PALATIN TECHNOLOGIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
☑
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the
quarterly period ended March 31, 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)
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Delaware
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95-4078884
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer Identification No.)
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4B Cedar Brook Drive
Cranbury, New Jersey
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08512
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(Address
of principal executive offices)
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(Zip
Code)
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(609) 495-2200
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Trading Symbol
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Name of Each Exchange
on Which Registered
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Common
Stock, par value $.01 per share
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PTN
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NYSE
American
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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, as amended 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
(§232.405 of this chapter)
during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files).
Yes ☑ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act:
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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☑
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date (May 13,
2021): 230,049,691
PALATIN TECHNOLOGIES,
INC
.
Table of Contents
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3
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5
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6
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18
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23
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23
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23
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23
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24
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25
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Special Note Regarding Forward-Looking Statements
In this
Quarterly Report on Form 10-Q (this “Quarterly Report”)
references to “we,” “our,”
“us,” the “Company” or
“Palatin” means Palatin Technologies, Inc. and its
subsidiary.
Statements
in this Quarterly 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, as amended (the “Exchange Act”).
The forward-looking statements in this Quarterly Report do not
constitute guarantees of future performance. Investors are
cautioned that statements that are not strictly historical facts
contained in this Quarterly 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 develop the infrastructure
to successfully market and distribute Vyleesi in the United
States;
●
our ability to meet
post-marketing requirements of the U.S. Food and Drug
Administration (“FDA”) to conduct two additional
studies and one additional clinical trial for Vyleesi;
●
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;
●
Our ability to
successfully develop our 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;
●
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 Medicare, Medicaid, 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 Quarterly 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.
Palatin
Technologies® and Vyleesi® are registered trademarks of
Palatin Technologies, Inc. Other trademarks referred to in this
report are the property of their respective owners.
P
ART I
– FINANCIAL
INFORMATION
I
tem 1. Financial Statements.
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PALATIN TECHNOLOGIES, INC
.
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and
Subsidiary
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C
onsolidated Balance Sheets
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(unaudited)
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March 31,
2021
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June 30,
2020
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ASSETS
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Current
assets:
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Cash and cash
equivalents
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$
68,641,312
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$
82,852,270
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Accounts
receivable
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1,869,120
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-
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Inventories
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6,114,718
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-
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Prepaid expenses
and other current assets
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2,760,242
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738,216
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Total current
assets
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79,385,392
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83,590,486
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Property and
equipment, net
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107,376
|
140,216
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Right-of-use
assets
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1,322,326
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1,266,132
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Other
assets
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56,916
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56,916
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Total
assets
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$
80,872,010
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$
85,053,750
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
864,012
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$
715,672
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Accrued
expenses
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5,197,759
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2,899,097
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Short-term
operating lease liabilities
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347,070
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312,784
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Other current
liabilities
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3,628,000
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-
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Total current
liabilities
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10,036,841
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3,927,553
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Long-term operating
lease liabilities
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986,175
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953,348
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Other long-term
liabilities
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6,972,832
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-
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Total
liabilities
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17,995,848
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4,880,901
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Commitments and
contingencies (Note 13)
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Stockholders’
equity:
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Preferred stock of
$0.01 par value – authorized 10,000,000 shares; shares issued
and outstanding designated as follows:
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Series A
Convertible: authorized 264,000 shares: issued and outstanding
4,030 shares as of March 31, 2021 and June 30, 2020
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40
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40
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Common stock of
$0.01 par value – authorized 300,000,000 shares:
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issued and
outstanding 230,049,691 shares as of March 31, 2021 and 229,258,400
shares as of June 30, 2020
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2,300,497
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2,292,584
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Additional paid-in
capital
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398,436,738
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396,079,127
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Accumulated
deficit
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(337,861,113
)
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(318,198,902
)
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Total
stockholders’ equity
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62,876,162
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80,172,849
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Total liabilities
and stockholders’ equity
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$
80,872,010
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$
85,053,750
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The
accompanying notes are an integral part of these consolidated
financial statements.
1
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PALATIN
TECHNOLOGIES, INC.
