Palatin Technologies, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the first quarter of Palatin’s fiscal 2020. The filing was signed November 12, 2019. Financial statements are unaudited.
Business context
Palatin is a clinical-stage biopharmaceutical company developing therapies targeting melanocortin and natriuretic peptide receptors. Its lead product, Vyleesi (bremelanotide), was FDA-approved in June 2019 for acquired, generalized HSDD in premenopausal women; AMAG markets it in North America, with U.S. availability beginning in August 2019. Palatin is also developing MC1r, MC4r and natriuretic peptide programs.
Financial results and liquidity
| Metric | Q ended Sep. 30, 2019 | Q ended Sep. 30, 2018 |
|---|---|---|
| License and contract revenue | $97,379 | $34,505 |
| Research and development expense | $3.13 million | $3.62 million |
| General and administrative expense | $1.83 million | $2.04 million |
| Operating loss | $4.86 million | $5.63 million |
| Investment income | $370,654 | $153,583 |
| Interest expense | $9,051 | $206,871 |
| Net loss | $4.50 million | $5.68 million |
| Basic and diluted loss per share | $0.02 | $0.03 |
| Operating cash flow | $54.84 million provided | $5.54 million used |
At September 30, 2019, cash and cash equivalents were $96.70 million, current assets $97.39 million, current liabilities $1.85 million, total liabilities $1.85 million, and stockholders’ equity $96.12 million. The company reported no notes payable at quarter-end after repaying its venture debt. Cash included $96.52 million in a money-market account. Accumulated deficit was $300.27 million.
Operating cash flow was unusually strong because of the timing of receipts under the AMAG license, including payment associated with Vyleesi’s FDA approval. The filing reports a $60.17 million favorable change in accounts receivable. Thus, quarterly operating cash flow should not be read as recurring cash generation. Capital spending was $62,880; financing activities used $1.59 million, including $1.33 million for warrant repurchases, partly offset by $579,730 of ATM stock proceeds.
Material changes versus the prior comparable period
- Revenue rose by about $63,000 but remained limited to AMAG-related license and contract billings; the quarter’s statements do not report product sales or royalty revenue.
- Net loss narrowed by about $1.18 million, reflecting lower operating expenses and a shift to net other income, including reduced interest expense after venture-debt repayment.
- R&D expense declined about $495,000. Program-level spending increased to $2.30 million from $1.94 million, principally due to PL-8177; general R&D spending fell to $830,000 from $1.68 million, mainly due to lower salaries and stock compensation.
- G&A expense declined about $208,000, primarily due to lower stock-based compensation.
- Cash rose by $53.19 million during the quarter, mainly because of AMAG-related collections. The company also repurchased and canceled 3.34 million Series H and J warrants for approximately $1.33 million, plus potential additional consideration if the company is sold within six months of the agreements.
Outlook, risks and unusual items
- Management said existing capital resources were expected to fund planned operations through at least calendar year 2021. The company expects significant spending on MC1r, MC4r and natriuretic peptide development and says additional funding will be needed for required clinical trials and, if successful, regulatory submissions.
- Palatin may pursue equity or debt financing, collaborations or licensing arrangements; additional capital may not be available on acceptable terms, or at all. The company has incurred recurring operating losses and may never achieve sustained profitability.
- AMAG’s Vyleesi agreement provides for royalties ranging from high single digits to low double digits and up to $300 million in sales milestones. Palatin also disclosed potential milestone and royalty payments under its Fosun and Kwangdong licenses, contingent on development, approval, sales or other specified events.
- Key risks include Vyleesi commercialization and market acceptance, licensee performance, clinical and regulatory outcomes, manufacturing and reimbursement, competition, intellectual-property protection, and the need for future financing. Management said there were no material changes to the risk factors in its fiscal 2019 Form 10-K.
- Adoption of lease accounting resulted in recognition of operating lease assets and liabilities; the company reported no material impact on operations or cash flows. Office and laboratory leases expire June 30, 2020.
- Subsequent to quarter-end through November 8, 2019, Palatin sold 1.24 million shares through its ATM for net proceeds of $1.03 million and repurchased and canceled a further 3.20 million warrant shares.
Important facts for investors to verify
- Whether AMAG’s U.S. Vyleesi launch translates into sustained sales, royalties or sales-milestone receipts; the quarter itself reported only $97,379 of revenue.
- The source, timing and repeatability of the $54.84 million of operating cash flow, particularly the AMAG-related receivable collection.
- Whether the stated cash runway through at least calendar 2021 remains realistic given planned development spending and future trial and regulatory costs.
- Clinical progress, costs and timelines for PL-8177 and other MC1r, MC4r and natriuretic peptide programs, alongside the potential for additional financing and share dilution.
- The potential additional consideration tied to warrant repurchases, and the effects of outstanding warrants, options, restricted stock units and ATM sales on dilution.