.
We
intend to focus future efforts on our MC1r product candidates,
primarily for ocular indications, and secondarily on our
natriuretic peptide product candidates. As of June 30, 2021, we had
cash and cash equivalents of $60.1 million, with current
liabilities of $10.5 million. We believe we have sufficient
existing capital resources to fund our planned operations through
at least September 2022. We will need additional funding to
complete development activities and required clinical trials for
our MC1r product candidates and, if those clinical trials are
successful (which we cannot predict), to complete submission of
required regulatory applications to the FDA.
We
cannot predict product sales for Vyleesi for HSDD in the United
States, so we may not have significant recurring revenue and may
need to depend on financing or partnering to sustain our
operations. We may raise additional funds through public or private
equity or debt financings, collaborative arrangements on our
product candidates, or other sources. However, such financing
arrangements may not be available on acceptable terms, or at all.
To obtain additional funding, we may need to enter into
arrangements that require us to develop only certain of our product
candidates or relinquish rights to certain technologies, product
candidates and/or potential markets.
If we
are unable to raise sufficient additional funds when needed, we may
be required to curtail operations significantly, cease clinical
trials and decrease staffing levels. We may seek to license, sell
or otherwise dispose of our product candidates, technologies and
contractual rights on the best possible terms available. Even if we
are able to license, sell or otherwise dispose of our product
candidates, technologies and contractual rights, it is likely to be
on unfavorable terms and for less value than if we had the
financial resources to develop or otherwise advance our product
candidates, technologies and contractual rights
ourselves.
16
Our
future capital requirements depend on many factors,
including:
●
our ability to
develop and maintain manufacturing, marketing and distribution
capability for sales of Vyleesi in the United States, including our
ability to enter into agreements with one or more third parties to
conduct activities relating to the commercialization of
Vyleesi;
●
our ability to
enter into one or more licensing or similar agreements for Vyleesi
outside of Korea and China;
●
the timing of
obtaining regulatory approvals for Vyleesi for HSDD in markets
outside the United States;
●
the expense and
timing of obtaining regulatory approvals for our other product
candidates;
●
the number and
characteristics of any additional product candidates we develop or
acquire;
●
the scope,
progress, results and costs of researching and developing our
future product candidates, and conducting preclinical and clinical
trials;
●
the cost of
commercialization activities if any future product candidates are
approved for sale, including marketing, sales and distribution
costs;
●
the cost of
manufacturing any future product candidates and any products we
successfully commercialize;
●
our ability to
establish and maintain strategic collaborations, licensing or other
arrangements and the terms and timing of such
arrangements;
●
the degree and rate
of market acceptance of any future approved products;
●
the emergence,
approval, availability, perceived advantages, relative cost,
relative safety and relative efficacy of alternative and competing
products or treatments;
●
any product
liability or other lawsuits related to our products;
●
the expenses needed
to attract and retain skilled personnel;
●
the costs involved
in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, including litigation costs and the outcome
of such litigation; and
●
the timing, receipt
and amount of sales of, or royalties on, future approved products,
if any.
We have a limited operating history upon which to base an
investment decision.
Our
operations are primarily focused on acquiring, developing and
securing our proprietary technology, conducting preclinical and
clinical studies and formulating and manufacturing, through
contract manufacturers, our principal product candidates on a
small-scale basis. These operations provide a limited basis for
stockholders to assess our ability to commercialize our product
candidates.
While
we completed Phase 3 clinical trials on Vyleesi for HSDD in
premenopausal women, together with AMAG filed an NDA on Vyleesi for
HSDD with the FDA, and received approval on Vyleesi from the FDA,
we have not yet demonstrated our ability to perform the functions
necessary for the successful commercialization of any of our
current product candidates. The successful commercialization of our
product candidates will require us to perform a variety of
functions, including:
●
continuing to
conduct preclinical development and clinical trials;
●
participating in
regulatory approval processes;
●
formulating and
manufacturing products, or having third parties formulate and
manufacture products;
●
post-approval
monitoring and surveillance of our products;
●
conducting sales
and marketing activities, either alone or with a partner;
and
●
obtaining
additional capital.
17
If we
are unable to obtain regulatory approval of any of our product
candidates, to successfully commercialize any products for which we
receive regulatory approval or to obtain additional capital, we may
not be able to recover our investment in our development
efforts.
The
clinical and commercial success of our product candidates will
depend on a number of factors, including the
following:
●
the ability to
raise additional capital on acceptable terms, or at
all;
●
timely completion
of our clinical trials, which may be significantly slower or cost
more than we currently anticipate and will depend substantially
upon the performance of third-party contractors;
●
whether we are
required by the FDA or similar foreign regulatory agencies to
conduct additional clinical trials beyond those planned to support
the approval and commercialization of our product candidates or any
future product candidates;
●
acceptance of our
proposed indications and primary endpoint assessments relating to
the proposed indications of our product candidates by the FDA and
similar foreign regulatory authorities;
●
our ability to
demonstrate to the satisfaction of the FDA and similar foreign
regulatory authorities, the safety and efficacy of our product
candidates or any future product candidates;
●
the prevalence,
duration and severity of potential side effects experienced with
our product candidates or future approved products, if
any;
●
the timely receipt
of necessary marketing approvals from the FDA and similar foreign
regulatory authorities;
●
achieving and
maintaining, and, where applicable, ensuring that our third-party
contractors achieve and maintain, compliance with our contractual
obligations and with all regulatory requirements applicable to our
product candidates or any future product candidates or approved
products, if any;
●
the ability of
third parties with whom we contract to manufacture clinical trial
and commercial supplies of our product candidates or any future
product candidates, remain in good standing with regulatory
agencies and develop, validate and maintain commercially viable
manufacturing processes that are compliant with the FDA’s
current GMP regulations;
●
a continued
acceptable safety profile and efficacy during clinical development
and following approval of our product candidates or any future
product candidates;
●
our ability to
successfully commercialize our product candidates or any future
product candidates in the United States and internationally, if
approved for marketing, sale and distribution in such countries and
territories, whether alone or in collaboration with
others;
●
acceptance by
physicians and patients of the benefits, safety and efficacy of our
product candidates or any future product candidates, if approved,
including relative to alternative and competing
treatments;
●
our and our
partners’ ability to establish and enforce intellectual
property rights in and to our product candidates or any future
product candidates;
●
our and our
partners’ ability to avoid third-party patent interference or
intellectual property infringement claims; and
●
our ability to
develop, in-license or acquire additional product candidates or
commercial-stage products that we believe can be successfully
developed and commercialized.
If we
do not achieve one or more of these factors, many of which are
beyond our control, in a timely manner or at all, we could
experience significant delays or an inability to obtain regulatory
approvals or commercialize our product candidates. Even if
regulatory approvals are obtained, we may never be able to
successfully commercialize any of our product candidates.
Accordingly, we cannot assure you that we will be able to generate
sufficient revenue through the sale of our product candidates or
any future product candidates to continue our
business.
18
We have limited authorized shares available to raise additional
capital through public or private equity offerings, which limits
our ability to raise additional capital.
We are
currently authorized to issue up to 300,000,000 shares of common
stock, and approximately 90% of our authorized common stock is now
issued, reserved for issuance on conversion of Series A preferred
stock, or reserved for issuance under existing warrants, options,
restricted stock units and stock incentive plans. The amount of
common stock that is not issued or reserved for issuance is
insufficient for future financings that will be required to
continue product development and is insufficient for certain
actions designed to increase value to stockholders, including,
without limitation, strategic acquisitions or granting equity
incentives to key employees or contractors. We may be required to
raise required additional fund through alternative means which may
ultimately be detrimental to existing stockholders, which may
include:
●
issuance of
preferred stock which would have rights and preferences superior to
common stock, which may be more dilutive than issuing common
stock;
●
entering into
license or similar agreements relating to one or more of our
products, which may require us to relinquish valuable rights to our
technologies or product candidates, or grant licenses on terms that
are not favorable to us, and ultimately raise less money than
through the issuance of common stock; and
●
entering into debt
facilities and/or product-specific financing agreements with
financial or investment institutions, which may significantly
reduce prospective upfront license or similar payments and revenues
or royalties on the sale of our products.
Raising additional capital may cause dilution to existing
shareholders, restrict our operations, or require us to relinquish
rights.
We may
seek the additional capital necessary to fund our operations
through public or private equity offerings, collaboration
agreements, debt financings or licensing arrangements. To the
extent that we raise additional capital through the sale of equity
or convertible debt securities, existing shareholders’
ownership interests will be diluted, and the terms may include
liquidation or other preferences that adversely affect their rights
as a shareholder. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our
ability to take specific actions such as incurring additional debt,
making capital expenditures, or declaring dividends. If we raise
additional funds through collaborations and licensing arrangements
with third parties, we may have to relinquish valuable rights to
our technologies or product candidates or grant licenses on terms
that are not favorable to us.
Risks Related to Our Business, Strategy, and Industry
The commercial success of Vyleesi for HSDD is a component of our
corporate strategy, but we and our licensees may never successfully
commercialize Vyleesi for HSDD or obtain approvals in countries
other than the United States.
We
invested most of our efforts and financial resources in the
research and development of Vyleesi for HSDD until it was approved
by the FDA in June 2019. Since July 24, 2020, the effective date of
the termination of our license agreement with AMAG for Vyleesi, we
have been responsible for manufacturing, marketing, and
distribution of Vyleesi in the United States. We licensed all
rights to commercialize Vyleesi in China to Fosun and in Korea to
Kwangdong. We have not yet received regulatory approval to
commercialize Vyleesi in China or Korea, and regulatory approval in
these countries cannot be assured.
Our
near-term prospects, including our ability to finance our company
and generate revenue, will be impacted by the successful
commercialization of Vyleesi for HSDD, as well as preclinical and
clinical results with our future product candidates. The clinical
and commercial success of Vyleesi and our product candidates will
depend on a number of factors, including the
following:
●
timely completion
of, or need to conduct additional clinical trials and studies, for
our product candidates, which may be significantly slower or cost
more than we currently anticipate and will depend substantially
upon the accurate and satisfactory performance of third-party
contractors;
●
the ability to
demonstrate to the satisfaction of the FDA the safety and efficacy
of future product candidates through clinical trials;
●
whether we or our
licensees are required by the FDA or other similar foreign
regulatory agencies to conduct additional clinical trials to
support the approval of Vyleesi and future product
candidates;
19
●
our ability to
successfully manufacture Vyleesi for worldwide
markets;
●
our success and the
success of our licensees in educating physicians and patients about
the benefits, administration and use of Vyleesi for
HSDD;
●
the prevalence and
severity of adverse events experienced with Vyleesi for HSDD or any
future product candidates or approved products;
●
the adequacy and
regulatory compliance of the autoinjector device, supplied by an
unaffiliated third party, used as part of the Vyleesi combination
product;
●
the timely receipt
of necessary marketing approvals from the FDA and similar foreign
regulatory authorities;
●
whether our
stockholders agree, in a future meeting, to increase our authorized
shares of common stock to permit us to implement future financings
to ensure the advancement of our development programs and for
possible acquisitions of other product assets or
companies;
●
our ability to
raise additional capital on acceptable terms to achieve our
goals;
●
achieving and
maintaining compliance with all regulatory requirements applicable
to Vyleesi for HSDD or any future product candidates or approved
products;
●
the availability,
perceived advantages, relative cost, relative safety and relative
efficacy of alternative and competing treatments;
●
the effectiveness
of our own or our future potential strategic collaborators’
marketing, sales and distribution strategy and
operations;
●
the ability to
manufacture clinical trial supplies of any future product
candidates and to develop, validate and maintain a commercially
viable manufacturing process that is compliant with current
GMP;
●
our ability to
successfully commercialize Vyleesi for HSDD in the United
States;
●
our ability to
successfully commercialize any future product candidates, if
approved for marketing and sale, whether alone or in collaboration
with others;
●
our ability to
enforce our intellectual property rights in and to Vyleesi for HSDD
or any future product candidates;
●
our ability to
avoid third-party patent interference or intellectual property
infringement claims;
●
acceptance of
Vyleesi for HSDD or any future product candidates, if approved, as
safe and effective by patients and the medical community;
and
●
a continued
acceptable safety profile and efficacy of Vyleesi for HSDD or any
future product candidates following approval.
If we
fail to satisfy any one of these prerequisites to our commercial
success, many of which are beyond our control, in a timely manner
or at all, we could experience significant delays or an inability
to successfully commercialize our product candidates. Accordingly,
we cannot assure you that we will be able to generate sufficient
revenue through direct sales of Vyleesi for HSDD in the United
States and the license agreements with Fosun and Kwangdong, or
through the sale of any future product candidate, to continue our
business. In addition to preventing us from executing our current
business plan, any delays in our clinical trials, or inability to
successfully commercialize our products could impair our reputation
in the industry and the investment community and could hinder our
ability to fulfill our existing contractual commitments. As a
result, our share price would likely decline significantly, and we
would have difficulty raising necessary capital for future
projects.
Production and supply of Vyleesi depend on contract manufacturers
over whom we do not have any control, and there may not be adequate
supplies of Vyleesi.
We do
not have the facilities to manufacture the Vyleesi active drug
ingredient or the autoinjector pen component of the Vyleesi
combination product, or to fill, assemble and package the Vyleesi
combination product. We have contracts with third parties to make
the Vyleesi combination product. The contract manufacturers must
perform these manufacturing activities in a manner that complies
with FDA regulations. Our ability to control third-party compliance
with FDA requirements is limited to contractual remedies and rights
of inspection. The manufacturers of approved products and their
manufacturing facilities will be subject to ongoing review and
periodic inspections by the FDA and other authorities where
applicable, and must comply with regulatory requirements, including
FDA regulations concerning GMP. Failure of third-party
manufacturers to comply with GMP, medical device quality system
regulations, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay or negatively impact
our ability to market Vyleesi. Establishing relationships with new
suppliers, who must be FDA-approved, is a time-consuming and costly
process. If we are not able to obtain adequate supplies of Vyleesi,
it will be difficult for us to market and commercialize Vyleesi and
compete effectively.
20
The effect of COVID-19 and other possible pandemics and
outbreaks could result in material adverse effects on our clinical
trials, business, financial condition. and results of
operations.
We have
active and planned clinical trial sites in the United States and
planned clinical trial sites in Europe, and our licensees have
planned clinical trial sites in Asia-Pacific countries. As the
COVID-19 pandemic continues around the globe, we will likely
experience disruptions that could severely impact our planned
clinical trials, including Phase 3 clinical trials with PL9643 in
the United States for dry eye disease, a Phase 2 clinical trial
with PL8177 for ulcerative colitis, a Phase 2 clinical trial with
PL3994, an NPR-A agonist, in heart failure patients in
collaboration with two major academic medical centers, and clinical
trials planned to be conducted in the People’s Republic of
China and the Republic of Korea by our licensees for Vyleesi, Fosun
and Kwangdong.
It is
possible that the COVID-19 pandemic may delay enrollment in our
clinical trials due to prioritization of medical and hospital
resources toward the outbreak, and some patients may be unwilling
to enroll in our trials or be unable to comply with clinical trial
protocols if quarantines impede patient movement or interrupt
healthcare services, which would delay our ability to conduct
clinical trials or release clinical trial results.
The
COVID-19 pandemic may also result in the inability of our suppliers
to deliver clinical drug supplies on a timely basis or at all. In
addition, medical centers and hospitals may reduce staffing and
reduce or postpone certain treatments in response to the spread of
an infectious disease. Such events may result in a period of
business disruption, and in reduced operations, or doctors and
medical providers may be unwilling to participate in our clinical
trials.
The
COVID-19 pandemic and measures to prevent the spread of COVID-19
subject us to various risks and uncertainties that could materially
adversely affect our clinical trials, business, financial
condition, and results of operation, including the
following:
●
our ability to
recruit subjects for clinical trials and studies for our product
candidates and to timely complete clinical trials and other
studies;
●
our ability to
successfully market Vyleesi, given significant limitations in
person-to-person marketing and contacts, including limitations in
educating physicians and other health care professionals about the
benefits, administration and use of Vyleesi for HSDD;
●
adverse impacts on
our ability to manufacture and distribute Vyleesi, including due to
the negative impact of COVID-19 on air travel, as well as temporary
disruptions, restrictions or closures of facilities of our
suppliers and contract manufacturers in the Vyleesi manufacturing
chain;
●
adverse impacts of
COVID-19 on our ability to successful manufacture product
candidates for clinical trials and to successfully manufacture
Vyleesi for the United States market and clinical trials elsewhere
in the world;
●
adverse impacts on
our operations resulting from remote working
arrangements;
●
limitations in
employee resources that would otherwise be focused on the conduct
of our clinical trials, including because of sickness of employees
or their families, delays or difficulties in conducting site visits
and other required travel, and the desire of employees to avoid
contact with large groups of people;
●
the inability of
global suppliers of raw materials or components used in the
manufacture of our products, or contract manufacturers of our
products, to supply and/or transport those raw materials,
components and products to us in a timely and cost effective manner
due to shutdowns, interruptions or delays, limiting and precluding
the production of our finished products, impacting our ability to
supply customers, reducing our sales, increasing our costs of goods
sold, and reducing our absorption of overhead;
21
●
the illiquidity or
insolvency of our suppliers, vendors and customers, or their
inability to pay our invoices in full or in a timely manner, due to
the reduction in their revenues caused by the cancellation or delay
of procedures and other factors, which could potentially reduce our
cash flow and our liquidity;
●
delays in our
ability, and the ability of our development partners, to conduct,
enroll and complete clinical development programs;
●
the instability to
worldwide economies, financial markets, social institutions, labor
markets and the healthcare systems as a result of the COVID-19
pandemic, which could result in an economic downturn that could
adversely impact our business, results of operations and financial
condition, as well as that of our investors, suppliers, customers
or other business partners;
●
changes in customer
behavior and preferences for Vyleesi, as customers may experience
financial difficulties or may delay or reduce their spending in
light of COVID-19; and
●
the continuation or
exacerbation of the COVID-19 pandemic after social distancing and
other similar measures have been relaxed.
Most of
our employees have transitioned to remote working arrangements, and
we have not determined how long these arrangements will last. While
remote working has not had a significant adverse impact on our
financial results or our operations to date, there can be no
assurance that these arrangements will not ultimately result in
lower work efficiency and productivity, which in turn may adversely
affect our business. Certain employees, such as laboratory
personnel, cannot work remotely, and COVID-19 may adversely affect
our ability to conduct research and preclinical studies, and
undertake other activities related to development of potential
products.
The
extent to which the global COVID-19 pandemic impacts our business
will depend on future developments, which are highly uncertain and
cannot be predicted, including new information that may emerge
concerning the severity of COVID-19 and the actions to contain or
treat its impact, among others. The COVID-19 pandemic has adversely
affected economies and financial markets worldwide, resulting in an
economic downturn that could impact our business, financial
condition, and results of operations, including our ability to
obtain additional funding, if needed.
Our product candidates other than Vyleesi, including PL9643 for dry
eye disease and PL8177 for the treatment of ulcerative colitis, are
still in the early stages of development and remain subject to
clinical testing and regulatory approval. If we are unable to
successfully develop and test our product candidates, we will not
be successful.
Our
product candidates, including PL9643 for dry eye disease and PL8177
for the treatment of ulcerative colitis, are at various stages of
research and development, will require regulatory approval, and may
never be successfully developed or commercialized. Our product
candidates will require significant further research, development
and testing before we can seek regulatory approval to market and
sell them. We must demonstrate that our product candidates are safe
and effective for use in patients in order to receive regulatory
approval for commercial sale. Preclinical studies in animals, using
various doses and formulations, must be performed before we can
begin human clinical trials. Even if we obtain favorable results in
the preclinical studies, the results in humans may be different.
Numerous small-scale human clinical trials may be necessary to
obtain initial data on a product candidate’s safety and
efficacy in humans before advancing to large scale human clinical
trials. We face the risk that the results of our trials in later
phases of clinical trials may be inconsistent with those obtained
in earlier phases. Adverse or inconclusive results could delay the
progress of our development programs and may prevent us from filing
for regulatory approval of our product candidates. Additional
factors that could inhibit the successful development of our
product candidates include:
●
lack of
effectiveness of any product candidate during clinical trials or
the failure of our product candidates to meet specified
endpoints;
●
failure to design
appropriate clinical trial protocols;
●
uncertainty
regarding proper dosing;
●
for injectable
products, inability to develop or obtain a supplier for a suitable
autoinjector device that meets the FDA’s medical device
requirements;
●
insufficient data
to support regulatory approval;
●
inability or
unwillingness of medical investigators to follow our clinical
protocols;
●
inability to add a
sufficient number of clinical trial sites; or
22
●
the availability of
sufficient capital to sustain operations and clinical
trials.
You
should evaluate us in light of these uncertainties, difficulties
and expenses commonly experienced by early stage biopharmaceutical
companies, as well as unanticipated problems and additional costs
relating to:
●
product approval or
clearance;
●
regulatory
compliance;
●
good manufacturing
practices;
●
intellectual
property rights;
●
product
introduction; and
●
marketing and
competition.
If clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs
and delay our receipt of any revenue from potential product
sales.
We may
be unable to commercialize our product candidates on a timely basis
due to unexpected delays in our human clinical trials. Potential
delaying events include:
●
discovery of
serious or unexpected toxicities or side effects experienced by
study participants or other safety issues;
●
slower than
expected rates of subject recruitment and enrollment rates in
clinical trials resulting from numerous factors, including the
prevalence of other companies’ clinical trials for their
product candidates for the same indication, or clinical trials for
indications for which patients do not as commonly seek
treatment;
●
difficulty in
retaining subjects who have initiated a clinical trial but may
withdraw at any time due to adverse side effects from the therapy,
insufficient efficacy, fatigue with the clinical trial process or
for any other reason;
●
difficulty in
obtaining IRB approval for studies to be conducted at each
site;
●
delays in
manufacturing or obtaining, or inability to manufacture or obtain,
sufficient quantities of materials for use in clinical
trials;
●
inadequacy of or
changes in our manufacturing process or the product formulation or
method of delivery;
●
changes in
applicable laws, regulations and regulatory policies;
●
delays or failure
in reaching agreement on acceptable terms in clinical trial
contracts or protocols with prospective contract research
organizations (“CROs”), clinical trial sites and other
third-party contractors;
●
failure of our CROs
or other third-party contractors to comply with contractual and
regulatory requirements or to perform their services in a timely or
acceptable manner;
●
failure by us, our
employees, our CROs or their employees or any partner with which we
may collaborate or their employees to comply with applicable FDA or
other regulatory requirements relating to the conduct of clinical
trials or the handling, storage, security and recordkeeping for
drug, medical device and biologic products;
●
delays in the
scheduling and performance by the FDA of required inspections of
us, our CROs, our suppliers, or our clinical trial sites, and
violations of law or regulations discovered in the course of FDA
inspections;
●
scheduling
conflicts with participating clinicians and clinical institutions;
or
●
difficulty in
maintaining contact with subjects during or after treatment, which
may result in incomplete data.
Any of
these events or other delaying events, individually or in the
aggregate, could delay the commercialization of our product
candidates and have a material adverse effect on our business,
results of operations and financial condition.
23
We may not be able to secure and maintain relationships with
research institutions and other organizations to conduct our
clinical trials.
We rely
on research institutions and other organizations to conduct our
clinical trials, and we therefore have limited control over the
timing and cost of clinical trials and our ability to recruit
subjects. If we are unable to reach agreements with suitable
research institutions or organizations on acceptable terms, or if
any such agreement is terminated, we may be unable to quickly
replace the research institution or organization with another
qualified institution or organization on acceptable terms. We may
not be able to secure and maintain suitable research institutions
or organizations to conduct our clinical trials.
Even if our product candidates receive regulatory approval, they
may never achieve market acceptance, in which case our business,
financial condition and results of operation will be materially
adversely affected.
Regulatory
approval for the marketing and sale of any of our product
candidates does not assure the product’s commercial success.
Any approved product will compete with other products manufactured
and marketed by major pharmaceutical and other biotechnology
companies. If any of our product candidates are approved by the FDA
and do not achieve adequate market acceptance, our business,
financial condition, and results of operations will be materially
adversely affected. The degree of market acceptance of any such
product will depend on a number of factors, including:
●
perceptions by
members of the healthcare community, including physicians, about
the safety and effectiveness of any such product;
●
cost-effectiveness
relative to competing products and technologies;
●
availability of
reimbursement for our products from third-party payers such as
health insurers, HMOs and government programs such as Medicare and
Medicaid; and
●
advantages over
alternative treatment methods.
There
is one other FDA approved product for treatment of HSDD,
flibanserin, which is sold under the trade name Addyi, and started
marketing in October 2015. While we believe that an on-demand drug
for HSDD has competitive advantages compared to chronic or daily
use drugs, we may not be able to realize this perceived advantage
in the market. Vyleesi is administered by subcutaneous injection.
While the single-use, disposable autoinjector pen format is
designed to maximize market acceptability, Vyleesi as a
subcutaneous injectable drug for HSDD may never achieve significant
market acceptance. In addition, we believe reimbursement of Vyleesi
from third-party payers such as health insurers, HMOs or other
third-party payers of healthcare costs will be similar to
reimbursement for flibanserin and erectile dysfunction
(“ED”) drugs, and that the ultimate user may pay a
substantial part of the cost of Vyleesi for HSDD. If the market
opportunity for Vyleesi is smaller than we anticipate, it may also
be difficult for us to find marketing partners and, as a result, we
may be unable to generate revenue and business from Vyleesi. If
Vyleesi for HSDD does not achieve adequate market acceptance at an
acceptable price point, our business, financial condition, and
results of operations will be materially adversely
affected.
Even if our product candidates receive regulatory approval in the
United States, we may never receive approval or commercialize our
products outside of the United States.
In
order to market any products outside of the United States, we must
establish and comply with numerous and varying regulatory
requirements of other countries regarding safety and efficacy.
Approval procedures vary among countries and can involve additional
product testing and additional administrative review periods. The
time required to obtain approval in other countries might differ
from that required to obtain FDA approval. The regulatory approval
process in other countries may include all of the risks detailed
above regarding FDA approval in the United States as well as other
risks. Regulatory approval in one country does not ensure
regulatory approval in another, but a failure or delay in obtaining
regulatory approval in one country may have a negative effect on
the regulatory process in others. Failure to obtain regulatory
approval in other countries or any delay or setbacks in obtaining
such approval would impair our ability to develop foreign markets
for our product candidates and may have a material adverse effect
on our results of operations and financial condition.
If side effects emerge that can be linked to Vyleesi or any of our
product candidates (either while they are in development or after
they are approved and on the market), we may be required to perform
lengthy additional clinical trials, change the labeling of any such
products, or withdraw such products from the market, any of which
would hinder or preclude our ability to generate
revenues.
24
If we
identify side effects or other problems occur in future clinical
trials, we may be required to terminate or delay clinical
development of the product candidate. Furthermore, even if any of
our product candidates receive marketing approval, as greater
numbers of patients use a drug following its approval, if the
incidence of side effects increases or if other problems are
observed after approval that were not seen or anticipated during
pre-approval clinical trials, or if the incidence of side effects
increase or other problems are observed with Vyleesi, a number of
potentially significant negative consequences could result,
including:
●
regulatory
authorities may withdraw their approval of the
product;
●
we may be required
to reformulate such products or change the way the product is
manufactured;
●
we may become the
target of lawsuits, including class action suits; and
●
our reputation in
the marketplace may suffer resulting in a significant drop in the
sales of such products.
Any of
these events could substantially increase the costs and expenses of
developing, commercializing, and marketing any such product
candidates or could harm or prevent sales of any approved
products.
We may not be able to keep up with the rapid technological change
in the biotechnology and pharmaceutical industries, which could
make any future approved products obsolete and reduce our
revenue.