|
||||
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and
Subsidiary
|
||||
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C
onsolidated Statements of Operations
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||||
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(unaudited)
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Three Months Ended
March 31,
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Nine Months Ended
March 31,
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2021
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2020
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2021
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2020
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REVENUES
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Product revenue,
net
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$
88,741
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$
-
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$
(363,790
)
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$
-
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License and
contract
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-
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-
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-
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117,989
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88,741
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-
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(363,790
)
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117,989
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OPERATING
EXPENSES
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Cost
of products sold
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55,440
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-
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110,040
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-
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Research and
development
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2,509,490
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3,641,250
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9,444,759
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10,026,363
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Selling, general
and administrative
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4,010,055
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2,072,032
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11,386,574
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6,308,567
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Gain on license
termination agreement
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-
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-
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(1,623,795
)
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-
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Total operating
expenses
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6,574,985
|
5,713,282
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19,317,578
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16,334,930
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Loss from
operations
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(6,486,244
)
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(5,713,282
)
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(19,681,368
)
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(16,216,941
)
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OTHER INCOME
(EXPENSE)
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Investment
income
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2,834
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331,285
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19,769
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1,101,921
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Foreign currency
gain
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753,750
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-
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8,748
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-
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Interest
expense
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-
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(278
)
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(9,360
)
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(11,831
)
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Total other income
(expense), net
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756,584
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331,007
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19,157
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1,090,090
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NET
LOSS
|
$
(5,729,660
)
|
$
(5,382,275
)
|
$
(19,662,211
)
|
$
(15,126,851
)
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Basic and diluted
net loss per common share
|
$
(0.02
)
|
$
(0.02
)
|
$
(0.08
)
|
$
(0.06
)
|
|
Weighted average
number of common shares outstanding used in computing basic and
diluted net loss per common share
|
236,832,283
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235,322,087
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236,525,514
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234,449,813
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The
accompanying notes are an integral part of these consolidated
financial statements.
2
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PALATIN
TECHNOLOGIES, INC.
|
|||||||
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and
Subsidiary
|
|||||||
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C
onsolidated Statements of Stockholders’
Equity
|
|||||||
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(unaudited)
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Three
Months Ended March 31, 2021
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Preferred
Stock
|
Common
Stock
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Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
Balance, December 31,
2020
|
4,030
|
$
40
|
230,034,307
|
$
2,300,343
|
$
397,666,196
|
$
(332,131,453
)
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$
67,835,126
|
|
Stock-based
compensation
|
-
|
-
|
21,875
|
219
|
775,086
|
-
|
775,305
|
|
Withholding taxes related to
restricted stock units
|
-
|
-
|
(6,491
)
|
(65
)
|
(4,544
)
|
-
|
(4,609
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(5,729,660
)
|
(5,729,660
)
|
|
Balance, March 31,
2021
|
4,030
|
$
40
|
230,049,691
|
$
2,300,497
|
$
398,436,738
|
$
(337,861,113
)
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$
62,876,162
|
|
Nine
Months Ended March 31, 2021
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|
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Preferred
Stock
|
Common
Stock
|
|
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
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
|
2,449,581
|
-
|
2,459,162
|
|
Withholding taxes related to
restricted stock units
|
-
|
-
|
(166,799
)
|
(1,668
)
|
(91,970
)
|
-
|
(93,638
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(19,662,211
)
|
(19,662,211
)
|
|
Balance, March 31,
2021
|
4,030
|
$
40
|
230,049,691
|
$
2,300,497
|
$
398,436,738
|
$
(337,861,113
)
|
$
62,876,162
|
The
accompanying notes are an integral part of these consolidated
financial statements.
3
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PALATIN
TECHNOLOGIES, INC.
|
|||||||
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and
Subsidiary
|
|||||||
|
Consolidated
Statements of Stockholders’ Equity
|
|||||||
|
|
|
(unaudited)
|
|
|
|
||
|
|
|
|
|
|
|
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|
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Three
Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
Common
Stock
|
|
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
Balance, December 31,
2019
|
4,030
|
$
40
|
229,174,754
|
$
2,291,748
|
$
394,592,802
|
$
(305,517,455
)
|
$
91,367,135
|
|
Stock-based
compensation
|
-
|
-
|
65,842
|
658
|
701,468
|
-
|
702,126
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(5,382,275
)
|
(5,382,275
)
|
|
Balance, March 31,
2020
|
4,030
|
$
40
|
229,240,596
|
$
2,292,406
|
$
395,294,270
|
$
(310,899,730
)
|
$
86,686,986
|
|
Nine
Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
Common
Stock
|
|
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
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
|
-
|
-
|
589,617
|
5,896
|
2,328,901
|
-
|
2,334,797
|
|
Withholding taxes related to
restricted stock units
|
-
|
-
|
(87,179
)
|
(872
)
|
(103,364
)
|
-
|
(104,236
)
|
|
Sale of common stock, net of
costs
|
-
|
-
|
1,895,934
|
18,959
|
1,562,539
|
-
|
1,581,498
|
|
Warrant
repurchases
|
-
|
-
|
-
|
-
|
(2,547,466
)
|
-
|
(2,547,466
)
|
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(15,126,851
)
|
(15,126,851
)
|
|
Balance, March 31,
2020
|
4,030
|
$
40
|
229,240,596
|
$
2,292,406
|
$
395,294,270
|
$
(310,899,730
)
|
$
86,686,986
|
The
accompanying notes are an integral part of these consolidated
financial statements.
