PALATIN TECHNOLOGIES INC - Quarter Report: 2017 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark
One)
| ☒ |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
quarterly period ended March 31, 2017
or
| ☐ |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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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)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes ☒ No
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large accelerated
filer
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☐
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Accelerated
filer
|
☐
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Non-accelerated
filer
|
☐
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Smaller reporting
company
|
☒
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|
(Do not check if a smaller reporting
company)
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|
Emerging growth
company
|
☐
|
If an
emerging growth company, indicated by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) for the Exchange Act.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
As of May 11, 2017,
152,801,806 shares
of the registrant’s common stock, par value $0.01 per share,
were outstanding.
PALATIN TECHNOLOGIES, INC.
Table of Contents
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Page
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PART I – FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
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Consolidated
Balance Sheets as of March 31, 2017 and June 30, 2016
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4
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Consolidated
Statements of Operations for the Three and Nine Months Ended
March
31, 2017 and 2016
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5
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Consolidated
Statements of Comprehensive Loss for the Three and Nine Months
Ended March 31, 2017 and
2016
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6
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Consolidated
Statements of Cash Flows for the Nine Months Ended
March
31, 2017 and 2016
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7
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Notes
to Consolidated Financial Statements
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8
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Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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18
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Item 3. Quantitative and Qualitative Disclosures About Market
Risk
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21
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Item 4. Controls and Procedures
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22
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PART
II – OTHER INFORMATION
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Item 1. Legal Proceedings
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23
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Item 1A. Risk Factors
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23
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Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
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25
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Item 3. Defaults Upon Senior Securities
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26
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Item 4. Mine Safety Disclosures
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26
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Item 5. Other Information
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26
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Item 6. Exhibits
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26
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Signatures
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27
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2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this
Quarterly Report on Form 10-Q, references to “we”,
“our”, “us” or “Palatin” means
Palatin Technologies, Inc. and its subsidiary.
Statements
in this Quarterly Report on Form 10-Q, as well as oral statements
that may be made by us or by our officers, directors, or employees
acting on our behalf, that are not historical facts constitute
“forward-looking statements”, which are made pursuant
to the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act). The
forward-looking statements in this Quarterly Report on Form 10-Q do
not constitute guarantees of future performance. Investors are
cautioned that statements that are not strictly historical
statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, the following are forward looking
statements:
●
estimates of our
expenses, future revenue and capital requirements;
●
our ability to
obtain additional financing on terms acceptable to us, or at
all;
●
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 expectation
regarding the timing of our regulatory submissions for approval of
bremelanotide for HSDD in the United States and
Europe;
●
our expectation
regarding performance of our exclusive licensee of bremelanotide
for North America, AMAG Pharmaceuticals, Inc. (AMAG);
●
the potential for
commercialization of bremelanotide for HSDD in North America by
AMAG and other product candidates, if approved, by us;
●
our expectations
regarding the potential market size and market acceptance for
bremelanotide for HSDD and our other product candidates, if
approved for commercial use;
●
our ability to
compete with other products and technologies similar to 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 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;
●
our compliance with
federal and state laws and regulations;
●
the timing and
costs associated with obtaining regulatory approval for our product
candidates;
●
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; and
●
our ability to
remain listed on the NYSE MKT.
Such
forward-looking statements involve risks, uncertainties and other
factors that could cause our actual results to be materially
different from historical results or from any results expressed or
implied by such forward-looking statements. Our future operating
results are subject to risks and uncertainties and are dependent
upon many factors, including, without limitation, the risks
identified in this report, in our Annual Report on Form 10-K for
the year ended June 30, 2016, and in our other Securities and
Exchange Commission (SEC) filings.
We
expect to incur losses in the future as a result of spending on our
planned development programs and results may fluctuate
significantly from quarter to quarter.
Palatin
Technologies® is a registered trademark of Palatin
Technologies, Inc.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial
Statements
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Balance Sheets
(unaudited)
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March
31,
2017
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June
30,
2016
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ASSETS
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Current
assets:
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Cash and cash
equivalents
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$54,505,215
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$8,002,668
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Available-for-sale
investments
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924,790
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1,380,556
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Accounts
receivable
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4,657,577
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-
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Prepaid expenses
and other current assets
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1,064,112
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1,313,841
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Total current
assets
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61,151,694
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10,697,065
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Property and
equipment, net
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74,910
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97,801
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Other
assets
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56,916
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63,213
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Total
assets
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$61,283,520
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$10,858,079
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LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
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Current
liabilities:
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Accounts
payable
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$1,243,144
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$713,890
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Accrued
expenses
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8,316,692
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7,767,733
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Notes payable, net
of discount and debt issuance costs
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7,792,639
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5,374,951
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Capital lease
obligations
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21,331
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27,424
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Deferred
revenue
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53,833,828
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-
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Total current
liabilities
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71,207,634
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13,883,998
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Notes payable, net
of discount and debt issuance costs
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8,250,004
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14,106,594
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Capital lease
obligations
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-
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14,324
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Other non-current
liabilities
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684,831
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439,130
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Total
liabilities
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80,142,469
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28,444,046
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Stockholders’
deficiency:
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Preferred stock of
$0.01 par value – authorized 10,000,000 shares:
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Series A
Convertible: issued and outstanding 4,030 shares as of March 31,
2017 and June 30, 2016
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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 144,893,690 shares as of March 31, 2017 and 68,568,055
shares as of June 30, 2016, respectively
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1,448,937
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685,680
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Additional paid-in
capital
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349,752,596
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325,142,509
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Accumulated other
comprehensive loss
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(1,419)
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(1,944)
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Accumulated
deficit
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(370,059,103)
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(343,412,252)
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Total
stockholders’ deficiency
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(18,858,949)
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(17,585,967)
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Total liabilities
and stockholders’ deficiency
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$61,283,520
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$10,858,079
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The
accompanying notes are an integral part of these consolidated
financial statements.
4
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Operations
(unaudited)
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Three Months
Ended March 31,
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Nine Months
Ended March 31,
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2017
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2016
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2017
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2016
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REVENUES:
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Contract
revenue
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$10,823,748
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$-
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$10,823,748
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$-
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OPERATING
EXPENSES:
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Research and
development
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9,062,316
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10,676,342
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28,422,975
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32,546,363
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General and
administrative
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4,773,696
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1,409,406
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7,289,342
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3,965,460
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Total operating
expenses
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13,836,012
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12,085,748
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35,712,317
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36,511,823
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Loss from
operations
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(3,012,264)
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(12,085,748)
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(24,888,569)
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(36,511,823)
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OTHER INCOME
(EXPENSE):
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Interest
income
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6,304
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15,062
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18,940
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39,036
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Interest
expense
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(558,702)
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(625,832)
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(1,777,222)
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(1,883,334)
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Total other income
(expense), net
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(552,398)
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(610,770)
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(1,758,282)
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(1,844,298)
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NET
LOSS
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$(3,564,662)
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$(12,696,518)
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$(26,646,851)
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$(38,356,121)
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Basic and diluted
net loss per common share
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$(0.02)
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$(0.08)
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$(0.15)
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$(0.25)
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Weighted average
number of common shares outstanding used in computing basic and
diluted net loss per common share
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196,580,519
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156,368,617
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179,841,133
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156,301,259
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The
accompanying notes are an integral part of these consolidated
financial statements.
5
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Comprehensive Loss
(unaudited)
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Three Months
Ended March 31,
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Nine Months
Ended March 31,
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2017
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2016
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2017
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2016
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Net
loss
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$(3,564,662)
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$(12,696,518)
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$(26,646,851)
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$(38,356,121)
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Other comprehensive
income (loss):
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Unrealized gain
(loss) on available-for-sale investments
|
587
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6,819
|
525
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(2,570)
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Total comprehensive
loss
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$(3,564,075)
|
$(12,689,699)
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$(26,646,326)
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$(38,358,691)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
6
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
|
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Nine Months
Ended March 31,
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2017
|
2016
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CASH FLOWS FROM
OPERATING ACTIVITIES:
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Net
loss
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$(26,646,851)
|
$(38,356,121)
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Adjustments
to reconcile net loss to net cash
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used
in operating activities:
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|
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Depreciation and
amortization
|
22,891
|
33,221
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Non-cash interest
expense
|
234,056
|
244,476
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Stock-based
compensation
|
1,404,721
|
1,318,298
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Changes in
operating assets and liabilities:
|
|
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Accounts
receivable
|
(4,657,577)
|
-
|
|
Prepaid expenses
and other assets
|
256,026
|
447,824
|
|
Accounts
payable
|
529,254
|
676,798
|
|
Accrued
expenses
|
546,474
|
1,710,417
|
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Deferred
revene
|
53,833,828
|
-
|
|
Other non-current
liabilities
|
245,701
|
260,870
|
|
Net cash provided
by (used in) operating activities
|
25,768,523
|
(33,664,217)
|
|
|
|
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CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
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Proceeds from
matured investments
|
450,000
|
-
|
|
Purchase of
investments
|
-
|
(1,387,022)
|
|
Purchases of
property and equipment
|
-
|
(17,695)
|
|
Net cash provided
by (used in) investing activities
|
450,000
|
(1,404,717)
|
|
|
|
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CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Payments on capital
lease obligations
|
(20,418)
|
(19,262)
|
|
Payment of
withholding taxes related to restricted
|
|
|
|
stock
units
|
(222)
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(131,959)
|
|
Payment on notes
payable obligations
|
(3,666,666)
|
-
|
|
Proceeds from
exercise of warrants
|
114,358
|
-
|
|
Proceeds from the
sale of common stock and
|
|
|
|
warrants, net of
costs
|
23,856,972
|
19,834,278
|
|
Proceeds from the
issuance of notes payable and warrants
|
-
|
10,000,000
|
|
Payment of debt
issuance costs
|
-
|
(146,115)
|
|
Net cash provided
by financing activities
|
20,284,024
|
29,536,942
|
|
|
|
|
|
NET INCREASE IN
CASH AND CASH EQUIVALENTS
|
46,502,547
|
(5,531,992)
|
|
|
|
|
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CASH AND CASH
EQUIVALENTS, beginning of period
|
8,002,668
|
27,299,268
|
|
|
|
|
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CASH AND CASH
EQUIVALENTS, end of period
|
$54,505,215
|
$21,767,276
|
|
|
|
|
|
SUPPLEMENTAL CASH
FLOW INFORMATION:
|
|
|
|
Cash paid for
interest
|
$1,299,731
|
$1,377,987
|
|
Issuance of
warrants in connection with debt financing
|
-
|
305,196
|
|
Unrealized loss on
available-for-sale investments
|
-
|
2,570
|
The
accompanying notes are an integral part of these consolidated
financial statements.
