PALATIN TECHNOLOGIES INC annual report, FY2021

Business context and reporting period

Palatin Technologies, Inc. filed this Form 10-K for the fiscal year ended June 30, 2021. The request metadata says “2020 Q4,” but the filing is an annual report for fiscal 2021, not a quarterly report. Palatin is a clinical-stage biopharmaceutical company whose only FDA-approved product is Vyleesi, an as-needed treatment for premenopausal women with hypoactive sexual desire disorder (HSDD). In July 2020, Palatin ended its North American license with AMAG and regained those rights, taking responsibility for U.S. commercialization.

Financial performance and position

• FY2021 product revenue was negative $283,286: gross Vyleesi sales of $4.75 million were more than offset by $5.03 million in allowances and accruals. License and contract revenue was $94,689. FY2020 license and contract revenue was $117,989.
• Research and development expense declined to $12.93 million from $13.96 million. Selling, general and administrative expense rose to $17.34 million from $9.77 million, including $6.61 million of Vyleesi selling costs.
• Palatin recorded a $2.78 million loss on the AMAG termination agreement after revising estimates for inventory value and manufacturing commitments. AMAG paid Palatin $12.0 million at closing and a further $4.3 million in March 2021.
• Cash and cash equivalents were $60.10 million at June 30, 2021, down from $82.85 million. Current assets were $65.91 million and current liabilities $10.51 million, implying working capital of approximately $55.40 million. Management said existing resources were expected to fund planned operations through at least September 2022.
• Total liabilities were $17.65 million, including operating lease liabilities; the prior venture loan had matured and been repaid in FY2020. The filing reports no off-balance-sheet arrangements.

Material changes and outlook

• The change from FY2020’s operating cash inflow to FY2021’s cash outflow primarily reflected timing of AMAG-related receipts. FY2020 operating cash flow included a large accounts-receivable decrease of $60.27 million.
• Palatin’s Vyleesi supply agreements carried $10.93 million of contractual purchase commitments at June 30, 2021, of which $3.72 million was current and $7.21 million due thereafter. The company had accrued estimated losses of $3.72 million in current liabilities and $6.23 million in long-term liabilities against these commitments.
• Management planned to advance PL9643 for dry eye disease into Phase 3 in calendar Q4 2021, with preliminary data expected in the second half of 2022. A Phase 2 study of oral PL8177 for ulcerative colitis was planned for the first half of 2022. These are stated plans, not assurances of timing or success.
• Palatin expected continued substantial losses and said additional funding would be needed for development and clinical trials. It cautioned that financing may not be available on acceptable terms, and its limited remaining authorized common shares constrain equity financing options.
• COVID-19 could disrupt trials, enrollment, suppliers, manufacturing, marketing and access to capital. Other key risks include uncertain Vyleesi demand and reimbursement, competition, reliance on contract manufacturers, FDA-required Vyleesi postmarketing studies and a lactation trial, and clinical and regulatory uncertainty for pipeline candidates.
• Vyleesi’s common reported adverse events include nausea, flushing, injection-site reactions, headache and vomiting; it is contraindicated for women with uncontrolled hypertension or known cardiovascular disease. The filing also notes possible transient blood-pressure increases and focal hyperpigmentation.

Important facts for investors to verify

1. Whether Vyleesi sales and net revenue improve, given FY2021 allowances exceeded gross sales and the product was classified as a Tier 3 drug by insurers.
2. Actual cash burn, updated cash runway, and financing needs relative to the September 2022 runway estimate.
3. Progress and results for PL9643 Phase 3 and PL8177 Phase 2, including any COVID-related or other delays.
4. Vyleesi manufacturing commitments, inventory usability, and the adequacy of future demand to absorb minimum purchase obligations.
5. Completion and outcomes of FDA-required Vyleesi postmarketing work, and regulatory progress by licensees in China and Korea.
6. Potential dilution from outstanding equity awards, preferred stock and warrants; the filing reported approximately 39.9 million shares underlying dilutive securities as of September 24, 2021.