SECURITIES & EXCHANGE COMMISSION EDGAR FILING
PALATIN TECHNOLOGIES INC
Form: 10-K
Date Filed: 2015-09-18
Corporate Issuer CIK: 911216
© Copyright 2015, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2015
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 001-15543
PALATIN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4B Cedar Brook Drive
Cranbury, New Jersey
(Address of principal executive offices)
95-4078884
(I.R.S. Employer Identification No.)
08512
(Zip Code)
(609) 495-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange
on Which Registered
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter (December 31, 2014): $29,660,859.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date (September 17, 2015):
68,029,352.
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Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PALATIN TECHNOLOGIES, INC.
Table of Contents
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
PART IV
Forward-looking statements
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Statements in this Annual Report on Form 10-K (this Annual Report), as well as oral statements that may be made by us or by our officers, directors, or
employees acting on our behalf, that are not historical facts constitute “forward-looking statements,” which are made pursuant to the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The forward-looking statements in this Annual Report do not constitute guarantees
of future performance. Investors are cautioned that statements that are not strictly historical statements contained in this Annual Report, including, without
limitation, current or future financial performance, management’s plans and objectives for future operations, ability to raise capital or repay debt, if required,
clinical trials and results, uncertainties associated with product research and development, product plans and performance,
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management’s assessment of market factors, as well as statements regarding our strategy and plans and those of our strategic partners, constitute forward-
looking statements. Such forward-looking statements involve risks, uncertainties and other factors that could cause our actual results to be materially
different from our historical results or from any results expressed or implied by such forward-looking statements. Our future operating results are subject to
risks and uncertainties and are dependent upon many factors, including, without limitation, the risks identified under the caption “Risk Factors” and elsewhere
in this Annual Report, and any of those made in our other reports filed with the Securities and Exchange Commission, or SEC. 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.
In this Annual Report, references to “we,” “our,” “us,” the “Company” or “Palatin” means Palatin Technologies, Inc. and its subsidiary.
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Item 1. Business.
Overview
PART I
We are a biopharmaceutical company developing targeted, receptor-specific peptide therapeutics for the treatment of diseases with significant unmet
medical need and commercial potential. Our programs are based on molecules that modulate the activity of the melanocortin and natriuretic peptide receptor
systems. Our primary product in clinical development is bremelanotide for the treatment of female sexual dysfunction, or FSD. In addition, we have drug
candidates or development programs for obesity, erectile dysfunction, cardiovascular diseases, pulmonary diseases, inflammatory diseases and
dermatologic diseases.
The following drug development programs are actively under development:
• Bremelanotide, an on-demand subcutaneous injectable peptide melanocortin receptor agonist, for treatment of FSD in premenopausal women.
Bremelanotide, which is a melanocortin agonist, is a synthetic peptide analog of the naturally occurring hormone alpha-MSH (melanocyte-stimulating
hormone). The novel mechanism of action involves activating endogenous melanocortin hormone pathways involved in sexual response.
Bremelanotide is in Phase 3 clinical trials, with patient enrollment projected to be completed this year, and topline results in the third quarter of
calendar 2016;
• Melanocortin receptor-4, or MC4r, compounds for treatment of obesity and diabetes. Results of our studies involving MC4r peptides suggest that
certain of these peptides may have significant commercial potential for treatment of conditions responsive to MC4r activation, including FSD, erectile
dysfunction or ED, obesity and diabetes;
• PL-3994, a natriuretic peptide receptor-A, or NPR-A, agonist, for treatment of cardiovascular and pulmonary indications. PL-3994 is our lead
natriuretic peptide receptor product candidate, and is a synthetic mimetic of the neuropeptide hormone atrial natriuretic peptide, or ANP. PL-3994 is
in development for treatment of heart failure, acute exacerbations of asthma and refractory hypertension; and
• Melanocortin receptor-1, or MC1r, agonist peptides for treatment of inflammatory and dermatologic disease indications. Our MC1r peptide drug
candidates are highly specific, with substantially greater binding and efficacy at MC1r than at other melanocortin receptors. We have selected one of
our MC1r peptide drug candidates, designated PL-8177, as a clinical trial candidate.
The following chart illustrates the status of our drug development programs.
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Strategy
Key elements of our business strategy include:
•
•
•
•
Using our technology and expertise to develop and commercialize products in our active drug development programs;
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;
Partially funding our product development programs with the cash flow generated from research collaboration and license agreements and any
potential future agreements with third parties; and
Completing development and seeking regulatory approval of bremelanotide for FSD and our other product candidates.
Our Melanocortin Receptor-Specific Programs
The melanocortin system is involved in a large and diverse number of physiologic functions, and therapeutic agents modulating this system may have the
potential to treat a variety of conditions and diseases, including sexual dysfunction, obesity and related disorders, pigmentation disorders and inflammation-
related diseases.
Bremelanotide for FSD. We are developing subcutaneously administered bremelanotide for the treatment of FSD in premenopausal women.
Bremelanotide, which is a melanocortin agonist, is a synthetic peptide analog of the naturally occurring hormone alpha-MSH. The novel mechanism of action
involves activating endogenous melanocortin hormone pathways involved in sexual arousal response. We initiated patient enrollment in Phase 3 clinical trials
in the fourth quarter of calendar 2014, and expect patient enrollment to be completed this year, with topline results in the third quarter of calendar 2016.
Phase 2B Clinical Trial Results. The Phase 2B clinical trial was a multicenter, placebo-controlled, randomized, parallel group, dose-finding trial testing three
dose levels, 0.75 mg, 1.25 mg and 1.75 mg, of subcutaneously administered bremelanotide against placebo in premenopausal women diagnosed with
hypoactive sexual desire disorder, female sexual arousal disorder or both. The study enrolled 395 premenopausal women across 66 sites within the United
States and Canada, with patients randomized to one of three bremelanotide treatment arms and a placebo arm for 16 weeks of treatment. The objective of
the Phase 2B trial was to measure safety and efficacy in premenopausal women with hypoactive sexual desire disorder, female sexual arousal disorder or
both of bremelanotide compared to placebo. In the Phase 2B trial, subcutaneous doses of bremelanotide and placebo were self-administered by the patient
prior to a sexual encounter. The primary efficacy endpoint was change from baseline to end of study in the number of satisfying sexual events, with pre-
specified analysis of pooled 1.25 and 1.75 mg doses compared to placebo.
In the Phase 2B clinical trial, the primary endpoint data analysis of 327 premenopausal women with hypoactive sexual desire disorder, female sexual arousal
disorder or both showed statistically significant and clinically meaningful increases in the number of satisfying sexual events, and statistically significant and
clinically meaningful improvement in secondary endpoint measures of overall sexual functioning and distress related to sexual dysfunction, for women taking
bremelanotide compared to placebo. Satisfying sexual events were measured with an event log and overall sexual functioning and distress related to sexual
dysfunction were measured using validated patient reported outcome measurement tools. Bremelanotide showed a statistically significant increase from
baseline in the number of satisfying sexual events compared against placebo at both the 1.75 mg dose and pooled results of the 1.75 and 1.25 mg doses.
The mean increase in satisfying sexual events at 1.75 mg dose levels was 0.8 satisfying sexual events per month, from 1.8 to 2.6, with a p value of 0.021
against placebo. For the pooled doses, the mean increase in satisfying sexual events was 0.7 satisfying sexual events per month, from 1.6 to 2.4 (a 50%
increase), with a p value of 0.018 against placebo. By contrast, with placebo, the mean change from baseline was from 1.7 to 1.9 (a 12% increase) in
satisfying sexual events. The 0.75 mg dose demonstrated a response that was not significant different from placebo.
The mean change from baseline in a validated measurement tool of overall sexual functioning, the Female Sexual Function Index, or FSFI, total score, was
4.4 at the 1.75 mg dose level, compared to 1.88 for placebo, with a p value of 0.0021 against placebo. For the pooled doses, the FSFI total score mean
change from baseline was 3.55, compared to 1.88 for placebo, with a p value of 0.0017 against placebo. The FSFI is a 19-item questionnaire measuring
improvement in arousal, desire and overall sexual function.
The mean change from baseline in a validated measurement tool of distress related to sexual dysfunction, the Female Sexual Distress Scale-
Desire/Arousal/Orgasm, or FSDS-DAO, total score, was -13.1 at the 1.75 mg dose level, compared to -6.8 for placebo, with a p value of 0.0005 against
placebo. For the pooled doses, the FSDS-DAO total score mean change from baseline was -11.1, compared to -6.8 for placebo, with a p value of 0.036
against placebo. The FSDS-DAO is a 15-item questionnaire that measures personal distress associated with FSD.
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A significantly higher percentage of women receiving the 1.75 mg bremelanotide dose – 55% – achieved a clinically meaningful change from baseline of at
least one satisfying sexual event, compared to 37% of women receiving placebo. In addition, compared against placebo a significantly higher percentage of
women also achieved a clinically meaningful improvement in sexual function, as measured by the FSFI (53% vs. 29%), and a clinically meaningful decrease
in distress associated with sexual dysfunction as measured by the FSDSDAO (69% vs. 45%).
Using a validated self-assessment questionnaire of treatment benefit, 79.5% of blinded patients receiving the 1.75 mg dose of bremelanotide reported they
benefited from taking the drug, compared to 48.4% of blinded patients receiving placebo.
Bremelanotide was well-tolerated during the Phase 2B clinical trial. The most common types of treatment-emergent adverse events reported more frequently
in the bremelanotide arms were facial flushing, nausea, emesis and headache, which were mainly mild-to-moderate in severity. Adverse events that most
commonly led to discontinuation were nausea and emesis, with less than 3% discontinuation due to an adverse event. Twenty-six patients, evenly
distributed among placebo and active arms of the Phase 2B clinical trial, met the predefined blood pressure withdrawal criteria. Drug treated patients had
approximately a 2 mm Hg change in blood pressure, predominately during the first four hours following dosing. No serious adverse events were attributable
to bremelanotide during the trial.
Full data on the Phase 2B clinical trial was presented at the March 2013 annual meeting of the International Society for the Study of Women’s Sexual Health.
Phase 3 Clinical Trial. We reached preliminary agreement with the United States Food and Drug Administration, or FDA, on key aspects of the
bremelanotide Phase 3 pivotal registration studies, including FSD patient population, primary and key secondary efficacy endpoints, general study design,
dose selection and safety monitoring. In addition, the FDA agreed that the Phase 2 data adequately characterized blood pressure and heart rate signals of
bremelanotide, and that standardized methods for in-clinic assessment of blood pressure (a standard blood pressure cuff) would be sufficient for Phase 3.
The FDA also agreed that the intranasal Definitive QTc study, the carcinogenicity studies and reproductive toxicity studies we conducted were acceptable for
NDA submission. There were no outstanding chemistry, controls or manufacturing issues. Based upon the discussions with the FDA, we completed and
submitted protocols for the pivotal Phase 3 studies in the early fourth quarter of calendar 2014, manufactured drug product for clinical trial use, and
negotiated agreements with clinical research organizations and others for Phase 3 studies.
The Phase 3 clinical trials are being conducted in premenopausal women with hypoactive sexual desire disorder, either with or without arousal difficulties,
and include two pivotal double blind placebo-controlled, randomized parallel group trials each with 550 randomized patients in two arms, one a fixed
bremelanotide dose and one placebo. Hypoactive sexual desire disorder is the single largest specific diagnosis in FSD. A 24-week treatment evaluation
period is being conducted, with co-primary endpoints of satisfying sexual events and the FSFI desire subdomain (a 28 day recall), and a key secondary
endpoint utilizing question 13 of a revised FSDS questionnaire. Patients in the parallel group trials will have the option, after completion of the trial, to
continue in an open-label safety extension study, which will enroll about 600 patients.
Data from the Phase 2B clinical trials from patients diagnosed with the proposed Phase 3 patient population, hypoactive sexual desire disorder or hypoactive
sexual desire disorder with female sexual arousal disorder, were analyzed using the Phase 3 clinical trial endpoints of total satisfying sexual events, the FSFI
desire subdomain and FSDS revised question 13. This analysis showed that the 1.75 mg dose was statistically and clinically significant for all three
endpoints.
The Phase 3 trials, which we are conducting in North America, utilize a single-dose autoinjector intended for commercialization. We will also conduct drug
interaction and other ancillary studies. We anticipate that the Phase 3 program will take at least eighteen months from initiation of patient dosing through
database lock. Following database lock, clinical trial data will be analyzed and, assuming that we believe the data would support approval of bremelanotide
for FSD, an NDA will be submitted to FDA. We cannot assure you that the Phase 3 data will support approval of bremelanotide for FSD or that the FDA will
approve an NDA for bremelanotide.
Medical Need — FSD. FSD is a multifactorial condition that has anatomical, physiological, medical, psychological and social components, and is defined as
persistent or recurring problems during one or more of the stages of sexual response with associated distress. FSD has a significant impact on a patient’s
self-image, relationships and general well-being. FSD includes four disorders, hypoactive sexual desire disorder, female sexual arousal disorder, sexual pain
disorder and orgasmic disorder. Hypoactive sexual desire disorder, either with or without arousal difficulties, is the largest single category of FSD. To
establish a diagnosis of FSD, these syndromes must be associated with personal distress, as determined by the affected women. The 2006 PRESIDE
(Prevalence of Female Sexual Problems Associated with Distress and Determinants of Treatment Seeking) study, a cross-sectional, population-based
survey of 31,581 female adult respondents in the United States published in 2008 in the journal Obstetrics &
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Gynecology, found that approximately 22% of women reported a sexual problem and 11% were distressed by their sexual problems, with one-third of the
women seeking formal care. There are 60 million premenopausal women in the United States according to the 2010 U.S. Census, giving a presenting
market size of premenopausal women of about two million. Based on a report by EvaluatePharma, the FSD market is projected to be about $1.3 billion by
2020.
Subcutaneous Bremelanotide. Bremelanotide, which is believed to act through activation of melanocortin receptors in the central nervous system, is a first-in-
class pharmaceutical agent in development as a treatment of FSD. Bremelanotide is intended for ‘‘on-demand’’ use and is self-administered by the patient
approximately one hour prior to anticipated sexual activity. We have selected a simple and patient-friendly single dose, disposable autoinjector device which
is being used in Phase 3 clinical trials and is intended for commercialization.
Partnering. In August 2014, we entered into a license agreement with Gedeon Richter to co-develop and commercialize bremelanotide for FSD in the
European Union, other European countries and additional selected countries. We received €7.5 million ($9.8 million) in total upfront payments from Gedeon
Richter, and a milestone payment of €2.5 million ($3.1 million) upon the initiation of our Phase 3 clinical trial program in the United States. On September 16,
2015, we entered into a termination agreement pursuant to which we and Gedeon Richter agreed to mutually and amicably terminate the license agreement.
In connection with this termination, all rights and licenses to co-develop and commercialize bremelanotide for FSD indications held by Gedeon Richter
terminated and reverted back to us. Neither we nor Gedeon Richter have any future material obligations under the license agreement.
We have worldwide rights for bremelanotide for FSD and all other indications. We are in active discussions with potential partners for U.S. marketing and
commercialization rights for bremelanotide for FSD. We may not be able to enter into suitable agreements with potential partners on acceptable terms, if at
all.
Prior Clinical Trials. We have completed several Phase 1 clinical studies in which various safety parameters, including blood pressure effects of
subcutaneously administered bremelanotide, were studied. Based in part on these studies, our Phase 2B clinical trial assessed the magnitude and duration
of blood pressure effect, and determined that subcutaneous administration of selected doses of bremelanotide for treatment of FSD in premenopausal
women provides acceptable control of blood pressure effects. We have also completed clinical studies involving an alternative route of administration.
Bremelanotide has been evaluated in 31 clinical studies involving about 2,300 subjects, and has shown efficacy in both FSD and ED.
MC1r Peptide Agonists. We have initiated preclinical studies with MC1r peptide drug candidates for a number of indications, primarily inflammatory
disease-related and autoimmune indications. The MC1r is upregulated in a number of diseases, including inflammatory bowel disease, nephritis, which is
inflammation of the kidneys, and rheumatoid arthritis, and ocular indications such as uveitis and dry eye. We believe that MC1r peptides have an anti-
inflammatory effect and are involved in regulation of the immune system and resolution of pro-inflammatory responses. MC1r peptides also have potential
application in a number of dermatologic indications, including vitiligo and erythropoietic protoporphyria.
Our MC1r peptide drug candidates are highly specific, with substantially greater binding and efficacy at MC1r than at other melanocortin receptors. In vitro
safety studies have shown that our MC1r peptide drug candidates have no activity in a wide range of various receptors, ion channels and kinases. Our MC1r
peptide drug candidates typically have a half-life in animal models of greater than two hours. We have selected one of our MC1r peptide drug candidates,
designated PL-8177, as a clinical trial candidate.
Animal studies that we have conducted with our MC1r peptide drug candidates have shown positive results in experimental models of inflammatory bowel
disease, uveitis and nephritis. We are continuing to conduct studies on a number of different indications. We have completed preclinical toxicology testing on
PL-8177 and chemistry, controls and manufacturing activities to support Phase 1 studies, and anticipate filing an IND application on PL-8177 as early as the
first half of calendar 2016. Contingent on adequate available funds, we anticipate initiating a first-in-man Phase 1 clinical trial in calendar 2016.
MC4r Peptide Agonists. We have developed a series of next generation highly selective MC4r peptides. In developing these peptides, we examined
effectiveness in animal models of sexual response and effectiveness in obesity and related metabolic signals, and also determined cardiovascular effects,
primarily looking at changes in blood pressure. Results of these studies suggest that certain of these peptides may have significant commercial potential for
treatment of conditions responsive to MC4r activation, including FSD, ED, obesity and diabetes. We are engaged in preclinical activities with these peptides,
and are evaluating potential pharmaceutical applications.
We have selected an internal lead compound for obesity, designated PL-8905, which has over 100-fold functional selectivity for MC4r over MC1r with
minimal effect on blood pressure and limited central nervous system penetration. PL-8905 exhibits chemical and metabolic stability, with a half-life in animal
models of greater than two hours.
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Our exclusive global research collaboration and license agreement with AstraZeneca to discover, develop and commercialize compounds that target
melanocortin receptors for the treatment of obesity, diabetes and related metabolic syndrome expired because AstraZeneca ceased developing a compound
covered by the agreement. All rights and licenses that we granted to AstraZeneca terminated upon expiration of the agreement.
Obesity. Obesity is a multifactorial condition with numerous biochemical components relating to satiety (feeling full), energy utilization and homeostasis. A
number of different metabolic and hormonal pathways are being evaluated by companies around the world in efforts to develop better treatments for obesity.
Scientific research has established that melanocortin receptors have a role in eating behavior and energy homeostasis, and that melanocortin receptor
agonists can decrease food intake and induce weight loss. With a previous partner, we completed clinical proof-of-concept studies for the MC4r mechanism
in obesity, which met the primary objectives of significant decrease in food intake and weight loss.
Other Melanocortin Programs. We are continuing drug discovery efforts in the melanocortin field, primarily developing peptide compounds, including
highly selective MC1r agonists and peptides specific for MC4r, including both agonists and antagonists.
Our Natriuretic Peptide Receptor-Specific Programs
The natriuretic peptide receptor system has numerous cardiovascular functions, and therapeutic agents modulating this system may be useful in treatment of
heart failure, acute asthma, other pulmonary diseases and hypertension. While the therapeutic potential of modulating this system is well appreciated,
development of therapeutic agents has been difficult due, in part, to the short biological half-life of native peptide agonists.
We have designed and are developing candidate drugs that are selective for different natriuretic peptide receptors, including NPR-A, natriuretic peptide
receptor B, or NPR-B, natriuretic peptide receptor C, or NPRC, and both NPR-A and NPR-B.
We are in active discussions with potential partners for marketing and commercialization rights in the United States and the rest of the world for PL-3994 and
our related candidate drugs. We may not be able to enter into suitable agreements on acceptable terms with potential partners, if at all.
PL-3994. PL-3994 is our lead natriuretic peptide receptor product candidate, and is a synthetic mimetic of the neuropeptide hormone ANP and an NPR-A
agonist. PL-3994 is in development for treatment of heart failure, acute exacerbations of asthma and refractory hypertension. PL-3994 activates NPR-A, a
receptor known to play a role in cardiovascular homeostasis. Consistent with being an NPR-A agonist, PL-3994 increases plasma cyclic guanosine
monophosphate, or cGMP, levels, a pharmacological response consistent with the effects of endogenous (naturally produced) natriuretic peptides on
cardiovascular function and smooth muscle relaxation. PL-3994 also decreases activity of the renin-angiotensin-aldosterone system, or RAAS, a hormone
system that regulates blood pressure and fluid balance. The RAAS system is frequently over-activated in heart failure patients, leading to worsening of
cardiovascular function.
PL-3994, our lead product development candidate which is ready for Phase 2 safety and efficacy studies, is one of a number of natriuretic peptide receptor
agonist compounds we have developed. PL-3994 is a synthetic molecule incorporating a novel and proprietary amino acid mimetic structure, and has an
extended circulation half-life and metabolic stability compared to endogenous ANP. Based on the half-life and pharmacokinetics, we believe that PL-3994 is
amenable to once daily chronic use subcutaneous administration.
PL-3994 for Heart Failure. Heart failure is an illness in which the heart is unable to pump blood efficiently, and includes acutely decompensated heart failure
with dyspnea (shortness of breath) at rest or with minimal activity. Endogenous natriuretic peptides have a number of beneficial effects, including vasodilation
(relaxation of blood vessels), natriuresis (excretion of sodium) and diuresis (excretion of fluids).
Patients who have been admitted to the hospital with an episode of worsening heart failure have an increased risk of either death or hospital readmission in
the three months following discharge. Up to 15% of patients die in this period and as many as 30% need to be readmitted to the hospital. We believe that
decreasing mortality and hospital readmission in patients discharged following hospitalization for worsening heart failure is a large unmet medical need for
which PL-3994 may be effective. PL-3994 could potentially be utilized as an adjunct to existing heart failure medications, and may, if successfully developed,
be self-administered by patients as a subcutaneous injection following hospital discharge. We believe that PL-3994, through activation of NPR-A, may, if
successful, reduce cardiac hypertrophy (increase in heart size due to disease), which is an independent risk factor for cardiovascular morbidity and mortality.
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According to a report from the American Heart Association published in 2014 in the journal Circulation, an estimated 5.7 million Americans suffer from heart
failure, with 870,000 new cases of heart failure diagnosed each year, with disease incidence expected to increase with the aging of the American population.
Heart failure has tremendous human and financial costs. The same report estimated that the 2012 total costs in the United States for heart failure were $30.7
billion, with heart failure constituting the leading cause of hospitalization in people over 65 years of age and with over 1 million hospital discharges for heart
failure in 2010. Heart failure is a high mortality disease, with approximately one-half of heart failure patients dying within five years of initial diagnosis.
Patient populations have been identified which have reduced levels of endogenous active natriuretic peptides, including endogenous active ANP. The
reduced levels have a variety of causes, including mutations in endogenous natriuretic peptides and in enzymes necessary to convert natriuretic peptide
sequences to their active form. Patients with reduced levels of endogenous active natriuretic peptides are reported to have a poor response to current drug
therapies and to have increased rates of cardiac remodeling and cardiac events.
We believe that PL-3994 has the potential to treat heart failure with preserved ejection fraction, or HF-PEF, which is a high unmet medical need with no
approved treatment options, heart failure with reduced ejection fraction, or HF-REF, and patients with reduced levels of endogenous active natriuretic
peptides, such as corin deficiencies, which is a high unmet medical need in patients with a poor response to current therapies, with the objective to restore
normal natriuretic peptide function.
We have planned a repeat dose Phase 2 clinical trial in patients with HF-PEF, HF-REF and corin deficiency to evaluate safety profiles and symptom relief as
well as pharmacokinetic (period to metabolize or excrete the drug) and pharmacodynamic (period of action or effect of the drug) endpoints. Analysis will
include cardiac imaging and measurement of left ventricular ejection fraction. Contingent on adequate available funds, we intend to initiate this trial in the first
half of calendar 2016 with data anticipated in the second half of 2016. Assuming favorable results from this trial, we have planned a repeat dose Phase 2
proof-of-principle clinical trial in patients with heart failure, which would involve treatment for a three to six month period, and would evaluate safety, cardiac
function, effects on remodeling, symptom improvement and hospitalization admission rates. Contingent on adequate available funds, the proof-of-principle
Phase 2 trial will be initiated following completion of the first repeat dose Phase 2 clinical trial, with a targeted start as early as the second half of calendar
2016 with data anticipated by the second half of 2017.
Preclinical studies utilizing a ‘‘2 kidney, 1 clip’’ rat model of renovascular hypertension and cardiac hypertrophy have been conducted with PL-3994.
Treatment with PL-3994 reduced both excess production of aldosterone and cardiac hypertrophy.
PL-3994 for Acute Exacerbations of Asthma. Research over the past two decades has demonstrated potent bronchodilator effects with both systemic and
inhalation administration of natriuretic peptides. NPR-A agonism is known to relax smooth muscles in airways and works through a pathway independent of
the beta-2 adrenergic receptor. Preclinical testing demonstrated potent airway smooth muscle relaxation in guinea pig and human tissues using PL-3994,
and animal studies in sensitized guinea pigs have demonstrated a bronchodilator effect with PL-3994 using both subcutaneous and inhalation administration.
Acute exacerbations of asthma, also called acute severe asthma, is an ongoing, unremitting asthma episode in which asthma symptoms do not adequately
respond to initial bronchodilator therapy. Inhaled beta-2 adrenergic receptor agonists, such as albuterol, inhaled anticholinergic drugs, such as ipratropium,
and systemic corticosteroids are primary treatments for episodes of acute exacerbations of asthma. Some patients with acute exacerbations of asthma
become unresponsive to beta-2 adrenergic receptor agonists, significantly limiting treatment options and increasing risk. Patients who do not respond to
initial therapy are at risk of severe complications. We intend to initially target PL-3994 as a treatment for those at-risk unresponsive patients.
According to a 2014 report from the National Center for Environmental Health, Asthma Prevalence in the United States, in 2010 there were 1.8 million
emergency room visits and 439,000 hospitalizations attributed to asthma. Approximately 25.7 million Americans have asthma.
Endogenous natriuretic peptides have a very short half-life, due primarily to degradation by neutral endopeptidase and clearance through the natriuretic
peptide clearance receptor. PL-3994 is resistant to neutral endopeptidase and clears from the body much more slowly than endogenous natriuretic peptides.
PL-3994 has a blood-plasma half-life of at least three hours in humans when administered by subcutaneous injection, with biological effects seen for over
eight hours post-administration.
Clinical Studies with PL-3994. Human clinical studies of PL-3994 commenced with a Phase 1 trial which concluded in 2008. This was a randomized, double-
blind, placebo-controlled study in 26 healthy volunteers who received either PL-3994 or a placebo subcutaneously. The evaluations included safety,
tolerability, pharmacokinetics and several pharmacodynamic endpoints, including levels of cGMP. Dosing concluded with the successful achievement
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of the primary endpoint of the study, a prespecified reduction in systemic blood pressure. No volunteer experienced a serious or severe adverse event.
Elevations in plasma cGMP levels, increased diuresis and increased natriuresis were all observed for several hours after single subcutaneous doses.
Later in 2008, we conducted a Phase 2A trial in volunteers with controlled hypertension who were receiving one or more conventional antihypertensive
medications. In this trial, which was a randomized, double-blind, placebo-controlled, single ascending dose study in 21 volunteers, the objective was to
demonstrate that PL-3994 can be given safely to patients taking antihypertensive medications commonly used in heart failure and hypertension patients.
Dosing concluded with the successful achievement of the primary endpoint of the study, a prespecified reduction in systemic blood pressure. No volunteer
experienced a serious or severe adverse event. Elevations in plasma cGMP levels were observed for several hours after single subcutaneous doses. Based
on the studies to date, PL-3994 is ready for Phase 2 safety and efficacy studies.
Administration of PL-3994. For heart failure and refractory hypertension indications we believe that subcutaneous administration of PL-3994 may be
preferable. PL-3994 is well absorbed through the subcutaneous route of administration. In human studies, the pharmacokinetic and pharmacodynamic half-
lives were on the order of hours, significantly longer than the comparable half-lives of endogenous natriuretic peptides. We believe that subcutaneous PL-
3994, if successful, will be appropriate for self-administration by patients, similar to insulin and other self-administered drugs. For asthma indications we
believe that inhalation administration of PL-3994 may be preferable to subcutaneous or other systemic administration.
Technologies We Use
We used a rational drug design approach to discover and develop proprietary peptide, peptide mimetic and small molecule agonist compounds, focusing on
melanocortin and natriuretic peptide receptor systems. Computer-aided drug design models of receptors are optimized based on experimental results
obtained with peptides and small molecules that we develop, supported by conformational analyses of peptides in solution utilizing nuclear magnetic
resonance spectroscopy. By integrating both technologies, we believe we are developing an advanced understanding of the factors which drive agonism.
We have developed a series of proprietary technologies used in our drug development programs. One technology employs novel amino acid mimetics in
place of selected amino acids. These mimetics provide the receptor-binding functions of conventional amino acids while providing structural, functional and
physiochemical advantages. The amino acid mimetic technology is employed in PL-3994, our compound in development for treatment of heart failure, acute
exacerbations of asthma and refractory hypertension.
Some compound series have been derived using our proprietary and patented platform technology, called MIDAS™, or Metal Ion-induced Distinctive Array of
Structures. This technology employs metal ions to fix the three-dimensional configuration of peptides, forming conformationally rigid molecules that remain
folded specifically in their active state. These MIDAS molecules are generally simple to synthesize, are chemically and proteolytically stable, and have the
potential to be orally bioavailable. In addition, MIDAS molecules are information-rich and provide data on structure-activity relationships that may be used to
design small molecule, non-peptide drugs.
Amount Spent on Research and Development Activities
Research and development expenses were approximately $24.6 million for the fiscal year ended June 30, 2015 (fiscal 2015), $10.8 million for the fiscal year
ended June 30, 2014 (fiscal 2014), and $10.5 million for the fiscal year ended June 30, 2013 (fiscal 2013).
Competition
General. Our products under development will compete on the basis of quality, performance, cost effectiveness and application suitability with numerous
established products and technologies. We have many competitors, including pharmaceutical, biopharmaceutical and biotechnology companies.
Furthermore, there are several well-established products in our target markets that we will have to compete against. Products using new technologies which
may be competitive with our proposed products may also be introduced by others. Most of the companies selling or developing competitive products have
financial, technological, manufacturing and distribution resources significantly greater than ours and may represent significant competition for us. In addition,
if any of our product candidates are approved by FDA, they will eventually face competition from generic versions that will sell at significantly reduced prices,
be preferred by managed care and health insurance payers, and be eligible for automatic pharmacy substitution even when a prescriber writes a prescription
for our product. The timing and extent of future generic competition is dependent upon both our intellectual property rights and the FDA regulatory process,
but cannot be accurately predicted.
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The pharmaceutical and biotechnology industries are characterized by extensive research efforts and rapid technological change. Many biopharmaceutical
companies have developed or are working to develop products similar to ours or that address the same markets. Such companies may succeed in
developing technologies and products that are more effective or less costly than any of those that we may develop. Such companies may be more
successful than us in developing, manufacturing and marketing products.
We cannot guarantee that we will be able to compete successfully in the future or that developments by others will not render our proposed products under
development or any future product candidates obsolete or noncompetitive or that our collaborators or customers will not choose to use competing
technologies or products.
Bremelanotide for Treatment of FSD. There is competition and financial incentive to develop, market and sell drugs for the treatment of FSD. Flibanserin is
currently the only drug approved in the United States for treatment of FSD. We are aware of several drugs at various stages of development, most of which
are taken on a chronic, typically once-daily, basis. Flibanserin, a non-hormone oral serotonin 5-HT1A agonist, 5-HT2A antagonist to be sold under the
tradename Addyi, that requires chronic dosing, was approved by the FDA on August 18, 2015 for treatment of premenopausal women with hypoactive
sexual desire disorder. The FDA approval included a risk evaluation and mitigation strategy, or REMS, because of the increased risk of severe hypotension
and syncope due to the interaction between flibanserin and alcohol, and a Boxed Warning to highlight the risks of severe hypotension and syncope in
patients who drink alcohol during treatment with flibanserin, in those who also use moderate or strong CYP3A4 inhibitors, and in those who have liver
impairment. Approval by the FDA followed a positive FDA advisory committee recommendation in June 2015. An oral fixed-dose combination of two
antidepressants, bupropion and trazodone, is reported to be entering Phase 2 studies in premenopausal women with hypoactive sexual desire disorder.
Another company is developing two different oral fixed-dose combination drugs, one a combination of sildenafil and testosterone and the other a combination
of testosterone and buspirone hydrochloride, and is conducting Phase 2 studies in premenopausal women with hypoactive sexual desire disorder. Libigel®, a
testosterone gel, completed two Phase 3 efficacy trials for treatment of FSD in surgically post-menopausal women, but did not show statistical separation
from placebo in those trials. Intrinsa®, a transdermal testosterone patch, successfully completed a Phase 3 clinical program, but was not approved based on
long-term use safety risks of cancer and cardiovascular adverse events. There are other companies reported to be developing new drugs for FSD
indications, some of which may be in clinical trials in the United States or elsewhere. We are not aware of any company actively developing a melanocortin
receptor agonist drug for FSD.
PL-3994 for Heart Failure Indications. Nesiritide (sold under the trade name Natrecor®), a recombinant human B-type natriuretic peptide drug, is marketed in
the United States by Scios Inc., a Johnson & Johnson company. Nesiritide is approved for treatment of acutely decompensated congestive heart failure
patients who have dyspnea at rest or with minimal activity. Other peptide drugs, including carperitide, a recombinant human atrial natriuretic peptide drug,
and ularitide, a synthetic form of urodilatin, a naturally occurring human natriuretic peptide related to atrial natriuretic peptide, have been investigated for
treatment of congestive heart failure, but we are not aware of any active development in the United States. We are aware of other companies developing
intravenously administered natriuretic peptide drugs, with at least one reported to have completed Phase 2 clinical trials for acute heart failure. A combination
drug developed by Novartis AG, LCZ696 (sold under the trade name Entresto®), inhibits both the angiotensin II receptor and neprilysin (an enzyme which
inactivates endogenous active natriuretic peptides). LZC696, which was approved by the FDA in July 2015, results in increases of endogenous active ANP
levels, and thus has a mechanism of action with similarities to PL-3994. In a Phase 3 trial, LZC696 was compared to an angiotensin-converting-enzyme
inhibitor, enalapril, in heart failure patients with reduced ejection fraction. It significantly improved the rate of death from cardiovascular causes, significantly
reduced hospitalization for heart failure and significantly improved heart failure symptoms. LZC696 clearly demonstrated that upregulation of the natriuretic
peptide system in combination with angiotensin-converting-enzyme inhibition is superior to angiotensin-converting-enzyme inhibition alone, and thus
provides validation of the natriuretic peptide system as a target for improving outcomes in treating heart failure patients. In addition, there are a number of
approved drugs and drugs in development for treatment of heart failure through mechanisms or pathways other than agonism of NPR-A.
PL-3994 for Acute Exacerbations of Asthma Indications. The asthma market is intensively competitive, with substantial competition and financial incentive to
develop, market and sell drugs for treatment of asthma, with projected costs of prescription drugs of $5.9 billion in the United States in 2010. We are aware of
companies developing drugs for the specific indications of either acute exacerbations of asthma or acute severe asthma, including at least one company with
a drug reported to be currently in clinical trials. Certain of these drugs under development work by mechanisms of action different from the mechanisms of
action of currently approved products. In addition, a number of clinical trials are conducted by hospitals, research institutes and others exploring various
methods and combinations of drugs to treat acute exacerbations of asthma. There are a number of drugs and therapies currently used to treat acute
exacerbations of asthma, including administration of oral or intravenous systemic steroids, use of oxygen or heliox, a mixture of helium and oxygen,
nebulized short-acting beta-2 adrenergic receptor agonists, intravenous or nebulized anticholinergic agents and, for patients in or approaching respiratory
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arrest, intubation and mechanical ventilation. However, each of these drugs or therapies has recognized limitations or liabilities, and we believe that there
remains an unmet medical need for a safe and effective treatment for acute exacerbations of asthma. We are not aware of any other company actively
developing a drug to treat asthma using a natriuretic peptide receptor pathway.
MC4r Peptides for Erectile Dysfunction. Leading drugs approved for erectile dysfunction, or ED, indications are PDE-5 inhibitors which target the vascular
system, such as sildenafil (sold under the trade name Viagra®), vardenafil (sold under the trade name Levitra®) and tadalafil (sold under the trade name
Cialis®). Other drugs approved for ED indications include alprostadil for injection (sold under the trade name Caverject Impulse® among others), which is
injected directly into the penis, and alprostadil in urethral suppository format (sold under the trade name MUSE®). In addition, a variety of devices, including
vacuum devices and surgical penile implants, have been approved for ED indications. We are aware of a number of companies developing new drugs for ED
indications, some of which are in clinical trials in the United States and elsewhere. We are not aware of any company actively developing a melanocortin
receptor agonist drug for ED.
Obesity. There are a number of FDA-approved drugs and medical devices for the treatment of obesity, and a large number of products in clinical
development by other companies, including products which target melanocortin receptors. At least one Phase 2 study has been reported on use of an MC4r
agonist for obesity indications.
MC1r Peptides for Dermatologic and Inflammatory Disease-Related Indications. Many dermatologic and inflammatory disease-related indications are treated
using systemic steroids or immunosuppressant drugs, both of which have side effects which can be dose limiting. There are a large number of approved
biological drugs and biological drugs under development for treatment of dermatologic and inflammatory disease-related indications.
Patents and Proprietary Information
Patent Protection. Our success will depend in substantial part on our ability to obtain, defend and enforce patents, maintain trade secrets and operate
without infringing upon the proprietary rights of others, both in the United States and abroad. We own a number of issued United States patents and have
pending United States patent applications, many with issued or pending counterpart patents in selected foreign countries. We seek patent protection for our
technologies and products in the United States and those foreign countries where we believe patent protection is commercially important.
We own two issued United States patents claiming the bremelanotide substance and an issued patent claiming the bremelanotide substance in each of
Australia, Austria, Belgium, Brazil, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Korea, Luxembourg,
Mexico, Monaco, Netherlands, New Zealand, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. The issued United States patents have a term
until 2020, which term may be subject to extension for a maximum period of up to five years as compensation for patent term lost during drug development
and the FDA regulatory review process, pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman
Amendments). Whether we will be able to obtain patent term extensions under the Hatch-Waxman Amendments and the length of any such extension
cannot be determined until the FDA approves for marketing, if ever, a product in which bremelanotide is the active ingredient. In addition, the claims of issued
patents covering bremelanotide may not provide meaningful protection. Further, third parties may challenge the validity or scope of any issued patent, and
under the Hatch-Waxman Amendments, potentially receive approval of a competing generic version of our product or products even before a court rules on
the validity or infringement of our patents.
We own pending patent applications in the United States for methods of treating FSD with bremelanotide and patent applications on the same class are
pending in Australia, Brazil, Canada, China, Colombia, Georgia, India, Indonesia, Israel, Japan, Korea, Malaysia, Mexico, New Zealand, Philippines,
Singapore, South Africa, Ukraine, Vietnam and before the European and Eurasian patent offices. If any patent is issued in the United States or in other
countries the presumptive term will be until 2033. Whether we will be able to obtain a patent term extension in the United States under the Hatch-Waxman
Amendments, assuming that a relevant patent issues in the United States, and the length of any such extension, cannot be determined until the FDA
approves for marketing, if ever, a product utilizing bremelanotide by methods claimed in the patent.
We have patents and patent applications on an alternative class of melanocortin receptor-specific peptides for treatment of sexual dysfunction and other
indications, including obesity, consisting of two issued patents in the United States, an issued patent in each of Australia, Canada, China, Russia, Japan,
and New Zealand, and pending patent applications on the same class in Brazil, India, Israel, Korea, Mexico, and South Africa and before the European
patent office. The
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presumptive term of the issued patents and pending patent applications is until 2029. We also have patents and pending patent applications for a second
class of alternative melanocortin receptor-specific peptides for treatment of sexual dysfunction and other indications, including obesity, consisting of issued
patents in the United States, Australia, China, New Zealand, Russia, and South Africa and pending patent applications on the same class in Brazil, Canada,
China, India, Israel, Japan, Korea, Mexico and before the European patent office. The presumptive term of the issued patents and pending patent
applications is until 2030. Until one or more product candidates covered by a claim of one of these patents and patent applications are developed for
commercialization, which may never occur, we cannot evaluate the duration of any potential patent term extension under the Hatch-Waxman Amendments.
We own issued patents in the United States, New Zealand and South Africa claiming a narrow class of highly selective MC1r agonist peptides for treatment
of inflammation-related diseases and disorders and related indications, and pending patent applications on two broader classes of highly selective MC1r
agonist peptides in the United States, Australia, Brazil, Canada, China, India, Israel, Japan, Korea, and Mexico and before the European and Eurasian
patent offices. The presumptive term of the issued patents and pending patent applications is until 2030. Until one or more product candidates covered by a
claim of one of these patent applications are developed for commercialization, which may never occur, we cannot evaluate the duration of any potential
patent term extension under the Hatch-Waxman Amendments.
We own an issued United States patent claiming the PL-3994 substance and other natriuretic peptide receptor agonist compounds that we have developed
and an issued United States patent claiming a precursor molecule to the PL-3994 substance, both of which expire in 2027. Corresponding patents on the PL-
3994 substance and other natriuretic peptide receptor agonist compounds were issued in Australia, Austria, Belgium, China, Colombia, Denmark, Finland,
France, Germany, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Korea, Mexico, Netherlands, Philippines, Russia, South Africa, Spain, Sweden,
and Switzerland, with terms until 2027. Patent applications on the PL-3994 substance and other natriuretic peptide receptor agonist compounds are pending
in Brazil and Canada, with presumptive terms until 2027. Applications claiming precursor molecules for the PL-3994 substance and other compounds have
issued in the United States, Australia, China, France, Germany, India, Ireland, Japan, Mexico, Netherlands, Philippines, Korea, South Africa, Sweden,
Switzerland and the United Kingdom, and expire in 2027. Patent applications on the precursor molecules are pending in Brazil, Canada, Hong Kong, Israel
and before the Eurasian Patent Office, with presumptive terms until 2027. We also own an issued United States patent claiming use of the PL-3994
substance for treatment of acute asthma and chronic obstructive pulmonary disease, which expires in 2031. We do not know the full scope of patent
coverage we will obtain, or whether any patents will issue other than the patents already issued. Until one or more product candidates covered by a claim of
the issued patents or one of these patent applications are developed for commercialization, which may never occur, we cannot evaluate the duration of any
potential patent term extension under the Hatch-Waxman Amendments.
We additionally have 29 issued United States patents on melanocortin receptor specific peptides and small molecules, but we are not actively developing
any product candidate covered by a claim of any of these patents.
In the event that a third party has also filed a patent application relating to an invention we claimed in a patent application, we may be required to participate
in an interference proceeding adjudicated by the United States Patent and Trademark Office to determine priority of invention. The possibility of an
interference proceeding could result in substantial uncertainties and cost, even if the eventual outcome is favorable to us. An adverse outcome could result in
the loss of patent protection for the subject of the interference, subjecting us to significant liabilities to third parties, the need to obtain licenses from third
parties at undetermined cost, or requiring us to cease using the technology.
Future Patent Infringement. We do not know for certain that our commercial activities will not infringe upon patents or patent applications of third parties,
some of which may not even have been issued. Although we are not aware of any valid United States patents which are infringed by bremelanotide or PL-
3994, we cannot exclude the possibility that such patents might exist or arise in the future. We may be unable to avoid infringement of any such patents and
may have to seek a license, defend an infringement action, or challenge the validity of such patents in court. Patent litigation is costly and time consuming. If
such patents are valid and we do not obtain a license under any such patents, or we are found liable for infringement, we may be liable for significant
monetary damages, may encounter significant delays in bringing products to market, or may be precluded from participating in the manufacture, use or sale
of products or methods of treatment covered by such patents.
Proprietary Information. We rely on proprietary information, such as trade secrets and know-how, which is not patented. We have taken steps to protect our
unpatented trade secrets and know-how, in part through the use of confidentiality and intellectual property agreements with our employees, consultants and
certain contractors. If our employees, scientific consultants, collaborators or licensees develop inventions or processes independently that may be applicable
to our product candidates, disputes may arise about the ownership of proprietary rights to those inventions and processes. Such inventions and processes
will not necessarily become our property, but may remain the property of those persons or their employers. Protracted and costly litigation could be
necessary to enforce and determine the scope of our proprietary rights.
If trade secrets are breached, our recourse will be solely against the person who caused the secrecy breach. This might not be an adequate remedy to us
because third parties other than the person who causes the breach will be free to use the information without accountability to us. This is an inherent
limitation of the law of trade secret protection.
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U.S. Governmental Regulation of Pharmaceutical Products
General
Regulation by governmental authorities in the United States and other countries will continue to significantly impact our research, product development,
manufacturing and marketing of any pharmaceutical products. The nature and the extent to which regulations apply to us will vary depending on the nature of
any such products. Our potential pharmaceutical products will require regulatory approval by governmental agencies prior to commercialization. The
products we are developing are subject to federal regulation in the United States, principally by the FDA under the Federal Food, Drug, and Cosmetic Act, or
FFDCA, and by state and local governments, as well as regulatory and other authorities in foreign governments that include rigorous preclinical and clinical
testing and other approval procedures. Such regulations govern or influence, among other things, the research, development, testing, manufacture, safety
and efficacy requirements, labeling, storage, recordkeeping, licensing, advertising, promotion, distribution and export of products, manufacturing and the
manufacturing process. In many foreign countries, such regulations also govern the prices charged for products under their respective national social
security systems and availability to consumers.
All drugs intended for human use are subject to rigorous regulation by the FDA in the United States and similar regulatory bodies in other countries. The
steps ordinarily required by the FDA before an innovative new drug product may be marketed in the United States are similar to steps required in most other
countries and include, but are not limited to:
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completion of preclinical laboratory tests, preclinical animal testing and formulation studies;
submission to the FDA of an IND, which must be in effect before clinical trials may commence;
submission to the FDA of an NDA that includes preclinical data, clinical trial data and manufacturing information;
payment of substantial user fees for filing the NDA and other recurring user fees;
FDA review of the NDA;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities; and
FDA approval of the NDA, including approval of all product labeling.
For combination products deemed to have a ‘‘drug’’ primary mode of action, primary review of the product will be conducted by the appropriate division within
the Center for Drug Evaluation and Research, or CDER, but CDER will consult with the Center for Devices and Radiological Health, or CDRH, to ensure that
the device components of the product meet all applicable device requirements.
The research, development and approval process requires substantial time, effort and financial resources, and approvals may not be granted on a timely or
commercially viable basis, if at all.
Preclinical testing includes laboratory evaluations to characterize the product’s composition, impurities, stability, and mechanism of its pharmacologic effect,
as well as animal studies to assess the potential safety and efficacy of each product. Preclinical safety tests must be conducted by laboratories that comply
with FDA regulations regarding Good Laboratory Practices, or GLP, and the U.S. Department of Agriculture’s Animal Welfare Act. Violations of these laws
and regulations can, in some cases, lead to invalidation of the tests, requiring such tests to be repeated and delaying approval of the NDA. The results of the
preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND and are reviewed by the FDA before
the commencement of human clinical trials. Unless the FDA objects to an IND by placing the study on clinical hold, the IND will go into effect 30 days
following its receipt by the FDA. The FDA may authorize trials only on specified terms and may suspend ongoing clinical trials at any time on various
grounds, including a finding that patients are being exposed to unacceptable health risks. If the FDA places a study on clinical hold, the sponsor must resolve
all of the FDA’s concerns before the study may begin or continue. The IND application process may become extremely costly and substantially delay
development of products. Similar restrictive requirements also apply in other countries. Additionally, positive results of preclinical tests will not necessarily
indicate positive results in clinical trials.
Clinical trials involve the administration of the investigational product to humans under the supervision of qualified principal investigators. Our clinical trials
must be conducted in accordance with Good Clinical Practice, or GCP, regulations under protocols submitted to the FDA as part of an IND. In addition, each
clinical trial is approved and conducted under the auspices of an institutional review board, or IRB, and requires the patients’ informed consent. An IRB
considers, among other things, ethical factors, the safety of human subjects, and the possibility of liability of
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the institutions conducting the trial. The IRB at each institution at which a clinical trial is being performed may suspend a clinical trial at any time for a variety
of reasons, including a belief that the test subjects are being exposed to an unacceptable health risk. As the sponsor, we can also suspend or terminate a
clinical trial at any time.
Clinical trials are typically conducted in three sequential phases, Phases 1, 2, and 3, involving an increasing number of human subjects. These phases may
sometimes overlap or be combined. Phase 1 trials are performed in a small number of healthy human subjects or subjects with the targeted condition, and
involve testing for safety, dosage tolerance, absorption, distribution, metabolism and excretion. Phase 2 studies, which may involve up to hundreds of
subjects, seek to identify possible adverse effects and safety risks, preliminary information related to the efficacy of the product for specific targeted diseases,
dosage tolerance, and optimal dosage. Finally, Phase 3 trials may involve up to thousands of individuals often at geographically dispersed clinical trial sites,
and are intended to provide the documentation of effectiveness and important additional safety data required for approval. Prior to commencing Phase 3
clinical trials many sponsors elect to meet with FDA officials to discuss the conduct and design of the proposed trial or trials.
In addition, federal law requires the listing, on a publicly-available website, of detailed information on clinical trials for investigational drugs. Some states have
similar or supplemental clinical trial reporting laws.
Success in early-stage animal studies and clinical trials does not necessarily assure success in later-stage clinical trials. Data obtained from animal studies
and clinical activities are not always conclusive and may be subject to alternative interpretations that could delay, limit or even prevent regulatory approval.
All data obtained from the preclinical studies and clinical trials, in addition to detailed information on the manufacture and composition of the product, would
be submitted in an NDA to the FDA for review and approval for the manufacture, marketing and commercial shipments of any of our products. FDA approval
of the NDA is required before commercial marketing or non-investigational interstate shipment may begin in the United States. The FDA may also conduct
an audit of the clinical trial data used to support the NDA.
The FDA may deny or delay approval of an NDA that does not meet applicable regulatory criteria. For example the FDA may determine that the preclinical or
clinical data or the manufacturing information does not adequately establish the safety and efficacy of the drug. The FDA has substantial discretion in the
approval process and may disagree with an applicant’s interpretation of the data submitted in its NDA. The FDA can request additional information, seek
clarification regarding information already provided in the submission or ask that new additional clinical trials be conducted, all of which can delay approval.
Similar types of regulatory processes will be encountered as efforts are made to market any drug internationally. We will be required to assure product
performance and manufacturing processes from one country to another.
Even if the FDA approves a product, it may limit the approved uses for the product as described in the product labeling, require that contraindications,
warning statements or precautions be included in the product labeling, require that additional studies be conducted following approval as a condition of the
approval, impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a REMS, or otherwise limit the scope of any
approval or limit labeling. Once it approves an NDA, the FDA may revoke or suspend the product approval if compliance with post-market regulatory
standards is not maintained or if problems occur after the product reaches the marketplace. In addition, the FDA may require post-marketing studies to
monitor the effect of approved products, and may limit further marketing of the product based on the results of these post-market studies. The FDA and other
government agencies have broad post-market regulatory and enforcement powers, including the ability to levy civil and criminal penalties, suspend or delay
issuance of approvals, seize or recall products and revoke approvals.
Pharmaceutical manufacturers, distributors and their subcontractors are required to register their facilities with the FDA and state agencies. Manufacturers
are required to list their marketed drugs with the FDA, are subject to periodic inspection by the FDA and other authorities, where applicable, and must comply
with the FDA’s current Good Manufacturing Practices, or GMP, regulations, and the product specifications set forth in the approved NDA. The GMP
requirements for pharmaceutical products are extensive and compliance with them requires considerable time, resources and ongoing investment. The
regulations require manufacturers and suppliers of raw materials and components to establish validated systems and to employ and train qualified
employees to ensure that products meet high standards of safety, efficacy, stability, sterility (where applicable), purity, and potency. The requirements apply
to all stages of the manufacturing process, including the synthesis, processing, sterilization, packaging, labeling, storage and shipment of the drug product.
For all drug products, the regulations require investigation and correction of any deviations from GMP requirements and impose documentation requirements
upon us and any third-party manufacturers that we may decide to use. Manufacturing establishments are subject to mandatory user fees, and to periodic
unannounced inspections by the FDA and state agencies for compliance with all GMP requirements. The FDA is authorized to inspect manufacturing facilities
without a warrant at reasonable times and in a reasonable manner.
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We or our present or future suppliers may not be able to comply with GMP and other FDA regulatory requirements. Failure to comply with the statutory and
regulatory requirements subjects the manufacturer and/or the NDA sponsor or distributor to possible legal or regulatory action, such as a delay or refusal to
approve an NDA, suspension of manufacturing, seizure or recall of a product, or civil or criminal prosecution of the company or individual officers or
employees.
Post-Marketing Regulation
Any drug products manufactured or distributed by us pursuant to FDA approvals, as well as the materials and components used in our products, are subject
to pervasive and continuing regulation by the FDA, including:
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recordkeeping requirements;
periodic reporting requirements;
GMP requirements related to all stages of manufacturing, testing, storage, packaging, labeling and distribution of finished dosage forms of the
product;
• monitoring and reporting of adverse experiences with the product; and
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advertising and promotional reporting requirements and restrictions.
Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes or
product removal. Product approvals may be revoked if compliance with regulatory requirements is not maintained or if problems concerning safety or
effectiveness of the product occur following approval. The FDA is developing a national electronic drug safety tracking system known as SENTINEL that may
impose additional safety monitoring burdens, and enhanced FDA enforcement authority, beyond the extensive requirements already in effect. As a condition
of NDA approval, the FDA may require post-approval testing and surveillance to monitor a product’s safety or efficacy. The FDA also may impose other
conditions, including labeling restrictions which can materially impact the potential market and profitability of a product.
With respect to post-market product advertising and promotion, the FDA and other government agencies including the Department of Health and Human
Services and the Department of Justice, and individual States, impose a number of complex regulations on entities that advertise and promote
pharmaceuticals, including, among others, standards and restrictions on direct-to-consumer advertising, off-label promotion, industry-sponsored scientific
and educational activities and promotional activities involving the Internet. The FDA has very broad enforcement authority under the FFDCA, and failure to
abide by these regulations can result in administrative and judicial enforcement actions, including the issuance of a Warning Letter directing correction of
deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, False Claims Act prosecution
based on alleged off-label marketing seeking monetary and other penalties, including potential exclusion of the drug and/or the company from participation in
government health care programs, and state and federal civil and criminal investigations and prosecutions. Foreign regulatory bodies also strictly enforce
these and other regulatory requirements and drug marketing may be prohibited in whole or in part in other countries.
We, our collaborators or our third-party contract manufacturers may not be able to comply with the applicable regulations. After regulatory approvals are
obtained, the subsequent discovery of previously unknown problems, or the failure to maintain compliance with existing or new regulatory requirements, may
result in:
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restrictions on the marketing or manufacturing of a product;
• Warning Letters or Untitled Letters from the FDA asking us, our collaborators or third-party contractors to take or refrain from taking certain actions;
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withdrawal of the product from the market;
the FDA’s refusal to approve pending applications or supplements to approved applications;
voluntary or mandatory product recall;
fines or disgorgement of profits or revenue;
suspension or withdrawal of regulatory approvals;
refusals to permit the import or export of products;
product seizure; and
injunctions or the imposition of civil or criminal penalties.
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We may also be subject to healthcare laws, regulations and enforcement and our failure to comply with any such laws, regulations or enforcement could
adversely affect our business, operations and financial condition. Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and
patients’ rights are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we or our
partners conduct our business. The laws and regulations that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving
or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce either
the referral of an individual or in return for the purchase, lease, or order of any good, facility item or service, for which payment may be made, in
whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, including, for example, the federal civil False Claims Act, which impose
criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly
presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false
or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent
pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payer (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing
a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact
or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to
healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations, which impose
obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business
associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to
safeguarding the privacy, security and transmission of individually identifiable health information;
the federal physician sunshine requirements under the Affordable Care Act, which require manufacturers of drugs, devices, biologics and medical
supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to
physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services
reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or
otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug
manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business
activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For
example, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal healthcare
fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act
provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our
operations are found to be in
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violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including
administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual
imprisonment or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial
results.
Generic Competition
Orange Book Listing. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the
applicant’s product. Upon approval of a drug, the applicant identifies all patents that claim the approved product’s active ingredient(s), the drug product’s
approved formulation, or an approved method of use of the drug. Each of the identified patents are then published in the FDA’s Approved Drug Products
with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic
competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same
active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing, unless such testing is
waived by the FDA, as is the case with some injectable drug products, to be therapeutically equivalent to the listed drug. Other than bioequivalence testing,
ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs
approved in this way are commonly referred to as ‘‘generic equivalents’’ to the listed drug, and can usually be substituted by pharmacists under prescriptions
written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the
applicant must certify either that: (1) the required patent information has not been filed (a Paragraph I Certification); (2) the listed patent has expired (a
Paragraph II Certification); (3) the listed patent has not expired, but will expire on a particular date and the generic approval is being sought only after patent
expiration (a Paragraph III Certification); or (4) the listed patent is invalid, unenforceable, or will not be infringed by the proposed generic product (a
Paragraph IV Certification). In certain circumstances, the ANDA applicant may also elect to submit a ‘‘section (viii)’’ statement instead of a Paragraph IV
Certification, certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify
to a listed method-of-use patent. If the application contains only Paragraph I or Paragraph II Certifications, the ANDA may be approved as soon as FDA
completes its review and concludes that all approval requirements have been met. If the ANDA contains one or more Paragraph III Certifications, the ANDA
cannot not be approved until each listed patent for which a Paragraph III Certification was filed have expired.
If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA
holder and patent owner once the ANDA has been accepted for filing by the FDA. The patent owner or NDA holder may then commence a patent
infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a
Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months (the ‘‘30-month stay’’), expiration of the
patent, settlement of the lawsuit in which the patent owner admits that the patent is invalid or not infringed by the ANDA product, or a decision in the
infringement case that holds the patent to be invalid or not infringed, or an order by the court shortening the 30-month stay due to actions by the patent
holder to delay the litigation. In most circumstances, NDA holder is only eligible for one 30-month stay against an ANDA.
If a patent infringement action is filed against an ANDA applicant, any settlement of the litigation must be submitted to the Federal Trade Commission, or the
FTC. If the FTC believes the terms or effects of the settlement are anticompetitive, FTC may bring an antitrust enforcement action against the parties.
Private parties may also bring antitrust lawsuits against drug companies based on such patent litigation settlements.
The ANDA also will not be approved until any applicable non-patent regulatory exclusivity listed in the Orange Book for the referenced product has expired.
Regulatory Exclusivity. Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by the
FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot receive for review any ANDA seeking approval of
a generic version of that drug. An ANDA containing a Paragraph IV Certification may be received by FDA 4 years after the NCE drug’s approval, but any 30-
month stay that ensues would be extended so that it expires seven and one half years after the NCE approval date, subject to early termination by reason of
a court decision or settlement as described above.
Certain changes to an NDA drug, such as the addition of a new indication to the package insert, for which new clinical trials, conducted or sponsored by the
applicant are deemed by FDA to be essential to the approval of the change, can be eligible for a three-year period of exclusivity during which the FDA cannot
approval an ANDA for a generic drug that includes the change. An ANDA that contains a section (viii) statement to a method of use patent
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may be approved with labeling that omits the patented use before the use patent expires. Generic drugs approved with such a labeling carve out may be
substituted by pharmacists for the original branded drug before the method of use patent expires.
Section 505(b)(2) New Drug Applications. Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a
special type of NDA, commonly referred to as a 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s previous approval of a similar
product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. A 505(b)(2)
NDA may be used where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the
applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically
appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform
additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or
some, of the label indications for which the referenced product has been approved, as well as for any new indication or conditions of use sought by the
Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the
FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a
505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for
obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification
and subsequent patent infringement suit, until the expiration of any 30-month stay, subject to early termination of the stay as described above.
Changing Legal and Regulatory Landscape
Periodically, legislation is introduced in the U.S. Congress that could change the statutory and regulatory provisions governing the approval, manufacturing
and marketing of our drugs. In addition, the FDCA, FDA regulations and guidance are often revised or reinterpreted by the FDA or the courts in ways that
may significantly affect our business and products. We cannot predict whether or when legislation or court decisions impacting our business will be enacted
or issued, what FDA regulations, guidance or interpretations may change, or what the impact of such changes, if any, may be in the future.
Third-Party Reimbursements
Successful sales of our proposed products in the United States and other countries depend, in large part, on the availability of adequate reimbursement from
third-party payers such as governmental entities, managed care organizations, health maintenance organizations, or HMOs, and private insurance plans.
Reimbursement by a third-party payer depends on a number of factors, including the payer’s determination that the product has been approved by the FDA
for the indication for which the claim is being made, that it is neither experimental nor investigational, and that the use of the product is safe and efficacious,
medically necessary, appropriate for the specific patient and cost effective.
Since reimbursement by one payer does not guarantee reimbursement by another, we or our licensees may be required to seek approval from each payer
individually. Seeking such approvals is a time-consuming and costly process. Third-party payers routinely limit the products that they will cover and the
amount of money that they will pay and, in many instances, are exerting significant pressure on medical suppliers to lower their prices.
Payers frequently employ a tiered system in reimbursing end users for pharmaceutical products, with tier designation affecting copay or deductible amounts.
There are no approved products for treating FSD, and thus is significant uncertainty concerning the extent and scope of third-party reimbursement for
products treating FSD. Based on third-party reimbursement for approved products treating ED, we believe bremelanotide will be classified as a Tier 3 drug,
so that reimbursement will be limited for bremelanotide for treatment of FSD, assuming the product is approved by the FDA. Less than full reimbursement by
governmental and other third-party payers may adversely affect the market acceptance of bremelanotide. Further, healthcare reimbursement systems vary
from country to country, and third-party reimbursement might not be made available for bremelanotide for FSD under any other reimbursement system.
Manufacturing and Marketing
To be successful, our proposed products will need to be manufactured in commercial quantities under GMP prescribed by the FDA and at acceptable costs.
We do not have the facilities to manufacture any of our proposed products under GMP. We intend to rely on collaborators, licensees or contract
manufacturers for the commercial manufacture of our proposed products.
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Our bremelanotide product candidate is a synthetic peptide. While the production process involves well-established technology, there are few manufacturers
capable of scaling up to commercial quantities under GMP at acceptable costs. We have identified one third-party manufacturer for the production of
bremelanotide, Lonza Ltd., and have validated manufacturing of the bremelanotide drug substance under GMP with that manufacturer. We are in the process
of negotiating a long-term supply agreement with Lonza, and may not be able to enter into a supply agreement on acceptable terms, if at all.
Our bremelanotide product candidate will be a combination product, incorporating both the bremelanotide drug substance and a delivery device. We will rely
on a third-party manufacturer, Ypsomed AG, to make the delivery device and to ensure its and the device’s continued compliance with all FDA medical
device regulations. We have selected an autoinjector delivery device, and are negotiating a long-term supply and manufacturing agreement, but may not be
able to enter into such an agreement on acceptable terms, if at all. A third-party contract manufacturer, Catalent Belgium S.A., performs fill, finish and
packaging of our bremelanotide product candidate. We are negotiating a long-term commercial supply agreement, but may not be able to enter into such an
agreement on acceptable terms, if at all.
Our PL-3994 product candidate is a peptide mimetic molecule, incorporating a proprietary amino acid mimetic structure and amino acids. We identified a
manufacturer which made the product in quantities sufficient for Phase 1, and are evaluating commercial-scale manufacturers. Scaling up to commercial
quantities may involve production, purification, formulation and other problems not present in the scale of manufacturing done to date.
Our MC1r and MC4r agonist product candidates are synthetic peptides, which we have manufactured only at laboratory scale. We have not contracted with a
third-party manufacturer to produce these synthetic peptides for either clinical trials or commercial purposes. While the production process involves well-
established technology, there are few manufacturers capable of scaling up to commercial quantities under GMP at acceptable costs. Additionally, scaling up
to commercial quantities may involve production, purification, formulation and other problems not present in the scale of manufacturing done to date.
The failure of any manufacturer or supplier to comply with FDA regulations, including GMP or medical device QSR, or to supply the device component or
drug substance and services as agreed, would force us to seek alternative sources of supply and could interfere with our ability to deliver product on a timely
and cost effective basis or at all. Establishing relationships with new manufacturers or suppliers, any of whom must be FDA-approved, is a time-consuming
and costly process.
Product Liability and Insurance
Our business may be affected by potential product liability risks which are inherent in the testing, manufacturing, marketing and use of our proposed
products. We have liability insurance providing $10 million coverage in the aggregate as to certain clinical trial risks.
Employees
As of September 17, 2015, we employed 18 persons full time, of whom 12 are engaged in research and development activities and 6 are engaged in
administration and management, and had no part-time employees. While we have been successful in attracting skilled and experienced scientific personnel,
competition for personnel in our industry is intense. None of our employees are covered by a collective bargaining agreement. All of our employees have
executed confidentiality and intellectual property agreements. We consider relations with our employees to be good.
We rely on contractors and scientific consultants to work on specific research and development programs. We also rely on independent organizations,
advisors and consultants to provide services, including aspects of manufacturing, testing, preclinical evaluation, clinical management, regulatory strategy
and market research. Our independent advisors, contractors and consultants sign agreements that provide for confidentiality of our proprietary information
and that we have the rights to any intellectual property developed while working for us.
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, Cranbury, New Jersey 08512 and our telephone number is (609) 495-2200. We maintain an
Internet site at www.palatin.com, 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 prospectus. The reference to our website is an inactive textual
reference only.
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Item 1A. Risk Factors.
Risks Related to Our Financial Results and Need for Financing
We have incurred substantial losses and expect to continue to incur substantial losses over the next few years and we may never achieve or
maintain profitability.
We have never been profitable and we may never become profitable. As of June 30, 2015, we had an accumulated deficit of $291.7 million. We expect to
incur additional losses as we continue our development of bremelanotide, PL-3994 and other product candidates. These losses, among other things, have
had and will continue to have an adverse effect on our stockholders’ equity, total assets and working capital.
Since 2005 we have not had any products available for commercial sale and have received no revenues from the sale of our product candidates. For the
foreseeable future, we will have to fund all of our operations and capital expenditures from license and contract revenue under collaborative development
agreements, existing cash balances and outside sources of financing, which may not be available on acceptable terms, if at all. Unless and until we receive
approval from the FDA or other equivalent regulatory authorities outside the United States, we cannot sell our products and will not have product revenues
from them. We have devoted substantially all of our efforts to research and development, including preclinical and clinical trials. Because of the numerous
risks associated with developing drugs, we are unable to predict the extent of future losses, whether or when any of our product candidates will become
commercially available, or when we will become profitable, if at all.
We have a limited operating history upon which to base an investment decision.
Our operations are primarily focused on acquiring, developing and securing our proprietary technology, conducting preclinical and clinical studies and
formulating and manufacturing on a small-scale basis our principal product candidates. These operations provide a limited basis for stockholders to assess
our ability to commercialize our product candidates.
We have not yet demonstrated our ability to perform the functions necessary for the successful commercialization of any of our current product candidates.
The successful commercialization of our product candidates will require us to perform a variety of functions, including:
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continuing to conduct preclinical development and clinical trials;
participating in regulatory approval processes;
formulating and manufacturing products, or having third parties formulate and manufacture products;
post-approval monitoring and surveillance of our products;
conducting sales and marketing activities, either alone or with a partner; and
obtaining additional capital.
If we are unable to obtain regulatory approval of any of our product candidates, to successfully commercialize any products for which we receive regulatory
approval or to obtain additional capital, we may not be able to recover our investment in our development efforts.
The clinical and commercial success of our product candidates will depend on a number of factors, including the following:
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the ability to raise additional capital on acceptable terms, or at all;
timely completion of our clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon
the performance of third-party contractors;
whether we are required by the FDA or similar foreign regulatory agencies to conduct additional clinical trials beyond those planned to support the
approval and commercialization of our product candidates or any future product candidates;
acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our product candidates by the FDA
and similar foreign regulatory authorities;
our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities, the safety and efficacy of our product candidates or
any future product candidates;
the prevalence, duration and severity of potential side effects experienced with our product candidates or future approved products, if any;
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the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual
obligations and with all regulatory requirements applicable to our product candidates or any future product candidates or approved products, if any;
the ability of third parties with whom we contract to manufacture clinical trial and commercial supplies of our product candidates or any future product
candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that
are compliant with GMP;
a continued acceptable safety profile and efficacy during clinical development and following approval of our product candidates or any future product
candidates;
our ability to successfully commercialize our product candidates or any future product candidates in the United States and internationally, if approved
for marketing, sale and distribution in such countries and territories, whether alone or in collaboration with others;
acceptance by physicians and patients of the benefits, safety and efficacy of our product candidates or any future product candidates, if approved,
including relative to alternative and competing treatments;
our and our partners’ ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates;
our and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and
our ability to in-license or acquire additional product candidates or commercial-stage products that we believe can be successfully developed and
commercialized.
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays
or an inability to obtain regulatory approvals or commercialize our product candidates. Even if regulatory approvals are obtained, we may never be able to
successfully commercialize any of our product candidates. Accordingly, we cannot assure you that we will be able to generate sufficient revenue through the
sale of our product candidates or any future product candidates to continue our business.
We will need additional financing, including financing to submit required regulatory applications to the FDA for bremelanotide for FSD and to
complete clinical trials for our other product candidates, which may be difficult to obtain.
As of June 30, 2015, we had cash and cash equivalents of $27.3 million, with current liabilities of $7.4 million. On July 2, 2015, we closed on an equity
private placement, with net proceeds of $19.9 million, and a concurrent $10.0 million venture loan, with net proceeds of $9.8 million. We believe we have
sufficient currently available working capital to fund our currently planned operations through the quarter ending September 30, 2016. We will need additional
funding to complete development of our bremelanotide for FSD program, including regulatory filings for product approval. We will also need additional
funding to conduct and complete required clinical trials for our other product candidates and, assuming those clinical trials are successful, as to which there
can be no assurance, to complete submission of required regulatory applications to the FDA.
We have initiated Phase 3 clinical trials of bremelanotide for FSD and have started patient enrollment, but we may be required to curtail or delay our
bremelanotide for FSD program unless we have adequate funds to complete the program. We estimate that the bremelanotide for FSD program, including
regulatory filings for product approval, will cost at least $80.0 million. We will seek funds to support the program through collaborative arrangements on
bremelanotide, including marketing and distribution partnering agreements, public or private equity or debt financings, and other sources, but such additional
funding may not be available on acceptable terms, or at all.
We do not have any source of significant recurring revenue and must depend on financing or partnering to sustain our operations. We may raise additional
funds through public or private equity or debt financings, collaborative arrangements on our product candidates, or other sources. However, additional
funding may not be available on acceptable terms, or at all. To obtain additional funding, we may need to enter into arrangements that require us to develop
only certain of our product candidates or relinquish rights to certain technologies, product candidates and/or potential markets.
If we are unable to raise sufficient additional funds when needed, we may be required to curtail operations significantly, cease clinical trials and decrease
staffing levels. We may seek to license, sell or otherwise dispose of our product candidates, technologies and contractual rights on the best possible terms
available. Even if we are able to license, sell or otherwise dispose of our product candidates, technologies and contractual rights, it is likely to be on
unfavorable terms and for less value than if we had the financial resources to develop or otherwise advance our product candidates, technologies and
contractual rights ourselves.
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Our future capital requirements depend on many factors, including:
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the results of our Phase 3 clinical trials for bremelanotide for FSD;
the timing of, and the costs involved in, obtaining regulatory approvals for bremelanotide for FSD and our other product candidates;
the number and characteristics of any additional product candidates we develop or acquire;
the scope, progress, results and costs of researching and developing bremelanotide for FSD, PL-3994 or any future product candidates, and
conducting preclinical and clinical trials;
the cost of commercialization activities if bremelanotide for FSD, PL-3994 or any future product candidates are approved for sale, including
marketing, sales and distribution costs;
the cost of manufacturing bremelanotide for FSD, PL-3994 or any future product candidates and any products we successfully commercialize and
maintaining our related facilities;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms and timing of such arrangements;
the degree and rate of market acceptance of any future approved products;
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products
or treatments;
any product liability or other lawsuits related to our products;
the expenses needed to attract and retain skilled personnel;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of
such litigation; and
the timing, receipt and amount of sales of, or royalties on, future approved products, if any.
Raising additional capital may cause dilution to existing shareholders, restrict our operations or require us to relinquish rights.
We may seek the additional capital necessary to fund our operations through public or private equity offerings, collaboration agreements, debt financings or
licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing shareholders’
ownership interests will be diluted and the terms may include liquidation or other preferences that adversely affect their rights as a shareholder. Debt
financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring additional
debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations and licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.
Risks Related to Our Business, Strategy and Industry
We are substantially dependent on the clinical and commercial success of our product candidates, primarily our lead product candidate,
bremelanotide for FSD, which is in Phase 3 clinical development. We cannot be certain that we will be able to obtain regulatory approval for or
successfully commercialize any of our product candidates.
To date, we have invested most of our efforts and financial resources in the research and development of bremelanotide for FSD, which is currently our lead
product candidate. We are currently in Phase 3 clinical development in the United States for bremelanotide for FSD. Our near-term prospects, including our
ability to finance our company and generate revenue, will depend heavily on the successful development, regulatory approval and commercialization of
bremelanotide for FSD, as well as any future product candidates. The clinical and commercial success of our product candidates will depend on a number of
factors, including the following:
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timely completion of, or need to conduct additional, clinical trials, including our Phase 3 clinical trials in the United States for bremelanotide for FSD,
which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the accurate and satisfactory
performance of third-party contractors;
our ability to demonstrate to the satisfaction of the FDA the safety and efficacy of bremelanotide for FSD or any future product candidates through
clinical trials;
whether we are required by the FDA or other similar foreign regulatory agencies to conduct additional clinical trials to support the approval of
bremelanotide for FSD or any future product candidates;
the acceptance of parameters for regulatory approval, including our proposed indication, primary endpoint assessment and primary endpoint
measurement, relating to our lead indications of bremelanotide for FSD;
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our success in educating physicians and patients about the benefits, administration and use of bremelanotide for FSD or any future product
candidates, if approved;
the prevalence and severity of adverse events experienced with bremelanotide for FSD or any future product candidates or approved products;
the adequacy and regulatory compliance of the autoinjector device, supplied by an unaffiliated third party, to be used as part of our bremelanotide
combination product;
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
our ability to raise additional capital on acceptable terms to achieve our goals;
achieving and maintaining compliance with all regulatory requirements applicable to bremelanotide for FSD or any future product candidates or
approved products;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;
the effectiveness of our own or our future potential strategic collaborators’ marketing, sales and distribution strategy and operations;
our ability to manufacture clinical trial supplies of bremelanotide for FSD or any future product candidates and to develop, validate and maintain a
commercially viable manufacturing process that is compliant with current GMP;
our ability to successfully commercialize bremelanotide for FSD or any future product candidates, if approved for marketing and sale, whether alone
or in collaboration with others;
our ability to enforce our intellectual property rights in and to bremelanotide for FSD or any future product candidates;
our ability to avoid third-party patent interference or intellectual property infringement claims;
acceptance of bremelanotide for FSD or any future product candidates, if approved, as safe and effective by patients and the medical community;
and
a continued acceptable safety profile and efficacy of bremelanotide for FSD or any future product candidates following approval.
If we do not achieve one or more of these factors, many of which are beyond our control, in a timely manner or at all, we could experience significant delays
or an inability to successfully commercialize our product candidates. Accordingly, we cannot assure you that we will be able to generate sufficient revenue
through the sale of bremelanotide for FSD or any future product candidate to continue our business.
Our product candidates are still in the early stages of development and remain subject to clinical testing and regulatory approval. If we are unable
to successfully develop and test our product candidates, we will not be successful.
Our product candidates are at various stages of research and development, will require regulatory approval, and may never be successfully developed or
commercialized. Our product candidates will require significant further research, development and testing before we can seek regulatory approval to market
and sell them. We must demonstrate that our product candidates are safe and effective for use in patients in order to receive regulatory approval for
commercial sale. Preclinical studies in animals, using various doses and formulations, must be performed before we can begin human clinical trials. Even if
we obtain favorable results in the preclinical studies, the results in humans may be different. Numerous small-scale human clinical trials may be necessary
to obtain initial data on a product candidate’s safety and efficacy in humans before advancing to large scale human clinical trials. We face the risk that the
results of our trials in later phases of clinical trials may be inconsistent with those obtained in earlier phases. Adverse or inconclusive results could delay the
progress of our development programs and may prevent us from filing for regulatory approval of our product candidates. Additional factors that could inhibit
the successful development of our product candidates include:
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lack of effectiveness of any product candidate during clinical trials or the failure of our product candidates to meet specified endpoints;
failure to design appropriate clinical trial protocols;
uncertainty regarding proper dosing;
inability to develop or obtain a supplier for an autoinjector device that meets the FDA’s medical device requirements;
insufficient data to support regulatory approval;
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inability or unwillingness of medical investigators to follow our clinical protocols;
inability to add a sufficient number of clinical trial sites; or
the availability of sufficient capital to sustain operations and clinical trials.
You should evaluate us in light of these uncertainties, difficulties and expenses commonly experienced by early stage biopharmaceutical companies, as well
as unanticipated problems and additional costs relating to:
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product approval or clearance;
regulatory compliance;
good manufacturing practices;
intellectual property rights;
product introduction; and
• marketing and competition.
If clinical trials for our product candidates are prolonged or delayed, we may be unable to commercialize our product candidates on a timely
basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product sales.
We may be unable to commercialize our product candidates on a timely basis due to unexpected delays in our human clinical trials. Potential delaying events
include:
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discovery of serious or unexpected toxicities or side effects experienced by study participants or other safety issues;
slower than expected rates of subject recruitment and enrollment rates in clinical trials resulting from numerous factors, including the prevalence of
other companies’ clinical trials for their product candidates for the same indication, or clinical trials for indications for which patients do not as
commonly seek treatment;
difficulty in retaining subjects who have initiated a clinical trial but may withdraw at any time due to adverse side effects from the therapy, insufficient
efficacy, fatigue with the clinical trial process or for any other reason;
difficulty in obtaining institutional review board, or IRB, approval for studies to be conducted at each site;
delays in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials;
inadequacy of or changes in our manufacturing process or the product formulation or method of delivery;
changes in applicable laws, regulations and regulatory policies;
delays or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols with prospective contract research organizations,
or CROs, clinical trial sites and other third-party contractors;
failure of our CROs or other third-party contractors to comply with contractual and regulatory requirements or to perform their services in a timely or
acceptable manner;
failure by us, our employees, our CROs or their employees or any partner with which we may collaborate or their employees to comply with
applicable FDA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for drug,
medical device and biologic products;
delays in the scheduling and performance by the FDA of required inspections of us, our CROs, our suppliers, or our clinical trial sites, and violations
of law or regulations by discovered in the course of FDA inspections;
scheduling conflicts with participating clinicians and clinical institutions; or
difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data.
Any of these events or other delaying events, individually or in the aggregate, could delay the commercialization of our product candidates and have a
material adverse effect on our business, results of operations and financial condition.
We may not be able to secure and maintain research institutions to conduct our clinical trials.
We rely on research institutions to conduct our clinical trials. Our reliance upon research institutions provides us with less control over the timing and cost of
clinical trials and the ability to recruit subjects. If we are unable to reach agreements with suitable research institutions on acceptable terms, or if resulting
agreement is terminated, we may be unable to quickly replace the research institution with another qualified institution on acceptable terms. We may not be
able to secure and maintain suitable research institutions to conduct our clinical trials.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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Even if our product candidates receive regulatory approval, they may never achieve market acceptance, in which case our business, financial
condition and results of operation will be materially adversely affected.
Regulatory approval for the marketing and sale of any of our product candidates does not assure the product’s commercial success. Any approved product
will compete with other products manufactured and marketed by major pharmaceutical and other biotechnology companies. If any of our product candidates
are approved by the FDA and do not achieve adequate market acceptance, our business, financial condition and results of operations will be materially
adversely affected. The degree of market acceptance of any such product will depend on a number of factors, including:
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perceptions by members of the healthcare community, including physicians, about its safety and effectiveness;
cost-effectiveness relative to competing products and technologies;
availability of reimbursement for our products from third-party payers such as health insurers, health maintenance organizations and government
programs such as Medicare and Medicaid; and
advantages over alternative treatment methods.
There is one FDA approved product for treatment of FSD, but marketing and distribution of this product has not yet commenced. As a result, the actual
market size and market dynamics are unknown, and there is significant uncertainty concerning the extent and scope of third-party reimbursement for
products treating FSD. While we believe that an on-demand drug for FSD has competitive advantages compared to chronic or daily use hormones and other
drugs, we may not be able to realize this perceived advantage in the market. Bremelanotide is administered by subcutaneous injection. While the single-use,
disposable autoinjector format is designed to maximize market acceptability, bremelanotide as a subcutaneous injectable drug for FSD may never achieve
significant market acceptance. In addition, we believe reimbursement of bremelanotide from third-party payers such as health insurers, HMOs or other third-
party payers of healthcare costs will be limited, and that the ultimate user will pay all or a substantial part of the cost of bremelanotide for FSD. If the market
opportunity for bremelanotide is smaller than we anticipate, it may also be difficult for us to find marketing partners and, as a result, we may be unable to
generate revenue and business from bremelanotide. If bremelanotide for FSD does not achieve adequate market acceptance at an acceptable price point,
our business, financial condition and results of operations will be materially adversely affected.
Even if our product candidates receive regulatory approval in the United States, we may never receive approval or commercialize our products
outside of the United States.
In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative
review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval
process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval
in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative
effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setbacks in obtaining such approval would
impair our ability to develop foreign markets for our product candidates and may have a material adverse effect on our results of operations and financial
condition.
If side effects emerge that can be linked to our product candidates (either while they are in development or after they are approved and on the
market), we may be required to perform lengthy additional clinical trials, change the labeling of any such products, or withdraw such products
from the market, any of which would hinder or preclude our ability to generate revenues.
If we identify side effects or other problems occur in future clinical trials, we may be required to terminate or delay clinical development of the product
candidate. Furthermore, even if any of our product candidates receive marketing approval, as greater numbers of patients use a drug following its approval, if
the incidence of side effects increases or if other problems are observed after approval that were not seen or anticipated during pre-approval clinical trials, a
number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product;
we may be required to reformulate such products or change the way the product is manufactured;
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we may become the target of lawsuits, including class action suits; and
our reputation in the market place may suffer resulting in a significant drop in the sales of such products.
Any of these events could substantially increase the costs and expenses of developing, commercializing and marketing any such product candidates or
could harm or prevent sales of any approved products.
The number of subjects in our study pools in our clinical trials may be deemed by regulators to be too small, which could cause unanticipated
delays or higher than anticipated costs.
Our clinical trials have been conducted on a pool of subjects that is structured for such research. Nevertheless, there is the possibility that for statistical
reasons, the pool of subjects may be determined by the FDA or another regulatory body to be too small to verify statistical significance. In such a case, the
conclusions from the previous trials will need to be established with at least another set of clinical trials testing the relevant issue. Due to the need to find new
subjects for any additional clinical trials and the limited pool from which such subjects can be selected, any such determination by the FDA could result in a
delay in obtaining FDA approval or require additional financial expenditures.
We may not be able to keep up with the rapid technological change in the biotechnology and pharmaceutical industries, which could make any
future approved products obsolete and reduce our revenue.
Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in
large part on our ability to maintain a competitive position with respect to these technologies. Our competitors may render our technologies obsolete by
advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages in our drug
discovery process that we believe we derive from our research approach and proprietary technologies. In addition, any future products that we develop,
including our clinical product candidates, may become obsolete before we recover expenses incurred in developing those products, which may require that
we raise additional funds to continue our operations.
Competing products and technologies may make our proposed products noncompetitive.
Flibanserin, a daily-use oral drug, has been approved by the FDA for hypoactive sexual desire disorder in premenopausal women. There are other products
being developed for FSD, including a number of oral combination drugs, some of which incorporate testosterone, antidepressants or PDE-5 inhibitors. There
is competition to develop drugs for treatment of FSD in both premenopausal and postmenopausal patients. Our bremelanotide drug product is intended to be
administered by subcutaneous injection, and an on-demand drug product for the same indication which utilizes another route of administration, such as a
conventional oral drug product, may make subcutaneous bremelanotide noncompetitive.
There are three oral FDA-approved PDE-5 inhibitor drugs for the treatment of ED, other approved products and devices for ED, and other products in
development for treatment of ED, including products in clinical trials.
There is competition to develop drugs for ED in patients non-responsive to PDE-5 inhibitor drugs, and to develop drugs for treatment of FSD.
There are several products approved for use in treatment of obesity and related indications, and a number of other products being developed for treatment of
obesity, including products in clinical trials. There is intense competition to develop drugs for treatment of obesity and related indications.
There are a number of products approved for use in treating inflammatory diseases and dermatologic indication, and other products being developed,
including products in clinical trials.
We are aware of one recombinant natriuretic peptide product for acutely decompensated congestive heart failure approved and marketed in the United
States, and another recombinant natriuretic peptide product approved and marketed in Japan. Clinical trials on other natriuretic peptide products are being
conducted in the United States. In addition, other products for treatment of heart failure are either currently being marketed or in development, including a
combination drug which increases active levels of ANP.
There are numerous products approved for use in treatment of asthma, and a number of other products being developed for treatment of acute
exacerbations of asthma, including products in clinical trials. There is intense competition to develop drugs for treatment of acute exacerbations of asthma.
The biopharmaceutical industry is highly competitive. We are likely to encounter significant competition with respect to bremelanotide, other melanocortin
receptor agonist compounds and PL-3994. Most of our competitors have substantially greater financial and technological resources than we do. Many of
them also have significantly greater experience in research and development, marketing, distribution and sales than we do. Accordingly, our competitors may
succeed in developing, marketing, distributing and selling products and underlying technologies
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more rapidly than we can. These competitive products or technologies may be more effective and useful or less costly than bremelanotide, other
melanocortin receptor agonist compounds or PL-3994. In addition, academic institutions, hospitals, governmental agencies and other public and private
research organizations are also conducting research and may develop competing products or technologies on their own or through strategic alliances or
collaborative arrangements.
We rely on third parties over whom we have no control to conduct clinical trials for our product candidates and their failure to timely perform
their obligations could significantly harm our product development.
We have limited research or development staff and do not have dedicated research or development facilities. We rely on third parties and independent
contractors such as researchers at CROs and universities in certain areas that are particularly relevant to our research and product development plans. We
engage such researchers to conduct our preclinical studies, clinical trials and associated tests. These outside contractors are not our employees and may
terminate their engagements with us at any time. In addition, we have limited control over the resources that these contractors devote to our programs and
they may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. There is
also competition for these relationships, and we may not be able to maintain our relationships with our contractors on acceptable terms. If our third-party
contractors do not carry out their duties under their agreements with us, fail to inform us if our clinical trials fail to comply with clinical trial protocols or fail to
meet expected deadlines, our ability to develop our product candidates and obtain regulatory approval on a timely basis, if at all, may be materially adversely
affected.
Production and supply of our product candidates depend on contract manufacturers over whom we have no control.
We do not have the facilities to manufacture bremelanotide, the autoinjector component of our bremelanotide combination product, PL-3994, PL-8177, other
melanocortin receptor agonist compounds or our other potential products. Our contract manufacturers must perform these manufacturing activities in a
manner that complies with FDA regulations. Our ability to control third-party compliance with FDA requirements will be limited to contractual remedies and
rights of inspection. The manufacturers of approved products and their manufacturing facilities will be subject to continual review and periodic inspections by
the FDA and other authorities where applicable, and must comply with ongoing regulatory requirements, including FDA regulations concerning GMP. Failure
of third-party manufacturers to comply with GMP, medical device quality systems regulations, or QSR, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in compliance with FDA regulations could delay our development programs or negatively impact our
ability to receive FDA approval of our potential products or continue marketing if they are approved. Establishing relationships with new suppliers, who must
be FDA-approved, is a time-consuming and costly process.
Use of third-party manufacturers may increase the risk that we will not have adequate suppliers of our product candidates or products.
Reliance on third-party manufacturers entails risk, to which we would not be subject if we manufactured product candidates or products ourselves, including:
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reliance on the third party for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreement by the third party because of factors beyond our control;
the possible termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or
inconvenient for us; and
drug product supplies not meeting the requisite requirements for clinical trial use.
If we are not able to obtain adequate supplies of our product candidates, it will be more difficult for us to develop our product candidates and compete
effectively. Our product candidates and any products that we and/or our potential future collaborators may develop may compete with other product
candidates and products for access to manufacturing facilities.
If we are unable to establish sales and marketing capabilities within our organization or enter into and maintain agreements with third parties to
market and sell our product candidates, we may be unable to generate product revenue.
We do not currently have any experience in sales, marketing and distribution of pharmaceutical products. We will need to establish sales and marketing
capabilities within our organization or establish and maintain agreements with third parties to market and sell our product candidates. We do not have
marketing partners for any of our products, including bremelanotide and PL-3994. If any of these products are approved by the FDA or other regulatory
authorities, we must either develop marketing, distribution and selling capacity and expertise, which will be costly and time consuming, or enter into
agreements with other companies to provide these capabilities. We may not be
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able to enter into suitable agreements on acceptable terms, if at all. Engaging a third party to perform these services could delay the commercialization of
any of our product candidates, if approved for commercial sale. If we are unable to establish adequate sales, marketing and distribution capabilities, whether
independently or with third parties, we may not be able to generate product revenue and our business would suffer. In addition, if we enter into
arrangements with third parties to perform sales, marketing and distribution services, our product revenues are likely to be lower than if we could market and
sell any products that we develop ourselves.
Our ability to achieve revenues from the sale of our products in development will depend, in part, on our ability to obtain adequate
reimbursement from Medicare, Medicaid, private insurers and other healthcare payers.
Our ability to successfully commercialize our products in development will depend, in significant part, on the extent to which we or our marketing partners
can obtain reimbursement for our products and also reimbursement at appropriate levels for the cost of our products. Obtaining reimbursement from
governmental payers, insurance companies, HMOs and other third-party payers of healthcare costs is a time-consuming and expensive process. There is no
guarantee that our products will ultimately be reimbursed. There is significant uncertainty concerning third-party reimbursement for the use of any
pharmaceutical product incorporating new technology and third-party reimbursement might not be available for our proposed products once approved, or if
obtained, might not be adequate.
There is significant uncertainty concerning the extent and scope of third-party reimbursement for products treating FSD. Based on third-party reimbursement
for approved products treating ED, we believe bremelanotide for FSD will be classified as a Tier 3 drug, so that reimbursement will be limited for
bremelanotide for treatment of FSD, assuming the product is approved by the FDA. If we are able to obtain reimbursement, continuing efforts by
governmental and third-party payers to contain or reduce costs of healthcare may adversely affect our future revenues and ability to achieve profitability.
Third-party payers are increasingly challenging the prices charged for diagnostic and therapeutic products and related services. Reimbursement from
governmental payers is subject to statutory and regulatory changes, retroactive rate adjustments, administrative rulings and other policy changes, all of which
could materially decrease the range of products for which we are reimbursed or the rates of reimbursement by government payers. In addition, recent
legislation reforming the healthcare system may result in lower prices or the actual inability of prospective customers to purchase our products in
development. The cost containment measures that healthcare payers and providers are instituting and the effect of any healthcare reform could materially
and adversely affect our ability to operate profitably. Furthermore, even if reimbursement is available, it may not be available at price levels sufficient for us to
realize a positive return on our investment, which would have a material adverse effect on our business, financial condition and results of operations.
Even if we receive regulatory approval for our products in Europe, we may not be able to secure adequate pricing and reimbursement in Europe
for us or any strategic partner to achieve profitability.
Even if one or more of our products are approved in Europe, we may be unable to obtain appropriate pricing and reimbursement for such products. In most
European markets, demand levels for healthcare in general and for pharmaceuticals in particular are principally regulated by national governments.
Therefore, pricing and reimbursement for our products will have to be negotiated on a “Member State by Member State” basis according to national rules, as
there does not exist a centralized European process. As each Member State has its own national rules governing pricing control and reimbursement policy for
pharmaceuticals, there are likely to be uncertainties attaching to the review process, and the level of reimbursement that national governments are prepared
to accept. In the current economic environment, governments and private payers or insurers are increasingly looking to contain healthcare costs, including
costs on drug therapies. If we are unable to obtain adequate pricing and reimbursement for our products in Europe, we or a potential strategic partner or
collaborator may not be able to cover the costs necessary to manufacture, market and sell the product, limiting or preventing our ability to achieve
profitability.
We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products entails an inherent risk of product liability. If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit commercialization of our products or cease clinical trials. Our inability to obtain sufficient
product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with corporate collaborators. We currently carry liability insurance as to certain clinical trial risks. We, or any
corporate collaborators, may not in the future be able to obtain insurance at a reasonable cost or in sufficient amounts, if at all. Even if our agreements with
any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
We are subject to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we do not fully comply
with such laws.
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We are subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business.
These health care laws and regulations include, for example:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing
remuneration, directly or indirectly, in return for or to induce either the referral of an individual for, or the purchase order or recommendation of, any
item or services for which payment may be made under a federal health care program such as the Medicare and Medicaid programs;
the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits physicians from referring Medicare or Medicaid
patients to providers of “designated health services” with whom the physician or a member of the physician’s immediate family has an ownership
interest or compensation arrangement, unless a statutory or regulatory exception applies;
federal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which may apply to entities like us to the extent that
our interactions with customers may affect their billing or coding practices; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services
reimbursed by any third-party payer, including commercial insurers.
If our operations are found to be in violation of any of these laws and regulations, we may be subject to any applicable penalty associated with the violation,
including civil and criminal penalties, damages and fines, and/or exclusion from participation in Medicare, Medi-Cal or other state or federal health care
programs, we could be required to refund payments received by us, and we could be required to curtail or cease our operations. Any of the foregoing
consequences could have a material adverse effect on our business, results of operations and financial condition.
We are highly dependent on our management team, senior staff professionals and third-party contractors and consultants, and the loss of their
services could materially adversely affect our business.
We rely on our relatively small management team and staff as well as various contractors and consultants to provide critical services. Our ability to execute
our clinical programs for bremelanotide and PL-3994 and our preclinical programs for MC1r and MC4r peptide drug candidates depends on our continued
retention and motivation of our management and senior staff professionals, including executive officers and senior members of product development and
management who possess significant technical expertise and experience and oversee our development programs. If we lose the services of existing key
personnel, our development programs could be adversely affected if suitable replacement personnel are not recruited quickly. Our success also depends on
our ability to develop and maintain relationships with contractors, consultants and scientific advisors.
There is competition for qualified personnel, contractors and consultants in the pharmaceutical industry, which makes it difficult to attract and retain the
qualified personnel, contractors and consultants necessary for the development and growth of our business. Our failure to attract and retain such personnel,
contractors and consultants could have a material adverse effect on our business, results of operations and financial condition.
We will need to hire additional employees in order to commercialize our product candidates in the future. Any inability to manage future growth
could harm our ability to commercialize our product candidates, increase our costs and adversely impact our ability to compete effectively.
In order to commercialize our product candidates in the future, we will need to hire experienced sales and marketing personnel to sell and market those
product candidates we decide to commercialize, and we will need to expand the number of our managerial, operational, financial and other employees to
support commercialization. Competition exists for qualified personnel in the biopharmaceutical field.
Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate
additional employees. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in
part, on our ability to manage any future growth effectively.
Because we do not expect bremelanotide for the treatment of FSD to be substantially reimbursed by any government or third-party payer, demand
for this product will be tied to discretionary spending levels of our targeted patient population and particularly affected by unfavorable economic
conditions.
The market for FSD may be particularly vulnerable to unfavorable economic conditions. We do not expect bremelanotide for the treatment of FSD to be
substantially reimbursed by any government or third-party payer and, as a result, demand for this product will be tied to discretionary spending levels of our
targeted patient population. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or
prolonged economic downturn could result in a variety of risks to our business, including weakened
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demand for bremelanotide for FSD or any future product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms,
if at all. This is particularly true in Europe, which is undergoing a continued severe economic crisis. A weak or declining economy could also strain our
suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our
business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our
business.
Risks Related to Government Regulation
Both before and after marketing approval, our product candidates are subject to ongoing regulatory requirements and, if we fail to comply with
these continuing requirements, we could be subject to a variety of sanctions and the sale of any approved commercial products could be
suspended.
Both before and after regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, adverse event reporting, storage,
advertising and promotion and record keeping related to the product candidates are subject to extensive regulatory requirements. If we fail to comply with the
regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities, we could be subject to administrative or judicially imposed
sanctions, including:
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restrictions on the products or manufacturing process;
warning letters;
civil or criminal penalties;
fines;
injunctions;
imposition of a Corporate Integrity Agreement requiring heightened monitoring of our compliance functions, overseen by outside monitors, and
enhanced reporting requirements to, and oversight by, the FDA and other government agencies;
product seizures or detentions and related publicity requirements;
suspension or withdrawal of regulatory approvals;
regulators or IRBs may not authorize us or any potential future collaborators to commence a clinical trial or conduct a clinical trial at a prospective
trial site;
total or partial suspension of production; and
refusal to approve pending applications for marketing approval of new product candidates.
Changes in the regulatory approval policy during the development period, changes in or the enactment of additional regulations or statutes, or changes in
the regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Even if the FDA approves a
product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing
and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and
clinical trials. The approval may also impose risk evaluation mitigation strategies, or REMS, on a product if the FDA believes there is a reason to monitor the
safety of the drug in the marketplace. REMS may include requirements for additional training for health care professionals, safety communication efforts and
limits on channels of distribution, among other things. The sponsor would be required to evaluate and monitor the various REMS activities and adjust them if
need be. The FDA also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product
approval.
Furthermore, the approval procedure and the time required to obtain approval varies among countries and can involve additional testing beyond that required
by the FDA. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. The FDA has substantial
discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional
preclinical, clinical or other studies.
In addition, varying interpretations of the data obtained for preclinical and clinical testing could delay, limit or prevent regulatory approval of a product
candidate. Even if we submit an application to the FDA for marketing approval of a product candidate, it may not result in marketing approval from the FDA.
We do not expect to receive regulatory approval for the commercial sale of any of our product candidates that are in development in the near future, if at all.
The inability to obtain FDA approval or approval from comparable authorities in other countries for our product candidates would prevent us or any potential
future collaborators from commercializing these product candidates in the United States or other countries.
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We may not be able to obtain regulatory approval of bremelanotide for FSD even if the product is effective in treating FSD.
Clinical drug development programs for our product candidates are very expensive, time-consuming, difficult to design and implement and their outcome is
inherently uncertain. Approval of bremelanotide for treatment of FSD in premenopausal women requires a determination by the FDA that the product is both
safe and effective. Our Phase 2B clinical trials for FSD demonstrated an acceptable safety profile and, at selected doses, statistically significant efficacy.
However, the FDA may ultimately disagree with our definition of efficacy in FSD, our clinical trial designs, or our interpretation of our clinical trial results.
Moreover, results obtained in Phase 3 clinical trials may be inconsistent with results obtained in our Phase 2B trials, and may demonstrate either an
unacceptable safety profile or insufficient efficacy. It is also possible that safety or efficacy results obtained in Phase 3 clinical trials will be inconclusive. It is
not possible to predict, with any assurance, whether the FDA will approve bremelanotide for any indications. The FDA may deny or delay approval of any
application for bremelanotide if the FDA determines that the clinical data do not adequately establish the safety of the drug even if efficacy is established. If
FDA approves bremelanotide, the approved labeling of the product may be limited or restricted in such ways as to inhibit or prevent the successful market
acceptance and profitability of the product. Bremelanotide could take a significantly longer time to obtain approval than we expect and it may never gain
approval. If regulatory approval of bremelanotide is delayed, limited or never obtained, our business, financial condition and results of operations would be
materially adversely affected.
The regulatory approval process is lengthy, expensive and uncertain, and may prevent us from obtaining the approvals that we require.
Government authorities in the United States and other countries extensively regulate the advertising, labeling, storage, record-keeping, safety, efficacy,
research, development, testing, manufacture, promotion, marketing and distribution of drug products. Drugs are subject to rigorous regulation in the United
States by the FDA and similar regulatory bodies in other countries. The steps ordinarily required by the FDA before a new drug may be marketed in the
United States include:
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completion of non-clinical tests including preclinical laboratory and formulation studies and animal testing and toxicology;
submission to the FDA of an Investigational New Drug, or IND, application, which must become effective before clinical trials may begin, and which
may be placed on “clinical hold” by the FDA, meaning the trial may not commence, or must be suspended or terminated prior to completion;
performance of adequate and well-controlled Phase 1, 2 and 3 human clinical trials to establish the safety and efficacy of the drug for each proposed
indication, and potentially post-approval or Phase 4 studies to further define the drug’s efficacy and safety, generally or in specific patient
populations;
submission to the FDA of a New Drug Application, or NDA, that must be accompanied by a substantial “user fee” payment;
FDA review and approval of the NDA before any commercial marketing or sale; and
compliance with post-approval commitments and requirements.
Satisfaction of FDA pre-market approval requirements for new drugs typically takes a number of years and the actual time required for approval may vary
substantially based upon the type, complexity and novelty of the product or disease to be treated by the drug. The results of product development, preclinical
studies and clinical trials are submitted to the FDA as part of an NDA. The NDA also must contain extensive manufacturing information, demonstrating
compliance with applicable GMP requirements. Once the submission has been accepted for filing, the FDA generally has ten months to review the
application and respond to the applicant. Such response may be an approval, or may be a “complete response letter” outlining additional data or steps that
must be completed prior to further FDA review of the NDA. The review process is often significantly extended by FDA requests for additional information or
clarification. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical trials is not always
conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. The FDA may refer the NDA to an
advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA is not bound by the
recommendation of the advisory committee. The FDA may deny or delay approval of applications that do not meet applicable regulatory criteria or if the FDA
determines that the clinical data do not adequately establish the safety and efficacy of the drug. Therefore, our proposed products could take a significantly
longer time than we expect or may never gain approval. If regulatory approval is delayed or never obtained, our business, financial condition and results of
operations would be materially adversely affected.
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Some of our products or product candidates, including bremelanotide, may be used in combination with a drug delivery device, such as an injector or other
delivery system. Medical products containing a combination of new drugs, biological products or medical devices are regulated as “combination products” in
the United States. A combination product generally is defined as a product comprised of components from two or more regulatory categories (e.g.,
drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of
component, whether a new drug, biologic or device. In order to facilitate pre-market review of combination products, the FDA designates one of its centers to
have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action
of the combination product. The determination whether a product is a combination product or two separate products is made by the FDA on a case-by-case
basis. Our product candidates intended for use with such devices, or expanded indications that we may seek for our products used with such devices, may
not be approved or may be substantially delayed in receiving approval if the devices do not gain and/or maintain their own regulatory approvals or
clearances. Where approval of the drug product and device is sought under a single application, the increased complexity of the review process may delay
approval. In addition, because these drug delivery devices are provided by single source unaffiliated third-party companies, we are dependent on the
sustained cooperation and effort of those third-party companies both to supply the devices, maintain their own regulatory compliance, and, in some cases, to
conduct the studies required for approval or other regulatory clearance of the devices. We are also dependent on those third-party companies continuing to
maintain such approvals or clearances once they have been received. Failure of third-party companies to supply the devices, to successfully complete
studies on the devices in a timely manner, or to obtain or maintain required approvals or clearances of the devices, and maintain compliance with all
regulatory requirements, could result in increased development costs, delays in or failure to obtain regulatory approval and delays in product candidates
reaching the market or in gaining approval or clearance for expanded labels for new indications.
Upon approval, a product candidate may be marketed only in those dosage forms and for those indications approved by the FDA. Once approved, the FDA
may withdraw the product approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the
marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase 4 studies, to monitor the approved products in a specific subset
of patients or a larger number of patients than were required for product approval and may limit further marketing of the product based on the results of these
post-market studies. The FDA has broad post-market regulatory and enforcement powers, including the ability to seek injunctions, levy fines and civil
penalties, criminal prosecution, withdraw approvals and seize products or request recalls.
If regulatory approval of any of our product candidates is granted, it will be limited to certain disease states or conditions, patient populations, duration or
frequency of use, and will be subject to other conditions as set forth in the FDA-approved labeling. Adverse experiences with the product must be reported to
the FDA and could result in the imposition of market restriction through labeling changes or in product removal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.
Outside the United States, our ability to market our product candidates will also depend on receiving marketing authorizations from the appropriate regulatory
authorities. The foreign regulatory approval process generally includes all of the risks associated with FDA approval described above. The requirements
governing the conduct of clinical trials and marketing authorization vary widely from country to country. At present, foreign marketing authorizations are
applied for at a national level, although within the European Community, or EC, registration procedures are available to companies wishing to market a
product to more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficiency has been
presented, a marketing authorization will be granted. If we do not obtain, or experience difficulties in obtaining, such marketing authorizations, our business,
financial condition and results of operations may be materially adversely affected.
Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or
approval of bremelanotide for FSD or any future product candidates and to produce, market and distribute our products after clearance or
approval is obtained.
From time to time, legislation is drafted and introduced in Congress, and court decisions are issued, that could significantly change the statutory provisions
governing the regulatory clearance or approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations
and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or
revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of bremelanotide for FSD or any future product
candidates. We cannot determine what effect changes in regulations, statutes, court decisions, legal interpretation or policies, when and if promulgated,
enacted, issued or adopted may have on our business in the future. Such changes could, among other things:
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require recall, replacement or discontinuance of one or more of our products;
require additional recordkeeping;
limit or restrict our ability to engage in certain types of marketing or promotional activities;
alter or eliminate the scope or terms of any currently available regulatory exclusivities; and
restrict or eliminate our ability to settle any patent litigation we may bring against potential generic competitors.
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or
failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition and results of operations.
Changes in healthcare policy could adversely affect our business.
U.S. and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. For example, the Medicare Prescription
Drug Improvement and Modernization Act of 2003, or MMA, expanded Medicare coverage for drugs purchased by Medicare beneficiaries and introduced
new reimbursement methodologies. In addition, this law provided authority for limiting the number of drugs that will be covered in any therapeutic class. We
do not know what impact the MMA and similar laws will have on the availability of coverage for and the price that we receive for any approved products.
Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare policies in setting their own
reimbursement policies, and any reduction in reimbursement that results from the MMA may result in similar reductions by private payers.
In March 2010, the President signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability
Reconciliation Act, together the Affordable Care Act or ACA. This law is expected to result in an increase in the number of people who are covered by both
public and private insurance and is also expected to substantially change the way health care is financed by both government health program and private
insurers, and significantly impact the pharmaceutical industry. The ACA contains a number of provisions that may impact our business and operations in
ways that may negatively affect our potential revenues in the future. For example, the ACA imposes a non-deductible excise tax on pharmaceutical
manufacturers or importers that sell branded prescription drugs to U.S. government programs which we believe will increase the cost of any products that we
develop. Moreover, the ACA established a 2.3% medical device excise tax on certain transactions, including many United States sales of medical devices,
which currently includes, and we expect will continue to include, United States sales of drug/device combination products. In addition, as part of the ACA’s
provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program (commonly known as the “donut hole”), we will be
required to provide a 50% discount on any branded prescription drugs that we develop sold to beneficiaries who fall within the donut hole. While it is too early
to predict all of the specific effects the ACA or any future healthcare reform legislation will have on our business, they could have a material adverse effect on
our business and financial condition.
The availability of government reimbursement for prescription drugs is also likely to be impacted by the Budget Control Act of 2011, which was signed into
law on August 2, 2011. This law is expected to result in federal spending cuts totaling between $1.2 trillion and $1.5 trillion over the next decade over half of
which will include cuts in Medicare and other health related spending.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual
property rights would diminish.
Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of third parties. We cannot predict:
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the degree and range of protection any patents will afford us against competitors, including whether third parties will find ways to invalidate or
otherwise circumvent our patents;
if and when patents will be issued;
whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; and
whether we will need to initiate litigation or administrative proceedings, which may be costly whether we win or lose.
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If our products, methods, processes and other technologies infringe the proprietary rights of other parties we could incur substantial costs and we may have
to:
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obtain licenses, which may not be available on commercially reasonable terms, if at all;
redesign our products or processes to avoid infringement;
stop using the subject matter claimed in the patents held by others;
pay damages; or
defend litigation or administrative proceedings, which may be costly whether we win or lose, and which could result in a substantial diversion of our
management resources.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could
be expensive and time consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement
claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in
an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer
are not satisfied.
An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and
could put our patent applications at risk of not issuing.
Interference, derivation or other proceedings brought at the United States Patent and Trademark Office, or USPTO, may be necessary to determine the
priority or patentability of inventions with respect to our patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings
brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent
office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or collaborators, to
prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk
that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of
this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments
or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly
harmed.
If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.
Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or
controlled by other parties. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted
against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us
to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development,
manufacturing or sales of the product or product candidate that is the subject of the suit.
As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may
not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or
both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately,
we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened
patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In addition
to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation or post-grant
proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current
or future products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors
may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources.
Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could
have a material adverse effect on our business, financial condition or results of operations.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual
property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign
countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and in some cases may even force us to
grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in
all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products
may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of
certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly
those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other
remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign
intellectual property laws.
If we are unable to keep our trade secrets confidential, our technologies and other proprietary information may be used by others to compete
against us.
In addition to our reliance on patents, we attempt to protect our proprietary technologies and processes by relying on trade secret laws and agreements with
our employees and other persons who have access to our proprietary information. These agreements and arrangements may not provide meaningful
protection for our proprietary technologies and processes in the event of unauthorized use or disclosure of such information. In addition, our competitors may
independently develop substantially equivalent technologies and processes or gain access to our trade secrets or technology, either of which could
materially and adversely affect our competitive position.
Risks Related to Obligations in Our 2012, 2014 and 2015 Private Placements
Under agreements relating to our 2012, 2014 and 2015 private placements, we are required to allow purchasers in the 2012, 2014 and 2015 private
placements to participate in certain future equity and debt financings, which may restrict our ability to raise funds on acceptable terms, or at all.
For six years after our 2012 private placement, unless the purchasers own less than 20% of our outstanding common stock calculated as if the warrants were
exercised, and for four years after our 2014 and 2015 private placements, unless the FDA earlier approves bremelanotide for FSD, the purchasers have the
right of first negotiation on any subsequent equity or debt financing. Under our 2012 private placement, if we do not agree to terms of a financing with the
purchasers, and negotiate with a third party on a financing, we must offer to sell to the purchasers at least 55% of the financing, and the purchasers may
elect to purchase all or a portion of the financing. Under our 2014 and 2015 private placements, if we do not agree to terms of a financing with the
purchasers, depending on pricing of the financing, the purchasers have the right to purchase between 83.5% and all of the financing. We will require
significant additional resources and capital for our Phase 3 bremelanotide clinical trial program and other clinical trial programs. The right of first negotiation
and right of participation granted to the purchasers in our 2012, 2014 and 2015 private placements may make it more difficult to raise additional funding
through public or private equity or debt financings or other sources. Such funding may not be available on acceptable terms, or at all.
Under agreements relating to our 2012, 2014 and 2015 private placements, so long as any Series A 2012, Series B 2012, Series C 2014 and Series
E 2015 warrants are outstanding, we are required to redeem such warrants at the option of the holders in the event of any takeover, change of
control or other fundamental transaction which we permit.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Under the purchase agreements and forms of warrants for our 2012, 2014 and 2015 private placements, if we permit, make or allow a takeover, change of
control or other fundamental transaction, including any transfer of all or substantially all of our properties or assets, then so long as any warrants remain
outstanding we are required, as elected by the warrant holders, to pay such holders a warrant early termination price tied to the greater of the then market
price of our common stock or the amount per share paid to any other person. The application of these provisions could adversely affect our financial position
and have the effect of delaying or preventing a change of control or other fundamental transaction, which could adversely affect the market price of our
common stock, and could make any potential acquisition or change of control more costly.
Under agreements relating to our 2012, 2014 and 2015 private placements, so long as any Series A 2012, Series B 2012, Series C 2014 and Series
E 2015 warrants are outstanding, we are required to oppose any takeover or change of control that does not provide specified rights to holders of
such warrants.
Under the purchase agreements and forms of warrants for our 2012, 2014 and 2015 private placements, so long as any warrants remain outstanding we are
required to (i) not permit, (ii) take necessary action to prevent both the occurrence or consummation of, and (iii) not be a party to any fundamental
transaction, change of control or similar event unless contractually-specified rights are provided with respect to payment of a warrant early termination price
tied to the greater of the then market price of our common stock or the amount per share paid to any other person.
We are also required, subject to the exercise by our board of its fiduciary duties, to take all reasonable efforts to adopt a poison pill or any other anti-takeover
provision or method necessary to prevent the fundamental transaction, change of control or similar event. The application of these provisions could have the
effect of delaying or preventing a change of control or other fundamental transaction, which could adversely affect the market price of our common stock, and
could make any potential acquisition or change of control more costly.
Risks Related to the Ownership of Our Common Stock
Our stock price is volatile and may fluctuate in a way that is disproportionate to our operating performance and we expect it to remain volatile,
which could limit investors’ ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time or to plan
purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to:
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publicity regarding actual or potential clinical results relating to products under development by our competitors or us;
delay or failure in initiating, completing or analyzing preclinical or clinical trials or unsatisfactory designs or results of these trials;
interim decisions by regulatory agencies, including the FDA, as to clinical trial designs, acceptable safety profiles and the benefit/risk ratio of products
under development;
achievement or rejection of regulatory approvals by our competitors or by us;
announcements of technological innovations or new commercial products by our competitors or by us;
developments concerning proprietary rights, including patents;
developments concerning our collaborations;
regulatory developments in the United States and foreign countries;
economic or other crises and other external factors;
period-to-period fluctuations in our revenue and other results of operations;
changes in financial estimates by securities analysts; and
sales of our common stock (or the perception that such sales could occur).
We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance. If our revenues, if any, in any particular period do not meet expectations, we may not be able to adjust our expenditures
in that period, which could cause our operating results to suffer further. If our operating results in any future period fall below the expectations of securities
analysts or investors, our stock price may fall by a significant amount.
For the 12-month period ended June 30, 2015, the price of our stock has been volatile, ranging from a high of $1.58 per share to a low of $0.59 per share. In
addition, the stock market in general, and the market for biotechnology companies in particular, has experienced extreme price and volume fluctuations that
may have been unrelated or disproportionate to the operating performance of individual companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our operating performance.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. We can provide no assurance
that we will, at all times, in the future be able to report that our internal controls over financial reporting are effective.
Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of Sarbanes-Oxley. Section 404 requires management
to establish and maintain a system of internal control over financial reporting, and annual reports on Form 10-K filed under the Securities Exchange Act of
1934, as amended, or the Exchange Act, must contain a report from management assessing the effectiveness of a company’s internal control over financial
reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a
timely basis will be a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and
accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and
financial condition, and could cause the trading price of our common stock to fall dramatically.
If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume
could decline.
As a smaller company, it may be difficult for us to attract or retain the interest of equity research analysts. A lack of research coverage may adversely affect
the liquidity of and market price of our common stock. We do not have any control of the equity research analysts or the content and opinions included in
their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or
research. If one or more equity research analysts ceases coverage of our company, or fails to publish reports on us regularly, demand for our stock could
decrease, which in turn could cause our stock price or trading volume to decline.
Holders of our preferred stock may have interests different from our common stockholders.
We are permitted under our certificate of incorporation to issue up to 10,000,000 shares of preferred stock. We can issue shares of our preferred stock in one
or more series and can set the terms of the preferred stock without seeking any further approval from our common stockholders. 4,030 shares of our Series A
Preferred Stock remain outstanding as of September 17, 2015. Each share of Series A Preferred Stock is convertible at any time, at the option of the holder,
and such conversion could dilute the value of our common stock to current stockholders and could adversely affect the market price of our common stock.
The conversion price decreases if we sell common stock (or equivalents) for a price per share less than the conversion price or less than the market price of
the common stock and is also subject to adjustment upon the occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or stock
split which results in an increase or decrease in the number of shares of common stock outstanding. Upon (i) liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, (ii) sale or other disposition of all or substantially all of the assets of the Company, or (iii) any consolidation,
merger, combination, reorganization or other transaction in which the Company is not the surviving entity or in which the shares of common stock constituting
in excess of 50% of the voting power of the Company are exchanged for or changed into other stock or securities, cash and/or any other property, after
payment or provision for payment of the debts and other liabilities of the Company, the holders of Series A Preferred Stock will be entitled to receive, pro rata
and in preference to the holders of any other capital stock, an amount per share equal to $100 plus accrued but unpaid dividends, if any. Any preferred stock
that we issue may rank ahead of our common stock in terms of dividend priority or liquidation premiums and may have greater voting rights than our common
stock.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be your
sole source of gains.
We do not anticipate paying any cash dividends in the foreseeable future and intend to retain future earnings, if any, for the development and expansion of
our business. Our outstanding Series A Preferred Stock, consisting of 4,030 shares on September 17, 2015, provides that we may not pay a dividend or
make any distribution to holders of any class of stock unless we first pay a special dividend or distribution of $100 per share to the holders of the Series A
Preferred Stock. In addition, the terms of existing or future agreements may limit our ability to pay dividends. As a result, capital appreciation, if any, of our
common stock will be your sole source of gain for the foreseeable future.
Anti-takeover provisions of Delaware law and our charter documents may make potential acquisitions more difficult and could result in the
entrenchment of management.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our charter documents may make a change in control or efforts to remove
management more difficult. Also, under Delaware law, our board of directors may adopt additional anti-takeover measures. Under Section 203 of the
Delaware General Corporation Law, a corporation may not engage in a business combination with an “interested stockholder” for a period of three years
after the date of the transaction in which the person first becomes an “interested stockholder,” unless the business combination is approved in a prescribed
manner.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We are authorized to issue up to 300,000,000 shares of common stock. To the extent that we sell or otherwise issue authorized but currently unissued
shares, this could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock.
Our charter authorizes us to issue up to 10,000,000 shares of preferred stock and to determine the terms of those shares of stock without any further action
by our stockholders. If we exercise this right, it could be more difficult for a third party to acquire a majority of our outstanding voting stock.
In addition, our equity incentive plans generally permit us to accelerate the vesting of options and other stock rights granted under these plans in the event of
a change of control. If we accelerate the vesting of options or other stock rights, this action could make an acquisition more costly.
The application of these provisions could have the effect of delaying or preventing a change of control, which could adversely affect the market price of our
common stock.
As of September 17, 2015 there were 121,227,517 shares of common stock underlying outstanding convertible preferred stock, options, restricted
stock units and warrants. Stockholders may experience dilution from the conversion of preferred stock, exercise of outstanding options and
warrants and vesting of restricted stock units.
As of September 17, 2015, holders of our outstanding dilutive securities had the right to acquire the following amounts of underlying common stock:
•
•
•
•
60,592 shares issuable on the conversion of immediately convertible Series A Convertible preferred stock, subject to adjustment, for no further
consideration;
5,077,290 shares issuable on the exercise of stock options, at exercise prices ranging from $0.60 to $24.90 per share;
1,028,017 shares issuable under restricted stock units which vest on dates between June 11, 2016 and June 11, 2019, subject to the fulfillment of
service conditions; and
115,061,618 shares issuable on the exercise of warrants at exercise prices ranging from $0.01 to $1.00 per share.
If the holders convert, exercise or receive these securities, or similar dilutive securities we may issue in the future, stockholders may experience dilution in
the net book value of their common stock. In addition, the sale or availability for sale of the underlying shares in the marketplace could depress our stock
price. We have registered or agreed to register for resale substantially all of the underlying shares listed above. Holders of registered underlying shares could
resell the shares immediately upon issuance, which could result in significant downward pressure on our stock price.
Our failure to meet the continued listing requirements of the NYSE MKT could result in a de-listing of our common stock.
Our common shares are listed on the NYSE MKT, a national securities exchange, under the symbol “PTN”. Although we currently meet the NYSE MKT’s
listing standards, which generally mandate that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value
of publicly held shares and distribution requirements, we cannot assure you that we will be able to continue to meet the NYSE MKT’s listing requirements. If
we fail to satisfy the continued listing requirements of the NYSE MKT, such as the corporate governance requirements or the minimum closing bid price
requirement, the NYSE MKT may take steps to de-list our common stock. If the NYSE MKT delists our securities for trading on its exchange, we could face
significant material adverse consequences, including:
•
•
•
•
•
a limited availability of market quotations for our securities;
reduced liquidity with respect to our securities;
a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to
more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
a limited amount of news and analyst coverage for our company; and
a decreased ability to issue additional securities or obtain additional financing in the future.
Such a de-listing would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock
when you wish to do so. In the event of a de-listing, we may take actions to restore our compliance with the NYSE MKT’s listing requirements, but we can
provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
improve the liquidity of our common stock, prevent our common stock from dropping below the NYSE MKT minimum bid price requirement or prevent future
non-compliance with the NYSE MKT’s listing requirements.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain
securities, which are referred to as “covered securities.” Our common shares are considered to be covered securities because they are listed on the NYSE
MKT. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there
is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case.
Further, if we were no longer listed on the NYSE MKT, our common stock would not be covered securities and we would be subject to regulation in each
state in which we offer our securities.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate offices are located at 4B Cedar Brook Drive, Cedar Brook Corporate Center, Cranbury, NJ 08512, where we lease approximately 10,000
square feet of office space under a lease that expires in June 2020. We also lease approximately 1,000 square feet of laboratory space in the Township of
South Brunswick, NJ, under a lease that expires in July 2016. We believe our present facilities are adequate for our current needs. We do not own any real
property.
Item 3. Legal Proceedings
We are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of our business. We are not currently a party to any
claim or legal proceeding.
Item 4. Mine Safety Disclosures
Not applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The table below provides, for the fiscal quarters indicated, the reported high and low sales prices for our common stock on the NYSE MKT since July 1,
2013.
PART II
FISCAL YEAR ENDED JUNE 30, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
FISCAL YEAR ENDED JUNE 30, 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
HIGH
LOW
$
$
1.58
1.34
0.93
1.28
1.43
1.50
0.83
0.76
0.85
0.65
0.59
0.82
0.97
0.73
0.56
0.59
LOW
HIGH
Our common stock has been listed on NYSE MKT under the symbol “PTN” since December 21, 1999. It previously traded on The Nasdaq SmallCap Market
under the symbol “PLTN.”
On September 17, 2015, we had approximately 158 record holders of common stock and the closing sales price of our common stock as reported on the
NYSE MKT was $0.88 per share.
Issuer purchases of equity securities. We have not and do not currently intend to retire or repurchase any of our capital securities other than providing our
employees with the option to withhold shares to satisfy tax withholding amounts due from employees upon the vesting of restricted stock units in connection
with our 2011 Stock Incentive Plan. The following 136,884 shares were withheld during the quarter ended June 30, 2015 at the direction of the employees as
permitted under the 2011 Stock Incentive Plan in order to pay the minimum amount of tax liability owed by the employee from the vesting of those units:
Total Number of
Shares Purchased (1)
Weighted Average
Price Paid per
Share
-
240
136,644
136,884
-
1.04
0.92
0.92
$
$
$
Period
April
1-30,
2015
May 1-
31,
2015
June
1-30,
2015
Total
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
-
-
-
-
Maximum
Number
of Shares that
May Yet be
Purchased
Under
Announced
Plans or
Programs
-
-
-
-
(1) Consists solely of 136,884 shares that were withheld to satisfy tax withholding amounts due from employees upon the vesting of previously issued
restricted stock units.
Dividends and dividend policy. We have never declared or paid any dividends. We currently intend to retain earnings, if any, for use in our business. We do
not anticipate paying dividends in the foreseeable future.
Dividend restrictions. Our outstanding Series A Preferred Stock, consisting of 4,030 shares on September 17, 2015, provides that we may not pay a dividend
or make any distribution to holders of any class of stock unless we first pay a special dividend or distribution of $100 per share to the holders of the Series A
Preferred Stock.
Equity Compensation Plan Information. Reference is made to the information contained in the Equity Compensation Plan table contained in Item 12 of this
Annual Report.
Item 6. Selected Financial Data.
Not Applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 on Form 10-K immediately prior to Part I, under the
heading “Forward-Looking Statements.” Forward-looking statements are subject to risks and uncertainties 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 on Form 10-K, 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 charges are the most critical.
Revenue Recognition.
Revenue resulting from license fees is recognized upon delivery of the license for the portion of the license fee payment that is non-contingent and non-
refundable, if the license has standalone value. Revenue resulting from the achievement of development milestones is recorded in accordance with the
accounting guidance for the milestone method of revenue recognition. Revenue resulting from the achievement of sales milestone events is recognized when
the milestone is achieved. Revenue from royalties is recorded when earned.
Accrued Expenses.
Third parties perform a significant portion of our development activities. We review the activities performed under significant 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.
The fair value of stock options granted has been calculated using the Black-Scholes option pricing model, which requires us to make estimates of expected
volatility and expected option lives. We estimate these factors at the time of grant based on our own prior experience, public sources of information and
information for comparable companies. The amount of recorded compensation related to an option grant is not adjusted for subsequent changes in these
estimates or for actual experience. The amount of our recorded compensation is also dependent on our estimates of future option forfeitures. If we initially
over-estimate future forfeitures, our reported expenses will be understated until such time as we adjust our estimate. Changes in estimated forfeitures will
affect our reported expenses in the period of change and future periods.
The amount and timing of compensation expense to be recorded in future periods related to grants of restricted stock units may be affected by employment
terminations. As a result, stock-based compensation charges may vary significantly from period to period.
Results of Operations
Year Ended June 30, 2015 Compared to the Year Ended June 30, 2014:
Revenue – For the fiscal year ended June 30, 2015 (fiscal 2015), we recognized $13.0 million in revenue pursuant to our license, co-development and
commercialization agreement with Gedeon Richter. We did not recognize any revenue for the fiscal year ended June 30, 2014 (fiscal 2014).
In August 2014, we entered into a license, co-development and commercialization agreement with Gedeon Richter, which provided for $9.8 million in upfront
payments. The non-refundable portion of the upfront payment, $4.9 million, was recorded as revenue in the three months ended September 30, 2014 and
the remaining balance was recorded as revenue in the three months ended December 31, 2014, which became non-refundable upon initiation of
39
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
our Phase 3 clinical trial program in the United States. We also recognized $3.1 million in the three months ended December 31, 2014 relating to the
milestone payment due upon initiation of our Phase 3 clinical trial program in the United States, which was initiated in December 2014. On September 16,
2015, we entered into a termination agreement pursuant to which we and Gedeon Richter agreed to mutually and amicably terminate the license agreement.
Research and Development – Research and development expenses were $24.6 million for fiscal 2015 compared to $10.8 million for fiscal 2014. Research
and development expenses related to our bremelanotide, PL-3994, MC1r, MC4r and other preclinical programs were $21.9 million and $7.9 million in fiscal
years 2015 and 2014, respectively. Spending to date has been primarily related our bremelanotide for the treatment of FSD program. The increase in
research and development expenses is mainly attributable to the initiation of Phase 3 clinical trials of bremelanotide for FSD. The amount of such spending
and the nature of future development activities are dependent on a number of factors, including primarily the availability of funds to support future
development activities, success of our clinical trials and preclinical and discovery programs, and our ability to progress compounds in addition to
bremelanotide and PL-3994 into human clinical trials. The amounts of project spending above exclude general research and development spending, which
were $2.7 million and $2.9 million in fiscal years 2015 and 2014, respectively.
Cumulative spending from inception to June 30, 2015 is approximately $193.4 million on our bremelanotide program and approximately $122.2 million on all
our other programs (which include PL-3994, PL-8177, other melanocortin receptor agonists, obesity, other discovery 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.
General and Administrative – General and administrative expenses, which consist mainly of compensation and related costs, were $5.7 million for fiscal 2015
compared to $5.0 million for fiscal 2014. The increase is attributable to the fair value of stock-based compensation related to restricted stock units granted in
June 2014 and amortized to expense through fiscal 2015 and increases in accounting and other professional services.
Other Income (Expense) – Other income (expense) was $(912,000) and $13,000 for fiscal 2015 and fiscal 2014, respectively. For fiscal 2015, we
recognized $35,000 of investment income offset by a $(285,000) foreign exchange transaction loss and $(662,000) of interest expense primarily related to
our venture debt. For fiscal 2014, we recognized $19,000 of investment income offset by $(6,000) of interest expense.
Income Tax Benefit – Income tax benefits of $0.5 million in fiscal 2015 and $1.8 million fiscal 2014 relate to the sale of New Jersey state net operating loss
carryforwards and tax credits. The amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the
state of New Jersey. This program enables approved, unprofitable biotechnology businesses to sell their unused Net Operating Loss Carryovers, or NOLs,
and unused Research and Development, or R&D, Tax Credits to unaffiliated, profitable corporate taxpayers in the state of New Jersey.
Year Ended June 30, 2014 Compared to the Year Ended June 30, 2013:
Revenue – For fiscal 2014, we recognized no revenue, compared to $10,000 for the fiscal year ended June 30, 2013 (fiscal 2013), pursuant to our license
agreement with AstraZeneca. Revenue consisted entirely of reimbursement of development costs and per-employee compensation, earned at the
contractual rate.
Research and Development – Research and development expenses were $10.8 million for fiscal 2014 compared to $10.5 million for fiscal 2013. Research
and development expenses related to our bremelanotide, PL-3994, peptide melanocortin agonist, obesity and other preclinical programs were $7.9 million
and $7.6 million in fiscal years 2014 and 2013, respectively. The spending was primarily related to the preparation costs of our Phase 3 studies of
bremelanotide for the treatment of FSD and secondarily to costs related to our other preclinical and development programs. The amount of such spending
and the nature of future development activities are dependent on a number of factors, including primarily the availability of funds to support future
development activities, success of our clinical trials and preclinical and discovery programs, and our ability to progress compounds in addition to
bremelanotide and PL-3994 into human clinical trials. The amounts of project spending above exclude general research and development spending, which
were $2.9 million for fiscal 2014 and fiscal 2013, respectively.
Cumulative spending from inception to June 30, 2014 on our bremelanotide, NeutroSpec (a previously marketed imaging product which has been
terminated) and other programs (which includes PL-3994, PL-8177, other melanocortin receptor agonists, obesity and other discovery programs) amounts to
approximately $170.9 million, $55.6 million and $64.5 million, respectively. 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.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
General and Administrative – General and administrative expenses were $5.0 million for fiscal 2014 compared to $5.1 million for fiscal 2013. These
expenses mainly consist of compensation and related costs.
