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 Annual Report.

Forward-Looking Statements

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 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. 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 are described in Note 2 to the consolidated financial statements included in this Annual Report. We believe that our accounting policies and estimates relating to revenue recognition, accrued expenses and stock-based compensation are the most critical.

Revenue Recognition

We recognize product revenues in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers (ASC 606). The provisions of ASC 606 require the following steps to determine revenue recognition: (1) Identify the contract(s) with a customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract; and (5) Recognize revenue when (or as) the entity satisfies a performance obligation.




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In accordance with ASC 606, we recognize revenue when our performance obligation is satisfied by transferring control of the product to a customer. Per our contracts with customers, control of the product is transferred upon the conveyance of title, which occurs when the product is sold to and received by a customer. Trade accounts receivable due to us from contracts with our customers are stated separately in the 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 Financial Statements.

Product revenues consist of sales of Vyleesi in the United States. We sell Vyleesi to specialty pharmacies 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. 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. If any of our judgments made during a reporting period are not indicative or accurate estimates of our future experience, our results could be materially affected. Product sales are also subject to return rights, which have not been significant to date.

Inventories

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 overages, 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 Losses on firm commitment contractual obligations are recognized based upon the terms of the respective agreement and similar factors considered for the write-down of inventory, including expected sales requirements as determined by internal sales forecasts

Accrued Expenses Third parties perform a significant portion of our development activities. We review the activities performed under all contracts each quarter and accrue expenses and the amount of any reimbursement to be received from our collaborators based upon the estimated amount of work completed. Estimating the value or stage of completion of certain services requires judgment based on available information. If we do not identify services performed for us but not billed by the service-provider, or if we underestimate or overestimate the value of services performed as of a given date, reported expenses will be understated or overstated.

Stock-Based Compensation

We expense the fair value of stock options and other equity awards granted. Compensation costs for stock-based awards with time-based vesting are determined using the quoted market price of our common stock on the date of grant or for stock options, the value determined utilizing the Black-Scholes option pricing model, and are recognized on a straight-line basis, while awards containing a market condition are valued using multifactor Monte Carlo simulations and are recognized over the derived service period. Compensation costs for awards containing a performance condition are determined using the quoted price of our common stock on the date of grant or for stock options, the value is determined utilizing the Black Scholes option pricing model and are recognized based on the probability of achievement of the performance condition over the service period. The Black-Scholes option pricing model requires us to make estimates of expected volatility and interest rates, which we estimate based on prior experience and public sources of information. The expected term of the option used is based upon the simplified method, which represents the average of the vesting and contractual term. Compensation expense is not adjusted for subsequent changes in the estimates used to calculate fair value or for actual experience. Forfeitures are recognized as they occur. As the amount and timing of compensation expense to be recorded in future periods may be affected by the achievement of performance conditions and employee terminations, stock-based compensation may vary significantly period to period.





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See Note 3 to the consolidated financial statements included in this Annual Report for a description of recent accounting pronouncements that affect us.

Results of Operations

Year Ended June 30, 2021 Compared to the Year Ended June 30, 2020:

Revenue - For the fiscal year ended June 30, 2021 ("fiscal 2021") we recognized $283,286 of negative product revenue, net of allowances as the result of our regaining all North American development and commercialization rights to Vyleesi in July 2020 and $94,689 in license and contract revenue pursuant to our license agreement with Kwangdong. For the fiscal year ended June 30, 2020 ("fiscal 2020"), we recognized $117,989 in revenue pursuant to our license agreement with AMAG.

Cost of Products Sold - Cost of products sold was $147,840 for the fiscal year ended June 30, 2021.

Research and Development - Total research and development expenses, including general research and development spending, were $12,926,559 for fiscal 2021 compared to $13,959,397 for fiscal 2020. The decrease is a result of lower spending on our MCr programs offset by an increase in compensation costs in fiscal 2021.

