Palatin Technologies, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2016 (fiscal first quarter of FY2017). The filing was signed November 14, 2016. Palatin is a development-stage biopharmaceutical company, with bremelanotide for premenopausal women with hypoactive sexual desire disorder (HSDD) as its lead program.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2016 | Quarter ended Sep. 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $11.23 million | $10.60 million |
| General and administrative expense | $1.21 million | $1.20 million |
| Operating loss | $12.44 million | $11.80 million |
| Net loss | $13.05 million | $12.41 million |
| Net loss per common share | $0.08 | $0.08 |
| Cash used in operating activities | $6.60 million | $9.40 million |
There was no revenue, so operating and profit margins are not meaningful. R&D spending increased mainly with continued progress on bremelanotide; G&A was broadly unchanged. Operating cash use was lower year over year, primarily because accounts payable and accrued expenses increased.
At September 30, cash and cash equivalents were $8.87 million and available-for-sale investments were $1.38 million, totaling $10.25 million in cash, equivalents and investments. Current liabilities were $20.47 million; total liabilities were $33.17 million. Venture-loan principal was $19.00 million, reported net of discounts and issuance costs as $18.56 million, of which $6.40 million was current. The company reported compliance with loan covenants. Stockholders’ deficiency was $21.77 million.
Financing activities provided $7.46 million net, including $8.47 million net proceeds from an August 2016 underwritten offering, offset by $1.00 million of note repayments and capital-lease payments. The offering issued 11.48 million common shares and warrants, including warrants for additional shares. Common shares outstanding increased from 68.57 million at June 30 to 92.81 million at September 30. The reported weighted-average share count used for loss per share was 165.85 million, reflecting certain nominal-exercise warrants under the company’s accounting policy.
Material changes and business developments
- R&D expense rose about 6% year over year. The filing attributes the increase principally to bremelanotide development and higher general R&D spending, including staffing and stock compensation.
- Palatin completed last patient visits in the double-blind portion of its two Phase 3 RECONNECT studies during the quarter. The filing describes statistically significant improvements versus placebo on both prespecified co-primary endpoints in both trials.
- Subsequent event: On November 1, 2016, Palatin announced positive top-line Phase 3 results, stating that bremelanotide 1.75 mg met the prespecified co-primary endpoints. The open-label safety extension was continuing. These results occurred after the reporting date and did not constitute FDA approval.
- The former Gedeon Richter bremelanotide collaboration had been terminated in September 2015; the rights reverted to Palatin. No revenue was reported in either comparison quarter.
Outlook, risks and unusual items
- Management stated that existing resources were expected to fund planned operations only through the quarter ending December 31, 2016. The filing concludes there is substantial doubt about the company’s ability to continue as a going concern and says further financing is required; financing may not be available on acceptable terms or at all.
- Management estimated that the bremelanotide Phase 3 program, including regulatory filings but excluding required ancillary studies and trials and launch-readiness commercialization, would cost at least $87 million. About $63.8 million had been expensed through September 30. Additional funding was needed to complete ancillary work, prepare and submit an NDA, and establish commercial-scale manufacturing.
- Palatin expected continued losses for at least the next few years. Its other development programs included PL-3994 and MC1r and MC4r candidates; their advancement also depends on financing and clinical progress.
- Key risks include clinical and regulatory uncertainty, further study requirements, manufacturing and device compliance, competition, reliance on third parties, and the ability to secure funding or partners. The company cautioned that positive top-line results do not assure complete data review or FDA approval.
- Accrued expenses increased to $12.88 million from $7.77 million, including $12.38 million accrued for the bremelanotide program. No legal proceedings were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether complete Phase 3 safety and efficacy analyses support the announced topline results, and what additional studies regulators require.
- Whether Palatin secures sufficient financing or a collaboration to fund the NDA work, ancillary studies, manufacturing preparation and other programs beyond the stated December 2016 runway.
- The full cash and debt position, upcoming loan payments and obligations, and the timing and settlement of the large accrued expense balance.
- The potential dilution and warrant terms associated with the 2016 offering and other outstanding warrants, including the difference between actual shares outstanding and the weighted-average share count used for loss per share.