The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the consolidated financial statements filed as part of this report and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2021.

The following discussion and analysis contain forward-looking statements within the meaning of the federal securities laws. You are urged to carefully review our description and examples of forward-looking statements included earlier in this Quarterly Report immediately prior to Part I, under the heading "Special Note Regarding Forward-Looking Statements." Forward-looking statements are subject to risk that could cause actual results to differ materially from those expressed in the forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in this Quarterly Report and our Annual Report on Form 10-K for the year ended June 30, 2021, as well as any of those made in our other reports filed with the SEC. You are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as of the date of this document. We do not intend, and undertake no obligation, to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

Critical Accounting Policies and Estimates

Our significant accounting policies, which are described in the notes to our consolidated financial statements included in this report and in our Annual Report on Form 10-K for the year ended June 30, 2021, have not changed during the three and six months ended December 31, 2021. We believe that our accounting policies and estimates relating to the carrying value of inventory, revenue recognition, accrued expenses, purchase commitment liabilities, and stock-based compensation are the most critical.





Our Business


We are a biopharmaceutical company developing first-in-class medicines based on molecules that modulate the activity of the melanocortin and natriuretic peptide receptor systems. Our product candidates are targeted, receptor-specific therapeutics for the treatment of diseases with significant unmet medical need and commercial potential.

In January 2020, our North American licensee for Vyleesi® (bremelanotide injection), AMAG Pharmaceuticals, Inc. ("AMAG"), announced that it had completed a strategic review of its product portfolio and business strategy, and was pursuing options to divest its female health products, including Vyleesi. On July 27, 2020, Palatin and AMAG announced that they had mutually terminated the license agreement for Vyleesi effective July 24, 2020, and that we were assuming responsibility for manufacturing, marketing, and distribution of Vyleesi in North America, including the United States.

Melanocortin Receptor System. The melanocortin receptor ("MCr") system is involved in the regulation of food intake, satiety, metabolism, sexual function, inflammation, and immune system responses. There are five melanocortin receptors, MC1r through MC5r. Modulation of these receptors, through use of receptor-specific agonists, which activate receptor function, or receptor-specific antagonists, which block receptor function, can have significant pharmacological effects.

Our commercial product, Vyleesi, was approved by the FDA on June 21, 2019, and since July 24, 2020 we have been marketing Vyleesi in the United States. Prior to July 24, 2020, the product was marketed in the United States by AMAG pursuant to a license agreement that was terminated on that date. Vyleesi, a melanocortin receptor agonist, is an "as needed" therapy used in anticipation of sexual activity and self-administered by premenopausal women with hypoactive sexual desire disorder ("HSDD") in the thigh or abdomen via a single-use subcutaneous auto-injector. The most common adverse events are nausea, flushing, injection site reactions, headache, and vomiting. Vyleesi is contraindicated in women with uncontrolled hypertension or known cardiovascular disease. In addition, the Vyleesi label includes precautions that it may cause (i) small, transient increases in blood pressure with a corresponding decrease in heart rate; (ii) focal hyperpigmentation (darkening of the skin on certain parts of the body), including the face, gums (gingiva) and breasts; and (iii) nausea.

Our new product development activities focus primarily on peptides which are agonists at MC1r, and in some instances additional melanocortin receptors, with potential to treat inflammatory and autoimmune diseases such as dry eye disease, which is also known as keratoconjunctivitis sicca, uveitis, diabetic retinopathy, and inflammatory bowel disease. We believe that the MC1r agonist peptides we are developing have broad anti-inflammatory effects and appear to utilize mechanisms engaged by the endogenous melanocortin system in regulation of the immune system and resolution of inflammatory responses. We are also developing peptides that are active at more than one melanocortin receptor, and MC4r peptide and small molecule agonists with potential utility in obesity and metabolic-related disorders, including rare disease and orphan indications.






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Natriuretic Peptide Receptor System. The natriuretic peptide receptor ("NPR") system regulates cardiovascular functions, and therapeutic agents modulating this system have potential to treat fibrotic diseases and cardiovascular diseases, including reducing cardiac hypertrophy and fibrosis, heart failure, acute asthma, pulmonary diseases, and hypertension. We have designed and are developing potential NPR candidate drugs selective for one or more different natriuretic peptide receptors, including natriuretic peptide receptor-A ("NPR-A"), natriuretic peptide receptor B ("NPR-B"), and natriuretic peptide receptor C ("NPR-C").





Pipeline Overview


The following chart illustrates the status of our drug development programs and Vyleesi, which has been approved by the FDA for the treatment of premenopausal women with acquired, generalized HSDD.





                       [[Image Removed: ptn_10qimg5.jpg]]




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Our Strategy


Key elements of our business strategy include:





    ·   Discovering and developing melanocortin-based therapeutics for treating
        inflammatory and autoimmune diseases, with a focus on ocular diseases;

    ·   Growing our Vyleesi net revenue by marketing Vyleesi in the United States
        and supporting the development activities of our existing licensees for
        China and South Korea;

    ·   Entering into licenses for the sale, distribution and marketing of Vyleesi
        in the United States and additional regions;

    ·   Recruiting and maintaining employees to discover, develop and
        commercialize our MCr and NPR therapeutic products;

    ·   Entering into strategic alliances and partnerships with pharmaceutical
        companies to facilitate the development, manufacture, marketing, sale, and
        distribution of therapeutic products we are developing;

    ·   Partially funding our therapeutic product development programs with the
        cash flow generated from Vyleesi and existing license agreements, as well
        as any future research, collaboration, or license agreements; and

    ·   Completing development and seeking regulatory approval of certain of our
        therapeutic product candidates.



Corporate Information



We were incorporated under the laws of the State of Delaware on November 21, 1986 and commenced operations in the biopharmaceutical area in 1996. Our corporate offices are located at 4B Cedar Brook Drive, Cedar Brook Corporate Center, Cranbury, New Jersey 08512, and our telephone number is (609) 495-2200. We maintain an Internet site, where among other things, we make available free of charge on and through this website our Forms 3, 4 and 5, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) and Section 16 of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our website and the information contained in it or connected to it are not incorporated into this Quarterly Report on Form 10-Q. The reference to our website is an inactive textual reference only.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (www.sec.gov).





Results of Operations


Three and Six Months Ended December 31, 2021 Compared to the Three and Six Months Ended December 31, 2020:

Revenues - For the three and six months ended December 31, 2021, we recognized $72,140 and $231,622 in product revenue, net of allowances, respectively. For the three and six months ended December 31, 2020, we recognized $163,971 and $452,531 of negative product revenue, net of allowances, respectively, as the result of our regaining all North American development and commercialization rights to Vyleesi in July 2020 (see Note 5 of our accompanying consolidated financial statements). For the three and six months ended December 31, 2021, we recognized $250,000 in license and contract revenue related to the Fosun License Agreement.

Cost of Products Sold - Cost of products sold was $29,171 and $83,104 for the three and six months ended December 31, 2021, respectively, compared to $29,400 and $54,600 for the three and six months ended December 31, 2020, respectively.

Research and Development - Research and development expenses were $5,426,397 and $8,911,161 for the three and six months ended December 31, 2021, respectively, compared to $4,011,418 and $6,935,269 for the three and six months ended December 31 2020, respectively. The increase for the three and six months ended December 31, 2021, as compared to the three and six months ended December 31, 2020, is related to the overall increase in spending on our MCr programs.

Research and development expenses related to our Vyleesi, MCr programs and other preclinical programs were $4,109,961 and $6,397,274 for the three and six months ended December 31, 2021, respectively, compared to $2,999,920 and $4,872,225 for the three and six months ended December 31, 2020, respectively. The increase is primarily related to an increase in spending on our MCr programs.






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The amounts of project spending above exclude general research and development spending, which was $1,316,436 and $2,513,887 for the three and six months ended December 31, 2021, respectively, compared to $1,011,498 and $2,063,044 for the three and six months ended December 31, 2020, respectively. The increase in general research and development spending for the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020 is primarily attributable to an increase in compensation related expenses.

Cumulative spending from inception to December 31, 2021 was approximately $311,900,000 on our Vyleesi program and approximately $176,300,000 on all our other programs (which include PL3994, melanocortin receptor agonists, other discovery programs and terminated programs). Due to various risk factors described in our Annual Report on Form 10-K for the year ended June 30, 2021, under "Risk Factors," including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and larger-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever, related net cash inflows will be generated.

Selling, General and Administrative - Selling, general and administrative expenses, which consist mainly of compensation and related costs, were $3,317,760 and $7,154,302 for the three and six months ended December 31, 2021, respectively, compared $5,044,913 and $7,376,519 for the three and six months ended December 31, 2020, respectively. The decrease in selling, general and administrative expenses for the three and six months ended December 31, 2021 is primarily attributable to $1,366,998 and $3,133,463, respectively of selling expenses related to Vyleesi, and a decrease in compensation related expense.

Gain on License Termination Agreement - For the six months ended December 31, 2020, we recorded a gain of $1,623,795 as a result of the Vyleesi Termination Agreement (see Note 5 of the accompanying consolidated financial statements).

Other Income (Expense) - Total other expense, net was $235,288 and $132,150 for the three and six months ended December 31, 2021, respectively, compared to $742,073 and $737,427 for the three and six months ended December 31, 2020, respectively. For the three and six months ended December 31, 2021, we recognized $234,078 and $126,719 of foreign currency exchange loss, respectively, and interest expense of $2,773 and $8,404, respectively, offset by $1,563 and $2,973 of investment income. For the three and six months ended December 31, 2020, we recognized $745,002 of foreign currency exchange loss and interest expense of $1,871 and $9,360, respectively, offset by $4,800 and $16,935, respectively, of investment income. The decrease in other expense is a result of lower unrealized foreign currency losses on our inventory purchase commitments.

Liquidity and Capital Resources

Since inception, we have generally incurred net operating losses, primarily related to spending on our research and development programs. We have financed our net operating losses primarily through debt and equity financings and amounts received under collaborative and license agreements.

Our product candidates are at various stages of development and will require significant further research, development, and testing and some may never be successfully developed or commercialized. We may experience uncertainties, delays, difficulties, and expenses commonly experienced by early-stage biopharmaceutical companies, which may include unanticipated problems and additional costs relating to:





  · the development and testing of products in animals and humans;

  · product approval or clearance;

  · regulatory compliance;

  · good manufacturing practices ("GMP") compliance;

  · intellectual property rights;

  · product introduction;

  · marketing, sales, and competition; and

  · obtaining sufficient capital.



Failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval for our product candidates and indications would impact our ability to generate revenues and could make it more difficult to attract investment capital for funding our operations. Any of these possibilities could materially and adversely affect our operations and require us to curtail or cease certain programs.






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During the six months ended December 31, 2021, net cash used in operating activities was $12,712,413 compared to $10,607,131 for the six months ended December 31, 2020. The difference in cash used in operations for the six months ended December 31, 2021 compared to the six months ended December 31, 2020 was primarily related to cash received in excess of the gain recorded on the termination agreement for Vyleesi as well as in increase in spending in our MCr programs.

During the six months ended December 31, 2021, net cash used in investing activities was $146,862, relating to the purchase of equipment.

During the six months ended December 31, 2021, net cash provided by financing activities was $79,903, which consisted of proceeds from the exercise of warrants of $280,000 and proceeds from the exercise of stock options of $16,132, offset by payment of withholding taxes related to restricted stock units of $208,270 and payment of finance lease obligations of $7,959. During the six months ended December 31, 2020, net cash used in financing activities was $89,029, which consisted of payment of withholding taxes related to restricted stock units.

We have incurred cumulative negative cash flows from operations since our inception, and have expended, and expect to continue to expend in the future, substantial funds to develop the capability to market and distribute Vylessi in the United States and to complete our planned product development efforts. Continued operations are dependent upon our ability to generate future income from sales of Vylessi in the United States and from existing licenses, including royalties and milestones, to complete equity or debt financing activities and to enter into additional licensing or collaboration arrangements. As of December 31, 2021, our cash and cash equivalents were $47,325,547, and our current liabilities were $13,863,992.

We intend to utilize existing capital resources for general corporate purposes and working capital, including establishing marketing and distribution capabilities for Vyleesi in the United States and preclinical and clinical development of our MC1r and MC4r peptide programs and natriuretic peptide program, and development of other portfolio products.

We believe that our existing capital resources will be adequate to fund our planned operations through at least March 2023. We will need additional funding to complete required clinical trials for our other product candidates and development programs and, if those clinical trials are successful (which we cannot predict), to complete submission of required regulatory applications to the FDA. However, the COVID-19 pandemic may negatively impact our operations, including possible effects on our financial condition, ability to access the capital markets on attractive terms or at all, liquidity, operations, suppliers, industry, and workforce. We will continue to evaluate the impact that these events could have on the operations, financial position, and the results of operations and cash flows during the remainder of fiscal year 2022 and beyond.

We had a net loss for the three and six months ended December 31, 2021 and fiscal year 2021. We may not attain profitability in future years, which is dependent on numerous factors, including, but not limited to, whether and when development and sales milestones are met, regulatory actions by the FDA and other regulatory bodies, the performance of our licensees, and market acceptance of our products.

We expect to incur significant expenses as we continue to develop marketing and distribution capability for Vylessi in the United States and continue to develop our natriuretic peptide and MC1r product candidates. These expenses, among other things, have had and will continue to have an adverse effect on our stockholders' equity, total assets, and working capital.

Off-Balance Sheet Arrangements





None.



Contractual Obligations


There have been no material changes outside the ordinary course of business to our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended June 30, 2021.

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