4
|
PALATIN
TECHNOLOGIES, INC.
|
||
|
and
Subsidiary
|
||
|
C
onsolidated Statements of Cash Flows
|
||
|
(unaudited)
|
||
|
|
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2021
|
2020
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net
loss
|
$
(19,662,211
)
|
$
(15,126,851
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
(used
in) provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
38,561
|
50,759
|
|
Cash received in
excess of gain on termination agreement
|
14,676,205
|
-
|
|
Non-cash interest
expense
|
-
|
438
|
|
Decrease in
right-of-use asset
|
240,580
|
220,078
|
|
Unrealized foreign
currency transaction gains
|
(8,748
)
|
-
|
|
Stock-based
compensation
|
2,459,162
|
2,334,797
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(1,869,120
)
|
60,265,970
|
|
Prepaid expenses
and other assets
|
(2,022,026
)
|
(38,154
)
|
|
Inventories
|
(296,923
)
|
-
|
|
Accounts
payable
|
148,340
|
1,107,377
|
|
Accrued
expenses
|
(1,338
)
|
(1,191,455
)
|
|
Operating lease
liabilities
|
(229,661
)
|
(220,078
)
|
|
Other
liabilities
|
(7,584,420
)
|
-
|
|
Net cash (used in)
provided by operating activities
|
(14,111,599
)
|
47,402,881
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of
property and equipment
|
(5,721
)
|
(62,880
)
|
|
Net cash used in
investing activities
|
(5,721
)
|
(62,880
)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Payment of
withholding taxes related to restricted
|
|
|
|
stock
units
|
(93,638
)
|
(104,236
)
|
|
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
)
|
(1,903,055
)
|
|
|
|
|
|
NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
(14,210,958
)
|
45,436,946
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
82,852,270
|
43,510,422
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
68,641,312
|
$
88,947,368
|
|
|
|
|
|
SUPPLEMENTAL CASH
FLOW INFORMATION:
|
|
|
|
Cash paid for
interest
|
$
9,360
|
$
8,132
|
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
specialized 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 is hormone driven, with effects on food
intake, metabolism, sexual function, inflammation, and immune
system responses. There are five melanocortin receptors, MC1r
through MC5r. Modulation of these receptors, through use of
receptor-specific agonists, which activate receptor function, or
receptor-specific antagonists, which block receptor function, can
have significant pharmacological effects.
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 5, 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 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 March 31,
2021 of $337,861,113 and a net loss for the three and nine months
ended March 31, 2021 of $5,729,660 and $19,662,211, respectively,
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.
As of
March 31, 2021, the Company’s cash and cash equivalents were
$68,641,312 and current liabilities were $10,036,841. 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.
6
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Management
believes that the Company’s cash and cash equivalents as of
March 31, 2021 will be sufficient to fund its current operating
plans through at least twelve months from the date of issuance of
these consolidated financial statements. 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 will receive 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, including resurgence of cases in the United States, will
be on its business and it has the potential to materially adversely
affect its business, financial condition and results of operations
and cashflows during fiscal 2021 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. For the nine months ended March 31,
2021, the Company recorded a gain of $1,623,795 related to the
termination of the AMAG License Agreement. For the nine months
ended March 31, 2020, the Company reported $117,989 in revenue
related to the AMAG License Agreement.
(2)
BASIS
OF PRESENTATION
The
accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”)
for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and
footnote disclosures required to be presented for complete
financial statements. In the opinion of management, these
consolidated financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary
for fair presentation. The results of operations for the three and
nine months ended March 31, 2021 may not necessarily be indicative
of the results of operations expected for the full
year.
The
accompanying unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2020, filed with
the Securities and Exchange Commission (“SEC”), which
includes consolidated financial statements as of June 30, 2020 and
2019 and for each of the fiscal years in the three-year period
ended June 30, 2020.
7
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(3)
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
– The consolidated
financial statements include the accounts of Palatin 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 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.
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 $68,452,269 and $82,406,697 in a money
market account at March 31, 2021 and June 30, 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.
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 cost of products
sold. Once packaged, inventory has a shelf-life ranging from three
to five years.
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.
Accumulated depreciation and amortization was $2,491,405 and
$2,452,845 as of March 31, 2021 and June 30, 2020,
respectively.
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.
8
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
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 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.
The
Company extended its lease for existing laboratory space through
October 31, 2023 and during the three months ended March 31, 2021
recorded an additional $296,774 in ROU assets and lease
obligations. The Company also has operating leases for office
space, which expires on June 30, 2025, copier equipment that expire
on October 15, 2021, and phone equipment that expire on June 30,
2023.
Revenue Recognition
– The Company principally sells
Vyleesi to specialty pharmacies and payment is currently made
within approximately 30 days. The specialty pharmacies subsequently
resell the products to healthcare providers and patients. In
addition to distribution agreements with customers, the Company
enters into arrangements with healthcare providers and payers that
provide for privately negotiated rebates, chargebacks, and
discounts with respect to the purchase of the Company’s
products.
