Palatin Technologies, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended June 30, 2017. The filing also reports the quarter ended June 30, 2017 (FY2017 Q4); it is not an annual report for fiscal 2016. Palatin is a development-stage biopharmaceutical company with no product sales. Its lead candidate, bremelanotide, is being developed for hypoactive sexual desire disorder (HSDD).
Financial results and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| License and contract revenue | $44.7 million | $0 |
| Research and development expense | $45.7 million | $43.1 million |
| General and administrative expense | $9.6 million | $6.2 million |
| Operating loss | $10.6 million | $49.3 million |
| Net loss | $13.3 million | $51.7 million |
| Basic and diluted loss per share | $0.07 | $0.33 |
| Net cash from (used in) operating activities | $12.9 million | $(47.4) million |
FY2017 revenue arose from the AMAG license arrangement, not product sales. The $60 million upfront payment is accounted for together with up to $25 million of eligible development-cost reimbursements; revenue is recognized as Palatin completes its obligations. At year-end, $35.1 million remained deferred, and $15.1 million of reimbursable expenses was recorded as accounts receivable. The FY2017 operating cash inflow was substantially affected by the AMAG payment and deferred revenue.
For FY2017 Q4, revenue was $33.9 million and net income was $13.3 million, versus no revenue and a $13.4 million net loss in FY2016 Q4. The quarterly profit reflected license revenue and should not be read as recurring product profitability.
At June 30, 2017, cash and cash equivalents were $40.2 million; available-for-sale investments were $0.25 million; accounts receivable were $15.1 million; and total current assets were $56.6 million. Current liabilities were $55.0 million, including $35.1 million of deferred revenue. Notes payable, net of discount, totaled $14.1 million ($7.8 million current and $6.3 million long-term); contractual payments on notes, including interest, totaled $16.6 million. The company reported a $5.2 million stockholders’ deficit and an accumulated deficit of $356.7 million. It reported $2.3 million of interest expense and $0.5 million of alternative minimum tax expense.
Material changes and business developments
- AMAG’s North American bremelanotide license became effective February 2, 2017. Palatin received $60 million upfront; the agreement also provides reimbursement of up to $25 million in specified development costs, up to $80 million in regulatory milestones, up to $300 million in sales milestones, and tiered royalties.
- Both pivotal Phase 3 bremelanotide trials met their prespecified co-primary efficacy endpoints for increased desire and reduced distress. The safety extension was completed in Q2 calendar 2017; nausea was the most frequent reported adverse event and was generally mild.
- Palatin expected, with AMAG, to submit an NDA in early calendar 2018 after completing additional clinical, pharmacokinetic, safety-pharmacology, and manufacturing activities. Approval was not assured.
- After year-end, Palatin licensed China, Taiwan, Hong Kong, and Macau rights to Fosun. The agreement provides a $5 million upfront payment, a $7.5 million approval milestone, potential sales milestones up to $92.5 million, and royalties. Fosun is responsible for development and commercialization costs in its territory.
- Other programs remained earlier stage: PL-8177 (inflammatory bowel disease) was expected to proceed toward an IND; PL-8331 was in preclinical development for ocular inflammation; PL-3994 was expected to enter Phase 2A for heart failure; and PL-5028 remained preclinical.
- Common shares outstanding increased from 68.6 million at June 30, 2016 to 160.5 million at June 30, 2017, largely reflecting equity financings and warrant exercises. The company reported 179.0 million shares outstanding as of September 21, 2017.
Outlook, risks, and unusual items
Management stated that available capital, including the Fosun proceeds, was expected to fund planned operations through at least calendar 2018. Additional financing would be needed for other programs and later development, and funding may not be available on acceptable terms. Palatin expected further losses and stated that sustained profitability, if achieved, would not be expected before the fiscal year ending June 30, 2019.
Key risks include FDA review and possible requests for further data or trials; whether bremelanotide can achieve market acceptance and reimbursement; reliance on AMAG for North American commercialization; dependence on contract manufacturers and third-party research providers; competition, patent protection, and potential dilution or financing constraints. The company noted that HSDD reimbursement is uncertain and may be limited. Its venture debt bears interest at one-month LIBOR (with a 0.50% floor) plus 8.50%; the debt is secured by substantially all assets other than intellectual property. Palatin reported covenant compliance at year-end. No material legal proceedings or off-balance-sheet arrangements were reported. KPMG issued an unqualified audit opinion, and management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Current FDA/NDA status, remaining studies, timing, and any regulatory feedback on bremelanotide.
- AMAG reimbursement receivable collections, remaining development obligations, deferred revenue recognition, milestones, and royalty terms.
- Receipt and use of Fosun’s upfront payment and progress toward regulatory approval in its licensed territories.
- Cash runway and financing needs after calendar 2018, including debt maturities and interest costs.
- Fully diluted share count, warrant and preferred-stock terms, and potential effects of further equity financing.
- Progress, funding requirements, and clinical timelines for PL-3994 and the inflammatory-disease programs.