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Item 7. Management’s Discussion and Analysis

2024-09-30 compared with 2023-09-28 · 37 added, 30 removed, 90 unchanged (43% of the section changed)

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The following discussion and analysis contains 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 Annual Report immediately prior to Part I, under the heading “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 our description and examples of forward-looking statements included earlier in this Annual Report on Form 10-K (this “Annual 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 Part I, Item 1A of this Annual Report, and any of those made in our other reports filed with the SEC.

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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.

Palatin Technologies, Inc.

is a biopharmaceutical company developing first-in-class medicines based on molecules that modulate the activity of the melanocortin receptor system.

The Company’s product candidates are targeted, receptor-specific therapeutics for the treatment of diseases with significant unmet medical need and commercial potential.

Our prior commercial product, Vyleesi®, was approved by the U.S.

Food and Drug Administration (“FDA”) in June 2019 for the treatment of hypoactive sexual desire disorder (“HSDD”) in premenopausal women.

This product was acquired by Cosette Pharmaceuticals, Inc.

(“Cosette”) on December 19, 2023.

Our new product development activities focus primarily on use of bremelanotide, or other MC4r agonists, with tirzepatide, a GLP-1 agonist for treatment of obesity, which entered Phase 2 in the second quarter of calendar year 2024, and a co-formulation of bremelanotide with a PDE5i for treatment of erectile dysfunction in patients that do not respond to PDE5i monotherapy.

We are also developing MC1r agonists, with potential to treat inflammatory and autoimmune diseases, such as dry eye disease, uveitis, diabetic retinopathy, and inflammatory bowel disease.

Critical Accounting Policies and Estimates

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We believe that our accounting policies and estimates relating to revenue recognition, the carrying value of inventory, purchase commitment liabilities, accrued expenses, and stock-based compensation are the most critical .

Revenue Recognition

Revenue Recognition (Prior to the sale of Vyleesi)

We recognize product revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers .

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Trade accounts receivable due to us from contracts with our customers are stated separately in the consolidated balance sheet, net of various allowances as described in the Trade Accounts Receivable policy in Note 2- Summary of Significant Accounting Policies in the accompanying consolidated financial statements.

Product revenues consist of sales of Vyleesi in the United States.

We sell Vyleesi to a specialty pharmacy at the wholesale acquisition cost and payment is currently made within approximately 30 days.

In addition to distribution agreements with customers, we enter into arrangements with healthcare payers that provide for privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products.

We record product revenues net of allowances for direct and indirect fees, discounts, co-pay assistance programs, estimated chargebacks, and rebates.

Product revenues consisted of sales of Vyleesi in the United States prior to the sale of the Vyleesi product line to Cosette Pharmaceuticals, Inc.

(“Cosette”) in December 2023.

Prior to the sale of Vyleesi product line, we sold Vyleesi to a specialty pharmacy at the wholesale acquisition cost with payment made within approximately 30 days.

In addition to distribution agreements with customers, we had entered into arrangements with healthcare payers that provide for privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products.

We recorded product revenues net of allowances for direct and indirect fees, discounts, co-pay assistance programs, estimated chargebacks, and rebates.

Certain of these allowances represent estimates of the related obligations and, as such, knowledge and judgement are required when estimating the impact of these allowances on gross product sales for a reporting period.

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Product sales are also subject to return rights, which have not been significant to date.

Inventory is stated at the lower of cost or net realizable value, with cost being determined on a first-in, first-out basis.

Our inventory, consisting of Vyleesi, has a shelf-life of three years from the date of manufacture.

On a quarterly basis, we review inventory levels to determine whether any obsolete, expired, or excess inventory exists.

If any inventory is expected to expire prior to being sold, has a cost basis in excess of its net realizable value, is in excess of expected sales requirements as determined by internal sales forecasts, or fails to meet commercial sale specifications, the inventory is written down through a charge to operating expense.

This analysis requires us to make estimates of forecasted future sales, which are inherently uncertain, and changes in demand, insurance coverages, economic conditions, and other factors could have a significant impact on our forecasts and therefore the estimated net realizable value of our inventory.

