Palatin Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2023 second quarter and first six months ended December 31, 2022; filed February 14, 2023. Palatin is a biopharmaceutical company that markets Vyleesi in the United States and develops drug candidates, including PL9643 for dry eye disease and PL8177 for ulcerative colitis.
Financial performance and position
- Revenue: Second-quarter net product revenue was $1.03 million, versus $72,140 a year earlier; six-month net product revenue was $1.90 million, versus $231,622. The company attributed the increase to higher sales volume and lower sales allowances as a percentage of gross sales. License and contract revenue was zero in the current periods, compared with $250,000 in each comparable prior-year period.
- Profit and margins: Net loss was $1.42 million for the quarter and $9.68 million for the six months, compared with $8.69 million and $15.80 million, respectively. The current periods included a $4.67 million income tax benefit from selling New Jersey tax losses and credits; the proceeds were received in January 2023. Approximate product gross margin, calculated from net product revenue less cost of products sold, was 90% in both current periods.
- Expenses and operating loss: Operating loss was $5.59 million for the quarter and $14.34 million for the six months. Results included a $1.03 million gain from reducing a Lonza purchase commitment. Six-month R&D expense rose to $10.39 million from $8.91 million, while SG&A declined to $6.68 million from $7.15 million.
- Cash flow: Six-month operating cash use was $17.40 million, up from $12.71 million; investing cash use was $265,000. Financing provided $8.91 million, primarily from a registered stock-and-warrant offering. Cash and cash equivalents fell to $21.18 million at December 31, 2022, from $29.94 million at June 30, 2022.
- Liquidity and obligations: Current assets were $30.55 million and current liabilities were $11.42 million. Total liabilities were $15.63 million. The balance sheet reports lease liabilities but no conventional borrowing balance. Inventory purchase commitments totaled $8.76 million, with $4.09 million and $3.73 million accrued in current and long-term liabilities, respectively. Management says current cash, including the tax-sale proceeds received after quarter-end, is expected to fund planned operating expenses through calendar 2023, but substantial doubt about going concern remains.
Material changes and notable items
- Vyleesi net revenue increased substantially from a low prior-year base; U.S. sales are concentrated through a specialty pharmacy. Palatin also has Vyleesi licensees in China and Korea, but future milestones and royalties depend on regulatory and commercial progress.
- In November 2022, investors redeemed the Series B and Series C preferred stock for cash; the escrow released $15.75 million to investors, including a $750,000 fee. The company separately raised $9.11 million net in a November registered offering of common stock and warrants. The pre-funded warrants were exercised in January 2023.
- A 1-for-25 reverse stock split became effective August 30, 2022. Common shares outstanding were 10.35 million at December 31, 2022; the filing reports 11.15 million as of February 13, 2023.
- Lonza manufacturing services for Vyleesi were extended through June 30, 2024. The company says it intends to seek a further extension and is evaluating alternative manufacturers; changing and validating a manufacturer could be time-consuming and costly.
Outlook, risks, and contingencies
Management expects continued losses and says additional financing or revenue will be needed to fund planned development and commercialization. It is considering equity or debt financing and expense reductions. If funding is insufficient, Palatin may curtail or suspend programs, reduce commercialization efforts, pursue a strategic transaction, or cease operations. Despite its expectation that cash will cover planned expenses through calendar 2023, management concluded substantial doubt exists about the company’s ability to continue as a going concern for one year from issuance of the financial statements.
Key risks include clinical and regulatory uncertainty, ability to commercialize Vyleesi and obtain additional financing, manufacturing and supply obligations, currency fluctuations, and potential effects of COVID-19 and economic conditions. The filing reports no current material legal proceedings. Management reported disclosure controls were effective as of December 31, 2022.
Important facts for investors to verify
- Whether Vyleesi sales growth continues and translates into sufficient cash generation.
- Cash use, financing availability, and whether management’s calendar-2023 runway expectation remains achievable.
- Clinical and regulatory milestones for PL9643, PL8177, and other development programs.
- Progress with Vyleesi licensees in China and Korea and the timing and likelihood of related milestones or royalties.
- Actual manufacturing commitments, demand forecasts, and exposure to foreign-exchange movements.
- Potential dilution from outstanding warrants and other equity awards, including the terms and exercise of warrants issued in the November 2022 offering.