Palatin Technologies, Inc. — Form 10-K Summary
Period note: The filing is the annual report for the fiscal year ended June 30, 2018, not a standalone 2017 fourth-quarter filing. The filing was signed September 13, 2018.
Business context and reporting period
Palatin is a development-stage biopharmaceutical company focused on melanocortin and natriuretic peptide receptor medicines. It had no products available for commercial sale; fiscal 2018 revenue came from licensing and collaboration agreements. Its lead candidate, Vyleesi (bremelanotide), is an on-demand injectable for premenopausal women with hypoactive sexual desire disorder (HSDD). AMAG submitted the U.S. NDA in March 2018, and the FDA accepted it for review in June. Palatin also licensed Vyleesi in China to Fosun and in Korea to Kwangdong.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| License and contract revenue | $67.1 million | $44.7 million |
| Research and development expense | $32.6 million | $45.7 million |
| General and administrative expense | $8.6 million | $9.6 million |
| Operating income (loss) | $25.9 million | $(10.6) million |
| Net income (loss) | $24.7 million | $(13.3) million |
| Net cash from operating activities | $1.7 million | $12.9 million |
- FY2018 revenue included a $20 million AMAG regulatory milestone triggered by FDA acceptance of the NDA, $5 million from Fosun, and $42.1 million of AMAG license and contract revenue. The filing identifies these as licensing-related receipts, not sales of an approved product.
- Cash and cash equivalents were $38.0 million at June 30, 2018, down from $40.2 million a year earlier; current liabilities were $10.8 million. Total assets were $39.0 million and total liabilities $12.1 million.
- Notes payable, net of discount, totaled $6.3 million, compared with $14.1 million in 2017. The venture loans bear interest at one-month LIBOR plus 8.5%; scheduled principal payments were $6.0 million in fiscal 2019 and $0.3 million in fiscal 2020. The company reported compliance with loan covenants.
- Operating cash flow fell from 2017, chiefly because 2017 included the AMAG initial payment and fiscal 2018 had lower cash receipts. Cash used in financing activities was $4.1 million, including $8 million of debt repayment, partly offset by stock and warrant proceeds.
- Palatin reported a $332.0 million accumulated deficit. Management estimated existing resources, together with possible at-the-market offering proceeds, would fund planned operations through at least September 30, 2019; additional financing would be needed for later development and trials.
Material changes versus the prior year
- Revenue rose about 50%, and the company moved from a $13.3 million net loss to $24.7 million net income, primarily reflecting licensing revenue and the $20 million NDA-acceptance milestone.
- R&D expense declined about 29%, mainly because Vyleesi’s Phase 3 program and NDA-support work were completed. Spending on other development programs continued.
- Operating cash flow decreased to $1.7 million from $12.9 million. Cash declined by $2.2 million over FY2018.
- Total notes payable fell by approximately $7.8 million, largely due to debt repayments. Common shares outstanding increased from 160.5 million to 200.6 million during the year.
Outlook, commentary, and key risks
- The FDA’s PDUFA date for Vyleesi was March 23, 2019; an advisory committee meeting was expected in early 2019. Approval, labeling, safety conclusions, and timing were uncertain. The filing states FDA approval could trigger an additional $60 million payment from AMAG; further sales milestones and tiered royalties depend on future performance.
- Management said FY2019 profitability might be possible only if Vyleesi were approved, and cautioned that profitability might not be sustained. Palatin expected significant continued spending on its MC1r and natriuretic peptide programs.
- PL-8177 had completed subcutaneous Phase 1 dosing, with data expected in calendar 2018; an oral-dose study was planned. PL-8331 remained preclinical, and PL-3994 had completed Phase 1 safety studies. These timelines and outcomes were forward-looking expectations.
- Key risks include dependence on Vyleesi and licensee execution; no recurring product revenue pending approval and commercialization; need for further financing; uncertain reimbursement and market uptake; clinical, regulatory, device and manufacturing risks; competition; and potential shareholder dilution.
- The audited financial statements and internal-control audit received unqualified opinions. Management and KPMG reported effective internal control over financial reporting as of June 30, 2018. The company reported no current material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the eventual FDA decision, approved label, any required post-approval studies or restrictions, and the actual timing and amount of any milestone payments.
- Assess the sustainability of earnings: FY2018 profit depended on licensing and milestone revenue, and Palatin had no marketed product or product-sale revenue.
- Track cash burn, debt maturities, at-the-market share issuance, and the timing and terms of any additional financing.
- Verify progress, trial results, costs, and funding plans for PL-8177, PL-8331, PL-3994, and other pipeline programs.
- Evaluate AMAG’s commercialization plans and the potential effects of reimbursement, competition, supply readiness, and Vyleesi’s injectable delivery format.
- Consider dilution: the filing reported 200.6 million common shares outstanding at June 30, 2018 and substantial outstanding options, warrants, and restricted stock units.