Other Income (Expense) – Other income (expense) was $13,000 and $(7.0) million for fiscal 2014 and fiscal 2013, respectively. For fiscal 2014, we
recognized $19,000 of investment income compared to $43,000 of investment income for fiscal 2013. Fiscal 2013 other expense included the recognition of
$7.1 million non-cash charged for the increase in the fair value of warrants related to the July 3, 2012 private placement offering from $0.50 per share at date
of issuance to $0.71 per share upon shareholder approval. Because there were not sufficient authorized shares to cover all the outstanding warrants in the
private placement offering as of closing, under ASC 815, “Derivatives and Hedging,” the portion of the warrants above the then authorized level of common
stock was required to be classified as a liability and carried at fair value on our balance sheet. The fair value was calculated by multiplying the number of
shares underlying the warrants above the then authorized level of our common stock by the closing price of our common stock less the exercise price of
$0.01 per share. These warrants were liability classified through September 27, 2012, at which time the then fair value of the warrant liability was reclassified
into stockholders’ equity upon stockholder approval of the increase in authorized common stock. There were no warrants required to be liability classified or
any changes in fair value of warrants during fiscal 2014.
Income Tax Benefit – Income tax benefits of $1.8 million in fiscal 2014 and fiscal 2013, respectively, relate to the sale of New Jersey state net operating loss
carryforwards and tax credits. The amount of such losses and tax credits that we are able to sell depends on annual pools and allocations established by the
state of New Jersey. This program enables approved, unprofitable biotechnology businesses to sell their unused NOLs and unused R&D tax credits to
unaffiliated, profitable corporate taxpayers in the State of New Jersey.
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 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 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;
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 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 fiscal 2015, we used $13.4 million of cash for our operating activities, compared to $12.2 million in fiscal 2014 and $13.6 million in fiscal 2013. Higher
net cash outflows from operations in fiscal 2015 compared to fiscal 2014 were primarily the result of spending on our bremelanotide for the treatment of FSD
program, offset by the receipt of the upfront and milestone payments, relating to the license, co-development and commercialization agreement with Gedeon
Richter on bremelanotide for the treatment of FSD in Europe and selected other countries. Lower net cash outflows from operations in fiscal 2014 compared
to fiscal 2013 were primarily the result of the receipt of a $1.0 million, non-refundable option fee, relating to the aforementioned agreement with Gedeon
Richter. Our periodic prepaid expenses, accounts payable and accrued expenses balances will continue to be highly dependent on the timing of our
operating costs.
41
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We did not engage in any investing activities in fiscal 2015. During fiscal 2014, net cash provided by investing activities was $5.2 million, which consisted of
$5.2 million of proceeds from the maturity of short-term investments offset by $6,000 used for capital expenditures. During fiscal 2013, net cash used in
investing activities was $5.3 million, consisting of $6.0 million used for the purchase of short-term investments and $60,000 used for capital expenditures
offset by the maturity of $750,000 of short-term investments and $5,000 in proceeds from the sale of equipment.
During fiscal 2015, net cash provided by financing activities was $28.5 million, primarily related to the closing of a private placement and the closing of a
venture loan. The private placement consisted of the sale of 2,050,000 shares of our common stock and Series C 2014 warrants to purchase up to
24,949,325 shares of our common stock. Aggregate gross proceeds to us were $20.0 million, with net proceeds, after deducting offering expenses, of $18.6
million. The debt facility is a $10.0 million four year senior secured term loan that bears interest at a floating coupon rate of one-month LIBOR (floor of 0.50%)
plus 8.50% and provides for interest-only payments for the first eighteen months. We incurred $209,000 of costs in connection with this loan agreement and
also issued five-year immediately exercisable Series D 2014 warrants to purchase 666,666 shares of common stock in connection with the loan agreement.
We recorded a debt discount of $268,000, equal to the fair value of the Series D 2014 warrants at issuance. During fiscal 2014, cash used in financing
activities of $19,000 consisted of the payment of withholding taxes related to restricted stock units of $36,000 and payments on capital lease obligation of
$20,000 offset by $37,500 of proceeds from the exercise of common stock warrants. During fiscal 2013, cash provided by financing activities of $34.3 million
consisted primarily of the net proceeds from the completion of our private placement on July 3, 2012 offset by payments on capital lease obligations of
$22,000 and payment of withholding taxes related to restricted stock units of $87,000. The private placement consisted of the sale of 3,873,000 shares of our
common stock, Series A 2012 warrants to purchase up to 31,988,151 shares of our common stock, and Series B 2012 warrants to purchase up to
35,488,380 shares of our common stock. Aggregate gross proceeds to us were $35.0 million, with net proceeds, after deducting offering expenses, of $34.4
million.
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. As of June 30, 2015, our cash and cash equivalents were $27.3 million and our
current liabilities were $7.4 million. On July 2, 2015, we closed on a private placement of Series E warrants to purchase 21,917,808 shares of our common
stock and Series F warrants to purchase 2,191,781 shares of our common stock. Certain funds managed by QVT Financial LP invested $5.0 million and
another accredited investment fund invested $15.0 million. The funds paid $0.90 for each Series E warrant and $0.125 for each Series F warrant, resulting in
gross proceeds to Palatin of $20.0 million, with net proceeds, after deducting estimated offering expenses, of approximately $19.9 million. We also closed on
a $10.0 million venture loan led by Horizon Technology Finance Corporation. The debt facility, which includes an interest-only payment period for the first 18
months, is a four year senior secured term loan that bears interest at a floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50%. We incurred
approximately $150,000 of costs in connection with the loan agreement. The lenders also received Series G warrants to purchase 549,450 shares of our
common stock.
The Series E warrants are exercisable at an initial exercise price of $0.01 per share, exercisable immediately upon issuance and expire on the tenth
anniversary of the date of issuance. The Series E warrants are subject to limitation on exercise if QVT and its affiliates would beneficially own more than
9.99% (4.99% for the other accredited investment fund holder) of the total number of Palatin's shares of common stock following such exercise. The Series F
warrants are exercisable at an initial exercise price of $0.91 per share, exercisable immediately upon issuance and expire on the fifth anniversary of the date
of issuance. The Series F warrants are subject to the same beneficial ownership limitation as the Series E warrants. The Series G warrants are exercisable
at an initial exercise price of $0.91 per share, exercisable immediately upon issuance and expire on the fifth anniversary of the date of issuance.
We intend to utilize existing capital resources, including the proceeds from the financings, for general corporate purposes and working capital, including our
bremelanotide phase 3 clinical trial program for female sexual dysfunction, preclinical and clinical development of our MC1r and MC4r peptide programs and
PL-3994 natriuretic peptide, and development of other portfolio products. Based on our current plan, we believe that the Phase 3 clinical trial program with
bremelanotide, including submission of an NDA to the FDA, will cost at least $80.0 million. We initiated patient enrollment in our Phase 3 program in
December 2014. We intend to seek additional capital to support the Phase 3 program through collaborative arrangements on bremelanotide, public or private
equity or debt financings, or other sources.
We believe that our existing capital resources, together with approximately $29.7 million received from the July 2015 financings will be adequate to fund our
planned operations through the quarter ending September 30, 2016. Assuming the Phase 3 clinical trials of bremelanotide for FSD are successful, as to
which there can be no assurance,
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
we will need additional funding to complete submission of required regulatory applications to the FDA for bremelanotide for FSD. We will also need additional
funding to complete required clinical trials for our other product candidates and, assuming those clinical trials are successful, as to which there can be no
assurance, to complete submission of required regulatory applications to the FDA.
We anticipate incurring additional losses over at least the next few years. To achieve profitability, if ever, we, alone or with others, must successfully develop
and commercialize our technologies and proposed products, conduct preclinical studies and clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed products. The time required to reach profitability is highly uncertain, and we do not
know whether we will be able to achieve profitability on a sustained basis, if at all.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
We have entered into various contractual obligations and commercial commitments. The following table summarizes our most significant contractual
obligations as of June 30, 2015:
Total
Less than 1
Year
1 - 3 Years
3 - 5 Years
More than 5
Years
Payments due by Period
Facility operating leases
Capital lease obligations
Notes payable
$
$
1,144,510
72,844
12,595,583
$
255,986
29,138
915,000
$
445,837
43,706
9,126,833
$
442,687
-
2,553,750
Total contractual obligations
$
13,812,937
$
1,200,124
$
9,616,376
$
2,996,437
$
-
-
-
-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements are filed as part of this annual report:
Table of Contents
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
44
Page
45
46
47
48
49
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Palatin Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. and subsidiary as of June 30, 2015 and 2014, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2015. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Palatin Technologies,
Inc. and subsidiary as of June 30, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended
June 30, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Philadelphia, Pennsylvania
September 18, 2015
45
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Balance Sheets
ASSETS
Current assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Capital lease obligations
Unearned revenue
Total current liabilities
Notes payable, net of discount
Capital lease obligations
Other non-current liabilities
Total liabilities
June 30, 2015 June 30, 2014
$
$
$
$
27,299,268
1,896,747
29,196,015
12,184,605
156,393
12,340,998
$
$
123,158
155,279
29,474,452
1,106,484
6,223,483
25,871
-
7,355,838
9,781,086
41,749
91,304
17,269,977
160,748
57,308
12,559,054
261,280
1,508,958
-
1,000,000
2,770,238
-
-
-
2,770,238
Commitments and contengencies (Note 11)
Stockholders’ equity:
Preferred stock of $0.01 par value – authorized 10,000,000 shares;
Series A Convertible; issued and outstanding 4,697 shares as of June 30, 2015 and 2014, respectively
47
47
Common stock of $0.01 par value – authorized 300,000,000 shares;
issued and outstanding 57,128,433 shares as of June 30, 2015 and 39,416,595 as of June 30, 2014, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
571,284
303,332,460
(291,699,316)
12,204,475
29,474,452
394,166
283,428,356
(274,033,753)
9,788,816
12,559,054
$
$
The accompanying notes are an integral part of these consolidated financial statements
46
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Operations
Year Ended June 30,
2015
2014
2013
$
12,951,730
$
-
$
10,361
24,560,233
5,677,654
30,237,887
10,826,921
4,960,731
15,787,652
10,528,691
5,066,830
15,595,521
(17,286,157)
(15,787,652)
(15,585,160)
35,439
(661,697)
(284,656)
-
-
(910,914)
18,923
(6,211)
-
-
-
12,712
42,734
(8,411)
-
(7,069,165)
4,620
(7,030,222)
(18,197,071)
531,508
(15,774,940)
1,846,646
(22,615,382)
1,753,208
$
(17,665,563)
$ (13,928,294)
$ (20,862,174)
REVENUES:
License and contract
OPERATING EXPENSES:
Research and development
General and administrative
Total operating expenses
Loss from operations
OTHER INCOME (EXPENSE):
Investment income
Interest expense
Foreign exchange transaction loss
Increase in fair value of warrants
Gain on disposition of supplies and equipment
Total other income (expense), net
Loss before income taxes
Income tax benefit
NET LOSS
Basic and diluted net loss per common share
$
(0.15)
$
(0.13)
$
(0.21)
Weighted average number of common shares outstanding used in computing basic and diluted net
loss per common share
121,014,506
106,679,476
97,618,714
The accompanying notes are an integral part of these consolidated financial statements
47
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Stockholders’ Equity
Balance, July 1, 2012
4,997
50
Shares
Amount
Shares
34,900,591
Amount
349,006
Preferred Stock
Common Stock
Paid-in
Capital
240,725,127
Accumulated
Deficit
(239,243,285)
Additional
Stock-based
compensation
Sale of common stock
units, net of costs
Reclassification of
warrants from liability
to equity
Withholding taxes
related to restricted
stock units
Series A Conversion
Net loss
Balance, June 30, 2013
Stock-based
compensation
Withholding taxes
related to restricted
stock units
Warrant exercises
Net loss
Balance, June 30, 2014
Stock-based
compensation
Sale of common stock
units, net of costs
Issuance of warrants
on debt
Withholding taxes
related to restricted
stock units
Warrant exercises
Net loss
Balance, June 30, 2015
-
-
-
-
(300)
-
4,697
-
-
-
-
4,697
-
-
-
-
-
-
4,697
$
-
-
-
-
(3)
-
47
-
-
-
-
47
-
-
-
-
-
-
47
500,000
5,000
620,031
3,873,000
38,730
17,403,075
-
-
24,030,128
-
-
-
Total
1,830,898
625,031
17,441,805
24,030,128
(158,264)
1,621
-
39,116,948
(1,583)
16
-
391,169
(85,828)
(13)
-
282,692,520
-
-
(20,862,174)
(260,105,459)
(87,411)
-
(20,862,174)
22,978,277
378,750
3,788
817,552
-
821,340
(129,103)
50,000
-
39,416,595
(1,291)
500
-
394,166
(118,716)
37,000
-
283,428,356
-
-
(13,928,294)
(274,033,753)
705,833
7,058
1,160,221
2,050,000
20,500
18,535,611
-
-
267,820
-
-
-
(120,007)
37,500
(13,928,294)
9,788,816
1,167,279
18,556,111
267,820
(174,568)
15,130,573
-
57,128,433
$
(1,746)
151,306
-
571,284
(162,390)
102,842
-
$ 303,332,460
-
-
(17,665,563)
$ (291,699,316)
$
(164,136)
254,148
(17,665,563)
12,204,475
The accompanying notes are an integral part of these consolidated financial statements
48
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
Accrued interest and amortization on premium/discount
Gain on disposition of supplies and equipment
Non-cash interest expense
Stock-based compensation
Increase in fair value of warrants
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Unearned revenue
Other non-current liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale/maturity of investments
Proceeds from sale of supplies and equipment
Purchases of property and equipment
Purchases of investments
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations
Payment of withholding taxes related to restricted
stock units
Proceeds from exercise of common stock warrants
Proceeds from the sale of common stock and warrants, net
of costs
Proceeds from the issuance of notes payable and warrants
Payment of debt issuance costs
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
2015
Year Ended June 30,
2014
2013
$
(17,665,563)
$ (13,928,294)
$ (20,862,174)
117,590
-
-
87,087
1,167,279
-
-
(1,667,139)
845,204
4,666,196
(1,000,000)
91,304
(13,358,042)
111,906
-
-
-
821,340
-
-
176,697
(77,446)
(311,859)
1,000,000
-
(12,207,656)
111,844
(1,365)
(4,620)
-
625,031
7,069,165
27,631
816,605
43,832
(1,475,319)
-
-
(13,649,370)
-
-
-
-
-
5,249,654
-
(6,239)
-
5,243,415
750,000
4,620
(59,607)
(5,998,289)
(5,303,276)
(12,380)
(19,909)
(22,277)
(115,808)
254,148
18,556,111
10,000,000
(209,366)
28,472,705
(36,377)
37,500
-
-
-
(18,786)
(87,411)
-
34,402,768
-
-
34,293,080
15,114,663
(6,983,027)
15,340,434
CASH AND CASH EQUIVALENTS, beginning of year
12,184,605
19,167,632
3,827,198
CASH AND CASH EQUIVALENTS, end of year
$
27,299,268
$
12,184,605
$
19,167,632
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Equipment acquired under capital lease
Issuance of warrants in connection with debt financing
$
$
483,306
80,000
267,820
$
6,211
-
-
8,411
-
-
The accompanying notes are an integral part of these consolidated financial statements
49
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(1) ORGANIZATION
Nature of Business – Palatin Technologies, Inc. (Palatin or the Company) is a biopharmaceutical company developing targeted, receptor-specific peptide
therapeutics for the treatment of diseases with significant unmet medical need and commercial potential. Palatin’s programs are based on molecules that
modulate the activity of the melanocortin and natriuretic peptide receptor systems. The melanocortin system is involved in a large and diverse number of
physiologic functions, and therapeutic agents modulating this system may have the potential to treat a variety of conditions and diseases, including sexual
dysfunction, obesity and related disorders, cachexia (wasting syndrome) and inflammation-related diseases. The natriuretic peptide receptor system has
numerous cardiovascular functions, and therapeutic agents modulating this system may be useful in treatment of acute asthma, heart failure, hypertension
and other cardiovascular diseases.
The Company’s primary product in development is bremelanotide for the treatment of female sexual dysfunction (FSD). The Company also has drug
candidates or development programs for obesity, erectile dysfunction, cardiovascular diseases, pulmonary diseases, inflammatory diseases and
dermatologic diseases.
Key elements of the Company’s business strategy include using its technology and expertise to develop and commercialize therapeutic products; entering
into alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale and distribution of product
candidates that the Company is developing; and partially funding its product candidate development programs with the cash flow generated from third
parties.
Business Risk and Liquidity – The Company has incurred negative cash flows from operations since its inception, and has expended, and expects to
continue to expend in the future, substantial funds to complete its planned product development efforts. As shown in the accompanying consolidated
financial statements, the Company had an accumulated deficit as of June 30, 2015 of $291.7 million and incurred a net loss for fiscal 2015 of $17.7 million.
The Company anticipates incurring additional losses in the future as a result of spending on its development programs. To achieve profitability, if ever, the
Company, alone or with others, must successfully develop and commercialize its technologies and proposed products, conduct successful preclinical studies
and clinical trials, obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time
required to reach profitability is highly uncertain, and there can be no assurance that the Company will be able to achieve profitability on a sustained basis, if
at all.
As discussed in Note 15, on July 2, 2015, the Company closed a $20.0 million private placement of Series E 2015 warrants to purchase 21,917,808 shares
of common stock and Series F 2015 warrants to purchase 2,191,781 shares of common stock and also concurrently closed a $10.0 million venture loan.
As of June 30, 2015, the Company’s cash and cash equivalents were $27.3 million. The Company intends to utilize existing capital resources for general
corporate purposes and working capital, including the Phase 3 clinical trial program with bremelanotide for FSD and preclinical and clinical development of
our other product candidates and programs, including PL-3994 and melanocortin recetptor-1 and melanocortin receptor-4 programs. Management believes
that the Phase 3 clinical trial program with bremelanotide, including regulatory filings for product approval, will cost at least $80.0 million.
Management believes that the Company’s existing capital resources, including the funds received upon the debt and equity financing in July 2015, will be
adequate to fund its planned operations through the quarter ending September 30, 2016.
Concentrations – Concentrations in the Company’s assets and operations subject it to certain related risks. Financial instruments that subject the Company to
concentrations of credit risk primarily consist of cash and cash equivalents. The Company’s cash and cash equivalents are primarily invested in one money
market account sponsored by a large financial institution. For the year ended June 30, 2015, 100% of revenues were from Gedeon Richter and for the year
ended June 30, 2013, 100% of revenues were from AstraZeneca. The Company had no revenues reported in the year ended June 30, 2014.
50
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation – The consolidated financial statements include the accounts of Palatin and its wholly-owned inactive subsidiary. All intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of
America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments with a purchased maturity of
less than three months. Cash equivalents consist of $26,946,378 and $9,495,656 in a money market account at June 30, 2015 and 2014, respectively.
Fair Value of Financial Instruments – The Company’s financial instruments consist primarily of cash equivalents, accounts payable and notes payable.
Management believes that the carrying values of cash equivalents and accounts payable are representative of their respective fair values based on the short-
term nature of these instruments. Management believes that the carrying amount of its notes payable approximates fair value based on terms of the notes.
Credit Risk – Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.
Total cash and cash equivalent balances have exceeded insured balances by the Federal Depository Insurance Company (FDIC).
Property and Equipment – Property and equipment consists of office and laboratory equipment, office furniture and leasehold improvements and includes
assets acquired under capital leases. Property and equipment are recorded at cost. Depreciation is recognized using the straight-line method over the
estimated useful lives of the related assets, generally five years for laboratory and computer equipment, seven years for office furniture and equipment and
the lesser of the term of the lease or the useful life for leasehold improvements. Amortization of assets acquired under capital leases is included in
depreciation expense. Maintenance and repairs are expensed as incurred while expenditures that extend the useful life of an asset are capitalized.
Impairment of Long-Lived Assets – The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived asset, management evaluates whether the
estimated future undiscounted net cash flows from the asset are less than its carrying amount. If impairment is indicated, the long-lived asset would be
written down to fair value. Fair value is determined by an evaluation of available price information at which assets could be bought or sold, including quoted
market prices, if available, or the present value of the estimated future cash flows based on reasonable and supportable assumptions.
Revenue Recognition – Under our license, co-development and commercialization agreement with Gedeon Richter (Note 5), we received consideration in
the form of a license fee and development milestone payment.
Revenue resulting from license fees is recognized upon delivery of the license for the portion of the license fee payment that is non-contingent and non-
refundable, if the license has standalone value. Revenue resulting from the achievement of development milestones is recorded in accordance with the
accounting guidance for the milestone method of revenue recognition.
Research and Development Costs – The costs of research and development activities are charged to expense as incurred, including the cost of equipment
for which there is no alternative future use.
Accrued Expenses – Third parties perform a significant portion of our development activities. We review the activities performed under significant 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.
51
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Stock-Based Compensation – The Company charges to expense the fair value of stock options and other equity awards granted. The Company determines
the value of stock options utilizing the Black-Scholes option pricing model. Compensation costs for share-based awards with pro-rata vesting are allocated to
periods on a straight-line basis.
Income Taxes – The Company and its subsidiary file consolidated federal and separate-company state income tax returns. Income taxes are accounted for
under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences or
operating loss and tax credit carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the period that includes the enactment date. The Company has recorded a valuation allowance against its deferred tax assets based on the
history of losses incurred.
During the years ended June 30, 2015, 2014 and 2013, the Company sold New Jersey state net operating loss carryforwards, which resulted in the
recognition of $531,508, $1,846,646, and $1,753,208, respectively, in tax benefits.
Net Loss per Common Share – Basic and diluted earnings per common share (EPS) are calculated in accordance with the provisions of Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 260, “Earnings per Share,” which includes guidance pertaining to the
warrants, issued in connection with the July 3, 2012 and December 23, 2014 private placement offerings, that are exercisable for nominal consideration and,
therefore, are to be considered in the computation of basic and diluted net loss per common share. The Series A 2012 warrants to purchase up to
31,988,151 shares of common stock were exercisable starting at July 3, 2012 and, therefore, are included in the weighted average number of common
shares outstanding used in computing basic and diluted net loss per common share starting on July 3, 2012.
The Series B 2012 warrants to purchase up to 35,488,380 shares of common stock were considered contingently issuable shares and were not included in
computing basic net loss per common share until the Company received stockholder approval for the increase in authorized underlying common stock on
September 27, 2012 (Note 12). For diluted EPS, contingently issuable shares are to be included in the calculation as of the beginning of the period in which
the conditions were satisfied, unless the effect would be anti-dilutive. The Series B 2012 warrants were excluded from the calculation of diluted net loss per
common share during the period from July 3, 2012 until September 27, 2012 as the impact would be anti-dilutive.
The Series C 2014 warrants to purchase up to 24,949,325 shares of common stock were exercisable starting at December 23, 2014 and, therefore are
included in the weighted average number of common shares outstanding used in computing basic and diluted net loss per common share starting on
December 23, 2014.
As of June 30, 2015, 2014 and 2013, there were 30,212,446, 29,358,926, and 29,136,527 common shares issuable upon conversion of Series A Convertible
Preferred Stock, the exercise of outstanding options and warrants (excluding the Series A 2012, Series B 2012 and Series C 2014 warrants issued in
connection with the July 3, 2012 and December 23, 2014 private placement offerings), and the vesting of restricted stock units, respectively. These share
amounts have been excluded from the calculation of net loss per share as the impact would be anti-dilutive.
(3) NEW AND RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, which requires debt issuance costs related to a
recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The
new standard is effective for the Company for its fiscal year ending June 30, 2017. The Company is evaluating the effect of the standard on its consolidated
financial statements.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern: Disclosures of Uncertainties about an Entity’s
Ability to Continue as a Going Concern.” The amendments in this update provide guidance in U.S. GAAP about management's responsibility to evaluate
whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. In doing
52
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
so, the amendments should reduce diversity in the timing and content of footnote disclosures. The new standard is effective for the Company for its fiscal
year ending June 30, 2017. The Company is evaluating the effect of the standard, if any, on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to
which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance
in U.S. GAAP when it becomes effective. In July 2015, the FASB voted to defer the effective date of the new standard until fiscal years beginning after
December 15, 2017 with early application permitted for fiscal years beginning after December 15, 2016. With the deferral, the new standard is effective for
the Company on July 1, 2018, with early adoption permitted one year prior. The standard permits the use of either the retrospective or cumulative effect
transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The
Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
(4) AGREEMENT WITH ASTRAZENECA
In January 2007, the Company entered into an exclusive global research collaboration and license agreement with AstraZeneca to discover, develop and
commercialize compounds that target melanocortin receptors for the treatment of obesity, diabetes and related metabolic syndrome. This agreement expired
because AstraZeneca ceased developing a compound covered by the agreement. All rights and licenses that we granted to AstraZeneca terminated upon
expiration of the agreement.
In December 2009 and 2008, the Company also entered into clinical trial sponsored research agreements with AstraZeneca, under which the Company
agreed to conduct studies of the effects of melanocortin receptor specific compounds on food intake, obesity and other metabolic parameters. Under the
terms of these clinical trial agreements, AstraZeneca paid $5,000,000 as of March 31, 2009 upon achieving certain objectives and paid all costs associated
with these studies. The Company recognized $10,361 as revenue in the year ended June 30, 2013 under these clinical trial sponsored research
agreements.
(5) AGREEMENT WITH GEDEON RICHTER
In August 2014, the Company entered into a license, co-development and commercialization agreement with Gedeon Richter on bremelanotide for FSD in
Europe and selected countries. On September 16, 2015, the Company and Gedeon Richter mutually and amicably agreed to terminate the license, co-
development and commercialization agreement. In connection with the termination of the license agreement, all rights and licenses to co-develop and
commercialize bremelanotide for FSD indications granted by the Company under the license agreement to Gedeon Richter terminated and reverted to the
Company, and neither party is expected to have any future material obligations under the license agreement. Neither the Company nor Gedeon Richter
incurred any early termination penalties or other payment or reimbursement obligations as a result of the termination of the license agreement.
The Company viewed the delivery of the license for bremelanotide as a revenue generating activity that is part of its ongoing and central operations. The
other elements of the agreement with Gedeon Richter were considered non-revenue activities associated with the collaborative arrangement. The Company
believes the license had standalone value from the other elements of the collaborative arrangement because it conveyed all of the rights necessary to
develop and commercialize bremelanotide in the licensed territory.
In August 2013, the Company received an initial payment of $1.0 million from Gedeon Richter as a non-refundable option fee on the license, co-development
and commercialization agreement, and in September 2014, the Company received €6.7 ($8.8 million) on execution of the definitive agreement. During the
year ended June 30, 2015, the upfront payment of €7.5 million ($9.8 million) was recorded as license revenue in the consolidated statements of operations.
During the year ended June 30, 2015, the Company recorded revenue related to a milestone payment of €2.5 million ($3.1 million) upon the initiation of the
Company’s Phase 3 clinical trial program in the United States, which the Company initiated in December 2014.
As a result of fluctuations in the conversion rates between the Euro and the U.S. Dollar between the transaction dates and the settlement dates, the
Company recorded a foreign exchange loss of $284,656 for the year ended June 30, 2015.
53
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(6) FAIR VALUE MEASUREMENTS
The fair value of cash equivalents is classified using a hierarchy prioritized based on inputs. Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset
or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable
inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the
hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets carried at fair value:
June 30, 2015:
Money Market Account
June 30, 2014:
Money Market Account
(7) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Clinical study costs
Insurance premiums
Other
(8) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
Office equipment
Laboratory equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
Quoted prices
in
active markets
(Level 1)
Carrying Value
Other
quoted/observable
inputs (Level 2)
Significant
unobservable inputs
(Level 3)
$
26,946,378 $
26,946,378 $
$
9,495,656 $
9,495,656 $
- $
- $
-
-
June 30,
2015
1,641,605 $
30,039
225,103
1,896,747 $
$
$
June 30,
2014
-
25,140
131,253
156,393
June 30,
2015
1,180,210 $
397,608
751,226
2,329,044
(2,205,886)
123,158 $
June 30,
2014
1,180,210
317,608
751,226
2,249,044
(2,088,296)
160,748
$
$
The aggregate cost of assets acquired under capital leases was $146,115 as of June 30, 2015 and $66,115 as of June 30, 2014. Accumulated amortization
associated with assets acquired under capital leases was $61,994 as of June 30, 2015 and $40,771 as of June 30, 2014.
(9) ACCRUED EXPENSES
Accrued expenses consist of the following:
54
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
June 30,
2015
5,594,839 $
176,105
201,831
250,708
6,223,483 $
$
$
June 30,
2014
617,055
463,695
211,711
216,497
1,508,958
June 30, 2015
10,000,000
$
(218,914)
9,781,086
$
Clinical study costs
Other research related expenses
Professional services
Other
(10) NOTES PAYABLE:
Notes payable consist of the following:
Notes payable under venture loan
Unamortized related debt discount
Notes payable
On December 23, 2014, the Company closed on a $10.0 million venture loan which was led by Horizon Technology Finance Corporation (Horizon). The debt
facility is a four year senior secured term loan that bears interest at a floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50%, and provides for
interest-only payments for the first eighteen months followed by monthly payments of principal payments of $333,333 plus accrued interest through January
1, 2019. The lenders also received five-year immediately exercisable Series D 2014 warrants to purchase 666,666 shares of common stock exercisable at an
exercise price of $0.75 per share. The Company recorded a debt discount of $267,820 equal to the fair value of these warrants at issuance, which is being
amortized to interest expense over the term of the related debt. This debt discount is offset against the note payable balance and included in additional paid-
in capital on the Company’s balance sheet at June 30, 2015. In addition, a final incremental payment equal to $500,000 is due on January 1, 2019, or upon
early repayment of the loan. This final incremental payment is being accreted to interest expense over the term of the related debt. The Company incurred
$209,000 of costs in connection with the loan agreement. These costs were capitalized as deferred financing costs and are being amortized to interest
expense over the term of the related debt. In addition, if the Company repays all or a portion of the loan prior to the applicable maturity date, it will pay the
lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance, equal to 3% if the prepayment occurs on or before 18
months after the funding date thereof or 1% if the prepayment occurs more than 18 months after, but on or before 30 months after, the funding date.
The Company’s obligations under the loan agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual
property. The Company also has agreed to specified limitations on pledging or otherwise encumbering its intellectual property assets.
The loan agreement includes customary affirmative and restrictive covenants, but does not include any covenants to attain or maintain specified financial
metrics, and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change
default. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to
the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth
in the loan agreement.
Scheduled future principal payments related to notes payable as of June 30, 2015 are as follows:
55
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Year Ending June 30,
2016
2017
2018
2019
Less: debt discount
Net
$
$
-
4,000,000
4,000,000
2,000,000
10,000,000
(218,914)
9,781,086
(11) COMMITMENTS AND CONTINGENCIES
Operating Leases – The Company currently leases facilities under two non-cancelable operating leases. The lease on our corporate offices was renewed
effective July 1, 2015 and expires on June 30, 2020 and in June 2015 we entered into a 12 month lease for approximately 1,000 square feet of laboratory
space which expires in July 2016. Future minimum lease payments under these leases are as follows:
Year Ending June 30,
2016
2017
2018
2019
2020
$
$
255,985
224,493
221,344
221,344
221,344
1,144,510
For the years ended June 30, 2015, 2014 and 2013, rent expense was $222,215, $219,686, and $372,754, respectively.
Capital Leases – The Company has acquired certain of its equipment under leases classified as capital leases. Scheduled future payments related to capital
leases as of June 30, 2015 are as follows:
Year Ending June 30,
2016
2017
2018
Amount representing interest
Net
$
$
29,138
29,138
14,568
72,844
(5,224)
67,620
Employment Agreements – The Company has employment agreements with two executive officers which provide a stated annual compensation amount,
subject to annual increases, and annual bonus compensation in an amount to be approved by the Company’s Board of Directors. Each agreement allows the
Company or the employee to terminate the agreement in certain circumstances. In some circumstances, early termination by the Company may result in
severance pay to the employee for a period of 18 to 24 months at the salary then in effect, continuation of health insurance premiums over the severance
period and immediate vesting of all stock options and restricted stock units. Termination following a change in control will result in a lump sum payment of
one and one-half to two times the salary then in effect and immediate vesting of all stock options and restricted stock units.
Employee Retirement Savings Plan – The Company maintains a defined contribution 401(k) plan for the benefit of its employees. The Company currently
matches a portion of employee contributions to the plan. For the years ended June 30, 2015, 2014 and 2013, Company contributions were $147,203,
$140,870, and $150,256, respectively.
Contingencies – The Company accounts for litigation losses in accordance with ASC 450-20, “Loss Contingencies.” Under ASC 450-20, loss contingency
provisions are recorded for probable losses when management is able to reasonably estimate the loss. Any outcome upon settlement that deviates from the
Company’s best estimate may result in additional expense or in a reduction in expense in a future accounting period. The Company records legal expenses
associated with such contingencies as incurred.
56
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. The Company is not
currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect
on its business, financial condition or results of operations.
