Business context and reporting period
Palatin Technologies, Inc. is a development-stage biopharmaceutical company. This Form 10-Q covers the fiscal quarter and six months ended December 31, 2015 (the quarter ended December 31 is fiscal Q2). Its lead program, bremelanotide for female sexual dysfunction (FSD), was in Phase 3; enrollment was completed in calendar Q4 2015. Other programs include PL-3994 and MC1r/MC4r candidates.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2015 | Six months ended Dec. 31, 2015 | Prior-year comparable |
|---|---|---|---|
| Revenue | $0 | $0 | $8.0 million and $12.95 million, respectively |
| Research and development expense | $11.27 million | $21.87 million | $4.27 million and $7.20 million |
| General and administrative expense | $1.36 million | $2.56 million | $1.42 million and $2.54 million |
| Operating loss | $12.63 million | $24.43 million | Operating income of $2.32 million and $3.22 million |
| Net loss | $13.25 million | $25.66 million | Net income of $2.78 million and $3.57 million |
| Basic and diluted EPS | $(0.08) | $(0.16) | $0.03 in both comparable periods |
| Operating cash flow | $23.45 million used in the six months | $1.42 million provided |
As of December 31, 2015, cash and cash equivalents were $31.99 million and available-for-sale investments were $1.38 million, totaling $33.37 million. Current liabilities were $9.96 million; total liabilities were $27.92 million. Notes payable were $20.0 million gross, or $19.58 million net of discount, including $1.91 million current. The six-month net increase in cash was $4.69 million, supported by $29.54 million of financing cash flow, including a $19.8 million net private placement and approximately $9.9 million net loan proceeds. No meaningful operating margin is available because the company reported no revenue in the current periods.
Material changes versus prior comparable periods
- Revenue fell to zero following termination of the Gedeon Richter agreement; prior-year revenue included upfront license payments and a Phase 3 milestone. All licensed rights reverted to Palatin, with no termination penalty or material future obligations reported.
- R&D spending rose substantially, mainly due to continued Phase 3 bremelanotide trials. Operating results shifted from income to losses.
- Operating cash flow shifted from positive to a $23.45 million use, while interest expense increased to $1.26 million for six months, primarily in connection with venture debt.
- Cash and cash equivalents increased from $27.30 million at June 30, 2015, but total liabilities rose from $17.27 million, principally reflecting the additional $10 million venture loan.
Outlook, commentary and risks
- Management expected existing capital resources to fund planned operations through the quarter ending September 30, 2016. Additional capital would be required to complete the bremelanotide program and develop other candidates.
- Management estimated the bremelanotide Phase 3 program, including regulatory filings, would cost at least $80 million; $38.7 million had been expensed to date. Topline Phase 3 results and last-patient-out were projected for calendar Q3 2016; approval and trial outcomes were not assured.
- The company expected significant losses for fiscal 2016 and additional losses for at least the next few years. It had an accumulated deficit of $317.4 million and no product-sale revenue.
- Key risks include dependence on successful Phase 3 results and regulatory approval, the need for additional financing, trial delays or added studies, third-party clinical and manufacturing performance, competition, uncertain FSD reimbursement and market acceptance, and potential dilution. The filing notes FDA-approved flibanserin began marketing in October 2015.
- The venture loans bear interest at one-month LIBOR, subject to a 0.50% floor, plus 8.50%; they are secured by substantially all assets other than intellectual property. The company reported covenant compliance at December 31, 2015.
- Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported. The company reported no current legal proceedings.
Important facts for investors to verify
- Whether Phase 3 bremelanotide results met the planned endpoints and whether the projected results and regulatory timetable were achieved.
- Actual cash burn and financing runway relative to management’s September 30, 2016 estimate, and the cost and funding plan for the remaining bremelanotide program.
- Potential dilution and share-count presentation: the filing reports 68.03 million common shares outstanding as of February 10, 2016, but weighted-average shares of about 156.3 million for the six months, reflecting treatment of certain nominal-exercise warrants in EPS calculations. It also reports substantial outstanding warrants and other potentially dilutive securities.
- Debt service and any restrictions or financing rights associated with the venture loans and prior private placements.
- Commercial prospects, including reimbursement, competition and the implications of the terminated Gedeon Richter collaboration.