Biotechnology
and related pharmaceutical technologies have undergone and continue
to be subject to rapid and significant change. Our future will
depend in large part on our ability to maintain a competitive
position with respect to these technologies. Our competitors may
render our technologies obsolete by advances in existing
technological approaches or the development of new or different
approaches, potentially eliminating the advantages in our drug
discovery process that we believe we derive from our research
approach and proprietary technologies. In addition, any future
products that we develop, including our clinical product
candidates, may become obsolete before we recover expenses incurred
in developing those products, which may require that we raise
additional funds to continue our operations.
Competing products and technologies may make our proposed products
noncompetitive.
Flibanserin,
a daily-use oral drug sold under the trade name Addyi, has been
approved by the FDA for HSDD in premenopausal women. There are
other products reported as being developed for HSDD and other FSD
indications, including oral combination drugs, some of which
incorporate testosterone, antidepressants, or PDE-5 inhibitors.
There is competition to develop drugs for treatment of HSDD and FSD
in both premenopausal and postmenopausal patients. Our Vyleesi drug
product is administered by subcutaneous injection, and an on-demand
drug product for the same indication which utilizes another route
of administration, such as a conventional oral drug product, may
make subcutaneous Vyleesi noncompetitive.
There
are a number of products approved for use in treating inflammatory
diseases and indications, and other products are being developed,
including products in clinical trials. The dry eye disease and
ocular inflammatory disease markets are highly competitive, with a
number of marketed products and products reported to be in
late-stage clinical trials. Similarly, the inflammatory bowel
disease and ulcerative colitis markets are highly competitive, with
a number of marketed products and products reported to be in
late-stage clinical trials.
In
general, the biopharmaceutical industry is highly competitive. We
are likely to encounter significant competition with respect to
Vyleesi, MC1r product candidates, MCr product candidates and NPR
product candidates. Most of our competitors have substantially
greater financial and technological resources than we do. Many of
them also have significantly greater experience in research and
development, marketing, distribution, and sales than we do.
Accordingly, our competitors may succeed in developing, marketing,
distributing, and selling products and underlying technologies more
rapidly than we can. These competitive products or technologies may
be more effective and useful or less costly than Vyleesi or our
MC1r product candidates, MCr product candidates and NPR product
candidates. In addition, academic institutions, hospitals,
governmental agencies, and other public and private research
organizations are also conducting research and may develop
competing products or technologies on their own or through
strategic alliances or collaborative arrangements.
25
We rely on third parties over whom we have no control to conduct
preclinical studies, clinical trials and other research for our
product candidates and their failure to timely perform their
obligations could significantly harm our product
development.
We have
limited research and development staff. We rely on third parties
and independent contractors, such as researchers at CROs and
universities, in certain areas that are particularly relevant to
our research and product development plans. We engage such
researchers to conduct our preclinical studies, clinical trials and
associated tests. These outside contractors are not our employees
and may terminate their engagements with us at any time. In
addition, we have limited control over the resources that these
contractors devote to our programs, and they may not assign as
great a priority to our programs or pursue them as diligently as we
would if we were undertaking such programs ourselves. There is also
competition for these relationships, and we may not be able to
maintain our relationships with our contractors on acceptable
terms. If our third-party contractors do not carry out their duties
under their agreements with us, fail to meet expected deadlines or
fail to comply with appropriate standards for preclinical or
clinical research, our ability to develop our product candidates
and obtain regulatory approval on a timely basis, if at all, may be
materially adversely affected.
Production and supply of our product candidates depend on contract
manufacturers over whom we have no control, with the risk that we
may not have adequate supplies of our product candidates or
products.
We do
not have the facilities to manufacture our early-stage potential
products such as PL8177, PL9643, PL3994 and other natriuretic
peptide and melanocortin receptor agonist compounds for use in
preclinical studies and clinical trials. Contract manufacturers
must perform these manufacturing activities in a manner that
complies with FDA regulations. Our ability to control third-party
compliance with FDA requirements is limited to contractual remedies
and rights of inspection. The manufacturers of our potential
products and their manufacturing facilities will be subject to
continual review and periodic inspections by the FDA and other
authorities where applicable, and must comply with ongoing
regulatory requirements, including FDA regulations concerning GMP.
Failure of third-party manufacturers to comply with GMP, medical
device QSR, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay our development
programs or negatively impact our ability to receive FDA approval
of our potential products. Establishing relationships with new
suppliers, who must be FDA-approved, is a time-consuming and costly
process.
If we are unable to establish sales and marketing capabilities
within our organization or enter into and maintain agreements with
third parties to market and sell Vyleesi and our product
candidates, we may be unable to generate product
revenue.
We do
not currently have any experience in sales, marketing, and
distribution of pharmaceutical products. We are currently working
to establish sales and marketing capabilities for Vyleesi in the
United States, including through establishing agreements with third
parties to market and sell Vyleesi. We may not be able to enter
into suitable agreements on acceptable terms, if at all, with third
parties to market and sell Vyleesi. Engaging a third party to
perform these services could impede sales of Vyleesi. If we are
unable to establish adequate sales, marketing, and distribution
capabilities for Vyleesi, whether independently or with third
parties, we may not be able to generate sufficient product revenue
to support Vyleesi-associated costs and expenses, and our business
would suffer. In addition, if we enter into arrangements with third
parties to perform sales, marketing and distribution services, we
will be dependent on the performance of third parties over whom we
have limited control.
If any
of our products candidates are approved by the FDA or other
regulatory authorities, we must enter into agreements with third
parties to market these product candidates or develop marketing,
distribution and selling capacity and expertise, which will be
costly and time consuming, or enter into agreements with other
companies to provide these capabilities. We may not be able to
enter into suitable agreements on acceptable terms, if at all.
Engaging a third party to perform these services could delay the
commercialization of any of our product candidates, if approved for
commercial sale. If we are unable to establish adequate sales,
marketing, and distribution capabilities, whether independently or
with third parties, we may not be able to generate product revenue
and our business would suffer. In addition, if we enter into
arrangements with third parties to perform sales, marketing and
distribution services, our product revenues are likely to be lower
than if we could market and sell any products that we develop
ourselves.
We need to hire additional employees in order to commercialize
Vyleesi and our product candidates in the future. Any inability to
manage future growth could harm our ability to commercialize
Vyleesi and ultimately our product candidates, increase our costs
and adversely impact our ability to compete
effectively.
To
commercialize Vyleesi and ultimately our product candidates, we
will need to hire or contract with experienced sales and marketing
personnel to sell and market those product candidates we decide to
commercialize, and we will need to expand the number of our
managerial, operational, financial and other employees to support
commercialization. Competition exists for qualified personnel in
the biopharmaceutical field.
26
Future
growth will impose significant added responsibilities on members of
management, including the need to identify, recruit, maintain and
integrate additional employees. Our future financial performance
and our ability to commercialize our product candidates and to
compete effectively will depend, in part, on our ability to manage
any future growth effectively.
Our ability to achieve revenues from the sale of our products will
depend, in part, on our ability to obtain adequate reimbursement
from private insurers and other healthcare payers.
Our
ability to successfully commercialize our products, including
Vyleesi and our products in development, will depend, in
significant part, on the extent to which we or our marketing
partners can obtain reimbursement for our products and also
reimbursement at appropriate levels for the cost of our products.
Obtaining reimbursement from governmental payers, insurance
companies, HMOs and other third-party payers of healthcare costs is
a time-consuming and expensive process. Vyleesi for HSDD is
classified as a Tier 3 drug, so reimbursement for Vyleesi is
limited for treatment of premenopausal women with
HSDD.
Even if we receive regulatory approval for our products in Europe,
we may not be able to secure adequate pricing and reimbursement in
Europe for us or any strategic partner to achieve
profitability.
Even if
one or more of our products are approved in Europe, we may be
unable to obtain appropriate pricing and reimbursement for such
products. In most European markets, demand levels for healthcare in
general and for pharmaceuticals in particular are principally
regulated by national governments. Therefore, pricing and
reimbursement for our products will have to be negotiated on a
“Member State by Member State” basis according to
national rules, as there does not exist a centralized European
process. As each Member State has its own national rules governing
pricing control and reimbursement policy for pharmaceuticals, there
are likely to be uncertainties attaching to the review process, and
the level of reimbursement that national governments are prepared
to accept. In the current economic environment, governments and
private payers or insurers are increasingly looking to contain
healthcare costs, including costs on drug therapies. If we are
unable to obtain adequate pricing and reimbursement for our
products in Europe, we or a potential strategic partner or
collaborator may not be able to cover the costs necessary to
manufacture, market and sell the product, limiting or preventing
our ability to achieve profitability.
We may incur substantial liabilities and may be required to limit
commercialization of our products in response to product liability
lawsuits.
The
testing and marketing of medical products entails an inherent risk
of product liability. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of our
products or cease clinical trials. Our inability to obtain
sufficient product liability insurance at an acceptable cost to
protect against potential product liability claims could prevent or
inhibit the commercialization of pharmaceutical products we
develop, alone or with corporate collaborators. We currently carry
$10 million liability insurance in the aggregate as to certain
product liability and commercialization risks and certain clinical
trial risks. We, or any corporate collaborators, may not in the
future be able to obtain insurance at a reasonable cost or in
sufficient amounts, if at all. Even if our agreements with any
future corporate collaborators entitle us to indemnification
against losses, such indemnification may not be available or
adequate should any claim arise.
Our internal computer systems, or those of our third-party
contractors or consultants, may fail or suffer security breaches,
which could result in a material disruption of our product
development programs.
In the
ordinary course of our business, we collect, store and transmit
confidential information. Despite the implementation of security
measures, our internal computer systems and those of our
third-party contractors and consultants are vulnerable to damage
from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. We
rely on industry accepted measures and technology to secure
confidential and proprietary information maintained on our computer
systems. However, these measures and technology may not adequately
prevent security breaches. While we do not believe that we have
experienced any such system failure, accident, or security breach
to date, if such an event were to occur and cause interruptions in
our operations, it could result in a loss of clinical trial data
for our product candidates that could result in delays in our
regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. Cyberattacks are increasing in their
frequency, sophistication, and intensity. Cyberattacks could
include the deployment of harmful malware, denial-of-service
attacks, social engineering, and other means to affect service
reliability and threaten the confidentiality, integrity and
availability of information. Significant disruptions of our
information technology systems or security breaches could adversely
affect our business operations and/or result in the loss,
misappropriation, and/or unauthorized access, use or disclosure of,
or the prevention of access to, confidential information (including
trade secrets or other intellectual property, proprietary business
information and personal information), and could result in
financial, legal, business, and reputational harm to us. To the
extent that any disruption or security breach results in a loss of
or damage to our data or applications or other data or applications
relating to our technology, intellectual property, research and
development or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
27
We may be subject to claims that our employees, consultants, or
independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their
former employers.
We may
in the future employ individuals who were previously employed at
universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we try
to ensure that our employees, consultants, and independent
contractors do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that we or
our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of any of
our employee’s former employer or other third parties.
Litigation may be necessary to defend against these claims. If we
fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or
personnel, which could adversely impact our business. Even if we
are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and
other employees.
We may be subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, and health
information privacy and security laws. If we are unable to comply,
or have not fully complied, with such laws, we could face
substantial penalties.
If we
begin commercializing any of our products in the United States, our
operations may be directly, or indirectly through our customers,
subject to various federal and state fraud and abuse laws,
including, without limitation, the federal Anti-Kickback Statute,
the federal False Claims Act, and physician sunshine laws and
regulations. These laws may impact, among other things, our
proposed sales, marketing, and education programs. In addition, we
may be subject to patient privacy regulation by both the federal
government and the states in which we conduct our business. The
laws that may affect our ability to operate include:
●
the federal
Anti-Kickback Statute, which prohibits, among other things, persons
or entities from soliciting, receiving, offering or providing
remuneration, directly or indirectly, in return for or to induce
either the referral of an individual for, or the purchase order or
recommendation of, any item or services for which payment may be
made under a federal health care program such as the Medicare and
Medicaid programs;
●
federal civil and
criminal false claims laws and civil monetary penalty laws, which
prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other third-party payors that
are false or fraudulent;
●
HIPAA, which
created new federal criminal statutes that prohibit executing a
scheme to defraud any healthcare benefit program and making false
statements relating to healthcare matters;
●
HIPAA, as amended
by the Health Information Technology and Clinical Health Act, and
its implementing regulations, which imposes certain requirements
relating to the privacy, security, and transmission of individually
identifiable health information;
●
The federal
physician sunshine requirements under the Affordable Care Act,
which require manufacturers of drugs, devices, biologics, and
medical supplies to report annually to the U.S. Department of
Health and Human Services information related to payments and other
transfers of value to physicians, other healthcare providers, and
teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate
family members and applicable group purchasing organizations;
and
28
●
state law
equivalents of each of the above federal laws, such as
anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payor, including commercial
insurers, state laws that require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance
promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other
potential referral sources; state laws that require drug
manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or
marketing expenditures; and state laws governing the privacy and
security of health information in certain circumstances, many of
which differ from each other in significant ways and may not have
the same effect, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory
exceptions and safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or
more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the
Affordable Care Act, among other things, amends the intent
requirement of the federal anti-kickback and criminal healthcare
fraud statutes. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it.
Moreover, the Affordable Care Act provides that the government may
assert that a claim including items or services resulting from a
violation of the federal anti-kickback statute constitutes a false
or fraudulent claim for purposes of the False Claims
Act.
If our
operations are found to be in violation of any of the laws
described above or any other governmental regulations that apply to
us, we may be subject to penalties, including civil and criminal
penalties, damages, fines, exclusion from participation in
government health care programs, such as Medicare and Medicaid,
imprisonment, and the curtailment or restructuring of our
operations, any of which could adversely affect our ability to
operate our business and our results of operations.
We are highly dependent on our management team, senior staff
professionals and third-party contractors and consultants, and the
loss of their services could materially adversely affect our
business.
We rely
on our relatively small management team and staff as well as
various contractors and consultants to provide critical services.
Our ability to execute our clinical programs for Vyleesi, PL8177,
PL9643, PL3994 and our other preclinical programs for MC1r and MC4r
peptide or small molecule drug candidates and natriuretic peptide
drug candidates depends on our continued retention and motivation
of our management and senior staff professionals, including
executive officers and senior members of product development and
management, including commercialization, who possess significant
technical expertise and experience and oversee our development and
commercialization programs. If we lose the services of existing key
personnel, our development programs could be adversely affected if
suitable replacement personnel are not recruited quickly. Our
success also depends on our ability to develop and maintain
relationships with contractors, consultants, and scientific
advisors.
There
is competition for qualified personnel, contractors, and
consultants in the pharmaceutical industry, which makes it
difficult to attract and retain the qualified personnel,
contractors and consultants necessary for the development and
growth of our business. Our failure to attract and retain such
personnel, contractors and consultants could have a material
adverse effect on our business, results of operations and financial
condition.
Existing coverage for Vyleesi for the treatment of HSDD is
classified as a Tier 3 drug by third-party payers, so that demand
for Vyleesi is tied to discretionary spending levels of our
targeted patient population and particularly affected by
unfavorable economic conditions.
The
market for HSDD may be particularly vulnerable to unfavorable
economic conditions. Vyleesi for the treatment of HSDD has
significant copay or deductible requirements and is frequently only
partially reimbursed by third-party payers and, as a result, demand
for this product may be tied to discretionary spending levels of
our targeted patient population. A severe or prolonged economic
downturn could result in a variety of risks to our business,
including weakened demand for Vyleesi for HSDD.
Risks Related to Government Regulation
Both before and after marketing approval, our product candidates
are subject to ongoing regulatory requirements and, if we fail to
comply with these continuing requirements, we could be subject to a
variety of sanctions and the sale of any approved commercial
products could be suspended.
29
Both
before and after regulatory approval to market a particular product
candidate, the manufacturing, labeling, packaging, adverse event
reporting, storage, advertising and promotion and record keeping
related to the product candidates are subject to extensive
regulatory requirements. If we fail to comply with the regulatory
requirements of the FDA and other applicable U.S. and foreign
regulatory authorities, we could be subject to administrative or
judicially imposed sanctions, including:
●
restrictions on the
products or manufacturing process;
●
warning
letters;
●
civil or criminal
penalties;
●
fines;
●
injunctions;
●
imposition of a
Corporate Integrity Agreement requiring heightened monitoring of
our compliance functions, overseen by outside monitors, and
enhanced reporting requirements to, and oversight by, the FDA and
other government agencies;
●
product seizures or
detentions and related publicity requirements;
●
suspension or
withdrawal of regulatory approvals;
●
regulators or IRBs
may not authorize us or any potential future collaborators to
commence a clinical trial or conduct a clinical trial at a
prospective trial site;
●
total or partial
suspension of production; and
●
refusal to approve
pending applications for marketing approval of new product
candidates.
Changes
in the regulatory approval policy during the development period,
changes in or the enactment of additional regulations or statutes,
or changes in the regulatory review for each submitted product
application may cause delays in the approval or rejection of an
application. Even if the FDA approves a product candidate, the
approval may impose significant restrictions on the indicated uses,
conditions for use, labeling, advertising, promotion, marketing
and/or production of such product, and may impose ongoing
requirements for post-approval studies, including additional
research and development and clinical trials. The approval may also
impose REMS on a product if the FDA believes there is a reason to
monitor the safety of the drug in the marketplace. REMS may include
requirements for additional training for health care professionals,
safety communication efforts and limits on channels of
distribution, among other things. The sponsor would be required to
evaluate and monitor the various REMS activities and adjust them if
need be. The FDA also may impose various civil or criminal
sanctions for failure to comply with regulatory requirements,
including withdrawal of product approval.
Furthermore,
the approval procedure and the time required to obtain approval
varies among countries and can involve additional testing beyond
that required by the FDA. Approval by one regulatory authority does
not ensure approval by regulatory authorities in other
jurisdictions. The FDA has substantial discretion in the approval
process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional
preclinical, clinical or other studies.
In
addition, varying interpretations of the data obtained for
preclinical and clinical testing could delay, limit or prevent
regulatory approval of a product candidate. Even if we submit an
application to the FDA for marketing approval of a product
candidate, it may not result in marketing approval from the
FDA.
We do
not expect to receive regulatory approval for the commercial sale
of any of our product candidates that are in development in the
near future, if at all. The inability to obtain FDA approval or
approval from comparable authorities in other countries for our
product candidates would prevent us or any potential future
collaborators from commercializing these product candidates in the
United States or other countries.
30
The regulatory approval process is lengthy, expensive and
uncertain, and may prevent us from obtaining the approvals that we
require.
Government
authorities in the United States and other countries extensively
regulate the advertising, labeling, storage, record-keeping,
safety, efficacy, research, development, testing, manufacture,
promotion, marketing, and distribution of drug products. Drugs are
subject to rigorous regulation in the United States by the FDA and
similar regulatory bodies in other countries. The steps ordinarily
required by the FDA before a new drug may be marketed in the United
States include:
●
completion of
non-clinical tests including preclinical laboratory and formulation
studies and animal testing and toxicology;
●
submission to the
FDA of an IND application, which must become effective before
clinical trials may begin, and which may be placed on
“clinical hold” by the FDA, meaning the trial may not
commence, or must be suspended or terminated prior to
completion;
●
performance of
adequate and well-controlled Phase 1, 2 and 3 human clinical trials
to establish the safety and efficacy of the drug for each proposed
indication, and potentially post-approval or Phase 4 studies to
further define the drug’s efficacy and safety, generally or
in specific patient populations;
●
submission to the
FDA of an NDA that must be accompanied by a substantial “user
fee” payment;
●
FDA review and
approval of the NDA before any commercial marketing or sale;
and
●
compliance with
post-approval commitments and requirements.
31
Satisfaction
of FDA pre-market approval requirements for new drugs typically
takes a number of years and the actual time required for approval
may vary substantially based upon the type, complexity and novelty
of the product or disease to be treated by the drug. The results of
product development, preclinical studies and clinical trials are
submitted to the FDA as part of an NDA. The NDA also must contain
extensive manufacturing information, demonstrating compliance with
applicable GMP requirements. Once the submission has been accepted
for filing, the FDA generally has twelve months to review the
application and respond to the applicant. Such response may be an
approval or may be a “complete response letter”
outlining additional data or steps that must be completed prior to
further FDA review of the NDA. The review process is often
significantly extended by FDA requests for additional information
or clarification. Success in early-stage clinical trials does not
assure success in later stage clinical trials. Data obtained from
clinical trials is not always conclusive and may be susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval. The FDA may refer the NDA to an advisory
committee for review, evaluation and recommendation as to whether
the application should be approved, but the FDA is not bound by the
recommendation of the advisory committee. The FDA may deny or delay
approval of applications that do not meet applicable regulatory
criteria or if the FDA determines that the clinical data do not
adequately establish the safety and efficacy of the drug.
Therefore, our proposed products could take a significantly longer
time than we expect or may never gain approval. If regulatory
approval is delayed or never obtained, our business, financial
condition and results of operations would be materially adversely
affected.
Some of
our products or product candidates may be used in combination with
a drug delivery device, such as an injector or other delivery
system. Vyleesi is considered a drug-device combination product
because of its injection delivery device. Medical products
containing a combination of new drugs, biological products or
medical devices are regulated as “combination products”
in the United States. A combination product generally is defined as
a product comprised of components from two or more regulatory
categories (e.g., drug/device, device/biologic, drug/biologic).
Each component of a combination product is subject to the
requirements established by the FDA for that type of component,
whether a new drug, biologic or device. In order to facilitate
pre-market review of combination products, the FDA designates one
of its centers to have primary jurisdiction for the pre-market
review and regulation of the overall product based upon a
determination by the FDA of the primary mode of action of the
combination product. The determination whether a product is a
combination product or two separate products is made by the FDA on
a case-by-case basis. Our product candidates intended for use with
such devices, or expanded indications that we may seek for our
products used with such devices, may not be approved or may be
substantially delayed in receiving approval if the devices do not
gain and/or maintain their own regulatory approvals or clearances.
Where approval of the drug product and device is sought under a
single application, the increased complexity of the review process
may delay approval. In addition, because these drug delivery
devices are provided by single source unaffiliated third-party
companies, we are dependent on the sustained cooperation and effort
of those third-party companies both to supply the devices, maintain
their own regulatory compliance, and, in some cases, to conduct the
studies required for approval or other regulatory clearance of the
devices. We are also dependent on those third-party companies
continuing to maintain such approvals or clearances once they have
been received. Failure of third-party companies to supply the
devices, to successfully complete studies on the devices in a
timely manner, or to obtain or maintain required approvals or
clearances of the devices, and maintain compliance with all
regulatory requirements, could result in increased development
costs, delays in or failure to obtain regulatory approval and
delays in product candidates reaching the market or in gaining
approval or clearance for expanded labels for new
indications.
32
Upon
approval, a product candidate may be marketed only in those dosage
forms and for those indications approved by the FDA. Once approved,
the FDA may withdraw the product approval if compliance with
regulatory requirements is not maintained or if problems occur
after the product reaches the marketplace. In addition, the FDA may
require postmarketing studies, referred to as Phase 4 studies, to
monitor the approved products in a specific subset of patients or a
larger number of patients than were required for product approval
and may limit further marketing of the product based on the results
of these post-market studies. The FDA has broad post-market
regulatory and enforcement powers, including the ability to seek
injunctions, levy fines and civil penalties, criminal prosecution,
withdraw approvals and seize products or request
recalls.
If
regulatory approval of any of our product candidates is granted, it
will be limited to certain disease states or conditions, patient
populations, duration, or frequency of use, and will be subject to
other conditions as set forth in the FDA-approved labeling. Adverse
experiences with the product must be reported to the FDA and could
result in the imposition of market restriction through labeling
changes or in product removal. Product approvals may be withdrawn
if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur
following approval.
Outside
the United States, our ability to market our product candidates
will also depend on receiving marketing authorizations from the
appropriate regulatory authorities. The foreign regulatory approval
process generally includes all of the risks associated with FDA
approval described above. The requirements governing the conduct of
clinical trials and marketing authorization vary widely from
country to country. At present, foreign marketing authorizations
are applied for at a national level, although within the European
Community (“EC”), registration procedures are available
to companies wishing to market a product to more than one EC member
state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficiency has been presented, a
marketing authorization will be granted. If we do not obtain, or
experience difficulties in obtaining, such marketing
authorizations, our business, financial condition and results of
operations may be materially adversely affected.
The FDA has required that two postmarketing studies and a clinical
trial be conducted on Vyleesi.
In its
approval of Vyleesi, under the FFDCA the FDA imposed certain
postmarketing requirements, consisting of two studies, one a
prospective, registry-base, observational cohort study that
compares obstetrical, maternal, fetal/neonatal, and infant outcomes
in women exposed to Vyleesi during pregnancy to an internal,
unexposed cohort of pregnant women, and the other a retrospective
cohort study using electronic claims data that compares maternal,
fetal/neonatal, and infant outcomes in women exposed to Vyleesi
during pregnancy to an internal, unexposed cohort of pregnant
women, and one clinical trial in lactating women who have received
Vyleesi to assess potential adverse effects in the breastfed infant
and measure bremelanotide concentrations in breast milk using a
validated assay. We are evaluating requirements, timelines and
costs for these studies and the clinical trial. We do not know the
outcomes of the studies or the clinical trial, and do not know
whether the outcomes would adversely affect approvals of
Vyleesi.
Legislative or regulatory healthcare reforms in the United States
may make it more difficult and costly for us to obtain regulatory
clearance or approval of any future product candidates and to
produce, market and distribute our products after clearance or
approval is obtained.
From
time to time, legislation is drafted and introduced in Congress,
and court decisions are issued, that could significantly change the
statutory provisions governing the regulatory clearance or
approval, manufacture and marketing of regulated products or the
reimbursement thereof. In addition, FDA regulations and guidance
are often revised or reinterpreted by the FDA in ways that may
significantly affect our business and our products. Any new
regulations or revisions or reinterpretations of existing
regulations may impose additional costs or lengthen review times of
Vyleesi for HSDD or any future product candidates. We cannot
determine what effect changes in regulations, statutes, court
decisions, legal interpretation or policies, when and if
promulgated, enacted, issued or adopted may have on our business in
the future. Such changes could, among other things:
●
require changes to
manufacturing methods;
●
require recall,
replacement or discontinuance of one or more of our
products;
●
require additional
recordkeeping;
●
limit or restrict
our ability to engage in certain types of marketing or promotional
activities;
●
alter or eliminate
the scope or terms of any currently available regulatory
exclusivities; and
●
restrict or
eliminate our ability to settle any patent litigation we may bring
against potential generic competitors.
33
Each of
these would likely entail substantial time and cost and could
materially harm our business and our financial results. In
addition, delays in receipt of or failure to receive regulatory
clearances or approvals for any future products would harm our
business, financial condition, and results of
operations.
Changes in healthcare policy could adversely affect our
business.
Our
industry is highly regulated, and changes in law may adversely
impact our business, operations, or financial results. In the U.S.,
there have been and continue to be a number of legislative
initiatives to contain healthcare costs. For example, the Patient
Protection and Affordable Care Act of 2010, as amended by the
Health Care and Education Reconciliation Act of 2010 (the
“PPACA”) is a sweeping measure intended to, among other
things, expand healthcare coverage within the U.S., primarily
through the imposition of health insurance mandates on employers
and individuals and expansion of the Medicaid program. Several
provisions of the law have affected us and increased certain of our
costs. Since its enactment, there have been executive, judicial,
and congressional challenges to certain aspects of the PPACA. In
addition, other legislative changes have been adopted since the
PPACA was enacted. Some of these changes have resulted in
additional reductions in Medicare and other healthcare
funding.
