PALATIN TECHNOLOGIES INC quarterly report, Q1 FY2016

Business context and reporting period

Palatin Technologies, Inc. filed this unaudited Form 10-Q for its fiscal first quarter ended September 30, 2015. The biopharmaceutical company’s lead candidate is bremelanotide for female sexual dysfunction (FSD), then in Phase 3; other development programs include PL-3994 and melanocortin receptor candidates. Palatin had no commercial product sales.

Financial results and liquidity

• No product revenue or meaningful operating margin was reported for the quarter. The prior-year revenue was license revenue from Gedeon Richter.
• Cash and cash equivalents were $47.52 million at September 30, 2015, versus $27.30 million at June 30, 2015. Current liabilities were $10.62 million.
• Operating cash use was partly offset by $29.64 million of financing cash flow, including approximately $19.92 million net from warrant sales and $10.00 million of venture-loan proceeds. Cash increased by $20.22 million during the quarter.
• Notes payable had $20.00 million principal outstanding and a $19.53 million net carrying amount, including debt discount; $0.91 million was current. The secured loans bear floating interest at one-month LIBOR (subject to a 0.50% floor) plus 8.50%, with principal payments following an initial 18-month interest-only period. The company reported compliance with loan covenants.
• Accumulated deficit was $304.11 million. The filing reports weighted-average basic and diluted shares of 156.36 million for the quarter; this figure reflects certain nominal-exercise warrants under the company’s EPS accounting.

Material changes versus the prior comparable period

• Revenue fell from $4.93 million to zero after the company and Gedeon Richter mutually terminated their bremelanotide FSD license, co-development and commercialization agreement on September 16, 2015. Rights reverted to Palatin; neither party expected material future obligations or termination payments.
• R&D expense rose by approximately $7.67 million, primarily reflecting continued progress in bremelanotide Phase 3 trials. Palatin attributed the year-over-year operating cash flow decline both to the prior-year Gedeon Richter upfront payment and higher development spending.
• Palatin completed a $20 million private placement of warrants and a concurrent $10 million venture loan on July 2, 2015. During the quarter, 10.89 million common shares were issued through cashless warrant exercises.

Outlook, commentary and risks

• Management expected existing capital resources to fund planned operations through the quarter ending September 30, 2016. It estimated that the bremelanotide Phase 3 program, including regulatory filings, would cost at least $80 million and said additional funding would be needed to complete that program and develop other candidates.
• At filing, management expected bremelanotide Phase 3 enrollment to be completed in calendar 2015 and topline results in the third quarter of calendar 2016. These were expectations, not assurances; the filing cautions that trial outcomes, timing and approval are uncertain.
• Management expected further losses for at least the next few years and noted that profitability depends on successful development, regulatory approval and commercialization. There is no assurance that Palatin can obtain additional financing on acceptable terms or at all.
• Key risks include clinical-trial execution and results, regulatory approval, dependence on third-party research and manufacturing providers, competition, uncertain FSD reimbursement and market acceptance, and potential dilution from outstanding warrants and other securities. The filing notes that Flibanserin (ADDYI) began marketing in October 2015.
• No legal proceedings were reported. Management concluded disclosure controls were effective as of September 30, 2015 and reported no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

• Progress against the stated Phase 3 enrollment and topline-result timetable, and the cost to complete the program.
• Cash burn, financing needs and whether the stated September 2026 runway estimate remains supportable; the filing itself states a runway only through September 30, 2016.
• Terms and servicing of the venture debt, including floating-rate exposure, security interests, amortization and prepayment provisions.
• Potential dilution and financing constraints arising from outstanding warrants, convertible preferred stock, options, and investor participation and financing rights.
• Commercial prospects for bremelanotide, including competition, delivery-device requirements, pricing, reimbursement and market acceptance.