(12) STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock – As of June 30, 2015, 4,697 shares of Series A Convertible Preferred Stock were outstanding. Each share of Series A
Convertible Preferred Stock is convertible at any time, at the option of the holder, into the number of shares of common stock equal to $100 divided by the
Series A Conversion Price. As of June 30, 2015, the Series A Conversion Price was $7.51, so each share of Series A Convertible Preferred Stock is currently
convertible into approximately 13.3 shares of common stock. The Series A Conversion Price is subject to adjustment, under certain circumstances, upon the
sale or issuance of common stock for consideration per share less than either (i) the Series A Conversion Price in effect on the date of such sale or
issuance, or (ii) the market price of the common stock as of the date of such sale or issuance. The Series A Conversion Price is also subject to adjustment
upon the occurrence of a merger, reorganization, consolidation, reclassification, stock dividend or stock split which will result in an increase or decrease in
the number of shares of common stock outstanding. Shares of Series A Convertible Preferred Stock have a preference in liquidation, including certain merger
transactions, of $100 per share, or $469,700 in the aggregate as of June 30, 2015. Additionally, the Company may not pay a dividend or make any
distribution to holders of any class of stock unless the Company first pays a special dividend or distribution of $100 per share to holders of the Series A
Convertible Preferred Stock.
Common Stock Transactions – On December 23, 2014, the Company closed on a private placement offering in which the Company sold, for aggregate
proceeds of $20.0 million, 2,050,000 shares of its common stock and Series C 2014 warrants to purchase up to 24,949,325 shares of common stock. Funds
under the management of QVT Financial LP (QVT) invested $10.0 million and an unrelated accredited investment fund invested $10.0 million. The funds
paid $0.75 for each share of common stock and $0.74 for each Series C 2014 warrant, resulting in gross proceeds to Palatin of $20.0 million, with net
proceeds, after deducting estimated offering expenses, of approximately $18.6 million. The Series C 2014 warrants, which may be exercised on a cashless
basis, are exercisable immediately upon issuance at an initial exercise price of $0.01 per share and expire on the tenth anniversary of the date of issuance.
The Series C 2014 warrants are subject to limitation on exercise if QVT and its affiliates would beneficially own more than 9.99% (4.99% for the other
accredited investment fund holder) of the total number of Palatin’s shares of common stock following such exercise.
The purchase agreement for the private placement provides that the purchasers have certain rights until the earlier of approval of bremelanotide for FSD by
the U.S. Food and Drug Administration and December 23, 2018, including rights of first refusal and participation in any subsequent equity or debt financing.
The purchase agreement also contains certain restrictive covenants so long as the funds continue to hold specified amounts of warrants or beneficially own
specified amounts of the outstanding shares of common stock.
On July 3, 2012, the Company closed on a private placement offering in which the Company sold, for aggregate proceeds of $35.0 million, 3,873,000 shares
of its common stock, Series A 2012 warrants to purchase up to 31,988,151 shares of common stock, and Series B 2012 warrants to purchase up to
35,488,380 shares of common stock. These warrants are exercisable at an exercise price of $0.01 per share, and expire ten years from the date of issuance.
The holders may exercise the warrants on a cashless basis. The warrants are subject to a blocker provision prohibiting exercise of the warrants if the holder
and its affiliates would beneficially own in excess of 9.99% of the total number of shares of common stock of the Company following such exercise (as may
be adjusted to the extent set forth in the warrant). The warrants also provide that in the event of a Company Controlled Fundamental Transaction (as defined
in the warrants), the Company may, at the election of the warrant holder, be required to redeem all or a portion of the warrants at an amount tied to the
greater of the then market price of the Company’s common stock or the amount per share paid to any other person.
57
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Because there were not sufficient authorized shares to cover all the outstanding Series B 2012 warrants in the private placement offering as of closing, under
ASC 815, “Derivatives and Hedging,” the portion of the warrants above the then authorized level of common stock was required to be classified as a liability
and carried at fair value on the Company’s balance sheet. The fair value, including the initial fair value liability of $16,960,963, was calculated by multiplying
the number of shares underlying the Series B 2012 warrants above the then authorized level of the Company’s common stock by the closing price of its
common stock less the exercise price of $0.01 per share. The warrants were liability classified through September 27, 2012, at which time the then fair value
of the warrant liability was reclassified into stockholders’ equity upon stockholder approval of the increase in authorized common stock. The increase in fair
value, as a result of the Company’s common stock increasing from $0.50 per share at date of issuance to $0.71 per share upon shareholder approval, of
$7,069,165 has been recorded as a non-operating expense for the year ended June 30, 2013.
The purchase agreement for the private placement provides that the purchasers, funds under the management of QVT, have certain rights until July 3, 2018,
including rights of first refusal and participation in any subsequent equity or debt financing, provided that the funds own at least 20% of the outstanding
common stock of the Company calculated as if warrants held by the funds were exercised. The purchase agreement also contains certain restrictive
covenants so long as the funds continue to hold specified amounts of warrants or beneficially own specified amounts of the outstanding shares of common
stock.
The net proceeds to the Company were $34.4 million, after deducting offering expenses payable by the Company and excluding the proceeds to the
Company, if any, from the exercise of the warrants issued in the offering.
Outstanding Stock Purchase Warrants – As of June 30, 2015, the Company had outstanding warrants exercisable for shares of common stock as follows:
Shares of Common
Stock
Exercise Price per
Share
Latest Termination
Date
575,000
1,978,262
20,771,740
16,973,206
35,488,380
666,666
24,949,325
101,402,579
1.00
1.00
1.00
0.01
0.01
0.75
0.01
February 23, 2016
March 1, 2016
March 2, 2017
July 3, 2022
September 27, 2022
December 23, 2019
December 23, 2024
During the three months ended June 30, 2015, the Company received $254,148 and issued 15,130,573 shares of common stock pursuant to the exercise of
warrants at exercise prices of $0.01 and $1.00, including warrants exercised pursuant to cashless exercise provisions.
In January 2014, the Company received $37,500 and issued 50,000 shares of common stock pursuant to the exercise of warrants at an exercise price of
$0.75 per share.
Stock Plan – The Company’s 2011 Stock Incentive Plan was approved by the Company’s stockholders at the annual meeting of stockholders held in May
2011 and amended at the annual meeting of stockholders held on June 11, 2015. The 2011 Stock Incentive Plan provides for incentive and nonqualified
stock option grants and other stock-based awards to employees, non-employee directors and consultants for up to 10,000,000 shares of common stock. The
2011 Stock Incentive Plan is administered under the direction of the Board of Directors, which may specify grant terms and recipients. Options granted by the
Company generally expire ten years from the date of grant and generally vest over three to four years. The 2005 Stock Plan was terminated and replaced by
the 2011 Stock Incentive Plan, and shares of common stock that were available for grant under the 2005 Stock Plan became available for grant under the
2011 Stock Incentive Plan. No new awards can be granted under the 2005 Stock Plan, but awards granted under the 2005 Stock Plan remain outstanding in
accordance with their terms. As of June 30, 2015, 3,255,866 shares were available for grant under the 2011 Stock Incentive Plan.
58
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The Company also has outstanding options that were granted under the 2005 Stock Plan. The Company expects to settle option exercises under any of its
plans with authorized but currently unissued shares.
The following table summarizes option activity and related information for the years ended June 30, 2015, 2014 and 2013:
Outstanding - July 1, 2012
Granted
Forfeited
Expired
Weighted
Average
Weighted
Average
Remaining
Exercise Price
Term in Years
Agregate
Instrinsic Value
Number of
Shares
2,181,853 $
1,807,300
(74,985)
(62,720)
3.50
0.65
5.20
11.91
7.7
Outstanding - June 30, 2013
3,851,448
1.99
8.2
Granted
Forfeited
Expired
603,400
(161,900)
(50,975)
1.02
0.68
24.95
Outstanding - June 30, 2014
4,241,973
1.63
7.7
Granted
Forfeited
Expired
975,800
(78,810)
(8,733)
1.06
1.92
36.47
Outstanding - June 30, 2015
5,130,230 $
1.46
7.3
$
432,309
Exercisable at June 30, 2015
Expected to vest at June 30, 2015
3,209,517 $
1,472,033 $
1.77
0.92
6.3
9.0
$
$
285,387
119,766
For the years ended June 30, 2015, 2014 and 2013, the fair value of option grants is estimated at the grant date using the Black-Scholes model. The
Company’s weighted average assumptions for the years ended June 30, 2015, 2014 and 2013 were as follows:
Risk-free interest rate
Volatility factor
Dividend yield
Expected option life (years)
Weighted average grant date fair value
2015
2014
2013
1.9%
83.4%
0%
6.1
0.76
$
1.9%
97.1%
0%
6.1
0.80
$
1.8%
101.0%
0%
8.6
0.56
$
Expected volatilities are based on the Company’s historical volatility. The expected term of options is based upon the simplified method, which represents the
average of the vesting term and the contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms approximating the
expected term of the option.
For the years ended June 30, 2015, 2014 and 2013 the Company recorded stock-based compensation related to stock options of $572,609, $520,855 and
$379,264, respectively. As of June 30, 2015, there was $953,577 of unrecognized compensation cost related to unvested options, which is expected to be
recognized over a weighted-average period of 2.92 years.
59
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
In June 2015, the Company issued 570,000 options to its executive officers, 185,800 options to its employees and 160,000 options to its non-employee
directors under the Company’s 2011 Stock Incentive Plan. The Company will amortize the fair value of these options of $446,748, $145,439 and $111,876,
respectively, over the vesting period.
In June 2014, the Company granted 325,000 options to its executive officers, 143,400 options to its employees and 135,000 options to its non-employee
directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $265,726, $117,247 and $97,530,
respectively, over the vesting period.
In June 2013, the Company granted 525,000 options to its executive officers, 394,300 options to its employees and 270,000 options to its non-employee
directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $287,000, $204,000 and $148,000,
respectively, over the vesting period.
In July 2012, the Company granted 285,000 options to its executive officers, 182,500 options to its employees and 112,500 options to its non-employee
directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these options of $182,000, $108,000 and $72,000,
respectively, over the vesting period.
Stock options granted to the Company’s executive officers and employees vest over a 48 month period, while stock options granted to its non-employee
directors vest over a 12 month period.
During the year ended June 30, 2015, the Company made the following modifications to certain stock options that were granted to a terminated employee
and former non-employee directors in recognition of their prior services; i) accelerated the vesting, and ii) extended the date to exercise vested stock options
to 24 months from the date of termination. An incremental $73,664 of stock-based compensation expense was recognized during the year ended June 30,
2015 and included in general and administrative expense in connection with these activities.
During the year ended June 30, 2014, the Company made the following modifications to certain stock options that were granted to certain terminated
employees in recognition of their prior services; i) accelerated the vesting, and ii) extended the date to exercise vested stock options to 24 months from the
date of termination. An incremental $22,000 of stock-based compensation expense was recognized during the year ended June 30, 2014 and included in
research and development expense in connection with these activities.
Restricted Stock Units – The following table summarizes restricted stock award activity for the years ended June 30, 2015, 2014 and 2013:
Outstanding at beginning of year
Granted
Forfeited
Vested
Outstanding at end of year
2015
2014
2013
957,150
785,800
(9,100)
(705,833)
1,028,017
757,500
603,400
(25,000)
(378,750)
957,150
250,000
757,500
-
(250,000)
757,500
For the years ended June 30, 2015, 2014 and 2013 the Company recorded stock-based compensation related to restricted stock units of $594,670,
$300,485 and $219,767, respectively.
In June 2015, the Company granted 400,000 restricted stock units to its executive officers, 185,800 restricted stock units to its employees and 160,000
restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these
restricted stock units of $432,000, $200,664, and $172,800, respectively, over the vesting period. In addition, in June 2015, the Company granted 20,000
restricted stock units to former non-employee directors in recognition of their prior services. These restricted stock units vested upon issuance and the
Company recognized the fair value of these restricted stock units of $21,600 as stock-based compensation expense which was included in general and
administrative expense.
In January 2015, the Company granted 20,000 restricted stock units to an employee and is amortizing the fair value of these restricted stock units of $16,000
over a 24 month vesting period.
In June 2014, the Company granted 325,000 restricted stock units to its executive officers, 143,400 restricted stock units to its employees and 135,000
restricted stock units to its non-employee directors under the Company’s 2011 Stock Incentive Plan. The Company is amortizing the fair value of these
restricted stock units of $331,500, $146,268 and $137,700, respectively, over the vesting period.
60
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Generally, restricted stock units granted to the Company’s executive officers, employees and non-employee directors in 2015 and 2014 vest over 24 months,
48 months and 12 months, respectively.
In June 2013, the Company granted 420,000 restricted stock units to its executive officers and 115,000 restricted stock units to employees under the
Company’s 2011 Stock Incentive Plan. The Company amortized the fair value of these restricted stock units of $260,000 and $71,000, respectively, over the
24 month vesting period ended June 30, 2015.
In July 2012, the Company granted 222,500 restricted stock units to its executive officers under the Company’s 2011 Stock Incentive Plan. The Company
amortized the fair value of these restricted stock units of $160,000 over the 24 months ending July 2014.
In connection with the vesting of restricted share units during the years ended June 30, 2015, 2014 and 2013, the Company withheld 174,568, 129,103 and
158,264 shares with aggregate values of $164,136, $120,007 and $87,411, respectively, in satisfaction of minimum tax withholding obligations.
During the year ended June 30, 2014, the Company accelerated the vesting of certain restricted stock units that were granted to a terminated employee in
recognition of prior services. An incremental $12,000 of stock-based compensation expense was recognized during the year ended June 30, 2014 and
included in research and development expense in connection with these activities.
(13) INCOME TAXES
The Company has had no income tax expense or benefit since inception because of operating losses, except for amounts recognized for sales of New
Jersey state net operating loss carryforwards and tax credits. Deferred tax assets and liabilities are determined based on the estimated future tax effect of
differences between the financial statement and tax reporting basis of assets and liabilities, as well as for net operating loss carryforwards and research and
development credit carryforwards, given the provisions of existing tax laws.
As of June 30, 2015, the Company had federal and state net operating loss carryforwards of approximately $252.2 million and $103.6 million, respectively,
which expire, if not utilized, between 2019 and 2035 for federal tax purposes and between 2015 and 2035 for state tax purposes. As of June 30, 2015, the
Company had federal research and development credits of approximately $7.4 million that will begin to expire in 2019, if not utilized.
The Tax Reform Act of 1986 (the Act) provides for limitation on the use of net operating loss and research and development tax credit carryforwards
following certain ownership changes (as defined by the Act) that could limit the Company’s ability to utilize these carryforwards. The Company may have
experienced various ownership changes, as defined by the Act, as a result of past financings. Accordingly, the Company’s ability to utilize the
aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes;
therefore, the Company may not be able to take full advantage of these carryforwards for federal income tax purposes.
The Company’s net deferred tax assets are as follows:
Net operating loss carryforwards
Research and development tax credits
Basis differences in fixed assets and other
Valuation allowance
Net deferred tax assets
61
June 30,
2015
94,332,000 $
7,357,000
1,208,000
102,897,000
(102,897,000)
- $
June 30,
2014
87,801,000
6,871,000
1,003,000
95,675,000
(95,675,000)
-
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the application of
loss limitation provisions related to ownership changes. Due to the Company’s history of losses, the deferred tax assets are fully offset by a valuation
allowance as of June 30, 2015 and 2014.
During the years ended June 30, 2015, 2014 and 2013, the Company sold New Jersey state net operating loss carryforwards, which resulted in the
recognition of $531,508, $1,846,646, and $1,753,208, respectively, in tax benefits.
(14) CONSOLIDATED QUARTERLY FINANCIAL DATA - UNAUDITED
The following tables provide quarterly data for the years ended June 30, 2015 and 2014.
62
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Three Months Ended
June 30,
2015
March 31,
2015
December 31, September 30,
2014
2014
Revenues
Operating expenses
Other income (expense), net
(Loss) income before income taxes
Income tax benefit
Net (loss) income
Basic net (loss) income per
common share
Diluted net (loss) income per
common share
Weighted average number of
common shares outstanding
used in computing basic net
(loss) income per common share
Weighted average number of
common shares outstanding
used in computing diluted net
(loss) income per common share
Revenues
Operating expenses
Other income (expense), net
Loss before income taxes
Income tax benefit
Net loss
Basic and diluted net loss per
common share
Weighted average number of
common shares outstanding
used in computing basic and
diluted net loss per common share
(15) SUBSEQUENT EVENTS
$
$
$
$
$
$
$
(amounts in thousands, except per share data)
- $
8,722
(428)
(9,150)
-
(9,150) $
8,020 $
5,697
(78)
2,245
532
2,777 $
- $
11,782
(306)
(12,088)
-
(12,088) $
(0.09) $
(0.07) $
0.03 $
(0.09) $
(0.07) $
0.03 $
4,932
4,038
(99)
795
-
795
0.01
0.01
134,207,300
134,008,239 109,314,460 106,953,898
134,207,300
134,008,239 109,815,718 107,946,021
Three Months Ended
June 30,
2014
March 31,
2014
December 31, September 30,
2013
2013
(amounts in thousands, except per share data)
- $
3,364
4
(3,360)
1,847
(1,513) $
- $
3,610
4
(3,606)
-
(3,606) $
- $
4,321
1
(4,320)
-
(4,320) $
-
4,492
3
(4,489)
-
(4,489)
(0.04) $
(0.01) $
(0.03) $
(0.04)
106,735,765
106,709,340 106,668,186 106,609,720
Financing Transactions - On July 2, 2015, the Company closed on a private placement of Series E warrants to purchase 21,917,808 shares of Palatin
common stock and Series F warrants to purchase 2,191,781 shares of Palatin common stock. Certain funds managed by QVT Financial LP invested $5.0
million and another accredited investment fund invested $15.0 million. The funds paid $0.90 for each Series E warrant and $0.125 for each Series F warrant,
resulting in gross proceeds to the Company of $20.0 million, with net proceeds, after deducting estimated offering expenses, of approximately $19.9 million.
63
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The Series E warrants, which may be exercised on a cashless basis, are exercisable immediately upon issuance at an initial exercise price of $0.01 per
share and expire on the tenth anniversary of the date of issuance. The Series E warrants are subject to limitation on exercise if QVT and its affiliates would
beneficially own more than 9.99% (4.99% for the other accredited investment fund holder) of the total number of Palatin's shares of common stock following
such exercise. The Series F warrants are exercisable at an initial exercise price of $0.91 per share, exercisable immediately upon issuance and expire on the
fifth anniversary of the date of issuance. The Series F warrants are subject to the same beneficial ownership limitation as the Series E warrants.
The purchase agreement for the private placement provides that the purchasers have certain rights until the earlier of approval of bremelanotide for FSD by
the U.S. Food and Drug Administration and July 3, 2018, including rights of first refusal and participation in any subsequent equity or debt financing. The
purchase agreement also contains certain restrictive covenants so long as the funds continue to hold specified amounts of warrants or beneficially own
specified amounts of the outstanding shares of common stock.
Concurrently, on July 2, 2015, the Company closed on a $10.0 million venture loan led by Horizon Technology Finance Corporation. The debt facility is a four
year senior secured term loan that bears interest at a floating coupon rate of one-month LIBOR (floor of 0.50%) plus 8.50% and which includes an interest-
only payment period for the first eighteen months followed by monthly payments of principal payments of $333,333 plus accrued interest through August 1,
2019. The lenders also received five-year immediately exercisable Series G warrants to purchase 549,450 shares of Palatin common stock exercisable at an
exercise price of $0.91 per share. The Company will record a debt discount of $305,196 equal to the fair value of these warrants at issuance, which will be
amortized to interest expense over the term of the related debt. This debt discount will offset against the note payable balance and will be included in
additional paid-in capital on the Company’s balance sheet at September 30, 2015. In addition, a final incremental payment equal to $500,000 is due on
August 1, 2019, or upon early repayment of the loan. This final incremental payment will be accreted to interest expense over the term of the related debt.
The Company incurred approximately $150,000 of costs in connection with the loan agreement. These costs will be capitalized as deferred financing costs
and will be amortized to interest expense over the term of the related debt. In addition, if the Company repays all or a portion of the loan prior to the
applicable maturity date, it will pay the lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance, equal to 3% if the
prepayment occurs on or before 18 months after the funding date thereof or 1% if the prepayment occurs more than 18 months after, but on or before 30
months after, the funding date.
The Company’s obligations under the loan agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual
property. The Company also has agreed to specified limitations on pledging or otherwise encumbering its intellectual property assets.
The loan agreement includes customary affirmative and restrictive covenants, but does not include any covenants to attain or maintain specified financial
metrics, and also includes customary events of default, including payment defaults, breaches of covenants, change of control and a material adverse change
default. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% may be applied to
the outstanding loan balances, and the lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth
in the loan agreement.
Geodeon Richter Termination - On September 16, 2015, the Company and Gedeon Richter mutually and amicably agreed to terminate the license, co-
development and commercialization agreement. In connection with the termination of the license agreement, all rights and licenses to co-develop and
commercialize bremelanotide for FSD indications granted by the Company under the license agreement to Gedeon Richter terminated and reverted to the
Company, and neither party is expected to have any future material obligations under the license agreement. Neither the Company nor Gedeon Richter
incurred any early termination penalties or other payment or reimbursement obligations as a result of the termination of the license agreement.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures.
Our management carried out an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this report.
Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2015, our disclosure controls and
procedures were effective.
A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) of the
Exchange Act. Our internal control system was designed to provide reasonable assurance to management and the board of directors regarding the
preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.
There was no change in our internal control over financial reporting during the fourth quarter of the period covered by this Annual Report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2015. In making this assessment, it used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework as adopted in 1992.
Based on its assessment, management believes that, as of June 30, 2015, our internal control over financial reporting is effective based on those criteria.
Item 9B. Other Information.
On September 16, 2015, Palatin and Gedeon Richter mutually and amicably agreed to terminate the license, co-development and commercialization
agreement entered into effective as of August 29, 2014. In connection with the termination of the license agreement, all rights and licenses to co-develop and
commercialize bremelanotide for FSD indications we granted under the license agreement to Gedeon Richter terminated and reverted to us, and neither we
nor Gedeon Richter are expected to have any future material obligations under the license agreement. Neither we nor Gedeon Richter incurred any early
termination penalties or other payment or reimbursement obligations as a result of the termination of the license agreement.
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Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors
PART III
The following table sets forth the names, ages, positions and committee memberships of our directors. All directors hold office until the next annual meeting
of stockholders or until their successors have been elected and qualified. All current directors were elected at our annual stockholders’ meeting on June 11,
2015.
Name
Carl Spana, Ph.D.
John K.A. Prendergast, Ph.D. (3)
Robert K. deVeer, Jr. (1) (2)
Zola P. Horovitz, Ph.D. (3)
J. Stanley Hull (1) (2)
Alan W. Dunton, M.D. (1) (2)
Angela Rossetti (1) (3)
Arlene M. Morris (2) (3)
Age
Position with Palatin
52 Chief Executive Officer, President and a Director
61 Director, Chairman of the board of directors
69 Director
80 Director
63 Director
61 Director
62 Director
63 Director
(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee.
CARL SPANA, Ph.D., co-founder of Palatin, has been our Chief Executive Officer and President since June 14, 2000. He has been a director of Palatin since
June 1996 and has been a director of our wholly-owned subsidiary, RhoMed Incorporated, since July 1995. From June 1996 through June 14, 2000, Dr.
Spana served as an executive vice president and our chief technical officer. From June 1993 to June 1996, Dr. Spana was vice president of Paramount
Capital Investments, LLC, a biotechnology and biopharmaceutical merchant banking firm, and of The Castle Group Ltd., a medical venture capital firm.
Through his work at Paramount Capital Investments and The Castle Group, Dr. Spana co-founded and acquired several private biotechnology firms. From
July 1991 to June 1993, Dr. Spana was a Research Associate at Bristol-Myers Squibb, a publicly traded pharmaceutical company, where he was involved in
scientific research in the field of immunology. He was previously a member of the board of the life science company AVAX Technologies, Inc. Dr. Spana
received his Ph.D. in molecular biology from The Johns Hopkins University and his B.S. in biochemistry from Rutgers University.
Dr. Spana’s qualifications for our board include his leadership experience, business judgment and industry experience. As a senior executive of Palatin for
over nineteen years, he provides in-depth knowledge of our company, our drug products under development and the competitive and corporate partnering
landscape.
JOHN K.A. PRENDERGAST, Ph.D., co-founder of Palatin, has been Chairman of the board since June 14, 2000, and a director since August 1996. Dr.
Prendergast has been president and sole stockholder of Summercloud Bay, Inc., an independent consulting firm providing services to the biotechnology
industry, since 1993. Dr. Prendergast is a director and executive chairman of the board of directors of Antyra, Inc., a privately-held biopharmaceutical firm.
He was previously a member of the board of the life science companies AVAX Technologies, Inc., Avigen, Inc. and MediciNova, Inc. From October 1991
through December 1997, Dr. Prendergast was a managing director of The Castle Group Ltd., a medical venture capital firm. Dr. Prendergast received his
M.Sc. and Ph.D. from the University of New South Wales, Sydney, Australia and a C.S.S. in administration and management from Harvard University.
Dr. Prendergast brings a historical perspective to our board coupled with extensive industry experience in corporate development and finance in the life
sciences field. His prior service on other publicly traded company boards provides experience relevant to good corporate governance practices.
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ROBERT K. deVEER, Jr. has been a director since November 1998. Since January 1997, Mr. deVeer has been the president of deVeer Capital LLC, a
private investment company. He was a director of Solutia Inc., a publicly held chemical-based materials company, until its merger with Eastman Chemical
Company in July 2012. From 1995 until his retirement in 1996, Mr. deVeer served as Managing Director, Head of Industrial Group, at New York-based
Lehman Brothers. From 1973 to 1995, he held increasingly responsible positions at New York-based CS First Boston, including Head of Project Finance,
Head of Industrials and Head of Natural Resources. He was a managing director, member of the investment banking committee and a trustee of the First
Boston Foundation. He received a B.A. in economics from Yale University and an M.B.A. in finance from Stanford Graduate School of Business.
Mr. deVeer has extensive experience in investment banking and corporate finance, including the financing of life sciences companies, and serves as the
audit committee’s financial expert.
ZOLA P. HOROVITZ, Ph.D. has been a director since February 2001. Before he retired from Bristol-Myers Squibb in 1994, Dr. Horovitz spent 34 years in
various positions, including associate director of the Squibb Institute for Medical Research, vice president of development, vice president, scientific liaison,
vice president of licensing, and vice president of business development and planning for the pharmaceutical division of Bristol-Myers Squibb. He held
advisory positions at the University of Pittsburgh, Rutgers College of Pharmacy and Princeton University. Dr. Horovitz previously served on the board of
directors of BioCryst Pharmaceutical, Inc., Genaera Corp., GenVec, Inc., Immunicon Corp., NitroMed, Inc., Avigen, Inc. and DOV Pharmaceutical, Inc. Dr.
Horovitz earned his Ph.D. in pharmacology from the University of Pittsburgh.
Dr. Horovitz has extensive experience in development of pharmaceutical drugs, business development and licensing, and has served on the board of
directors of a number of publicly held life science companies.
J. STANLEY HULL has been a director since September 2005. Mr. Hull has over three decades of experience in the field of sales and marketing. Mr. Hull
joined GlaxoSmithKline, a research-based pharmaceutical company, in October 1987 and retired as Senior Vice President, Pharmaceuticals in May 2010,
having previously served in the R&D organization of Glaxo Wellcome as Vice President and Worldwide Director of Therapeutic Development and Product
Strategy – Neurology and Psychiatry. Prior to that, he was Vice President of Marketing – Infectious Diseases and Gastroenterology for Glaxo Wellcome. Mr.
Hull started his career in the pharmaceutical industry with SmithKline and French Laboratories in 1978. Mr. Hull received his B.S. in business administration
from the University of North Carolina at Greensboro.
Mr. Hull has extensive experience in commercial operations, development and marketing of pharmaceutical drugs and corporate alliances between
pharmaceutical companies and biotechnology companies.
ALAN W. DUNTON, M.D. has been a director since June 2011. Since April 2006, he has been president of Danerius, LLC, a biotechnology consulting
company, which he founded in 2006. From January 2007 to March 2009, Dr. Dunton served as president and chief executive officer of Panacos
Pharmaceuticals Inc. and he served as a managing director of Panacos from March 2009 to January 2011. Dr. Dunton is currently a member of the board of
directors of the publicly traded company Oragenics, Inc. He previously served on the board of directors of the publicly traded companies Targacept, Inc.,
EpiCept Corporation (as Non-Executive Chairman), Adams Respiratory Therapeutics, Inc. (acquired by Reckitt Benckiser Group plc), MediciNova, Inc. and
Panacos Pharmaceuticals, Inc. Dr. Dunton has served as a director or executive officer of various pharmaceutical companies, and from 1994 to 2001, Dr.
Dunton was a senior executive in various capacities in the Pharmaceuticals Group of Johnson & Johnson. Dr. Dunton received his M.D. degree from New
York University School of Medicine, where he completed his residency in internal medicine. He also was a Fellow in Clinical Pharmacology at the New York
Hospital/Cornell University Medical Center.
Dr. Dunton has extensive drug development and clinical research experience, having played a key role in the development of more than 20 products to
regulatory approval, and also has extensive experience as an executive or officer for large pharmaceutical companies and smaller biotechnology and
biopharmaceutical companies.
ANGELA ROSSETTI has been a director since June 2013. Since June 2015 she has been Executive Vice President of Cell Machines, an early stage
biopharmaceutical company developing transformational biosimilars, and since May 2014 was an independent strategic advisor and marketing consultant to
pharmaceutical and biotechnology companies. From 2009 through January 2012, she was a vice president at Pfizer Inc., where she led a global commercial
medicine team for a smoking cessation franchise. Previously she was an assistant vice president at Wyeth, managing a global hemophilia franchise, and she
was president of Ogilvy Healthworld, an advertising business in the pharmaceutical and biotechnology sectors. She has also worked in a variety of
increasingly responsible positions in communications, marketing and venture capital/investment banking. Ms. Rossetti graduated
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from a joint program of the Albert Einstein College of Medicine and Benjamin N. Cardozo School of Law with an M.S.in Bioethics in 2014, and has an M.B.A.
in Finance from Columbia University Graduate School of Business and a B.A. in Biology from the University of Pennsylvania.
Ms. Rossetti has extensive experience in worldwide development and marketing of specialty pharmaceuticals, including prefilled syringe products, and in
communications and development of commercialization plans.
ARLENE M. MORRIS has been a director since June 2015. From March 2012 until May 2015 she was Chief Executive Officer of Syndax Pharmaceuticals,
Inc., a privately held biopharmaceutical company focused on the development and commercialization of an epigenetic therapy for treatment-resistant
cancers, and was President of Syndax Pharmaceuticals from September 2013 until May 2015 and a member of the board of directors from May 2011 until
May 2015. From 2003 to January 2011, Ms. Morris served as the President, Chief Executive Officer and a member of the board of directors of Affymax, Inc.,
a publicly traded biotechnology company. Ms. Morris has also held various management and executive positions at Clearview Projects, Inc., a corporate
advisory firm, Coulter Pharmaceutical, Inc., a publicly traded pharmaceutical company, Scios Inc., a publicly traded biopharmaceutical company, and
Johnson & Johnson, a publicly traded healthcare company. She is currently a member of the board of directors of Biodel Inc., a publicly traded specialty
pharmaceutical company, Neovacs, SA, a French publicly traded biotechnology company, and Dimension Therapeutics, Inc., a privately held gene therapy
company. Ms. Morris received a B.A. in Biology and Chemistry from Carlow College.
Ms. Morris has extensive experience in the biotechnology industry, including prior leadership positions, current senior management and board service, and
experience as chief executive officer of companies with product candidates in phase 3 clinical trials.
The Board and Its Committees
Committees and meetings. The board has an audit committee, a compensation committee and a nominating and corporate governance committee. During
fiscal 2015, the board met six times, the audit committee met five times, the compensation committee met twice and the nominating and corporate
governance committee met once. Each director attended at least 75% of the total number of meetings of the board and committees of the board on which he
served. The independent directors meet in executive sessions at least annually, following the annual board meeting. We do not have a policy requiring our
directors to attend stockholder meetings. With the exception of Drs. Prendergast and Spana, the directors did not attend the annual meeting of stockholders
held on June 11, 2015.
Audit committee. The audit committee reviews the engagement of the independent registered public accounting firm and reviews the independence of the
independent registered public accounting firm. The audit committee also reviews the audit and non-audit fees of the independent registered public
accounting firm and the adequacy of our internal control procedures. The audit committee is currently composed of four independent directors, Mr. deVeer
(chair), and Dr. Dunton, Ms. Rossetti and Mr. Hull. The board has determined that the members of the audit committee are independent, as defined in the
listing standards of the NYSE MKT, and satisfy the requirements of the NYSE MKT as to financial literacy and expertise. The board has determined that at
least one member of the committee, Mr. deVeer, is the audit committee financial expert as defined by Item 407 of Regulation S-K. The responsibilities of the
audit committee are set forth in a written charter adopted by the board and updated as of October 1, 2013, a copy of which is available on our web site at
www.palatin.com.
Compensation committee. The compensation committee reviews and recommends to the board on an annual basis employment agreements and
compensation for our officers, directors and some employees, and administers our 2011 Plan and the options still outstanding which were granted under
previous stock option plans. The compensation committee is composed of Dr. Dunton (chair), Ms. Morris and Messrs. deVeer and Hull. The board has
determined that the members of the compensation committee are independent, as defined in the listing standards of the NYSE MKT. Our Chief Executive
Officer aids the compensation committee by providing annual recommendations regarding the compensation of all executive officers, other than himself. Our
Chief Financial Officer supports the committee in its work by gathering, analyzing and presenting data on our compensation arrangements and
compensation in the marketplace.
The responsibilities of the compensation committee are set forth in a written charter adopted by the board effective October 1, 2013, a copy of which is
available on our web site at www.palatin.com. The committee administers our 2011 Plan, under which it has delegated to an officer its authority to grant
stock options to employees and to a single-member committee of the board its authority to grant restricted stock units to officers and to grant options and
restricted stock units to our consultants, but in either instance not to grant options or restricted stock units to themselves, any member of the board or officer,
or any person subject to Section 16 of the Securities Exchange Act of 1934.
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Nominating and corporate governance committee. The nominating and corporate governance committee assists the board in recommending nominees for
directors, and in determining the composition of committees. It also reviews, assesses and makes recommendations to the board concerning policies and
guidelines for corporate governance, including relationships of the board, the stockholders and management in determining our direction and performance.
The responsibilities of the nominating and corporate governance committee are set forth in a written charter adopted by the board and updated as of October
1, 2013, a copy of which is available on our web site at www.palatin.com. The nominating and corporate governance committee is composed of Dr.
Prendergast (chair), Dr. Horovitz and Mss. Rossetti and Morris, each of whom meets the independence requirements established by the NYSE MKT.
Duration of Office. Unless a director resigns, all directors hold office until the next annual meeting of stockholders or until their successors have been elected
and qualified. Directors serve as members of committees as the board determines from time to time.
Communicating With Directors
Generally, stockholders or other interested parties who have questions or concerns should contact Stephen T. Wills, Secretary, Palatin Technologies, Inc.,
4B Cedar Brook Drive, Cranbury, NJ 08512. However, any stockholder or other interest party who wishes to address questions regarding our business
directly to the board of directors, or any individual director, can direct questions to the board members or a director by regular mail to the Secretary at the
address above or by e-mail at boardofdirectors@palatin.com. Stockholders or other interested parties may also submit their concerns anonymously or
confidentially by postal mail.
Communications are distributed to the board, or to any individual directors as appropriate, depending on the facts and circumstances outlined in the
communication, unless the Secretary determines that the communication is unrelated to the duties and responsibilities of the board, such as product
inquiries, resumes, advertisements or other promotional material. Communications that are unduly hostile, threatening, illegal or similarly unsuitable will also
not be distributed to the board or any director. All communications excluded from distribution will be retained and made available to any non-management
director upon request.
Board Role in Risk Oversight
Our board, as part of its overall responsibility to oversee the management of our business, considers risks generally when reviewing our strategic plan,
financial results, business development activities, legal and regulatory matters. The board satisfies this responsibility through regular reports directly from
our officers responsible for oversight of particular risks. The board’s risk management oversight also includes full and open communications with
management to review the adequacy and functionality of the risk management processes used by management. The board’s role in risk oversight has no
effect on the board’s leadership structure. In addition, committees of the board assist in its risk oversight responsibility, including:
•
•
The audit committee assists the board in its oversight of the integrity of the financial reporting and our compliance with applicable legal and
regulatory requirements. It also oversees our internal controls and compliance activities, and meets privately with representatives from our
independent registered public accounting firm.
The compensation committee assists the board in its oversight of risk relating to compensation policies and practices. The compensation
committee annually reviews our compensation policies, programs and procedures, including the incentives they create and mitigating factors that
may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to our company.
Board Leadership Structure
Since 2000, the roles of chairman of the board and chief executive officer have been held by separate persons. John K.A. Prendergast, Ph.D., a non-
employee director, has served as Chairman of the board since June 2000. Carl Spana, Ph.D., has been our Chief Executive Officer and President since June
2000. Generally, the chairman is responsible for advising the chief executive officer, assisting in long-term strategic planning, and presiding over meetings of
the board, and the chief executive officer is responsible for leading our day-to-day performance. While we do not have a written policy with respect to
separation of the roles of chairman of the board and chief executive officer, the board believes that the existing leadership structure, with the separation of
these roles, provides several important advantages, including: enhancing the accountability of the chief executive officer to the board; strengthening the
board’s independence from management; assisting the board in reaching consensus on particular strategies and policies; and facilitating robust director,
board, and executive officer evaluation processes.
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Code of Corporate Conduct and Ethics
We have adopted a code of corporate conduct and ethics, updated as of October 1, 2013, that applies to all of our directors, officers and employees,
including our Chief Executive Officer and Chief Financial Officer. You can view the code of corporate conduct and ethics at our website, www.palatin.com.
We will disclose any amendments to, or waivers from, provisions of the code of corporate conduct and ethics that apply to our directors, principal executive
and financial officers in a current report on Form 8-K, unless the rules of the NYSE MKT permit website posting of any such amendments or waivers.
Executive Officers
Executive officers are appointed by the board and serve at the discretion of the board. Each officer holds his position until his successor is appointed and
qualified. The current executive officers hold office under employment agreements.
Name
Carl Spana, Ph.D.
Stephen T. Wills, MST, CPA
Age
52
58
Position with Palatin
Chief Executive Officer, President and Director
Chief Financial Officer, Chief Operating Officer, Executive Vice President, Secretary
and Treasurer
Additional information about Dr. Spana is included above under the heading “Identification of Directors.”
STEPHEN T. WILLS, MST, CPA, has been Executive Vice President, Secretary, Treasurer and Chief Financial Officer since 1997 and was Executive Vice
President of Operations from 2005 until June 2011, when he was appointed Chief Operating Officer and Executive Vice President. From July 1997 to August
2000, Mr. Wills was also a vice president and the chief financial officer of Derma Sciences, Inc., a publicly held company which provides wound and skin
care products, and currently serves as lead director and chair of the audit committee of Derma. Mr. Wills is a trustee of The Hun School of Princeton and is
chair of its finance committee, and he was previously a director of U.S. Helicopter Corp., a publicly held company. From 1991 to August 2000, he was the
president and chief operating officer of Golomb, Wills & Company, P.C., a public accounting firm. Mr. Wills, a certified public accountant, received his B.S. in
accounting from West Chester University, and an M.S. in taxation from Temple University.
Section 16(A) Beneficial Ownership Reporting Compliance
The rules of the SEC require us to disclose failures to file or late filings of reports of stock ownership and changes in stock ownership required to be filed by
our directors, officers and holders of more than 10% of our common stock. To the best of our knowledge, all of the filings for our directors, officers and
holders of more than 10% of our common stock were made on a timely basis in fiscal 2015, except that reports on Form 4 relating to vesting of restricted
stock units on July 2, 2014 and July 18, 2014 by our executive officers were filed late.
Item 11. Executive Compensation.
Fiscal 2015 Summary Compensation Table
The following table summarizes the compensation earned by or paid to our principal executive officer and our principal financial officer, who constitute all of
our executive officers, for our fiscal years ended June 30, 2015 and 2014. We have no defined benefit or actuarial pension plan, and no deferred
compensation plan.
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Name and Principal
Position
Carl Spana, Ph.D., Chief
Executive Officer and
President
Stephen T. Wills, MST,
CPA, Chief Financial
Officer, Chief Operating
Officer and Executive Vice
President
Fiscal
Year
2015
2014
2015
2014
Salary
($)
462,500
450,000
Stock
awards (1)
($)
226,800
178,500
Option
awards (1)
($)
234,832
143,083
Nonequity
incentive plan
compensation (2)
($)
195,000
170,000
All
other
compensation
(3)($)
18,937
22,500
Total
($)
1,138,069
964,083
422,500
410,000
205,200
153,000
211,916
122,643
203,000
140,000
18,438
17,376
1,061,054
843,019
(1)
(2)
(3)
Amounts in these columns represent the aggregate grant date fair value for stock awards and option awards computed using the Black-Scholes
model. For a description of the assumptions we used to calculate these amounts, see Note 11 to the consolidated financial statements included in
this Annual Report.
Bonus amounts.
Consists of matching contributions to 401(k) plan.
Employment Agreements
Effective July 1, 2013, we entered into employment agreements with Dr. Spana and Mr. Wills which continue through June 30, 2016 unless terminated
earlier. Under these agreements, which replaced substantially similar agreements that expired on June 30, 2013, Dr. Spana is serving as Chief Executive
Officer and President at a base salary of $450,000 per year and Mr. Wills is serving as Chief Financial Officer and Chief Operating Officer at a base salary of
$410,000 per year. Each agreement also provides for:
•
•
annual discretionary bonus compensation, in an amount to be decided by the compensation committee and approved by the board, based on
achievement of yearly performance objectives; and
participation in all benefit programs that we establish, to the extent the executive’s position, tenure, salary, age, health and other qualifications
make him eligible to participate.
Each agreement allows us or the executive to terminate the agreement upon written notice, and contains other provisions for termination by us for “cause,”
or by the employee for “good reason” or due to a “change in control” (as these terms are defined in the employment agreements and set forth below). Early
termination may, in some circumstances, result in severance pay at the salary then in effect, plus continuation of medical and dental benefits then in effect
for a period of two years (Dr. Spana) or 18 months (Mr. Wills). In addition, the agreements provide that options and restricted stock units granted to these
officers accelerate upon termination of employment except for voluntary resignation by the officer or termination for cause. In the event of retirement,
termination by the officer for good reason, or termination by us other than for “cause”, options may be exercised until the earlier of twenty-four months
following termination or expiration of the option term. Arrangements with our named executive officers in connection with a termination following a change in
control are described below. Each agreement includes non-competition, non-solicitation and confidentiality covenants.
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The compensation committee awarded performance-based bonuses to our named executive officers for fiscal 2015 and 2014, based on results of
operations, including clinical trial operations and our financial condition.
Stock Option and Restricted Stock Unit Grants
The compensation committee determined that additional equity grants were necessary in order to reward, motivate and retain our executive officers. On June
11, 2015, we granted 210,000 restricted stock units to Dr. Spana and 190,000 restricted stock units to Mr. Wills, which vest as to 50% on each anniversary of
the grant date. We also granted 300,000 stock options to Dr. Spana and 270,000 stock options to Mr. Wills, which vest as to 25% on each anniversary of the
grant date. These options have an exercise price of $1.08, the fair market value of the common stock on the date of grant, and they expire on June 11, 2025.
On June 25, 2014, we granted 175,000 restricted stock units to Dr. Spana and 150,000 restricted stock units to Mr. Wills, which vest as to 50% on each
anniversary of the grant date. We also granted 175,000 stock options to Dr. Spana and 150,000 stock options to Mr. Wills, which vest as to 25% on each
anniversary of the grant date. These options have an exercise price of $1.02, the fair market value of the common stock on the date of grant, and they expire
on June 25, 2024.
Outstanding Equity Awards at 2015 Fiscal Year-End
The following table summarizes all of the outstanding equity-based awards granted to our named executive officers as of June 30, 2015, the end of our fiscal
year.
Option awards (1)
Stock awards (2)
Name
Carl Spana
Stephen T. Wills
Option or
stock
award
grant
date
07/01/05
07/01/05
10/06/06
03/26/08
03/26/08
03/26/08
07/01/08
07/01/09
06/22/11
07/17/12
06/27/13
06/25/14
06/25/14
06/11/15
06/11/15
07/01/05
07/01/05
10/06/06
Number of
shares or units
of stock that
have not
vested
(#)
Market value of
shares or units
of stock that
have not
vested
($) (3)
Number of
securities
underlying
unexercised
options
(#)
Number of
securities
underlying
unexercised
options
(#)
exercisable
unexercisable
Option
exercise
price
($)
7,500
8,300
12,500
28,125
4,687
4,688
25,000
25,000
300,000
75,000
137,500
43,750
-
-
-
-
-
-
-
-
-
75,000
137,500
131,250
37.50
17.50
24.90
2.80
5.00
6.60
1.80
2.80
1.00
0.72
0.62
1.02
Option
expiration
date
07/01/15
07/01/15
10/06/16
03/26/18
03/26/18
03/26/18
07/01/18
07/01/19
06/22/21
07/17/22
06/27/23
06/25/24
-
300,000
1.08
06/11/25
Total Stock Awards
87,500
77,875
210,000
297,500
$
186,900
264,775
5,000
7,300
10,000
37.50
17.50
24.90
07/01/15
07/01/15
10/06/16
-
-
-
72
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Option awards (1)
Stock awards (2)
Number of
securities
underlying
unexercised
options
(#)
Number of
securities
underlying
unexercised
options
(#)
exercisable
unexercisable
Option
exercise
price
($)
22,500
3,750
3,750
20,000
20,000
250,000
67,500
125,000
37,500
-
-
-
-
-
-
67,500
125,000
112,500
2.80
5.00
6.60
1.80
2.80
1.00
0.72
0.62
1.02
Option
expiration
date
03/26/18
03/26/18
03/26/18
07/01/18
07/01/19
06/22/21
07/17/22
06/27/23
06/25/24
Number of
shares or units
of stock that
have not
vested
(#)
Market value of
shares or units
of stock that
have not
vested
($) (3)
-
270,000
1.08
06/11/25
Total Stock Awards
75,000
66,750
190,000
265,000
$
169,100
235,850
Option or
stock
award
grant
date
03/26/08
03/26/08
03/26/08
07/01/08
07/01/09
06/22/11
07/17/12
06/27/13
06/25/14
06/25/14
06/11/15
06/11/15
Stock option vesting schedules: all options granted on or before June 22, 2011 have fully vested. Options granted after June 22, 2011 vest over four
years with 1/4 of the shares vesting per year starting on the first anniversary of the grant date, provided that the named executive officer remains an
employee. See “Termination and Change-In-Control Arrangements” below.
Stock award vesting schedule: stock awards consist of restricted stock units granted on June 25, 2014, which had not vested as of June 30, 2015,
but will vest as to the remaining 50% on June 25, 2016; and restricted stock units granted on June 11, 2015, which will vest as to 50% on each of
June 11, 2016 and June 11, 2017, provided that the named executive officer remains an employee. See “Termination and Change-In-Control
Arrangements” below.
Name
(1)
(2)
(3)
Calculated by multiplying the number of restricted stock units by $0.89, the closing market price of our common stock on June 30, 2015, the last
trading day of our most recently completed fiscal year.
Termination and Change-In-Control Arrangements
The employment agreements, stock option agreements and restricted stock unit agreements with Dr. Spana and Mr. Wills contain the following provisions
concerning severance compensation and the vesting of stock options and restricted stock units upon termination of employment or upon a change in control.
The executive’s entitlement to severance, payment of health benefits and accelerated vesting of options is contingent on the executive executing a general
release of claims against us.
Termination Without Severance Compensation. Regardless of whether there has been a change in control, if we terminate employment for cause or the
executive terminates employment without good reason (as those terms are defined in the employment agreement and set forth below), then the executive
will receive only his accrued salary and vacation benefits through the date of termination. He may also elect to receive medical and dental benefits pursuant
to COBRA for up to two years (Dr. Spana) or 18 months (Mr. Wills), but must remit the cost of coverage to us. Under the terms of our outstanding options
and restricted stock units, all unvested options and restricted stock units would terminate immediately, and vested options would be exercisable for three
months after termination.
Severance Compensation Without a Change in Control. If we terminate or fail to extend the employment agreement without cause, or the executive
terminates employment with good reason, then the executive will receive as severance pay his salary then in effect, paid in a lump sum, plus medical and
dental benefits at our expense, for a period of two years (Dr. Spana) or 18 months (Mr. Wills) after the termination date. In addition, upon such event all
unvested options would immediately vest and be exercisable for two years after the termination date or, if earlier, the expiration of the option term, and all
unvested restricted stock units would accelerate and become fully vested.
73
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Severance Compensation After a Change in Control. If, within one year after a change in control, we terminate employment or the executive terminates
employment with good reason, then the executive will receive as severance pay 200% (Dr. Spana) or 150% (Mr. Wills) of his salary then in effect, paid in a
lump sum, plus medical and dental benefits at our expense, for a period of two years (Dr. Spana) or 18 months (Mr. Wills) after the termination date. We
would also reimburse the executive for up to $25,000 in fees and expenses during the six months following termination, for locating employment. We would
also reimburse the executive for any excise tax he might incur on “excess parachute payments” (as defined in Section 280G(b) of the Internal Revenue
Code). All unvested options would immediately vest and be exercisable for two years after the termination date or, if earlier, the expiration of the option term.
All unvested restricted stock units would vest upon a change in control, without regard to whether the executive’s employment is terminated.
Option and Restricted Stock Unit Vesting Upon a Change in Control. Options and restricted stock units granted under the 2011 Stock Incentive Plan vest
upon a change in control. If any options granted under the 2005 Stock Plan are to be terminated in connection with a change in control, those options will
vest in full immediately before the change in control.
Definitions. Under the employment agreements, a “change in control,” “cause” and “good reason” are defined as follows:
A “change in control” occurs when:
(a)
(b)
(c)
(d)
some person or entity acquires more than 50% of the voting power of our outstanding securities;
the individuals who, during any twelve month period, constitute our board of directors cease to constitute at least a majority of the board of directors;
we enter into a merger or consolidation; or
we sell substantially all our assets.
The term “cause” means:
(a)
(b)
(c)
the occurrence of (i) the executive’s material breach of, or habitual neglect or failure to perform the material duties which he is required to perform
under, the terms of his employment agreement; (ii) the executive’s material failure to follow the reasonable directives or policies established by or at
the direction of our board of directors; or (iii) the executive’s engaging in conduct that is materially detrimental to our interests such that we sustain a
material loss or injury as a result thereof, provided that the breach or failure of performance is not cured, to the extent cure is possible, within ten
days of the delivery to the executive of written notice thereof;
the willful breach by the executive of his obligations to us with respect to confidentiality, invention and non-disclosure, non-competition or non-
solicitation; or
the conviction of the executive of, or the entry of a pleading of guilty or nolo contendere by the executive to, any crime involving moral turpitude or
any felony.
The term “good reason” means the occurrence of any of the following, with our failure to cure such circumstances within 30 days of the delivery to us of
written notice by the executive of such circumstances:
(a)
(b)
(c)
any material adverse change in the executive’s duties, authority or responsibilities, which causes the executive’s position with us to become of
significantly less responsibility, or assignment of duties and responsibilities inconsistent with the executive’s position;
a material reduction in the executive’s salary;
our failure to continue in effect any material compensation or benefit plan in which the executive participates, unless an equitable arrangement has
been made with respect to such plan, or our failure to continue the executive’s participation therein (or in a substitute or alternative plan) on a basis
not materially less favorable, both in terms of the amount of benefits provided and the level of the executive’s participation relative to other
participants;
74
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(d)
our failure to continue to provide the executive with benefits substantially similar to those enjoyed by the executive under any of our health and
welfare insurance, retirement and other fringe-benefit plans, the taking of any action by us which would directly or indirectly materially reduce any of
such benefits, or our failure to provide the executive with the number of paid vacation days to which he is entitled; or
(e) the relocation of the executive to a location which is a material distance from Cranbury, New Jersey.
Director Compensation
The following table sets forth the compensation we paid to all directors during fiscal 2015, except for Dr. Spana, whose compensation is set forth above in the
Summary Compensation Table and related disclosure. Dr. Spana did not receive any separate compensation for his services as a director.
Name
John K.A. Prendergast, Ph.D.
Perry B. Molinoff, M.D. (3)
Robert K. deVeer, Jr.
Zola P. Horovitz, Ph.D.
Robert I. Taber, Ph.D. (3)
J. Stanley Hull
Alan W. Dunton, M.D.
Angela Rossetti
Arlene Morris (4)
Fees earned
or paid in
cash ($)
Stock awards
($) (2)
Option
awards
($) (1) (2)
90,500
49,000
57,500
51,000
51,000
45,000
56,000
43,000
-
43,200
11,700
21,600
21,600
11,700
21,600
21,600
21,600
21,600
27,969
34,552
13,984
13,984
34,552
13,984
13,984
13,984
13,984
Total ($)
161,669
95,252
93,084
86,584
97,252
80,584
91,584
78,584
35,584
(1)
The aggregate number of shares underlying option awards and stock awards outstanding at June 30, 2015 for each director was:
Dr. Prendergast
Mr. deVeer
Dr. Horovitz
Mr. Hull
Dr. Dunton
Ms. Rossetti
Ms. Morris
Option awards Stock awards
40,000
20,000
20,000
20,000
20,000
20,000
20,000
318,350
189,000
185,500
187,166
112,500
65,000
20,000
(2)
(3)
(4)
Amounts in these columns represent the aggregate grant date fair value for stock awards and option awards computed using the Black-Scholes
model. For a description of the assumptions we used to calculate these amounts, see Note 11 to the consolidated financial statements included in
this Annual Report. Amounts in this column include options granted on June 11, 2015 for our current fiscal year ending June 30, 2016.
Drs. Molinoff and Taber ceased serving as directors effective June 11, 2015.
Ms. Morris was elected as a director effective June 11, 2015.
Non-Employee Directors’ Equity Grants. Our non-employee directors receive an annual equity grant at the board meeting closest to the beginning of each
fiscal year, or such other date as may be determined by the board.
On June 11, 2015, as the annual equity grant for our current fiscal year ending June 30, 2016, the Chairman of the board received 40,000 restricted stock
units which vest on June 11, 2016, and an option to purchase 40,000 shares of common stock, and each other serving non-employee director received
20,000 restricted stock units which vest on June 11, 2016, and an option to purchase 20,000 shares of common stock. All of the options have an exercise
price
75
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
of $1.08 per share, the closing price of our common stock on the date of grant, vest in twelve monthly installments beginning on July 31, 2015, expire ten
years from the date of grant and provide for accelerated vesting in the event of involuntarily termination as a director following a change in control, with
exercise permitted following accelerated vesting for up to the earlier of one year after termination or the expiration date of the option.
On June 25, 2014, as the annual equity grant for our current fiscal year ending June 30, 2015, the Chairman of the board received 30,000 restricted stock
units which vest on June 25, 2015, and an option to purchase 30,000 shares of common stock, and each other serving non-employee director received
15,000 restricted stock units which vest on June 25, 2015, and an option to purchase 15,000 shares of common stock. All of the options have an exercise
price of $1.02 per share, the closing price of our common stock on the date of grant, vest in twelve monthly installments beginning on July 31, 2014, expire
ten years from the date of grant and provide for accelerated vesting in the event of involuntarily termination as a director following a change in control, with
exercise permitted following accelerated vesting for up to the earlier of one year after termination or the expiration date of the option.
Non-Employee Directors’ Cash Compensation. Dr. Prendergast serves as Chairman of the board and for our fiscal year ended June 30, 2015 received an
annual retainer of $87,500, payable quarterly. Other non-employee directors received an annual base retainer of $40,000, payable on a quarterly basis. The
chairperson of the audit committee received an additional annual retainer of $12,500, the chairperson of the compensation committee received an additional
annual retainer of $10,000 and the chairperson of the corporate governance committee received an additional annual retainer of $6,000. Members of the
foregoing committees, other than the non-employee Chairman, received an additional retainer of one-half the retainer payable to the committee chairperson.
For the fiscal year ending June 30, 2016, cash compensation is unchanged except that the chairperson of the compensation committee will receive an
additional annual retainer of $12,500 and the chairperson of the corporate governance committee will receive an additional annual retainer of $7,500, with
members of the compensation and corporate governance committees, other than the non-employee Chairman, receiving an additional retainer of one-half
the retainer payable to the committee chairperson.
Non-Employee Directors’ Expenses. Non-employee directors are reimbursed for expenses incurred in performing their duties as directors, including
attending all meetings of the board and any committees on which they serve.
Employee Directors. Employee directors are not separately compensated for services as directors, but are reimbursed for expenses incurred in performing
their duties as directors, including attending all meetings of the board and any committees on which they serve.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans. The table below provides information on our equity compensation plans as of June
30, 2015:
Equity Compensation Plan Information
as of June 30, 2015
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
6,158,247(1) $
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
(b)
1.46(2)
-
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
3,255,866
-
3,255,866
-
6,158,247
76
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1)
(2)
Consists of 4,641,100 options and 1,028,017 restricted stock units granted under our 2011 Stock Incentive Plan, 479,130 options granted under our
2005 Stock Plan and 10,000 options granted under our 1996 Stock Option Plan. Both our 2005 Stock Plan and 1996 Stock Option Plan have
terminated, but termination does not affect awards that are currently outstanding under these plans. The shares subject to outstanding awards under
the 2005 Stock Plan, if forfeited prior to exercise, will become available for issuance under the 2011 Stock Incentive Plan.
The amount in column (a) for equity compensation plans approved by security holders includes 1,028,017 shares reserved for issuance on vesting of
outstanding restricted stock units, granted under our 2011 Stock Incentive Plan, which vest on various dates through June 11, 2019, subject to the
fulfillment of service conditions. Because no exercise price is required for issuance of shares on vesting of the restricted stock units, the weighted-
average exercise price in column (b) does not take the restricted stock units into account.
Beneficial Ownership Tables. The tables below show the beneficial stock ownership and voting power, as of September 17, 2015, of:
•
•
each director, each of the named executive officers, and all current directors and officers as a group; and
all persons who, to our knowledge, beneficially own more than five percent of the common stock or Series A preferred stock.
“Beneficial ownership” here means direct or indirect voting or investment power over outstanding stock and stock which a person has the right to acquire now
or within 60 days after September 17, 2015. See the footnotes for more detailed explanations of the holdings. Except as noted, to our knowledge, the
persons named in the tables beneficially own and have sole voting and investment power over all shares listed.
The common stock has one vote per share and the Series A preferred stock has approximately 15 votes per share of Series A preferred stock. Voting power
is calculated on the basis of the aggregate of common stock and Series A preferred stock outstanding as of September 17, 2015, on which date 68,029,352
shares of common stock and 4,030 shares of Series A preferred stock, convertible into 60,592 shares of common stock, were outstanding.
The address for all members of our management and directors is c/o Palatin Technologies, Inc., 4B Cedar Brook Drive, Cranbury, NJ 08512. Addresses of
other beneficial owners are in the table.
MANAGEMENT:
Class
Name of beneficial owner
Common
Common
Common
Common
Common
Common
Common
Common
Common
Carl Spana, Ph.D.
Stephen T. Wills
John K.A. Prendergast, Ph.D.
Robert K. deVeer, Jr.
Zola P. Horovitz, Ph.D.
J. Stanley Hull
Alan W. Dunton, M.D.
Angela Rossetti
Arlene M. Morris
Amount and
nature of
beneficial
ownership
Percent
of class
Percent of
total voting
power
1,298,089(1)
1.9%
1,183,852(2)
1.7%
318,849(3)
210,726(4)
195,666( 5)
187,166(6)
121,686(7)
66,666(8)
6,666(9)
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
All current directors and executive officers as a group (nine
persons)
3,589,366(10)
5.1%
1.8%
*Less than one percent.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Includes 693,750 shares of common stock underlying outstanding options and 50,000 shares of common stock underlying outstanding warrants but
does not include shares of common stock underlying outstanding options or restricted stock unit awards that have not vested and will not vest within
60 days.
Includes 593,750 shares of common stock underlying outstanding options and 50,000 shares of common stock underlying outstanding warrants but
does not include shares of common stock underlying outstanding options or restricted stock unit awards that have not vested and will not vest within
60 days.
Includes 287,082 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Includes 173,666 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Includes 170,166 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Includes 170,166 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Includes 99,166 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Includes 51,666 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
Consists of 6,666 shares of common stock underlying outstanding options but does not include shares of common stock underlying outstanding
options or restricted stock unit awards that have not vested and will not vest within 60 days.
(10)
Includes 2,346,078 shares of common stock underlying outstanding options and warrants.
78
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
MORE THAN 5% BENEFICIAL OWNERS:
Class
Name and address of beneficial owner
QVT Financial LP
1177 Avenue of the Americas, 9th Floor
New York, New York 10036
James E. Flynn
780 Third Avenue, 37th Floor
New York, NY 10017
Steven N. Ostrovsky
43 Nikki Ct.
Morganville, NJ 07751
Thomas L. Cassidy IRA Rollover
38 Canaan Close
New Canaan, CT 06840
Jonathan E. Rothschild
300 Mercer St., #28F
New York, NY 10003
Arthur J. Nagle
19 Garden Avenue
Bronxville, NY 10708
Thomas P. and Mary E. Heiser, JTWROS
10 Ridge Road
Hopkinton, MA 01748
Carl F. Schwartz
31 West 87th St.
New York, NY 10016
Michael J. Wrubel
3650 N. 36 Avenue, #39
Hollywood, FL 33021
Myron M. Teitelbaum, M.D.
175 Burton Lane
Lawrence, NY 11559
Laura Gold Galleries Ltd. Profit Sharing Trust Park South Gallery
at Carnegie Hall
154 West 57th Street, Suite 114
New York, NY 10019
Laura Gold
180 W. 58th Street
New York, NY 10019
Nadji T. Richmond
20 E. Wedgewood Glen
The Woodlands, TX 77381
Amount and
nature of
beneficial
ownership (1)
Percent
of class
Percent of
total voting
power
6,986,818(2)
9.9%
7.5%
5,250,000(3)
7.4%
2.9%
500
12.4%
500
12.4%
500
12.4%
250
6.2%
250
6.2%
250
6.2%
250
6.2%
250
6.2%
250
6.2%
250
6.2%
230
5.7%
*
*
*
*
*
*
*
*
*
*
*
Common
Common
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
*Less than one percent.
79
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(1) Unless otherwise indicated by footnote, all share amounts represent outstanding shares of the class indicated, and all beneficial owners listed have, to
our knowledge, sole voting and dispositive power over the shares listed.
(2) QVT Financial LP (QVT Financial) is the investment manager for QVT Fund V LP (Fund V) and other private investment funds (collectively, the Funds).
The Funds beneficially own in the aggregate 6,986,818 shares of common stock, including 1,908,770 shares of common stock underlying outstanding
warrants. QVT Financial has the power to direct the vote and disposition of the common stock held by the Funds, and accordingly QVT Financial may be
deemed to be the beneficial owner of an aggregate amount of 6,986,818 shares of common stock, consisting of the shares beneficially owned by the Funds.
QVT Financial GP LLC, as General Partner of QVT Financial, may be deemed to beneficially own the same number of shares of common stock reported by
QVT Financial. QVT Associates GP LLC, as General Partner of the Funds may be deemed to beneficially own the aggregate number of shares of common
stock beneficially owned by the Funds, and accordingly, QVT Associates GP LLC may be deemed to be the beneficial owner of an aggregate amount of
6,986,818 shares of common stock.
Exercise of warrants held by the Funds is restricted if, as a result of an exercise, the beneficial ownership of the holder and its affiliates and any other party
or person that could be deemed to be a group would exceed 9.99% of the outstanding common stock. Beneficial ownership as listed in the table above
excludes warrants which are not exercisable because of that restriction, but includes warrants which are exercisable based on the common shares
outstanding.
(3) Includes 3,250,000 shares of common stock underlying outstanding warrants. According to a joint Schedule 13G/A filed on February 17, 2015, Mr. Flynn
and the other filers had beneficial ownership and shared voting and dispositive power as follows:
(i) James E. Flynn: 2,000,000 shares of common stock outstanding and 3,250,000 shares of common stock underlying outstanding warrants held by
Deerfield Special Situations Fund, L.P. and Deerfield Special Situations Fund International Limited. Mr. Flynn shares voting and dispositive power
over the shares owned by Deerfield Special Situations Fund, L.P. and Deerfield Special Situations Fund International Limited.
(ii) Deerfield Mgmt, L.P.: 2,000,000 shares of common stock outstanding and 3,250,000 shares of common stock underlying outstanding warrants
held by Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., of which Deerfield Mgmt, L.P. is the
general partner.
(iii) Deerfield Management Company, L.P.: 2,000,000 shares of common stock outstanding and 3,250,000 shares of common stock underlying
outstanding warrants held by Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., of which
Deerfield Management Company, L.P. is the investment advisor.
(iv) Deerfield Special Situations Fund L.P.: 1,092,000 shares of common stock outstanding and 1,287,000 shares of common stock underlying
outstanding warrants.
(v) Deerfield Special Situations International Master Fund, L.P.: 908,000 shares of common stock outstanding and 1,963,000 shares of common
stock underlying outstanding warrants.
Exercise of the warrants is restricted if, as a result of exercise, the beneficial ownership of the holder or any group including the holder would exceed 9.98%
of the outstanding common stock. Beneficial ownership as listed in the table above excludes warrants which are not exercisable because of that restriction.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The board of directors has determined that all of the directors and nominees except for Dr. Spana (our Chief Executive Officer and President) are
independent directors, as defined in the listing standards of the NYSE MKT, on which our common stock is listed.
As a condition of employment, we require all employees to disclose in writing actual or potential conflicts of interest, including related party transactions. Our
code of corporate conduct and ethics, which applies to employees, officers and directors, requires that the audit committee review and approve related party
transactions. Since July 1, 2012, there have been no transactions or proposed transactions in which we were or are to be a participant, in which any related
person had or will have a direct or indirect material interest.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 14. Principal Accountant Fees and Services.
KPMG LLP (KPMG) served as our independent registered public accounting firm for fiscal 2015 and fiscal 2014.
Audit Fees. For fiscal 2015, KPMG billed us a total of $419,200 for professional services rendered for the audit of our annual consolidated financial
statements, review of our consolidated financial statements in our Forms 10-Q and services provided in connection with regulatory filings. For fiscal 2014, the
total billed for the same services was $215,000.
Audit-Related Fees. For fiscal 2015 and 2014, KPMG did not perform or bill us for any audit-related services.
Tax Fees. For fiscal 2015, KPMG billed us a total of $15,500 for professional services rendered for tax compliance. For fiscal 2014, KPMG billed us $18,950
for professional services rendered for tax compliance.
All Other Fees. KPMG did not perform or bill us for any services other than those described above for fiscal 2014 and 2015.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. Consistent with SEC policies regarding
auditor independence, the audit committee has responsibility for appointing, setting compensation for and overseeing the work of the independent registered
public accounting firm. In recognition of this responsibility, the audit committee has established a policy to pre-approve all audit and permissible non-audit
services provided by the independent registered public accounting firm.
The audit committee pre-approves fees for each category of service. The fees are budgeted and the audit committee requires the independent registered
public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year,
circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not
contemplated in the original pre-approval. In those instances, the audit committee requires specific pre-approval before engaging the independent registered
public accounting firm.
The audit committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the audit committee at its next scheduled meeting.
81
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents filed as part of the report:
PART IV
1. Financial statements: The following consolidated financial statements are filed as a part of this report under Item 8 – Financial Statements and
Supplementary Data:
— Report of Independent Registered Public Accounting Firm
— Consolidated Balance Sheets
— Consolidated Statements of Operations
— Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
— Consolidated Statements of Cash Flows
— Notes to Consolidated Financial Statements
2. Financial statement schedules: None.
3. Exhibits: The exhibits, listed on the accompanying exhibit index that is set forth after the signature page, are filed or incorporated by reference (as
stated thereon) as part of this Annual Report on Form 10-K.
82
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
PALATIN TECHNOLOGIES, INC.
By: /s/ Carl Spana
Carl Spana, Ph.D.
President and Chief Executive Officer
(principal executive officer)
Date: September 18, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Carl Spana
Carl Spana
/s/ Stephen T. Wills
Stephen T. Wills
/s/ John K.A. Prendergast
John K.A. Prendergast
/s/ Robert K. deVeer, Jr
Robert K. deVeer, Jr.
/s/ Zola P. Horovitz
Zola P. Horovitz
/s/ J. Stanley Hull
J. Stanley Hull
/s/ Alan W. Dunton
Alan W. Dunton
/s/ Angela Rossetti
Angela Rossetti
/s/ Arlene M. Morris
Arlene M. Morris
President, Chief Executive Officer and Director
(principal executive officer)
September 18, 2015
Executive Vice President, Chief Financial Officer
and Chief Operating Officer (principal financial and accounting officer)
September 18, 2015
Chairman and Director
September 18, 2015
Director
Director
Director
Director
Director
Director
83
September 18, 2015
September 18, 2015
September 18, 2015
September 18, 2015
September 18, 2015
September 18, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1††
10.2††
10.3††
10.4††
10.5††
10.6††
10.7††
10.8††
10.9††
10.10††
10.11
Exhibit Index
Description
Filed Herewith
Form
Filing Date
SEC File No.
Restated Certificate of Incorporation of Palatin
Technologies, Inc., as amended.
Bylaws of Palatin Technologies, Inc.
Warrant Agreement, dated March 1, 2011, between
American Stock Transfer
& Trust Company and Palatin Technologies, Inc.
Form of Series A Warrant Certificate.
Form of Series B Warrant Certificate.
Form of Underwriters’ Warrant.
Warrant issued to Noble International Investments,
Inc.
Warrant issued to Noble International Investments,
Inc.
Form of Series A 2012 Warrant.
Form of Series B2012 Warrant.
Form of Series C 2014 Common Stock Purchase
Warrant.
Form of Series D 2014 Common Stock Purchase
Warrant.
Form of Series E 2015 Common Stock Purchase
Warrant.
Form of Series F 2015 Common Stock Purchase
Warrant.
Form of Series G 2015 Common Stock Purchase
Warrant.
1996 Stock Option Plan, as amended.
Form of Option Certificate (Incentive Option) Under
the 2005 Stock Plan.
Form of Incentive Stock Option Under the 2005
Stock Plan.
Form of Opinion Certificate
(Non-Qualified Opinion) Under the 2005 Stock
Plan.
Form of Non-Qualified Stock Option Agreement
Under the 2005 Stock Plan.
2007 Change in Control Severance Plan.
2005 Stock Plan, as amended.
Form of Executive Officer Option Certificate.
Form of Amended Restricted Stock Unit
Agreement.
Form of Amended Option Certificate (Incentive
Option) Under the 2005 Stock Plan.
Form of Securities Purchase Agreement for Palatin
Technologies, Inc.’s August 2009 Registered Direct
Offering.
84
10-K September 27, 2013
10-Q February 8, 2008
001-15543
001-15543
10-Q May 13, 2011
10-Q May 13, 2011
10-Q May 13, 2011
10-Q May 13, 2011
001-15543
001-15543
001-15543
001-15543
10-Q February 14, 2012
001-15543
10-Q February 14, 2012
8-K July 6, 2012
8-K July 6, 2012
001-15543
001-15543
001-15543
8-K December 30, 2014
001-15543
8-K December 30, 2014
001-15543
8-K July 7, 2015
8-K July 7, 2015
8-K July 7, 2015
10-K September 28, 2009
001-15543
001-15543
001-15543
001-15543
8-K September 21, 2011
001-15543
8-K September 21, 2011
001-15543
8-K September 21, 2011
001-15543
8-K September 21, 2011
10-Q February 8, 2008
10-Q May 15, 2009
10-Q May 14, 2008
10-Q May 14, 2008
10-Q May 14, 2008
001-15543
001-15543
001-15543
001-15543
001-15543
001-15543
8-K August 13, 2009
001-15543
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit
Number
10.12††
10.13††
10.14
10.15††
10.16††
10.17††
10.18††
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Description
Filed Herewith
Form
Filing Date
SEC File No.
Employment Agreement, effective as of July 1,
2013, between Carl Spana and Palatin
Technologies, Inc.
Employment Agreement, effective as of July 1,
2013, between Stephen T. Wills and Palatin
Technologies, Inc.
Underwriting Agreement, dated
February 24, 2011, by and between Roth Capital
Partners, LLC and Palatin Technologies, Inc.
2011 Stock Incentive Plan, as amended.
Form of Restricted Share Unit Agreement Under
the 2011 Stock Incentive Plan.
Form of Nonqualified Stock Option Agreement
Under the 2011 Stock Incentive Plan.
Form of Incentive Stock Option Agreement under
the 2011 Stock Incentive Plan.
Letter Agreement, dated October 7, 2011, between
Biotechnology Value Fund, L.P. and Palatin
Technologies, Inc.
Purchase Agreement, dated July 2, 2012, by and
between QVT Fund IV LP, QVT Fund V LP and
Quintessence Fund L.P. and Palatin Technologies,
Inc.
Registration Rights Agreement, dated July 2, 2012,
by and between QVT Fund IV LP, QVT Fund V LP
and Quintessence Fund L.P. and Palatin
Technologies, Inc.
Venture Loan and Security Agreement, dated
December 23, 2014, by and between Palatin
Technologies,
Inc. and Horizon Technology
Finance Corporation and Fortress Credit Co LLC.
Securities Purchase Agreement, dated December
23, 2014, by and between Palatin Technologies,
Inc. and the investors named therein.
Registration Rights Agreement, dated December
23, 2014, by and between Palatin Technologies,
Inc. and the investors named therein.
Placement Engagement Letter, dated December
22, 2014, by and between Palatin Technologies,
Inc. and Piper Jaffray & Co.
Amended and Restated Venture Loan and Security
Agreement, dated July 2, 2015, by and between
Palatin Technologies, Inc. and Horizon Technology
Finance Corporation, Fortress Credit Co LLC,
Horizon Credit
II LLC and Fortress Credit
Opportunities V CLO Limited.
10-K September 27, 2013
001-15543
10-K September 27, 2014
001-15543
8-K February 24, 2011
S-8 July 31, 2015
10-Q May 13, 2011
10-Q May 13, 2011
10-Q May 13, 2011
001-15543
333-206009
001-15543
001-15543
001-15543
8-K October 7, 2011
001-15543
8-K July 6, 2012
001-15543
8-K July 6, 2012
001-15543
8-K December 30, 2014
001-15543
8-K December 30, 2014
001-15543
8-K December 30, 2014
001-15543
8-K December 30, 2014
001-15543
8-K July 7, 2015
001-15543
85
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit
Number
10.27
10.28
10.29†
10.30
21
23
31.1
31.2
32.1
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Description
Securities Purchase Agreement, dated July 2,
2015, by and between Palatin Technologies, Inc.
and the investors named therein.
Registration Rights Agreement, dated July 2, 2015,
by and between Palatin Technologies, Inc. and the
investors named therein.
License, Co-Development and Commercialization
Agreement, dated August 29, 2014, by and
between Chemical Works of Gedeon Richter Plc.
and Palatin Technologies, Inc.
Termination Agreement, dated September 16,
2015, by and between Chemical Works of Gedeon
Richter Plc. and Palatin Technologies, Inc.
Subsidiaries of Palatin Technologies, Inc.
Consent of KPMG LLP.
Certification of Chief Executive Officer.
Certification of Chief Financial Officer.
Certification of principal executive officer pursuant
to U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of principal financial officer pursuant to
U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase
Document.
XBRL Taxonomy Extension Label Linkbase
Document.
XBRL Taxonomy Extension Presentation Linkbase
Document.
XBRL Taxonomy Extension Definition Linkbase
Document.
Filed Herewith
Form
Filing Date
SEC File No.
8-K July 7, 2015
001-15543
8-K July 7, 2015
001-15543
10-K/A October 9, 2014
001-15543
X
X
X
X
X
X
X
X
X
X
X
X
X
† Confidential treatment granted as to certain portions, which portions are omitted and filed separately with the Commission.
†† Management contract or compensatory plan or arrangement.
86
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 10.30
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Termination Agreement") is entered into as of September 16, 2015 (the "Termination Date") between:
Palatin Technologies, Inc., a United States company operating under the laws of the United States of America and under the laws of the State of Delaware,
with a principal place of business at 4-B Cedar Brook Drive, Cranbury, New Jersey 08512, USA ("Palatin"),
and:
Chemical Works of Gedeon Richter Plc., a Hungarian company operating under the laws of Hungary with a principal place of business at Gyömrői út 19-
21, Budapest 1103, Hungary ("Gedeon Richter").
Palatin and Gedeon Richter are sometimes referred to herein individually as a "Party" and collectively as the "Parties".
WHEREAS:
Recitals
A.
B.
Palatin and Gedeon Richter entered into a License Agreement (as hereinafter defined); and
The Parties desire to terminate to the License Agreement in its entirety by mutual written agreement in accordance with the terms and conditions set
forth in this Termination Agreement.
NOW, THEREFORE, Palatin and Gedeon Richter agree as follows:
1. DEFINITIONS
1.1 Except as set forth herein, any and all capitalized terms used and not otherwise defined in this Termination Agreement shall have the meanings
ascribed to such terms in the License Agreement.
1.2 For the purposes of this Termination Agreement, the following terms shall have the respective meanings set forth below:
1.3 "Close-Out Activities" shall have the meaning contained in Section 2.2.
1.4 "Gedeon Richter Releasees" shall have the meaning contained in Section 2.5.1.
1.5 "Gedeon Richter Releasors" shall have the meaning contained in Section 2.5.2.
1.6 "General Know How" shall have the meaning contained in Section 4.1.
1.7 "License Agreement" means that certain License, Co-Development and Commercialization Agreement, dated August 29, 2014, between Palatin
and Gedeon Richter.
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1.8 "Palatin Releasees" shall have the meaning contained in Section 2.5.2.
1.9 "Palatin Releasors" shall have the meaning contained in Section 2.5.1.
1.10 "Transition Completion Date" means October 31, 2015.
2. TERMINATION OF LICENSE AGREEMENT
2.1 Termination. Effective as of the Termination Date, the Parties hereby terminate the License Agreement in its entirety. Notwithstanding Section
14.6.2 of the License Agreement, except as otherwise expressly set forth in this Termination Agreement all rights and obligations of the Parties under the
License Agreement shall cease, including, without limitation, (a) all license grants under the License Agreement, and (b) Gedeon Richter’s right of first offer
and negotiation pursuant to Section 2.5 of the License Agreement. Notwithstanding the foregoing or anything to the contrary in the License Agreement, the
terms of Section 10.1 (Confidential Information), Section 10.2 (Public Domain), Section 10.3 (Legal Disclosures), Section 10.4 (Permitted Use and
Disclosures), Section 10.7 (Confidential Terms), Section 13 (Indemnification) and Section 15 (Governing Law, Disputes and Arbitration) shall remain in full
force and effect for a period of fifteen (15) years after the Termination Date.
2.2 Close-Out Activities. The Parties, under the oversight of the Joint Steering Committee, shall complete the activities set forth in this Termination
Agreement and Exhibit A hereto (collectively, the "Close-Out Activities"). If after reasonable discussion and good faith consideration of each Party's view on
a particular matter before the Joint Steering Committee relating to the Close-Out Activities, the Joint Steering Committee is unable after a period of ten (10)
Business Days to reach consensus on such matter, then either Party may refer such matter to the Parties' respective Chief Executive Officers for good faith
negotiation and resolution in accordance with Section 4.3 of this Termination Agreement.
2.3 Diligence. Each Party will use Commercially Reasonable Efforts to perform its respective obligations with respect to the Close-Out Activities with
the goal of completing the Close-Out Activities no later than the Transition Completion Date. In the event that, despite applying the foregoing level of
diligence, Gedeon Richter does not complete one or more of the Close-Out Activities assigned to it prior to the Transition Completion Date, then Gedeon
Richter shall use its best efforts to complete such activities as quickly as possible thereafter.
2.4 Transition Assistance. As part of the Close-Out Activities, Gedeon Richter, in accordance with this Section 2.4, shall assist Palatin, with Palatin's
cooperation, as may be reasonably necessary for Palatin to continue the Development of Products in the Field throughout the Territory. For the avoidance of
doubt, such assistance by Gedeon Richter shall include the activities set forth in Exhibit A hereto, as well as the following:
2.4.1 Intellectual Property Transfer. Gedeon Richter hereby assigns to Palatin, effective on the Termination Date, Gedeon Richter's entire
right, title and interest in and to all Gedeon Richter Know-How and all inventions, whether patentable or not, derived from such Gedeon Richter Know-How
(and Gedeon Richter appoints Palatin its attorney in fact solely to make such reassignments and authorizes Palatin to make such re-assignments). Gedeon
Richter shall disclose each such invention to Palatin within ten (10) Business Days after the Termination Date. Gedeon Richter shall execute and deliver to
Palatin a deed of assignment for each such invention, in a mutually agreeable form, within thirty (30) days after the Termination Date. Palatin shall be
responsible for recording all such assignments, and Gedeon Richter and its successors and assigns shall (i) reasonably cooperate with Palatin's efforts to do
so, including satisfying the assignment and recording requirements of relevant patent offices and (ii) reimburse Palatin for all reasonable and documented
out-of-pocket expenses incurred by Palatin in connection with this Section 2.4.1.
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.4.2 Materials, Data and Information Transfer. Unless otherwise prohibited by applicable laws or contract, Gedeon Richter shall promptly
return, transfer and assign to Palatin or its designee all materials relating to the Development and Commercialization of Products, including all Palatin Know-
How in tangible form, all Gedeon Richter Know-How in tangible form, all Information, all Materials, all major regulatory submissions and other regulatory
materials prepared by or on behalf of Gedeon Richter pursuant to the Gedeon Richter Development Plan, all Third Party agreements (provided that, to the
extent required, the Third Party gives its prior written consent to the assignment of the relevant agreement to Palatin) and any other items relating to the
Products, all of which shall be deemed confidential Information of Palatin (and not of Gedeon Richter). For any of the foregoing documentation, data and
information that is to be transferred to Palatin and is not in English, Gedeon Richter will, upon the request of Palatin, translate the foregoing into English and
deliver true and accurate, in all material respects, translations thereof to Palatin. All such information shall be transferred to Palatin or its designee in an
organized and clear manner, with all documents and files clearly labeled. Notwithstanding the foregoing, Gedeon Richter and/or Gedeon Richter's counsel
may retain one (1) copy of tangible Palatin Know-How and Gedeon Richter Know-How for archival purposes and for ensuring compliance with Article 10 of
the License Agreement.
2.5 Mutual Releases; Indemnification for Future Activities.
2.5.1 In consideration for the terms set forth in this Termination Agreement, Palatin, on behalf of itself and its Affiliates, and the directors,
officers, stockholders and employees of such entities and the successors and assigns of the foregoing (the "Palatin Releasors"), hereby fully releases
Gedeon Richter and its Affiliates and the directors, officers and employees of such entities (the "Gedeon Richter Releasees") from any and all claims,
actions, causes of action, liabilities, damages, judgments and demands of any kind, whether known or unknown that the Palatin Releasors had, has, may
have or ever claim to have against the Gedeon Richter Releasees, under or directly or indirectly related to the License Agreement, except to the extent of
existing rights and obligations of the Parties under the License Agreement that survive as provided in Section 14.6.2 of the License Agreement or as
otherwise provided herein. For clarity, the foregoing provision shall not release Gedeon Richter Releasees with respect to (i) Gedeon Richter's gross
negligence or violation of laws; or (ii) a claim, suit or proceeding made or brought by any Third Party to the extent that indemnification is owed to a Palatin
Indemnitee in accordance with Section 13 of the License Agreement and otherwise to the extent that a claim, suit or proceeding made or brought by any
Third Party is caused by or arises from the conduct of a Gedeon Richter Releasee.
2.5.2 In consideration for the terms set forth in this Termination Agreement, Gedeon Richter, on behalf of itself and its Affiliates, and the
directors, officers, stockholders and employees of such entities and the successors and assigns of the foregoing (the "Gedeon Richter Releasors"), hereby
fully releases Palatin and its Affiliates and the directors, officers and employees of such entities (the "Palatin Releasees") from any and all claims, actions,
causes of action, liabilities, damages, judgments and demands of any kind, whether known or unknown that the Gedeon Richter Releasors had, has, may
have or ever claim to have against Palatin Releasees, under or directly or indirectly related to the License Agreement, except to the extent of existing rights
and obligations of the Parties under the License Agreement that survive as provided in Section 14.6.2 of the License Agreement or as otherwise provided
herein. For clarity, the foregoing provision shall not release Palatin Releasees with respect to (i) Palatin's gross negligence or violation of laws; or (ii) a claim,
suit or proceeding made or brought by any Third Party to the extent that indemnification is owed to a Gedeon Richter Indemnitee in accordance with Section
13 of the License Agreement and otherwise to the extent that a claim, suit or proceeding made or brought by any Third Party is caused by or arises from the
conduct of a Palatin Releasee.
3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.5.3 Without limiting the obligations of either Party under Section 13 of the License Agreement or under this Termination Agreement,
Palatin further agrees that it shall defend, indemnify and hold the Gedeon Richter Indemnitees harmless from and against any and all claims, suits or
proceedings made or brought by any Third Party to the extent that such claim, suit or proceeding arises out of, is based on, or results from the manufacture,
use, handling, storage, sale or other disposition of the Product by Palatin, its Affiliates or any Third Party on behalf of Palatin after the Termination Date. The
foregoing indemnity obligation shall not apply to the extent that the Gedeon Richter Indemnitees fail to comply with the indemnification procedures set forth in
Section 13.3 of the License Agreement and Palatin's defense of the claim, suit or proceeding is prejudiced by such failure.
2.5.4 Nothing in this Termination Agreement shall be deemed to release, acquit or discharge either Party, or its Affiliates, its agents,
representative, employees, officers, directors, attorneys, successors and assigns, from its obligations under this Termination Agreement or any claim arising
from any breach of such obligations.
2.6 Collaboration Funding and Payments. As of the Termination Date, each Party has made all payments payable to the other Party pursuant to
the License Agreement, if any, including pursuant to Sections 7 and 8 of the License Agreement.
3. REPRESENTATIONS AND WARRANTIES OF GEDEON RICHTER
3.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party as of the Termination Date as follows:
3.1.1 Due Organization. Such Party is a corporation duly organized, validly existing and in good standing under the laws of the state or
country of its incorporation (as set forth in the recitals of this Termination Agreement), and has full corporate or other power and authority to enter into this
Termination Agreement and to carry out the provisions hereof.
3.1.2 Due Execution. The execution, delivery and performance by such Party of this Termination Agreement have been duly authorized by
all necessary corporate action and do not and will not (i) require any consent or approval of its stockholders or (ii) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to it or any provision of its charter or
bylaws.
3.1.3 Binding Agreement. This Termination Agreement, when executed and delivered by both Parties, is a legal, valid and binding obligation
of such Party, enforceable against it in accordance with the terms and conditions hereof.
3.1.4 Authorization. Such Party has obtained all authorizations, consents and approvals, governmental or otherwise, necessary for such
Party to perform such Party’s obligations under this Termination Agreement.
3.1.5 False Statement. Neither such Party, nor any officer or employee of such Party, has knowingly made an untrue statement of a
material fact to any regulatory authority with respect to the Product, or has knowingly failed to disclose a material fact required to be disclosed to any
regulatory authority with respect to the Product.
3.2 Gedeon Richter’s Additional Representations and Warranties. Gedeon Richter represents and warrants to Palatin that, as of the Termination
Date:
4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3.2.1 Gedeon Richter has not sublicensed, assigned, encumbered or transferred any of the rights granted to Gedeon Richter in Section 2.1
of the License Agreement.
3.2.2 Gedeon Richter has not sublicensed, assigned, encumbered or transferred any rights with respect to Gedeon Richter Know-How.
3.2.3 Gedeon Richter has kept Palatin informed of major regulatory developments relating to the Product.
3.2.4 Exhibit B constitutes a complete list of Gedeon Richter's material activities related to the Product ongoing as of the date hereof.
4. MISCELLANEOUS
4.1 Confidential Information. Sections 10.1, 10.2, 10.3 and 10.4 of the License Agreement shall apply to all Information furnished by one Party or any
of its Affiliates to the other Party or any of its Affiliates pursuant to this Termination Agreement. All Information received, developed and/or authored by
Gedeon Richter in respect of the Products and the activities undertaken of Gedeon Richter pursuant to the License Agreement and/or this Termination
Agreement constitute confidential Information of Palatin and is subject to the on-going confidentiality and nondisclosure obligations set forth in Section 10 of
the License Agreement; provided, however, that Gedeon Richter retains all its rights and interest in any General Know-How (as hereinafter defined) included
within such Information. For the purpose of this Termination Agreement, “General Know-How” shall mean any Information (other than Product-specific
Information) that is generally applicable to the research, development, and marketing activities of Gedeon Richter and is part of Gedeon Richter’s day-by-day
operations.
4.2 Public Disclosure. Except as otherwise required by law (including regulations promulgated by the US Securities and Exchange Commission) or
the rules of Hungary's Stock Exchange or the NYSE MKT, neither Party shall make any public disclosure of the terms of this Termination Agreement without
the prior approval of the other Party. Each Party shall submit any such public disclosure to the other Party for review and approval prior to public disclosure,
which approval shall not be unreasonably withheld. If such other Party does not respond within five (5) Business Days after receipt, the public disclosure
shall be deemed approved in the form originally proposed. Notwithstanding the foregoing:
4.2.1 In the case of any Required Disclosure by Palatin, the Required Disclosure may include (a) a statement substantially in the form
set forth in Exhibit C-1 hereto and (b) the filing of a redacted copy of this Termination Agreement in substantially the form attached as Exhibit C-2 hereto.
4.2.2 In the case of any Required Disclosure by Gedeon Richter, Gedeon Richter shall provide copies of the Required Disclosure to
Palatin reasonably in advance of such filing or other disclosure for Palatin’s review and comment (but not approval). Gedeon Richter shall consider in good
faith any comments provided by Palatin with respect to the content of the Required Disclosure, including with respect to the redaction of this Termination
Agreement and any other agreement that is to be filed or otherwise publicly disclosed in connection with the Required Disclosure.
4.3 Disputes and Arbitration.
4.3.1 In the event of a dispute arising between the Parties concerning the interpretation or performance of this Termination Agreement,
upon either Party’s written request, the matter will be submitted to the Chief Executive Officers of the Parties for good faith negotiation and resolution. In
the event the Chief Executive Officers are also unable to resolve such dispute within ten (10) Business Days after such request is received, either Party
may invoke the provisions Section 4.3.2.
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4.3.2 Except with respect to disputes relating to intellectual property or confidentiality obligations under this Termination Agreement, any
dispute, controversy or claim arising out of or in relation to this Termination Agreement, including the validity, invalidity, breach or termination thereof which
cannot be settled amicably by the Parties in accordance with Section 4.3.1 shall be resolved by arbitration in accordance with the Rules of Arbitration of
the International Chamber of Commerce in force on the date when the notice of arbitration is submitted in accordance with such rules. Any arbitration shall
be held in Zurich, Switzerland and conducted in English by a panel of three arbitrators. The award shall be final and binding upon the Parties and shall be
the sole and exclusive remedy between the Parties regarding the claims, counterclaims, issues, or accounting presented to the arbitrators.
Notwithstanding the foregoing, each Party may at any time pursue equitable remedies, including without limitation injunctive relief, to protect its confidential
Information and its intellectual property rights. With respect to disputes relating to intellectual property or a breach of the confidentiality obligations under
this Termination Agreement, each Party shall have the right to pursue any legal or equitable remedy available to it under applicable laws.
4.4 Assignment. This Termination Agreement may not be assigned or otherwise transferred by either Party to any Third Party without the prior
written consent of the other Party, such consent not to be unreasonably withheld; provided, however, that either Party may assign this Termination
Agreement, without such consent, to its Affiliate or to a Third Party in connection with a Change of Control or, in the case of Palatin, any other transaction in
which its Affiliate or a Third Party acquires, by merger, sale of assets, license or otherwise, rights with respect to the Development and/or Commercialization
of the Product in the Field. Any successor or permitted assignee of rights and/or obligations hereunder shall, prior to such assignment or Change of Control,
agree in writing to assume the existing and future obligations, rights, title and interest in, to and under this Termination Agreement of the Party with which it is
entering into such Change of Control transaction. If any successor or permitted assignee of rights and/or obligations hereunder does not provide such written
assumption prior to such assignment or Change of Control, this Termination Agreement shall be deemed to have been materially breached by the Target
Party immediately prior to the consummation of the Change of Control. This Termination Agreement shall be binding upon and inure to the benefit of the
Parties and their successors and permitted assigns. Any assignment or attempted assignment by either Party in violation of the terms of this Section 4.5 shall
be null, void and of no legal effect.
4.5 Notices. All notices, requests and other communications hereunder shall be in writing and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission, by registered or certified mail, return receipt requested, postage prepaid, or by overnight courier, in each case to the
Parties' respective addresses specified below, or such other address as may be specified by written notice delivered to the other Party in accordance with
this Section 17.3:
If to Palatin:
Palatin Technologies, Inc.
4-B Cedar Brook Drive
Cranbury, New Jersey 08512
USA
If to Gedeon Richter:
Chemical Works of Gedeon Richter Plc.
Budapest 1103
Gyömrői út 19-21.
Hungary
4.6 Advice of Counsel. Palatin and Gedeon Richter have each consulted counsel of their choice regarding this Termination Agreement, and each
acknowledges and agrees that this Termination Agreement shall not be deemed to have been drafted by one Party or another and will be construed
accordingly.
6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4.7 Governing Language. This Termination Agreement has been executed in English. If any translation of this Termination Agreement conflicts with
the English version or contains terms in addition to or different from the English version, the English version shall prevail. All notices required or permitted to
be given under this Termination Agreement, and all written, electronic, oral or other communications between the Parties regarding this Termination
Agreement, shall be in the English language.
4.8 Further Assurances. Each Party agrees to execute, acknowledge and deliver such further consents, documents and instruments, and to do all
such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Termination Agreement.
4.9 Severability. In the event that any provisions of this Termination Agreement are determined to be invalid or unenforceable by a court of
competent jurisdiction, the remainder of the Termination Agreement shall remain in full force and effect without said provision. In such event the Parties shall,
in good faith, negotiate a substitute clause for any provision declared invalid or unenforceable, which shall most nearly approximate the intent of the Parties
entering this Termination Agreement.
4.10 Waiver. It is agreed that no waiver by either Party hereto of any breach of default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
4.11 Complete Agreement. This Termination Agreement and the provisions of the License Agreement which, pursuant to this Termination
Agreement, shall continue to apply constitute the entire agreement between the Parties with respect to the subject matter hereof, and all prior agreements
respecting the subject matter hereof, either written or oral, expressed or implied, are merged and canceled, and are null and void and of no effect. No
amendment or change hereof or addition hereto shall be effective or binding on either of the Parties hereto unless reduced to writing and duly executed on
behalf of both Parties.
4.12 Governing Law. This Termination Agreement shall be governed in all respects by the laws of Switzerland, including its conflicts of laws
principles.
4.13 Headings. The captions to the several Articles and Sections hereof are not a part of this Termination Agreement, but are included merely for
convenience of reference only and shall not affect its meaning or interpretation.
4.14 Counterparts. This Termination Agreement may be executed in two counterparts, each of which shall be deemed an original and which together
shall constitute one instrument.
(signature page follows)
7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF Palatin and Gedeon Richter have executed this Agreement by their respective duly authorized representatives.
PALATIN TECHNOLOGIES, INC.
Date: September 16, 2015
By: /s/ Carl Spana
Print Name: Carl Spana
Title: President and Chief Executive
Officer
CHEMICAL WORKS OF GEDEON
RICHTER PLC.
Date: 15th September 2015
By: /s/ Árpád Götze
Print Name: Árpád Götze
Title: Director, Business Development
Date: September 16, 2015
By: /s/ Stephen T. Wills
Date: 15th September 2015
By: /s/ György Németh
Print Name: Stephen T. Wills
Print Name: Dr. György Németh
Title: Chief Financial Officer and
Chief Operating Officer
Title: Director, Medical Division
8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
Name of Subsidiary
State of Incorporation
Name Under Which
Subsidiary Does Business
RhoMed Incorporated
New Mexico
RhoMed Incorporated
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Exhibit 23
The Board of Directors
Palatin Technologies, Inc.:
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-33569, 333-56605, 333-64951, 333-72873, 333-84421, 333-52024,
333-54918, 333-74990, 333-100469, 333-101764, 333-104370, 333-112908, 333-128585, 333-132369, 333-140648, 333-146392, 333-170227, 333-174251,
333-183837, 333-185113, 333-201821, 333-206003, and 333-206047) on Form S-3 and in the registration statements (Nos. 333-57079, 333-83876, 333-
128854, 333-149093, 333-163158, 333-174257, 333-191467, and 333-206009) on Form S-8 of Palatin Technologies, Inc. of our report dated September 18,
2015, with respect to the consolidated balance sheets of Palatin Technologies, Inc. and subsidiary as of June 30, 2015 and 2014, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended June 30, 2015, which report
appears in the June 30, 2015 annual report on Form 10-K of Palatin Technologies, Inc.
Philadelphia, Pennsylvania
September 18, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.1
I, Carl Spana, certify that:
1. I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.;
Certification of Chief Executive Officer
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 18, 2015
/s/ Carl Spana
Carl Spana, President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.2
I, Stephen T. Wills, certify that:
1. I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.;
Certification of Chief Financial Officer
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 18, 2015
/s/ Stephen T. Wills
Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief
Operating Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Carl Spana, President and Chief Executive Officer of Palatin Technologies, Inc., hereby certify, to my knowledge, that the Annual Report on Form 10-K for
the year ended June 30, 2015 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations
of Palatin Technologies, Inc.
EXHIBIT 32.1
Dated: September 18, 2015
/s/ Carl Spana
Carl Spana, President and Chief Executive Officer (Principal Executive Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief Operating Officer of Palatin Technologies, Inc., hereby certify, to my
knowledge, that the Annual Report on Form 10-K for the year ended June 30, 2015 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of Palatin Technologies, Inc.
EXHIBIT 32.2
Dated: September 18, 2015
/s/ Stephen T. Wills
Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief
Operating Officer (Principal Financial Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.