Purchase Commitment Liabilities

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Year Ended June 30, 2024 Compared to the Year Ended June 30, 2023:

Revenue – For the fiscal year ended June 30, 2023 (“fiscal 2023”) we recognized $4,850,678 of product revenue, net of allowances, and $3,000 in license and contract revenue pursuant to our license agreement with Fosun.

Revenue – For the fiscal year ended June 30, 2024 (“fiscal 2024”) we recognized $4,490,090 of product revenue, net of allowances.

For the fiscal year ended June 30, 2023 (“fiscal 2023”) we recognized $4,850,678 of product revenue, net of allowances, and $3,000 in license and contract revenue pursuant to our license agreement with Fosun.

The increase in net revenue is a result of increased sales volume of 114% and reduced product sales allowances as a percentage of gross sales during fiscal 2023.

The decrease in net revenue is a result of the sale of Vyleesi’s worldwide rights to Cosette during fiscal 2024.

Cost of Products Sold – Cost of products sold was $97,637 for fiscal 2024 compared to $418,470 for fiscal 2023.

The decrease in cost of products sold is a result of the sale of Vyleesi’s worldwide rights to Cosette during fiscal 2024.

Research and Development – Total research and development expenses, including general research and development spending, were $22,400,372 for fiscal 2024 compared to $22,630,577 for fiscal 2023.

The increase is a result of higher spending on our MCr programs.

The decrease is a result of lower spending on our MCr programs.

Research and development expenses related to our Vyleesi, MCr programs, and other preclinical programs were $15,512,149 for fiscal 2024 compared to $16,202,432 for fiscal 2023.

The increase is primarily related to an increase in spending on our MCr programs.

The decrease is primarily related to a decrease in spending on our MCr programs.

The amounts of program spending above exclude general research and development spending, which were $6,888,233 for fiscal 2024 compared to $6,428,145 for fiscal 2023.

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Selling, General and Administrative – Selling, general and administrative expenses, which consist of costs related to Vyleesi in addition to compensation and related costs, were $12,270,046 for fiscal 2024, compared to $15,290,836 for fiscal 2023.

The decrease is primarily attributable to $4,621,001 of selling expenses related to Vyleesi in fiscal 2023 compared to $4,737,426 of selling expenses related to Vyleesi in fiscal 2022 and $1,135,438 of expenses incurred in fiscal 2022 related to the issuance of redeemable convertible preferred stock and warrants.

The decrease is primarily attributable to $1,912,243 of selling expenses related to Vyleesi in fiscal 2024 compared to $4,621,001 of selling expenses related to Vyleesi in fiscal 2023.

Gain on Purchase Commitment - Gain on purchase commitments was $1,027,322 for fiscal 2023 as a result of the Company amending the minimum purchase commitment that was previously reserved under the Lonza Agreement.

Other Income (Expense) – Total other income, net was $241,997 for fiscal 2023 compared to $390,149 for fiscal 2022.

For fiscal 2023, we recognized investment income of $691,981 offset by $429,971 of unrealized foreign currency loss and $20,013 of interest expense.

For fiscal 2022, we recognized unrealized foreign currency gain of $389,868 and investment income of $29,963 offset by $29,682 of interest expense.

The increase in investment income is a result of increased interest rates.

The increase in unrealized foreign currency loss is a result of increased unrealized foreign currency losses on our inventory purchase commitments.

Gain on Sale of Vyleesi – On December 19, 2023, the Company entered into an asset purchase agreement (the “Cosette Purchase Agreement”) with Cosette pursuant to which Cosette acquired from the Company worldwide rights to Vyleesi.

As a result of the transaction, the Company recorded a gain of $7,781,844 on the sale of Vyleesi for the year ended June 30, 2024.

The gain represents the upfront purchase price of $9,500,000 less the cost of net assets transferred to the purchaser.

Other Income (Expense) – Total other income (expense), net was ($7,239,992) for fiscal 2024 compared to $3,747,143 for fiscal 2023.

For fiscal 2024, we recognized an increase in the fair value of warrant liabilities of $6,962,562, offering expense of $696,912 and interest expense of $17,114 offset by investment income of $376,843 and unrealized foreign currency gain of $59,753.

For fiscal 2023, we recognized a decrease in the fair value of warrant liabilities of $4,620,911 and investment income of $691,981 offset by $1,115,765 of offering expenses, $429,971 of unrealized foreign currency loss and $20,013 of interest expense.

