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, 2020.
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, 2020, 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, 2020, have not changed during
the three and nine months ended March 31, 2021 with the exception of product
revenue, inventory, and purchase commitment liabilities. The preparation of our
financial statements requires us to make estimates and assumptions that affect
the reported carrying value of inventory and purchase commitment liabilities.
Actual results may differ from these estimates under different assumptions or
conditions. In addition to the policies related to the carrying value of
inventory and purchase commitment liabilities, we believe that our accounting
policies and estimates relating to revenue recognition, accrued expenses, and
stock-based compensation are the most critical.
Overview
We are a specialized 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
hormone driven, with effects on food intake, 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 lead 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 North America 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 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 current 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.
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, 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").
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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.
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Our Strategy
Key elements of our business strategy include:
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Maximizing revenue from Vyleesi by marketing Vyleesi in the United States,
supporting our existing licensees for China and South Korea, and seeking
licensees for Vyleesi in the United States and additional regions;
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Assembling and maintaining a team to create, develop and commercialize MCr and
NPR products addressing unmet medical needs;
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Entering into strategic alliances and partnerships with pharmaceutical companies
to facilitate the development, manufacture, marketing, sale, and distribution of
product candidates that we are developing;
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Partially funding our product development programs with the cash flow generated
from existing license agreements, as well as any future research, collaboration,
or license agreements; and
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Completing development and seeking regulatory approval of certain of our other
product candidates.
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 Nine Months Ended March 31, 2021 Compared to the Three and Nine Months
Ended March 31, 2020:
Revenues - For the three and nine months ended March 31, 2021 we recognized
$88,741 and $(363,790) in product revenue, net of allowances as the result of
our regaining all North American development and commercialization rights to
Vyleesi in July 2020 (see Note 3 of our accompanying consolidated financial
statements). For the nine months ended March 31, 2021, we recognized no contract
and license revenue compared to $117,989 for the nine months ended March 31,
2020 pursuant to our prior license agreement with AMAG.
Research and Development - Research and development expenses were $2,509,490 and
$9,444,759 for the three and nine months ended March 31, 2021, respectively,
compared to $3,641,250 and $10,026,363 for the three and nine months ended March
31, 2020, respectively. The decrease for the three and nine months ended March
31, 2021, as compared to the three and nine months ended March 31, 2020, is
related to the overall decrease in spending on our MCr programs.
Research and development expenses related to our Vyleesi, MCr programs and other
preclinical programs were $1,381,864 and $6,254,088 for the three and nine
months ended March 31, 2021, respectively, compared to $2,801,779 and $7,458,837
for the three and nine months ended March 31, 2020, respectively. The decrease
is primarily related to a decrease in spending on our MCr programs.
The amounts of project spending above exclude general research and development
spending, which was $1,127,626 and $3,190,671 for the three and nine months
ended March 31, 2021, respectively, compared to $839,471 and $2,567,526 for the
three and nine months ended March 31, 2020, respectively. The increase in
general research and development spending for the three and nine months ended
March 31, 2021 compared to the three and nine months ended March 31, 2020 is
primarily attributable to an increase in compensation related expenses.
Cumulative spending from inception to March 31, 2021 was approximately
$311,900,000 on our Vyleesi program and approximately $163,600,000 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, 2020,
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.
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Cost of Products Sold - Cost of products sold was $55,440 and $110,040 for the
three and nine months ended March 31, 2021, respectively.
Selling, General and Administrative - Selling, general and administrative
expenses, which consist mainly of compensation and related costs, were
$4,010,055 and $11,386,574 for the three and nine months ended March 31, 2021,
respectively, compared to $2,072,032 and $6,308,567 for the three and nine
months ended March 31, 2020, respectively. The increase in selling, general and
administrative expenses for the three and nine months ended March 31, 2021 is
primarily attributable to selling expenses related to Vyleesi and an increase in
compensation related expenses offset by the final payment made in connection
with the Greenhill agreement during the nine months ended March 31, 2020.
Gain on License Termination Agreement - For the nine months ended March 31,
2021, 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 income, net was $756,584 and $19,157 for
the three and nine months ended March 31, 2021, respectively, compared to total
other income, net of $331,007 and $1,090,090 for the three and nine months ended
March 31, 2020, respectively. For the nine months ended March 31, 2021, we
recognized investment income of $19,769 and unrealized foreign currency gain of
$8,748 offset by $9,360 of interest expense. For the nine months ended March 31,
2020, we recognized $1,101,921 of investment income offset by $11,831 of
interest expense. The decrease in other income (expense) for the nine months
ended March 31, 2021 compared to the nine months ended March 31, 2020 is the
result of lower interest rates. For the three months ended March 31, 2021, we
recognized $753,750 of unrealized foreign currency gain and $2,834 of investment
income. For the three months ended March 31, 2020, we recognized $331,285 of
investment income offset by $278 of interest expense. The increase in other
income (expense) for the three months ended March 31, 2021 compared to the three
months ended March 31, 2020 is a result of an increase to foreign currency gain
offset by lower interest rates.
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:
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the development and testing of products in animals and humans;
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product approval or clearance;
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regulatory compliance;
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good manufacturing practices ("GMP") compliance;
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intellectual property rights;
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product introduction;
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marketing, sales, and competition; and
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obtaining sufficient capital.
21
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 increase 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.
During the nine months ended March 31, 2021, net cash used in operating
activities was $14,111,599 compared to cash provided by operating activities of
$47,402,881 for the nine months ended March 31, 2020. The difference in cash
used in operations for the nine months ended March 31, 2021 compared to cash
provided by operating activities for the nine months ended March 31, 2020 was
primarily related to the timing of the receipt of payments related to our
license agreement with AMAG, including payments related to the FDA's approval of
Vylessi.
During the nine months ended March 31, 2021, net cash used in investing
activities was $5,721 compared to $62,880 for the nine months ended March 31,
2020 for the purchase of equipment.
During the nine months ended March 31, 2021, net cash used in financing
activities was $93,638 which consisted of payment of withholding taxes related
to restricted stock units. During the nine months ended March 31, 2020, net cash
used in financing activities was $1,903,055, which consisted of payment on a
note payable obligation of $832,851, repurchase and cancellation of outstanding
warrants of $2,547,466 and payment of withholding taxes related to restricted
stock units of $104,236 offset by net proceeds from the sale of common stock of
$1,581,498 in our "at-the-market" offering program
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 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 March 31, 2021, our
cash and cash equivalents were $68,641,312 and our current liabilities were
$10,036,841.
We intend to utilize existing capital resources for general corporate purposes
and working capital, establishing marketing and distribution capabilities for
Vyleesi in the United States, 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 twelve months from the date of issuance of
these consolidated financial statements. 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 fiscal year 2021 and beyond.
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, 2020, as updated in our Form 10-Q for
the quarter ended December 31, 2020.
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