Revenue
from product sales is recognized when control is transferred to the
customer, which generally occurs at the point in time when the
goods are shipped. In instances when the Company performs shipping
and handling activities, these are considered fulfillment
activities, and accordingly, the costs are accrued when the related
revenue is recognized.
The
Company records product revenues net of allowances for direct and
indirect fees, discounts, 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 three
and nine months ended March 31, 2021 as follows:
|
|
Three Months Ended
March 31, 2021
|
Nine Months Ended
March 31, 2021
|
|
|
|
|
|
Gross product
sales
|
$
1,780,020
|
$
3,533,070
|
|
Provision
for product sales allowances and accruals
|
(1,691,279
)
|
(3,896,860
)
|
|
Net
sales
|
$
88,741
|
$
(363,790
)
|
9
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
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.
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. 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. 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”) Accounting Standards Codification
(“ASC”) Topic 260,
Earnings per Share
.
For the
three and nine months ended March 31, 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 three and nine
months ended March 31, 2021 and 2020 was 37,336,040 and 33,166,477,
respectively.
10
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Included
in the weighted average common shares used in computing basic and
diluted net loss per common share are 6,776,750 and 6,079,250
vested restricted stock units that had not been issued as of March
31, 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.
(4)
NEW
AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the FASB issued Accounting Standards Update
(“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
Company is currently evaluating the potential effects of this
guidance on its 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.
(5)
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.
11
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Following
the satisfaction of certain conditions to closing, the AMAG License
Agreement became effective on February 2, 2017, and AMAG paid the
Company $60,000,000 as a one-time initial payment. Under the AMAG
License Agreement, AMAG reimbursed the Company $25,000,000 for
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.
The
Company determined there was no stand-alone value for the license,
and that the license and the reimbursable direct out-of-pocket
expenses, pursuant to the terms of the AMAG License Agreement,
represented a combined unit of accounting which totaled
$85,000,000. The Company recognized revenue of the combined unit of
accounting over the arrangement using the input-based proportional
method as the Company completed its development obligations. During
the nine months ended March 31, 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. The
FDA’s acceptance triggered a $20,000,000 milestone payment to
Palatin from AMAG. As a result, the Company recognized $20,000,000
in revenue related to regulatory milestones in fiscal 2018. On June
21, 2019, the FDA granted approval of Vyleesi for use in the United
States. The FDA’s approval triggered a $60,000,000 milestone
payment to Palatin from AMAG. As a result, the Company recognized
$60,000,000 in revenue related to regulatory milestones in fiscal
2019.
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 has 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 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. As a result, the Company recorded a net gain for the
Termination Agreement of $1,623,795. The Company has assumed all
Vyleesi manufacturing agreements, and AMAG transferred information,
data, and assets related exclusively to Vyleesi to the Company,
including existing inventory with a fair value of
$5,817,795.
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 is reimbursing AMAG for the agreed upon costs of the
transition services.
(6)
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 5.
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 13) 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
13).
12
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
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 13).
(7)
AGREEMENT
WITH FOSUN:
On
September 6, 2017, the Company entered into a license agreement
with Fosun (“Fosun License Agreement”) for exclusive
rights to commercialize Vyleesi in China. 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.
Palatin 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.
(8)
AGREEMENT
WITH KWANGDONG:
On
November 21, 2017, the Company entered into a
license agreement with Kwangdong
(
“Kwangdong License Agreement”) for exclusive
rights to commercialize Vyleesi in Korea. 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. Palatin 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.
(9)
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses
and other
current assets consist of the following:
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
Clinical /
regulatory costs
|
$
313,761
|
$
43,625
|
|
Insurance
premiums
|
39,377
|
84,741
|
|
Vyleesi contractual
advances
|
1,200,000
|
-
|
|
Other
|
1,207,104
|
609,850
|
|
|
$
2,760,242
|
$
738,216
|
|
|
|
|
13
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(10)
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)
|
|
March 31,
2021:
|
|
|
|
|
|
Money Market
Account
|
$
68,452,269
|
$
68,452,269
|
$
-
|
$
-
|
|
June 30,
2020:
|
|
|
|
|
|
Money Market
Account
|
$
82,406,697
|
$
82,406,697
|
$
-
|
$
-
|
(11)
ACCRUED
EXPENSES
Accrued
expenses
consist of the
following:
|
|
March
31,
|
June
30,
|
|
|
2021
|
2020
|
|
Clinical /
regulatory costs
|
$
325,546
|
$
1,722,729
|
|
Other research
related expenses
|
854,176
|
586,185
|
|
Professional
services
|
60,047
|
217,662
|
|
Inventory
purchases
|
2,300,000
|
-
|
|
Selling
expenses
|
1,542,475
|
-
|
|
Other
|
115,515
|
372,521
|
|
|
$
5,197,759
|
$
2,899,097
|
(12)
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. 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 nine months ended March 31, 2020, the loan
matured, and on July 31, 2019, the Company made the final
incremental payment of $500,000.
