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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