We
anticipate that the PPACA, as well as other healthcare reform
measures that may be adopted in the future in the U.S. or abroad,
may result in more rigorous coverage criteria and an additional
downward pressure on the reimbursement our customers may receive
for our products. Recently there has been heightened governmental
scrutiny in countries worldwide over the manner in which
manufacturers set prices for their marketed products.
In the
U.S., there have been several recent congressional inquiries and
proposed and enacted federal and state legislation designed to,
among other things, bring more transparency to drug pricing, review
the relationship between pricing and manufacturer patient programs,
reduce the cost of drugs under Medicare, and reform government
program reimbursement methodologies for drug products. For example,
at the federal level, during the former Trump administration there
were multiple executive orders issued, initiatives implemented and
calls for legislation form Congress to reduce drug prices, increase
competition and reduce out of pocket costs of drugs for patients.
The likelihood of implementation of any of the former Trump
administration healthcare reform initiatives is uncertain,
particularly in light of the new Biden administration and its
implementation of a regulatory freeze. Any reduction in
reimbursement from Medicare and other government programs may
result in a similar reduction in payments from private payers. In
addition, individual states in the U.S. have also increasingly
passed legislation and implemented regulations designed to control
pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. Moreover, regional
healthcare authorities and individual hospitals are increasingly
using bidding procedures to determine what pharmaceutical products
and which suppliers will be included in their prescription drug and
other healthcare programs. Further, it is possible that additional
governmental action is taken in response to the COVID-19
pandemic.
Legally
mandated price controls on payment amounts by governmental and
private third-party payers or other restrictions could harm our
business, results of operations, financial condition, and
prospects. The implementation of cost containment measures or other
healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our
products.
For
more information regarding government healthcare reform, see
“U.S. Governmental Regulation of Pharmaceutical
Products” in Part I, Item 1 of this Annual Report on Form
10-K.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual
property rights or secure rights to patents of others, the value of
our intellectual property rights would diminish.
Our
success, competitive position and future revenues will depend in
part on our ability and the abilities of our licensors to obtain
and maintain patent protection for our products, methods,
processes, and other technologies, to preserve our trade secrets,
to prevent third parties from infringing on our proprietary rights
and to operate without infringing the proprietary rights of third
parties. We cannot predict:
●
the degree and
range of protection any patents will afford us against competitors,
including whether third parties will find ways to invalidate or
otherwise circumvent our patents;
●
if and when patents
will be issued;
●
whether or not
others will obtain patents claiming aspects similar to those
covered by our patents and patent applications; and
●
whether we will
need to initiate litigation or administrative proceedings, which
may be costly whether we win or lose.
34
If our
products, methods, processes, and other technologies infringe the
proprietary rights of other parties we could incur substantial
costs and we may have to:
●
obtain licenses,
which may not be available on commercially reasonable terms, if at
all;
●
redesign our
products or processes to avoid infringement;
●
stop using the
subject matter claimed in the patents held by others;
●
pay damages;
or
●
defend litigation
or administrative proceedings, which may be costly whether we win
or lose, and which could result in a substantial diversion of our
management resources.
We may become involved in lawsuits to protect or enforce our
patents or other intellectual property or the patents of our
licensors, which could be expensive and time
consuming.
Competitors
may infringe our intellectual property, including our patents or
the patents of our licensors. As a result, we may be required to
file infringement claims to stop third-party infringement or
unauthorized use. This can be expensive, particularly for a company
of our size, and time-consuming. In addition, in an infringement
proceeding, a court may decide that a patent of ours is not valid
or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patent claims
do not cover its technology or that the factors necessary to grant
an injunction against an infringer are not satisfied.
An
adverse determination of any litigation or other proceedings could
put one or more of our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at risk
of not issuing.
Interference,
derivation, or other proceedings brought at the USPTO may be
necessary to determine the priority or patentability of inventions
with respect to our patent applications or those of our licensors
or collaborators. Litigation or USPTO proceedings brought by us may
fail or may be invoked against us by third parties. Even if we are
successful, domestic, or foreign litigation or USPTO or foreign
patent office proceedings may result in substantial costs and
distraction to our management. We may not be able, alone or with
our licensors or collaborators, to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may
not protect such rights as fully as in the United
States.
Furthermore,
because of the substantial amount of discovery required in
connection with intellectual property litigation or other
proceedings, there is a risk that some of our confidential
information could be compromised by disclosure during this type of
litigation or proceedings. In addition, during the course of this
kind of litigation or proceedings, there could be public
announcements of the results of hearings, motions or other interim
proceedings or developments or public access to related documents.
If investors perceive these results to be negative, the market
price for our common stock could be significantly
harmed.
If we infringe or are alleged to infringe intellectual property
rights of third parties, our business could be harmed.
Our
research, development and commercialization activities may infringe
or otherwise violate or be claimed to infringe or otherwise violate
patents owned or controlled by other parties. There may also be
patent applications that have been filed but not published that,
when issued as patents, could be asserted against us. These third
parties could bring claims against us that would cause us to incur
substantial expenses and, if successful against us, could cause us
to pay substantial damages. Further, if a patent infringement suit
were brought against us, we could be forced to stop or delay
research, development, manufacturing or sales of the product or
product candidate that is the subject of the suit.
As a
result of patent infringement claims, or to avoid potential claims,
we may choose or be required to seek licenses from third parties.
These licenses may not be available on acceptable terms, or at all.
Even if we are able to obtain a license, the license would likely
obligate us to pay license fees or royalties or both, and the
rights granted to us might be nonexclusive, which could result in
our competitors gaining access to the same intellectual
property.
35
Ultimately,
we could be prevented from commercializing a product, or be forced
to cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we are unable to
enter into licenses on acceptable terms, if at all.
There
has been substantial litigation and other proceedings regarding
patent and other intellectual property rights in the pharmaceutical
industry. In addition to infringement claims against us, we may
become a party to other patent litigation and other proceedings,
including interference, derivation or post-grant proceedings
declared or granted by the USPTO and similar proceedings in foreign
countries, regarding intellectual property rights with respect to
our current or future products. The cost to us of any patent
litigation or other proceeding, even if resolved in our favor,
could be substantial. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more
effectively than we can because of their substantially greater
financial resources. Patent litigation and other proceedings may
also absorb significant management time. Uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings could impair our ability to compete in the marketplace.
The occurrence of any of the foregoing could have a material
adverse effect on our business, financial condition, or results of
operations.
Our patent applications and the enforcement or defense of our
issued patents may be impacted by the application of or changes in
U.S. and foreign standards.
The
standards that the USPTO and foreign patent offices use to grant
patents are not always applied predictably or uniformly and can
change. Consequently, our pending patent applications may not be
allowed and, if allowed, may not contain the type and extent of
patent claims that will be adequate to conduct our business as
planned. Additionally, any issued patents we currently own or
obtain in the future may have a shorter patent term than expected
or may not contain claims that will permit us to stop competitors
from using our technology or similar technology or from copying our
product candidates. Similarly, the standards that courts use to
interpret patents are not always applied predictably or uniformly
and may evolve, particularly as new technologies develop. In
addition, changes to patent laws in the United States or other
countries may be applied retroactively to affect the validation
enforceability, or term of our patent. For example, the U.S.
Supreme Court has recently modified some legal standards applied by
the USPTO in examination of U.S. patent applications, which may
decrease the likelihood that we will be able to obtain patents and
may increase the likelihood of challenges to patents we obtain or
license. In addition, changes to the U.S. patent system have come
into force under the Leahy-Smith America Invents Act, or the
Leahy-Smith Act, which was signed into law in September 2011. The
Leahy-Smith Act included significant changes to U.S. patent law.
These include provisions that affect the way patent applications
are prosecuted and also affect patent litigation. Under the
Leahy-Smith Act, the United States transitioned in March 2013 to a
“first to file” system in which the first inventor to
file a patent application will be entitled to the patent. Third
parties are allowed to submit prior art before the issuance of a
patent by the USPTO, and may become involved in opposition,
derivation, reexamination,
inter
partes
review or interference proceedings challenging our
patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate, our patent rights, which
could adversely affect our competitive position.
While
we cannot predict with certainty the impact the Leahy-Smith Act or
any potential future changes to the U.S. or foreign patent systems
will have on the operation of our business, the Leahy-Smith Act and
such future changes could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents, all of which could
have a material adverse effect on our business, results of
operations, financial condition and cash flows and future
prospects.
We may not be able to protect our intellectual property rights
throughout the world.
Filing,
prosecuting, and defending patents on product candidates in all
countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the
United States can be less extensive than those in the United
States. In addition, the laws of some foreign countries do not
protect intellectual property rights to the same extent as federal
and state laws in the United States and in some cases may even
force us to grant a compulsory license to competitors or other
third parties. Consequently, we may not be able to prevent third
parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have
not obtained patent protection to develop their own products and
further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong
as that in the United States. These products may compete with our
products and our patents or other intellectual property rights may
not be effective or sufficient to prevent them from
competing.
36
Many
companies have encountered significant problems in protecting and
defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating
to biopharmaceuticals, which could make it difficult for us to stop
the infringement of our patents or marketing of competing products
in violation of our proprietary rights generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in
substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at
risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we
initiate, and the damages or other remedies awarded, if any, may
not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual
property that we develop or license.
In
addition, our ability to protect and enforce our intellectual
property rights may be adversely affected by unforeseen changes in
domestic and foreign intellectual property laws.
If we are unable to keep our trade secrets confidential, our
technologies and other proprietary information may be used by
others to compete against us.
In
addition to our reliance on patents, we attempt to protect our
proprietary technologies and processes by relying on trade secret
laws and agreements with our employees and other persons who have
access to our proprietary information. These agreements and
arrangements may not provide meaningful protection for our
proprietary technologies and processes in the event of unauthorized
use or disclosure of such information and may not provide an
adequate remedy in the event of unauthorized disclosure of
confidential information. In addition, our competitors may
independently develop substantially equivalent technologies and
processes or gain access to our trade secrets or technology, either
of which could materially or adversely affect our competitive
position.
Risks Related to the Ownership of Our Common Stock
Our stock price is volatile and may fluctuate in a way that is
disproportionate to our operating performance and we expect it to
remain volatile, which could limit investors’ ability to sell
stock at a profit.
The
volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit
at any given time or to plan purchases and sales in advance. A
variety of factors may affect the market price of our common stock.
These include, but are not limited to:
●
publicity regarding
actual or potential clinical results relating to products under
development by our competitors or us;
●
delay or failure in
initiating, completing or analyzing preclinical or clinical trials
or unsatisfactory designs or results of these trials;
●
interim decisions
by regulatory agencies, including the FDA, as to clinical trial
designs, acceptable safety profiles and the benefit/risk ratio of
products under development;
●
achievement or
rejection of regulatory approvals by our competitors or by
us;
●
announcements of
technological innovations or new commercial products by our
competitors or by us;
●
developments
concerning proprietary rights, including patents;
●
developments
concerning our collaborations;
●
regulatory
developments in the United States and foreign
countries;
●
economic or other
crises and other external factors;
●
period-to-period
fluctuations in our revenue and other results of
operations;
●
changes in the
structure of healthcare payment systems or other actions that
affect the effective reimbursement rates for treatment regimens
containing our products;
●
changes in
financial estimates and recommendations by securities analysts
following our business or our industry;
●
sales of our common
stock, or the perception that such sales could occur;
and
●
the other factors
described in this “Risk Factors” section.
37
We will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not
necessarily be indicative of our future performance. If our
revenues, if any, in any particular period do not meet
expectations, we may not be able to adjust our expenditures in that
period, which could cause our operating results to suffer further.
If our operating results in any future period fall below the
expectations of securities analysts or investors, our stock price
may fall by a significant amount.
For the
12-month period ended June 30, 2021, the price of our stock has
been volatile, ranging from a high of $1.30 per share to a low of
$0.38 per share. In addition, the stock market in general, and the
market for biotechnology companies in particular, has experienced
extreme price and volume fluctuations that may have been unrelated
or disproportionate to the operating performance of individual
companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our
operating performance.
As a public company in the United States, we are subject to the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). We can
provide no assurance that we will, at all times, in the future be
able to report that our internal controls over financial reporting
are effective.
Companies
that file reports with the SEC, including us, are subject to the
requirements of Section 404 of Sarbanes-Oxley. Section 404 requires
management to establish and maintain a system of internal control
over financial reporting. Ensuring that we have adequate internal
financial and accounting controls and procedures in place to
produce accurate financial statements on a timely basis is a costly
and time-consuming effort that needs to be re-evaluated frequently.
Failure on our part to have effective internal financial and
accounting controls would cause our financial reporting to be
unreliable, could have a material adverse effect on our business,
operating results, and financial condition, and could cause the
trading price of our common stock to fall
dramatically.
If securities or industry analysts do not publish research or
publish unfavorable research about our business, our stock price
and trading volume could decline.
As a
smaller company, it may be difficult for us to attract or retain
the interest of equity research analysts. A lack of research
coverage may adversely affect the liquidity of and market price of
our common stock. We do not have any control of the equity research
analysts or the content and opinions included in their reports. The
price of our stock could decline if one or more equity research
analysts downgrade our stock or issue other unfavorable commentary
or research. If one or more equity research analysts ceases
coverage of us, or fails to publish reports on us regularly, demand
for our stock could decrease, which in turn could cause our stock
price or trading volume to decline.
Holders of our preferred stock may have interests different from
our common stockholders.
We are
permitted under our certificate of incorporation to issue up to
10,000,000 shares of preferred stock. We can issue shares of our
preferred stock in one or more series and can set the terms of the
preferred stock without seeking any further approval from our
common stockholders. 4,030 shares of our Series A Preferred Stock
remain outstanding as of September 24, 2021. Each share of Series A
Preferred Stock is convertible at any time, at the option of the
holder, and such conversion could dilute the value of our common
stock to current stockholders and could adversely affect the market
price of our common stock. The conversion price decreases if we
sell common stock (or equivalents) for a price per share less than
the conversion price or less than the market price of the common
stock and is also subject to adjustment upon the occurrence of a
merger, reorganization, consolidation, reclassification, stock
dividend or stock split which results in an increase or decrease in
the number of shares of common stock outstanding. Upon (i)
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) sale or other disposition of all or
substantially all of the assets of the Company, or (iii) any
consolidation, merger, combination, reorganization or other
transaction in which the Company is not the surviving entity or in
which the shares of common stock constituting in excess of 50% of
the voting power of the Company are exchanged for or changed into
other stock or securities, cash and/or any other property, after
payment or provision for payment of the debts and other liabilities
of the Company, the holders of Series A Preferred Stock will be
entitled to receive, pro rata and in preference to the holders of
any other capital stock, an amount per share equal to $100 plus
accrued but unpaid dividends, if any. Any preferred stock that we
issue may rank ahead of our common stock in terms of dividend
priority or liquidation premiums and may have greater voting rights
than our common stock.
38
Because we do not anticipate paying any cash dividends on our
common stock in the foreseeable future, capital appreciation, if
any, will be your sole source of gains.
We do
not anticipate paying any cash dividends in the foreseeable future
and intend to retain future earnings, if any, for the development
and expansion of our business. Our outstanding Series A Preferred
Stock, consisting of 4,030 shares on September 24, 2021, provides
that we may not pay a dividend or make any distribution to holders
of any class of stock unless we first pay a special dividend or
distribution of $100 per share to the holders of the Series A
Preferred Stock. In addition, the terms of existing or future
agreements may limit our ability to pay dividends. As a result,
capital appreciation, if any, of our common stock will be your sole
source of gain for the foreseeable future.
Anti-takeover provisions of Delaware law and our charter documents
may make potential acquisitions more difficult and could result in
the entrenchment of management.
We are
incorporated in Delaware. Anti-takeover provisions of Delaware law
and our charter documents may make a change in control or efforts
to remove management more difficult. Also, under Delaware law, our
board of directors may adopt additional anti-takeover measures.
Under Section 203 of the Delaware General Corporation Law, a
corporation may not engage in a business combination with an
“interested stockholder” for a period of three years
after the date of the transaction in which the person first becomes
an “interested stockholder,” unless the business
combination is approved in a prescribed manner.
We are
authorized to issue up to 300,000,000 shares of common stock. To
the extent that we sell or otherwise issue authorized but currently
unissued shares, this could have the effect of making it more
difficult for a third party to acquire a majority of our
outstanding voting stock.
Our
charter authorizes us to issue up to 10,000,000 shares of preferred
stock and to determine the terms of those shares of stock without
any further action by our stockholders. If we exercise this right,
it could be more difficult for a third party to acquire a majority
of our outstanding voting stock.
In
addition, our equity incentive plans generally permit us to
accelerate the vesting of options and other stock rights granted
under these plans in the event of a change of control. If we
accelerate the vesting of options or other stock rights, this
action could make an acquisition more costly.
The
application of these provisions could have the effect of delaying
or preventing a change of control, which could adversely affect the
market price of our common stock.
We are a smaller reporting company and the reduced disclosure
requirements applicable to smaller reporting companies may make our
common stock less attractive to investors.
We are
currently a “smaller reporting company” as defined in
the Exchange Act. Smaller reporting companies are able to provide
simplified executive compensation disclosures in their filings and
have certain other decreased disclosure obligations in their SEC
filings. We cannot predict whether investors will find our common
stock less attractive because of our reliance on the smaller
reporting company exemption. If some investors find our common
stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more
volatile.
As of September 24, 2021 there were 39,896,902 shares of common
stock underlying outstanding convertible preferred stock, options,
restricted stock units and warrants. Stockholders may experience
dilution from the conversion of preferred stock, exercise of
outstanding options and warrants and vesting and delivery of
restricted stock units.
As of
September 24, 2021 holders of our outstanding dilutive securities
had the right to acquire the following amounts of underlying common
stock:
●
66,059 shares
issuable on the conversion of our immediately convertible Series A
Convertible Preferred Stock, subject to adjustment, for no further
consideration;
●
21,918,500 shares
issuable upon the exercise of stock options at a weighted-average
exercise price of $0.72 per share;
●
6,495,979 shares
issuable under restricted stock units which vest on dates between
December 12, 2021 and June 22, 2025, subject to the fulfillment of
service or performance conditions;
●
6,776,750 shares of
common stock which have vested under restricted stock unit
agreements, but are subject to provisions to delay delivery;
and
●
4,639,614 shares
issuable upon the exercise of warrants at an exercise price of
$0.80 per share, all of which expire by December 6,
2021.
39
If the
holders convert, exercise, or receive these securities, or similar
dilutive securities we may issue in the future, stockholders may
experience dilution in the net book value of their common stock. In
addition, the sale or availability for sale of the underlying
shares in the marketplace could depress our stock price. We have
registered or agreed to register for resale substantially all of
the underlying shares listed above. Holders of registered
underlying shares could resell the shares immediately upon
issuance, which could result in significant downward pressure on
our stock price.
Our failure to meet the continued listing requirements of the NYSE
American could result in a de-listing of our common
stock.
Our
common shares are listed on the NYSE American, a national
securities exchange, under the symbol “PTN”. Although
we currently meet the NYSE American’s listing standards,
which generally mandate that we meet certain requirements relating
to stockholders’ equity, market capitalization, aggregate
market value of publicly held shares and distribution requirements,
we cannot assure you that we will be able to continue to meet the
NYSE American’s listing requirements. If we fail to satisfy
the continued listing requirements of the NYSE American, such as
the corporate governance requirements or the minimum closing bid
price requirement, the NYSE American may take steps to de-list our
common stock. If the NYSE American delists our securities for
trading on its exchange, we could face significant material adverse
consequences, including:
●
a limited
availability of market quotations for our securities;
●
reduced liquidity
with respect to our securities;
●
a determination
that our shares of common stock are “penny stock” which
will require brokers trading in our shares of common stock to
adhere to more stringent rules, possibly resulting in a reduced
level of trading activity in the secondary trading market for our
shares of common stock;
●
a limited amount of
news and analyst coverage for our company; and
●
a decreased ability
to issue additional securities or obtain additional financing in
the future.
Such a
de-listing would likely have a negative effect on the price of our
common stock and would impair your ability to sell or purchase our
common stock when you wish to do so. In the event of a de-listing,
we may take actions to restore our compliance with the NYSE
American’s listing requirements, but we can provide no
assurance that any such action taken by us would allow our common
stock to become listed again, stabilize the market price or improve
the liquidity of our common stock, prevent our common stock from
dropping below the NYSE American minimum bid price requirement or
prevent future non-compliance with the NYSE American’s
listing requirements.
The
National Securities Markets Improvement Act of 1996, which is a
federal statute, prevents or preempts the states from regulating
the sale of certain securities, which are referred to as
“covered securities.” Our common shares are considered
to be covered securities because they are listed on the NYSE
American. Although the states are preempted from regulating the
sale of our securities, the federal statute does allow the states
to investigate companies if there is a suspicion of fraud, and, if
there is a finding of fraudulent activity, then the states can
regulate or bar the sale of covered securities in a particular
case. Further, if we were no longer listed on the NYSE American,
our common stock would not be covered securities and we would be
subject to regulation in each state in which we offer our
securities.
Item1B.
U
nresolved Staff
Comments
None.
Our
corporate offices are located at 4B Cedar Brook Drive, Cedar Brook
Corporate Center, Cranbury, NJ 08512, where we lease approximately
10,000 square feet of office space under a lease that expires in
June 2025. We also lease approximately 3,600 square feet of
laboratory space in the Township of South Brunswick, NJ under a
lease that expires in October 2023. We believe our present
facilities are adequate for our current needs. We do not own any
real property.
Item 3.
Legal
P
roceedings
.
We are
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.
Item 4.
Mine Safety
D
isclosures
.
Not
applicable.
40
PART II
Item 5. Market for Registrant’s Common
E
quity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Our
common stock has been listed on NYSE American under the symbol
“PTN” since December 21, 1999. It previously traded on
The Nasdaq SmallCap Market under the symbol
“PLTN.”
On
September 24, 2021 we had approximately 106 record holders of common stock
and the closing sales price of our common stock as reported on the
NYSE American was $0.46 per share. The aggregate market
value of the common and non-voting common equity held by
non-affiliates on such date, computed by reference to the closing
sales price of our common stock on that date, was
$104,429,540.
Issuer purchases of equity securities.
In certain instances
we provide our employees with the option to withhold shares to
satisfy tax withholding amounts due from the employees upon the
vesting of restricted stock units and stock options in connection
with our 2011 Stock Incentive Plan. There were no shares withheld
during the quarter ended June 30, 2021, 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 and options.
Dividends and dividend policy
. We have never declared or
paid any dividends. We currently intend to retain earnings, if any,
for use in our business. We do not anticipate paying dividends in
the foreseeable future.
Dividend restrictions
. Our outstanding Series A Preferred
Stock, consisting of 4,030 shares on September 24, 2021, provides
that we may not pay a dividend or make any distribution to holders
of any class of stock unless we first pay a special dividend or
distribution of $100 per share to the holders of the Series A
Preferred Stock.
Equity compensation plan information.
Reference is
made to the information contained in the Equity Compensation Plan
table contained in Item 11 of this Annual Report.
Item 6.
[
R
eserved]
Item 7.
Management’s
D
iscussion 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 Annual
Report.
Forward-Looking Statements
The
following discussion and analysis contains 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 Annual Report
immediately prior to Part I, under the heading
“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 Part I,
Item 1A of this Annual Report, and 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
Our
significant accounting policies are described in Note 2 to the
consolidated financial statements included in this Annual Report.
We believe that our accounting policies and estimates relating to
revenue recognition, accrued expenses and stock-based compensation
are the most critical
.
Revenue Recognition
We
recognize product revenues in accordance with Accounting Standards
Codification (“ASC”) 606, Revenue from Contracts with
Customers (ASC 606). The provisions of ASC 606 require the
following steps to determine revenue recognition: (1) Identify the
contract(s) with a customer; (2) Identify the performance
obligations in the contract; (3) Determine the transaction price;
(4) Allocate the transaction price to the performance obligations
in the contract; and (5) Recognize revenue when (or as) the entity
satisfies a performance obligation.
41
In
accordance with ASC 606, we recognize revenue when our performance
obligation is satisfied by transferring control of the product to a
customer. Per our contracts with customers, control of the product
is transferred upon the conveyance of title, which occurs when the
product is sold to and received by a customer. Trade accounts
receivable due to us from contracts with our customers are stated
separately in the balance sheet, net of various allowances as
described in the Trade Accounts Receivable policy in Note 2-
Summary of Significant Accounting Policies in the accompanying
Financial Statements.
Product
revenues consist of sales of Vyleesi in the United States. We sell
Vyleesi to specialty pharmacies at the wholesale acquisition cost
and payment is currently made within approximately 30 days. In
addition to distribution agreements with customers, we enter into
arrangements with healthcare payers that provide for privately
negotiated rebates, chargebacks, and discounts with respect to the
purchase of our products.
We
record product revenues net of allowances for direct and indirect
fees, discounts, co-pay assistance programs, estimated chargebacks
and rebates. Certain of these allowances represent estimates of the
related obligations and, as such, knowledge and judgement are
required when estimating the impact of these allowances on gross
product sales for a reporting period. If any of our judgments made
during a reporting period are not indicative or accurate estimates
of our future experience, our results could be materially affected.
Product sales are also subject to return rights, which have not
been significant to date.
Inventories
Inventory
is stated at the lower of cost or net realizable value, with cost
being determined on a first-in, first-out basis. Our
inventory, consisting of Vyleesi, has a shelf-life of three years
from the date of manufacture.
On a
quarterly basis, we review inventory levels to determine whether
any obsolete, expired, or excess inventory exists. If any inventory
is expected to expire prior to being sold, has a cost basis in
excess of its net realizable value, is in excess of expected sales
requirements as determined by internal sales forecasts, or fails to
meet commercial sale specifications, the inventory is written down
through a charge to operating expense. This analysis requires us to
make estimates of forecasted future sales, which are inherently
uncertain, and changes in demand, insurance overages, economic
conditions, and other factors could have a significant impact on
our forecasts and therefore the estimated net realizable value of
our inventory.
Losses
on firm commitment contractual obligations are recognized based
upon the terms of the respective agreement and similar factors
considered for the write-down of inventory, including expected
sales requirements as determined by internal sales
forecasts
Accrued Expenses
Third
parties perform a significant portion of our development
activities. We review the activities performed under all contracts
each quarter and accrue expenses and the amount of any
reimbursement to be received from our collaborators based upon the
estimated amount of work completed. Estimating the value or stage
of completion of certain services requires judgment based on
available information. If we do not identify services performed for
us but not billed by the service-provider, or if we underestimate
or overestimate the value of services performed as of a given date,
reported expenses will be understated or overstated.
Stock-Based Compensation
We
expense the fair value of stock options and other equity awards
granted. Compensation costs for stock-based awards with time-based
vesting are determined using the quoted market price of our common
stock on the date of grant or for stock options, the value
determined utilizing the Black-Scholes option pricing model, and
are recognized on a straight-line basis, while awards containing a
market condition are valued using multifactor Monte Carlo
simulations and are recognized over the derived service period.
Compensation costs for awards containing a performance condition
are determined using the quoted price of our common stock on the
date of grant or for stock options, the value is determined
utilizing the Black Scholes option pricing model and are recognized
based on the probability of achievement of the performance
condition over the service period. The Black-Scholes option pricing
model requires us to make estimates of expected volatility and
interest rates, which we estimate based on prior experience and
public sources of information. The expected term of the option used
is based upon the simplified method, which represents the average
of the vesting and contractual term. Compensation expense is not
adjusted for subsequent changes in the estimates used to calculate
fair value or for actual experience. Forfeitures are recognized as
they occur. As the amount and timing of compensation expense to be
recorded in future periods may be affected by the achievement of
performance conditions and employee terminations, stock-based
compensation may vary significantly period to period.
42
See
Note 3 to the consolidated financial statements included in this
Annual Report for a description of recent accounting pronouncements
that affect us.