14
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(13)
COMMITMENTS
AND CONTINGENCIES
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 March 31,
2021:
|
|
Total
|
Current
|
1-3
Years
|
4-5
Years
|
|
Inventory purchase
commitments
|
$
11,072,000
|
$
3,628,000
|
$
6,484,000
|
$
960,000
|
As of
March 31, 2021, the Company has $3,628,000 and $6,972,832 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.
The Company is subject to numerous 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.
(14)
STOCKHOLDERS’
EQUITY
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.
Proceeds raised under the 2019 Equity Distribution Agreement are as
follows:
|
|
Nine Months Ended
March 31, 2021
|
Nine Months Ended
March 31, 2020
|
Cumulative from
inception
|
|||
|
|
Shares
|
Proceeds
|
Shares
|
Proceeds
|
Shares
|
Proceeds
|
|
Gross
proceeds
|
-
|
$
-
|
1,895,934
|
$
1,723,194
|
9,460,509
|
$
12,330,242
|
|
Fees
|
-
|
-
|
-
|
(51,696
)
|
-
|
(369,908
)
|
|
Expenses
|
-
|
-
|
-
|
(90,000
)
|
-
|
(90,000
)
|
|
Net
proceeds
|
-
|
$
-
|
1,895,934
|
$
1,581,498
|
9,460,509
|
$
11,870,334
|
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.
15
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
During
the nine months ended March 31, 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:
|
|
Nine months ended
March 31, 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 nine months ended March 31, 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.
Stock Options –
For the three and nine months ended
March 31, 2021, the Company recorded stock-based compensation
related to stock options of $453,439 and $1,409,224, respectively.
For the three and nine months ended March 31, 2020, the Company
recorded stock-based compensation related to stock options of
$348,880 and $1,027,604, respectively.
A
summary of stock option activity is as follows:
|
|
Number of
Shares
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Term in Years
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - June
30, 2020
|
19,902,450
|
$
0.76
|
7.4
|
$
380,514
|
|
|
|
|
|
|
|
Granted
|
409,500
|
0.69
|
|
|
|
Forfeited
|
(487,126
)
|
0.75
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Expired
|
(14,000
)
|
1.70
|
|
|
|
Outstanding - March
31, 2021
|
19,810,824
|
$
0.76
|
6.7
|
$
1,631,093
|
|
|
|
|
|
|
|
Exercisable at
March 31, 2021
|
11,517,324
|
$
0.78
|
5.2
|
$
873,610
|
|
|
|
|
|
|
|
Expected to vest at
March 31, 2021
|
8,293,500
|
$
0.74
|
8.6
|
$
757,483
|
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.
16
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
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 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 three months ended
December 31, 2020, 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 Company’s
2011 Stock Incentive Plan (“2011 Stock Plan”) and
available for future grant.
Restricted Stock Units
–
For the three and nine months
ended March 31, 2021, the Company recorded stock-based compensation
related to restricted stock units of $321,866 and $1,049,938,
respectively. For the three and nine months ended March 31, 2020,
the Company recorded stock-based compensation related to restricted
stock units of $353,246 and $1,307,193, respectively.
A
summary of restricted stock unit activity is as
follows:
|
|
RSUs
|
|
Outstanding at July
1, 2020
|
12,965,570
|
|
Granted
|
-
|
|
Forfeited
|
(411,068
)
|
|
Vested
|
(958,090
)
|
|
Outstanding at
March 31, 2021
|
11,596,412
|
Included
in outstanding restricted stock units in the table above are
6,776,750 vested shares that have not been issued as of March 31,
2021 due to a provision in the restricted stock unit agreements to
delay delivery.
Time-based
restricted stock units granted to the Company’s executive
officers, employees, and non-employee directors generally vest over
48 months, 48 months, and 12 months, respectively.
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 three months ended December 31, 2020, 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.
17
I
tem 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes to the
consolidated financial statements filed as part of this report and
the audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended June
30, 2020.
The following discussion and analysis contain forward-looking
statements within the meaning of the federal securities laws. You
are urged to carefully review our description and examples of
forward-looking statements included earlier in this Quarterly
Report immediately prior to Part I, under the heading
“Special Note Regarding Forward-Looking Statements.”
Forward-looking statements are subject to risk that could cause
actual results to differ materially from those expressed in the
forward-looking statements. You are urged to carefully review the
disclosures we make concerning risks and other factors that may
affect our business and operating results, including those made in
this Quarterly Report and our Annual Report on Form 10-K for the
year ended June 30, 2020, as well as any of those made in our other
reports filed with the SEC. You are cautioned not to place undue
reliance on the forward-looking statements included herein, which
speak only as of the date of this document. We do not intend, and
undertake no obligation, to publish revised forward-looking
statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated
events.
Critical Accounting Policies and Estimates
Our
significant accounting policies, which are described in the notes
to our consolidated financial statements included in this report
and in our Annual Report on Form 10-K for the year ended June 30,
2020, have not changed during the three and nine months ended March
31, 2021 with the exception of product revenue, inventory, and
purchase commitment liabilities. The preparation of our financial
statements requires us to make estimates and assumptions that
affect the reported carrying value of inventory and purchase
commitment liabilities. Actual results may differ from these
estimates under different assumptions or conditions. In addition to
the policies related to the carrying value of inventory and
purchase commitment liabilities, we believe that our accounting
policies and estimates relating to revenue recognition, accrued
expenses, and stock-based compensation are the most
critical.
Overview
We are
a specialized biopharmaceutical company developing first-in-class
medicines based on molecules that modulate the activity of the
melanocortin and natriuretic peptide receptor systems. Our product
candidates are targeted, receptor-specific therapeutics for the
treatment of diseases with significant unmet medical need and
commercial potential.
In
January 2020, our North American licensee for Vyleesi®
(bremelanotide injection), AMAG Pharmaceuticals, Inc.
(“AMAG”), announced that it had completed a strategic
review of its product portfolio and business strategy, and was
pursuing options to divest its female health products, including
Vyleesi. On July 27, 2020, Palatin and AMAG announced that they had
mutually terminated the license agreement for Vyleesi effective
July 24, 2020, and that we were assuming responsibility for
manufacturing, marketing, and distribution of Vyleesi in North
America, including the United States.
Melanocortin Receptor System.
The melanocortin receptor
(“MCr”) system is hormone driven, with effects on food
intake, metabolism, sexual function, inflammation, and immune
system responses. There are five melanocortin receptors, MC1r
through MC5r. Modulation of these receptors, through use of
receptor-specific agonists, which activate receptor function, or
receptor-specific antagonists, which block receptor function, can
have significant pharmacological effects.
Our
lead product, Vyleesi, was approved by the FDA on June 21, 2019,
and since July 24, 2020 we have been marketing Vyleesi in the
United States. Prior to July 24, 2020, the product was marketed in
North America by AMAG pursuant to a license agreement that was
terminated on that date. Vyleesi, a melanocortin receptor agonist,
is an “as needed” therapy used in anticipation of
sexual activity and self-administered by premenopausal women with
HSDD in the thigh or abdomen via a single-use subcutaneous
auto-injector. The most common adverse events 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.
Our
current new product development activities focus primarily on
peptides which are agonists at MC1r, and in some instances
additional melanocortin receptors, 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. We believe that the
MC1r agonist peptides we are developing have broad
anti-inflammatory effects and appear to utilize mechanisms engaged
by the endogenous melanocortin system in regulation of the immune
system and resolution of inflammatory responses. We are also
developing peptides that are active at more than one melanocortin
receptor, and MC4r peptide and small molecule agonists with
potential utility in 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 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 different natriuretic peptide receptors, including
natriuretic peptide receptor-A (“NPR-A”), natriuretic
peptide receptor B (“NPR-B”), and natriuretic peptide
receptor C (“NPR-C”).
18
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.
19
Our 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 seeking
licensees for Vyleesi in the United States and additional
regions;
●
Assembling and
maintaining a team to create, develop and commercialize MCr and NPR
products addressing unmet medical needs;
●
Entering into
strategic alliances and partnerships with pharmaceutical companies
to facilitate the development, manufacture, marketing, sale, and
distribution of product candidates that we are
developing;
●
Partially funding
our product development programs with the cash flow generated from
existing license agreements, as well as any future research,
collaboration, or license agreements; and
●
Completing
development and seeking regulatory approval of certain of our other
product candidates.
We were
incorporated under the laws of the State of Delaware on November
21, 1986 and commenced operations in the biopharmaceutical area in
1996. Our corporate offices are located at 4B Cedar Brook Drive,
Cedar Brook Corporate Center, Cranbury, New Jersey 08512, and our
telephone number is (609) 495-2200. We maintain an Internet site,
where among other things, we make available free of charge on and
through this website our Forms 3, 4 and 5, annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) and Section 16 of the Exchange Act as soon
as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. Our website and the
information contained in it or connected to it are not incorporated
into this Quarterly Report on Form 10-Q. The reference to our
website is an inactive textual reference only.
The SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC (
www.sec.gov
).
Results of Operations
Three and Nine Months Ended March 31, 2021 Compared to the Three
and Nine Months Ended March 31, 2020:
Revenues –
For the three and nine months ended March
31, 2021 we recognized $88,741 and $(363,790) in product revenue,
net of allowances as the result of our regaining all North American
development and commercialization rights to Vyleesi in July 2020
(see Note 3 of our accompanying consolidated financial statements).
For the nine months ended March 31, 2021, we recognized no contract
and license revenue compared to $117,989 for the nine months ended
March 31, 2020 pursuant to our prior license agreement with
AMAG.
Research and Development
– Research and development
expenses were $2,509,490 and $9,444,759 for the three and nine
months ended March 31, 2021, respectively, compared to $3,641,250
and $10,026,363 for the three and nine months ended March 31, 2020,
respectively. The decrease for the three and nine months ended
March 31, 2021, as compared to the three and nine months ended
March 31, 2020, is related to the overall decrease in spending on
our MCr programs.
Research
and development expenses related to our Vyleesi, MCr programs and
other preclinical programs were $1,381,864 and $6,254,088 for the
three and nine months ended March 31, 2021, respectively, compared
to $2,801,779 and $7,458,837 for the three and nine months ended
March 31, 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 $1,127,626 and $3,190,671 for the
three and nine months ended March 31, 2021, respectively, compared
to $839,471 and $2,567,526 for the three and nine months ended
March 31, 2020, respectively. The increase in general research and
development spending for the three and nine months ended March 31,
2021 compared to the three and nine months ended March 31, 2020 is
primarily attributable to an increase in compensation related
expenses.
Cumulative
spending from inception to March 31, 2021 was approximately
$311,900,000 on our Vyleesi program and approximately $163,600,000
on all our other programs (which include PL3994, melanocortin
receptor agonists, other discovery programs and terminated
programs). Due to various risk factors described in our Annual
Report on Form 10-K for the year ended June 30, 2020, 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.
20
Cost of Products Sold –
Cost of products sold was
$55,440 and $110,040 for the three and nine months ended March 31,
2021, respectively.
Selling, General and Administrative
– Selling, general
and administrative expenses, which consist mainly of compensation
and related costs, were $4,010,055 and $11,386,574 for the three
and nine months ended March 31, 2021, respectively, compared to
$2,072,032 and $6,308,567 for the three and nine months ended March
31, 2020, respectively. The increase in selling, general and
administrative expenses for the three and nine months ended March
31, 2021 is primarily attributable to selling expenses related to
Vyleesi and an increase in compensation related expenses offset by
the final payment made in connection with the Greenhill agreement
during the nine months ended March 31, 2020.
Gain on License Termination Agreement
- For the nine months
ended March 31, 2021, we recorded a gain of $1,623,795 as a result
of the Vyleesi Termination Agreement. (see Note 5 of the
accompanying consolidated financial statements).
Other Income (Expense)
– Total other income, net was
$756,584 and $19,157 for the three and nine months ended March 31,
2021, respectively, compared to total other income, net of $331,007
and $1,090,090 for the three and nine months ended March 31, 2020,
respectively. For the nine months ended March 31, 2021, we
recognized investment income of $19,769 and unrealized foreign
currency gain of $8,748 offset by $9,360 of interest expense. For
the nine months ended March 31, 2020, we recognized $1,101,921 of
investment income offset by $11,831 of interest expense. The
decrease in other income (expense) for the nine months ended March
31, 2021 compared to the nine months ended March 31, 2020 is the
result of lower interest rates. For the three months ended March
31, 2021, we recognized $753,750 of unrealized foreign currency
gain and $2,834 of investment income. For the three months ended
March 31, 2020, we recognized $331,285 of investment income offset
by $278 of interest expense. The increase in other income (expense)
for the three months ended March 31, 2021 compared to the three
months ended March 31, 2020 is a result of an increase to foreign
currency gain offset by lower interest rates.
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;
●
product approval or
clearance;
●
regulatory
compliance;
●
good manufacturing
practices (“GMP”) compliance;
●
intellectual
property rights;
●
product
introduction;
●
marketing, sales,
and competition; and
●
obtaining
sufficient capital.
21
Failure
to enter into or successfully perform under collaboration
agreements and obtain timely regulatory approval for our product
candidates and indications would impact our ability to increase
revenues and could make it more difficult to attract investment
capital for funding our operations. Any of these possibilities
could materially and adversely affect our operations and require us
to curtail or cease certain programs.
During
the nine months ended March 31, 2021, net cash used in operating
activities was $14,111,599 compared to cash provided by operating
activities of $47,402,881 for the nine months ended March 31, 2020.
The difference in cash used in operations for the nine months ended
March 31, 2021 compared to cash provided by operating activities
for the nine months ended March 31, 2020 was primarily related to
the timing of the receipt of payments related to our license
agreement with AMAG, including payments related to the FDA’s
approval of Vylessi.
During
the nine months ended March 31, 2021, net cash used in investing
activities was $5,721 compared to $62,880 for the nine months ended
March 31, 2020 for the purchase of equipment.
