PTNT 10-Q Quarter ended March 31, 2015

and Subsidiary

Consolidated Balance Sheets

(unaudited)

		March 31, 2015				June 30, 2014
ASSETS
Current assets:
Cash and cash equivalents		$	36,729,174			$	12,184,605
Prepaid expenses and other current assets			1,971,572				156,393
Total current assets			38,700,746				12,340,998
Property and equipment, net			153,971				160,748
Other assets			173,518				57,308
Total assets		$	39,028,235			$	12,559,054
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	2,325,778			$	261,280
Accrued expenses			2,839,406				1,508,958
Capital lease obligations			25,497				-
Deferred revenue			-				1,000,000
Total current liabilities			5,190,681				2,770,238
Notes payable, net of discount			9,757,797				-
Capital lease obligations			48,358				-
Other non-current liabilities			47,827				-
Total liabilities			15,044,663				2,770,238
Stockholders’ equity:
Preferred stock of $0.01 par value – authorized 10,000,000 shares;
Series A Convertible; issued and outstanding 4,697 shares as of March 31, 2015 and June 30, 2014, respectively			47				47
Common stock of $0.01 par value – authorized 300,000,000 shares;
issued and outstanding 42,155,105 shares as of March 31, 2015 and 39,416,595 as of June 30, 2014, respectively			421,551				394,166
Additional paid-in capital			303,174,803				283,428,356
Accumulated deficit			(279,612,829	)			(274,033,753	)
Total stockholders’ equity			23,983,572				9,788,816
Total liabilities and stockholders’ equity		$	39,028,235			$	12,559,054

PALATIN TECHNOLOGIES, INC.

and Subsidiary

Consolidated Statements of Operations

(unaudited)

		Three Months Ended March 31,								Nine Months Ended March 31,
		2015				2014				2015				2014
REVENUES:
Contract revenue		$	-			$	-			$	12,951,730			$	-
OPERATING EXPENSES:
Research and development			7,588,437				2,151,225				14,785,974				8,230,733
General and administrative			1,133,954				1,212,513				3,671,621				3,236,093
Total operating expenses			8,722,391				3,363,738				18,457,595				11,466,826
Loss from operations			(8,722,391	)			(3,363,738	)			(5,505,865	)			(11,466,826	)
OTHER (EXPENSE) INCOME:
Investment income			14,696				4,363				24,694				14,613
Interest expense			(311,170	)			(182	)			(344,757	)			(2,987	)
Foreign exchange transaction loss			(131,673	)			-				(284,656	)			-
Total other (expense) income, net			(428,147	)			4,181				(604,719	)			11,626
Loss before income taxes			(9,150,538	)			(3,359,557	)			(6,110,584	)			(11,455,200	)
Income tax benefit			-				1,846,646				531,508				1,846,646
NET LOSS		$	(9,150,538	)		$	(1,512,911	)		$	(5,579,076	)		$	(9,608,554	)
Basic  and diluted net loss per common share		$	(0.07	)		$	(0.01	)		$	(0.05	)		$	(0.09	)
Weighted average number of common shares outstanding used in computing basic and diluted net loss per common share			134,008,239				106,709,340				116,632,958				106,668,094

PALATIN TECHNOLOGIES, INC.

		Nine Months Ended March 31,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(5,579,076	)		$	(9,608,554	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization			86,777				84,314
Non-cash interest expense			93,419				-
Stock-based compensation			775,051				607,494
Changes in operating assets and liabilities:
Prepaid expenses and other assets			(1,741,997	)			(81,724	)
Accounts payable			2,064,498				93,041
Accrued expenses			1,414,078				217,474
Deferred revenue			(1,000,000	)			1,000,000
Net cash used in operating activities			(3,887,250	)			(7,687,955	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investments			-				5,249,654
Purchases of property and equipment			-				(6,239	)
Net cash provided by investing activities			-				5,243,415
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations			(6,145	)			(17,861	)
Payment of withholding taxes related to restricted
stock units			(122,067	)			(25,214	)
Proceeds from exercise of warrants			204,148				-
Proceeds from sale of common stock and
warrants, net of costs			18,565,249				37,500
Proceeds from the issuance of notes payable
and warrants			10,000,000				-
Payment of debt issuance costs			(209,366	)			-
Net cash provided by (used in) financing activities			28,431,819				(5,575	)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS			24,544,569				(2,450,115	)
CASH AND CASH EQUIVALENTS, beginning of period			12,184,605				19,167,632
CASH AND CASH EQUIVALENTS, end of period		$	36,729,174			$	16,717,517
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	251,338			$	2,987
Equipment acquired under capital lease			80,000				-
Issuance of warrants in connection with debt financing			267,820				-

PALATIN TECHNOLOGIES, INC.

and Subsidiary

Notes to Consolidated Financial Statements

(unaudited)

In December 2009 and 2008, the Company also entered into clinical trial sponsored research agreements with AstraZeneca, under which the Company agreed to conduct studies of the effects of melanocortin receptor specific compounds on food intake, obesity and other metabolic parameters. Under the terms of these clinical trial agreements, AstraZeneca paid the Company $5,000,000 as of March 31, 2009 upon achieving certain objectives and paid all costs associated with these studies.

		Carrying Value				Quoted prices in active markets (Level 1)				Other quoted/observable inputs (Level 2)				Significant unobservable inputs (Level 3)
March 31, 2015:
Money Market Fund		$	36,575,641			$	36,575,641			$	-			$	-
June 30, 2014:
Money Market Fund		$	9,495,656			$	9,495,656			$	-			$	-

		March 31, 2015
Notes payable under venture loan		$	10,000,000
Unamortized related debt discount			(242,203	)
Notes payable		$	9,757,797

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

We are developing subcutaneously administered bremelanotide for the treatment of FSD in premenopausal women. Bremelanotide, which is a melanocortin agonist, is a synthetic peptide analog of the naturally occurring hormone alpha-MSH. The novel mechanism of action involves activating endogenous melanocortin hormone pathways involved in sexual arousal response. We have completed a Phase 2B clinical trial and meetings with the U.S. Food and Drug Administration (FDA), and started patient enrollment in the Phase 3 clinical trials in December 2014. The Phase 3 studies, which will be conducted in North America, will utilize a single-dose autoinjector intended for commercialization. It is anticipated that the Phase 3 program will take at least fifteen to eighteen months from initiation of patient dosing through database lock. Following database lock, clinical trial data will be analyzed and, assuming the data supports approval of bremelanotide for FSD, a New Drug Application (NDA) will be submitted to FDA. There can be no assurance that the Phase 3 data will support approval of bremelanotide for FSD or that the FDA will approve an NDA for bremelanotide.

Key elements of our business strategy include:

●	Using our technology and expertise to develop and commercialize products in our active drug development programs;

●	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 research collaboration and license agreements and any potential future agreements with third parties; and

●	Completing development and seeking regulatory approval of bremelanotide for FSD and our other product candidates.

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

Results of Operations

Three and Nine Months Ended March 31, 2015 Compared to the Three and Nine Months Ended March 31, 2014

Revenue – For the three and nine months ended March 31, 2015, we recognized zero and $13.0 million, respectively, in revenue pursuant to our license, co-development and commercialization agreement with Gedeon Richter. We recognized no revenue for the three and nine months ended March 31, 2014.

In August 2014, we entered into a license, co-development and commercialization agreement with Gedeon Richter, which provided for $9.8 million in upfront payments. The non-refundable portion of the upfront payment, $4.9 million, was recorded as revenue in the three months ended September 30, 2014 and the remaining balance was recorded as revenue in the three months ended December 31, 2014, which became non-refundable upon initiation of our Phase 3 clinical trial program in the United States. We also recognized $3.1 million in the three months ended December 31, 2014 relating to the milestone payment due upon initiation of our Phase 3 clinical trial program in the United States, which was initiated in December 2014.

Research and Development – Research and development expenses were $7.6 million and $14.8 million, respectively, for the three and nine months ended March 31, 2015 compared to $2.2 million and $8.2 million, respectively, for the three and nine months ended March 31, 2014. These costs primarily relate to our bremelanotide Phase 3 clinical trial program.

Research and development expenses related to our bremelanotide, PL-3994, peptide melanocortin agonist, obesity and other preclinical programs were $6.9 million and $13.0 million, respectively, for the three and nine months ended March 31, 2015 compared to $1.5 million and $6.2 million, respectively, for the three and nine months ended March 31, 2014. Spending to date has been primarily related to our bremelanotide for the treatment of FSD program. We initiated the pivotal Phase 3 studies of bremelanotide in December 2014. The amount of such spending and the nature of future development activities are dependent on a number of factors, including primarily the availability of funds to support future development activities, success of our clinical trials and preclinical and discovery programs, and our ability to progress compounds in addition to bremelanotide and PL-3994 into human clinical trials.

The amounts of project spending above exclude general research and development spending, which consists mainly of compensation and related costs, and which were $0.7 million and $1.8 million, respectively, for the three and nine months ended March 31, 2015 compared to $0.7 million and $2.0 million, respectively, for the three and nine months ended March 31, 2014.

Cumulative spending from inception to March 31, 2015 is approximately $183.9 million for our bremelanotide program and approximately $121.9 million on all our other programs (which include PL-3994, other melanocortin receptor agonists, obesity, other discovery programs and terminated programs). Due to various risk factors described in our periodic filings with the SEC, 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, net cash inflows will be generated.

General and Administrative – General and administrative expenses, which consist mainly of compensation and related costs, were $1.1 million and $3.7 million, respectively, for the three and nine months ended March 31, 2015 compared to $1.2 million and $3.2 million, respectively, for the three and nine months ended March 31, 2014. The increase in general and administrative expenses for the nine months ended March 31, 2015 is related to accounting and other professional services.

Liquidity and Capital Resources

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

●	product approval or clearance;

●	regulatory compliance;

●	good manufacturing practices (GMPs);

●	intellectual property rights;

●	product introduction;

●	marketing, sales and competition; and

●	obtaining sufficient capital.

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

During the nine months ended March 31, 2015, cash used in operating activities was $3.9 million, compared to cash used for operating activities of $7.7 million for the nine months ended March 31, 2014. The difference for the nine months ended March 31, 2015 and 2014 was primarily attributable to the upfront and milestone payment, relating to the license, co-development and commercialization agreement with Gedeon Richter. Our periodic prepaid expenses, accounts payable and accrued expenses balances will continue to be highly dependent on the timing of our operating costs.

During the nine months ended March 31, 2015, there were no investing activities. During the nine months ended March 31, 2014, net cash provided by investing activities was $5.2 million, consisting of proceeds from the maturity of short-term investments offset by $6,239 used for capital expenditures.

During the nine months ended March 31, 2015, net cash provided by financing activities was $28.4 million. During the nine months ended March 31, 2014, cash used in financing activities of $5,575 consisted of the $25,214 used for the payment of withholding taxes related to restricted stock units and payments of $17,861 used for capital lease payments, offset by the proceeds of $37,500 from the exercise of warrants. The difference for the nine months ended March 31, 2015 and 2014 was primarily related to the closing of a $20.0 million private placement and the closing of a $10.0 million venture loan.

As of March 31, 2015, our cash and cash equivalents were $36.7 million and our current liabilities were $5.2 million. We intend to utilize existing capital resources for general corporate purposes and working capital, including the Phase 3 clinical trial program with bremelanotide for FSD and preclinical and clinical development of our other product candidates and programs, including PL-3994, MC1r, and MC4r programs. Based on our current plan, we believe that the Phase 3 clinical trial program with bremelanotide including submission of an NDA to the FDA, will cost at least $80.0 million. We initiated patient enrollment in our Phase 3 program in December 2014. We intend to seek additional capital to support our Phase 3 program through collaborative arrangements on bremelanotide, public or private equity or debt financings, or other sources.

Management believes that our existing capital resources will be adequate to fund its currently planned operations through the quarter ending June 30, 2016.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not required to be provided by smaller reporting companies.

Item 4.  Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2015. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 1A.  Risk Factors.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

Not applicable.

Item 5.  Other Information.

None.

Item 6.  Exhibits.

Exhibits filed or furnished with this report:

Exhibit Number	Description	Filed Herewith	Form	Filing Date	SEC File No.
31.1	Certification of Chief Executive Officer.	X
31.2	Certification of Chief Financial Officer.	X
32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350.	X
32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350.	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