7
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(1)
ORGANIZATION:
Nature of Business – Palatin Technologies, Inc.
(Palatin or the Company) is a biopharmaceutical company developing
targeted, receptor-specific peptide therapeutics for the treatment
of diseases with significant unmet medical need and commercial
potential. Palatin’s programs are based on molecules that
modulate the activity of the melanocortin and natriuretic peptide
receptor systems. The melanocortin system is involved in a large
and diverse number of physiologic functions, and therapeutic agents
modulating this system may have the potential to treat a variety of
conditions and diseases, including sexual dysfunction, obesity and
related disorders, cachexia (wasting syndrome) and
inflammation-related diseases. The natriuretic peptide receptor
system has numerous cardiovascular functions, and therapeutic
agents modulating this system may be useful in treatment of acute
asthma, heart failure, hypertension and other cardiovascular
diseases.
The
Company’s primary product in development is bremelanotide for
the treatment of HSDD, which is a type of FSD. The Company also has
drug candidates and development programs for cardiovascular
diseases, inflammatory diseases, obesity and dermatologic
diseases.
Key
elements of the Company’s business strategy include using its
technology and expertise to develop and commercialize therapeutic
products; entering into alliances and partnerships with
pharmaceutical companies to facilitate the development,
manufacture, marketing, sale and distribution of product candidates
that it is developing; partially funding its product development
programs with the cash flow generated from current and future
agreements with third parties; and completing development and
seeking regulatory approval of its other product
candidates.
Business Risk and Liquidity – Since inception, the
Company has incurred negative cash flows from operations, and has
expended, and expects to continue to expend, substantial funds to
complete its planned product development efforts. As shown in the
accompanying consolidated financial statements, the Company had an
accumulated deficit as of March 31, 2017 of $370,059,103 and
incurred a net loss for the three and nine months ended March 31,
2017 of $3,564,662 and $26,646,851, respectively. The Company
anticipates incurring additional losses in the future as a result
of spending on its development programs and will require
substantial additional financing to continue to fund its planned
developmental activities. To achieve 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
profitability is highly uncertain, and the Company may never be
able to achieve profitability on a sustained basis, if at
all.
On
January 8, 2017, the Company entered into an exclusive license
agreement (License Agreement) with AMAG for bremelanotide for North
America (Note 6). The License Agreement became effective on
February 2, 2017 (Effective Date), and the Company received an
upfront payment of $60,000,000 pursuant to the License Agreement on
the Effective Date.
As of
March 31, 2017, the Company’s cash, cash equivalents and
investments were $55,430,005 and current liabilities were
$17,373,806, net of deferred revenue of $53,833,828. The Company
intends to utilize existing capital resources for general corporate
purposes and working capital, including required ancillary studies
with bremelanotide for HSDD preparatory to filing a New Drug
Application (NDA) with the U.S. Food and Drug Administration (FDA),
and preclinical and clinical development of our other product
candidates and programs, including natriuretic peptide receptor and
melanocortin receptor programs.
Management
believes that with the proceeds from the License Agreement with
AMAG and the proceeds from the financing transactions on August 4,
2016 and December 6, 2016, the Company has sufficient resources to
fund its planned operations through the 2018 calendar year. The
Company will need additional funding to complete required clinical
trials for its other product candidates and, assuming those
clinical trials are successful, as to which there can be no
assurance, to complete submission of required applications to the
FDA. If the Company is unable to obtain approval or otherwise
advance in the FDA approval process, the Company’s ability to
sustain its operations would be materially adversely
affected.
The
Company may seek the additional capital necessary to fund its
operations through public or private equity offerings,
collaboration agreements, debt financings or licensing
arrangements. Additional capital that is required by the Company
may not be available on reasonable terms, or at all.
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 and cash equivalents and
available-for-sale investments. The Company’s cash and cash
equivalents are primarily invested in one money market account
sponsored by a large financial institution. For the three and nine
months ended March 31, 2017, the Company reported $10,823,748 in
contract revenue related to the License Agreement. The company did
not generate any revenue for the three and nine months ended March
31, 2016.
8
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(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, 2017 may not necessarily be indicative
of the results of operations expected for the full
year.
The
accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company’s Annual Report on Form
10-K for the year ended June 30, 2016, filed with the SEC, which
includes consolidated financial statements as of June 30, 2016 and
2015 and for each of the fiscal years in the three-year period
ended June 30, 2016.
(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 amount 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 $54,326,743 and $7,782,243 in a money
market account at March 31, 2017 and June 30, 2016,
respectively.
Investments – The Company determines the appropriate
classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determinations at each
balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the intent and
ability to hold the securities to maturity. Debt securities for
which the Company does not have the intent or ability to hold to
maturity are classified as available-for-sale.
Held-to-maturity securities are recorded as either
short-term or long-term on the balance sheet, based on
the contractual maturity date and are stated at amortized cost.
Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and are reported at fair value, with unrealized gains
and losses recognized in earnings. Debt and marketable equity
securities not classified as held-to-maturity or as
trading are classified as available-for-sale and are
carried at fair market value, with the unrealized gains and losses,
net of tax, included in the determination of other comprehensive
(loss) income.
The
fair value of substantially all securities is determined by quoted
market prices. The estimated fair value of securities for which
there are no quoted market prices is based on similar types of
securities that are traded in the market.
Fair Value of Financial Instruments – The
Company’s financial instruments consist primarily of cash
equivalents, accounts receivable, available-for-sale investments,
accounts payable and notes payable. Management believes that the
carrying values of cash equivalents, accounts receivable,
available-for-sale investments and accounts payable are
representative of their respective fair values based on the
short-term nature of these instruments. Management believes that
the carrying amount of its notes payable approximates fair value
based on the terms of the notes.
Credit Risk – Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents. Total cash and cash
equivalent balances have exceeded insured balances by the Federal
Depository Insurance Company.
Property and Equipment – Property and equipment
consists of office and laboratory equipment, office furniture and
leasehold improvements and includes assets acquired under capital
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 capital leases is included in depreciation expense.
Maintenance and repairs are expensed as incurred while expenditures
that extend the useful life of an asset are
capitalized.
Impairment of Long-Lived Assets – The Company reviews
its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may
not be fully recoverable. To determine recoverability of a
long-lived asset, management evaluates whether the estimated future
undiscounted net cash flows from the asset are less than its
carrying amount. If impairment is indicated, the long-lived asset
would be written down to fair value. Fair value is determined by an
evaluation of available price information at which assets could be
bought or sold, including quoted market prices, if available, or
the present value of the estimated future cash flows based on
reasonable and supportable assumptions.
9
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
Revenue Recognition – The Company has generated
revenue solely through license and collaboration agreements. The
Company recognizes revenue in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 605-25, Revenue Recognition
for Arrangements with Multiple Elements, which addresses the
determination of whether an arrangement involving multiple
deliverables contains more than one unit of accounting. A delivered
item within an arrangement is considered a separate unit of
accounting only if both of the following criteria are
met:
●
the delivered item
has value to the customer on a stand-alone basis; and
●
if the arrangement
includes a general right of return relative to the delivered item,
delivery or performance of the undelivered item is considered
probable and substantially in control of the vendor.
Under
FASB ASC Topic 605-25, if both of the criteria above are not met,
then separate accounting for the individual deliverables is not
appropriate.
The
Company has determined that it is appropriate to recognize such
revenue using the input-based proportional method during the period
of the Palatin Development Obligation as defined in the AMAG
arrangement. Refer to Note 6 for additional
information.
Revenue
resulting from the achievement of development milestones is
recorded in accordance with the accounting guidance for the
milestone method of revenue recognition.
Amounts
received prior to satisfying the revenue recognition criteria are
recorded as deferred revenue on the Company’s consolidated
balance sheet. Amounts expected to be recognized as revenue in the
next 12 months following the balance sheet date are classified as
current liabilities.
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 our development activities. We review the activities
performed under significant contracts each quarter and accrue
expenses and the amount of any reimbursement to be received from
our collaborators based upon the estimated amount of work
completed. Estimating the value or stage of completion of certain
services requires judgment based on available information. If we do
not identify services performed for us but not billed by the
service-provider, or if we underestimate or overestimate the value
of services performed as of a given date, reported expenses, as
well as revenue, will be understated or overstated.
Stock-Based Compensation – The Company charges to
expense the fair value of stock options and other equity awards
granted. The Company determines the value of stock options
utilizing the Black-Scholes option pricing model. Compensation
costs for share-based awards with pro-rata vesting are determined
using the quoted market price of the Company’s common stock
on the date of grant and allocated to periods on a
straight-line basis, while awards containing a market
condition are valued using multifactor Monte Carlo
simulations.
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 a valuation allowance against its
deferred tax assets based on the history of losses
incurred.