Income Tax Benefit – Income tax benefit for fiscal 2023 was $4,674,999 as a result of the Company selling New Jersey state net operating losses (“NOLs”) and R&D credits .

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During fiscal 2024, net cash used in operating activities was $31,461,441 compared to net cash used in operating activities of $29,271,346 in fiscal 2023.

The decrease in cash used in operations in fiscal 2023 compared with fiscal 2022 was a result of a lower net loss in fiscal 2023 due to an increase in net revenue and the sale of NOLs, offset by working capital changes, and increased payments made related to inventory purchase commitments.

The increase in cash used in operations in fiscal 2024 compared with fiscal 2023 was a result of a higher net loss in fiscal 2023 due to a change in fair value off warrant liabilities, offset by the gain on the sale of Vyleesi and working capital changes.

During fiscal 2024, net cash provided by investing activities was $12,450,364 which consisted of $9,500,000 related to proceeds from the sale of Vyleesi and $2,992,890 for the maturity of marketable securities offset by $42,526 used for the purchases of property and equipment.

During fiscal 2023, net cash used in investing activities was $3,426,757 which consisted of $2,992,830 used for the purchase of marketable securities and $433,927 of leasehold improvements.

During fiscal 2022, net cash used in investing activities was $261,374 which consisted of leasehold improvements.

During fiscal 2024, net cash provided by financing activities was $20,548,891 which consisted of proceeds from the sale of common stock and warrants, net of issuance costs of $14,693,779 and the exercise of outstanding warrants of $6,045,642 offset by payment of withholding taxes related to restricted stock units of $56,401, and payment of finance lease obligations of $106,392.

During fiscal 2022, net cash provided by financing activities was $18,358 which consisted of proceeds from the exercise of outstanding warrants of $280,000 and the exercise of stock options of $16,132 offset by payment of withholding taxes related to restricted stock units of $221,311, and payment of finance lease obligations of $56,463.

During fiscal 2023, net cash provided by financing activities was $10,748,591 which consisted of proceeds from the sale of common stock and warrants, net of issuance costs of $10,995,497 and the exercise of outstanding warrants of $78 offset by payment of withholding taxes related to restricted stock units of $146,062, and payment of finance lease obligations of $100,922.

We had a net loss for fiscal 2024 of $29,736,113.

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 Vyleesi in the United States and continue to develop our MCr product candidates.

We expect to incur significant expenses as we continue to develop our MCr 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.

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 Vyleesi 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 Vyleesi in the United States and from existing licenses, including royalties and milestones, to complete equity or debt financing activities and enter into additional licensing or collaboration arrangements.

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 complete our planned product development efforts.

Continued operations are dependent upon existing licenses, including royalties and milestones, to complete equity or debt financing activities and enter into additional licensing or collaboration arrangements.

As of June 30, 2024, our cash, cash equivalents and marketable securities were $9,527,396 with current liabilities of $9,657,681.

Our obligations include aggregate lease obligations of $426,556 for the year ending June 30, 2025 and $163,782 for the years ending June 30, 2026 and 2027, and aggregate inventory purchase commitments of $1,976,450 which include $944,150 in current liabilities as of June 30, 2024 and $1,032,300 included in other long-term liabilities.

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 programs, and development of other portfolio products.

Based on our June 30, 2023, cash, cash equivalents and marketable securities, we have concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued.

We intend to utilize existing capital resources for general corporate purposes and working capital, including preclinical and clinical development of our MC1r and MC4r programs, and development of other portfolio products.

Based on our June 30, 2024, cash and cash equivalents, we have concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued.

We are evaluating strategies to obtain additional funding for future operations which include but are not limited to obtaining equity financing, issuing debt, or reducing planned expenses.

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If we are unable to raise capital when needed or enter into a strategic transaction, then we may be required to cease operations, which could cause our stockholders to lose all or part of their investment.

Based on our current operating and development plans, we expect that our existing cash, cash equivalents and marketable securities as of the date of this filing will be sufficient to fund currently anticipated operating expenses through calendar year 2023.

Based on our current existing cash and cash equivalents as of the date of this filing will be sufficient to fund currently anticipated operating expenses through the second half of calendar year 2024.

We will need additional funding to complete required clinical trials for our 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis