Palatin Technologies, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2017 (the third quarter of Palatin’s fiscal 2017). The filing was signed May 15, 2017. Palatin is a development-stage biopharmaceutical company; its lead candidate is bremelanotide for hypoactive sexual desire disorder (HSDD).
Financial results and liquidity
| Metric | Three months ended March 31, 2017 | Nine months ended March 31, 2017 | Comparable 2016 period |
|---|---|---|---|
| Contract revenue | $10.82 million | $10.82 million | None |
| Research and development expense | $9.06 million | $28.42 million | $10.68 million and $32.55 million |
| General and administrative expense | $4.77 million | $7.29 million | $1.41 million and $3.97 million |
| Operating loss | $3.01 million | $24.89 million | $12.09 million and $36.51 million |
| Net loss | $3.56 million | $26.65 million | $12.70 million and $38.36 million |
| Basic and diluted net loss per share | $0.02 | $0.15 | $0.08 and $0.25 |
- At March 31, 2017, cash and cash equivalents were $54.51 million and available-for-sale investments were $0.92 million, totaling $55.43 million. Current assets were $61.15 million.
- Current liabilities were $71.21 million, including $53.83 million of deferred revenue; excluding deferred revenue, current liabilities were $17.37 million. Total liabilities were $80.14 million.
- Notes payable had a net carrying value of $16.04 million, of which $7.79 million was current. The company reported compliance with loan covenants. The venture loans bear interest at one-month LIBOR (0.50% floor) plus 8.50%.
- For the nine months, operating cash flow was positive $25.77 million, investing cash flow was positive $0.45 million, and financing cash flow was positive $20.28 million. Cash increased $46.50 million to $54.51 million.
- Operating cash flow was driven in large part by the $60 million AMAG upfront payment recorded as deferred revenue; it should not be read as recurring operating cash generation. The filing does not provide a meaningful positive operating margin; the company reported operating losses.
Material changes and business developments
- Palatin’s exclusive North American bremelanotide license to AMAG became effective February 2, 2017. AMAG paid $60 million upfront. Palatin recognized $10.82 million of contract revenue using a proportional method as it performs development obligations; $53.83 million remained deferred at quarter-end.
- AMAG may reimburse up to $25 million for qualifying direct out-of-pocket expenses related to U.S. NDA-enabling development. The agreement also provides for up to $80 million in regulatory milestones, up to $300 million in sales milestones, and tiered royalties from high single digits to low double digits on eligible North American net sales. These contingent amounts are not guaranteed.
- R&D expense declined year over year, primarily because the Phase 3 bremelanotide efficacy trials were completed. G&A expense rose sharply, mainly due to Greenhill’s transaction advisory fee and employee-related costs.
- Cash and investments rose substantially from June 30, 2016, principally reflecting the AMAG payment and 2016 equity offerings. Shares issued and outstanding rose from 68.57 million at June 30, 2016 to 144.89 million at March 31, 2017; the filing also reports substantial warrants and other potential share issuance.
Outlook, commentary and risks
- Management expected AMAG to submit a U.S. NDA for bremelanotide in early 2018, after Palatin completed additional pharmacokinetic and safety studies—including abuse-liability and drug-interaction studies—and manufacturing validation work. Approval and timing are uncertain.
- Management believed available resources would fund planned operations through calendar 2018. The company expects continued losses and says additional funding will be needed for clinical trials and regulatory submissions for other candidates; financing may not be available on acceptable terms or at all.
- Palatin reported positive results on the co-primary efficacy endpoints in both Phase 3 RECONNECT studies. The open-label safety extension continued. The FDA had not accepted the previously proposed product name Rekynda; an alternative name was expected to be pursued.
- Key risks include clinical, regulatory and manufacturing outcomes; reliance on third-party contractors; AMAG’s control over North American development and commercialization; uncertain market acceptance and royalties; financing needs; and potential dilution. Palatin remains responsible for NDA-enabling work, with AMAG reimbursement subject to the agreement’s terms and $25 million cap.
- The company reported no current legal proceedings, effective disclosure controls as of March 31, 2017, and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress and cost of remaining NDA-enabling studies, manufacturing validation, and the expected early-2018 NDA timetable.
- AMAG’s reimbursement obligations, the amount and timing of eligible expenses, and the portion of the upfront payment still deferred and recognized over time.
- Cash runway assumptions through 2018, expected spending, and funding needs for non-bremelanotide programs.
- Debt amortization, interest costs, covenants, and any future financing or refinancing requirements.
- Potential dilution from outstanding warrants, options and equity awards; the filing reports 144.89 million common shares outstanding at quarter-end and 152.80 million as of May 11, 2017.
- Regulatory, safety, manufacturing and commercial risks, including AMAG’s ability and willingness to pursue approval and launch.