Net Loss per Common Share – Basic and diluted earnings
per common share (EPS) are calculated in accordance with the
provisions of FASB ASC Topic 260, “Earnings per Share,”
which includes guidance pertaining to the warrants, issued in
connection with the July 3, 2012, December 23, 2014, and July 2,
2015 private placement offerings and the August 4, 2016
underwritten offering, that are exercisable for nominal
consideration and, therefore, are to be considered in the
computation of basic and diluted net loss per common share. The
Series A 2012 warrants issued on July 3, 2012 to purchase up to
31,988,151 shares of common stock are included in the weighted
average number of common shares outstanding used in computing basic
and diluted net loss per common share for all periods presented in
the consolidated statements of operations.
The
Series B 2012 warrants issued on July 3, 2012 to purchase up to
35,488,380 shares of common stock are included in the weighted
average number of common shares outstanding used in computing basic
and diluted net loss per common share for all periods presented in
the consolidated statements of operations.
10
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
The
Series C 2014 warrants to purchase up to 24,949,325 shares of
common stock were exercisable starting at December 23, 2014 and,
therefore are included in the weighted average number of common
shares outstanding used in computing basic and diluted net loss per
common share starting on December 23, 2014.
The
Series E 2015 warrants to purchase up to 21,917,808 shares of
common stock were exercisable starting at July 2, 2015 and,
therefore are included in the weighted average number of common
shares outstanding used in computing basic and diluted net loss per
common share starting on July 2, 2015.
The
Series I 2016 warrants to purchase up to 2,218,045 shares of common
stock were exercisable starting at August 4, 2016 and, therefore
are included in the weighted average number of common shares
outstanding used in computing basic and diluted net loss per common
share starting on August 4, 2016 (Note 12).
As of
March 31, 2017 and 2016, common stock issuable upon conversion of
Series A Convertible Preferred Stock, the exercise of outstanding
options and warrants (excluding the Series A 2012, Series B 2012,
Series C 2014, Series E 2015 and Series I 2016 warrants issued in
connection with the July 3, 2012, December 23, 2014, and July 2,
2015 private placement offerings and the August 4, 2016
underwritten offering), and the vesting of restricted stock units
amounted to an aggregate of 36,222,569, and 32,453,811 shares,
respectively. These share amounts have been excluded from the
calculation of net loss per share as the impact would be
anti-dilutive.
(4)
NEW
AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:
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, 2020. Early
adoption will be available on July 1, 2019. The Company is
currently evaluating the effect that the updated standard will have
on its consolidated financial statements and related
disclosures.
In
March 2016, the FASB issued ASU No. 2016-09, Compensation – Improvement to Employee
Share-Based Payment Accounting, which amends the
current guidance related to stock compensation. The updated
guidance changes how companies account for certain aspects of
share-based payment awards to employees, including the
accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the
statement of cash flows. The update to the standard is effective
for the Company on July 1, 2017, with early application permitted.
The Company is evaluating the effect that the new guidance will
have on its consolidated financial statements and related
disclosures.
In
February 2016, the FASB issued ASU No. 2016-02, Leases, Related to the Recognition of Lease
Assets and Lease Liabilities. The new guidance requires
lessees to recognize almost all leases on their balance sheet as a
right-of-use asset and a lease liability, other than
leases that meet the definition of a short term lease, and
requires expanded disclosures about leasing arrangements. The
recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee have not significantly
changed from the current guidance. Lessor accounting is similar to
the current guidance, but updated to align with certain changes to
the lessee model and the new revenue recognition standard. The new
guidance is effective for the Company on July 1, 2019, with early
adoption permitted. The Company is evaluating the impact that the
new guidance will have on its consolidated financial statements and
related disclosures.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments: Recognition and
Measurement of Financial Assets and Financial Liabilities.
The new guidance relates to the recognition and measurement of
financial assets and liabilities. The new guidance makes targeted
improvements to GAAP impacting equity investments (other than those
accounted for under the equity method or consolidated), financial
liabilities accounted for under the fair value election, and
presentation and disclosure requirements for financial instruments,
among other changes. The new guidance is effective for the Company
on July 1, 2018, with early adoption prohibited other than for
certain provisions. The Company is evaluating the impact that the
new guidance will have on its consolidated financial statements and
related disclosures.
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes: Balance Sheet Classification of
Deferred Taxes, which simplifies the balance sheet
classification of deferred taxes. The new guidance requires that
deferred tax liabilities and assets be classified as noncurrent in
a classified statement of financial position. The current
requirement that deferred tax liabilities and assets of a
tax-paying component of an entity be offset and presented as
a single amount is not affected by the new guidance. The new
guidance is effective for the Company on July 1, 2017, with early
adoption permitted as of the beginning of an interim or annual
reporting period. The new guidance may be applied either
prospectively to all deferred tax liabilities and assets or
retrospectively to all periods presented. The Company is evaluating
the impact that the new guidance will have on its consolidated
financial statements and related disclosures. However, at the
present time the Company has recorded a valuation allowance against
its deferred tax assets based on the history of losses
incurred.
11
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
In
April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance
Costs, which requires debt issuance costs related to a
recognized debt liability to be presented on the balance sheet as a
direct deduction from the debt liability, similar to the
presentation of debt discounts. In August 2015, the FASB issued a
clarification that debt issuance costs related to line-of-credit
arrangements were not within the scope of the new guidance and
therefore should continue to be accounted for as deferred assets in
the balance sheet, consistent with existing GAAP. The Company
adopted the retrospective guidance as of July 1, 2016. As a result
of the adoption of ASU No. 2015-03, we made the following
adjustments to the June 30, 2016 consolidated balance sheet: a
$110,441 decrease to prepaid expenses and other current assets, a
$83,215 decrease to other assets, a $110,441 decrease to the
current portion of notes payable, net of discounts and debt
issuance costs, and a $83,215 decrease to the long-term portion of
notes payable, net of discounts and debt issuance
costs.
In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going
Concern: Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern. The amendments in
this update provide guidance in U.S. GAAP about management's
responsibility to evaluate whether there is substantial doubt about
an entity’s ability to continue as a going concern and to
provide related footnote disclosures. In doing so, the amendments
should reduce diversity in the timing and content of footnote
disclosures. The new standard is effective for the Company for its
fiscal year ending June 30, 2017. The Company is evaluating the
effect of the standard, if any, on its consolidated financial
statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with
Customers, which requires an
entity to recognize the amount of revenue to which it expects to be
entitled for the transfer of promised goods or services to
customers. The ASU will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective. In July 2015, the
FASB voted to defer the effective date of the new standard until
fiscal years beginning after December 15, 2017 with early
application permitted for fiscal years beginning after December 15,
2016. With the deferral, the new standard is effective for the
Company on July 1, 2018, with early adoption permitted one year
prior. The standard permits the use of either the retrospective or
cumulative effect transition method. In addition, in April
2016 the FASB issued ASU No. 2016-10, Identifying Performance Obligations and
Licensing, which addresses various issues associated with
identifying performance obligations, licensing of intellectual
property, royalty considerations, and other matters. ASU No.
2016-10 is effective in connection with ASU No. 2014-09.
The Company is evaluating the effect
that these standards will have on its consolidated financial
statements and related disclosures. The Company has not yet
selected a transition method nor has it determined the effect of
these standards on its ongoing financial
reporting.
(5)
AGREEMENT
WITH GEDEON RICHTER:
In
August 2014, the Company entered into a license, co-development and
commercialization agreement with Gedeon Richter on bremelanotide
for FSD in Europe and selected countries. On September 16, 2015,
the Company and Gedeon Richter mutually and amicably agreed to
terminate the license, co-development and commercialization
agreement. In connection with the termination of the license
agreement, all rights and licenses to co-develop and commercialize
bremelanotide for FSD indications granted by the Company under the
license agreement to Gedeon Richter terminated and reverted to the
Company, and neither party is expected to have any future material
obligations under the license agreement. Neither the Company nor
Gedeon Richter incurred any early termination penalties or other
payment or reimbursement obligations as a result of the termination
of the license agreement.
The
Company viewed the delivery of the license for bremelanotide as a
revenue generating activity that is part of its ongoing and central
operations. The other elements of the agreement with Gedeon Richter
were considered non-revenue activities associated with the
collaborative arrangement. The Company believes the license had
standalone value from the other elements of the collaborative
arrangement because it conveyed all of the rights necessary to
develop and commercialize bremelanotide in the licensed territory.
For the three and six months ended December 31, 2016, and 2015, the
Company had no revenues reported.
(6)
AGREEMENT
WITH AMAG:
On
January 8, 2017, the Company entered into the License Agreement
with AMAG. Under the terms of the License Agreement, the Company
granted to AMAG (i) an exclusive license in all countries of North
America (the Territory), with the right to grant sub-licenses, to
research, develop and commercialize products containing
bremelanotide (each a Product, and collectively, Products), (ii) a
non-exclusive license in the Territory, with the right to grant
sub-licenses, to manufacture Products, and (iii) a non-exclusive
license in all countries outside the Territory, with the right to
grant sub-licenses, to research, develop and manufacture (but not
commercialize) the Products.
Following
the satisfaction of certain conditions to closing, the License
Agreement became effective on February 2, 2017. On the Effective
Date AMAG paid the Company $60,000,000 as a one-time initial
payment. Pursuant to the terms of and subject to the conditions in
the License Agreement, AMAG is required to pay the Company up to an
aggregate amount of $25,000,000 to reimburse the Company for
reasonable, documented, direct out-of-pocket expenses incurred by
the Company following the Effective Date, in connection with the
development and regulatory activities necessary to file an NDA for
bremelanotide for HSDD in the United States related to
Palatin’s Development Obligation.
12
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
The
Company has determined there is no stand-alone value for the
license, and that the license and the reimbursable direct
out-of-pocket expenses represent a combined unit of accounting
which totals $85,000,000. The Company is recognizing revenue of the
combined unit of accounting over the arrangement using the
input-based proportional method as the Company completes the
Palatin Development Obligation. For the three and nine months ended
March 31, 2017, respectively, the Company recognized $10,823,748 as
contract revenue related to the license, including $4,657,577 of
expense reimbursement incurred, invoiced and included in accounts
receivable as of March 31, 2017. As of March 31, 2017, there
is $53,833,828 of current deferred revenue, related to the upfront
payment on the consolidated balance sheet.
In
addition, pursuant to the terms of and subject to the conditions in
the License Agreement, the Company will be eligible to receive from
AMAG: (i) up to $80,000,000 in specified regulatory payments
upon achievement of certain regulatory milestones, and (ii) up to
$300,000,000 in sales milestone payments based on achievement of
annual net sales amounts for all Products in the
Territory.
AMAG is
also obligated to pay the Company tiered royalties on annual net
sales of Products, on a product-by-product basis, in the Territory
ranging from the high single-digits to the low double-digits. The
royalties will expire on a product-by-product and
country-by-country basis until the latest to occur of (i) the
earliest date on which there are no valid claims of the
Company’s patent rights covering such Product in such
country, (ii) the expiration of the regulatory exclusivity period
for such Product in such country and (iii) ten years following the
first commercial sale of such Product in such country. Such
royalties are subject to reductions in the event that:
(a) AMAG must license additional third party intellectual
property in order to develop, manufacture or commercialize a
Product, or (b) generic competition occurs with respect to a
Product in a given country, subject to an aggregate cap on such
deductions of royalties otherwise payable to the Company. After the
expiration of the applicable royalties for any Product in a given
country, the license for such Product in such country will become a
fully paid-up, royalty-free, perpetual and irrevocable
license.
The
Company engaged Greenhill & Co. LLC (Greenhill) as the
Company’s sole financial advisor in connection with a
potential transaction with respect to bremelanotide. Under the
engagement agreement with Greenhill, the Company was obligated to
pay Greenhill a fee equal to 2% of all proceeds and consideration
paid to the Company by AMAG in connection with the License
Agreement, subject to a minimum fee of $2,500,000. The minimum fee
of $2,500,000, less credit of $50,000 for an advisory fee
previously paid by the Company, was paid to Greenhill upon the
closing of the licensing transaction. This amount will be credited
toward amounts that become due to Greenhill in the future, provided
that the aggregate fee payable to Greenhill will not be less than
2% of all proceeds and consideration paid to the Company by AMAG in
connection with the License Agreement. The Company will pay
Greenhill an aggregate total of 2% of all proceeds and
consideration paid to the Company by AMAG in connection with the
License Agreement after crediting the $2,500,000 that was paid to
Greenhill upon entering into the License Agreement with AMAG. The
Company also reimbursed Greenhill $7,263 for certain expenses
incurred in connection with its advisory services.
Pursuant
to the License Agreement, the Company has assigned to AMAG the
Company’s manufacturing and supply agreements with Catalent
Belgium S.A. to perform fill, finish and packaging of
bremelanotide.
(7)
PREPAID EXPENSES AND OTHER CURRENT
ASSETS:
Prepaid
expenses and other current assets consist of the
following:
|
|
March
31,
2017
|
June
30,
2016
|
|
Clinical study
costs
|
$640,348
|
$1,146,975
|
|
Insurance
premiums
|
181,996
|
23,010
|
|
Other
|
241,768
|
143,856
|
|
|
$1,064,112
|
$1,313,841
|
(8)
INVESTMENTS:
The
following summarizes the carrying value of our available-for-sale
investments, which consist of corporate debt
securities:
|
|
March
31,
2017
|
June
30,
2016
|
|
Cost
|
$1,387,022
|
$1,387,022
|
|
Matured
|
(450,000)
|
$-
|
|
Amortization of
premium
|
(10,813)
|
(4,522)
|
|
Gross unrealized
loss
|
(1,419)
|
(1,944)
|
|
Fair
value
|
$924,790
|
$1,380,556
|
13
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
(9)
FAIR
VALUE MEASUREMENTS:
The
fair value of cash equivalents is classified using a hierarchy
prioritized based on inputs. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities
in active markets or inputs that are observable for the asset or
liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial
instrument. Level 3 inputs are unobservable inputs based on
management’s own assumptions used to measure assets and
liabilities at fair value. A financial asset 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,
2017:
|
|
|
|
|
|
Money market
account
|
$54,326,743
|
$54,326,743
|
-
|
-
|
|
TOTAL
|
54,326,743
|
54,326,743
|
$-
|
$-
|
|
June 30,
2016:
|
|
|
|
|
|
Money market
account
|
7,782,243
|
7,782,243
|
-
|
-
|
|
TOTAL
|
$7,782,243
|
$7,782,243
|
$-
|
$-
|
(10)
ACCRUED EXPENSES:
Accrued
expenses consist of the following:
|
|
March
31,
2017
|
June
30,
2016
|
|
Bremelanotide
program costs
|
$7,739,920
|
$6,983,581
|
|
Other research
related expenses
|
237,841
|
69,609
|
|
Professional
services
|
78,751
|
231,482
|
|
Other
|
260,180
|
483,061
|
|
|
$8,316,692
|
$7,767,733
|
(11)
NOTES PAYABLE:
Notes
payable consist of the following:
|
|
March
31,
2017
|
June
30,
2016
|
|
Notes payable under
venture loan
|
$16,333,334
|
$20,000,000
|
|
Unamortized related
debt discount
|
(183,478)
|
(324,800)
|
|
Unamortized debt
issuance costs
|
(107,213)
|
(193,655)
|
|
Notes
payable
|
16,042,643
|
19,481,545
|
|
|
|
|
|
Less: current
portion
|
7,792,639
|
5,374,951
|
|
|
|
|
|
Long-term
portion
|
$8,250,004
|
$14,106,594
|
14
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
On
December 23, 2014, the Company closed on a $10,000,000 venture loan
which was led by Horizon. The debt facility is a four year senior
secured term loan that bears interest at a floating coupon rate of
one-month LIBOR (floor of 0.50%) plus 8.50%, and provides for
interest-only payments for the first eighteen months followed by
monthly payments of principal payments of $333,333 plus accrued
interest through January 1, 2019. The lenders also received
five-year immediately exercisable Series D 2014 warrants to
purchase 666,666 shares of common stock exercisable at an exercise
price of $0.75 per share. The Company recorded a debt discount of
$267,820 equal to the fair value of these warrants at issuance,
which is being amortized to interest expense over the term of the
related debt. This debt discount is offset against the note payable
balance and included in additional paid-in capital on the
Company’s balance sheet at March 31, 2017, and June 30, 2016.
In addition, a final incremental payment of $500,000 is due on
January 1, 2019, or upon early repayment of the loan. This final
incremental payment is being accreted to interest expense over the
term of the related debt. The Company incurred $209,000 of costs in
connection with the loan. These costs were capitalized as deferred
financing costs and are offset against the note payable balance.
These debt issuance costs are being amortized to interest expense
over the term of the related debt. In addition, if the Company
repays all or a portion of the loan prior to the applicable
maturity date, it will pay the lenders a prepayment penalty fee,
based on a percentage of the then outstanding principal balance,
equal to 3% if the prepayment occurs on or before 18 months after
the funding date thereof or 1% if the prepayment occurs more than
18 months after, but on or before 30 months after, the funding
date.
On July
2, 2015, the Company closed on a $10,000,000 venture loan led by
Horizon Technology Finance Corporation (Horizon). The debt facility
is a four-year senior secured term loan that bears interest at a
floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50%
and provides for interest-only payments for the first eighteen
months followed by monthly payments of principal payments 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
has recorded a debt discount of $305,196 equal to the fair value of
these warrants at issuance, which is being amortized to interest
expense over the term of the related debt. This debt discount will
offset against the note payable balance and is included in
additional paid-in capital on the Company’s balance sheet at
March 31, 2017 and June 30, 2016. In addition, a final incremental
payment of $500,000 is due on August 1, 2019, or upon early
repayment of the loan. This final incremental payment is being
accreted to interest expense over the term of the related debt. The
Company incurred approximately $146,000 of costs in connection with
the loan agreement. These costs were capitalized as deferred
financing costs and are offset against the note payable balance.
These debt issuance costs are being amortized to interest expense
over the term of the related debt. In addition, if the Company
repays all or a portion of the loan prior to the applicable
maturity date, it will pay the lenders a prepayment penalty fee,
based on a percentage of the then outstanding principal balance,
equal to 3% if the prepayment occurs on or before 18 months after
the funding date thereof or 1% if the prepayment occurs more than
18 months after, but on or before 30 months after, the funding
date.
The
Company’s obligations under the 2015 amended and restated
loan agreement, which includes both the 2014 venture loan and the
2015 venture loan, are secured by a first priority security
interest in substantially all of its assets other than its
intellectual property. The Company also has agreed to specified
limitations on pledging or otherwise encumbering its intellectual
property assets. The 2015 amended and restated loan agreement
include customary affirmative and restrictive covenants, but does
not include any covenants to attain or maintain specified financial
metrics. The loan agreement includes customary events of default,
including payment defaults, breaches of covenants, change of
control and a material adverse change default. Upon the occurrence
of an event of default and following any applicable cure periods, a
default interest rate of an additional 5% may be applied to the
outstanding loan balances, and the lenders may declare all
outstanding obligations immediately due and payable and take such
other actions as set forth in the loan agreement. As of March 31,
2017, the Company was in compliance with all of its loan
covenants.
(12)
STOCKHOLDERS’
DEFICIENCY:
Financing Transactions – On December 6, 2016, the
Company closed on an underwritten public offering of units, with
each unit consisting of a share of common stock and a Series J
warrant to purchase 0.50 of a share of common stock. Gross proceeds
were $16,500,000, with net proceeds to the Company, after deducting
underwriting discounts and commissions and offering expenses, of
$15,386,075. The Company issued 25,384,616 shares of common stock
and Series J warrants to purchase 12,692,310 shares of common stock
at an initial exercise price of $0.80 per share, which warrants are
exercisable immediately upon issuance and expire on the fifth
anniversary of the date of issuance. The Series J warrants are subject to
limitation on exercise if the holder and its affiliates would
beneficially own more than 9.99%, or 4.99% for certain holders, of
the total number of the Company’s shares of common stock
following such exercise.
On
August 4, 2016, the Company closed on an underwritten offering of
units, with each unit consisting of a share of common stock and a
Series H warrant to purchase 0.75 of a share of common stock.
Investors whose purchase of units in the offering would result in
them beneficially owning more than 9.99% of the Company’s
outstanding common stock following the completion of the offering
had the opportunity to acquire units with Series I prefunded
warrants substituted for any common stock they would have otherwise
acquired. Gross proceeds were $9,225,000, with net proceeds to the
Company, after deducting offering expenses, of $8,470,897. The
Company issued 11,481,481 shares of common stock and ten-year
prefunded Series I warrants to purchase 2,218,045 shares of common
stock at an exercise price of $0.01, together with Series H
warrants to purchase 10,274,646 shares of common stock at an
exercise price of $0.70 per share.
15
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
The
Series I warrants are exercisable at an initial exercise price of
$0.01 per share, exercisable immediately upon issuance and expire
on the tenth anniversary of the date of issuance. The Series I
warrants are subject to limitation on exercise if the holder and
its affiliates would beneficially own more than 9.99% of the total
number of the Company’s shares of common stock following such
exercise. The Series H warrants are exercisable at an initial
exercise price of $0.70 per share, are exercisable commencing six
months following the date of issuance and expire on the fifth
anniversary of the date of issuance. The Series H warrants are
subject to the same beneficial ownership limitation as the Series I
warrants.
On July
2, 2015, the Company closed on a private placement of Series E
warrants to purchase 21,917,808 shares of Palatin common stock and
Series F warrants to purchase 2,191,781 shares of the
Company’s common stock. Certain funds managed by QVT
Financial LP (QVT) invested $5,000,000 and another accredited
investment fund invested $15,000,000. The funds paid $0.90 for each
Series E warrant and $0.125 for each Series F warrant, resulting in
gross proceeds to the Company of $20,000,000, with net proceeds,
after deducting offering expenses, of $19,834,278.
The
Series E warrants, which may be exercised on a cashless basis, are
exercisable immediately upon issuance at an initial exercise price
of $0.01 per share and expire on the tenth anniversary of the date
of issuance. The Series E warrants are subject to limitation
on exercise if QVT and its affiliates would beneficially own more
than 9.99% (4.99% for the other accredited investment fund holder)
of the total number of the Company’s shares of common stock
following such exercise. The Series F warrants are exercisable at
an initial exercise price of $0.91 per share, exercisable
immediately upon issuance and expire on the fifth anniversary of
the date of issuance. The Series F warrants are subject to the same
beneficial ownership limitation as the Series E
warrants.
The
purchase agreement for the private placement provides that the
purchasers have certain rights until the earlier of approval of
bremelanotide for FSD by the FDA and July 3, 2018, including rights
of first refusal and participation in any subsequent equity or debt
financing. The purchase agreement also contains certain restrictive
covenants so long as the funds continue to hold specified amounts
of warrants or beneficially own specified amounts of the
outstanding shares of common stock.
During
the nine months ended March 31, 2017, and 2016 the Company issued
27,989,685 shares and 10,890,889 shares, respectively, of common
stock pursuant to the cashless exercise provisions of warrants at
an exercise price of $0.01 per share, and during the nine months
ended March 31, 2017, the Company issued 11,435,811 shares of
common stock pursuant to the exercise of warrants at an exercise
price of $0.01 per share. As of March 31, 2017, there were
50,610,953 warrants outstanding at an exercise price of $0.01 per
share.
Stock Options – In September 2016, the Company granted
828,000 options to its executive officers and 336,000 options to
its employees under the Company’s 2011 Stock Incentive Plan.
The Company is amortizing the fair value of the options vesting
over a 48 month period, consisting of 595,000 options granted to
its executive officers and all options granted to its employees, of
$188,245 and $106,303, respectively, over the vesting period. The
Company recognized $16,426 and $38,210, respectively, of
stock-based compensation expense related to these options during
the three and nine months ended March 31, 2017. 233,000 options
granted to its executive officers vest 12 months from the date of
grant, and the Company is amortizing the fair value of these
options of $67,160 over this vesting period. The Company recognized
$16,370 and $36,238, respectively, of stock-based compensation
expense related to these options during the three and nine months
ended March 31, 2017.
In June
2016, the Company granted 262,500 options to its non-employee
directors under the Company’s 2011 Stock Incentive Plan. The
Company is amortizing the fair value of these options of $81,435
over the vesting period. The Company recognized $20,359 and
$61,077, respectively, of stock-based compensation expense related
to these options during the three and nine months ended March 31,
2017.
In June
2015, the Company granted 570,000 options to its executive
officers, 185,800 options to its employees and 160,000 options to
its non-employee directors under the Company’s 2011 Stock
Incentive Plan. The Company is amortizing the fair value of these
options of $446,748, $145,439 and $111,876, respectively, over the
vesting period. The Company recognized $37,847, and $105,332,
respectively, of stock-based compensation expense related to these
options during the three and nine months ended March 31, 2017 and
$62,443 and $187,328, respectively, during the three and nine
months ended March 31, 2016.
Unless
otherwise stated, stock options granted to the Company’s
executive officers and employees vest over a 48-month period, while
stock options granted to its non-employee directors vest over a
12-month period.
Restricted Stock Units – In September 2016, the
Company granted 558,000 restricted stock units to its executive
officers, 415,000 of which vest over 24 months and 143,000 of which
vest at 12 months, and 336,000 restricted stock units to its
employees under the Company’s 2011 Stock Incentive Plan. The
Company is amortizing the fair value of the restricted stock units
of $284,580, and $171,360, respectively, over the vesting periods.
The Company recognized $76,822 and $177,554, respectively, of
stock-based compensation expense related to these restricted stock
units during the three and nine months ended March 31,
2017.
16
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(unaudited)
In June
2016, the Company granted 262,500 restricted stock units to its
non-employee directors under the Company’s 2011 Stock
Incentive Plan. The Company is amortizing the fair value of these
restricted stock units of $131,250 over the vesting period. The
Company recognized $32,812 and $98,437, respectively, of
stock-based compensation expense related to these restricted stock
units during the three and nine months ended March 31,
2017.
In
December 2015, the Company granted 625,000 performance-based
restricted stock units to its executive officers and 200,000
performance-based restricted stock units to its employees under the
Company’s 2011 Stock Incentive Plan, which vest during the
performance period, ending December 31, 2017, if and upon the
earlier of: i) achievement of a closing price for the
Company’s common stock equal to or greater than $1.20 per
share for 20 consecutive trading days, which is considered a market
condition, or ii) entering into a collaboration agreement
(U.S. or global) of bremelanotide for FSD, which is considered a
performance condition. This performance condition was deemed met as
of February 2, 2017, the Effective Date of the License Agreement on
bremelanotide with AMAG. Prior to meeting the performance
condition, the Company determined that it was not probable of
achievement on the date of grant since meeting the condition was
outside the control of the Company. The fair value of these
awards, as calculated under a multifactor Monte Carlo simulation,
was $338,250 and was recognized over the derived service period
which was through December 2016. Upon the achievement of the
performance condition, which occurred in the three month period
ended March 31, 2017 the grant date fair value was utilized and an
incremental $222,075 was recognized as stock-based compensation
expense during the three months ended March 31, 2017. The Company
recognized $364,364 of stock-based compensation expense related to
these restricted stock units during the nine months ended March 31,
2017. The Company recognized $86,879 and $109,082, respectively, of
stock-based compensation expense related to these restricted stock
units during the three and nine months ended March 31,
2016.
Also,
in December 2015, the Company granted 625,000 restricted stock
units to its executive officers, 340,000 restricted stock units to
its non-employee directors and 200,000 restricted stock units to
its employees under the Company’s 2011 Stock Incentive Plan.
For executive officers and employees, the restricted stock units
vest 25% on the date of grant and 25% on the first, second and
third anniversary dates from the date of grant. For non-employee
directors, the restricted stock units vest 50% on the first and
second anniversary dates from the date of grant. The fair value of
these restricted stock units is $425,000, $231,200 and $136,000,
respectively. The Company recognized $41,079 and $228,331,
respectively, of stock-based compensation expense related to these
restricted stock units during the three and nine months ended March
31, 2017. The Company recognized $107,631 and $275,387,
respectively, of stock-based compensation expense related to these
restricted stock units during the three and nine months ended March
31, 2016.
In June
2015, the Company granted 400,000 restricted stock units to its
executive officers, 185,800 restricted stock units to its employees
and 160,000 restricted stock units to its non-employee directors
under the Company’s 2011 Stock Incentive Plan. The Company is
amortizing the fair value of these restricted stock units of
$432,000, $200,664, and $172,800, respectively, over the vesting
period. The Company recognized $35,336 and $116,195, respectively,
of stock-based compensation expense related to these restricted
stock units during the three and nine months ended March 31, 2017.
The Company recognized $150,328 and $450,984, respectively, of
stock-based compensation expense related to these restricted stock
units during the three and nine months ended March 31,
2016.
Unless
otherwise stated, restricted stock units granted to the
Company’s executive officers, employees and non-employee
directors vest over 24 months, 48 months and 12 months,
respectively.
Stock-based
compensation cost for the three and nine months ended March 31,
2017 for stock options and equity-based instruments issued other
than the stock options and restricted stock units described above
was $52,354 and $178,983, respectively, and $110,269 and $295,517,
respectively, for the three and nine months ended March 31,
2016.
(13)
SUBSEQUENT
EVENTS:
Outstanding
Common Stock – Between April 1, 2017 and May 11, 2017,
the Company issued 2,908,116 shares of
common stock pursuant to the cashless exercise provisions of
warrants at an exercise price of $0.01 and issued 5,000,000 shares of
common stock pursuant to the exercise of warrants at an exercise
price of $0.01 per share. As of May 11, 2017, warrants with an
exercise price of $0.01 per share to purchase 42,610,953 shares of
common stock are outstanding, all of which include cashless
exercise provisions.
17
Item 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, 2016.
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,
2016, have not changed as of March 31, 2017. 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 biopharmaceutical company developing targeted,
receptor-specific peptide therapeutics for the treatment of
diseases with significant unmet medical need and commercial
potential. Our programs are based on molecules that modulate the
activity of the melanocortin and natriuretic peptide receptor
systems. Our primary product in clinical development is
bremelanotide for the treatment of premenopausal women with HSDD,
which is a type of FSD, defined as low desire with associated
distress. In addition, we have drug candidates and development
programs for cardiovascular diseases, inflammatory diseases,
obesity and dermatologic diseases.
The
following drug development programs are actively under
development:
●
Bremelanotide, an
as-needed subcutaneous injectable peptide melanocortin receptor
agonist, for treatment of HSDD in premenopausal women.
Bremelanotide, which is a melanocortin agonist, is a synthetic
peptide analog of the naturally occurring hormone alpha-MSH
(melanocyte-stimulating hormone). In two primary Phase 3
clinical studies of bremelanotide for HSDD in premenopausal women,
bremelanotide met the pre-specified co-primary efficacy endpoints
of improvement in desire and decrease in distress associated with
low sexual desire as measured using validated patient-reported
outcome instruments.
●
Natriuretic peptide
system program, including PL3994, a natriuretic peptide
receptor-A (NPR-A) agonist, for treatment of
cardiovascular indications. PL3994 is our lead natriuretic
peptide receptor product candidate, and is a synthetic mimetic of
the neuropeptide hormone atrial natriuretic peptide (ANP).
PL3994 is in development for treatment of heart failure,
acute exacerbations of asthma and refractory hypertension. A dual
natriuretic peptide receptor A and C agonist is in preclinical
development for cardiovascular and fibrotic diseases.
●
Melanocortin
peptide system program, focused on development of treatments of
inflammatory and dermatologic disease indications. PL-8177 is a
selective melanocortin receptor 1 (MC1r) agonist peptide we have
designated as our lead clinical development candidate for
inflammatory bowel diseases. A dual melanocortin receptor 1 and 5
peptide is a preclinical development candidate for treating ocular
inflammation; and
●
Melanocortin
receptor4 (MC4r) compounds for treatment of obesity and
diabetes. Results of our studies involving MC4r peptides suggest
that certain of these peptides may have commercial potential for
treatment of conditions responsive to MC4r activation, including
FSD, HSDD, erectile dysfunction (ED), obesity and
diabetes.
The
following chart illustrates the status of our drug development
programs.
18
We have
exclusively licensed North American rights for bremelanotide to
AMAG. Additional details regarding the license with AMAG can be
found in Note 6 to our condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q. We retain rights
for the rest of the world. AMAG intends to seek regulatory approval
in the United States for bremelanotide for the treatment of HSDD in
premenopausal women. HSDD is characterized by a decrease in sexual
desire with significant personal distress or interpersonal
difficulty as a result of the lack of desire. Bremelanotide is a
melanocortin agonist with a mechanism of action involving
activation of endogenous neuronal pathways regulating sexual
arousal and desire responses. Previously we referred to
bremelanotide by the trade name Rekynda™. The FDA did not
accept the product name Rekynda and we expect an alternative
product name for bremelanotide will be pursued.
We
initiated patient screening in our Phase 3 clinical study program
of bremelanotide for the treatment of HSDD in premenopausal women,
called the RECONNECT STUDY, in the fourth quarter of calendar 2014,
completed patient enrollment in the fourth quarter of calendar
2015, and completed the last patient visits in the double blind, or
efficacy, portion of the studies in the third quarter of calendar
2016. There are two Phase 3 clinical trials, Study 301 and Study
302, in the RECONNECT STUDY. The co-primary endpoints for the Phase
3 clinical trials were the Female Sexual Function Index: Desire
Domain (FSFI-D) and Female Sexual Distress
Scale-Desires/Arousal/Orgasm (FSDS-DAO) Item 13. For women taking
bremelanotide compared to placebo, the FSFI-D showed statistically
significant improvement in measures of desire in the context of
overall sexual functioning in both Phase 3 studies, Study 301:
(mean change of 0.54 vs. 0.24, median change of 0.60 vs. 0.00,
p=0.0002) and Study 302: (mean change of 0.63 vs. 0.21, median
change of 0.60 vs. 0.00, p<0.0001). The FSDS-DAO Item 13 showed
statistically significant decreases in measures of distress related
to low sexual desire both Phase 3 studies, Study 301: (mean change
of -0.74 vs. -0.35, median change of -1.0 vs. 0.0, p<0.0001) and
Study 302: (mean change of -0.71 vs. -0.41, median change of -1.0
vs. 0.0, p=0.0057). The open label safety extension portion
of the RECONNECT STUDY is continuing.
We
currently expect that AMAG will submit an NDA for bremelanotide for
the treatment of HSDD in early 2018 following completion by us of
multiple pharmacokinetic and safety pharmacology studies, including
an abuse-liability study and drug-to-drug interaction studies with
anti-hypertensive and anti-arrhythmic therapies, as well as certain
chemistry, manufacturing and controls activities, including a drug
product process validation study. We will continue to conduct the
remaining studies through clinical research organizations, and AMAG
will oversee such development work to support the filing of an NDA.
We cannot assure you that a complete review of the Phase 3 efficacy
data and the pharmacokinetic and safety pharmacology studies will
support approval of bremelanotide for HSDD or that the FDA will
approve a NDA for bremelanotide.
Key
elements of our business strategy include:
●
Using our
technology and expertise to develop and commercialize products in
our active drug development programs;
●
Entering into
strategic alliances and partnerships with pharmaceutical companies
to facilitate the development, manufacture, marketing, sale and
distribution of product candidates that we are
developing;
●
Partially funding
our product development programs with the cash flow generated from
research collaboration and license agreements and any potential
future agreements with third parties; and
●
Completing
development and seeking regulatory approval of our other product
candidates.
19
We
incorporated in Delaware in 1986 and commenced operations in the
biopharmaceutical area in 1996. Our corporate offices are located
at 4B Cedar Brook Drive, Cranbury, New Jersey 08512 and our
telephone number is (609) 495-2200. We maintain an Internet site at
http://www.palatin.com, where among other things, we make available
free of charge on and through this website our Forms 3, 4 and 5,
proxy statements, Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d),
Section 14A and Section 16 of the Exchange Act as soon as
reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Our website and the information
contained in it or connected to it are not incorporated into this
Quarterly Report on Form 10-Q.
Results of Operations
Three and Nine Months Ended March 31, 2017 Compared to the Three
and Nine Months Ended March 31, 2016
Revenue – For the three and nine months ended March
31, 2017, we recognized $10,823,748 in revenue pursuant to our
License Agreement with AMAG. We recognized no revenue for the
three and nine months ended March 31, 2016.
On
January 8, 2017, we entered into the License Agreement with AMAG
which provided for $60,000,000 as a one-time initial payment.
Pursuant to the terms of and subject to the conditions in the
License Agreement, AMAG is required to pay us up to $25,000,000 in
reimbursement for reasonable, documented, direct out-of-pocket
expenses we incur following the Effective Date of the License
Agreement in connection with the development and regulatory
activities necessary to file an NDA for bremelanotide for HSDD in
the United States.
Research and Development – Research and development
expenses were $9,062,316 and $28,442,975, respectively, for the
three and nine months ended March 31, 2017, compared to $10,676,342
and $32,546,363, respectively, for the three and nine months ended
March 31, 2016.
Research
and development expenses related to our bremelanotide, PL-3994,
MC1r, MC4r and other preclinical programs were $7,904,690 and
$25,206,757, respectively, for the three and nine months ended
March 31, 2017, compared to $9,630,951 and $29,999,237,
respectively, for the three and nine months ended March 31, 2016.
Spending to date has been primarily related to our bremelanotide
for the treatment of HSDD program. The decrease in research and
development expenses is mainly attributable to the completion of
the Phase 3 clinical trials of our bremelanotide program for HSDD.
The amount of such spending and the nature of future development
activities are dependent on a number of factors, including
primarily the availability of funds to support future development
activities, success of our clinical trials and preclinical and
discovery programs, and our ability to progress compounds in
addition to bremelanotide and PL-3994 into human clinical
trials.
The
amounts of project spending above exclude general research and
development spending, which was $1,157,626 and $3,216,218,
respectively, for the three and nine months ended March 31, 2017
compared to $1,045,391 and $2,547,126, respectively, for the three
and nine months ended March 31, 2016. The increase in general
research and development spending is primarily attributable to
additional staffing and secondarily to the recognition of
stock-based compensation.
Cumulative
spending from inception to March 31, 2017 is approximately
$262,200,000 on our bremelanotide program and approximately
$124,900,000 on all our other programs (which include PL3994,
PL8177, other melanocortin receptor agonists, obesity
programs, other discovery programs and terminated programs). Due to
various risk factors described herein and in our Annual Report on
Form 10-K for the year ended June 30, 2016, under “Risk
Factors,” including the difficulty in 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, be
successfully completed, or generate net cash inflows.
General and Administrative – General and
administrative expenses, which consist mainly of compensation and
related costs, were $4,773,696 and $7,289,342, respectively, for
the three and nine months ended March 31, 2017 compared to
$1,409,406 and $3,965,460, respectively, for the three and nine
months ended March 31, 2016. The increase in general and
administrative expenses is primarily attributable to payment for
professional services of Greenhill relating to entering into our
License Agreement with AMAG and secondarily attributable to
employee related expenses recognized in the quarter.
Other Income (Expense) – Other income (expense) was
$(552,398) and $(1,758,282), respectively, for the three and nine
months ended March 31, 2017 and $(610,770) and $(1,844,298),
respectively, for the three and nine months ended March 31, 2016.
For the three and nine months ended March 31, 2017, we recognized
$6,304 and $18,940, respectively, of investment income offset by
$(558,702) and $(1,777,222), respectively, of interest expense
primarily related to our venture debt. For the three and nine
months ended March 31, 2016, we recognized $15,062 and $39,036,
respectively, of investment income offset by $(625,832) and
$(1,883,334), respectively, of interest expense primarily related
to our venture debt.
Liquidity and Capital Resources
Since
inception, we have incurred net operating losses, primarily related
to spending on our research and development programs. We have
financed our net operating losses primarily through debt and equity
financings and amounts received under collaborative and license
agreements.
20
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 or technology rights;
●
product
introduction;
●
marketing, sales
and competition; and
●
obtaining
sufficient capital.
Failure
to enter into or successfully perform under collaboration
agreements and obtain timely regulatory approval for our product
candidates and indications would impact our ability to 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, 2017, cash provided by operating
activities was $25,768,523, compared to cash used in operating
activities of $33,664,217 for the nine months ended March 31, 2016.
The difference of cash provided by and cash used in operations in
the nine months ended March 31, 2017 compared to the nine months
ended March 31, 2016 was primarily the result of the receipt of the
initial payment of $60,000,000 relating to the License Agreement
with AMAG. Our periodic prepaid expenses, accounts payable and
accrued expenses balances will continue to be highly dependent on
the timing of our operating costs.
During
the nine months ended March 31, 2017, cash provided by investing
activities was $450,000 consisting primarily of proceeds from
matured investments. During the nine months ended March 31, 2016,
net cash used for investing activities was $1,404,717 consisting
primarily of the purchase of investments.
During
the nine months ended March 31, 2017, net cash provided by
financing activities was $20,284,024, which consisted of net
proceeds from our underwritten offerings in August and December
2016 of $23,856,972 and proceeds from the exercise of warrants of
$114,358, offset by $3,687,306 for the payment on notes payable,
capital lease payments and the payment of withholding taxes. During
the nine months ended March 31, 2016, net cash provided by
financing activities of $29,536,942 consisted of net proceeds of
$19,834,278 from a private placement and a loan of $9,853,885, net
of related debt issuance costs, offset by $151,221 for the payment
of withholding taxes related to restricted stock units and capital
lease payments.
We have
incurred cumulative negative cash flows from operations since our
inception, and have expended, and expect to continue to expend in
the future, substantial funds to complete our planned product
development efforts. Continued operations are dependent upon our
ability to complete equity or debt financing activities, entering
into licensing agreements or collaboration arrangements. As of
March 31, 2017, our cash, cash equivalents and investments were
$55,430,005 and our current liabilities were $17,373,806, net of
deferred revenue of $53,833,828.
We
intend to utilize existing capital resources for general corporate
purposes and working capital, including required ancillary studies
with bremelanotide for HSDD and preparing and filing an NDA on
bremelanotide, preclinical and clinical development of our MC1r and
MC4r peptide programs and PL3994 natriuretic peptide, and
development of other portfolio products.
We
believe that with the proceeds from our License Agreement with AMAG
and the proceeds from the financing transactions on August 4, 2016
and December 6, 2016, we have sufficient funds to fund our planned
operations through the 2018 calendar year. We will need additional
funding to complete required clinical trials for our other product
candidates and development programs and, if those clinical trials
are successful (which we cannot predict), to complete submission of
required regulatory applications to the FDA.
To
achieve sustained profitability, if ever, we, alone or with others,
must successfully develop and commercialize our technologies and
proposed products, conduct preclinical studies and clinical trials,
obtain required regulatory approvals and successfully manufacture
and market such technologies and proposed products. The time
required to reach profitability is highly uncertain, and we do not
know whether we will be able to achieve profitability on a
sustained basis, if at all.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
Not
required to be provided by smaller reporting
companies.
21
Item 4. Controls and Procedures.
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures, as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e), as of the end of the period covered
by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2017. There
were no changes in our internal control over financial reporting
that occurred during our most recent fiscal quarter that materially
affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We may
be involved, from time to time, in various claims and legal
proceedings arising in the ordinary course of our business. We are
not currently a party to any claim or legal
proceeding.
Item 1A. Risk Factors.
This
report and other documents we file with the SEC contain
forward-looking statements that are based on current expectations,
estimates, forecasts and projections about us, our future
performance, our business, our beliefs and our management’s
assumptions. These statements are not guarantees of future
performance, and they involve certain risks, uncertainties and
assumptions that are difficult to predict. You should carefully
consider the risks and uncertainties facing our
business.
Below,
we are providing, in supplemental form, the material changes to our
risk factors that occurred during the past quarter. Our risk
factors disclosed in Part I, Item 1A, of our Annual Report, on Form
10-K for the year ended June 30, 2016, provide additional
disclosure for these supplemental risks and are incorporated herein
by reference.
We will need additional funding, including funding to complete
clinical trials for our product candidates other than
bremelanotide, which may not be available on acceptable terms, if
at all.
Under
the License Agreement with AMAG, we are contractually required to
complete development and regulatory activities necessary to file an
NDA for bremelanotide for HSDD in the United States. AMAG will
reimburse us for up to an aggregate amount of $25,000,000 for all
reasonable, documented, direct out-of-pocket expenses we incur in
completing these development and regulatory activities. To the
extent that our expenses exceed this amount, we will be responsible
for the required additional funding.
In
addition to our responsibilities under the License Agreement with
AMAG, we intend to focus efforts on our other product candidates,
including our MC1r, MC4r and NPR-A programs. As of March 31, 2017,
we had cash, cash equivalents and investments of $55,430,005, with
current liabilities of $17,373,806, net of deferred revenue of
$53,833,828. After giving effect to the proceeds from our License
Agreement with AMAG and the proceeds from the financing
transactions on August 4, 2016 and December 6, 2016, we believe we
currently have sufficient existing capital resources to fund our
planned operations through the 2018 calendar year. We will need
additional funding to complete development activities and 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.
Until
the FDA approves bremelanotide for HSDD and marketing commences, as
to which there can be no assurances, we will not have any recurring
revenue. Even if bremelanotide is approved and marketing commences,
we cannot predict product sales or our resulting royalties. Thus we
may not have any source of significant recurring revenue and must
depend on financing or partnering to sustain our operations. We may
raise additional funds through public or private equity or debt
financings, collaborative arrangements on our product candidates,
or other sources. However, such financing arrangements may not be
available on acceptable terms, or at all. To obtain additional
funding, we may need to enter into arrangements that require us to
develop only certain of our product candidates or relinquish rights
to certain technologies, product candidates and/or potential
markets.
If we
are unable to raise sufficient additional funds when needed, we may
be required to curtail operations significantly, cease clinical
trials and decrease staffing levels. We may seek to license, sell
or otherwise dispose of our product candidates, technologies and
contractual rights on the best possible terms available. Even if we
are able to license, sell or otherwise dispose of our product
candidates, technologies and contractual rights, it is likely to be
on unfavorable terms and for less value than if we had the
financial resources to develop or otherwise advance our product
candidates, technologies and contractual rights
ourselves.
Our
future capital requirements depend on many factors,
including:
●
our ability to
enter into one or more licensing or similar agreements for
bremelanotide outside of North America;
●
the timing of, and
the costs involved in, obtaining regulatory approvals for
bremelanotide for HSDD and our other product
candidates;
●
the number and
characteristics of any additional product candidates we develop or
acquire;
●
the scope,
progress, results and costs of researching and developing our
future product candidates, and conducting preclinical and clinical
trials;
●
the cost of
commercialization activities if any future product candidates are
approved for sale, including marketing, sales and distribution
costs;
●
the cost of
manufacturing any future product candidates and any products we
successfully commercialize;
●
our ability to
establish and maintain strategic collaborations, licensing or other
arrangements and the terms and timing of such
arrangements;
●
the degree and rate
of market acceptance of any future approved products;
●
the emergence,
approval, availability, perceived advantages, relative cost,
relative safety and relative efficacy of alternative and competing
products or treatments;
●
any product
liability or other lawsuits related to our products;
●
the expenses needed
to attract and retain skilled personnel;
●
the costs involved
in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, including litigation costs and the outcome
of such litigation; and
●
the timing, receipt
and amount of sales of, or royalties on, future approved products,
if any.
23
We are substantially dependent on the clinical and commercial
success of our product candidates, primarily our lead product
candidate, bremelanotide for HSDD, but we and our licensees may
never obtain regulatory approval for or successfully commercialize
bremelanotide for HSDD or any of our product
candidates.
To
date, we have invested most of our efforts and financial resources
in the research and development of bremelanotide for HSDD, which is
currently our lead product candidate. We have licensed to AMAG all
rights to bremelanotide for North America, but are contractually
obligated to complete development and regulatory activities
necessary to file an NDA for bremelanotide for HSDD in the United
States, with AMAG reimbursing us for up to $25,000,000 for
reasonable, documented, out-of-pocket expenses we incur. We
received $60,000,000 on the Effective Date of the License
Agreement, and pursuant to the terms of and conditions in the
License Agreement, we will receive up to $80,000,000 contingent
upon achieving certain regulatory milestones and up to $300,000,000
contingent upon meeting certain sales milestones. The first sales
milestone is $25,000,000 and would be triggered when the annual net
sales of bremelanotide in North America exceed $250,000,000. We
will also receive tiered royalties on net sales ranging from high
single-digit to low double-digit percentages.
Our
near-term prospects, including our ability to finance our company
and generate revenue, will depend heavily on the successful
development, regulatory approval and commercialization of
bremelanotide for HSDD, as well as any future product candidates.
The clinical and commercial success of our product candidates will
depend on a number of factors, including the
following:
●
timely completion
of, or need to conduct additional clinical trials and studies,
including for bremelanotide for HSDD, which may be significantly
slower or cost more than we currently anticipate and will depend
substantially upon the accurate and satisfactory performance of
third-party contractors;
●
the ability to
demonstrate to the satisfaction of the FDA the safety and efficacy
of bremelanotide for HSDD or any future product candidates through
clinical trials;
●
whether we or our
licensees are required by the FDA or other similar foreign
regulatory agencies to conduct additional clinical trials to
support the approval of bremelanotide for HSDD or any future
product candidates;
●
the acceptance of
parameters for regulatory approval, including our proposed
indication, primary endpoint assessment and primary endpoint
measurement, relating to our lead indications of bremelanotide for
HSDD;
●
the success of our
licensees in educating physicians and patients about the benefits,
administration and use of bremelanotide for HSDD, if
approved;
●
the prevalence and
severity of adverse events experienced with bremelanotide for HSDD
or any future product candidates or approved products;
●
the adequacy and
regulatory compliance of the autoinjector device, supplied by an
unaffiliated third party, to be used as part of the bremelanotide
combination product;
●
the timely receipt
of necessary marketing approvals from the FDA and similar foreign
regulatory authorities;
●
our ability to
raise additional capital on acceptable terms to achieve our
goals;
●
achieving and
maintaining compliance with all regulatory requirements applicable
to bremelanotide for HSDD or any future product candidates or
approved products;
●
the availability,
perceived advantages, relative cost, relative safety and relative
efficacy of alternative and competing treatments;
●
the effectiveness
of our own or our future potential strategic collaborators’
marketing, sales and distribution strategy and
operations;
●
the ability to
manufacture clinical trial supplies of bremelanotide for HSDD or
any future product candidates and to develop, validate and maintain
a commercially viable manufacturing process that is compliant with
current GMP;
●
the ability of AMAG
to successfully commercialize bremelanotide for HSDD;
●
our ability to
successfully commercialize any future product candidates, if
approved for marketing and sale, whether alone or in collaboration
with others;
●
our ability to
enforce our intellectual property rights in and to bremelanotide
for HSDD or any future product candidates;
●
our ability to
avoid third-party patent interference or intellectual property
infringement claims;
●
acceptance of
bremelanotide for HSDD or any future product candidates, if
approved, as safe and effective by patients and the medical
community; and
●
a continued
acceptable safety profile and efficacy of bremelanotide for HSDD or
any future product candidates following approval.
If we
do not achieve one or more of these factors, many of which are
beyond our control, in a timely manner or at all, we could
experience significant delays or an inability to successfully
commercialize our product candidates. Accordingly, we cannot assure
you that we will be able to generate sufficient revenue through the
sale of bremelanotide for HSDD by AMAG or through the sale of any
future product candidate to continue our business. In addition to
preventing us from executing our current business plan, any delays
in our clinical trials, or inability to successfully commercialize
our products could impair our reputation in the industry and the
investment community, and could hinder our ability to fulfill our
existing contractual commitments. As a result, our share price
would likely decline significantly, and we would have difficulty
raising necessary capital for future projects.
24
We do not control the development or commercialization of
bremelanotide in North America, which is licensed to AMAG, and as a
result we may not realize a significant portion of the potential
value of the license arrangement.
Under the License
Agreement with AMAG for bremelanotide in North America, although we
will conduct all development work to support an NDA for
bremelanotide in HSDD, we have limited control over development
activities, including regulatory approvals, and no direct control
over commercialization efforts. AMAG may abandon further
development of bremelanotide in its licensed territory, including
terminating the agreement, for any reason, including a change of
priorities within AMAG or lack of success in ancillary clinical
trials necessary for obtaining regulatory approvals. Because the
potential value of the license arrangement with AMAG is contingent
upon the successful development and commercialization of
bremelanotide in the United States and other countries in the
licensed territory, the ultimate value of this license will depend
on the efforts of AMAG. If AMAG does not succeed in obtaining
regulatory approval of bremelanotide in the United States for any
reason, or does not succeed in securing market acceptance of
bremelanotide in the United States, or elects for any reason to
discontinue development of bremelanotide, we will be unable to
realize the potential value of this arrangement and would
experience significant delays or an inability to successfully
commercialize bremelanotide.
Production and supply of bremelanotide depend on contract
manufacturers over whom we and AMAG have no control, with the risk
that we may not have adequate supplies of
bremelanotide.
We do
not have the facilities to manufacture the bremelanotide active
drug ingredient or the autoinjector pen component of the
bremelanotide combination product, or to fill, assemble and package
the bremelanotide combination product. AMAG, our exclusive licensee
for North America for bremelanotide, will assume responsibility for
contract manufacturing. The contract manufacturers must perform
these manufacturing activities in a manner that complies with FDA
regulations. AMAG’s ability to control third-party compliance
with FDA requirements is limited to contractual remedies and rights
of inspection. The manufacturers of approved products and their
manufacturing facilities will be subject to continual review and
periodic inspections by the FDA and other authorities where
applicable, and must comply with ongoing regulatory requirements,
including FDA regulations concerning GMP. Failure of third-party
manufacturers to comply with GMP, medical device quality system
regulations, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay bremelanotide
development programs or negatively impact AMAG’s ability to
receive FDA approval of the bremelanotide potential products or
continue marketing if they are approved. Establishing relationships
with new suppliers, who must be FDA-approved, is a time-consuming
and costly process.
Reliance
on third-party manufacturers entails risk, including:
●
reliance on the
third party for regulatory compliance and quality
assurance;
●
the possible breach
of the manufacturing agreement by the third party because of
factors beyond our control;
●
the possible
termination or non-renewal of the agreement by the third party,
based on its own business priorities, at a time that is costly or
inconvenient for us; and
●
drug product
supplies not meeting the requisite requirements for clinical trial
use.
If AMAG
is not able to obtain adequate supplies of bremelanotide, it will
be difficult for AMAG to develop bremelanotide and compete
effectively.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
Issuer purchases of equity securities. We have not and do
not currently intend to retire or repurchase any of our capital
securities other than providing our employees with the option to
withhold shares to satisfy tax withholding amounts due from
employees upon the vesting of restricted stock units in connection
with our 2011 Stock Incentive Plan. The following 8,270 shares were
withheld during the three-month period ended March 31, 2017 at the
direction of the employees as permitted under the 2011 Stock
Incentive Plan in order to pay the minimum amount of tax liability
owed by the employee from the vesting of those units:
|
Period
|
Total Number of
Shares Purchased (1)
|
Weighted Average
Price Paid 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 1-31,
2017
|
505
|
$0.44
|
-
|
-
|
|
February 1-28,
2017
|
-
|
-
|
-
|
-
|
|
March 1-31,
2017
|
7,765
|
0.32
|
-
|
-
|
|
Total
|
8,270
|
$0.33
|
-
|
-
|
Consists
solely of 8,270 shares that were withheld to satisfy tax
withholding amounts due from employees upon the vesting of
previously issued restricted stock units.
25
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not
applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibits
filed or furnished with this report:
|
Exhibit Number
|
|
Description
|
|
Filed Herewith
|
|
Form
|
|
Filing Date
|
|
SEC File No.
|
|
31.1
|
|
Certification
of Chief Executive Officer.
|
|
X
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer.
|
|
X
|
|
|
|
|
|
|
|
32.1
|
|
Certification
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.
|
|
X
|
|
|
|
|
|
|
|
32.2
|
|
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.
|
|
X
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document.
|
|
X
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document.
|
|
X
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document.
|
|
X
|
|
|
|
|
|
|
26
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
|
|
Palatin Technologies, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|||
|
|
|||
|
|
|
/s/
Carl Spana
|
|
|
Date:
May 15, 2017
|
|
Carl
Spana, Ph.D.
President
and
Chief
Executive Officer (Principal
Executive
Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Stephen T. Wills
|
|
|
Date:
May 15, 2017
|
|
Stephen
T. Wills, CPA, MST
Executive
Vice President, Chief Financial Officer and Chief Operating
Officer
(Principal
Financial and Accounting Officer)
|
|
27
EXHIBIT INDEX
|
Exhibit Number
|
|
Description
|
|
Filed Herewith
|
|
Form
|
|
Filing Date
|
|
SEC File No.
|
|
31.1
|
|
Certification
of Chief Executive Officer.
|
|
X
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer.
|
|
X
|
|
|
|
|
|
|
|
32.1
|
|
Certification
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.
|
|
X
|
|
|
|
|
|
|
|
32.2
|
|
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.
|
|
X
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document.
|
|
X
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document.
|
|
X
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document.
|
|
X
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document.
|
|
X
|
|
|
|
|
|
|
28