Research and development expenses related to our Vyleesi, MCr programs, and other preclinical programs were $8,634,713 and $10,187,786 in fiscal 2021 and fiscal 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 $4,291,846 and $3,771,611 fiscal 2021 and fiscal 2020, respectively. The increase in general research and development spending is primarily attributable to increased compensation costs in fiscal 2021.

Cumulative spending from inception to June 30, 2020 was approximately $311,900,000 on our Vyleesi program and approximately $167,500,000 on all our other programs (which include PL8177, PL9643, other melanocortin receptor agonists, NPR programs and terminated programs). Due to various risk factors described herein 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 costs related to Vyleesi in addition to compensation and related costs, were $17,336,913 for fiscal 2021 compared to $9,765,372 for fiscal 2020. The increase is primarily attributable to $6,605,901 of selling expenses related to Vyleesi and an increase in compensation related expenses offset by the final payment made in connection with the Greenhill agreement and professional fees related to the Vyleesi divestiture during fiscal 2020.

Loss on License Termination Agreement - - On July 27, 2020, Palatin and AMAG announced that they had mutually terminated the license agreement for Vyleesi effective July 24, 2020. Under the terms of the termination agreement, we regained all North American development and commercialization rights for Vyleesi. AMAG made a $12,000,000 payment to us at closing and a $4,300,000 payment on March 31, 2021. We assumed all Vyleesi manufacturing agreements, for which we initially recorded a liability related to estimated losses of $18,194,000, as well as accrued expenses for an inventory production run, and AMAG transferred information, data, and assets related exclusively to Vyleesi, including, but not limited to, existing inventory. AMAG provided certain transitional services to us for a period of time to ensure continued patient access to Vyleesi during the transition back to us. We reimbursed AMAG for the costs of the transition services.

During fiscal 2021, we recorded a loss of $2,784,192 as a result of the Vyleesi Termination Agreement. (See Note 4 of the accompanying consolidated financial statements).

Other (Expense) Income - Total other expense, net was $212,394 for fiscal 2021 and total other income, net was $1,180,757 for fiscal 2020. For fiscal 2021, we recognized $212,526 of unrealized foreign currency loss and $23,440 of interest expense offset by $23,572 of investment income. For fiscal 2020, we recognized $1,200,898 of investment income offset by $20,141 of interest expense. Other expense for fiscal 2021 compared to other income for fiscal 2020 is a result of foreign currency losses and lower interest rates earned on our cash and cash equivalents.





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Income Taxes - For fiscal 2021 and fiscal 2020, the Company recorded no income tax benefit or expense as a result of the generation of and utilization of net operating losses that were subject to a full valuation allowance.

Effects of Inflation

We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.

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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dependence on third party contractors and collaborators for part of our research and development;



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ability to attract and retain experienced personnel;



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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.

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.

During fiscal 2021, net cash used in operating activities was $22,647,991 compared to net cash provided by operating activities of $41,326,415 in fiscal 2020. The difference in cash used in operations in fiscal 2021 compared with cash provided by operations in fiscal 2020 was primarily related to the timing of the receipt of payments related to revenue recorded for the AMAG License Agreement, including for the FDA's approval of Vyleesi.

During fiscal 2021, net cash used in investing activities consisted of $5,722 compared to $62,880 during fiscal 2020, which consisted of leasehold improvements and the acquisition of equipment.

During fiscal 2021, net cash used in financing activities was $93,638 which consisted of payment of withholding taxes related to restricted stock units. During fiscal 2020 net cash used in financing activities was $1,921,687 which consisted of payment on notes payable obligations of $832,851, repurchase and cancellation of outstanding warrants of $2,547,466 and payment of withholding taxes related to restricted stock units of $122,868 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 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. As of June 30, 2021, our cash and cash equivalents were $60,104,919 with current liabilities of $10,511,788

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.





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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 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 2022 and beyond.

We had a net loss for fiscal 2021 of $33,596,495. We may not attain profitability in future years, which is dependent on numerous factors, including 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 MC1r and natriuretic peptide 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.

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