Results of Operations
Year Ended June 30, 2021 Compared to the Year Ended June 30,
2020:
Revenue –
For the fiscal year ended June 30, 2021
(“fiscal 2021”) we recognized $283,286 of negative
product revenue, net of allowances as the result of our regaining
all North American development and commercialization rights to
Vyleesi in July 2020 and $94,689 in license and contract revenue
pursuant to our license agreement with Kwangdong. For the fiscal
year ended June 30, 2020 (“fiscal 2020”), we recognized
$117,989 in revenue pursuant to our license agreement with
AMAG.
Cost of Products Sold –
Cost of products sold was
$147,840 for the fiscal year ended June 30, 2021.
Research and Development
– Total research and
development expenses, including general research and development
spending, were $12,926,559 for fiscal 2021 compared to $13,959,397
for fiscal 2020. The decrease is a result of lower spending on our
MCr programs offset by an increase in compensation costs in fiscal
2021.
Research
and development expenses related to our Vyleesi, MCr programs, and
other preclinical programs were $8,634,713 and $10,187,786 in
fiscal 2021 and fiscal 2020, respectively. The decrease is
primarily related to a decrease in spending on our MCr
programs.
The
amounts of project spending above exclude general research and
development spending, which was $4,291,846 and $3,771,611 fiscal
2021 and fiscal 2020, respectively. The increase in general
research and development spending is primarily attributable to
increased compensation costs in fiscal 2021.
Cumulative
spending from inception to June 30, 2020 was approximately
$311,900,000 on our Vyleesi program and approximately $167,500,000
on all our other programs (which include PL8177, PL9643, other
melanocortin receptor agonists, NPR programs and terminated
programs). Due to various risk factors described herein 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.
Selling, General and Administrative
– Selling, general
and administrative expenses, which consist mainly of costs related
to Vyleesi in addition to compensation and related costs, were
$17,336,913 for fiscal 2021 compared to $9,765,372 for fiscal 2020.
The increase is primarily attributable to $6,605,901 of selling
expenses related to Vyleesi and an increase in compensation related
expenses offset by the final payment made in connection with the
Greenhill agreement and professional fees related to the Vyleesi
divestiture during fiscal 2020.
Loss on License Termination Agreement
– – On
July 27, 2020, Palatin and AMAG announced that they had mutually
terminated the license agreement for Vyleesi effective July 24,
2020. Under the terms of the termination agreement, we regained all
North American development and commercialization rights for
Vyleesi. AMAG made a $12,000,000 payment to us at closing and a
$4,300,000 payment on March 31, 2021. We assumed all Vyleesi
manufacturing agreements, for which we initially recorded a
liability related to estimated losses of $18,194,000, as well as
accrued expenses for an inventory production run, and AMAG
transferred information, data, and assets related exclusively to
Vyleesi, including, but not limited to, existing inventory. AMAG
provided certain transitional services to us for a period of time
to ensure continued patient access to Vyleesi during the transition
back to us. We reimbursed AMAG for the costs of the transition
services.
During
fiscal 2021, we recorded a loss of $2,784,192 as a result of the
Vyleesi Termination Agreement. (See Note 4 of the accompanying
consolidated financial statements).
Other (Expense) Income
– Total other expense, net was
$212,394 for fiscal 2021 and total other income, net was $1,180,757
for fiscal 2020. For fiscal 2021, we recognized $212,526 of
unrealized foreign currency loss and $23,440 of interest expense
offset by $23,572 of investment income. For fiscal 2020, we
recognized $1,200,898 of investment income offset by $20,141 of
interest expense. Other expense for fiscal 2021 compared to other
income for fiscal 2020 is a result of foreign currency losses and
lower interest rates earned on our cash and cash
equivalents.
43
Income Taxes
– For fiscal 2021 and fiscal 2020, the
Company recorded no income tax benefit or expense as a result of
the generation of and utilization of net operating losses that were
subject to a full valuation allowance.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
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:
●
the development and
testing of products in animals and humans;
●
dependence on
third party contractors and collaborators for part of our research
and development;
●
ability to attract
and retain experienced personnel;
●
product approval or
clearance;
●
regulatory
compliance;
●
good manufacturing
practices (“GMP”) compliance;
●
intellectual
property rights;
●
product
introduction;
●
marketing, sales
and competition; and
●
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 generate
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
fiscal 2021, net cash used in operating activities was $22,647,991
compared to net cash provided by operating activities of
$41,326,415 in fiscal 2020. The difference in cash used in
operations in fiscal 2021 compared with cash provided by operations
in fiscal 2020 was primarily related to the timing of the receipt
of payments related to revenue recorded for the AMAG License
Agreement, including for the FDA’s approval of
Vyleesi.
During
fiscal 2021, net cash used in investing activities consisted of
$5,722 compared to $62,880 during fiscal 2020, which consisted of
leasehold improvements and the acquisition of
equipment.
During
fiscal 2021, net cash used in financing activities was $93,638
which consisted of payment of withholding taxes related to
restricted stock units. During fiscal 2020 net cash used in
financing activities was $1,921,687 which consisted of payment on
notes payable obligations of $832,851, repurchase and cancellation
of outstanding warrants of $2,547,466 and payment of withholding
taxes related to restricted stock units of $122,868 offset by net
proceeds from the sale of common stock of $1,581,498 in our
“at-the-market” offering program.
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 develop the capability to market
and distribute Vyleesi in the United States and to complete our
planned product development efforts. Continued operations are
dependent upon our ability to generate future income from sales of
Vyleesi in the United States and from existing licenses, including
royalties and milestones, to complete equity or debt financing
activities and enter into additional licensing or collaboration
arrangements. As of June 30, 2021, our cash and cash equivalents
were $60,104,919 with current liabilities of
$10,511,788
We
intend to utilize existing capital resources for general corporate
purposes and working capital, including establishing marketing and
distribution capabilities for Vyleesi in the United States and
preclinical and clinical development of our MC1r and MC4r peptide
programs and natriuretic peptide program, and development of other
portfolio products.
44
We
believe that our existing capital resources will be adequate to
fund our planned operations through at least twelve months from the
date of issuance of these consolidated financial statements. We
will need additional funding to complete required clinical trials
for our 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.
However, the COVID-19 pandemic may negatively impact our
operations, including possible effects on our financial condition,
ability to access the capital markets on attractive terms or at
all, liquidity, operations, suppliers, industry, and workforce. We
will continue to evaluate the impact that these events could have
on the operations, financial position, and the results of
operations and cash flows during fiscal year 2022 and
beyond.
We had
a net loss for fiscal 2021 of $33,596,495. We may not attain
profitability in future years, which is dependent on numerous
factors, including whether and when development and sales
milestones are met, regulatory actions by the FDA and other
regulatory bodies, the performance of our licensees, and market
acceptance of our products.
We
expect to incur significant expenses as we continue to develop
marketing and distribution capability for Vyleesi in the United
States and continue to develop our MC1r and natriuretic peptide
product candidates. These expenses, among other things, have had
and will continue to have an adverse effect on our
stockholders’ equity, total assets, and working
capital.
Off-Balance Sheet Arrangements
None.
Item 7A. Quantitative and
Q
ualitative Disclosures About Market
Risk.
Not
applicable.
45
Item 8. Financial Statements and
S
upplementary Data.
Table of Contents
Consolidated Financial Statements
The
following consolidated financial statements are filed as part of
this Annual Report:
|
|
|
Page
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
46
R
eport of Independent Registered
Public Accounting Firm
To the
Stockholders and Board of Directors
Palatin
Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of Palatin
Technologies, Inc. and subsidiary (the Company) as of June 30, 2021
and 2020, the related consolidated statements of operations,
stockholders’ equity, and cash flows for the years then
ended, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of June 30, 2021 and 2020, and the
results of its operations and its cash flows for the years then
ended, in conformity with U.S. generally accepted accounting
principles.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We are a public accounting firm registered with the
Public Company Accounting Oversight
Board (United States) (PCAOB)
and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
47
Evaluation of accrued external research and development
expenses
As
discussed in Note 2 to the consolidated financial statements, the
costs of research and development activities are charged to expense
as incurred, which includes accrued external research and
development expenses incurred under contracts with third parties.
At the end of each quarter, the Company reviews the activities
performed under all contracts and accrues expenses based upon the
estimated amount of work completed considering milestones achieved.
Accrued research and development expenses were $1,348,075 as of
June 30, 2021.
We identified the evaluation of
the sufficiency of audit evidence over accrued external research
and development expenses as a critical audit matter. Evaluating the
sufficiency of audit evidence obtained over accrued external
research and development expenses, including the estimated amount
of work completed by third parties, required subjective auditor
judgment due to the nature and extent of evidence
available.
The
following are the primary procedures we performed to address this
critical audit matter. We applied auditor judgment to determine the
nature and extent of procedures to be performed over accrued
external research and development expenses. For a sample of accrued
external research and development expenses, we evaluated
management’s estimate of the amount of work to be completed
by comparing it to relevant third party contracts, invoices, and
communications. For a selection of third party invoices and
communications received after year-end, we compared the amounts to
the relevant estimate of costs incurred or estimate of the amount
of work completed by third parties as determined by management. We
evaluated the sufficiency of audit evidence obtained by assessing
the results of procedures performed, including the appropriateness
of the nature and extent of such evidence.
/s/
KPMG LLP
We have
served as the Company’s auditor since 2002.
Philadelphia,
Pennsylvania
September
28, 2021
48
|
PALATIN TECHNOLOGIES, INC
.
|
||
|
and
Subsidiary
|
||
|
Consolidated
B
alance Sheets
|
||
|
|
||
|
|
|
|
|
|
June 30,
2021
|
June 30,
2020
|
|
ASSETS
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
60,104,919
|
$
82,852,270
|
|
Accounts
receivable
|
1,580,443
|
-
|
|
Inventories
|
1,162,000
|
-
|
|
Prepaid expenses
and other current assets
|
3,059,679
|
738,216
|
|
Total current
assets
|
65,907,041
|
83,590,486
|
|
|
|
|
|
Property and
equipment, net
|
94,817
|
140,216
|
|
Right-of-use
assets
|
1,237,813
|
1,266,132
|
|
Other
assets
|
56,916
|
56,916
|
|
Total
assets
|
$
67,296,587
|
$
85,053,750
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
640,650
|
$
715,672
|
|
Accrued
expenses
|
5,797,378
|
2,899,097
|
|
Short-term
operating lease liabilities
|
351,853
|
312,784
|
|
Other current
liabilities
|
3,721,907
|
-
|
|
Total current
liabilities
|
10,511,788
|
3,927,553
|
|
|
|
|
|
Long-term operating
lease liabilities
|
900,520
|
953,348
|
|
Other long-term
liabilities
|
6,232,907
|
-
|
|
Total
liabilities
|
17,645,215
|
4,880,901
|
|
|
|
|
|
Commitments and
contingencies (Note 15)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock of
$0.01 par value – authorized 10,000,000 shares; shares issued
and outstanding designated as follows:
|
|
|
|
Series A
Convertible: authorized 264,000 shares: issued and outstanding
4,030 shares as of June 30, 2021 and June 30, 2020
|
40
|
40
|
|
Common stock of
$0.01 par value – authorized 300,000,000 shares:
|
|
|
|
issued and
outstanding 230,049,691 shares as of June 30, 2021 and 229,258,400
shares as of June 30, 2020
|
2,300,497
|
2,292,584
|
|
Additional paid-in
capital
|
399,146,232
|
396,079,127
|
|
Accumulated
deficit
|
(351,795,397
)
|
(318,198,902
)
|
|
Total
stockholders’ equity
|
49,651,372
|
80,172,849
|
|
Total liabilities
and stockholders’ equity
|
$
67,296,587
|
$
85,053,750
|
The
accompanying notes are an integral part of these consolidated
financial statements
49
|
PALATIN
TECHNOLOGIES, INC.
|
||
|
and
Subsidiary
|
||
|
Consolidated
Statements of
O
perations
|
||
|
|
|
|
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
REVENUES
|
|
|
|
Product revenue,
net
|
$
(283,286
)
|
$
-
|
|
License and
contract
|
94,689
|
117,989
|
|
|
(188,597
)
|
117,989
|
|
OPERATING
EXPENSES
|
|
|
|
Cost
of products sold
|
147,840
|
-
|
|
Research and
development
|
12,926,559
|
13,959,397
|
|
Selling, general
and administrative
|
17,336,913
|
9,765,372
|
|
Loss on license
termination agreement
|
2,784,192
|
-
|
|
Total operating
expenses
|
33,195,504
|
23,724,769
|
|
|
|
|
|
Loss from
operations
|
(33,384,101
)
|
(23,606,780
)
|
|
|
|
|
|
OTHER (EXPENSE)
INCOME
|
|
|
|
Investment
income
|
23,572
|
1,200,898
|
|
Foreign currency
loss
|
(212,526
)
|
-
|
|
Interest
expense
|
(23,440
)
|
(20,141
)
|
|
Total other
(expense) income, net
|
(212,394
)
|
1,180,757
|
|
NET
LOSS
|
$
(33,596,495
)
|
$
(22,426,023
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$
(0.14
)
|
$
(0.10
)
|
|
|
|
|
|
Weighted average
number of common shares outstanding used in computing basic and
diluted net loss per common share
|
236,650,101
|
234,684,776
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements
50
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Stockholders’ Equity
|
|
|
|
|
|
Additional
|
|
|
|
|
Preferred Stock
|
Common Stock
|
Paid-in
|
Accumulated
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
Balance,
June 30, 2019
|
4,030
|
$
40
|
226,815,363
|
$
2,268,154
|
$
394,053,929
|
$
(295,772,879
)
|
$
100,549,244
|
|
Stock-based
compensation
|
-
|
-
|
614,117
|
6,141
|
3,132,323
|
-
|
3,138,464
|
|
Sale
of common stock , net of costs
|
-
|
-
|
1,895,934
|
18,959
|
1,562,539
|
-
|
1,581,498
|
|
Withholding
taxes related to restricted stock units
|
-
|
-
|
(93,875
)
|
(939
)
|
(121,929
)
|
-
|
(122,868
)
|
|
Warrant
repurchases
|
-
|
-
|
-
|
-
|
(2,547,466
)
|
-
|
(2,547,466
)
|
|
Warrant
Exercises
|
-
|
-
|
26,861
|
269
|
(269
)
|
-
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(22,426,023
)
|
(22,426,023
)
|
|
Balance
June 30, 2020
|
4,030
|
40
|
229,258,400
|
2,292,584
|
396,079,127
|
(318,198,902
)
|
80,172,849
|
|
Stock-based
compensation
|
-
|
-
|
958,090
|
9,581
|
3,159,075
|
-
|
3,168,656
|
|
Withholding
taxes related to restricted stock units
|
-
|
-
|
(166,799
)
|
(1,668
)
|
(91,970
)
|
-
|
(93,638
)
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(33,596,495
)
|
(33,596,495
)
|
|
Balance
June 30, 2021
|
4,030
|
$
40
|
230,049,691
|
$
2,300,497
|
$
399,146,232
|
$
(351,795,397
)
|
$
49,651,372
|
The accompanying
notes are an integral part of these consolidated financial
statements
51
|
PALATIN
TECHNOLOGIES, INC.
|
||
|
and
Subsidiary
|
||
|
Consolidated
Statements of
C
ash Flows
|
||
|
|
||
|
|
|
|
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$
(33,596,495
)
|
$
(22,426,023
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
(used
in) provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
51,121
|
64,203
|
|
Cash received in
excess of loss on termination agreement
|
19,084,192
|
-
|
|
Non-cash interest
expense
|
-
|
438
|
|
Decrease in
right-of-use asset
|
330,839
|
298,558
|
|
Unrealized foreign
currency transaction loss
|
212,526
|
-
|
|
Stock-based
compensation
|
3,168,656
|
3,138,464
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(1,580,443
)
|
60,265,970
|
|
Prepaid expenses
and other assets
|
(1,938,130
)
|
22,073
|
|
Inventories
|
(987,237
)
|
-
|
|
Accounts
payable
|
(75,022
)
|
210,885
|
|
Accrued
expenses
|
558,281
|
50,405
|
|
Operating lease
liabilities
|
(316,279
)
|
(298,558
)
|
|
Other
liabilities
|
(7,560,000
)
|
-
|
|
Net cash (used in)
provided by operating activities
|
(22,647,991
)
|
41,326,415
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of
property and equipment
|
(5,722
)
|
(62,880
)
|
|
Net cash used in
investing activities
|
(5,722
)
|
(62,880
)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Payment of
withholding taxes related to restricted
|
|
|
|
stock
units
|
(93,638
)
|
(122,868
)
|
|
Payment on notes
payable obligations
|
-
|
(832,851
)
|
|
Warrant
repurchases
|
-
|
(2,547,466
)
|
|
Proceeds from the
sale of common stock,
|
|
|
|
net of
costs
|
-
|
1,581,498
|
|
Net cash used in
financing activities
|
(93,638
)
|
(1,921,687
)
|
|
|
|
|
|
NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
(22,747,351
)
|
39,341,848
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, beginning of year
|
82,852,270
|
43,510,422
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, end of year
|
$
60,104,919
|
$
82,852,270
|
|
|
|
|
|
SUPPLEMENTAL CASH
FLOW INFORMATION:
|
|
|
|
Cash paid for
interest
|
$
23,440
|
$
19,222
|
The
accompanying notes are an integral part of these consolidated
financial statements
(1)
ORGANIZATION
Nature of Business
- Palatin Technologies, Inc.
(“Palatin” or the “Company”) is a
biopharmaceutical company developing first-in-class medicines based
on molecules that modulate the activity of the melanocortin and
natriuretic peptide receptor systems. The Company’s product
candidates are targeted, receptor-specific therapeutics for the
treatment of diseases with significant unmet medical need and
commercial potential.
Melanocortin Receptor System.
The melanocortin receptor
(“MCr”) system has 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.
The
Company’s lead product, Vyleesi®, was approved by the
U.S. Food and Drug Administration (“FDA”) in June 2019
and was being marketed in North America by AMAG Pharmaceuticals,
Inc. (“AMAG”) for the treatment of hypoactive sexual
desire disorder (“HSDD”) in premenopausal women
pursuant to a license agreement between them for Vyleesi for North
America, which was entered into on January 8, 2017 (the “AMAG
License Agreement”). As disclosed in Note 4, the AMAG License
Agreement was terminated effective July 24, 2020, and the Company
is now marketing Vyleesi in North America.
The
Company’s new product development activities focus primarily
on MC1r agonists, with potential to treat inflammatory and
autoimmune diseases such as dry eye disease, which is also known as
keratoconjunctivitis sicca, uveitis, diabetic retinopathy, and
inflammatory bowel disease. The Company believes that the MC1r
agonist peptides in development 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. The Company is also
developing peptides that are active at more than one melanocortin
receptor, and MC4r peptide and small molecule agonists with
potential utility in obesity and metabolic-related disorders,
including rare disease and orphan indications.
Natriuretic Peptide Receptor System
. The natriuretic peptide
receptor (“NPR”) system regulates cardiovascular
functions and tissue homeostasis, and therapeutic agents modulating
this system have potential to treat cardiovascular and fibrotic
diseases. The Company has designed and is developing potential NPR
candidate drugs 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”).
Business Risks and Liquidity –
Since inception, the
Company has generally incurred negative cash flows from operations,
and has expended, and expects to continue to expend, substantial
funds to develop the capability to market and distribute Vyleesi in
the United States and complete its planned product development
efforts. As shown in the accompanying consolidated financial
statements, the Company had an accumulated deficit as of June 30,
2021 of $351,795,397 and a net loss for the year ended June 30,
2021 of $33,596,495, and the Company anticipates incurring
significant expenses in the future as a result of spending on
developing marketing and distribution capabilities for Vyleesi in
the United States and spending on its development programs and will
require substantial additional financing or revenues to continue to
fund its planned developmental activities. To achieve sustained
profitability, if ever, the Company, alone or with others, must
successfully develop and commercialize its technologies and
proposed products, conduct successful preclinical studies and
clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed
products. The time required to reach sustained profitability is
highly uncertain, and the Company may never be able to achieve
profitability on a sustained basis, if at all.
53
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
As of
June 30, 2021, the Company’s cash and cash equivalents were
$60,104,919 and current liabilities were $10,511,788. Management
intends to utilize existing capital resources for general corporate
purposes and working capital, including establishing marketing and
distribution capabilities for Vyleesi in the United States and
preclinical and clinical development of the Company’s MC1r
and MC4r peptide programs and natriuretic peptide program, and
development of other portfolio products.
Management
believes that the Company’s cash and cash equivalents as of
June 30, 2021 will be sufficient to fund the Company’s
current operating plans through at least September 2022. 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 could 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.
In
March 2020, the World Health Organization declared COVID-19, a
disease caused by a novel strain of coronavirus, a pandemic. The
Company has taken steps to ensure the safety and well-being of its
employees and clinical trial patients to comply with guidance from
federal, state and local authorities, while working to ensure the
sustainability of its business operations as this unprecedented
situation continues to evolve. In mid-March 2020, the Company
transitioned to a company-wide work from home policy.
Business-critical activities continue to be subject to heightened
precautions to ensure safety of employees. The Company continues to
assess its policies, business continuity plans and employee
support.
The
Company continues to evaluate the impact of COVID-19 on the
healthcare system and work with contract research organizations
supporting its clinical, research, and development programs to
mitigate risk to patients and its business and community partners,
taking into account regulatory, institutional, and government
guidance and policies.
The
Company receives a royalty on sales of Vyleesi by our licensees. We
have licensed third parties to sell Vyleesi in China and Korea. The
COVID-19 coronavirus could adversely impact the time required to
obtain regulatory approvals to sell Vyleesi in China and Korea,
which would delay when the Company receives royalty income from
sales in those countries.
The
Company cannot be certain what the overall impact of the COVID-19
pandemic will be on its business, including manufacturing,
distribution, sales and marketing of Vyleesi, and it has the
potential to materially adversely affect its business, financial
condition and results of operations and cashflows during the fiscal
year ending June 30, 2022 (“fiscal 2022”) and
beyond.
Concentrations –
Concentrations in the Company’s
assets and operations subject it to certain related risks.
Financial instruments that subject the Company to concentrations of
credit risk primarily consist of cash, cash equivalents, and
accounts receivable. The Company’s cash and cash equivalents
are primarily invested in one money market account sponsored by a
large financial institution.
(2)
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
– The consolidated
financial statements include the accounts of the Company and its
wholly-owned inactive subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
– The preparation of consolidated
financial statements in conformity with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”) requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
54
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
– Cash and cash equivalents
include cash on hand, cash in banks and all highly liquid
investments with a purchased maturity of less than three months.
Cash equivalents consist of $59,730,428 and $82,406,697 in a money
market account at June 30, 2021 and 2020,
respectively.
Fair Value of Financial Instruments
– The
Company’s financial instruments consist primarily of cash
equivalents, accounts receivable and accounts payable. Management
believes that the carrying values of cash equivalents, accounts
receivable and accounts payable are representative of their
respective fair values based on the short-term nature of these
instruments.
Credit Risk
– Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents, and accounts receivable.
Total cash and cash equivalent balances have exceeded balances
insured by the Federal Depository Insurance Company. Currently
accounts receivable are due exclusively from AMAG.
Trade Accounts
Receivable
- Trade accounts
receivable are amounts owed to the Company by its customers for
product that has been delivered. The trade accounts receivable is
recorded at the invoice amount, less prompt pay and other
discounts, chargebacks, and an allowance for credit losses, if any.
Credit losses have not been significant to
date.
Inventories
– Inventory is stated at the lower of cost
or net realizable value, with cost being determined on a first-in,
first-out basis.
On a
quarterly basis, the Company reviews inventory levels to determine
whether any obsolete, expired, or excess inventory exists. If any
inventory is expected to expire prior to being sold, has a cost
basis in excess of its net realizable value, is in excess of
expected sales requirements as determined by internal sales
forecasts, or fails to meet commercial sale specifications, the
inventory is written down through a charge to operating expenses.
Inventory consisting of Vyleesi has a shelf-life of three years
from the date of manufacture.
Property and Equipment
– Property and equipment
consists of office and laboratory equipment, office furniture and
leasehold improvements and includes assets acquired under finance
leases. Property and equipment are recorded at cost. Depreciation
is recognized using the straight-line method over the estimated
useful lives of the related assets, generally five years for
laboratory and computer equipment, seven years for office furniture
and equipment and the lesser of the term of the lease or the useful
life for leasehold improvements. Amortization of assets acquired
under finance leases is included in depreciation expense.
Maintenance and repairs are expensed as incurred while expenditures
that extend the useful life of an asset are
capitalized.
Impairment of Long-Lived Assets
– The Company reviews
its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be fully recoverable. To determine recoverability of a
long-lived asset, management evaluates whether the estimated future
undiscounted net cash flows from the asset are less than its
carrying amount. If impairment is indicated, the long-lived asset
would be written down to fair value. Fair value is determined by an
evaluation of available price information at which assets could be
bought or sold, including quoted market prices, if available, or
the present value of the estimated future cash flows based on
reasonable and supportable assumptions.
Leases
- At lease inception, the Company determines whether
an arrangement is or contains a lease. Operating leases are
included in operating lease right-of-use (“ROU”)
assets, current operating lease liabilities, and noncurrent
operating lease liabilities in the consolidated financial
statements. ROU assets represent the Company’s right to use
leased assets over the term of the lease. Lease liabilities
represent the Company’s contractual obligation to make lease
payments over the lease term. For operating leases, ROU assets and
lease liabilities are recognized at the commencement date. The
lease liability is measured as the present value of the lease
payments over the lease term. The Company uses the rate implicit in
the lease if it is determinable. When the rate implicit in the
lease is not determinable, the Company uses an estimate based on a
hypothetical rate provided by a third party as the Company
currently does not have issued debt. Operating ROU assets are
calculated as the present value of the remaining lease payments
plus unamortized initial direct costs plus any prepayments less any
unamortized lease incentives received. Lease terms may include
renewal or extension options to the extent they are reasonably
certain to be exercised. The assessment of whether renewal or
extension options are reasonably certain to be exercised is made at
lease commencement. Factors considered in determining whether an
option is reasonably certain of exercise include, but are not
limited to, the value of any leasehold improvements, the value of
renewal rates compared to market rates, and the presence of factors
that would cause incremental costs to the Company if the option
were not exercised. Lease expense is recognized on a straight-line
basis over the lease term. The Company has elected not to recognize
an ROU asset and obligation for leases with an initial term of
twelve months or less. The expense associated with short term
leases is included in selling, general and administrative expense
in the statement of operations. To the extent a lease arrangement
includes both lease and non-lease components, the Company has
elected to account for the components as a single lease
component.
55
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Revenue Recognition
– We recognize product revenues in
accordance with Accounting Standards Codification
(“ASC”) Topic 606,
Revenue from Contracts with Customers
.
The provisions of ASC 606 require the following steps to determine
revenue recognition: (1) Identify the contract(s) with a customer;
(2) Identify the performance obligations in the contract; (3)
Determine the transaction price; (4) Allocate the transaction price
to the performance obligations in the contract; and (5) Recognize
revenue when (or as) the entity satisfies a performance
obligation.
In
accordance with ASC 606, we recognize revenue when our performance
obligation is satisfied by transferring control of the product to a
customer. Per our contracts with customers, control of the product
is transferred upon the conveyance of title, which occurs when the
product is sold to and received by a customer. Trade accounts
receivable due to us from contracts with our customers are stated
separately in the balance sheet, net of various allowances as
described in the Trade Accounts Receivable policy
above.
Product
revenues consist of sales of Vyleesi in the United States. The
Company sells Vyleesi to specialty pharmacies at the wholesale
acquisition cost and payment is currently made within approximately
30 days. In addition to distribution agreements with customers, the
Company enters into arrangements with healthcare payers that
provide for privately negotiated rebates, chargebacks, and
discounts with respect to the purchase of the Company’s
products.
The
Company records product revenues net of allowances for direct and
indirect fees, discounts, co-pay assistance programs, estimated
chargebacks and rebates. Product sales are also subject to return
rights, which have not been significant to date.
Gross
product sales were offset by product sales allowances for the year
ended June 30, 2021 as follows:
|
Gross product
sales
|
$
4,745,066
|
|
Provision
for product sales allowances and accruals
|
(5,028,352
)
|
|
Net
sales
|
$
(283,286
)
|
|
|
|
For
licenses of intellectual property, the Company assesses at contract
inception whether the intellectual property is distinct from other
performance obligations identified in the arrangement. If the
licensing of intellectual property is determined to be distinct,
revenue is recognized for nonrefundable, upfront license fees when
the license is transferred to the customer and the customer can use
and benefit from the license. If the licensing of intellectual
property is determined not to be distinct, then the license is
bundled with other promises in the arrangement into one performance
obligation. The Company needs to determine if the bundled
performance obligation is satisfied over time or at a point in
time. If the Company concludes that the nonrefundable, upfront
license fees will be recognized over time, the Company will need to
assess the appropriate method of measuring proportional
performance.
Regulatory
milestone payments are excluded from the transaction price due to
the inability to estimate the probability of reversal. Revenue
relating to achievement of these milestones is recognized in the
period in which the milestone is achieved.
56
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Sales-based
royalty and milestone payments resulting from customer contracts
solely or predominately for the license of intellectual property
will only be recognized upon occurrence of the underlying sale or
achievement of the sales milestone in the future and such
sales-based royalties and milestone payments will be recognized in
the same period earned.
The Company recognizes revenue for reimbursements of research and
development costs under collaboration agreements as the services
are performed. The Company records these reimbursements as revenue
and not as a reduction of research and development expenses as the
Company is the principal in the research and development activities
based upon its control of such activities, which is considered part
of its ordinary activities.
Development milestone payments are generally due 30 business days
after the milestone is achieved. Sales milestone payments are
generally due 45 business days after the calendar year in which the
sales milestone is achieved. Royalty payments are generally due on
a quarterly basis 20 business days after being
invoiced.
Research and Development Costs
– The costs of research
and development activities are charged to expense as incurred,
including the cost of equipment for which there is no alternative
future use.
Accrued Expenses –
Third parties perform a significant
portion of the Company’s development activities. The Company
reviews the activities performed under all contracts each quarter
and accrues expenses and the amount of any reimbursement to be
received from its collaborators based upon the estimated amount of
work completed considering milestones achieved. Estimating the
value or stage of completion of certain services requires judgment
based on available information. If the Company does not identify
services performed for it but not billed by the service-provider,
or if it underestimates or overestimates the value of services
performed as of a given date, reported expenses will be understated
or overstated.
Stock-Based Compensation –
The Company charges to
expense the fair value of stock options and other equity awards
granted. Compensation costs for stock-based awards with time-based
vesting are determined using the quoted market price of the
Company’s common stock on the date of grant or for stock
options, the value determined utilizing the Black-Scholes option
pricing model, and are recognized on a straight-line basis, while
awards containing a market condition are valued using multifactor
Monte Carlo simulations and are recognized over the derived service
period. Compensation costs for awards containing a performance
condition are determined using the quoted price of the
Company’s common stock on the date of grant or for stock
options, the value determined utilizing the Black Scholes option
pricing model and are recognized based on the probability of
achievement of the performance condition over the service period.
Forfeitures are recognized as they occur.
Income Taxes
– The Company and its subsidiary file
consolidated federal and separate-company state income tax returns.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and
their respective tax basis and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences or operating loss and
tax credit carryforwards are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that includes the enactment
date. The Company has recorded and continues to maintain a full
valuation allowance against its deferred tax assets based on the
history of losses incurred and lack of experience projecting future
product revenue and sales-based royalty and milestone
payments.
Net Loss per Common Share -
Basic and diluted loss per
common share (“EPS”) are calculated in accordance with
the provisions of Financial Accounting Standards Board
(“FASB”) ASC Topic 260,
Earnings per Share
.
For the
years ended June 30, 2021 and 2020, no additional common shares
were added to the computation of diluted EPS because to do so would
have been anti-dilutive. The potential number of common shares
excluded from diluted EPS during the year ended June 30, 2021 and
June 30, 2020 was 41,264,736 and 40,890,091
respectively.
57
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Included
in the weighted average common shares used in computing basic and
diluted net loss per common share are 8,164,080 and 7,127,362
vested restricted stock units that had not been issued as of June
30, 2021 and 2020, respectively, due to a provision in the
restricted stock unit agreements to delay delivery.
Translation of foreign currencies
- Transactions denominated
in currencies other than the Company’s functional currency
(US Dollar) are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses, which are reflected in the
consolidated statements of operations as unrealized (based on the
applicable period-end exchange rate) or realized upon settlement of
the transactions.
(3)
NEW
AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In May 2021, the FASB issued Accounting Standards Update
(“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt
– Modifications and Extinguishments (Subtopic 470-50),
Compensation – Stock Compensation (Topic 718), and
Derivatives and Hedging – Contracts in Entity’s Own
Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options. The FASB is issuing this update to clarify
and reduce diversity in an issuer’s accounting for
modifications or exchanges of freestanding equity-classified
written call options (for example, warrants) that remain equity
classified after modification or exchange. The amendments in this
update are effective for all entities for fiscal years beginning
after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted. The Company is currently
evaluating the impact the adoption of this guidance may have on its
consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06,
Debt (Topic 470) and Derivatives and Hedging (Topic 815):
Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity.
The amendments in this
update address issues identified as a result of the complexity
associated with applying U.S. GAAP for certain financial
instruments with characteristics of liabilities and equity. The
guidance is effective for public entities for fiscal years
beginning after December 15, 2021, and for interim periods within
those fiscal years, with early adoption permitted. The guidance is
applicable to the Company beginning July 1, 2022. The Company is
currently evaluating the potential effects of this guidance on its
consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12,
Income
Taxes (Topic 740): Simplifying the Accounting for Income
Taxes.
The amendments in this
update simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740. The amendments
also improve consistent application and simplify U.S. GAAP for
other areas of Topic 740 by clarifying and amending existing
guidance. The guidance is effective for public entities for fiscal
years beginning after December 15, 2020, and for interim periods
within those fiscal years, with early adoption permitted. The
guidance is applicable to the Company beginning July 1, 2021. The
adoption of this standard is not expected to have a material impact
on the Company’s consolidated financial
statements.
In November 2018, the FASB issued ASU No. 2018-18,
Collaborative
Arrangements (Topic 808): Clarifying the Interaction between Topic
808 and Topic 606.
This
update provides clarification on the interaction between Revenue
Recognition (Topic 606) and Collaborative Arrangements (Topic 808),
including the alignment of unit of account guidance between the two
topics
. The guidance is
effective for public entities for fiscal years beginning after
December 15, 2019, and for interim periods within those fiscal
years, with early adoption permitted. The guidance was
applicable to the Company beginning July 1, 2020. The adoption of
this standard did not have a material impact on the Company’s
consolidated financial statements.
In June
2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses:
Measurement of Credit Losses on Financial Instruments,
which
requires measurement and recognition of expected credit losses for
financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable
forecasts. This is different from the current guidance as this will
require immediate recognition of estimated credit losses expected
to occur over the remaining life of many financial assets. The new
guidance will be effective for the Company on July 1, 2023 with
early adoption permitted. The adoption of this standard is not
expected to have a material impact on the Company’s
consolidated financial statements.
58
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(4)
AGREEMENTS
WITH
AMAG
On
January 8, 2017, the Company entered into the AMAG License
Agreement pursuant to which the Company granted AMAG (i) an
exclusive license in all countries of North America (the
“Territory”), with the right to grant sub-licenses, to
research, develop, and commercialize products containing Vyleesi
(each a “Product”, and collectively,
“Products”), (ii) a non-exclusive license in the
Territory, with the right to grant sub-licenses, to manufacture the
Products, and (iii) a non-exclusive license in all countries
outside the Territory, with the right to grant sub-licenses, to
research, develop, and manufacture (but not commercialize) the
Products.
Following
the satisfaction of certain conditions to closing, the AMAG License
Agreement became effective on February 2, 2017. Under the AMAG
License Agreement, in addition to certain initial and milestone
payments, AMAG reimbursed the Company for certain reasonable,
documented, direct out-of-pocket expenses incurred by the Company
following February 2, 2017, in connection with development and
regulatory activities necessary to file a New Drug Application
(“NDA”) for Vyleesi for HSDD in the United States.
During year ended June 30, 2020, license and contract revenue
included additional billings for AMAG related Vyleesi costs of
$117,989.
On June
4, 2018, the FDA accepted the Vyleesi NDA for filing and on June
21, 2019, the FDA granted approval of Vyleesi for use in the United
States.
Effective
July 24, 2020, the Company entered into a termination agreement
(the “Termination Agreement”) with AMAG terminating the
AMAG License Agreement. Under the terms of the Termination
Agreement, the Company regained all development and
commercialization rights for Vyleesi in the Territory. AMAG made a
$12,000,000 payment to the Company at closing of the Termination
Agreement and a $4,300,000 payment to the Company on March 31,
2021. The Company initially recorded a liability related to
estimated losses on inventory purchase commitments of $18,194,000
as well as accrued expenses for an inventory production run
obligation assumed of $2,300,000. The Company assumed all Vyleesi
manufacturing agreements, and AMAG transferred information, data,
and assets related exclusively to Vyleesi to the Company, including
existing inventory and prepaid expenses with an estimated fair
value of $5,817,795 as of the date of the Termination
Agreement.
As a result, the
Company initially recorded a net gain for the Termination Agreement
of $1,623,795.
During the three months ended June 30, 2021,
the Company reassessed the estimated net realizable value of the
inventory, prepaid expenses and losses on the inventory purchase
commitments resulting in recording of a loss on Termination
Agreement of $4,407,987 for the three months ended June 30, 2021
and a total loss on the Termination Agreement for the year ended
June 30, 2021 of $2,784,192.
Under
the Termination Agreement, AMAG provided certain transitional
services to the Company for a period to ensure continued patient
access to Vyleesi during the transition back to the Company. The
Company reimbursed AMAG for the agreed upon costs of the transition
services.
(5)
MANUFACTURING
SUPPLY AGREEMENTS FOR VYLEESI
Pursuant
to the Termination Agreement, the Company assumed Vyleesi
manufacturing contracts with Catalent Belgium S.A.
(“Catalent”), a subsidiary of Catalent Pharma
Solutions, Inc., to manufacture drug product and prefilled syringes
and assemble prefilled syringes into an auto-injector device (the
“Catalent Agreement”), Ypsomed AG
(“Ypsomed”), to manufacture the auto-injector device
(the “Ypsomed Agreement”), and Lonza Ltd.
(“Lonza”), to manufacture the active pharmaceutical
ingredient peptide (the “Lonza
Agreement”).
On
September 29, 2020, the Company and Catalent entered into an
agreement to terminate the Catalent Agreement (the “Catalent
Termination Agreement”) in consideration for a one-time
payment of six million euros (€6,000,000) which was paid in
October 2020 and accrued as part of the estimated losses on
inventory purchase commitments assumed as part of the Termination
Agreement as discussed in Note 4.
59
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The
Company and Catalent then entered into a new Vyleesi manufacturing
agreement (the “New Catalent Agreement”) which includes
reduced minimum annual purchase requirements (see Note 15) as
compared to the original Catalent Agreement and modification of
other financial terms. The New Catalent Agreement provides that
Catalent will provide manufacturing and supply services to Palatin
related to production of Vyleesi, including that Catalent will
supply specified minimums of Palatin’s requirements for
Vyleesi during the term of the New Catalent Agreement through
August 21, 2025, unless earlier terminated in accordance with the
terms of the New Catalent Agreement. The initial term of the New
Catalent Agreement will be automatically extended for one 24-month
period unless either party notifies the other of its desire to
terminate as of the end of the initial term. The New Catalent
Agreement also includes customary terms and conditions relating to
forecasting and minimum commitments, ordering, delivery, inspection
and acceptance, and termination, among other matters.
The
term of the Lonza Agreement is through December 31, 2022. There are
specified minimum purchase requirements under the Lonza Agreement,
and under specified circumstances, termination fees may be payable
upon termination of the Lonza Agreement by the Company (see Note
15).
The
initial term of the Ypsomed Agreement is through December 31, 2025,
with automatic renewal for successive one-year periods unless
either party terminates the Ypsomed Agreement by ten months’
written notice prior to the expiration of the Ypsomed Agreement or
any automatic renewal period. There are specified minimum purchase
requirements under the Ypsomed Agreement, and under specified
circumstances, termination fees may be payable upon termination of
the Ypsomed Agreement by the Company (see Note 15).
(6)
AGREEMENT
WITH FOSUN
On
September 6, 2017, the Company entered into a license agreement
with Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd.
(“Fosun”) for exclusive rights to commercialize Vyleesi
in China (the “Fosun License Agreement”). Under the
terms of the agreement, the Company received $4,500,000 in October
2017, which consisted of an upfront payment of $5,000,000 less
$500,000 that was withheld in accordance with tax withholding
requirements in China and recorded as an expense during the year
ended June 30, 2018. The Company will receive a $7,500,000
milestone payment when regulatory approval in China is obtained,
provided that a commercial supply agreement for Vyleesi has been
entered into. The Company has the potential to receive up to
$92,500,000 in additional sales related milestone payments and high
single-digit to low double-digit royalties on net sales in the
licensed territory. All development, regulatory, sales, marketing,
and commercial activities and associated costs in the licensed
territory will be the sole responsibility of Fosun.
(7)
AGREEMENT
WITH KWANGDONG
On
November 21, 2017, the Company entered into a license agreement
with Kwangdong Pharmaceutical Co., Ltd. (“Kwangdong”)
for exclusive rights to commercialize Vyleesi in Korea (the
“Kwangdong License Agreement”). Under the terms of the
agreement, the Company received $417,500 in December 2017,
consisting of an upfront payment of $500,000, less $82,500, which
was withheld in accordance with tax withholding requirements in
Korea and recorded as an expense during the year ended June 30,
2018. The Company will receive a $3,000,000 milestone payment based
on the first commercial sale in Korea. The Company has the
potential to receive up to $37,500,000 in additional sales related
milestone payments and mid-single-digit to low double-digit
royalties on net sales in the licensed territory. All development,
regulatory, sales, marketing, and commercial activities and
associated costs in the licensed territory will be the sole
responsibility of Kwangdong. For the year ended June 30, 2021, the
Company recorded $94,689 of license and contract
revenue.
(8)
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses
and other
current assets consist of the following:
|
|
June
30,
|
June
30,
|
|
|
2021
|
2020
|
|
Clinical /
regulatory costs
|
$
454,750
|
$
43,625
|
|
Insurance
premiums
|
259,468
|
84,741
|
|
Vyleesi contractual
advances
|
1,200,000
|
-
|
|
Other
|
1,145,461
|
609,850
|
|
|
$
3,059,679
|
$
738,216
|
|
|
|
|
60
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(9)
FAIR
VALUE MEASUREMENTS
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’s 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:
|
|
Carrying
Value
|
Quoted prices in
active markets(Level 1)
|
Other
quoted/observable inputs (Level 2)
|
Significant
unobservable inputs(Level 3)
|
|
June 30,
2021:
|
|
|
|
|
|
Money Market
Account
|
$
59,730,428
|
$
59,730,428
|
$
-
|
$
-
|
|
June 30,
2020:
|
|
|
|
|
|
Money Market
Account
|
$
82,406,697
|
$
82,406,697
|
$
-
|
$
-
|
|
|
|
|
|
|
(10)
INVENTORIES
Inventories
consist of raw materials and finished goods related to Vyleesi. The
following table summarizes the components of inventories as of June
30, 2021:
|
Raw
materials
|
$
526,000
|
|
Finished
goods
|
636,000
|
|
|
$
1,162,000
|
(11)
LEASES
The
Company has operating leases for office and laboratory space, which
expire on June 30, 2025 and October 31, 2023, respectively. The
Company also has operating leases for copier equipment that expire
October 15, 2021 and phone equipment that expires on June 30,
2023.
The
components of lease expense are as follows:
|
Lease
cost
|
Year ended June
30, 2021
|
Year ended June
30, 2020
|
|
Operating lease
cost
|
$
287,440
|
$
209,226
|
|
Variable lease
cost
|
108,023
|
71,297
|
|
Short-term lease
cost
|
-
|
18,120
|
|
Total lease
cost
|
$
395,463
|
$
298,643
|
61
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Supplemental
lease term and discount rate information related to leases was as
follows:
|
|
June 30,
2021
|
June 30,
2020
|
|
Weighted-average
remaining lease term (years)
|
3.5
|
4.6
|
|
Weighted-average
discount rate
|
5.50
%
|
5.51
%
|
Supplemental
cash flow information related to leases was as
follows:
|
|
Year Ended June
30, 2021
|
Year Ended June
30, 2020
|
|
Cash paid for the
amounts included in the measurement of lease
liabilities:
|
|
|
|
Operating
cash flows for operating leases
|
$
394,926
|
$
318,244
|
|
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
|
$
365,881
|
$
1,339,556
|
The
following table summarizes the maturity of the Company’s
operating lease liabilities as of June 30, 2021:
|
Year Ending June
30
|
|
|
2022
|
$
410,007
|
|
2023
|
414,374
|
|
2024
|
398,042
|
|
2025
|
265,037
|
|
Less imputed
interest
|
(235,087
)
|
|
Total
|
$
1,252,373
|
(12)
PROPERTY
AND EQUIPMENT, NET
Property
and equipment, net, consists of the following:
|
|
June
30,
|
June
30,
|
|
|
2021
|
2020
|
|
Office
equipment
|
$
1,193,162
|
$
1,193,162
|
|
Laboratory
equipment
|
648,673
|
648,673
|
|
Leasehold
improvements
|
756,948
|
751,226
|
|
|
2,598,783
|
2,593,061
|
|
Less: Accumulated
depreciation and amortization
|
(2,503,966
)
|
(2,452,845
)
|
|
|
$
94,817
|
$
140,216
|
62
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(13)
ACCRUED
EXPENSES
Accrued
expenses
consist of the
following:
|
|
June
30,
|
June
30,
|
|
|
2021
|
2020
|
|
Clinical /
regulatory costs
|
$
778,705
|
$
1,722,729
|
|
Other research
related expenses
|
569,370
|
586,185
|
|
Professional
services
|
84,094
|
217,662
|
|
Inventory
purchases
|
2,340,000
|
-
|
|
Selling
expenses
|
1,839,724
|
-
|
|
Other
|
185,485
|
372,521
|
|
|
$
5,797,378
|
$
2,899,097
|
|
|
|
|
(14)
NOTES PAYABLE:
On July
2, 2015, the Company closed on a $10,000,000 venture loan 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 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
recorded a debt discount of $305,196 equal to the fair value of
these warrants at issuance, which were amortized to interest
expense over the term of the related debt. This debt discount was
offset against the note payable balance and was included in
additional paid-in capital on the Company’s balance sheet. In
addition, a final incremental payment of $500,000 was due on August
1, 2019. This final incremental payment was accreted to interest
expense over the term of the related debt and was included in other
current liabilities on the consolidated balance sheet as of June
30, 2019. The Company incurred $146,115 of costs in connection with
the loan agreement. 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 year ended June 30, 2020,
the loan matured, and on July 31, 2019, the Company made the final
incremental payment of $500,000.
63
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(15)
COMMITMENTS
AND CONTINGENCIES
Inventory Purchases
- As a result of the Termination
Agreement and subsequent activity, the Company has certain supply
agreements with manufacturers and suppliers, including the New
Catalent Agreement, Lonza Agreement, and Ypsomed Agreement. The
Company is required to make certain payments for the manufacture
and supply of Vyleesi. The following table summarizes the
contractual obligations under the New Catalent Agreement, Lonza
Agreement, and Ypsomed Agreement as of June 30, 2021:
|
|
Total
|
Current
|
1 - 3
Years
|
4 - 5
Years
|
|
Inventory purchase
commitments
|
$
10,933,014
|
$
3,721,907
|
$
5,202,307
|
$
2,008,800
|
As of
June 30, 2021, the Company has $3,721,907 and $6,232,907 accrued
within other current and long-term liabilities, respectively, in
the consolidated balance sheet related to estimated losses for firm
commitment contractual obligations under these agreements. Losses
on these firm commitment contractual obligations are recognized
based upon the terms of the respective agreement and similar
factors considered for the write-down of inventory, including
expected sales requirements as determined by internal sales
forecasts.
The commitment contractual obligation amounts above are denominated
in Swiss Francs and Euros and have been translated using period end
exchange rates. The Company may experience a negative impact on
future earnings and equity solely as a result of future foreign
currency exchange rate fluctuations.
64
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Employment Agreements
– The Company has employment
agreements with two executive officers which provide a stated
annual compensation amount, subject to annual increases, and annual
bonus compensation in an amount to be approved by the
Company’s Board of Directors. Each agreement allows the
Company or the employee to terminate the agreement in certain
circumstances. In some circumstances, early termination by the
Company may result in severance pay to the employee for a period of
18 to 24 months at the salary then in effect, continuation of
health insurance premiums over the severance period and immediate
vesting of all stock options and restricted stock units.
Termination following a change in control will result in a lump sum
payment of one and one-half to two times the salary then in effect
and immediate vesting of all stock options and restricted stock
units.
Employee Retirement Savings Plan
– The Company
maintains a defined contribution 401(k) plan for the benefit of its
employees. The Company currently matches a portion of employee
contributions to the plan. For the years ended June 30, 2021 and
2020 Company contributions were $168,210 and $116,807,
respectively.
Contingencies
– The Company accounts for litigation
losses in accordance with ASC 450-20,
Loss Contingencies
. In addition, the
Company is subject to other contingencies, such as product
liability, arising in the ordinary course of business. Loss
contingency provisions are recorded for probable losses when
management is able to reasonably estimate the loss. Any outcome
upon settlement that deviates from the Company’s best
estimate may result in additional expense or in a reduction in
expense in a future accounting period. The Company records legal
expenses associated with such contingencies as
incurred.
The
Company is involved, from time to time, in various claims and legal
proceedings arising in the ordinary course of its business. The
Company is not currently a party to any such claims or proceedings
that, if decided adversely to it, would either individually or in
the aggregate have a material adverse effect on its business,
financial condition, or results of operations.
(16)
STOCKHOLDERS’
EQUITY
Series A Convertible Preferred Stock
– As of June
30, 2021, 4,030 shares of Series A Convertible Preferred Stock were
outstanding. Each share of Series A Convertible Preferred Stock is
convertible at any time, at the option of the holder, into the
number of shares of common stock equal to $100 divided by the
Series A Conversion Price. As of June 30, 2021, the Series A
Conversion Price was $6.10, so each share of Series A Convertible
Preferred Stock is currently convertible into approximately 16.4
shares of common stock. The Series A Conversion Price is subject to
adjustment, under certain circumstances, upon the sale or issuance
of common stock for consideration per share less than either (i)
the Series A Conversion Price in effect on the date of such sale or
issuance, or (ii) the market price of the common stock as of the
date of such sale or issuance. The Series A Conversion Price is
also subject to adjustment upon the occurrence of a merger,
reorganization, consolidation, reclassification, stock dividend or
stock split which will result in an increase or decrease in the
number of shares of common stock outstanding. Shares of Series A
Convertible Preferred Stock have a preference in liquidation,
including certain merger transactions, of $100 per share, or
$403,000 in the aggregate as of June 30, 2021. Additionally, the
Company may not pay a dividend or make any distribution to holders
of any class of stock unless the Company first pays a special
dividend or distribution of $100 per share to holders of the Series
A Convertible Preferred Stock.
Financing Transactions
–
On June 21, 2019, the Company entered into an
equity distribution agreement with Canaccord Genuity LLC
(“Canaccord”) (the “2019 Equity Distribution
Agreement”), 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 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 pays Canaccord 3.0% of
the gross proceeds as a commission.
65
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Proceeds raised under the 2019 Equity Distribution Agreement are as
follows:
|
|
Year Ended June
30, 2020
|
Cumulative from
inception
|
||
|
|
Shares
|
Proceeds
|
Shares
|
Proceeds
|
|
Gross
proceeds
|
1,895,934
|
$
1,723,195
|
9,460,509
|
$
12,330,242
|
|
Fees
|
-
|
(51,697
)
|
-
|
(369,908
)
|
|
Expenses
|
-
|
(90,000
)
|
-
|
(90,000
)
|
|
Net
proceeds
|
1,895,934
|
$
1,581,498
|
9,460,509
|
$
11,870,334
|
No
proceeds were raised under the 2019 Equity Distribution Agreement
during the year ended June 30, 2021.
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 year ended June 30, 2020, 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:
|
|
Year Ended June
30, 2020
|
|
|
|
Warrants
|
Buyback
price
|
|
Series F
Warrants
|
297,352
|
$
62,712
|
|
Series H
Warrants
|
1,466,432
|
577,373
|
|
Series J
Warrants
|
4,774,889
|
1,907,381
|
|
|
6,538,673
|
$
2,547,466
|
During
the year ended June 30, 2020, the Company issued 26,861 shares of
common stock upon the cashless exercise provisions of 666,666
Series D warrants at an exercise price of $0.75 per
share.
As of
June 30, 2021, the Company had outstanding warrants exercisable for
shares of common stock as follows:
|
|
Shares of
Common
|
Exercise Price
per
|
Latest
Termination
|
|
Descripton
|
Stock
|
Share
|
Date
|
|
Series H warrants
*
|
$
7,974,881
|
$
0.70
|
August 4,
2021**
|
|
Financial services
warrants
|
25,000
|
0.70
|
August 4,
2021**
|
|
Series J
warrants*
|
4,639,614
|
0.80
|
December 6,
2021
|
|
|
12,639,495
|
|
|
|
|
|
|
|
|
*
Subject to a limitation on their exercise if the holder and its
affiliates would beneficially own 9.99% of the total number of the
Company's shares of common stock following such
exercise.
|
|||
|
**
Expired unexercised on August 4, 2021.
|
|||
Stock Plan –
The Company’s 2011 Stock Incentive
Plan (“2011 Stock Plan”) was approved by the
Company’s stockholders at the annual meeting of stockholders
held in May 2011 and amended at the annual meeting of stockholders
held on June 8, 2017, June 26, 2018, and again at the annual
meeting of stockholders held on June 25, 2020. The 2011 Stock
Incentive Plan, as amended, provides for incentive and nonqualified
stock option grants, restricted stock unit awards and other
stock-based awards to employees, non-employee directors and
consultants for up to 42,500,000 shares of common stock. The 2011
Stock Incentive Plan is administered under the direction of the
Board of Directors, which may specify grant terms and recipients.
Options granted by the Company generally expire ten years from the
date of grant and generally vest over three to four years. The
Company’s former 2005 Stock Plan was terminated and replaced
by the 2011 Stock Incentive Plan, and shares of common stock that
were available for grant under the 2005 Stock Plan became available
for grant under the 2011 Stock Incentive Plan. No new awards can be
granted under the 2005 Stock Plan, but awards granted under the
2005 Stock Plan remain outstanding in accordance with their terms.
As of June 30, 2021, 738,817 shares were available for grant under
the 2011 Stock Incentive Plan. The Company expects to settle option
exercises under any of its plans with authorized but currently
unissued shares.
66
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The
following table summarizes option activity and related information
for the years ended June 30, 2021 and 2020:
|
|
Number of
Shares
|
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
|
5,779,850
|
0.58
|
|
|
|
Forfeited
|
(235,950
)
|
0.86
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Expired
|
(77,100
)
|
2.72
|
|
|
|
|
|
|
|
|
|
Outstanding - June
30, 2020
|
19,902,450
|
0.76
|
7.4
|
|
|
|
|
|
|
|
|
Granted
|
3,546,100
|
0.56
|
|
|
|
Forfeited
|
(568,300
)
|
0.75
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Expired
|
(997,750
)
|
0.95
|
|
|
|
Outstanding - June
30, 2021
|
21,882,500
|
$
0.72
|
7.2
|
$
1,034,273
|
|
|
|
|
|
|
|
Exercisable at June
30, 2021
|
13,229,109
|
$
0.75
|
6.0
|
$
733,738
|
|
|
|
|
|
|
|
Expected to vest at
June 30, 2021
|
8,653,391
|
$
0.68
|
9.1
|
$
300,535
|
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.
Included
in the options outstanding above are 1,994,500 and 188,084
performance-based options granted in June 2020 to executive
officers and employees, respectively. The performance-based options
vest on performance criteria relating to advancement of MC1r
programs, including initiation of clinical trials and licensing of
Vyleesi in additional countries or regions.
67
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Also
included in the table above are 1,075,000 and 117,500
performance-based options granted in December 2017 to executive
officers and employees, respectively, which were eligible to vest
during a performance period ended 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 Female
Sexual Dysfunction (“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 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 and 50% of the
target number of options vested in June 2019 upon FDA approval of
Vyleesi. During the year ended June 30, 2021, the performance
period ended for the remaining performance-based stock options. As
a result, 240,000 unearned stock options were forfeited and added
back to the 2011 Stock Plan and available for future
grant.
For the
years ended June 30, 2021 and 2020, the fair value of option grants
was estimated at the grant date using the Black-Scholes model or a
multi-factor Monte Carlo simulation. The Company’s weighted
average assumptions for the years ended June 30, 2021 and 2020 were
as follows:
|
|
Year Ended June
30,
|
Year Ended June
30,
|
|
|
2021
|
2020
|
|
|
|
|
|
Risk-free interest
rate
|
1.0
%
|
0.5
%
|
|
Volatility
factor
|
68.3
%
|
67.1
%
|
|
Dividend
yield
|
0
%
|
0
%
|
|
Expected option
life (years)
|
6.1
|
6.1
|
|
Weighted average
grant date fair value
|
$
0.34
|
$
0.33
|
Expected
volatilities are based on the Company’s historical
volatility. The expected term of options is based upon the
simplified method, which represents the average of the vesting term
and the contractual term. The risk-free interest rate is based on
U.S. Treasury yields for securities with terms approximating the
expected term of the option.
For the
years ended June 30, 2021 and 2020, the Company recorded
stock-based compensation related to stock options of $1,863,266 and
$1,372,931, respectively. As of June 30, 2021, there was $3,154,522
of unrecognized compensation cost related to unvested options,
which is expected to be recognized over a weighted-average period
of 2.6 years.
Restricted Stock Units –
The following table
summarizes restricted stock award activity for the years ended June
30, 2021 and 2020.
For the
years ended June 30, 2021 and 2020, the Company recorded
stock-based compensation related to restricted stock units of
$1,305,390 and $1,765,533, respectively.
Included
in outstanding restricted stock units in the table above are
8,164,080 vested shares that have not been issued as of June 30,
2021 due to a provision in the restricted stock unit agreements to
delay delivery.
68
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
|
|
Year Ended June
30,
|
Year Ended June
30,
|
|
|
2021
|
2020
|
|
Outstanding at
beginning of year
|
12,965,570
|
10,327,833
|
|
Granted
|
3,244,350
|
3,397,950
|
|
Forfeited
|
(411,068
)
|
(123,438
)
|
|
Vested
|
(958,090
)
|
(636,775
)
|
|
Outstanding at end
of year
|
14,840,762
|
12,965,570
|
|
|
|
|
Time-based
restricted stock units granted to the Company’s executive
officers, employees and non-employee directors generally vest over
48 months, 48 months, and 12 months, respectively.
In June
2021, the Company granted 414,500 performance-based restricted
stock units to its executive officers and 144,080 performance-based
restricted stock units to other employees which vest during a
performance period ending June 22, 2025. 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.
In June
2021, the Company granted 450,000 performance-based restricted
stock units to its executive officers which vest if, prior to June
22, 2023, the price per share of the Company’s common stock,
as traded on the NYSE American, was at least $2.00 for at least
twenty consecutive trading days.
In June
2020, the Company granted 1,203,500 performance-based restricted
stock units to its executive officers and 113,484 performance-based
restricted stock units to other employees which vest during a
performance period ending June 24, 2024. 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.
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.
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
were eligible to vest during a performance period, ended 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.
During the year ended June 30, 2021, the performance period ended
for the remaining performance based restricted stock units. As a
result, 319,500 unearned restricted stock units were forfeited and
added back to the 2011 Stock Plan and available for future
grant.
69
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
In
connection with the vesting of restricted share units during the
years ended June 30, 2021 and 2020, the Company withheld 166,799
and 93,875, shares, respectively, with aggregate values of $93,638
and $122,868, respectively, in satisfaction of minimum tax
withholding obligations.
(17)
INCOME
TAXES
For
fiscal 2021 and 2020, the Company recorded no income tax expense as
a result of the generation of operating losses that were subject to
a full valuation allowance.
Deferred
tax assets and liabilities are determined based on the estimated
future tax effect of differences between the financial statement
and tax reporting basis of assets and liabilities, as well as for,
net operating loss carryforwards and research and development
credit carryforwards, given the provisions of existing tax
laws.
As of
June 30, 2021, the Company had state net operating loss
carryforwards of approximately $128,200,000, which will expire, if
not utilized, between 2034 and 2041, federal net operating loss
carryforwards of approximately $109,800,000 and federal research
and development credits of approximately $6,500,000, which expire,
if not utilized, between 2035 and 2041, and foreign tax credits of
$582,500, which expire, if not utilized, in 2028.
In
assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income and the application of loss limitation
provisions related to ownership changes. The Company assesses the
available positive and negative evidence to estimate if sufficient
future taxable income will be generated to use the existing
deferred tax assets. The Company also considers the scheduled
reversal of deferred tax liabilities (including the impact of
available carryback and carryforward periods), projected future
taxable income, and tax-planning strategies in making this
assessment. Based on a history of losses incurred, the Company has
recognized a full valuation allowance against its net deferred tax
assets during the years ended June 30, 2021 and 2020. The Company's
valuation allowance increased by $9,513,000 and $5,837,000 for the
years ended June 30, 2021 and 2020,
respectively.
A
sustained period of profitability in the Company’s operations
is required before it would change its judgment regarding the need
for a full valuation allowance against its net deferred tax assets.
Until such time, the use of net operating loss carryforwards and
tax credits to offset profits, if any, will reduce the overall
level of deferred tax assets subject to valuation
allowance.
The Tax
Reform Act of 1986 (the “Act”) provides for limitation
on the use of the Company’s net operating loss and research
and development tax credit carryforwards following certain
ownership changes (as defined by the Act) that could limit the
Company’s ability to utilize these carryforwards. Since its
inception, the Company has completed several financings and sales
of common stock which has resulted in multiple ownership changes
defined by Section 382 of the Act. Accordingly, the Company’s
ability to utilize the aforementioned carryforwards are subject to
limitation under Section 382.
If the
Company undergoes a future ownership change or as it completes its
Section 382 limitation assessments, any unutilized carryforwards
that were not previously subject to a Section 382 limitation may
become subject to limitation which may result in a significant
limitation and loss of net operating loss carryforwards and
research and development credits.
Additionally,
U.S. tax laws limit the time during which these carryforwards may
be applied against future taxes; therefore, the Company may not be
able to take full advantage of these carryforwards for federal
income tax purposes. Accordingly, a portion of the carryforwards
may expire unutilized.
70
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The
Company’s net deferred tax assets are as
follows:
|
|
June 30,
|
June 30,
|
|
|
2021
|
2020
|
|
Net
operating loss carryforwards
|
$
32,169,000
|
$
24,321,000
|
|
Research
and development and AMT tax credits
|
6,461,000
|
6,443,000
|
|
Foreign
tax credits
|
583,000
|
583,000
|
|
Basis
differences in fixed assets and other
|
2,723,000
|
1,076,000
|
|
|
41,936,000
|
32,423,000
|
|
Valuation
allowance
|
(41,936,000
)
|
(32,423,000
)
|
|
Net
deferred tax assets
|
$
-
|
$
-
|
|
|
|
|
The
Company recognizes interest expense and penalties on uncertain
income tax positions as a component of interest expense. No
interest expense or penalties were recorded for uncertain income
tax matters in fiscal 2021 or 2020. As of June 30, 2021 and 2020,
the Company had no liabilities for uncertain income tax
matters.
71
Item 9. Changes in and Disagreements with Accountants on
A
ccounting and Financial
Disclosure.
None.
Item 9A. Controls and
P
rocedures.
Our
management carried out an evaluation, with the participation of our
Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end
of the period covered by this report. Based upon this evaluation,
our Chief Executive Officer and our Chief Financial Officer
concluded that, as of June 30, 2021, our disclosure controls and
procedures were effective.
A
control system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within a company have been detected.
Management’s Report on Internal Control Over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) or
15d-15(f) of the Exchange Act. Our internal control system was
designed to provide reasonable assurance to management and the
board of directors regarding the preparation and fair presentation
of published financial statements.
All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
There
was no change in our internal control over financial reporting
during the fourth quarter of the period covered by this Annual
Report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
Management
assessed the effectiveness of our internal control over financial
reporting as of June 30, 2021. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in
Internal Control-Integrated Framework as
adopted in 2013
. Based on its assessment, management
believes that, as of June 30, 2021, our internal control over
financial reporting is effective based on those
criteria.
Item 9B. Other
I
nformation.
None.
72
PART III
Item 10.
D
irectors, Executive
Officers and Corporate Governance.
Identification of Directors
The
following table sets forth the names, ages, positions and committee
memberships of our current directors. All directors hold office
until the next annual meeting of stockholders or until their
successors have been elected and qualified. All current directors
were elected at our annual stockholders’ meeting on June 8,
2021.
|
Name
|
Age
|
Position with Palatin
|
|
Carl Spana,
Ph.D.
|
59
|
Chief Executive
Officer, President and a Director
|
|
John K.A.
Prendergast, Ph.D. (3)
|
67
|
Director, Chairman
of the Board of Directors
|
|
Robert K. deVeer,
Jr. (1) (2)
|
75
|
Director
|
|
J. Stanley Hull (1)
(2)
|
69
|
Director
|
|
Alan W. Dunton,
M.D. (1) (2)
|
67
|
Director
|
|
Arlene M. Morris
(2) (3)
|
69
|
Director
|
|
Anthony M. Manning,
Ph.D. (1) (3)
|
59
|
Director
|
|
(1) Member of the
audit committee.
(2) Member of the
compensation committee.
(3) Member of the
nominating and corporate governance committee.
|
||
CARL
SPANA, Ph.D., co-founder of Palatin, has been our Chief Executive
Officer and President since June 14, 2000. He has been a director
of Palatin since June 1996 and has been a director of our wholly
owned subsidiary, RhoMed Incorporated, since July 1995. From June
1996 through June 14, 2000, Dr. Spana served as an executive vice
president and our chief technical officer. From June 1993 to June
1996, Dr. Spana was vice president of Paramount Capital
Investments, LLC, a biotechnology and biopharmaceutical merchant
banking firm, and of The Castle Group Ltd., a medical venture
capital firm. Through his work at Paramount Capital Investments and
The Castle Group, Dr. Spana co-founded and acquired several private
biotechnology firms. From July 1991 to June 1993, Dr. Spana was a
Research Associate at Bristol-Myers Squibb, a publicly held
pharmaceutical company, where he was involved in scientific
research in the field of immunology. Dr. Spana received his Ph.D.
in molecular biology from The Johns Hopkins University and his B.S.
in biochemistry from Rutgers University.
Dr.
Spana’s qualifications for our board include his scientific
expertise, leadership experience, business judgment, and industry
knowledge. As a senior executive of Palatin for over twenty years,
he provides in-depth knowledge of our company, our drug products
under development and the competitive and corporate partnering
landscape.
JOHN
K.A. PRENDERGAST, Ph.D., has served as the non-executive Chairman
of the board since June 14, 2000, and as a director since August
1996. While Mr. Prendergast has served as a member of the board, he
does not, and has not, served in a management or operational role
with the company. Dr. Prendergast has been president and sole
stockholder of Summercloud Bay, Inc., an independent consulting
firm providing services to the biotechnology industry, since 1993.
Dr. Prendergast is lead director of Heat Biologics, Inc., a
publicly traded clinical stage immunotherapy company, and a
director and non-executive chairman of Recce Pharmaceuticals Ltd.,
a publicly traded Australian pharmaceutical company developing a
new class of anti-infective agents. He was previously a member of
the board of the life science companies AVAX Technologies, Inc.,
Avigen, Inc. and MediciNova, Inc. From October 1991 through
December 1997, Dr. Prendergast was a managing director of The
Castle Group Ltd., a medical venture capital firm. Dr. Prendergast
received his M.Sc. and Ph.D. from the University of New South
Wales, Sydney, Australia and a C.S.S. in administration and
management from Harvard University.
Dr.
Prendergast brings a historical perspective to our board coupled
with extensive industry experience in corporate development and
finance in the life sciences field. His prior service on other
publicly traded company boards provides experience relevant to good
corporate governance practices.
73
ROBERT
K. deVEER, Jr. has been a director of Palatin since November 1998.
Since January 1997, Mr. deVeer has been the president of deVeer
Capital LLC, a private investment company. He was a director of
Solutia Inc., a publicly held chemical-based materials company,
until its merger with Eastman Chemical Company in July 2012. From
1995 until his retirement in 1996, Mr. deVeer served as Managing
Director, Head of Industrial Group, at New York-based Lehman
Brothers. From 1973 to 1995, he held increasingly responsible
positions at New York-based CS First Boston, including Head of
Project Finance, Head of Industrials and Head of Natural Resources.
He was a managing director, member of the investment banking
committee and a trustee of the First Boston Foundation. He received
a B.A. in economics from Yale University and an M.B.A. in finance
from Stanford Graduate School of Business.
Mr.
deVeer has extensive experience in investment banking and corporate
finance, including the financing of life sciences companies, and
serves as the audit committee’s financial
expert.
J.
STANLEY HULL has been a director of Palatin since September 2005.
Mr. Hull has over three decades of experience in the field of
sales, marketing, and drug development. Mr. Hull joined
GlaxoSmithKline, a research-based pharmaceutical company, in
October 1987 and retired as Senior Vice President, Pharmaceuticals
– North America in May 2010. Mr. Hull was responsible for all
commercial activities including sales, marketing, sales training,
and office operations. Previously Mr. Hull served in the R&D
organization of Glaxo Wellcome as Vice President and Worldwide
Director of Therapeutic Development and Product Strategy –
Neurology and Psychiatry. Prior to his service in the R&D
organization he was Vice President of Marketing – Infectious
Diseases and Gastroenterology for Glaxo Wellcome-U.S. Mr. Hull
started his career in the pharmaceutical industry with SmithKline
and French Laboratories in 1978. Mr. Hull received his B.S. in
business administration from the University of North Carolina at
Greensboro.
Mr.
Hull has extensive experience in commercial operations,
development, and marketing of pharmaceutical drugs and corporate
alliances between pharmaceutical companies and biotechnology
companies.
ALAN
W. DUNTON, M.D., has been a director of Palatin since June 2011. He
founded Danerius, LLC, a biotechnology consulting company, in 2006.
From November 2015 through March 2018, he was senior vice president
of research, development, and regulatory affairs for Purdue Pharma
L.P., with responsibilities for overall research strategy and
development programs. From January 2007 to March 2009, Dr. Dunton
served as president and chief executive officer of Panacos
Pharmaceuticals Inc. and he served as a managing director of
Panacos from March 2009 to January 2011. Dr. Dunton is currently a
member of the board of directors of the publicly traded companies
Recce Pharmaceuticals Ltd (ASX: RCE), CorMedix Inc. (NYSE: CRMD)
and Oragenics, Inc. (NYSE: OGEN). He previously served on the board
of directors of the publicly traded companies Targacept, Inc.,
EpiCept Corporation (as Non-Executive Chairman), Adams Respiratory
Therapeutics, Inc. (acquired by Reckitt Benckiser Group plc),
MediciNova, Inc. and Panacos Pharmaceuticals, Inc. Dr. Dunton has
served as a director or executive officer of various pharmaceutical
companies, and from 1994 to 2001, Dr. Dunton was a senior executive
in various capacities in the Pharmaceuticals Group of Johnson &
Johnson, including president and managing director of the Janssen
Research Foundation, the primary global R&D organization for
Johnson & Johnson. Dr. Dunton received his M.D. degree from New
York University School of Medicine, where he completed his
residency in internal medicine. He also was a Fellow in Clinical
Pharmacology at the New York Hospital/Cornell University Medical
Center.
Dr.
Dunton has extensive drug development, regulatory, and clinical
research experience, having played a key role in the development of
more than 20 products to regulatory approval, and also has
extensive experience as an executive and officer for both large
pharmaceutical companies and smaller biotechnology and
biopharmaceutical companies.
ARLENE
M. MORRIS has been a director of Palatin since June 2015. Since May
2015 she has served as the chief executive officer of Willow
Advisors, LLC. From April 2012 until May 2015, she was President
and Chief Executive Officer of Syndax Pharmaceuticals, Inc., a
privately held biopharmaceutical company focused on the development
and commercialization of an epigenetic therapy for
treatment-resistant cancers, and was a member of the board of
directors from May 2011 until May 2015. From 2003 to January 2011,
Ms. Morris served as the President, Chief Executive Officer and a
member of the board of directors of Affymax, Inc., a publicly
traded biotechnology company. Ms. Morris has also held various
management and executive positions at Clearview Projects, Inc., a
corporate advisory firm, Coulter Pharmaceutical, Inc., a publicly
traded pharmaceutical company, Scios Inc., a publicly traded
biopharmaceutical company, and Johnson & Johnson, a publicly
traded healthcare company. She is currently a member of the board
of directors of Viveve Medical, Inc., a publicly traded female
healthcare medical device company, Viridian Therapeutics, Inc., a
publicly traded microRNA therapeutics company, and Cogent
Biosciences, Inc., a publicly traded oncology biopharmaceutical
company, and was a director of Neovacs SA, a publicly traded French
company, Biodel Inc., a publicly traded specialty pharmaceutical
company, from 2015 until its merger with Albireo Limited in 2016,
and Dimension Therapeutics, Inc., a publicly traded gene therapy
company, until its acquisition by Ultragenyx Pharmaceutical Inc. in
2017. Ms. Morris received a B.A. in Biology and Chemistry from
Carlow College.
74
Ms.
Morris has extensive experience in the biotechnology industry,
including prior leadership positions, senior management, and board
service, and experience as chief executive officer of companies
with product candidates in phase 3 clinical trials.
ANTHONY
M. MANNING, Ph.D., has been a director of Palatin since September
2017. Since March 2021 Dr. Manning has been providing scientific
and strategic advice to biotechnology companies as the principal of
Manning Bio Worldwide LLC. From 2013 until March 2021, Dr. Manning
was senior vice president of research, and since 2018 was chief
scientific officer, at Momenta Pharmaceuticals, Inc., a publicly
traded biopharmaceutical company developing innovative therapeutics
for rare immune-related diseases which was acquired by Johnson
& Johnson in October 2020. From 2011 to 2013, he was senior
vice president of research and development at Aileron Therapeutics,
Inc., a publicly traded biopharmaceutical company developing
stapled peptide therapeutics for cancers and other diseases. From
2007 to 2011, he was vice president and head of inflammation and
autoimmune diseases research at Biogen, Inc., a publicly traded
biopharmaceutical company developing medicines for neurological and
neurodegenerative conditions. From 2002 to 2007, he was vice
president and global therapy area head for Inflammation,
Autoimmunity and Transplantation Research at Roche Pharmaceuticals,
the pharmaceutical division of Roche Holding AG, and from 2000 to
2002 he was vice president of Pharmacia, a global pharmaceutical
company acquired by Pfizer in 2002. Dr. Manning received his Ph.D.,
M.Sc. and B.Sc. from the University of Otago, Dunedin, New
Zealand.
Dr.
Manning has extensive experience in translational research and
development of new pharmaceutical products, and in pharmaceutical
and biotechnology research, development, and business
strategy.
The Board and Its Committees
Committees and meetings
. The board has an audit committee, a
compensation committee, and a nominating and corporate governance
committee. During fiscal 2021, the board met six times, the audit
committee met four times, the compensation committee met two times
and the nominating and corporate governance committee met two
times. Each director attended at least 75% of the total number of
meetings of the board and committees of the board on which he
served. The independent directors meet in executive sessions at
least annually, following the annual board meeting. We do not have
a policy requiring our directors to attend stockholder meetings.
With the exception of Drs. Prendergast and Spana, the directors did
not attend the virtual annual meeting of stockholders held on June
8, 2021.
Audit committee
. The audit committee reviews the engagement
of the independent registered public accounting firm and reviews
the independence of the independent registered public accounting
firm. The audit committee also reviews the audit and non-audit fees
of the independent registered public accounting firm and the
adequacy of our internal control procedures. The audit committee is
currently composed of four independent directors, Mr. deVeer
(chair), and Dr. Dunton, Dr. Manning and Mr. Hull. The board has
determined that the members of the audit committee are independent,
as defined in the listing standards of the NYSE American, and
satisfy the requirements of the NYSE American as to financial
literacy and expertise. The board has determined that at least one
member of the committee, Mr. deVeer, is the audit committee
financial expert as defined by Item 407 of Regulation S-K. The
responsibilities of the audit committee are set forth in a written
charter adopted by the board and updated as of October 1, 2013, a
copy of which is available on our web site at
www.palatin.com/about-us/.
Compensation committee.
The compensation committee reviews
and recommends to the board on an annual basis employment
agreements and compensation for our officers, directors, and some
employees, and administers our 2011 Plan and the options still
outstanding which were granted under previous stock option plans.
The compensation committee is composed of Dr. Dunton (chair), Ms.
Morris and Messrs. deVeer and Hull. The board has determined that
the members of the compensation committee are independent, as
defined in the listing standards of the NYSE American. Our Chief
Executive Officer aids the compensation committee by providing
annual recommendations regarding the compensation of all executive
officers, other than himself. Our Chief Financial Officer supports
the committee in its work by gathering, analyzing, and presenting
data on our compensation arrangements and compensation in the
marketplace.
75
The
responsibilities of the compensation committee are set forth in a
written charter adopted by the board effective October 1, 2013, a
copy of which is available on our web site at
www.palatin.com/about-us/. The committee administers our 2011 Plan,
under which it has delegated to an officer its authority to grant
stock options to employees and to a single-member committee of the
board its authority to grant restricted stock units to officers and
to grant options and restricted stock units to our consultants, but
in either instance not to grant options or restricted stock units
to themselves, any member of the board or officer, or any person
subject to Section 16 of the Exchange Act.
Nominating and corporate governance committee.
The
nominating and corporate governance committee assists the board in
recommending nominees for directors, and in determining the
composition of committees. It also reviews, assesses, and makes
recommendations to the board concerning policies and guidelines for
corporate governance, including relationships of the board, the
stockholders and management in determining our direction and
performance. The responsibilities of the nominating and corporate
governance committee are set forth in a written charter adopted by
the board and updated as of October 1, 2013, a copy of which is
available on our web site at www.palatin.com/about-us/. The
nominating and corporate governance committee is composed of Dr.
Prendergast (chair), Ms. Morris and Dr. Manning, each of whom meets
the independence requirements established by the NYSE
American.
Duration of Office.
Unless a director resigns, all directors
hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified. Directors serve
as members of committees as the board determines from time to
time.
Communicating With Directors
Generally,
stockholders or other interested parties who have questions or
concerns should contact Stephen T. Wills, Secretary, Palatin
Technologies, Inc., 4B Cedar Brook Drive, Cranbury, NJ 08512.
However, any stockholder or other interest party who wishes to
address questions regarding our business directly to the board of
directors, or any individual director, including the Chairman or
non-management directors as a group, can direct questions to the
board members or a director by regular mail to the Secretary at the
address above or by e-mail at boardofdirectors@palatin.com.
Stockholders or other interested parties may also submit their
concerns anonymously or confidentially by postal mail.
Communications
are distributed to the board, or to any individual directors as
appropriate, depending on the facts and circumstances outlined in
the communication, unless the Secretary determines that the
communication is unrelated to the duties and responsibilities of
the board, such as product inquiries, resumes, advertisements or
other promotional material. Communications that are unduly hostile,
threatening, illegal or similarly unsuitable will also not be
distributed to the board or any director. All communications
excluded from distribution will be retained and made available to
any non-management director upon request.
Board Role in Risk Oversight
Our
board, as part of its overall responsibility to oversee the
management of our business, considers risks generally when
reviewing our strategic plan, financial results, business
development activities, legal and regulatory matters. The board
satisfies this responsibility through regular reports directly from
our officers responsible for oversight of particular risks. The
board’s risk management oversight also includes full and open
communications with management to review the adequacy and
functionality of the risk management processes used by management.
The board’s role in risk oversight has no effect on the
board’s leadership structure. In addition, committees of the
board assist in its risk oversight responsibility,
including:
●
The audit committee
assists the board in its oversight of the integrity of the
financial reporting and our compliance with applicable legal and
regulatory requirements. It also oversees our internal controls and
compliance activities and meets privately with representatives from
our independent registered public accounting firm.
●
The compensation
committee assists the board in its oversight of risk relating to
compensation policies and practices. The compensation committee
annually reviews our compensation policies, programs, and
procedures, including the incentives they create and mitigating
factors that may reduce the likelihood of excessive risk taking, to
determine whether they present a significant risk to our
company.
76
Board Leadership Structure
Since
2000, the roles of chairman of the board and chief executive
officer have been held by separate persons. John K.A. Prendergast,
Ph.D., a non-employee director, has served as Chairman of the board
since June 2000. Carl Spana, Ph.D., has been our Chief Executive
Officer and President since June 2000. Generally, the chairman is
responsible for advising the chief executive officer, assisting in
long-term strategic planning, and presiding over meetings of the
board, and the chief executive officer, together with our chief
financial officer and chief operating officer, is responsible for
leading our day-to-day performance and operations. While we do not
have a written policy with respect to separation of the roles of
chairman of the board and chief executive officer, the board
believes that the existing leadership structure, with the
separation of these roles, provides several important advantages,
including: enhancing the accountability of the chief executive
officer to the board; strengthening the board’s independence
from management; assisting the board in reaching consensus on
particular strategies and policies; and facilitating robust
director, board, and executive officer evaluation
processes.
Code of Corporate Conduct and Ethics
We have
adopted a code of corporate conduct and ethics, updated as of March
8, 2021, that applies to all of our directors, officers and
employees, including our Chief Executive Officer and Chief
Financial Officer. You can view the code of corporate conduct and
ethics at our website, www.palatin.com/about-us/. We will disclose
any amendments to, or waivers from, provisions of the code of
corporate conduct and ethics that apply to our directors, principal
executive and financial officers in a current report on Form 8-K,
unless the rules of the NYSE American permit website posting of any
such amendments or waivers.
Executive Officers
Executive
officers are appointed by the board and serve at the discretion of
the board. Each officer holds his position until his successor is
appointed and qualified. The current executive officers hold office
under employment agreements.
|
Name
|
Age
|
Position with
Palatin
|
|
Carl
Spana, Ph.D.
|
59
|
Chief
Executive Officer, President and Director
|
|
Stephen
T. Wills, MST, CPA
|
64
|
Chief
Financial Officer, Chief Operating Officer, Executive Vice
President, Secretary and Treasurer
|
Additional
information about Dr. Spana is included above under the heading
“Identification of Directors.”
STEPHEN
T. WILLS, CPA, MST, currently serves as the Chief Financial Officer
(since 1997), Chief Operating Officer (since 2011), Treasurer and
Secretary of Palatin. Mr. Wills has served on the board of
directors of MediWound Ltd. (Nasdaq: MDWD), a biopharmaceutical
company focused on treatment in the fields of severe burns, chronic
and other hard to heal wounds, since April 2017, and as Chairman
since January 2018, and also has served on the board of directors
of Gamida Cell Ltd. (Nasdaq: GMDA), a leading cellular and immune
therapeutics company, since March 2019 (chairman of audit committee
and member of the compensation, and finance committee), and of
Amryt Pharma, a biopharmaceutical company focused on developing and
delivering treatments to help improve the lives of patients with
rare and orphan diseases, since September 2019 (chairman of audit
committee and member of the compensation and finance committee).
Mr. Wills also serves on the board of trustees and executive
committee of The Hun School of Princeton, a college preparatory day
and boarding school, since 2013, and as its Chairman since June
2018. Mr. Wills served as Executive Chairman and Interim Principal
Executive Officer of Derma Sciences, Inc., a provider of advanced
wound care products, from December 2015 to February 2017, when
Derma Sciences was acquired by Integra Lifesciences (Nasdaq: IART).
Previously, Mr. Wills served on the board of directors of Derma
Sciences as the lead director and chairman of the audit committee
from June 2000 to December 2015. Mr. Wills served as the Chief
Financial Officer of Derma Sciences from 1997 to 2000. Mr. Wills
served as the President and Chief Operating Officer of Wills, Owens
& Baker, P.C., a public accounting firm, from 1991 to 2000. Mr.
Wills, a certified public accountant, earned his Bachelor of
Science in accounting from West Chester University, and a Master of
Science in taxation from Temple University.
77
Delinquent Section 16(A) Reports
The
rules of the SEC require us to disclose failures to file or late
filings of reports of stock ownership and changes in stock
ownership required to be filed by our directors, officers, and
holders of more than 10% of our common stock. To the best of our
knowledge, all of the filings for our directors, officers and
holders of more than 10% of our common stock were made on a timely
basis in fiscal 2021, except that a report on Form 4 relating to a
disposition of our common stock by a director was filed one day
late on behalf of Robert K. deVeer, Jr. on October 2,
2020.
Item 11.
E
xecutive
Compensation.
Fiscal 2021 Summary Compensation Table
The
following table summarizes the compensation earned by or paid to
our principal executive officer and our principal financial
officer, who constitute all of our executive officers, for fiscal
2021 and fiscal 2020. We have no defined benefit or actuarial
pension plan, and no deferred compensation plan.
|
Name and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Stock
awards (1) ($)
|
Option
awards (1) ($)
|
Nonequity incentive plan compensation (2) ($)
|
All
other
compensation
(3) ($)
|
Total
($)
|
|
Carl Spana, Ph.D.,
Chief Executive Officer and President
|
2021
|
620,000
|
542,538
|
193,766
|
290,000
|
14,500
|
1,660,804
|
|
Carl Spana, Ph.D.,
Chief Executive Officer and President
|
2020
|
600,000
|
712,443
|
712,559
|
252,000
|
15,615
|
2,292,617
|
|
Stephen T. Wills,
MST, CPA, Chief Financial Officer, Chief Operating Officer and
Executive Vice President
|
2021
|
570,000
|
466,064
|
167,482
|
267,000
|
14,933
|
1,485,479
|
|
Stephen T. Wills,
MST, CPA, Chief Financial Officer, Chief Operating Officer and
Executive Vice President
|
2020
|
550,000
|
613,814
|
613,805
|
231,000
|
16,207
|
2,024,826
|
|
|
|
|
|
|
|
|
(1)
Amounts in these
columns represent the aggregate grant date fair value for stock
awards and option awards computed using either the Black-Scholes
model or a multifactor Monte Carlo simulation. The aggregate grant
date fair value of the performance-based restricted stock units
granted in fiscal 2021, assuming that the highest level of
performance would be achieved, was as follows: for Dr. Spana,
$155,063; and for Mr. Wills, $131,114. The aggregate grant date
fair value of the performance-based stock options and
performance-based restricted stock units granted in fiscal 2020,
assuming that the highest level of performance would be achieved,
was as follows: for Dr. Spana, $337,500 for performance-based stock
options and $337,500 for performance-based restricted stock units;
and for Mr. Wills, $290,750 for performance-based stock options and
$290,750 for performance-based restricted stock units. For a
description of the assumptions we used to calculate these amounts,
see Note 16 to the consolidated financial statements included in
this Annual Report.
(2)
Annual incentive
amounts.
(3)
Consists of
matching contributions to 401(k) plan.
Base Salary
The
salary for each named executive officer is based, among other
factors, upon job responsibilities, level of experience, individual
performance, comparisons to the salaries of executives in similar
positions obtained from market surveys, and internal comparisons.
The compensation committee considers changes in the base salaries
of our named executive officers annually. Effective July 1, 2021,
the compensation committee approved increases in base salaries to
$640,000 for Dr. Spana and $590,000 for Mr. Wills.
78
Annual Incentive Program
We
provide annual incentive opportunities to our named executive
officers to promote the achievement of annual performance
objectives. Each year, the compensation committee establishes the
target annual incentive opportunity for each named executive
officer, which is based on a percentage of his base salary. For
fiscal 2021 and fiscal 2020, the target annual incentive
opportunity for each named executive officer equaled 60% of his
annual base salary.
The
fiscal 2021 annual incentive bonus for the named executive officers
was determined based on corporate performance and individual
achievements and performance, as warranted. In determining the
annual incentive bonus opportunity for executives, the
executive’s annual base salary is multiplied by the target
bonus percentage. The resulting amount is then multiplied by the
corporate performance percentage approved by the compensation
committee, which is dependent on the achievement of corporate
performance goals, and also potentially adjusted upwards or
downwards for individual executives based on their individual
contribution toward the corporate results during the relevant year.
The corporate objectives are established so that target attainment
is not assured. Instead, our executives are required to demonstrate
significant effort, dedication, and achievement to attain payment
for performance at target or above.
The
following table briefly describes each category of corporate
objectives, the relative weighting of each objective, and the
related achievement level:
|
Corporate Objectives
Related to:
|
Weight
|
Achievement Level
|
Discretionary Adjustments*
|
Total Weighted Achievement
|
|
Vyleesi
(bremelanotide) FSD Program
|
25.0%
|
90.0%
|
10.0%
|
25.0%
|
|
Anti-Inflammatory
Programs
|
7.5%
|
30.0%
|
0.0%
|
2.0%
|
|
Ocular
Programs
|
32.5%
|
95.0%
|
0.0%
|
31.0%
|
|
Other
Corporate
|
35.0%
|
57.0%
|
0.0%
|
20.0%
|
|
Total
Payout
|
78.0%
|
|||
*Discretionary
adjustment for Vyleesi was related to the restructuring of a CMC
contract.
For
fiscal 2021, the compensation committee determined that our named
executive officers achieved 78.0% of their target objectives. As a
result, each named executive officer received a payout under the
2021 annual incentive program equal to 78.0% of his target annual
incentive opportunity, or $290,000 for Dr. Spana and $267,000 for
Mr. Wills (subject to rounding conventions).
Long-Term Incentive Program
The
total direct compensation levels for our named executive officers
are heavily weighted to long-term incentive opportunities. This
structure is intended to align executives’ interests with
those of our stockholders, enhance our retention incentives and
focus our executives on delivering sustainable performance over the
longer-term.
The
design of this program has evolved over the past several years to
reflect core performance metrics and an incentive structure the
compensation committee believes is necessary to drive our long-term
success and that reflects feedback received from investors during
our stockholder engagement process.
Each
year, the compensation committee establishes the target long-term
incentive opportunity for each named executive officer, which is
based on a percentage of his base salary. For both fiscal 2020 and
fiscal 2021, the target long-term incentive opportunity for each
named executive officer equaled 250% of base salary for Dr. Spana
and 235% of base salary for Mr. Wills.
79
On June
16, 2020, as part of our fiscal 2021 long-term incentive program,
we granted 646,500 time-based restricted stock units and 646,500
performance-based restricted stock units to Dr. Spana, and 557,000
time-based restricted stock units and 557,000 performance-based
restricted stock units to Mr. Wills. The time-based restricted
stock units vest as to 25% of the number of shares granted at each
anniversary of the date of grant. 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.
On June
16, 2020, we also granted 1,071,500 time-based options and
1,071,500 performance-based options to Dr. Spana, and 923,000
time-based options and 923,000 performance-based options to Mr.
Wills, a portion of which were contingent on increasing the shares
reserved for grant under the 2011 Stock Incentive Plan, which was
approved by the stockholders at a meeting on June 25, 2020. The
time-based options vest as to 25% of the number of shares granted
at each anniversary of the date of grant. The performance-based
options vest on performance criteria relating to advancement of
MC1r programs, including initiation of clinical trials, and
licensing of Vyleesi in additional countries or regions. The
options have an exercise price of $0.58, the fair market value of
the common stock on the business day immediately preceding the date
of grant, and they expire on June 16, 2030.
On June
22, 2021, as part of our fiscal 2022 long-term incentive program,
we granted 704,500 time-based restricted stock units and 472,350
performance-based restricted stock units to Dr. Spana, and 609,000
time-based restricted stock units and 392,150 performance-based
restricted stock units to Mr. Wills. The time-based restricted
stock units vest as to 25% of the number of shares granted at each
anniversary of the date of grant. The performance-based restricted
stock units vest as to 450,000 restricted stock units, comprising
250,000 to Dr. Spana and 200,000 to Mr. Wills, on performance
criteria only if within two years of the date of grant for a twenty
consecutive trading day period the price of common stock on the
NYSE American for Palatin Technologies, Inc. closes at $2.00 per
share or greater (a market condition), and as to 414,500 restricted
stock units on annual performance criteria relating to corporate
objectives, including stock appreciation, advancement of
development programs, and licensing of Vyleesi in additional
countries or regions (a performance condition). Additionally on
June 22, 2021, we granted 1,150,000 performance-based stock options
and 232,150 performance-based restricted stock units to Dr. Spana
and 994,000 performance-based stock options and 216,850
performance-based restricted stock units to Mr. Wills, which are
subject to an increase in our authorized shares and shares reserved
under our 2011 Stock Incentive Plan, and which vest based on annual
performance criteria relating to corporate objectives, including
stock appreciation, advancement of development programs, and
licensing of Vyleesi in additional countries or regions (a
performance condition).
On June
22, 2021, we granted 575,000 time-based stock options to Dr. Spana
and 497,000 time-based stock options to Mr. Wills, which vest as to
25% of the number of shares granted on each anniversary of the date
of grant. Additionally on June 22, 2021, we granted 575,000
time-based stock options to Dr. Spana and 497,000 time-based stock
options to Mr. Wills, which are subject to an increase in our
authorized shares and shares reserved under our 2011 Stock
Incentive Plan, and which vest as to 25% of the number of shares
granted on each anniversary of the date of grant. The options have
an exercise price of $0.55, the fair market value of the common
stock on the business day immediately preceding the date of grant,
and they expire on June 22, 2031.
Employment Agreements
Effective
July 1, 2019, we entered into employment agreements with Dr. Spana
and Mr. Wills which continue through June 30, 2022 unless
terminated earlier. Under these agreements Dr. Spana is serving as
Chief Executive Officer and President at an initial base salary of
$600,000 per year and Mr. Wills is serving as Chief Financial
Officer and Chief Operating Officer at an initial base salary of
$550,000 per year. Each agreement also provides
for:
●
annual
discretionary bonus compensation, in an amount to be decided by the
compensation committee and approved by the board, based on
achievement of yearly performance objectives;
and
●
participation in
all benefit programs that we establish, to the extent the
executive’s position, tenure, salary, age, health and other
qualifications make him eligible to participate.
Each
agreement allows us or the executive to terminate the agreement
upon written notice and contains other provisions for termination
by us for “cause,” or by the employee for “good
reason” or due to a “change in control” (as these
terms are defined in the employment agreements and set forth
below). Early termination may, in some circumstances, result in
severance pay at the salary then in effect, plus continuation of
medical and dental benefits then in effect for a period of two
years. In addition, the agreements provide that options and
restricted stock units granted to these officers accelerate upon
termination of employment except for voluntary resignation by the
officer or termination for cause. In the event of retirement,
termination by the officer for good reason, or termination by us
other than for “cause”, options may be exercised until
the earlier of twenty-four months following termination or
expiration of the option term. Arrangements with our named
executive officers in connection with a termination following a
change in control are described below. Each agreement includes
non-competition, non-solicitation and confidentiality
covenants.
80
Other Compensation Practices and Policies
At our
last annual meeting of stockholders on June 8, 2021, our
non-binding stockholder advisory vote to approve the compensation
of our named executive officers (commonly known as a
“Say-on-Pay” vote) was supported by approximately 66%
of the votes cast for or against advisory approval. We continue to
evaluate our executive compensation program and solicit input from
our largest investors. Following is a summary of our current
compensation practices and policies.
●
Retain an Independent Compensation
Advisor.
The compensation committee engaged Aon
Consulting, Inc. through its Aon Rewards Solutions division
(“Aon Rewards”), a nationally recognized global human
resources consulting firm, as its independent compensation advisor
in April 2021. Aon Rewards principally provided analysis, advice,
and recommendations on named executive officers and non-employee
director compensation. Our compensation peer group for named
executive officer awards made in June 2021 was designed to reflect
the industry and sector in which Palatin competes, as well as
companies comparable to Palatin in terms of company life cycle,
phase of development of potential products, market capitalization
and talent market, and consists of:
AcelRx
Pharmaceuticals, Inc.
Aldeyra
Therapeutics, Inc.
Ardelyx,
Inc.
Calithera
Biosciences, Inc.
Clearside
Biomedical, Inc.
Crinetics
Pharmaceuticals, Inc.
CymaBay
Therapeutics, Inc.
Geron
Corporation
Kala
Pharmaceuticals, Inc.
Kezar
Life Sciences, Inc.
La
Jolla Pharmaceutical Company
MEI
Pharma, Inc.
MeiraGTx
Holdings plc
Oyster
Point Pharma, Inc.
Paratek
Pharmaceuticals, Inc.
RAPT
Therapeutics, Inc.
Savara
Inc.
Syndax
Pharmaceuticals, Inc.
Verastem,
Inc.
●
Compensation at Risk.
Our
executive compensation program is designed so that a significant
portion of compensation is “at risk” based on our
performance, as well as short-term cash and long-term equity
incentives to align the interests of our executive officers and
stockholders. Long-term equity incentives will be no less than base
salaries, with at least half of long-term equity incentives being
performance-based.
●
Use a Pay-for-Performance
Philosophy.
The compensation committee employs a
mixture of compensation elements designed to balance short-term
goals with longer-term performance. Our executive compensation
program includes these principal elements:
o
Base salary, which
targets the comparable position median salary for our peer
group;
o
An annual incentive
compensation opportunity, with a target bonus payout of no less
than 60% of base salary, depending on performance;
and,
o
A long-term
incentive program consisting of stock option and restricted stock
unit awards. In fiscal 2021, approximately 50% of all long-term
incentive awards were allocated to performance-based stock options
and performance-based restricted share units.
81
●
Maintain a Stock Ownership
Policy.
We adopted a stock ownership policy effective
April 1, 2019, that requires our named executive officers, as well
as our board members, to maintain a minimum ownership level of our
common stock. As of June 30, 2021, the most recent
“Determination Date” under the stock ownership policy,
all current named executive officers and board members meet the
target ownership levels of shares with a value equal to at least
five times the annual base salary of named executive officers and
at least two times the annual retainer for board members. Our stock
ownership policy is on our website at www.palatin.com/about-us/. In
addition, certain time-based and performance-based restricted stock
unit awards contain deferred delivery provisions providing for
delivery of the common stock after the grantee’s separation
from service or a defined changed in control.
●
Maintain a Clawback Policy.
We
have adopted a clawback policy allowing Palatin to recover related
compensation should the board determine that compensation paid to
named executive officers resulted from material noncompliance with
financial reporting requirements under federal securities law. Our
clawback policy is on our website at
www.palatin.com/about-us/.
●
Maintain an Independent Compensation
Committee.
The compensation committee consists entirely
of independent directors.
●
Annual Executive Compensation
Review.
The compensation committee conducts an annual
review and approval of our compensation strategy, utilizing an
independent compensation advisor. This review, including a peer
group review, is intended to ensure that our compensation programs
appropriately reward corporate growth without encouraging excessive
or inappropriate risk-taking.
●
“Double Trigger” Feature for
Acceleration of CEO and CFO/COO Equity Awards.
Under
employment agreements with our named executive officers,
outstanding equity awards granted to our named executive officers
provide that, upon a change in control of Palatin, the vesting of
such awards will accelerate only in the event of a subsequent
involuntary termination of employment (a
“double-trigger” provision).
●
No Excise Tax Gross-Ups.
Prior to
July 1, 2019, our employment agreements for the named executive
officers provided that they were entitled to a tax gross-up for any
golden parachute excise tax imposed on payments received in
connection with a change in control. Most investors disfavor this
type of tax gross-up benefit. In response to stockholder feedback,
effective with new employment agreements for our named executive
officers commencing July 1, 2019, we removed all golden parachute
excise tax gross-up provisions. As a result, the Company no longer
provides tax gross-ups for named executive officers or any other
employees in the event they are subject to golden parachute excise
taxes on payments received in connection with a change in
control.
●
No Stock Option Re-pricing.
Our
2011 Stock Incentive Plan does not permit options to purchase
shares of our common stock to be repriced to a lower exercise or
strike price without the approval of our stockholders.
●
No Dividends or Dividend Equivalents Payable
on Unvested or Undelivered Equity Awards.
Under our
restricted share unit agreements, we do not pay dividends or
dividend equivalents on unvested RSU awards or vested RSU awards
subject to delayed delivery.
●
No Executive Retirement Plans.
We
do not offer pension arrangements or retirement plans or
arrangements to our executive officers that are different from or
in addition to those offered to our other employees.
●
No Special Welfare or Health
Benefits.
Our executive officers participate in
broad-based Company-sponsored health and welfare benefit programs
on the same basis as our other full-time, salaried
employees.
Outstanding Equity Awards at 2021 Fiscal Year-End
The
following table summarizes all of the outstanding equity-based
awards granted to our named executive officers as of June 30, 2021,
the end of our fiscal year.
82
|
|
|
Option awards (1)
|
Stock awards (2)
|
|||||||
|
Name
|
Option or
stock
award
grant
date
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Equity incentive plan award: number of securities underlying
unexercised unearned options (#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number of shares or units of stock that have not
vested
(#)
|
Market value of shares or units of stock that have not
vested
($) (3)
|
Equity incentive plan awards: number of unearned shares, unit or
other rights that have not vested (#)
|
Equity incentive plan awards: market or payout value of unearned
shares, units or other rights that have not vested
($)(3)
|
|
Carl
Spana
|
07/17/12
|
150,000
|
-
|
-
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
275,000
|
-
|
-
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
175,000
|
-
|
-
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
300,000
|
-
|
-
|
1.08
|
06/11/25
|
|
|
|
|
|
|
09/07/16
|
432,000
|
-
|
-
|
0.68
|
09/07/26
|
|
|
|
|
|
|
06/20/17
|
938,000
|
-
|
-
|
0.37
|
06/20/27
|
|
|
|
|
|
|
12/12/17
|
468,750
|
156,250
|
-
|
0.85
|
12/12/27
|
|
|
|
|
|
|
12/12/17
|
500,000
|
-
|
-
|
0.85
|
12/12/27
|
|
|
|
|
|
|
06/26/18
|
399,750
|
133,250
|
-
|
1.00
|
06/26/28
|
|
|
|
|
|
|
06/24/19
|
372,000
|
372,000
|
-
|
1.34
|
06/24/29
|
|
|
|
|
|
|
06/16/20
|
267,875
|
803,625
|
-
|
0.58
|
06/16/30
|
|
|
|
|
|
|
06/16/20
|
208,942
|
-
|
862,558
|
0.58
|
06/16/30
|
|
|
|
|
|
|
06/22/21
|
-
|
575,000
|
|
0.55
|
06/22/31
|
|
|
|
|
|
|
12/12/17
|
|
|
|
|
|
156,250
|
95,313
|
-
|
-
|
|
|
06/24/19
|
|
|
|
|
|
118,000
|
71,980
|
132,927
|
81,085
|
|
|
06/16/20
|
|
|
|
|
|
484,875
|
295,774
|
520,432
|
317,464
|
|
|
06/22/21
|
|
|
|
|
|
704,500
|
429,745
|
472,350
|
288,134
|
|
|
Total Stock Awards
|
|
|
|
|
|
1,463,625
|
892,812
|
1,125,709
|
686,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen T.
Wills
|
07/17/12
|
135,000
|
-
|
-
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
250,000
|
-
|
-
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
150,000
|
-
|
-
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
270,000
|
-
|
-
|
1.08
|
06/11/25
|
|
|
|
|
|
|
09/07/16
|
396,000
|
-
|
-
|
0.68
|
09/07/26
|
|
|
|
|
|
|
06/20/17
|
859,000
|
-
|
-
|
0.37
|
06/20/27
|
|
|
|
|
|
|
12/12/17
|
431,250
|
143,750
|
-
|
0.85
|
12/12/27
|
|
|
|
|
|
|
12/12/17
|
372,500
|
-
|
-
|
0.85
|
12/12/27
|
|
|
|
|
|
|
06/26/18
|
340,500
|
113,500
|
-
|
1.00
|
06/26/18
|
|
|
|
|
|
|
06/24/19
|
319,000
|
319,000
|
-
|
1.34
|
06/24/29
|
|
|
|
|
|
|
06/16/20
|
230,750
|
692,250
|
-
|
0.58
|
06/16/30
|
|
|
|
|
|
|
06/16/20
|
179,985
|
-
|
743,015
|
0.58
|
06/16/30
|
|
|
|
|
|
|
06/22/21
|
-
|
497,000
|
|
0.55
|
06/22/31
|
|
|
|
|
|
|
12/12/17
|
|
|
|
|
|
143,750
|
87,688
|
-
|
-
|
|
|
06/24/19
|
|
|
|
|
|
101,000
|
61,610
|
113,776
|
69,403
|
|
|
06/16/20
|
|
|
|
|
|
417,750
|
254,828
|
448,385
|
273,515
|
|
|
06/22/21
|
|
|
|
|
|
609,000
|
371,490
|
392,150
|
239,212
|
|
|
Total Stock Awards
|
|
|
|
|
|
1,271,500
|
775,616
|
954,311
|
582,130
|
(1)
Stock option
vesting schedules: all options granted on or before December 11,
2017 have fully vested. Options granted after December 11, 2017
vest over four years with 1/4 of the shares vesting per year
starting on the first anniversary of the grant date, provided that
the named executive officer remains an employee; see
“Termination and Change-In-Control Arrangements” below
for a description of events that could accelerate vesting, except
for performance-based options granted on June 16, 2020, which vest
according to the terms of the grant described above.
(2)
Time-based stock
award vesting schedule: restricted stock units granted on December
12, 2017, as to 625,000 shares for Dr. Spana and 575,000 shares for
Mr. Wills, which vest in equal amounts over a four year period,
provided that the named executive officer remains an employee;
restricted stock units granted on June 24, 2019 as to 236,000
shares for Dr. Spana and 202,000 shares for Mr. Wills; restricted
stock units granted on June 16, 2020 as to 646,500 shares for Dr.
Spana and 557,000 shares for Mr. Wills and restricted stock units
granted on June 22, 2021 as to 704,500 shares to Dr. Spana and
609,000 shares for Mr. Wills, which vest in equal amounts over a
four year period, provided that the named executive officer remains
an employee. Both time-based and performance-based restricted stock
unit awards prior to fiscal 2019 contain deferred delivery
provisions providing for delivery of the common stock after the
grantee’s separation from service or a defined change in
control. See “Stock Options and Restricted Stock Unit
Awards” above and “Termination and Change-In-Control
Arrangements” below.
(3)
Calculated by
multiplying the number of restricted stock units by $0.61, the
closing market price of our common stock on June 30, 2021, the last
trading day of our most recently completed fiscal
year.
83
Termination and Change-In-Control Arrangements
The
employment agreements, stock option agreements and restricted stock
unit agreements with Dr. Spana and Mr. Wills contain the following
provisions concerning severance compensation and the vesting of
stock options and restricted stock units upon termination of
employment or upon a change in control. The executive’s
entitlement to severance, payment of health benefits and
accelerated vesting of options is contingent on the executive
executing a general release of claims against us.
Termination Without Severance
Compensation
. Regardless of
whether there has been a change in control, if we terminate
employment for cause or the executive terminates employment without
good reason (as those terms are defined in the employment agreement
and set forth below), then the executive will receive only his
accrued salary and vacation benefits through the date of
termination. He may also elect to receive medical and dental
benefits pursuant to COBRA for up to two years but must remit the
cost of coverage to us. Under the terms of our outstanding options
and restricted stock units, all unvested options and restricted
stock units would terminate immediately, and vested options would
be exercisable for three months after
termination.
Severance
Compensation After Death or Disability.
In the event of the executive’s death
or disability, we will provide lump sum severance pay equal to 24
months of base pay, as well as the opportunity for COBRA benefits
as described above under “Termination Without Severance
Compensation.”
Severance
Compensation Without a Change in Control
. If we terminate or fail to extend the employment
agreement without cause, or the executive terminates employment
with good reason, then the executive will receive as severance pay
his salary then in effect, paid in a lump sum, plus medical and
dental benefits at our expense, for a period of two years after the
termination date. In addition, upon such event all unvested options
would immediately vest and be exercisable for two years after the
termination date or, if earlier, the expiration of the option term,
and all unvested restricted stock units would accelerate and become
fully vested.
84
Severance
Compensation After a Change in Control
. If, within one year after a change in control,
we terminate employment or the executive terminates employment with
good reason, then the executive will receive as severance pay 200%
of his salary then in effect, paid in a lump sum, plus medical and
dental benefits at our expense, for a period of two years after the
termination date. We would also reimburse the executive for up to
$25,000 in fees and expenses during the six months following
termination, for locating employment. All unvested options would
immediately vest and be exercisable for two years after the
termination date or, if earlier, the expiration of the option term.
All unvested restricted stock units would vest upon a change in
control, without regard to whether the executive’s employment
is terminated.
Option and Restricted Stock Unit Vesting Upon a Change in
Control
. Pursuant to the
employment agreements, options and restricted stock units granted
under the 2011 Stock Incentive Plan vest upon termination of the
employee within twelve months following a change in control. If any
options granted under the 2005 Stock Plan are to be terminated in
connection with a change in control, those options will vest in
full immediately before the change in control.
Definitions
. Under the employment agreements, a “change
in control,” “cause” and “good
reason” are defined as follows:
A “change in control” occurs
when:
(a)
any person or entity acquires more than 50% of the
voting power of our outstanding securities;
(b)
the individuals who, during any twelve-month
period, constitute our board of directors cease to constitute at
least a majority of the board of directors;
(c)
the consummation of a merger or consolidation;
or
(d)
we
sell substantially all our assets.
The term
“cause” means:
(a)
the occurrence of (i) the executive’s
material breach of, or habitual neglect or failure to perform the
material duties which he is required to perform under, the terms of
his employment agreement; (ii) the executive’s material
failure to follow the reasonable directives or policies established
by or at the direction of our board of directors; or (iii) the
executive’s engaging in conduct that is materially
detrimental to our interests such that we sustain a material loss
or injury as a result thereof, provided that the breach or failure
of performance is not cured, to the extent cure is possible, within
ten days of the delivery to the executive of written notice
thereof;
(b)
the willful breach by the executive of his
obligations to us with respect to confidentiality, invention and
non-disclosure, non-competition or non-solicitation;
or
(c)
the conviction of the executive of, or the entry
of a pleading of guilty or nolo contendere by the executive to, any
crime involving moral turpitude or any felony.
The term “good reason” means the occurrence of any of
the following, with our failure to cure such circumstances within
30 days of the delivery to us of written notice by the executive of
such circumstances:
(a)
any material adverse change in the
executive’s duties, authority or responsibilities, which
causes the executive’s position with us to become of
significantly less responsibility, or assignment of duties and
responsibilities inconsistent with the executive’s
position;
(b)
a material reduction in the executive’s
salary;
(c)
our failure to continue in effect any material
compensation or benefit plan in which the executive participates,
unless an equitable arrangement has been made with respect to such
plan, or our failure to continue the executive’s
participation therein (or in a substitute or alternative plan) on a
basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the executive’s
participation relative to other participants;
(d)
our failure to continue to provide the executive
with benefits substantially similar to those enjoyed by the
executive under any of our health and welfare insurance, retirement
and other fringe-benefit plans, the taking of any action by us
which would directly or indirectly materially reduce any of such
benefits, or our failure to provide the executive with the number
of paid vacation days to which he is entitled;
or
(e)
the
relocation of the executive to a location which is a material
distance from Cranbury, New Jersey.
85
Director Compensation
The
following table sets forth the compensation we paid to all
directors during fiscal 2021, except for Dr. Spana, whose
compensation is set forth above in the Summary Compensation Table
and related disclosure. Dr. Spana did not receive any separate
compensation for his services as a director.
|
Name
|
Fees earned or
paid in cash ($)
|
Stock awards ($)
(1) (2)
|
Option
awards
($) (1)
(2)
|
Total
($)
|
|
John
K.A. Prendergast, Ph.D.
|
97,500
|
57,500
|
57,500
|
212,500
|
|
Robert
K. deVeer, Jr.
|
66,250
|
42,500
|
42,500
|
151,250
|
|
J.
Stanley Hull
|
57,500
|
42,500
|
42,500
|
142,500
|
|
Alan W.
Dunton, M.D.
|
69,750
|
42,500
|
42,500
|
154,750
|
|
Angela
Rossetti (3)
|
53,750
|
-
|
-
|
53,750
|
|
Arlene
Morris
|
53,750
|
42,500
|
42,500
|
138,750
|
|
Anthony
Manning, Ph.D.
|
47,500
|
42,500
|
42,500
|
132,500
|
(1)
The aggregate
number of shares underlying option awards and unvested stock awards
outstanding at June 30, 2021 for each director was:
|
|
Option
awards
|
Stock
awards
|
|
Dr.
Prendergast
|
866,500
|
265,000
|
|
Mr.
deVeer
|
536,500
|
157,000
|
|
Mr.
Hull
|
536,500
|
157,000
|
|
Dr.
Dunton
|
536,500
|
147,000
|
|
Ms.
Morris
|
476,500
|
127,000
|
|
Dr.
Manning
|
404,000
|
105,500
|
(2)
Amounts in these
columns represent the aggregate grant date fair value for stock
awards and option awards. For a description of the assumptions we
used to calculate these amounts, see Note 16 to the consolidated
financial statements included in this Annual Report. Amounts in
this column include options granted on June 22, 2021 for our
current fiscal year ending June 30, 2022.
(3)
Angela Rossetti
resigned as a director effective December 17, 2020, but under an
agreement with the board in connection with her resignation was
paid cash retainers she would have received had she remained on the
board through June 30, 2021.
Our director compensation program is designed to enhance our
ability to attract and retain highly qualified directors and to
align their interests with the long-term interests of our
stockholders. The program includes an equity component, which is
designed to align the interests of non-employee directors and
stockholders, and a cash component, which is designed to compensate
non-employee directors for their service on the board. Directors
who are employees of the Company receive no additional compensation
for their service on the board.
The compensation committee annually reviews compensation paid to
our non-employee directors and makes recommendations for
adjustments, as appropriate, to the full board. As part of this
annual review, the compensation committee considers the significant
time commitment and skill level required by each non-employee
director in serving on the board and its various committees. The
compensation committee seeks to maintain a market competitive
director compensation program and, with the assistance of its
independent compensation consultant, Aon Rewards, benchmarks our
director compensation program against the peer group we use to
evaluate our executive compensation program.
86
Non-Employee Directors’ Equity Grants.
Our
non-employee directors receive an annual equity grant at the board
meeting closest to the beginning of each fiscal year, or such other
date as may be determined by the board.
On June
22, 2021, the Chairman of the board received 105,000 restricted
stock units which vest on June 22, 2022 and an option to purchase
173,000 shares of common stock, and each other serving non-employee
director received 77,000 restricted stock units which vest on June
22, 2022 and an option to purchase 128,000 shares of common stock.
All of the options have an exercise price of $0.55 per share, the
closing price of our common stock on the business day immediately
preceding the date of grant, vest in twelve monthly installments
beginning July 31, 2021, expire ten years from the date of grant
and provide for accelerated vesting in the event of involuntary
termination as a director following a change in control, with
exercise permitted following accelerated vesting for up to the
earlier of one year after termination or the expiration date of the
option.
On June
16, 2020, the Chairman of the board received 99,000 restricted
stock units which vest on June 16, 2021 and an option to purchase
172,000 shares of common stock, and each other serving non-employee
director received 73,000 restricted stock units which vest on June
16, 2021 and an option to purchase 127,000 shares of common stock.
All of the options have an exercise price of $0.58 per share, the
closing price of our common stock on the business day immediately
preceding the date of grant, vest in twelve monthly installments
beginning July 31, 2020, expire ten years from the date of grant
and provide for accelerated vesting in the event of involuntary
termination as a director following a change in control, with
exercise permitted following accelerated vesting for up to the
earlier of one year after termination or the expiration date of the
option.
Non-Employee Directors’ Cash Compensation
. Dr.
Prendergast serves as Chairman of the board and for fiscal 2021
received an annual retainer of $87,500, payable quarterly. Other
non-employee directors received an annual base retainer of $40,000,
payable on a quarterly basis. The chairperson of the audit
committee received an additional annual retainer of $17,500, the
chairperson of the compensation committee received an additional
annual retainer of $17,500 and the chairperson of the corporate
governance committee received an additional annual retainer of
$10,000. Members of the foregoing committees, other than the
non-employee Chairman, received an additional retainer of one-half
the retainer payable to the committee chairperson. For the fiscal
year ending June 30, 2022, Dr. Prendergast serves as Chairman of
the board and will received an annual retainer of $87,500, payable
quarterly. Other non-employee directors will receive an annual base
retainer of $40,000, payable on a quarterly basis. The chairperson
of the audit committee will receive an additional annual retainer
of $20,000, the chairperson of the compensation committee will
receive an additional annual retainer of $20,000 and the
chairperson of the corporate governance committee will receive an
additional annual retainer of $10,000. Members of the foregoing
committees, other than the non-employee Chairman, receive an
additional retainer of one-half the retainer payable to the
committee chairperson.
The
board also formed a program development committee, charged with
reviewing new product opportunities and product development
strategy. The chairperson of the program development committee
receives $3,500 per day of service, and members of the committee
receive $2,500 per day of service.
Non-Employee Directors’ Expenses.
Non-employee
directors are reimbursed for expenses incurred in performing their
duties as directors, including attending all meetings of the board
and any committees on which they serve.
Employee Directors.
Employee directors are not separately
compensated for services as directors but are reimbursed for
expenses incurred in performing their duties as directors,
including attending all meetings of the board and any committees on
which they serve.
87
Item 12. Security
O
wnership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
Securities Authorized for Issuance Under Equity Compensation
Plans.
The table below provides information on our equity
compensation plans as of June 30, 2021:
|
Equity
Compensation Plan Information
as
of June 30, 2021
|
|||
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation
plans approved by security holders
|
36,723,262
(1)
|
$
0.72
(2)
|
738,817
|
|
Equity compensation
plans not approved by security holders
|
25,000
(3)
|
$
0.70
|
-
|
|
Total
|
36,748,262
|
|
738,817
|
(1)
Includes 21,882,500
options and 14,840,762 restricted stock units granted under our
2011 Stock Incentive Plan.
(2)
The amount in
column (a) for equity compensation plans approved by security
holders includes 14,376,762 shares reserved for issuance on vesting
of outstanding restricted stock units, granted under our 2011 Stock
Incentive Plan, which vest on various dates through June 22, 2025,
subject to the fulfillment of service, market conditions, or
performance conditions. Because no exercise price is required for
issuance of shares on vesting of the restricted stock units, the
weighted-average exercise price in column (b) does not take the
restricted stock units into account.
(3)
Consists of two
warrants to purchase 12,500 shares at $0.70 per share issued in
connection with a contract for financial advisory services. These
warrants expired unexercised on August 4, 2021.
Beneficial Ownership Tables.
The tables below show the
beneficial stock ownership and voting power, as of September 24,
2021, of:
●
each director, each
of the named executive officers, and all current directors and
officers as a group; and
●
all persons who, to
our knowledge, beneficially own more than five percent of the
common stock or Series A preferred stock.
“Beneficial
ownership” here means direct or indirect voting or investment
power over outstanding stock and stock which a person has the right
to acquire now or within 60 days after September 24, 2021. See the
footnotes for more detailed explanations of the holdings. Except as
noted, to our knowledge, the persons named in the tables
beneficially own and have sole voting and investment power over all
shares listed.
The
common stock has one vote per share and the Series A preferred
stock has approximately 16 votes per share of Series A preferred
stock. Voting power is calculated on the basis of the aggregate of
common stock and Series A preferred stock outstanding as of
September 24, 2021, on which date
231,258,137 shares of
common stock and 4,030 shares of Series A preferred stock,
convertible into 66,059 shares of common stock, were
outstanding.
Under
our Insider Trading and Securities Law Compliance Policy directors
and officers may not engage in hedging, monetization or pledging
transactions of our securities. None of the shares of our
management and directors shown on the table below are
pledged.
The
address for all members of our management and directors is c/o
Palatin Technologies, Inc., 4B Cedar Brook Drive, Cranbury, NJ
08512. Addresses of other beneficial owners are in the
table.
88
MANAGEMENT:
|
Class
|
Name of beneficial owner
|
Amount and nature of beneficial ownership
|
Percent of class
|
Percent of total voting power
|
|
Common
|
Carl
Spana, Ph.D.
|
8,552,677
(1)
|
3.6%
|
*
|
|
Common
|
Stephen
T. Wills
|
7,640,464
(2)
|
3.2%
|
*
|
|
Common
|
John
K.A. Prendergast, Ph.D.
|
1,404,933
(3)
|
*
|
*
|
|
Common
|
Robert
K. deVeer, Jr.
|
845,306
(4)
|
*
|
*
|
|
Common
|
J.
Stanley Hull
|
807,966
(5)
|
*
|
*
|
|
Common
|
Alan W.
Dunton, M.D.
|
818,518
(6)
|
*
|
*
|
|
Common
|
Arlene
M. Morris
|
730,666
(7)
|
*
|
*
|
|
Common
|
Anthony
M. Manning, Ph.D.
|
520,666
(8)
|
*
|
*
|
|
|
|
|
|
|
|
|
All
current directors and executive officers as a group (eight
persons)
|
21,321,196
(9)
|
8.6%
|
1.8%
|
*Less
than one percent.
(1)
Includes 4,487,318
shares of common stock underlying outstanding options and 2,859,750
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(2)
Includes 3,933,985
shares of common stock underlying outstanding options and 2,519,750
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(3)
Includes 751,166
shares of common stock underlying outstanding options and 160,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(4)
Includes 451,166
shares of common stock underlying outstanding options and 80,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(5)
Includes 451,166
shares of common stock underlying outstanding options and 80,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(6)
Includes 451,166
shares of common stock underlying outstanding options and 70,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(7)
Consists of 391,166
shares of common stock underlying outstanding options and 50,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(8)
Consists of 318,666
shares of common stock underlying outstanding options and 28,500
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(9)
Includes 17,083,799
shares of common stock underlying outstanding options and
restricted stock units.
89
MORE THAN 5% BENEFICIAL OWNERS:
|
Class
|
Name and address of beneficial owner
|
Amount and nature of beneficial ownership (1)
|
Percent
of class
|
Percent of total voting
power
|
|
Series
A
Preferred
|
Steven
N. Ostrovsky
43
Nikki Ct.
Morganville,
NJ 07751
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Thomas
L. Cassidy IRA Rollover
38
Canaan Close
New
Canaan, CT 06840
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Jonathan
E. Rothschild
300
Mercer St., #28F
New
York, NY 10003
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Arthur
J. Nagle
19
Garden Avenue
Bronxville,
NY 10708
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Thomas
P. and Mary E. Heiser, JTWROS
10
Ridge Road
Hopkinton,
MA 01748
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Carl F.
Schwartz
31 West
87th St.
New
York, NY 10016
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Michael
J. Wrubel
3650 N.
36 Avenue, #39
Hollywood,
FL 33021
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Myron
M. Teitelbaum, M.D.
175
Burton Lane
Lawrence,
NY 11559
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Laura
Gold Galleries Ltd. Profit Sharing Trust Park South Gallery at
Carnegie Hall
154
West 57th Street, Suite 114
New
York, NY 10019
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Laura
Gold
180 W.
58th Street
New
York, NY 10019
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Nadji
T. Richmond
20 E.
Wedgewood Glen
The
Woodlands, TX 77381
|
230
|
5.7%
|
*
|
*Less
than one percent.
(1)
Unless otherwise indicated by footnote, all share amounts represent
outstanding shares of the class indicated, and all beneficial
owners listed have, to our knowledge, sole voting and dispositive
power over the shares listed.
Item 13. Certain
R
elationships and
Related Transactions, and Director Independence.
The
board of directors has determined that all the directors except for
Dr. Spana (our Chief Executive Officer and President) are
independent directors, as defined in the listing standards of the
NYSE American.
As a
condition of employment, we require all employees to disclose in
writing actual or potential conflicts of interest, including
related party transactions. Our code of corporate conduct and
ethics, which applies to employees, officers and directors,
requires that the audit committee review and approve related party
transactions. Since July 1, 2015, there have been no
transactions or proposed transactions in which we were or are to be
a participant, in which any related person had or will have a
direct or indirect material interest.
Item 14. Principal Accounting Fees and
S
ervices.
KPMG
LLP (“KPMG”), served as our independent registered
public accounting firm for fiscal 2021 and fiscal
2020.
Audit Fees
. For fiscal 2021, fees for professional services
rendered for the audit of our annual consolidated financial
statements and review of our consolidated financial statements in
our Forms 10-Q were
$398,000. For fiscal 2020, fees for professional services rendered
for the audit of our annual consolidated financial statements,
review of our consolidated financial statements in our Forms 10-Q,
and services provided in connection with comfort letters were
$329,000.
90
Audit-Related Fees
. For fiscal 2021 and fiscal 2020, KPMG
did not perform or bill us for any audit-related
services.
Tax Fees
. For fiscal 2021, KPMG billed us $18,600 us
for professional
services rendered for tax compliance services. For fiscal 2020,
KPMG billed us $23,600 for professional services rendered for tax
compliance services.
All Other Fees
. KPMG did not perform or bill us for any
services other than those described above for fiscal 2021 and
fiscal 2020.
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
. Consistent with
SEC policies regarding auditor independence, the audit committee
has responsibility for appointing, setting compensation for and
overseeing the work of the independent registered public accounting
firm. In recognition of this responsibility, the audit committee
has established a policy to pre-approve all audit and permissible
non-audit services provided by the independent registered public
accounting firm.
The
audit committee pre-approves fees for each category of service. The
fees are budgeted and the audit committee requires the independent
registered public accounting firm and management to report actual
fees versus the budget periodically throughout the year by category
of service. During the year, circumstances may arise when it may
become necessary to engage the independent registered public
accounting firm for additional services not contemplated in the
original pre-approval. In those instances, the audit committee
requires specific pre-approval before engaging the independent
registered public accounting firm.
The
audit committee may delegate pre-approval authority to one or more
of its members. The member to whom such authority is delegated must
report, for informational purposes only, any pre-approval decisions
to the audit committee at its next scheduled meeting.
91
PART IV
Item 15. Exhibits,
F
inancial
Statement Schedules.
(a) Documents filed as part of the
report:
1.
Financial
statements: The following consolidated financial statements are
filed as a part of this report under Item 8 – Financial
Statements and Supplementary Data:
—
Report of Independent Registered Public Accounting
Firm
—
Consolidated Balance Sheets
—
Consolidated Statements of Operations
—
Consolidated Statements of Stockholders’ Equity
—
Consolidated Statements of Cash Flows
—
Notes to Consolidated Financial Statements
2.
Financial statement
schedules: None.
92
3.
List of
Exhibits
The
following exhibits are incorporated by reference or filed as part
of this report:
|
Exhibit Number
|
Description
|
Filed Herewith
|
Form
|
Filing Date
|
SEC File No.
|
|
|
Equity Distribution Agreement, dated April 20, 2018, by and between
Palatin Technologies, Inc. and Canaccord Genuity LLC
|
|
8-K
|
April 20, 2018
|
001-15543
|
|
|
Equity Distribution Agreement, dated June 21, 2019, by and between
Palatin Technologies, Inc. and Canaccord Genuity LLC
|
|
8-K
|
June 21, 2019
|
001-15543
|
|
Restated Certificate of Incorporation of Palatin Technologies,
Inc., as amended.
|
|
10-K
|
September 27, 2013
|
001-15543
|
|
|
Amended and Restated Bylaws of Palatin Technologies,
Inc.
|
|
8-K
|
September 17, 2021
|
001-15543
|
|
|
Form of Series A 2012 Warrant.
|
|
8-K
|
July 6, 2012
|
001-15543
|
|
|
Form of Series B 2012 Warrant.
|
|
8-K
|
July 6, 2012
|
001-15543
|
|
|
|
Form of
Series C 2014 Common Stock Purchase Warrant.
|
|
8-K
|
December
30,
2014
|
001-15543
|
|
|
Form of
Series D 2014 Common Stock Purchase Warrant.
|
|
8-K
|
December
30,
2014
|
001-15543
|
|
Form of
Series E 2015 Common Stock Purchase Warrant.
|
|
8-K
|
July 7,
2015
|
001-15543
|
|
|
Form of
Series F 2015 Common Stock Purchase Warrant.
|
|
8-K
|
July 7,
2015
|
001-15543
|
|
|
Form of
Series G 2015 Common Stock Purchase Warrant.
|
|
8-K
|
July 7,
2015
|
001-15543
|
|
|
Form of
Series H 2016 Common Stock Purchase Warrant.
|
|
8-K
|
August
2, 2016
|
001-15543
|
|
|
Form of
Series I 2016 Common Stock Purchase Warrant.
|
|
8-K
|
August
2, 2016
|
001-15543
|
|
|
Form of
Series J 2016 Common Stock Purchase Warrant.
|
|
8-K
|
December
1, 2016
|
001-15543
|
|
|
Form of
warrant issued to PSL Business Development Consulting and SARL
Avisius in connection with a contract for financial advisory
services.
|
|
10-Q
|
February
10, 2017
|
001-15543
|
|
|
Description
of Securities
|
|
10-K
|
September
12, 2019
|
001-15543
|
|
|
1996 Stock Option Plan, as amended.
|
|
10-K
|
September 28, 2009
|
001-15543
|
|
|
Form of Option Certificate (Incentive Option) Under the 2005 Stock
Plan.
|
|
8-K
|
September 21, 2011
|
001-15543
|
|
|
Form of Incentive Stock Option Under the 2005 Stock
Plan.
|
|
8-K
|
September 21, 2011
|
001-15543
|
|
|
Form of Opinion Certificate (Non-Qualified Opinion) Under the 2005
Stock Plan.
|
|
8-K
|
September 21, 2011
|
001-15543
|
|
|
Form of Non-Qualified Stock Option Agreement Under the 2005 Stock
Plan.
|
|
8-K
|
September 21, 2011
|
001-15543
|
93
|
2007 Change in Control Severance Plan.
|
|
10-Q
|
February 8, 2008
|
001-15543
|
|
|
2005 Stock Plan, as amended.
|
|
10-Q
|
May 15, 2009
|
001-15543
|
|
|
Form of Executive Officer Option Certificate.
|
|
10-Q
|
May 14, 2008
|
001-15543
|
|
|
Form of Amended Restricted Stock Unit Agreement.
|
|
10-Q
|
May 14, 2008
|
001-15543
|
|
|
Form of Amended Option Certificate (Incentive Option) Under the
2005 Stock Plan.
|
|
10-Q
|
May 14, 2008
|
001-15543
|
|
|
2011 Stock Incentive Plan, as amended and restated.
|
|
8-K
|
June 29, 2020
|
001-15543
|
|
|
Form of Restricted Share Unit Agreement Under the 2011 Stock
Incentive Plan.
|
|
10-Q
|
May 13, 2011
|
001-15543
|
|
|
Form of Nonqualified Stock Option Agreement under the 2011 Stock
Incentive Plan.
|
|
10-Q
|
May 13, 2011
|
001-15543
|
|
|
Form of Incentive Stock Option Agreement under the 2011 Stock
Incentive Plan.
|
|
10-Q
|
May 13, 2011
|
001-15543
|
|
|
Form of Restricted Share Unit Agreement under the 2011 Stock
Incentive Plan.
|
|
8-K
|
December 11, 2015
|
001-15543
|
|
|
Form of Performance-Based Restricted Share Unit Agreement under the
2011 Stock Incentive Plan.
|
|
8-K
|
December 11, 2015
|
001-15543
|
|
|
Form of Restricted Share Unit Agreement for Non-Employee Directors
under the 2011 Stock Incentive Plan.
|
|
8-K
|
December 11, 2015
|
001-15543
|
|
|
Amended form of Restricted Share Unit Agreement under the 2011
Stock Incentive Plan.
|
|
10-Q
|
February 12, 2016
|
001-15543
|
|
|
Amended form of Performance-Based Restricted Share Unit Agreement
under the 2011 Stock Incentive Plan.
|
|
10-Q
|
February 12, 2016
|
001-15543
|
|
|
|
Amended form of Restricted Share Unit Agreement for Non-Employee
Directors under the 2011 Stock Incentive Plan.
|
|
10-Q
|
February 12, 2016
|
001-15543
|
|
Form of Indenture.
|
|
S-3
|
August 17, 2018
|
333-226905
|
|
|
|
Amended and Restated Venture Loan and Security Agreement, dated
July 2, 2015, by and between Palatin Technologies, Inc. and Horizon
Technology Finance Corporation, Fortress Credit Co LLC, Horizon
Credit II LLC and Fortress Credit Opportunities V CLO
Limited.
|
|
8-K
|
July 7,
2015
|
001-15543
|
|
|
Termination and Release Agreement dated September 29, 2020, by and
between Catalent Belgium S.A. and Palatin Technologies,
Inc.
|
|
10-Q
|
November 16, 2020
|
001-15543
|
94
|
|
Commercial Supply Agreement dated September 29, 2020, by and
between Catalent Belgium S.A. and Palatin Technologies,
Inc.
|
|
10-Q
|
November 16, 2020
|
001-15543
|
|
|
License Agreement, dated January 8, 2017, by and between AMAG
Pharmaceuticals, Inc. and Palatin Technologies, Inc.
|
|
10-Q
|
February 10, 2017
|
001-15543
|
|
|
License Agreement, dated September 6, 2017, by and between Shanghai
Fosun Pharmaceutical Industrial Development Co., Ltd. and Palatin
Technologies, Inc.
|
|
10-Q
|
November 13, 2017
|
001-15543
|
|
Employment Agreement, effective as of July 1, 2019, between Carl
Spana and Palatin Technologies, Inc.
|
|
8-K
|
June 26, 2019
|
001-15543
|
|
|
|
Employment Agreement, effective as of July 1, 2019, between Stephen
T. Wills and Palatin Technologies, Inc.
|
|
8-K
|
June 26, 2019
|
001-15543
|
|
|
Termination Agreement between Palatin Technologies, Inc. And AMAG
Pharmaceuticals, Inc., dated July 24, 2020.
|
|
8-K
|
July 27, 2020
|
001-15543
|
|
|
Manufacturing Serves Agreement, dated as of June 1, 2019, by and
between Palatin Technologies, Inc. (as assignee from AMAG
Pharmaceuticals, Inc.) and Lonza Ltd.
|
|
10-K
|
September 25, 2020
|
001-15543
|
|
|
Supply Agreement, dated as of December 20, 2018, by and between
Palatin Technologies, Inc. (as assignee from AMAG Pharmaceuticals,
Inc.) and Ypsomed AG.
|
|
10-K
|
September 25, 2020
|
001-15543
|
|
|
Commercial Supply Agreement dated September 29, 2020, by and
between Catalent Belgium S.A. and Palatin Technologies,
Inc.
|
|
10-Q
|
November 16, 2020
|
001-15543
|
|
|
Termination and Release Agreement dated September 29, 2020, by and
between Catalent Belgium S.A. and Palatin Technologies,
Inc.
|
|
10-Q
|
November 16, 2020
|
001-15543
|
|
Subsidiary of Palatin Technologies, Inc.
|
X
|
|
|
|
|
|
Consent of KPMG LLP.
|
X
|
|
|
|
|
|
Certification of Chief Executive Officer.
|
X
|
|
|
|
|
|
Certification of Chief Financial Officer.
|
X
|
|
|
|
|
|
|
Certification of principal executive officer pursuant to 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 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
|
|
|
|
† Management contract or compensatory plan or
arrangement.
††
Confidential treatment granted as to certain portions of the
exhibit, which portions are omitted and filed separately with the
SEC.
†††
Portions of the exhibit are omitted pursuant to Regulation S-K Item
601(b)(10). Palatin agrees to furnish to the U.S. Securities and
Exchange Commission a copy of any omitted schedule and/or exhibit
upon request. The confidential portions of this exhibit were
omitted by means of marking such portions with asterisks because
the identified confidential portions (i) are not material and (ii)
would be competitively harmful if publicly disclosed.
Item 16. Form 10-K
S
ummary.
None.
95
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
By:
/s/ Carl Spana
Carl
Spana, Ph.D.
President and Chief
Executive Officer
(principal
executive officer)
Date:
September 28, 2021
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/
Carl Spana
|
President,
Chief Executive Officer and Director
|
September
28, 2021
|
|
Carl
Spana
|
(principal
executive officer)
|
|
|
|
|
|
|
/s/
Stephen T. Wills
|
Executive
Vice President, Chief Financial Officer
|
September
28, 2021
|
|
Stephen
T. Wills
|
and
Chief Operating Officer (principal financial and accounting
officer)
|
|
|
|
|
|
|
/s/
John K. A. Prendergast
|
Chairman
and Director
|
September
28, 2021
|
|
John K.
A. Prendergast
|
|
|
|
|
|
|
|
/s/
Robert K. deVeer, Jr.
|
Director
|
September
28, 2021
|
|
Robert
K. deVeer, Jr.
|
|
|
|
|
|
|
|
/s/ J.
Stanley Hull
|
Director
|
September
28, 2021
|
|
J.
Stanley Hull
|
|
|
|
|
|
|
|
/s/
Alan W. Dunton
|
Director
|
September
29, 2021
|
|
Alan W.
Dunton
|
|
|
|
|
|
|
|
/s/
Arlene M. Morris
|
Director
|
September
28, 2021
|
|
Arlene
M. Morris
|
|
|
|
|
|
|
|
/s/
Anthony M. Manning
|
Director
|
September
28, 2021
|
|
Anthony
M. Manning
|
|
|
96
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. [reserved]Item 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 16. Form 10-k Summary