During
the nine months ended March 31, 2021, net cash used in financing
activities was $93,638 which consisted of payment of withholding
taxes related to restricted stock units. During the nine months
ended March 31, 2020, net cash used in financing activities was
$1,903,055, which consisted of payment on a note payable obligation
of $832,851, repurchase and cancellation of outstanding warrants of
$2,547,466 and payment of withholding taxes related to restricted
stock units of $104,236 offset by net proceeds from the sale of
common stock of $1,581,498 in our “at-the-market”
offering program
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 Vylessi and to complete our planned product
development efforts. Continued operations are dependent upon our
ability to generate future income from sales of Vylessi in the
United States and from existing licenses, including royalties and
milestones, to complete equity or debt financing activities and to
enter into additional licensing or collaboration arrangements. As
of March 31, 2021, our cash and cash equivalents were $68,641,312
and our current liabilities were $10,036,841.
We
intend to utilize existing capital resources for general corporate
purposes and working capital, establishing marketing and
distribution capabilities for Vyleesi in the United States,
preclinical and clinical development of our MC1r and MC4r peptide
programs and natriuretic peptide program, and development of other
portfolio products.
We
believe that our existing capital resources 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 other product candidates and development programs and, if
those clinical trials are successful (which we cannot predict), to
complete submission of required regulatory applications to the FDA.
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 2021 and
beyond.
We
expect to incur significant expenses as we continue to develop
marketing and distribution capability for Vylessi in the United
States and continue to develop our natriuretic peptide and MC1r
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.
Contractual Obligations
There
have been no material changes outside the ordinary course of
business to our contractual obligations and commitments, as
disclosed in our Annual Report on Form 10-K for the year ended June
30, 2020, as updated in our Form 10-Q for the quarter ended
December 31, 2020.
I
tem 3. Quantitative and Qualitative
Disclosures About Market Risk.
Not
required to be provided by smaller reporting
companies.
I
tem 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, 2021. 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.
22
P
ART II – OTHER
INFORMATION
I
tem 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.
I
tem 1A. Risk
Factors.
This
report and other documents we file with the SEC contain
forward-looking statements that are based on current expectations,
estimates, forecasts and projections about us, our future
performance, our business, our beliefs, and our management’s
assumptions. These statements are not guarantees of future
performance, and they involve certain risks, uncertainties and
assumptions that are difficult to predict. You should carefully
consider the risks and uncertainties facing our
business.
There
have been no material changes to our risk factors disclosed in Part
I, Item 1A, of our Annual Report on Form 10-K for the year ended
June 30, 2020.
I
tem 2. Unregistered Sales of
Equity Securities and Use of Proceeds.
As
disclosed in the table below, 6,491 shares were withheld during the
three months ended March 31, 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 employees from the
vesting of those units:
|
Fiscal Month
Period
|
Total Number of
Shares Purchased
(1)
|
Weighted Average
Price per Share
|
Total Number of
Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum Number of
Shares that May Yet be Purchased Under Announced Plans or
Programs
|
|
January 1, 2021
through January 31, 2021
|
-
|
$
-
|
-
|
-
|
|
February 1, 2021
through February 28, 2021
|
-
|
-
|
-
|
-
|
|
March 1, 2021
through March 31, 2021
|
6,491
|
0.71
|
-
|
-
|
|
Total
|
6,491
|
$
0.71
|
-
|
-
|
|
|
|
|
|
|
(1)
Consists solely of 6,491 shares that were withheld to
satisfy tax withholding amounts due from employees upon the vesting
of previously issued restricted stock units.
I
tem 3. Defaults Upon Senior
Securities.
None.
I
tem 4. Mine Safety
Disclosures.
Not
applicable.
I
tem 5. Other
Information.
None.
23
I
tem 6. Exhibits.
Exhibits
filed or furnished with this report:
|
Exhibit Number
|
Description
|
Filed Herewith
|
Form
|
Filing Date
|
SEC File No.
|
|
Certification
of Chief Executive Officer.
|
X
|
|
|
|
|
|
Certification
of Chief Financial Officer.
|
X
|
|
|
|
|
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
|
|
|
|
|
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
|
|
|
|
|
|
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
|
|
|
|
*In
accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC
Release Nos. 33-8238 and 34-47986, Final Rule: Management’s
Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, the
certification furnished in Exhibits 32.1 and 32.2 hereto are deemed
to accompany this Quarterly Report on Form 10-Q and will not be
deemed “filed” for purposes of Section 18 of the
Exchange Act. Such certification will not be deemed to be
incorporated by reference into any filing under the Securities Act
or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference.
24
S
IGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
|
|
Palatin Technologies, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|||
|
|
|||
|
|
|
/s/
Carl Spana
|
|
|
Date:
May 14, 2021
|
|
Carl
Spana, Ph.D.
President
and
Chief
Executive Officer (Principal
Executive
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen T. Wills
|
|
|
Date:
May 14, 2021
|
|
Stephen
T. Wills, CPA, MST
Executive
Vice President, Chief Financial Officer and Chief Operating
Officer
(Principal
Financial and Accounting Officer)
|
|
25
TABLE OF CONTENTS
Part IItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits