10-K 1 ptn_10k.htm ANNUAL REPORT
UN ITED STATES
UN ITED STATES
SECUR ITIES AN D EX CHAN GE COMMISSION
SECUR ITIES AN D EX CHAN GE COMMISSION
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F OR M 10 - K
F OR M 10 - K
AN N UAL R EPOR T PUR SUAN T TO SECTION 13 OR 15(d) OF THE SECUR ITIES EX CHAN GE ACT
AN N UAL R EPOR T PUR SUAN T TO SECTION 13 OR 15(d) OF THE SECUR ITIES EX CHAN GE ACT
OF 1934
OF 1934
For the fiscal year ended June 30, 2021
or
TR AN SITION R EPOR T PUR SUAN T TO SECTION 13 OR 15(d) OF THE SECUR ITIES EX CHAN GE
TR AN SITION R EPOR T PUR SUAN T TO SECTION 13 OR 15(d) OF THE SECUR ITIES EX CHAN GE
ACT OF 1934
ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 001-15543
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
(Exact name of registrant as specified in its charter)
D e laware
D e laware
(State or other jurisdiction of
incorporation or organization)
4B Ce dar B rook D rive
4B Ce dar B rook D rive
Cran bu ry, N e w Je rse y
Cran bu ry, N e w Je rse y
(Address of principal executive offices)
95-4078884
95-4078884
(I.R.S. Employer Identification No.)
08512
08512
(Zip Code)
(609) 495-2200
(609) 495-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Tit le of Eac h Class
Tit le of Eac h Class
Common Stock, par value $.01 per share
Tradin g Sym bol
Tradin g Sym bol
PTN
N am e of Eac h Ex c h an ge
N am e of Eac h Ex c h an ge
on W h ic h R e gist e re d
on W h ic h R e gist e re d
NYSE American
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
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
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted 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). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
Non-accelerated
filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
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,
2020): $156,423,329
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest
practicable date (September 24, 2021): 231,258,137
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C
Table of Con t e n t s
Table of Con t e n t s
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
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.
Item 16.
Purchases of Equity Securities
[Reserved]
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 Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
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95
Special Note Regarding Forward-Looking Statements
In this Annual Report on Form 10-K (this “Annual Report”) references to “we,” “our,” “us,” the “Company” or “Palatin”
means Palatin Technologies, Inc. and its subsidiary.
Statements in 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 facts contained in this Annual Report, including, without
limitation, the following are forward looking statements:
our business, financial condition, and results of operations may be adversely affected by global health
epidemics, including the novel strain of coronavirus (“COVID-19”) pandemic, such as, for example, increase in
costs of and delays in conducting human clinical trials and the performance of our contractors and suppliers,
and reduction in our productivity or the productivity of our contractors and suppliers;
our ability to successfully commercialize Vyleesi® (the trade name for bremelanotide) for the treatment of
premenopausal women with hypoactive sexual desire disorder (“HSDD”) in the United States, which may be
adversely affected by delays or disruptions related to the ongoing COVID-19 pandemic;
our ability to manage the infrastructure to successfully manufacture, through contract manufacturers, Vyleesi,
and to successfully market and distribute Vyleesi in the United States;
our ability to meet postmarketing commitments of the U.S. Food and Drug Administration (“FDA”);
our expectations regarding the potential market size and market acceptance for Vyleesi for HSDD in the United
States and elsewhere in the world;
our expectations regarding performance of our exclusive licensees of Vyleesi for the treatment of
premenopausal women with HSDD, which is a type of female sexual dysfunction (“FSD”), including:
o Shanghai Fosun Pharmaceutical Industrial Development Co. Ltd. (“Fosun”), a subsidiary of Shanghai Fosun
Pharmaceutical (Group) Co., Ltd., for the territories of the People’s Republic of China, Taiwan, Hong Kong
S.A.R. and Macau S.A.R. (collectively, “China”), and
o Kwangdong Pharmaceutical Co., Ltd. (“Kwangdong”) for the Republic of Korea (“Korea”);
our expectations and the ability of our licensees to timely obtain approvals and successfully commercialize
Vyleesi in countries other than the United States;
the results of clinical trials with our late stage products, including PL9643, an ophthalmic peptide solution for
dry eye disease (“DED”), which is scheduled to enter Phase 3 clinical trials in the fourth quarter of calendar year
2021, and PL8177, an oral peptide formulation for treatment of ulcerative colitis, which is also scheduled to
enter Phase 2 clinical trials in the first half of calendar year 2022;
estimates of our expenses, future revenue and capital requirements;
our ability to achieve profitability;
our ability to obtain additional financing on terms acceptable to us, or at all, including unavailability of funds or
delays in receiving funds as a result of the ongoing COVID-19 pandemic;
our ability to advance product candidates into, and successfully complete, clinical trials;
the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and
development programs;
the timing or likelihood of regulatory filings and approvals;
our expectations regarding the clinical efficacy and utility of our melanocortin agonist product candidates for
treatment of inflammatory and autoimmune related diseases and disorders, including ocular indications;
our ability to compete with other products and technologies treating the same or similar indications as our
product candidates;
the ability of our third-party collaborators to timely carry out their duties under their agreements with us;
the ability of our contract manufacturers to perform their manufacturing activities for us in compliance with
applicable regulations;
our ability to recognize the potential value of our licensing arrangements with third parties;
the potential to achieve revenues from the sale of our product candidates;
our ability to obtain adequate reimbursement from private insurers and other healthcare payers;
our ability to maintain product liability insurance at a reasonable cost or in sufficient amounts, if at all;
the performance of our management team, senior staff professionals, and third-party contractors and
consultants;
the retention of key management, employees and third-party contractors;
the scope of protection we are able to establish and maintain for intellectual property rights covering our
product candidates and technology in the United States and throughout the world;
our compliance with federal and state laws and regulations;
the timing and costs associated with obtaining regulatory approval for our product candidates, including
delays and additional costs related to the ongoing COVID-19 pandemic;
the impact of fluctuations in foreign exchange rates;
the impact of legislative or regulatory healthcare reforms in the United States;
our ability to adapt to changes in global economic conditions as well as competing products and technologies;
and
our ability to remain listed on the NYSE American stock exchange.
Such forward-looking statements involve risks, uncertainties and other factors that could cause our actual results to
be materially different from 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 U.S. Securities and Exchange Commission (the “SEC”). Except
as required by law, we do not intend, and undertake no obligation, to publicly update forward-looking statements to
reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.
Trademarks and Trade Names
Palatin Technologies® and Vyleesi® are registered trademarks of Palatin Technologies, Inc., and Palatin™ and the
Palatin logo are trademarks of Palatin Technologies, Inc. Other trademarks referred to in this report are the property
of their respective owners.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, financial condition, operating
results, cash flows or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the
section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
Risks Related to Our Financial Results and Need for Financing
We have a history of substantial net losses, including a net loss of $33.6 million for the year ended June 30,
2021, and expect to incur substantial net losses over the next few years, and we may never achieve or
maintain profitability.
We will need additional funding, including funding to complete clinical trials for our product candidates, which
additional funding may not be available on acceptable terms, if at all.
We have a limited operating history upon which to base an investment decision.
We have limited authorized shares available to raise additional capital through public or private equity
offerings, which limits our ability to raise additional capital.
Raising additional capital may cause dilution to existing shareholders, restrict our operations or require us to
relinquish rights.
Risks Related to Our Business, Strategy, and Industry
The commercial success of Vyleesi for HSDD is a component of our corporate strategy, but we and our
licensees may never successfully commercialize Vyleesi for HSDD or obtain approvals in countries other than
the United States.
Production and supply of Vyleesi and our product supplies depend on contract manufacturers over whom we
do not have any control, and there may not be adequate supplies of Vyleesi.
The effect of COVID-19 and other possible pandemics and outbreaks could result in material adverse effects
on our clinical trials, business, financial condition, and results of operations.
Our product candidates other than Vyleesi, including PL9643 for dry eye disease and PL8177 for the treatment
of ulcerative colitis, 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.
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.
Even if our product candidates receive regulatory approval in the United States, they may never achieve
market acceptance in the United States or approval outside the United States, in which case our business,
financial condition and results of operation will be materially adversely affected.
If side effects emerge that can be linked to Vyleesi or any of 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.
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.
The FDA has required that two postmarketing studies and a clinical trial be conducted on Vyleesi, and our
failure to timely complete studies or the clinical trial, and any adverse outcomes of the studies or trial, could
result in withdrawal of Vyleesi from the market.
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.
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.
As of September 24, 2021 there were 39,896,902 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 and delivery of
restricted stock units.
PAR T I
PAR T I
Item 1. Business.
Our Business Overview
Palatin™ is a biopharmaceutical company developing first-in-class medicines based on molecules that modulate the
activity of the melanocortin and natriuretic peptide receptor systems. Our product candidates are targeted, receptor-
specific therapeutics for the treatment of diseases with significant unmet medical need and commercial potential.
Palatin’s strategy is to develop products and then form marketing collaborations with industry leaders to maximize
product commercial potential.
Melanocortin Receptor System. The melanocortin receptor (“MCr”) system has effects on inflammation and immune
system response, food intake, metabolism, and sexual function. There are five melanocortin receptors, MC1r through
MC5r. Modulation of these receptors, through use of receptor-specific agonists, which activate receptor function, or
receptor-specific antagonists, which block receptor function, can have significant pharmacological effects.
Our new product development activities in inflammation disease indications focus primarily on development of MCr
peptides for ocular conditions, but also include conditions in the gut and kidney. Utilizing peptides which are agonists
at MC1r, and in some instances agonists at additional melanocortin receptors, we are developing products to treat
inflammatory and autoimmune diseases such as dry eye disease, which is also known as keratoconjunctivitis sicca,
uveitis, diabetic retinopathy, and inflammatory bowel disease. We believe that our MC1r agonist peptides have broad
anti-inflammatory effects and utilize mechanisms engaged by the endogenous melanocortin system in regulation of
the immune system and resolution of inflammatory responses. We are also developing peptides that are active at
more than one melanocortin receptor and small molecule MCr agonists.
Our U.S. Food and Drug Administration (“FDA”) approved melanocortin receptor agonist, Vyleesi® (bremelanotide
injection), is an “as needed” therapy used in anticipation of sexual activity and self-administered in the thigh or
abdomen via a single-use subcutaneous auto-injector by premenopausal women with hypoactive sexual desire
disorder (“HSDD”). Vyleesi is the first FDA-approved melanocortin agent and the first and only FDA-approved as-
needed treatment for premenopausal women with HSDD.
Natriuretic Peptide Receptor System. The natriuretic peptide receptor (“NPR”) system regulates cardiovascular
functions, and therapeutic agents modulating this system have potential to treat fibrotic diseases, cardiovascular
diseases, including reducing cardiac hypertrophy and fibrosis, heart failure, acute asthma, pulmonary diseases, and
hypertension. We have designed and are developing potential NPR candidate drugs selective for one or more of the
natriuretic peptide receptors, including natriuretic peptide receptor-A (“NPR-A”), natriuretic peptide receptor B (“NPR-
B”), and natriuretic peptide receptor C (“NPR-C”).
Our Business Strategy. Key elements of our business strategy include:
Maximizing revenue from Vyleesi by marketing Vyleesi in the United States, supporting our existing licensees
for China and South Korea, and licensing Vyleesi for the United States and additional regions;
Maintaining a team to create, develop and commercialize MCr and NPR products addressing unmet medical
needs;
Entering
development, manufacture, marketing, sale, and distribution of product candidates that we are developing;
into strategic alliances and partnerships with pharmaceutical companies to facilitate the
Partially funding our product development programs with the cash flow generated from Vyleesi and existing
license agreements, as well as any future research, collaboration, or license agreements; and
Completing development and seeking regulatory approval of certain of our other product candidates.
Pipeline Overview
The following chart illustrates the status of our drug development programs and Vyleesi, which has been approved by
the FDA for the treatment of premenopausal women with acquired, generalized HSDD.
1
2
Melanocortin Receptor Programs
Our Current Product Development Strategy. We are designing and developing potent and highly selective MC1r
agonist peptides and agonist peptides specific for more than one melanocortin receptor for treatment of a variety of
inflammatory and autoimmune indications. We believe that our agonist peptides suppress certain inflammatory
cytokines, and modulate the activities of immune cells, such as monocytes and T cells, to reduce immune response,
and may utilize mechanisms engaged by the endogenous melanocortin system in regulation of the immune system
and resolution of inflammatory responses.
We have conducted preclinical animal studies with MC1r and multiple MCr peptide drug candidates for selected
inflammatory disease and autoimmune indications. MC1r plays a role in many diseases, including inflammatory bowel
disease and ocular indications such as uveitis, diabetic retinopathy, and dry eye disease. Work with rodent animal
models have demonstrated therapeutic responses that are statistically significant compared to placebo, and that are
equal to or superior to established positive controls in animal models. However, success in animal models does not
necessarily mean that any of our drug candidates will be able to successfully treat diseases in human patients.
PL9643 for Dry Eye Disease and Anti-Inflammatory Ocular Indications. PL9643, a peptide melanocortin agonist active
at multiple MCrs, including MC1r and MC5r, is our lead clinical development candidate for anti-inflammatory ocular
indications, including dry eye disease, which is also known as keratoconjunctivitis sicca. Dry eye disease is a syndrome
with symptoms including irritation, redness, discharge and blurred vision. It may result from an autoimmune disease
such Sjögren’s syndrome, an ocular lipid or mucin deficiency, blink disorders, abnormal corneal sensitivity, or
environmental factors. It is estimated to affect over 30 million people in the United States.
We have developed a PL9643 ophthalmic solution (topical eye drops) in a single use delivery device, and a Phase 3
clinical trial designed to support a New Drug Application (“NDA”) will start in the fourth quarter of calendar year 2021.
Our Phase 2 clinical trial demonstrated improvements in both the signs and symptoms of dry eye disease in moderate
to severe patients after just two weeks of treatment, with no adverse safety signals and excellent tolerability. We held
an end-of-Phase 2 meeting with the FDA in June 2021, which included all aspects of the PL9643 development plan,
including study design, endpoints, interim assessment, and patient population for the Phase 3 program. Preliminary
data readout from the Phase 3 clinical trial is expected in the second half of calendar year 2022. If results of the initial
Phase 3 clinical trial are positive, we will initiate a second Phase 3 clinical trial, with an NDA submitted to the FDA as
early as the second half of calendar year 2023.
Oral PL8177 for Inflammatory Bowel Diseases. PL8177, a selective MC1r agonist peptide, is our lead clinical
development candidate for inflammatory bowel diseases, including ulcerative colitis. We have completed
subcutaneous dosing of human subjects in a Phase 1 single and multiple ascending dose clinical safety study, and a
human microdose pharmacokinetic study to evaluate a polymer-enabled, delayed-release, oral formulation of PL8177.
For ulcerative colitis and other inflammatory bowel diseases we will administer PL8177 in our oral formulation to
deliver PL8177 to the interior wall of the diseased bowel. PL8177 activates MC1r present on the interior wall of the
bowel in ulcerative colitis and other inflammatory bowel diseases. We believe that delivering PL8177 directly to MC1r
in the bowel wall will maximize treatment effect while minimizing any systemic or off-target effects.
A Phase 2 study in ulcerative colitis using our polymer-enabled, delayed-release, oral formulation of PL8177 is
scheduled to start in the first half of calendar year 2022, and may take up to one year to complete.
Melanocortin Peptides for Diabetic Retinopathy. We conducted preclinical studies with melanocortin peptides in
diabetic retinopathy models and have selected a peptide candidate for further development work. We are working on
a formulation for administration. If results support advancing the program, we will conduct required safety studies
and manufacture drug product under Good Manufacturing Practices (“GMP”) regulations preparatory to filing an IND
and initiating clinical studies.
Ocular Research Programs. We are conducting research in several additional ocular areas, including both front of the
eye and back of the eye indications, exploring use of our compounds to treat additional indications.
3
Vyleesi for HSDD. Vyleesi, the registered trademark for bremelanotide injection, was approved by the FDA on June 21,
2019 for the treatment of premenopausal women with acquired, generalized HSDD. AMAG Pharmaceuticals, Inc.
(“AMAG”), which had exclusively licensed Vyleesi for North America, initiated sales and marketing efforts for Vyleesi in
the United States in August 2019, with a national launch in September 2019. In July 2020, Palatin and AMAG entered
into a termination agreement, pursuant to which the license agreement was terminated, Palatin regained all North
America rights for Vyleesi, and AMAG made a $12.0 million payment to Palatin at closing and a $4.3 million payment to
Palatin in the first quarter of calendar 2021. Palatin assumed Vyleesi manufacturing agreements, and AMAG
transferred information, data and assets related exclusively to Vyleesi, including existing inventory. AMAG provided
certain transition services to Palatin for a period to ensure continued patient access to Vyleesi during the transition
period, for which Palatin reimbursed AMAG for the agreed upon costs of the transition services.
Vyleesi faces competition primarily from Addyi® (flibanserin), which was introduced into the market in October 2015
for the treatment of HSDD in pre-menopausal women and is marketed by Sprout Pharmaceuticals, Inc. We are not
aware of any company actively developing another melanocortin receptor agonist drug for the treatment of HSDD.
However, we are aware of several other drugs at various stages of development, most of which are being developed
for the treatment of HSDD that are to be taken on a chronic, typically once-daily, basis. There may be other companies
developing new drugs for FSD indications other than HSDD, which may compete with Vyleesi, some of which may be in
clinical trials in the U.S. or elsewhere. Vyleesi may also face competition with products prescribed “off-label” by
healthcare providers.
Vyleesi is distributed nationally through specialty pharmacies. Our marketing strategy focuses on efforts to establish
Vyleesi as the preferred option for women and healthcare providers seeking a treatment for HSDD, which we
implement through media such as direct-to-consumer marketing in search and social media channels. We also focus
our Vyleesi marketing efforts towards healthcare professionals, who play a significant role in increasing HSDD and
Vyleesi awareness among their patients. As the commercial potential of Vyleesi is demonstrated, Palatin will explore
licensing marketing and distribution rights for the United States to a marketing partner.
In early September 2017, we entered into a license agreement with Fosun for exclusive rights to commercialize Vyleesi
in China. We received an upfront payment of $5.0 million, less required tax withholding, and when regulatory approval
for a Vyleesi product is obtained in China we will receive a $7.5 million milestone payment. We may receive up to $92.5
million in sales related milestones and will receive high-single digit to low double-digit royalties on net sales in China. In
November 2017, we entered into a license agreement with Kwangdong for exclusive rights to commercialize Vyleesi in
Korea, and received an upfront payment of $0.5 million, less required tax withholding. Upon the first commercial sale
of Vyleesi in Korea we will receive a $3.0 million milestone payment and will receive mid-single digit to low double-digit
royalties on all net sales and may receive up to $37.5 million in sales related milestones.
We retain worldwide rights for Vyleesi for HSDD and all other indications outside Korea and China. We are actively
seeking potential partners for marketing and commercialization rights for Vyleesi for HSDD outside the licensed
territories, including entering into a license agreement for marketing and commercialization rights for Vyleesi in the
United States. However, we may not be able to enter into suitable agreements with potential partners on acceptable
terms, if at all.
The most common adverse events which may occur with use of Vyleesi are nausea, flushing, injection site reactions,
headache, and vomiting. Vyleesi is contraindicated in women with uncontrolled hypertension or known cardiovascular
disease. In addition, the Vyleesi label includes precautions that it may cause (i) small, transient increases in blood
pressure with a corresponding decrease in heart rate; (ii) focal hyperpigmentation (darkening of the skin on certain
parts of the body), including the face, gums (gingiva) and breasts; and (iii) nausea.
Natriuretic Peptide Receptor Programs
Natriuretic Peptide Receptor Systems. The NPR system has numerous cardiovascular functions, and therapeutic
agents modulating this system may be useful in treatment of cardiovascular and fibrotic diseases. 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 made potential NPR candidate
drugs that are selective for one or more different natriuretic peptide receptors, including NPR-A, NPR-B, and NPR-C.
PL3994 for Mechanism of Action Studies. PL3994 is an NPR-A agonist and synthetic mimetic of the endogenous
neuropeptide hormone atrial natriuretic peptide (“ANP”). PL3994 activates NPR-A, a receptor known to play a role in
cardiovascular homeostasis. Consistent with being an NPR-A agonist, PL3994 increases plasma cyclic guanosine
monophosphate (“cGMP”) levels, a pharmacological response consistent with the effects of endogenous natriuretic
peptides on cardiovascular function and smooth muscle relaxation. PL3994 also decreases activity of the renin-
angiotensin-aldosterone system (“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.
In conjunction with clinicians at a major research institution, we have entered into a Phase 2A clinical trial with PL3994
supported by a grant from the American Heart Association. We have conducted Phase 1 safety studies with PL3994,
with no serious or severe adverse events. Consistent with the PL3994 mechanism of action, elevations in plasma cGMP
levels, increased diuresis and increased natriuresis were all observed for several hours after single subcutaneous
doses.
4
Because of the limited patent term remaining on PL3994, we do not intend to pursue PL3994 as a pharmaceutical
product but are utilizing it to establish the mechanism of action and pharmaceutical utility of synthetic mimetics of
ANP.
PL5028 for Cardiovascular and Fibrotic Disease. PL5028, an NPR-A agonist and NPR-binder we developed, is in
preclinical development for cardiovascular and fibrotic diseases, including reducing cardiac hypertrophy and fibrosis.
We have ongoing academic collaborations with several institutions with PL5028.
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. With our approach, 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 PL3994.
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. Other companies may also introduce products
using new technologies that may be competitive with our proposed products. 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, approved products such as Vyleesi
may 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.
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.
Vyleesi for Treatment of HSDD. There is competition and financial incentive to develop, market and sell drugs for the
treatment of HSDD and other forms of FSD. Flibanserin, sold under the trade name Addyi, is the only drug other than
Vyleesi currently approved in the United States for treatment of HSDD. Flibanserin, a non-hormonal oral serotonin 5-
HT1A agonist, 5-HT2A antagonist, which requires chronic dosing, was approved by the FDA on August 18, 2015 for
treatment of premenopausal women with HSDD. The FDA approval included a risk evaluation and mitigation strategy
(“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. The Boxed Warning was modified by FDA in April 2019 to clarify that there remains a
concern about consuming alcohol close in time to taking flibanserin, but that alcohol does not have to be avoided
completely. Specifically, the Boxed Warning reflects women should discontinue drinking alcohol at least two hours
before taking flibanserin at bedtime, or to skip the flibanserin dose that evening. We are aware of several other drugs
at various stages of development, most of which are taken on a chronic, typically once-daily, basis. 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 other company actively developing a melanocortin receptor
agonist drug for HSDD.
5
PL9643 for Anti-Inflammatory Ocular Indications. PL9643 is under development for dry eye diseases and may also
have utility for other inflammatory ocular indications. Currently mild to moderate dry eye disease and other ocular
inflammatory diseases may be treated with artificial tear eye drops, lubricating tear ointments, hot compresses or
punctual plugs, and more severe disease may be treated with topical immunosuppressants such as cyclosporine
ophthalmic emulsions, including Restasis® marketed in the United States by Allergan, Inc., or with drugs inhibiting
inflammatory cell binding, such as lifitegrast, including Xiidra® marketed in the United States by Novartis. In addition,
there are a number of drugs in clinical development for treatment of dry eye disease, with over 20 agents reported to
be in or have completed Phase 2 development. Products under development include tumor necrosis factor agonists,
alpha-2 adrenergic receptor agonist, calcineurin inhibitors, and nicotinic receptor agonists, among others. There are no
reported MC1r agonist drugs in clinical trials by third parties for dry eye disease. If one or more of these competing
product candidates is approved and either treats the signs and symptoms of dry eye disease or reduces the frequency
of flares of dry eye in patients, it could reduce the market for PL9643 for dry eye disease.
Oral PL8177 for Inflammatory Bowel Diseases/Ulcerative Colitis. FDA-approved drugs used in treatment of ulcerative
colitis include aminosalicylates such as mesalazine and related drugs, immunosuppressive drugs such as cyclosporine
and azathioprine, corticosteroids such as prednisone and other steroids, and various biologic drugs, including tumor
necrosis factor inhibitors such as infliximab and adalimumab. There are a number of drugs in development for
ulcerative colitis, including Janus kinase inhibitors, monoclonal antibodies specific for one or more immune system
cytokine signaling molecules, and additional classes of immunomodulatory drugs. There are no reported MC1r agonist
drugs in clinical trials for inflammatory bowel diseases, including ulcerative colitis. If one or more of the competing
products under development are approved and can effectively treat ulcerative colitis with an acceptable side effect
profile, such products could reduce the market for oral PL8177 for inflammatory bowel diseases, including ulcerative
colitis.
Diabetic Retinopathy. FDA-approved drugs used in treatment of diabetic retinopathy include steroids and anti-
vascular endothelial growth factor compounds. At least two different antibody fragment products are marketed in the
United States in which either aflibercept or ranibizumab is the active pharmaceutical ingredient. Additional vascular
endothelial growth factor inhibitors are in clinical trials or in preclinical development. There are no reported MC1r
agonist drugs in clinical trials for diabetic retinopathy. If one or more of the competing product candidates under
development is approved and can treat diabetic retinopathy with an acceptable side effect profile, it could reduce the
market for MC1r peptide products for this indication.
Melanocortin Receptor 1 Agonist Drug Products for Inflammatory and Autoimmune Diseases. Many inflammatory
disease-related indications are treated using systemic steroids or immunosuppressant drugs, all of which have side
effects that can be dose limiting. There are a number of approved biological drugs and other biological drugs under
development for treatment of inflammatory disease-related indications, which typically affect only one pathway in the
inflammatory response. Many of these drugs address symptoms, but do not resolve the underlying inflammatory or
autoimmune disease process.
PL5028 for Cardiovascular and Fibrotic Indications. We are evaluating potential clinical indications for PL5028 and have
not determined a specific indication for initial studies. There are many approved drugs and drugs in clinical studies for
cardiovascular diseases, including drugs that directly modulate the NPR system, such as nesiritide (sold under the
trade name Natrecor®), a recombinant NPR-B peptide drug, and a combination drug comprised of sacubitril and
valsartan (sold under the trade name Entresto®), which inhibits both the angiotensin II receptor and neprilysin, which
is an enzyme that inactivates endogenous active natriuretic peptides. This combination drug results in increases of
endogenous active natriuretic peptide levels. In addition, there are a number of approved drugs and drugs in
development for treatment of cardiovascular and fibrotic diseases through mechanisms or pathways other than
agonism of NPR-A.
6
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 three issued United States patents and a pending patent application in the United States for methods of
treating FSD with Vyleesi, with related patents issued or pending in selected countries in Europe and Asia and in
Australia and New Zealand. 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. Issued patents and pending applications in the United States and
elsewhere in the world have a presumptive term, if a patent is issued, until 2033.
We own two issued United States patents claiming the Vyleesi drug substance. One patent has expired, and the other
patent, which would have otherwise expired in 2020, has been granted a five-year extension, the maximum period 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, or the Hatch-Waxman Amendments. This patent
now expires on June 28, 2025. In addition, the claims of the outstanding patent covering Vyleesi 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 patents 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. The presumptive term
of the issued patents 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 three issued patents in the United States and issued patents in Australia, Canada,
China, France, Germany, Ireland, Japan, Israel, Korea, New Zealand, Russia, South Africa, Switzerland and the United
Kingdom and pending patent applications on the same class in Brazil, China, India, and Mexico. 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 five issued patents in the United States, and issued patents in Australia, Belgium, Canada, China, France,
Germany, Ireland, Israel, Japan, Korea, Mexico, New Zealand, Russia, South Africa, Sweden, Switzerland and the United
Kingdom claiming highly selective MC1r agonist peptides, including for treatment of inflammation-related diseases
and disorders and related indications, and pending patent applications in Australia, Brazil, and India. 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 two issued United States patents claiming the PL3994 substance and other natriuretic peptide receptor
agonist compounds that we have developed and an issued United States patent claiming a precursor molecule to the
PL3994 substance, both of which expire in 2027. Corresponding patents on the PL3994 substance and other
natriuretic peptide receptor agonist compounds were issued in a number of countries throughout the world, but we
will cease maintaining patents outside the United States. We also own an issued United States patent claiming use of
the PL3994 substance for treatment of acute asthma and chronic obstructive pulmonary disease, which expires in
2031.
We have additional issued United States patents on melanocortin receptor specific peptides and small molecules, and
on natriuretic peptide receptor agonist compounds, but we are not actively developing any product candidate
covered by a claim of any of these patents.
We have filed patent applications under the Patent Cooperation Treaty claiming PL9643 and other peptides in
development for ocular and inflammatory disease indications. If a patent is granted, the patents will have a
presumptive term until 2041. 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.
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 (“USPTO”) 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. Additionally, the claims of our issued patents may be narrowed or invalidated by administrative
proceedings, such as interference or derivation, inter partes review, post grant review or reexamination proceedings
before the USPTO.
7
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 Vyleesi or our other product candidates, 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 with 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.
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 (“FFDCA”), and by state and local governments, as well as ministries of health
and other authorities in foreign governments. 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:
completion of preclinical laboratory tests, preclinical animal testing and formulation studies;
submission to the FDA of an Investigational New Drug application (“IND”), which must be in effect before
clinical trials may commence;
clinical studies to evaluate safety and efficacy;
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.
8
For new drug products or 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 FDA’s Center for Drug Evaluation and Research
(“CDER”). For combination products, CDER will consult with the Center for Devices and Radiological Health 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 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 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 (“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 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 development is typically conducted in three sequential phases, Phases 1, 2, and 3, involving clinical trials with
increasing numbers 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 data demonstrating the effectiveness and safety 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.
9
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 postmarketing regulatory commitments is not maintained or if problems occur after the product
reaches the marketplace. In addition, the FDA may require postmarketing studies to monitor the effect of approved
products and may limit further marketing of the product based on the results of these postmarketing studies. The
FDA and other government agencies have broad postmarket 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’s current 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.
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.
Postmarketing Regulation
Vyleesi and any other 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:
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
advertising and promotional reporting requirements and restrictions.
10
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, licensees or 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:
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;
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.
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:
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;
11
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 (“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 Patient Protection and Affordable Care Act
(“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 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.
12
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
(“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, the 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 (“FTC”). If the FTC believes the terms or effects of the settlement are anticompetitive,
the 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 (“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 the 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.
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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 the 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 approve an ANDA for a generic drug
that includes the change. An ANDA that contains a section (viii) statement to a method of use patent 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) NDAs. 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 FFDCA, 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 (“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. Vyleesi is classified as a Tier 3 drug by insurers covering Vyleesi. Thus,
reimbursement is limited for Vyleesi for treatment of premenopausal women with HSDD. Flibanserin, sold under the
trade name Addyi, is similarly classified as a Tier 3 drug. Less than full reimbursement by third-party payers may
adversely affect the market acceptance of Vyleesi. Further, healthcare reimbursement systems vary from country to
country, and third-party reimbursement might not be made available for Vyleesi for HSDD under other
reimbursement systems.
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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.
Vyleesi is manufactured using contract manufacturing companies. Pursuant to the termination of the license
agreement with AMAG, we have assumed contracts relating to manufacturing, and intend to manufacture Vyleesi for
sales in the United States and to our licensees throughout the world.
Our PL3994 product candidate is a peptide mimetic molecule, incorporating a proprietary amino acid mimetic
structure and amino acids. We have had a contract manufacturer make the active pharmaceutical ingredient in
quantities sufficient for Phase 1 and Phase 2.
Our MC1r and MCr agonist product candidates are synthetic peptides. We have had a contract manufacturer make
both the PL8177 and PL9643 peptides in suitable scale for toxicity studies and under GMP for clinical trial use. The
PL8177 drug product for uveitis has been manufactured for clinical trial use, and manufacturing process development
is ongoing for an oral formulation of PL8177 preparatory to manufacturing oral PL8177 drug product for clinical trial
use. While the production process for making peptide active pharmaceutical ingredient involves well-established
technology, there are a limited number of 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. Manufacturing drug product, such as the
oral formulation of PL8177, similarly may involve production, formulation and other problems not present in
manufacturing at laboratory scale.
The failure of any manufacturer or supplier to comply with FDA regulations, including GMP or medical device quality
systems regulations (“QSR”), or to supply the device component or drug substance and services as agreed, would
force us or our licensees to seek alternative sources of supply and could interfere with our and our licensees’ 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 that 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 product liability and commercialization risks and certain clinical trial risks.
Employees
As of September 24, 2021 we employed 26 people full time, of whom 17 are engaged in research and development
activities and nine are engaged in administration and management, and did not have any 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 rely on
consultants and contractors to provide services for marketing and distribution of Vyleesi. 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 Annual Report. The reference to our website is an inactive textual
reference only.
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The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC (www.sec.gov).
Item 1A. Risk Factors.
Risks Related to Our Financial Results and Need for Financing
We have a history of substantial net losses, including a net loss of $33.6 million for the year
We have a history of substantial net losses, including a net loss of $33.6 million for the year
ended June 30, 2021, and expect to incur substantial net losses over the next few years, and
ended June 30, 2021, and expect to incur substantial net losses over the next few years, and
we may never achieve or maintain profitability.
we may never achieve or maintain profitability.
As of June 30, 2021, we had an accumulated deficit of $351.8 million. We had $33.6 million in net loss for the year ended
June 30, 2021, compared to $22.4 million in net loss for the year ended June 30, 2020. We may not sustain profitability
in future years, depending on numerous factors, including profitability of Vyleesi, whether and when development and
sales milestones are met, whether and when we enter into license agreements for any of our products under
development, regulatory actions by the FDA and other regulatory bodies, the performance of our licensees, and
market acceptance of our products.
We expect to incur significant expenses as we continue our development of MC1r, MCr and natriuretic peptide
receptor products. These expenses, among other things, have had and will continue to have an adverse effect on our
stockholders’ equity, total assets and working capital.
Until we commenced selling Vyleesi in July 2020 upon termination of our license agreement with AMAG, since 2005 we
have not had any products available for commercial sale and have not received any revenues from the sale of our
product candidates. Because our marketing program for Vyleesi is relatively new, and because of the impact of COVID-
19 on marketing outreach, we cannot accurately forecast sales of Vyleesi. However, we had negative sales after
product allowances for the year ended June 30, 2021, and may have sales and marketing expenditures in excess of
product sales in future years. For the foreseeable future, we will have to fund our operations and capital expenditures
from license, royalty and contract revenue under license agreements, existing cash balances and outside sources of
financing, which may not be available on acceptable terms, if at all. We will not have product revenue from our
products in development unless and until we receive approval from the FDA or other equivalent regulatory authorities
outside the United States, and to date the only approved product is Vyleesi in the United States. 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 will need additional funding, including funding to complete clinical trials for our product
We will need additional funding, including funding to complete clinical trials for our product
candidates other than Vyleesi, which may not be available on acceptable terms, if at all.
candidates other than Vyleesi, which may not be available on acceptable terms, if at all.
We intend to focus future efforts on our MC1r product candidates, primarily for ocular indications, and secondarily on
our natriuretic peptide product candidates. As of June 30, 2021, we had cash and cash equivalents of $60.1 million, with
current liabilities of $10.5 million. We believe we have sufficient existing capital resources to fund our planned
operations through at least September 2022. We will need additional funding to complete development activities and
required clinical trials for our MC1r product candidates and, if those clinical trials are successful (which we cannot
predict), to complete submission of required regulatory applications to the FDA.
We cannot predict product sales for Vyleesi for HSDD in the United States, so we may not have significant recurring
revenue and may need to 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, such financing arrangements 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:
our ability to develop and maintain manufacturing, marketing and distribution capability for sales of Vyleesi in
the United States, including our ability to enter into agreements with one or more third parties to conduct
activities relating to the commercialization of Vyleesi;
our ability to enter into one or more licensing or similar agreements for Vyleesi outside of Korea and China;
the timing of obtaining regulatory approvals for Vyleesi for HSDD in markets outside the United States;
the expense and timing of obtaining regulatory approvals for 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 our future product candidates, and
conducting preclinical and clinical trials;
the cost of commercialization activities if any future product candidates are approved for sale, including
marketing, sales and distribution costs;
the cost of manufacturing any future product candidates and any products we successfully commercialize;
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.
We have a limited operating history upon which to base an investment decision.
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, through contract manufacturers, our principal
product candidates on a small-scale basis. These operations provide a limited basis for stockholders to assess our
ability to commercialize our product candidates.
While we completed Phase 3 clinical trials on Vyleesi for HSDD in premenopausal women, together with AMAG filed an
NDA on Vyleesi for HSDD with the FDA, and received approval on Vyleesi from the FDA, 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:
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.
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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:
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;
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 the
FDA’s current GMP regulations;
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 develop, 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.
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We have limited authorized shares available to raise additional capital through public or
We have limited authorized shares available to raise additional capital through public or
private equity offerings, which limits our ability to raise additional capital.
private equity offerings, which limits our ability to raise additional capital.
We are currently authorized to issue up to 300,000,000 shares of common stock, and approximately 90% of our
authorized common stock is now issued, reserved for issuance on conversion of Series A preferred stock, or reserved
for issuance under existing warrants, options, restricted stock units and stock incentive plans. The amount of common
stock that is not issued or reserved for issuance is insufficient for future financings that will be required to continue
product development and is insufficient for certain actions designed to increase value to stockholders, including,
without limitation, strategic acquisitions or granting equity incentives to key employees or contractors. We may be
required to raise required additional fund through alternative means which may ultimately be detrimental to existing
stockholders, which may include:
issuance of preferred stock which would have rights and preferences superior to common stock, which may
be more dilutive than issuing common stock;
entering into license or similar agreements relating to one or more of our products, which may require us to
relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not
favorable to us, and ultimately raise less money than through the issuance of common stock; and
entering into debt facilities and/or product-specific financing agreements with financial or investment
institutions, which may significantly reduce prospective upfront license or similar payments and revenues or
royalties on the sale of our products.
Raising additional capital may cause dilution to existing shareholders, restrict our
Raising additional capital may cause dilution to existing shareholders, restrict our
operations, or require us to relinquish rights.
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
The commercial success of Vyleesi for HSDD is a component of our corporate strategy, but we
The commercial success of Vyleesi for HSDD is a component of our corporate strategy, but we
and our licensees may never successfully commercialize Vyleesi for HSDD or obtain approvals
and our licensees may never successfully commercialize Vyleesi for HSDD or obtain approvals
in countries other than the United States.
in countries other than the United States.
We invested most of our efforts and financial resources in the research and development of Vyleesi for HSDD until it
was approved by the FDA in June 2019. Since July 24, 2020, the effective date of the termination of our license
agreement with AMAG for Vyleesi, we have been responsible for manufacturing, marketing, and distribution of Vyleesi
in the United States. We licensed all rights to commercialize Vyleesi in China to Fosun and in Korea to Kwangdong. We
have not yet received regulatory approval to commercialize Vyleesi in China or Korea, and regulatory approval in these
countries cannot be assured.
Our near-term prospects, including our ability to finance our company and generate revenue, will be impacted by the
successful commercialization of Vyleesi for HSDD, as well as preclinical and clinical results with our future product
candidates. The clinical and commercial success of Vyleesi and our product candidates will depend on a number of
factors, including the following:
timely completion of, or need to conduct additional clinical trials and studies, for our product candidates,
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;
the ability to demonstrate to the satisfaction of the FDA the safety and efficacy of future product candidates
through clinical trials;
whether we or our licensees are required by the FDA or other similar foreign regulatory agencies to conduct
additional clinical trials to support the approval of Vyleesi and future product candidates;
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our ability to successfully manufacture Vyleesi for worldwide markets;
our success and the success of our licensees in educating physicians and patients about the benefits,
administration and use of Vyleesi for HSDD;
the prevalence and severity of adverse events experienced with Vyleesi for HSDD or any future product
candidates or approved products;
the adequacy and regulatory compliance of the autoinjector device, supplied by an unaffiliated third party,
used as part of the Vyleesi combination product;
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
whether our stockholders agree, in a future meeting, to increase our authorized shares of common stock to
permit us to implement future financings to ensure the advancement of our development programs and for
possible acquisitions of other product assets or companies;
our ability to raise additional capital on acceptable terms to achieve our goals;
achieving and maintaining compliance with all regulatory requirements applicable to Vyleesi for HSDD 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;
the ability to manufacture clinical trial supplies of 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 Vyleesi for HSDD in the United States;
our ability to successfully commercialize 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 Vyleesi for HSDD or any future product
candidates;
our ability to avoid third-party patent interference or intellectual property infringement claims;
acceptance of Vyleesi for HSDD 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 Vyleesi for HSDD or any future product candidates
following approval.
If we fail to satisfy any one of these prerequisites to our commercial success, 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
direct sales of Vyleesi for HSDD in the United States and the license agreements with Fosun and Kwangdong, or
through the sale of any future product candidate, to continue our business. In addition to preventing us from
executing our current business plan, any delays in our clinical trials, or inability to successfully commercialize our
products could impair our reputation in the industry and the investment community and could hinder our ability to
fulfill our existing contractual commitments. As a result, our share price would likely decline significantly, and we would
have difficulty raising necessary capital for future projects.
Production and supply of Vyleesi depend on contract manufacturers over whom we do not
Production and supply of Vyleesi depend on contract manufacturers over whom we do not
have any control, and there may not be adequate supplies of Vyleesi.
have any control, and there may not be adequate supplies of Vyleesi.
We do not have the facilities to manufacture the Vyleesi active drug ingredient or the autoinjector pen component of
the Vyleesi combination product, or to fill, assemble and package the Vyleesi combination product. We have contracts
with third parties to make the Vyleesi combination product. The 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 is limited to contractual remedies and rights of inspection. The manufacturers of approved
products and their manufacturing facilities will be subject to ongoing review and periodic inspections by the FDA and
other authorities where applicable, and must comply with regulatory requirements, including FDA regulations
concerning GMP. Failure of third-party manufacturers to comply with GMP, medical device quality system regulations,
or other FDA requirements may result in enforcement action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay or negatively impact our ability to market Vyleesi. Establishing
relationships with new suppliers, who must be FDA-approved, is a time-consuming and costly process. If we are not
able to obtain adequate supplies of Vyleesi, it will be difficult for us to market and commercialize Vyleesi and compete
effectively.
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The effect of COVID-19 and other possible pandemics and outbreaks could result in material
The effect of COVID-19 and other possible pandemics and outbreaks could result in material
adverse effects on our clinical trials, business, financial condition. and results of operations.
adverse effects on our clinical trials, business, financial condition. and results of operations.
We have active and planned clinical trial sites in the United States and planned clinical trial sites in Europe, and our
licensees have planned clinical trial sites in Asia-Pacific countries. As the COVID-19 pandemic continues around the
globe, we will likely experience disruptions that could severely impact our planned clinical trials, including Phase 3
clinical trials with PL9643 in the United States for dry eye disease, a Phase 2 clinical trial with PL8177 for ulcerative
colitis, a Phase 2 clinical trial with PL3994, an NPR-A agonist, in heart failure patients in collaboration with two major
academic medical centers, and clinical trials planned to be conducted in the People’s Republic of China and the
Republic of Korea by our licensees for Vyleesi, Fosun and Kwangdong.
It is possible that the COVID-19 pandemic may delay enrollment in our clinical trials due to prioritization of medical
and hospital resources toward the outbreak, and some patients may be unwilling to enroll in our trials or be unable to
comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which
would delay our ability to conduct clinical trials or release clinical trial results.
The COVID-19 pandemic may also result in the inability of our suppliers to deliver clinical drug supplies on a timely
basis or at all. In addition, medical centers and hospitals may reduce staffing and reduce or postpone certain
treatments in response to the spread of an infectious disease. Such events may result in a period of business
disruption, and in reduced operations, or doctors and medical providers may be unwilling to participate in our clinical
trials.
The COVID-19 pandemic and measures to prevent the spread of COVID-19 subject us to various risks and uncertainties
that could materially adversely affect our clinical trials, business, financial condition, and results of operation, including
the following:
our ability to recruit subjects for clinical trials and studies for our product candidates and to timely complete
clinical trials and other studies;
our ability to successfully market Vyleesi, given significant limitations in person-to-person marketing and
contacts, including limitations in educating physicians and other health care professionals about the benefits,
administration and use of Vyleesi for HSDD;
adverse impacts on our ability to manufacture and distribute Vyleesi, including due to the negative impact of
COVID-19 on air travel, as well as temporary disruptions, restrictions or closures of facilities of our suppliers
and contract manufacturers in the Vyleesi manufacturing chain;
adverse impacts of COVID-19 on our ability to successful manufacture product candidates for clinical trials and
to successfully manufacture Vyleesi for the United States market and clinical trials elsewhere in the world;
adverse impacts on our operations resulting from remote working arrangements;
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials,
including because of sickness of employees or their families, delays or difficulties in conducting site visits and
other required travel, and the desire of employees to avoid contact with large groups of people;
the inability of global suppliers of raw materials or components used in the manufacture of our products, or
contract manufacturers of our products, to supply and/or transport those raw materials, components and
products to us in a timely and cost effective manner due to shutdowns, interruptions or delays, limiting and
precluding the production of our finished products, impacting our ability to supply customers, reducing our
sales, increasing our costs of goods sold, and reducing our absorption of overhead;
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the illiquidity or insolvency of our suppliers, vendors and customers, or their inability to pay our invoices in full
or in a timely manner, due to the reduction in their revenues caused by the cancellation or delay of
procedures and other factors, which could potentially reduce our cash flow and our liquidity;
delays in our ability, and the ability of our development partners, to conduct, enroll and complete clinical
development programs;
the instability to worldwide economies, financial markets, social institutions, labor markets and the healthcare
systems as a result of the COVID-19 pandemic, which could result in an economic downturn that could
adversely impact our business, results of operations and financial condition, as well as that of our investors,
suppliers, customers or other business partners;
changes in customer behavior and preferences for Vyleesi, as customers may experience financial difficulties
or may delay or reduce their spending in light of COVID-19; and
the continuation or exacerbation of the COVID-19 pandemic after social distancing and other similar measures
have been relaxed.
Most of our employees have transitioned to remote working arrangements, and we have not determined how long
these arrangements will last. While remote working has not had a significant adverse impact on our financial results or
our operations to date, there can be no assurance that these arrangements will not ultimately result in lower work
efficiency and productivity, which in turn may adversely affect our business. Certain employees, such as laboratory
personnel, cannot work remotely, and COVID-19 may adversely affect our ability to conduct research and preclinical
studies, and undertake other activities related to development of potential products.
The extent to which the global COVID-19 pandemic impacts our business will depend on future developments, which
are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of
COVID-19 and the actions to contain or treat its impact, among others. The COVID-19 pandemic has adversely affected
economies and financial markets worldwide, resulting in an economic downturn that could impact our business,
financial condition, and results of operations, including our ability to obtain additional funding, if needed.
Our product candidates other than Vyleesi, including PL9643 for dry eye disease and PL8177
Our product candidates other than Vyleesi, including PL9643 for dry eye disease and PL8177
for the treatment of ulcerative colitis, are still in the early stages of development and
for the treatment of ulcerative colitis, are still in the early stages of development and
remain subject to clinical testing and regulatory approval. If we are unable to successfully
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.
develop and test our product candidates, we will not be successful.
Our product candidates, including PL9643 for dry eye disease and PL8177 for the treatment of ulcerative colitis, 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:
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;
for injectable products, inability to develop or obtain a supplier for a suitable autoinjector device that meets
the FDA’s medical device requirements;
insufficient data to support regulatory approval;
inability or unwillingness of medical investigators to follow our clinical protocols;
inability to add a sufficient number of clinical trial sites; or
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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:
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
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
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.
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:
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 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 (“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 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.
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We may not be able to secure and maintain relationships with research institutions and
We may not be able to secure and maintain relationships with research institutions and
other organizations to conduct our clinical trials.
other organizations to conduct our clinical trials.
We rely on research institutions and other organizations to conduct our clinical trials, and we therefore have limited
control over the timing and cost of clinical trials and our ability to recruit subjects. If we are unable to reach
agreements with suitable research institutions or organizations on acceptable terms, or if any such agreement is
terminated, we may be unable to quickly replace the research institution or organization with another qualified
institution or organization on acceptable terms. We may not be able to secure and maintain suitable research
institutions or organizations to conduct our clinical trials.
Even if our product candidates receive regulatory approval, they may never achieve market
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
acceptance, in which case our business, financial condition and results of operation will be
materially adversely affected.
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:
perceptions by members of the healthcare community, including physicians, about the safety and
effectiveness of any such product;
cost-effectiveness relative to competing products and technologies;
availability of reimbursement for our products from third-party payers such as health insurers, HMOs and
government programs such as Medicare and Medicaid; and
advantages over alternative treatment methods.
There is one other FDA approved product for treatment of HSDD, flibanserin, which is sold under the trade name
Addyi, and started marketing in October 2015. While we believe that an on-demand drug for HSDD has competitive
advantages compared to chronic or daily use drugs, we may not be able to realize this perceived advantage in the
market. Vyleesi is administered by subcutaneous injection. While the single-use, disposable autoinjector pen format is
designed to maximize market acceptability, Vyleesi as a subcutaneous injectable drug for HSDD may never achieve
significant market acceptance. In addition, we believe reimbursement of Vyleesi from third-party payers such as health
insurers, HMOs or other third-party payers of healthcare costs will be similar to reimbursement for flibanserin and
erectile dysfunction (“ED”) drugs, and that the ultimate user may pay a substantial part of the cost of Vyleesi for HSDD.
If the market opportunity for Vyleesi 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 Vyleesi. If Vyleesi for HSDD 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
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.
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 Vyleesi or any of our product candidates (either
If side effects emerge that can be linked to Vyleesi or any of our product candidates (either
while they are in development or after they are approved and on the market), we may be
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
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
products, or withdraw such products from the market, any of which would hinder or preclude
our ability to generate revenues.
our ability to generate revenues.
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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, or if
the incidence of side effects increase or other problems are observed with Vyleesi, a number of potentially significant
negative consequences could result, including:
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;
we may become the target of lawsuits, including class action suits; and
our reputation in the marketplace 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.
We may not be able to keep up with the rapid technological change in the biotechnology and
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
pharmaceutical industries, which could make any future approved products obsolete and
reduce our revenue.
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.
Competing products and technologies may make our proposed products noncompetitive.
Flibanserin, a daily-use oral drug sold under the trade name Addyi, has been approved by the FDA for HSDD in
premenopausal women. There are other products reported as being developed for HSDD and other FSD indications,
including oral combination drugs, some of which incorporate testosterone, antidepressants, or PDE-5 inhibitors. There
is competition to develop drugs for treatment of HSDD and FSD in both premenopausal and postmenopausal
patients. Our Vyleesi drug product is 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 Vyleesi noncompetitive.
There are a number of products approved for use in treating inflammatory diseases and indications, and other
products are being developed, including products in clinical trials. The dry eye disease and ocular inflammatory disease
markets are highly competitive, with a number of marketed products and products reported to be in late-stage clinical
trials. Similarly, the inflammatory bowel disease and ulcerative colitis markets are highly competitive, with a number of
marketed products and products reported to be in late-stage clinical trials.
In general, the biopharmaceutical industry is highly competitive. We are likely to encounter significant competition
with respect to Vyleesi, MC1r product candidates, MCr product candidates and NPR product candidates. 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 more rapidly than we can. These competitive products or technologies may be more effective and useful
or less costly than Vyleesi or our MC1r product candidates, MCr product candidates and NPR product candidates. 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.
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We rely on third parties over whom we have no control to conduct preclinical studies, clinical
We rely on third parties over whom we have no control to conduct preclinical studies, clinical
trials and other research for our product candidates and their failure to timely perform their
trials and other research for our product candidates and their failure to timely perform their
obligations could significantly harm our product development.
obligations could significantly harm our product development.
We have limited research and development staff. 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 meet expected deadlines or fail to comply with appropriate standards for
preclinical or clinical research, 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
Production and supply of our product candidates depend on contract manufacturers over
whom we have no control, with the risk that we may not have adequate supplies of our
whom we have no control, with the risk that we may not have adequate supplies of our
product candidates or products.
product candidates or products.
We do not have the facilities to manufacture our early-stage potential products such as PL8177, PL9643, PL3994 and
other natriuretic peptide and melanocortin receptor agonist compounds for use in preclinical studies and clinical trials.
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 is limited to contractual remedies and rights of
inspection. The manufacturers of our potential 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 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. Establishing relationships with new suppliers,
who must be FDA-approved, is a time-consuming and costly process.
If we are unable to establish sales and marketing capabilities within our organization or
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 Vyleesi and our
enter into and maintain agreements with third parties to market and sell Vyleesi and our
product candidates, we may be unable to generate product revenue.
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 are
currently working to establish sales and marketing capabilities for Vyleesi in the United States, including through
establishing agreements with third parties to market and sell Vyleesi. We may not be able to enter into suitable
agreements on acceptable terms, if at all, with third parties to market and sell Vyleesi. Engaging a third party to
perform these services could impede sales of Vyleesi. If we are unable to establish adequate sales, marketing, and
distribution capabilities for Vyleesi, whether independently or with third parties, we may not be able to generate
sufficient product revenue to support Vyleesi-associated costs and expenses, and our business would suffer. In
addition, if we enter into arrangements with third parties to perform sales, marketing and distribution services, we will
be dependent on the performance of third parties over whom we have limited control.
If any of our products candidates are approved by the FDA or other regulatory authorities, we must enter into
agreements with third parties to market these product candidates or 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 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.
We need to hire additional employees in order to commercialize Vyleesi and our product
We need to hire additional employees in order to commercialize Vyleesi and our product
candidates in the future. Any inability to manage future growth could harm our ability to
candidates in the future. Any inability to manage future growth could harm our ability to
commercialize Vyleesi and ultimately our product candidates, increase our costs and
commercialize Vyleesi and ultimately our product candidates, increase our costs and
adversely impact our ability to compete effectively.
adversely impact our ability to compete effectively.
To commercialize Vyleesi and ultimately our product candidates, we will need to hire or contract with 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.
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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.
Our ability to achieve revenues from the sale of our products will depend, in part, on our
Our ability to achieve revenues from the sale of our products will depend, in part, on our
ability to obtain adequate reimbursement from private insurers and other healthcare
ability to obtain adequate reimbursement from private insurers and other healthcare
payers.
payers.
Our ability to successfully commercialize our products, including Vyleesi and 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. Vyleesi for HSDD is classified as a Tier 3 drug, so reimbursement for Vyleesi is
limited for treatment of premenopausal women with HSDD.
Even if we receive regulatory approval for our products in Europe, we may not be able to
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
secure adequate pricing and reimbursement in Europe for us or any strategic partner to
achieve profitability.
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
We may incur substantial liabilities and may be required to limit commercialization of our
products in response to product liability lawsuits.
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 $10 million liability
insurance in the aggregate as to certain product liability and commercialization risks and 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.
Our internal computer systems, or those of our third-party contractors or consultants, may
Our internal computer systems, or those of our third-party contractors or consultants, may
fail or suffer security breaches, which could result in a material disruption of our product
fail or suffer security breaches, which could result in a material disruption of our product
development programs.
development programs.
In the ordinary course of our business, we collect, store and transmit confidential information. Despite the
implementation of security measures, our internal computer systems and those of our third-party contractors and
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war
and telecommunication and electrical failures. We rely on industry accepted measures and technology to secure
confidential and proprietary information maintained on our computer systems. However, these measures and
technology may not adequately prevent security breaches. While we do not believe that we have experienced any
such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our
operations, it could result in a loss of clinical trial data for our product candidates that could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Cyberattacks are
increasing in their frequency, sophistication, and intensity. Cyberattacks could include the deployment of harmful
malware, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the
confidentiality, integrity and availability of information. Significant disruptions of our information technology systems
or security breaches could adversely affect our business operations and/or result in the loss, misappropriation, and/or
unauthorized access, use or disclosure of, or the prevention of access to, confidential information (including trade
secrets or other intellectual property, proprietary business information and personal information), and could result in
financial, legal, business, and reputational harm to us. To the extent that any disruption or security breach results in a
loss of or damage to our data or applications or other data or applications relating to our technology, intellectual
property, research and development or product candidates, or inappropriate disclosure of confidential or proprietary
information, we could incur liabilities and the further development of our product candidates could be delayed.
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We may be subject to claims that our employees, consultants, or independent contractors
We may be subject to claims that our employees, consultants, or independent contractors
have wrongfully used or disclosed confidential information of third parties or that our
have wrongfully used or disclosed confidential information of third parties or that our
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We may in the future employ individuals who were previously employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our
employees, consultants, and independent contractors do not use the proprietary information or know-how of others
in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors
have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary
information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend
against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management and
other employees.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse
laws, false claims laws, and health information privacy and security laws. If we are unable to
laws, false claims laws, and health information privacy and security laws. If we are unable to
comply, or have not fully complied, with such laws, we could face substantial penalties.
comply, or have not fully complied, with such laws, we could face substantial penalties.
If we begin commercializing any of our products in the United States, our operations may be directly, or indirectly
through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the
federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws
may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be
subject to patient privacy regulation by both the federal government and the states in which we conduct our
business. The laws that may affect our ability to operate include:
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;
federal civil and criminal false claims laws and civil monetary penalty 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 payors that are false or fraudulent;
HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any
healthcare benefit program and making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing
regulations, which imposes certain requirements relating to 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 U.S. Department of Health and
Human Services information related to payments and other transfers of value to physicians, other healthcare
providers, and teaching hospitals, and ownership and investment interests held by physicians and other
healthcare providers and their immediate family members and applicable group purchasing organizations;
and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may
apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that
require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise
restrict payments that may be made 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
physicians and other 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, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or
entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Affordable
Care Act provides 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 False Claims Act.
If our operations are found to be in violation of any of the laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and
the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our
business and our results of operations.
We are highly dependent on our management team, senior staff professionals and third-
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
party contractors and consultants, and the loss of their services could materially adversely
affect our business.
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 Vyleesi, PL8177, PL9643, PL3994 and our other
preclinical programs for MC1r and MC4r peptide or small molecule drug candidates and natriuretic 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, including
commercialization, who possess significant technical expertise and experience and oversee our development and
commercialization 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.
Existing coverage for Vyleesi for the treatment of HSDD is classified as a Tier 3 drug by third-
Existing coverage for Vyleesi for the treatment of HSDD is classified as a Tier 3 drug by third-
party payers, so that demand for Vyleesi is tied to discretionary spending levels of our
party payers, so that demand for Vyleesi is tied to discretionary spending levels of our
targeted patient population and particularly affected by unfavorable economic conditions.
targeted patient population and particularly affected by unfavorable economic conditions.
The market for HSDD may be particularly vulnerable to unfavorable economic conditions. Vyleesi for the treatment of
HSDD has significant copay or deductible requirements and is frequently only partially reimbursed by third-party
payers and, as a result, demand for this product may be tied to discretionary spending levels of our targeted patient
population. A severe or prolonged economic downturn could result in a variety of risks to our business, including
weakened demand for Vyleesi for HSDD.
Risks Related to Government Regulation
Both before and after marketing approval, our product candidates are subject to ongoing
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
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 subject to a variety of sanctions and the sale of any approved commercial products
could be suspended.
could be suspended.
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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:
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 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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The regulatory approval process is lengthy, expensive and uncertain, and may prevent us
The regulatory approval process is lengthy, expensive and uncertain, and may prevent us
from obtaining the approvals that we require.
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:
completion of non-clinical tests including preclinical laboratory and formulation studies and animal testing
and toxicology;
submission to the FDA of an 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 an 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.
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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 twelve 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.
Some of our products or product candidates may be used in combination with a drug delivery device, such as an
injector or other delivery system. Vyleesi is considered a drug-device combination product because of its injection
delivery device. 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.
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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
postmarketing 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 (“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.
The FDA has required that two postmarketing studies and a clinical trial be conducted on
The FDA has required that two postmarketing studies and a clinical trial be conducted on
Vyleesi.
Vyleesi.
In its approval of Vyleesi, under the FFDCA the FDA imposed certain postmarketing requirements, consisting of two
studies, one a prospective, registry-base, observational cohort study that compares obstetrical, maternal,
fetal/neonatal, and infant outcomes in women exposed to Vyleesi during pregnancy to an internal, unexposed cohort
of pregnant women, and the other a retrospective cohort study using electronic claims data that compares maternal,
fetal/neonatal, and infant outcomes in women exposed to Vyleesi during pregnancy to an internal, unexposed cohort
of pregnant women, and one clinical trial in lactating women who have received Vyleesi to assess potential adverse
effects in the breastfed infant and measure bremelanotide concentrations in breast milk using a validated assay. We
are evaluating requirements, timelines and costs for these studies and the clinical trial. We do not know the outcomes
of the studies or the clinical trial, and do not know whether the outcomes would adversely affect approvals of Vyleesi.
Legislative or regulatory healthcare reforms in the United States may make it more difficult
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 any future product candidates
and costly for us to obtain regulatory clearance or approval of any future product candidates
and to produce, market and distribute our products after clearance or approval is obtained.
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 Vyleesi for HSDD 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:
require changes to manufacturing methods;
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.
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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.
Changes in healthcare policy could adversely affect our business.
Our industry is highly regulated, and changes in law may adversely impact our business, operations, or financial
results. In the U.S., there have been and continue to be a number of legislative initiatives to contain healthcare costs.
For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education
Reconciliation Act of 2010 (the “PPACA”) is a sweeping measure intended to, among other things, expand healthcare
coverage within the U.S., primarily through the imposition of health insurance mandates on employers and individuals
and expansion of the Medicaid program. Several provisions of the law have affected us and increased certain of our
costs. Since its enactment, there have been executive, judicial, and congressional challenges to certain aspects of the
PPACA. In addition, other legislative changes have been adopted since the PPACA was enacted. Some of these changes
have resulted in additional reductions in Medicare and other healthcare funding.
We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future in the
U.S. or abroad, may result in more rigorous coverage criteria and an additional downward pressure on the
reimbursement our customers may receive for our products. Recently there has been heightened governmental
scrutiny in countries worldwide over the manner in which manufacturers set prices for their marketed products.
In the U.S., there have been several recent congressional inquiries and proposed and enacted federal and state
legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government
program reimbursement methodologies for drug products. For example, at the federal level, during the former Trump
administration there were multiple executive orders issued, initiatives implemented and calls for legislation form
Congress to reduce drug prices, increase competition and reduce out of pocket costs of drugs for patients. The
likelihood of implementation of any of the former Trump administration healthcare reform initiatives is uncertain,
particularly in light of the new Biden administration and its implementation of a regulatory freeze. Any reduction in
reimbursement from Medicare and other government programs may result in a similar reduction in payments from
private payers. In addition, individual states in the U.S. have also increasingly passed legislation and implemented
regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing. Moreover, regional
healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what
pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare
programs. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
Legally mandated price controls on payment amounts by governmental and private third-party payers or other
restrictions could harm our business, results of operations, financial condition, and prospects. The implementation of
cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability or commercialize our products.
For more information regarding government healthcare reform, see “U.S. Governmental Regulation of Pharmaceutical
Products” in Part I, Item 1 of this Annual Report on Form 10-K.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual property rights or secure rights to
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.
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:
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:
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
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.
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 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
If we infringe or are alleged to infringe intellectual property rights of third parties, our
business could be harmed.
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.
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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
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.
Our patent applications and the enforcement or defense of our issued patents may be
Our patent applications and the enforcement or defense of our issued patents may be
impacted by the application of or changes in U.S. and foreign standards.
impacted by the application of or changes in U.S. and foreign standards.
The standards that the USPTO and foreign patent offices use to grant patents are not always applied predictably or
uniformly and can change. Consequently, our pending patent applications may not be allowed and, if allowed, may
not contain the type and extent of patent claims that will be adequate to conduct our business as planned.
Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than
expected or may not contain claims that will permit us to stop competitors from using our technology or similar
technology or from copying our product candidates. Similarly, the standards that courts use to interpret patents are
not always applied predictably or uniformly and may evolve, particularly as new technologies develop. In addition,
changes to patent laws in the United States or other countries may be applied retroactively to affect the validation
enforceability, or term of our patent. For example, the U.S. Supreme Court has recently modified some legal standards
applied by the USPTO in examination of U.S. patent applications, which may decrease the likelihood that we will be
able to obtain patents and may increase the likelihood of challenges to patents we obtain or license. In addition,
changes to the U.S. patent system have come into force under the Leahy-Smith America Invents Act, or the Leahy-
Smith Act, which was signed into law in September 2011. The Leahy-Smith Act included significant changes to U.S.
patent law. These include provisions that affect the way patent applications are prosecuted and also affect patent
litigation. Under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to file” system in which
the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art
before the issuance of a patent by the USPTO, and may become involved in opposition, derivation, reexamination,
inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent
rights, which could adversely affect our competitive position.
While we cannot predict with certainty the impact the Leahy-Smith Act or any potential future changes to the U.S. or
foreign patent systems will have on the operation of our business, the Leahy-Smith Act and such future changes could
increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents, all of which could have a material adverse effect on our business, results of operations,
financial condition and cash flows and future prospects.
We may not be able to protect our intellectual property rights throughout the world.
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.
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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
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.
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 and may not provide
an adequate remedy in the event of unauthorized disclosure of confidential 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 or adversely affect our competitive position.
R isks R e lat e d t o t h e Own e rsh ip of Ou r Com m on St oc k
R isks R e lat e d t o t h e Own e rsh ip of Ou r Com m on St oc k
Our stock price is volatile and may fluctuate in a way that is disproportionate to our
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’
operating performance and we expect it to remain volatile, which could limit investors’
ability to sell stock at a profit.
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:
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 the structure of healthcare payment systems or other actions that affect the effective
reimbursement rates for treatment regimens containing our products;
changes in financial estimates and recommendations by securities analysts following our business or our
industry;
sales of our common stock, or the perception that such sales could occur; and
the other factors described in this “Risk Factors” section.
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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, 2021, the price of our stock has been volatile, ranging from a high of $1.30 per
share to a low of $0.38 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.
As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002
As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”). We can provide no assurance that we will, at all times, in the future be
(“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.
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. Ensuring that we have adequate internal financial and accounting controls and procedures in place to
produce accurate financial statements on a timely basis is 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
If securities or industry analysts do not publish research or publish unfavorable research
about our business, our stock price and trading volume could decline.
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 us, 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.
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 24, 2021. 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.
38
Because we do not anticipate paying any cash dividends on our common stock in the
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.
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 24, 2021, 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
Anti-takeover provisions of Delaware law and our charter documents may make potential
acquisitions more difficult and could result in the entrenchment of management.
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.
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.
We are a smaller reporting company and the reduced disclosure requirements applicable to
We are a smaller reporting company and the reduced disclosure requirements applicable to
smaller reporting companies may make our common stock less attractive to investors.
smaller reporting companies may make our common stock less attractive to investors.
We are currently a “smaller reporting company” as defined in the Exchange Act. Smaller reporting companies are able
to provide simplified executive compensation disclosures in their filings and have certain other decreased disclosure
obligations in their SEC filings. We cannot predict whether investors will find our common stock less attractive because
of our reliance on the smaller reporting company exemption. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
As of September 24, 2021 there were 39,896,902 shares of common stock underlying
As of September 24, 2021 there were 39,896,902 shares of common stock underlying
outstanding convertible preferred stock, options, restricted stock units and warrants.
outstanding convertible preferred stock, options, restricted stock units and warrants.
Stockholders may experience dilution from the conversion of preferred stock, exercise of
Stockholders may experience dilution from the conversion of preferred stock, exercise of
outstanding options and warrants and vesting and delivery of restricted stock units.
outstanding options and warrants and vesting and delivery of restricted stock units.
As of September 24, 2021 holders of our outstanding dilutive securities had the right to acquire the following amounts
of underlying common stock:
66,059 shares issuable on the conversion of our immediately convertible Series A Convertible Preferred Stock,
subject to adjustment, for no further consideration;
21,918,500 shares issuable upon the exercise of stock options at a weighted-average exercise price of $0.72 per
share;
6,495,979 shares issuable under restricted stock units which vest on dates between December 12, 2021 and
June 22, 2025, subject to the fulfillment of service or performance conditions;
6,776,750 shares of common stock which have vested under restricted stock unit agreements, but are subject
to provisions to delay delivery; and
4,639,614 shares issuable upon the exercise of warrants at an exercise price of $0.80 per share, all of which
expire by December 6, 2021.
39
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 American could result in
Our failure to meet the continued listing requirements of the NYSE American could result in
a de-listing of our common stock.
a de-listing of our common stock.
Our common shares are listed on the NYSE American, a national securities exchange, under the symbol “PTN”.
Although we currently meet the NYSE American’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 American’s
listing requirements. If we fail to satisfy the continued listing requirements of the NYSE American, such as the
corporate governance requirements or the minimum closing bid price requirement, the NYSE American may take
steps to de-list our common stock. If the NYSE American 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 American’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 improve the liquidity
of our common stock, prevent our common stock from dropping below the NYSE American minimum bid price
requirement or prevent future non-compliance with the NYSE American’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 American. 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 American, our common stock would not
be covered securities and we would be subject to regulation in each state in which we offer our securities.
Item1B. 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 2025. We also lease
approximately 3,600 square feet of laboratory space in the Township of South Brunswick, NJ under a lease that expires
in October 2023. 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.
40
PAR T II
PAR T II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock has been listed on NYSE American under the symbol “PTN” since December 21, 1999. It previously
traded on The Nasdaq SmallCap Market under the symbol “PLTN.”
On September 24, 2021 we had approximately 106 record holders of common stock and the closing sales price of our
common stock as reported on the NYSE American was $0.46 per share. The aggregate market value of the common
and non-voting common equity held by non-affiliates on such date, computed by reference to the closing sales price
of our common stock on that date, was $104,429,540.
Issuer purchases of equity securities. In certain instances we provide our employees with the option to withhold
shares to satisfy tax withholding amounts due from the employees upon the vesting of restricted stock units and
stock options in connection with our 2011 Stock Incentive Plan. There were no shares withheld during the quarter
ended June 30, 2021, 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 and options.
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 24, 2021,
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 11 of this Annual Report.
Item 6. [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 immediately prior to Part I, under the heading “Forward-Looking Statements.” Forward-looking
statements are subject to risk that could cause actual results to differ materially from those expressed in the forward-
looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that
may affect our business and operating results, including those made in Part I, Item 1A of this Annual Report, and any
of those made in our other reports filed with the SEC. You are cautioned not to place undue reliance on the forward-
looking statements included herein, which speak only as of the date of this document. We do not intend, and
undertake no obligation, to publish revised forward-looking statements to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated events.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in this
Annual Report. We believe that our accounting policies and estimates relating to revenue recognition, accrued
expenses and stock-based compensation are the most critical.
Revenue Recognition
We recognize product revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from
Contracts with Customers (ASC 606). The provisions of ASC 606 require the following steps to determine revenue
recognition: (1) Identify the contract(s) with a customer; (2) Identify the performance obligations in the contract; (3)
Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract; and
(5) Recognize revenue when (or as) the entity satisfies a performance obligation.
41
In accordance with ASC 606, we recognize revenue when our performance obligation is satisfied by transferring control
of the product to a customer. Per our contracts with customers, control of the product is transferred upon the
conveyance of title, which occurs when the product is sold to and received by a customer. Trade accounts receivable
due to us from contracts with our customers are stated separately in the balance sheet, net of various allowances as
described in the Trade Accounts Receivable policy in Note 2- Summary of Significant Accounting Policies in the
accompanying Financial Statements.
Product revenues consist of sales of Vyleesi in the United States. We sell Vyleesi to specialty pharmacies at the
wholesale acquisition cost and payment is currently made within approximately 30 days. In addition to distribution
agreements with customers, we enter into arrangements with healthcare payers that provide for privately negotiated
rebates, chargebacks, and discounts with respect to the purchase of our products.
We record product revenues net of allowances for direct and indirect fees, discounts, co-pay assistance programs,
estimated chargebacks and rebates. Certain of these allowances represent estimates of the related obligations and, as
such, knowledge and judgement are required when estimating the impact of these allowances on gross product sales
for a reporting period. If any of our judgments made during a reporting period are not indicative or accurate estimates
of our future experience, our results could be materially affected. Product sales are also subject to return rights, which
have not been significant to date.
Inventories
Inventory is stated at the lower of cost or net realizable value, with cost being determined on a first-in, first-out basis.
Our inventory, consisting of Vyleesi, has a shelf-life of three years from the date of manufacture.
On a quarterly basis, we review inventory levels to determine whether any obsolete, expired, or excess inventory
exists. If any inventory is expected to expire prior to being sold, has a cost basis in excess of its net realizable value, is
in excess of expected sales requirements as determined by internal sales forecasts, or fails to meet commercial sale
specifications, the inventory is written down through a charge to operating expense. This analysis requires us to make
estimates of forecasted future sales, which are inherently uncertain, and changes in demand, insurance overages,
economic conditions, and other factors could have a significant impact on our forecasts and therefore the estimated
net realizable value of our inventory.
Purchase Commitment Liabilities
Losses on firm commitment contractual obligations are recognized based upon the terms of the respective agreement
and similar factors considered for the write-down of inventory, including expected sales requirements as determined
by internal sales forecasts
Accrued Expenses
Third parties perform a significant portion of our development activities. We review the activities performed under all
contracts each quarter and accrue expenses and the amount of any reimbursement to be received from our
collaborators based upon the estimated amount of work completed. Estimating the value or stage of completion of
certain services requires judgment based on available information. If we do not identify services performed for us but
not billed by the service-provider, or if we underestimate or overestimate the value of services performed as of a given
date, reported expenses will be understated or overstated.
Stock-Based Compensation
We expense the fair value of stock options and other equity awards granted. Compensation costs for stock-based
awards with time-based vesting are determined using the quoted market price of our common stock on the date of
grant or for stock options, the value determined utilizing the Black-Scholes option pricing model, and are recognized
on a straight-line basis, while awards containing a market condition are valued using multifactor Monte Carlo
simulations and are recognized over the derived service period. Compensation costs for awards containing a
performance condition are determined using the quoted price of our common stock on the date of grant or for stock
options, the value is determined utilizing the Black Scholes option pricing model and are recognized based on the
probability of achievement of the performance condition over the service period. The Black-Scholes option pricing
model requires us to make estimates of expected volatility and interest rates, which we estimate based on prior
experience and public sources of information. The expected term of the option used is based upon the simplified
method, which represents the average of the vesting and contractual term. Compensation expense is not adjusted for
subsequent changes in the estimates used to calculate fair value or for actual experience. Forfeitures are recognized as
they occur. As the amount and timing of compensation expense to be recorded in future periods may be affected by
the achievement of performance conditions and employee terminations, stock-based compensation may vary
significantly period to period.
42
See Note 3 to the consolidated financial statements included in this Annual Report for a description of recent
accounting pronouncements that affect us.
Results of Operations
Year Ended June 30, 2021 Compared to the Year Ended June 30, 2020:
Revenue – For the fiscal year ended June 30, 2021 (“fiscal 2021”) we recognized $283,286 of negative product revenue,
net of allowances as the result of our regaining all North American development and commercialization rights to
Vyleesi in July 2020 and $94,689 in license and contract revenue pursuant to our license agreement with Kwangdong.
For the fiscal year ended June 30, 2020 (“fiscal 2020”), we recognized $117,989 in revenue pursuant to our license
agreement with AMAG.
Cost of Products Sold – Cost of products sold was $147,840 for the fiscal year ended June 30, 2021.
Research and Development – Total research and development expenses, including general research and development
spending, were $12,926,559 for fiscal 2021 compared to $13,959,397 for fiscal 2020. The decrease is a result of lower
spending on our MCr programs offset by an increase in compensation costs in fiscal 2021.
Research and development expenses related to our Vyleesi, MCr programs, and other preclinical programs were
$8,634,713 and $10,187,786 in fiscal 2021 and fiscal 2020, respectively. The decrease is primarily related to a decrease in
spending on our MCr programs.
The amounts of project spending above exclude general research and development spending, which was $4,291,846
and $3,771,611 fiscal 2021 and fiscal 2020, respectively. The increase in general research and development spending is
primarily attributable to increased compensation costs in fiscal 2021.
Cumulative spending from inception to June 30, 2020 was approximately $311,900,000 on our Vyleesi program and
approximately $167,500,000 on all our other programs (which include PL8177, PL9643, other melanocortin receptor
agonists, NPR programs and terminated programs). Due to various risk factors described herein under “Risk Factors,”
including the difficulty in currently estimating the costs and timing of future Phase 1 clinical trials and larger-scale
Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict with reasonable certainty
when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if ever,
related net cash inflows will be generated.
Selling, General and Administrative – Selling, general and administrative expenses, which consist mainly of costs
related to Vyleesi in addition to compensation and related costs, were $17,336,913 for fiscal 2021 compared to
$9,765,372 for fiscal 2020. The increase is primarily attributable to $6,605,901 of selling expenses related to Vyleesi and
an increase in compensation related expenses offset by the final payment made in connection with the Greenhill
agreement and professional fees related to the Vyleesi divestiture during fiscal 2020.
Loss on License Termination Agreement – – On July 27, 2020, Palatin and AMAG announced that they had mutually
terminated the license agreement for Vyleesi effective July 24, 2020. Under the terms of the termination agreement, we
regained all North American development and commercialization rights for Vyleesi. AMAG made a $12,000,000
payment to us at closing and a $4,300,000 payment on March 31, 2021. We assumed all Vyleesi manufacturing
agreements, for which we initially recorded a liability related to estimated losses of $18,194,000, as well as accrued
expenses for an inventory production run, and AMAG transferred information, data, and assets related exclusively to
Vyleesi, including, but not limited to, existing inventory. AMAG provided certain transitional services to us for a period
of time to ensure continued patient access to Vyleesi during the transition back to us. We reimbursed AMAG for the
costs of the transition services.
During fiscal 2021, we recorded a loss of $2,784,192 as a result of the Vyleesi Termination Agreement. (See Note 4 of the
accompanying consolidated financial statements).
Other (Expense) Income – Total other expense, net was $212,394 for fiscal 2021 and total other income, net was
$1,180,757 for fiscal 2020. For fiscal 2021, we recognized $212,526 of unrealized foreign currency loss and $23,440 of
interest expense offset by $23,572 of investment income. For fiscal 2020, we recognized $1,200,898 of investment
income offset by $20,141 of interest expense. Other expense for fiscal 2021 compared to other income for fiscal 2020 is
a result of foreign currency losses and lower interest rates earned on our cash and cash equivalents.
43
Income Taxes – For fiscal 2021 and fiscal 2020, the Company recorded no income tax benefit or expense as a result of
the generation of and utilization of net operating losses that were subject to a full valuation allowance.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the
periods presented.
Liquidity and Capital Resources
Since inception, we have generally incurred net operating losses, primarily related to spending on our research and
development programs. We have financed our net operating losses primarily through debt and equity financings and
amounts received under collaborative and license agreements.
Our product candidates are at various stages of development and will require significant further research,
development and testing and some may never be successfully developed or commercialized. We may experience
uncertainties, delays, difficulties and expenses commonly experienced by early-stage biopharmaceutical companies,
which may include unanticipated problems and additional costs relating to:
the development and testing of products in animals and humans;
dependence on third party contractors and collaborators for part of our research and development;
ability to attract and retain experienced personnel;
product approval or clearance;
regulatory compliance;
good manufacturing practices (“GMP”) compliance;
intellectual property rights;
product introduction;
marketing, sales and competition; and
obtaining sufficient capital.
Failure to enter into or successfully perform under collaboration agreements and obtain timely regulatory approval
for our product candidates and indications would impact our ability to generate revenues and could make it more
difficult to attract investment capital for funding our operations. Any of these possibilities could materially and
adversely affect our operations and require us to curtail or cease certain programs.
During fiscal 2021, net cash used in operating activities was $22,647,991 compared to net cash provided by operating
activities of $41,326,415 in fiscal 2020. The difference in cash used in operations in fiscal 2021 compared with cash
provided by operations in fiscal 2020 was primarily related to the timing of the receipt of payments related to revenue
recorded for the AMAG License Agreement, including for the FDA’s approval of Vyleesi.
During fiscal 2021, net cash used in investing activities consisted of $5,722 compared to $62,880 during fiscal 2020,
which consisted of leasehold improvements and the acquisition of equipment.
During fiscal 2021, net cash used in financing activities was $93,638 which consisted of payment of withholding taxes
related to restricted stock units. During fiscal 2020 net cash used in financing activities was $1,921,687 which consisted
of payment on notes payable obligations of $832,851, repurchase and cancellation of outstanding warrants of
$2,547,466 and payment of withholding taxes related to restricted stock units of $122,868 offset by net proceeds from
the sale of common stock of $1,581,498 in our “at-the-market” offering program.
We have incurred cumulative negative cash flows from operations since our inception, and have expended, and
expect to continue to expend in the future, substantial funds to develop the capability to market and distribute
Vyleesi in the United States and to complete our planned product development efforts. Continued operations are
dependent upon our ability to generate future income from sales of Vyleesi in the United States and from existing
licenses, including royalties and milestones, to complete equity or debt financing activities and enter into additional
licensing or collaboration arrangements. As of June 30, 2021, our cash and cash equivalents were $60,104,919 with
current liabilities of $10,511,788
We intend to utilize existing capital resources for general corporate purposes and working capital, including
establishing marketing and distribution capabilities for Vyleesi in the United States and preclinical and clinical
development of our MC1r and MC4r peptide programs and natriuretic peptide program, and development of other
portfolio products.
44
We believe that our existing capital resources will be adequate to fund our planned operations through at least twelve
months from the date of issuance of these consolidated financial statements. We will need additional funding to
complete required clinical trials for our product candidates and development programs and, if those clinical trials are
successful (which we cannot predict), to complete submission of required regulatory applications to the FDA.
However, the COVID-19 pandemic may negatively impact our operations, including possible effects on our financial
condition, ability to access the capital markets on attractive terms or at all, liquidity, operations, suppliers, industry,
and workforce. We will continue to evaluate the impact that these events could have on the operations, financial
position, and the results of operations and cash flows during fiscal year 2022 and beyond.
We had a net loss for fiscal 2021 of $33,596,495. We may not attain profitability in future years, which is dependent on
numerous factors, including whether and when development and sales milestones are met, regulatory actions by the
FDA and other regulatory bodies, the performance of our licensees, and market acceptance of our products.
We expect to incur significant expenses as we continue to develop marketing and distribution capability for Vyleesi in
the United States and continue to develop our MC1r and natriuretic peptide product candidates. These expenses,
among other things, have had and will continue to have an adverse effect on our stockholders’ equity, total assets,
and working capital.
Off-Balance Sheet Arrangements
None.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
45
Item 8. Financial Statements and Supplementary Data.
Table of Con t e n t s
Table of Con t e n t s
Con solidat e d F in an c ial St at e m e n t s
Con solidat e d F in an c ial St at e m e n t s
The following consolidated financial statements are filed as part of this Annual Report:
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
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49
50
51
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e port of In de pe n de n t R e gist e re d Pu blic Ac c ou n t in g F irm
RR e port of In de pe n de n t R e gist e re d Pu blic Ac c ou n t in g F irm
To the Stockholders and Board of Directors
Palatin Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. and subsidiary (the
Company) as of June 30, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and
cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
47
Evaluation of accrued external research and development expenses
As discussed in Note 2 to the consolidated financial statements, the costs of research and development
activities are charged to expense as incurred, which includes accrued external research and development
expenses incurred under contracts with third parties. At the end of each quarter, the Company reviews the
activities performed under all contracts and accrues expenses based upon the estimated amount of work
completed considering milestones achieved. Accrued research and development expenses were $1,348,075 as
of June 30, 2021.
We identified the evaluation of the sufficiency of audit evidence over accrued external research and
development expenses as a critical audit matter. Evaluating the sufficiency of audit evidence obtained over
accrued external research and development expenses, including the estimated amount of work completed by
third parties, required subjective auditor judgment due to the nature and extent of evidence available.
The following are the primary procedures we performed to address this critical audit matter. We applied
auditor judgment to determine the nature and extent of procedures to be performed over accrued external
research and development expenses. For a sample of accrued external research and development expenses,
we evaluated management’s estimate of the amount of work to be completed by comparing it to relevant
third party contracts, invoices, and communications. For a selection of third party invoices and
communications received after year-end, we compared the amounts to the relevant estimate of costs
incurred or estimate of the amount of work completed by third parties as determined by management. We
evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed,
including the appropriateness of the nature and extent of such evidence.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Philadelphia, Pennsylvania
September 28, 2021
48
PALATIN TECHN OLOGIES, IN C
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
alan c e Sh e e t s
Con solidat e d BB alan c e Sh e e t s
Con solidat e d
ASSETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right-of-use assets
Other assets
Total assets
LIAB ILITIES AN D STOCK HOLD ER S’ EQUITY
LIAB ILITIES AN D STOCK HOLD ER S’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Short-term operating lease liabilities
Other current liabilities
Total current liabilities
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock of $0.01 par value – authorized 10,000,000 shares; shares issued and
outstanding designated as follows:
Series A Convertible: authorized 264,000 shares: issued and outstanding 4,030 shares
as of June 30, 2021 and June 30, 2020
Common stock of $0.01 par value – authorized 300,000,000 shares:
issued and outstanding 230,049,691 shares as of June 30, 2021 and 229,258,400
shares as of June 30, 2020
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
June 30,
June 30,
20212021
June 30,
June 30,
20202020
$60,104,919 $82,852,270
-
1,580,443
1,162,000
-
738,216
3,059,679
65,907,041 83,590,486
94,817
140,216
1,237,813 1,266,132
56,916
56,916
$67,296,587 $85,053,750
$ 640,650 $ 715,672
5,797,378 2,899,097
312,784
-
351,853
3,721,907
10,511,788 3,927,553
900,520
6,232,907
953,348
-
17,645,215 4,880,901
40
40
2,300,497 2,292,584
399,146,232 396,079,127
(351,795,397) (318,198,902)
49,651,372 80,172,849
$67,296,587 $85,053,750
The accompanying notes are an integral part of these consolidated financial statements
49
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
pe rat ion s
Con solidat e d St at e m e n t s of OOpe rat ion s
Con solidat e d St at e m e n t s of
REVENUES
Product revenue, net
License and contract
OPERATING EXPENSES
Cost of products sold
Research and development
Selling, general and administrative
Loss on license termination agreement
Total operating expenses
Loss from operations
OTHER (EXPENSE) INCOME
Investment income
Foreign currency loss
Interest expense
Total other (expense) income, net
NET LOSS
Year Ended June 30,
Year Ended June 30,
20212021
20202020
$ (283,286) $
94,689
-
117,989
(188,597)
117,989
147,840
-
12,926,559 13,959,397
17,336,913 9,765,372
-
2,784,192
33,195,504 23,724,769
(33,384,101) (23,606,780)
23,572 1,200,898
-
(20,141)
(212,526)
(23,440)
(212,394) 1,180,757
$(33,596,495) $(22,426,023)
Basic and diluted net loss per common share
$
(0.14) $
(0.10)
Weighted average number of common shares outstanding used in computing basic and
diluted net loss per common share
236,650,101 234,684,776
The accompanying notes are an integral part of these consolidated financial statements
50
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
Con solidat e d St at e m e n t s of St oc kh olde rs’ Equ it y
Con solidat e d St at e m e n t s of St oc kh olde rs’ Equ it y
Preferred Stock
Preferred Stock
Common Stock
Common Stock
Paid-in
Paid-in
Accumulated
Accumulated
Shares
Shares
Amount
Amount
Shares
Shares
Amount
Amount
Capital
Capital
Deficit
Deficit
Total
Total
Additional
Additional
4,030 $
40 226,815,363 $ 2,268,154 $394,053,929 $(295,772,879) $100,549,244
-
-
614,117
6,141 3,132,323
- 3,138,464
-
- 1,895,934
18,959 1,562,539
- 1,581,498
-
-
-
-
-
(93,875)
(939)
(121,929)
-
(122,868)
-
-
-
-
- (2,547,466)
- (2,547,466)
26,861
-
269
-
(269)
-
- (22,426,023) (22,426,023)
-
4,030
40 229,258,400 2,292,584 396,079,127 (318,198,902) 80,172,849
-
-
958,090
9,581 3,159,075
- 3,168,656
-
-
-
-
(166,799)
-
(1,668)
-
(91,970)
(93,638)
- (33,596,495) (33,596,495)
-
4,030 $
40 230,049,691 $ 2,300,497 $399,146,232 $(351,795,397) $49,651,372
Balance, June 30,
2019
Stock-based
compensation
Sale of common
stock , net of
costs
Withholding
taxes related to
restricted stock
units
Warrant
repurchases
Warrant
Exercises
Net loss
Balance June 30,
2020
Stock-based
compensation
Withholding
taxes related to
restricted stock
units
Net loss
Balance June 30,
2021
The accompanying notes are an integral part of these consolidated financial statements
51
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
ash F lows
Con solidat e d St at e m e n t s of CCash F lows
Con solidat e d St at e m e n t s of
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization
Cash received in excess of loss on termination agreement
Non-cash interest expense
Decrease in right-of-use asset
Unrealized foreign currency transaction loss
Stock-based compensation
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Inventories
Accounts payable
Accrued expenses
Operating lease liabilities
Other liabilities
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of withholding taxes related to restricted
stock units
Payment on notes payable obligations
Warrant repurchases
Proceeds from the sale of common stock,
net of costs
Net cash used in financing activities
Year Ended June 30,
Year Ended June 30,
20212021
20202020
$(33,596,495) $(22,426,023)
51,121
19,084,192
-
330,839
212,526
64,203
-
438
298,558
-
3,168,656 3,138,464
(1,580,443) 60,265,970
22,073
(1,938,130)
(987,237)
-
210,885
(75,022)
50,405
558,281
(298,558)
(316,279)
(7,560,000)
-
(22,647,991) 41,326,415
(5,722)
(62,880)
(5,722)
(62,880)
(122,868)
(93,638)
-
(832,851)
- (2,547,466)
- 1,581,498
(93,638) (1,921,687)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(22,747,351) 39,341,848
CASH AND CASH EQUIVALENTS, beginning of year
82,852,270 43,510,422
CASH AND CASH EQUIVALENTS, end of year
$60,104,919 $82,852,270
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
$
23,440 $
19,222
The accompanying notes are an integral part of these consolidated financial statements
52
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
ot e s t o Con solidat e d F in an c ial St at e m e n t s
NN ot e s t o Con solidat e d F in an c ial St at e m e n t s
OR GAN IZ ATION
(1) OR GAN IZ ATION
(1)
Nature of Business - Palatin Technologies, Inc. (“Palatin” or the “Company”) is a biopharmaceutical company
developing first-in-class medicines based on molecules that modulate the activity of the melanocortin and natriuretic
peptide receptor systems. The Company’s product candidates are targeted, receptor-specific therapeutics for the
treatment of diseases with significant unmet medical need and commercial potential.
Melanocortin Receptor System. The melanocortin receptor (“MCr”) system has effects on food intake, metabolism,
sexual function, inflammation, and immune system responses. There are five melanocortin receptors, MC1r through
MC5r. Modulation of these receptors, through use of receptor-specific agonists, which activate receptor function, or
receptor-specific antagonists, which block receptor function, can have significant pharmacological effects.
The Company’s lead product, Vyleesi®, was approved by the U.S. Food and Drug Administration (“FDA”) in June 2019
and was being marketed in North America by AMAG Pharmaceuticals, Inc. (“AMAG”) for the treatment of hypoactive
sexual desire disorder (“HSDD”) in premenopausal women pursuant to a license agreement between them for Vyleesi
for North America, which was entered into on January 8, 2017 (the “AMAG License Agreement”). As disclosed in Note 4,
the AMAG License Agreement was terminated effective July 24, 2020, and the Company is now marketing Vyleesi in
North America.
The Company’s new product development activities focus primarily on MC1r agonists, with potential to treat
inflammatory and autoimmune diseases such as dry eye disease, which is also known as keratoconjunctivitis sicca,
uveitis, diabetic retinopathy, and inflammatory bowel disease. The Company believes that the MC1r agonist peptides
in development have broad anti-inflammatory effects and appear to utilize mechanisms engaged by the endogenous
melanocortin system in regulation of the immune system and resolution of inflammatory responses. The Company is
also developing peptides that are active at more than one melanocortin receptor, and MC4r peptide and small
molecule agonists with potential utility in obesity and metabolic-related disorders, including rare disease and orphan
indications.
Natriuretic Peptide Receptor System. The natriuretic peptide receptor (“NPR”) system regulates cardiovascular
functions and tissue homeostasis, and therapeutic agents modulating this system have potential to treat
cardiovascular and fibrotic diseases. The Company has designed and is developing potential NPR candidate drugs
selective for one or more different natriuretic peptide receptors, including natriuretic peptide receptor-A (“NPR-A”),
natriuretic peptide receptor B (“NPR-B”), and natriuretic peptide receptor C (“NPR-C”).
Business Risks and Liquidity – Since inception, the Company has generally incurred negative cash flows from
operations, and has expended, and expects to continue to expend, substantial funds to develop the capability to
market and distribute Vyleesi in the United States and complete its planned product development efforts. As shown in
the accompanying consolidated financial statements, the Company had an accumulated deficit as of June 30, 2021 of
$351,795,397 and a net loss for the year ended June 30, 2021 of $33,596,495, and the Company anticipates incurring
significant expenses in the future as a result of spending on developing marketing and distribution capabilities for
Vyleesi in the United States and spending on its development programs and will require substantial additional
financing or revenues to continue to fund its planned developmental activities. To achieve sustained 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 sustained
profitability is highly uncertain, and the Company may never be able to achieve profitability on a sustained basis, if at
all.
53
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
As of June 30, 2021, the Company’s cash and cash equivalents were $60,104,919 and current liabilities were $10,511,788.
Management intends to utilize existing capital resources for general corporate purposes and working capital, including
establishing marketing and distribution capabilities for Vyleesi in the United States and preclinical and clinical
development of the Company’s MC1r and MC4r peptide programs and natriuretic peptide program, and development
of other portfolio products.
Management believes that the Company’s cash and cash equivalents as of June 30, 2021 will be sufficient to fund the
Company’s current operating plans through at least September 2022. The Company will need additional funding to
complete required clinical trials for its other product candidates and, assuming those clinical trials are successful, as to
which there can be no assurance, to complete submission of required applications to the FDA. If the Company is
unable to obtain approval or otherwise advance in the FDA approval process, the Company’s ability to sustain its
operations could be materially adversely affected.
The Company may seek the additional capital necessary to fund its operations through public or private equity
offerings, collaboration agreements, debt financings or licensing arrangements. Additional capital that is required by
the Company may not be available on reasonable terms, or at all.
In March 2020, the World Health Organization declared COVID-19, a disease caused by a novel strain of coronavirus, a
pandemic. The Company has taken steps to ensure the safety and well-being of its employees and clinical trial patients
to comply with guidance from federal, state and local authorities, while working to ensure the sustainability of its
business operations as this unprecedented situation continues to evolve. In mid-March 2020, the Company
transitioned to a company-wide work from home policy. Business-critical activities continue to be subject to
heightened precautions to ensure safety of employees. The Company continues to assess its policies, business
continuity plans and employee support.
The Company continues to evaluate the impact of COVID-19 on the healthcare system and work with contract
research organizations supporting its clinical, research, and development programs to mitigate risk to patients and its
business and community partners, taking into account regulatory, institutional, and government guidance and
policies.
The Company receives a royalty on sales of Vyleesi by our licensees. We have licensed third parties to sell Vyleesi in
China and Korea. The COVID-19 coronavirus could adversely impact the time required to obtain regulatory approvals
to sell Vyleesi in China and Korea, which would delay when the Company receives royalty income from sales in those
countries.
The Company cannot be certain what the overall impact of the COVID-19 pandemic will be on its business, including
manufacturing, distribution, sales and marketing of Vyleesi, and it has the potential to materially adversely affect its
business, financial condition and results of operations and cashflows during the fiscal year ending June 30, 2022 (“fiscal
2022”) and beyond.
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, cash equivalents, and
accounts receivable. The Company’s cash and cash equivalents are primarily invested in one money market account
sponsored by a large financial institution.
SUMMAR Y OF SIGN IF ICAN T ACCOUN TIN G POLICIES
(2) SUMMAR Y OF SIGN IF ICAN T ACCOUN TIN G POLICIES
(2)
Principles of Consolidation – The consolidated financial statements include the accounts of the Company 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 amounts 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.
54
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
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 $59,730,428 and
$82,406,697 in a money market account at June 30, 2021 and 2020, respectively.
Fair Value of Financial Instruments – The Company’s financial instruments consist primarily of cash equivalents,
accounts receivable and accounts payable. Management believes that the carrying values of cash equivalents,
accounts receivable and accounts payable are representative of their respective fair values based on the short-term
nature of these instruments.
Credit Risk – Financial instruments which potentially subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents, and accounts receivable. Total cash and cash equivalent balances have exceeded
balances insured by the Federal Depository Insurance Company. Currently accounts receivable are due exclusively
from AMAG.
Trade Accounts Receivable - Trade accounts receivable are amounts owed to the Company by its customers for
product that has been delivered. The trade accounts receivable is recorded at the invoice amount, less prompt pay
and other discounts, chargebacks, and an allowance for credit losses, if any. Credit losses have not been significant to
date.
Inventories – Inventory is stated at the lower of cost or net realizable value, with cost being determined on a first-in,
first-out basis.
On a quarterly basis, the Company reviews inventory levels to determine whether any obsolete, expired, or excess
inventory exists. If any inventory is expected to expire prior to being sold, has a cost basis in excess of its net realizable
value, is in excess of expected sales requirements as determined by internal sales forecasts, or fails to meet
commercial sale specifications, the inventory is written down through a charge to operating expenses. Inventory
consisting of Vyleesi has a shelf-life of three years from the date of manufacture.
Property and Equipment – Property and equipment consists of office and laboratory equipment, office furniture and
leasehold improvements and includes assets acquired under finance 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
finance 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.
Leases - At lease inception, the Company determines whether an arrangement is or contains a lease. Operating leases
are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating
lease liabilities in the consolidated financial statements. ROU assets represent the Company’s right to use leased assets
over the term of the lease. Lease liabilities represent the Company’s contractual obligation to make lease payments
over the lease term. For operating leases, ROU assets and lease liabilities are recognized at the commencement date.
The lease liability is measured as the present value of the lease payments over the lease term. The Company uses the
rate implicit in the lease if it is determinable. When the rate implicit in the lease is not determinable, the Company uses
an estimate based on a hypothetical rate provided by a third party as the Company currently does not have issued
debt. Operating ROU assets are calculated as the present value of the remaining lease payments plus unamortized
initial direct costs plus any prepayments less any unamortized lease incentives received. Lease terms may include
renewal or extension options to the extent they are reasonably certain to be exercised. The assessment of whether
renewal or extension options are reasonably certain to be exercised is made at lease commencement. Factors
considered in determining whether an option is reasonably certain of exercise include, but are not limited to, the value
of any leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that
would cause incremental costs to the Company if the option were not exercised. Lease expense is recognized on a
straight-line basis over the lease term. The Company has elected not to recognize an ROU asset and obligation for
leases with an initial term of twelve months or less. The expense associated with short term leases is included in
selling, general and administrative expense in the statement of operations. To the extent a lease arrangement includes
both lease and non-lease components, the Company has elected to account for the components as a single lease
component.
55
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Revenue Recognition – We recognize product revenues in accordance with Accounting Standards Codification (“ASC”)
Topic 606, Revenue from Contracts with Customers. The provisions of ASC 606 require the following steps to
determine revenue recognition: (1) Identify the contract(s) with a customer; (2) Identify the performance obligations in
the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in
the contract; and (5) Recognize revenue when (or as) the entity satisfies a performance obligation.
In accordance with ASC 606, we recognize revenue when our performance obligation is satisfied by transferring control
of the product to a customer. Per our contracts with customers, control of the product is transferred upon the
conveyance of title, which occurs when the product is sold to and received by a customer. Trade accounts receivable
due to us from contracts with our customers are stated separately in the balance sheet, net of various allowances as
described in the Trade Accounts Receivable policy above.
Product revenues consist of sales of Vyleesi in the United States. The Company sells Vyleesi to specialty pharmacies at
the wholesale acquisition cost and payment is currently made within approximately 30 days. In addition to
distribution agreements with customers, the Company enters into arrangements with healthcare payers that provide
for privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.
The Company records product revenues net of allowances for direct and indirect fees, discounts, co-pay assistance
programs, estimated chargebacks and rebates. Product sales are also subject to return rights, which have not been
significant to date.
Gross product sales were offset by product sales allowances for the year ended June 30, 2021 as follows:
Gross product sales
Provision for product sales allowances and accruals
Net sales
$ 4,745,066
(5,028,352)
$ (283,286)
For licenses of intellectual property, the Company assesses at contract inception whether the intellectual property is
distinct from other performance obligations identified in the arrangement. If the licensing of intellectual property is
determined to be distinct, revenue is recognized for nonrefundable, upfront license fees when the license is
transferred to the customer and the customer can use and benefit from the license. If the licensing of intellectual
property is determined not to be distinct, then the license is bundled with other promises in the arrangement into one
performance obligation. The Company needs to determine if the bundled performance obligation is satisfied over time
or at a point in time. If the Company concludes that the nonrefundable, upfront license fees will be recognized over
time, the Company will need to assess the appropriate method of measuring proportional performance.
Regulatory milestone payments are excluded from the transaction price due to the inability to estimate the
probability of reversal. Revenue relating to achievement of these milestones is recognized in the period in which the
milestone is achieved.
56
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Sales-based royalty and milestone payments resulting from customer contracts solely or predominately for the license
of intellectual property will only be recognized upon occurrence of the underlying sale or achievement of the sales
milestone in the future and such sales-based royalties and milestone payments will be recognized in the same period
earned.
The Company recognizes revenue for reimbursements of research and development costs under collaboration
agreements as the services are performed. The Company records these reimbursements as revenue and not as a
reduction of research and development expenses as the Company is the principal in the research and development
activities based upon its control of such activities, which is considered part of its ordinary activities.
Development milestone payments are generally due 30 business days after the milestone is achieved. Sales milestone
payments are generally due 45 business days after the calendar year in which the sales milestone is achieved. Royalty
payments are generally due on a quarterly basis 20 business days after being invoiced.
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 the Company’s development activities. The Company
reviews the activities performed under all contracts each quarter and accrues expenses and the amount of any
reimbursement to be received from its collaborators based upon the estimated amount of work completed
considering milestones achieved. Estimating the value or stage of completion of certain services requires judgment
based on available information. If the Company does not identify services performed for it but not billed by the
service-provider, or if it underestimates or overestimates the value of services performed as of a given date, reported
expenses will be understated or overstated.
Stock-Based Compensation – The Company charges to expense the fair value of stock options and other equity
awards granted. Compensation costs for stock-based awards with time-based vesting are determined using the
quoted market price of the Company’s common stock on the date of grant or for stock options, the value determined
utilizing the Black-Scholes option pricing model, and are recognized on a straight-line basis, while awards containing a
market condition are valued using multifactor Monte Carlo simulations and are recognized over the derived service
period. Compensation costs for awards containing a performance condition are determined using the quoted price of
the Company’s common stock on the date of grant or for stock options, the value determined utilizing the Black
Scholes option pricing model and are recognized based on the probability of achievement of the performance
condition over the service period. Forfeitures are recognized as they occur.
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 and continues to maintain a full valuation allowance
against its deferred tax assets based on the history of losses incurred and lack of experience projecting future product
revenue and sales-based royalty and milestone payments.
Net Loss per Common Share - Basic and diluted loss per common share (“EPS”) are calculated in accordance with the
provisions of Financial Accounting Standards Board (“FASB”) ASC Topic 260, Earnings per Share.
For the years ended June 30, 2021 and 2020, no additional common shares were added to the computation of diluted
EPS because to do so would have been anti-dilutive. The potential number of common shares excluded from diluted
EPS during the year ended June 30, 2021 and June 30, 2020 was 41,264,736 and 40,890,091 respectively.
57
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Included in the weighted average common shares used in computing basic and diluted net loss per common share are
8,164,080 and 7,127,362 vested restricted stock units that had not been issued as of June 30, 2021 and 2020,
respectively, due to a provision in the restricted stock unit agreements to delay delivery.
Translation of foreign currencies - Transactions denominated in currencies other than the Company’s functional
currency (US Dollar) are recorded based on exchange rates at the time such transactions arise. Subsequent changes in
exchange rates result in transaction gains and losses, which are reflected in the consolidated statements of operations
as unrealized (based on the applicable period-end exchange rate) or realized upon settlement of the transactions.
N EW AN D R ECEN TLY AD OPTED ACCOUN TIN G PR ON OUN CEMEN TS
(3) N EW AN D R ECEN TLY AD OPTED ACCOUN TIN G PR ON OUN CEMEN TS
(3)
In May 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt –
Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and
Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The FASB is issuing this update to
clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified
written call options (for example, warrants) that remain equity classified after modification or exchange. The
amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact
the adoption of this guidance may have on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt (Topic 470) and Derivatives and Hedging (Topic 815):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this update
address issues identified as a result of the complexity associated with applying U.S. GAAP for certain financial
instruments with characteristics of liabilities and equity. The guidance is effective for public entities for fiscal years
beginning after December 15, 2021, and for interim periods within those fiscal years, with early adoption permitted.
The guidance is applicable to the Company beginning July 1, 2022. The Company is currently evaluating the potential
effects of this guidance on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the
general principles in Topic 740. The amendments also improve consistent application and simplify U.S. GAAP for other
areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective for public entities for fiscal
years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption
permitted. The guidance is applicable to the Company beginning July 1, 2021. The adoption of this standard is not
expected to have a material impact on the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the
Interaction between Topic 808 and Topic 606. This update provides clarification on the interaction between Revenue
Recognition (Topic 606) and Collaborative Arrangements (Topic 808), including the alignment of unit of account
guidance between the two topics. The guidance is effective for public entities for fiscal years beginning after December
15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The guidance was applicable
to the Company beginning July 1, 2020. The adoption of this standard did not have a material impact on the
Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on
Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
This is different from the current guidance as this will require immediate recognition of estimated credit losses
expected to occur over the remaining life of many financial assets. The new guidance will be effective for the Company
on July 1, 2023 with early adoption permitted. The adoption of this standard is not expected to have a material impact
on the Company’s consolidated financial statements.
58
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
AGR EEMEN TS W ITH AMAG
(4) AGR EEMEN TS W ITH AMAG
(4)
On January 8, 2017, the Company entered into the AMAG License Agreement pursuant to which the Company granted
AMAG (i) an exclusive license in all countries of North America (the “Territory”), with the right to grant sub-licenses, to
research, develop, and commercialize products containing Vyleesi (each a “Product”, and collectively, “Products”), (ii) a
non-exclusive license in the Territory, with the right to grant sub-licenses, to manufacture the Products, and (iii) a non-
exclusive license in all countries outside the Territory, with the right to grant sub-licenses, to research, develop, and
manufacture (but not commercialize) the Products.
Following the satisfaction of certain conditions to closing, the AMAG License Agreement became effective on February
2, 2017. Under the AMAG License Agreement, in addition to certain initial and milestone payments, AMAG reimbursed
the Company for certain reasonable, documented, direct out-of-pocket expenses incurred by the Company following
February 2, 2017, in connection with development and regulatory activities necessary to file a New Drug Application
(“NDA”) for Vyleesi for HSDD in the United States. During year ended June 30, 2020, license and contract revenue
included additional billings for AMAG related Vyleesi costs of $117,989.
On June 4, 2018, the FDA accepted the Vyleesi NDA for filing and on June 21, 2019, the FDA granted approval of Vyleesi
for use in the United States.
Effective July 24, 2020, the Company entered into a termination agreement (the “Termination Agreement”) with AMAG
terminating the AMAG License Agreement. Under the terms of the Termination Agreement, the Company regained all
development and commercialization rights for Vyleesi in the Territory. AMAG made a $12,000,000 payment to the
Company at closing of the Termination Agreement and a $4,300,000 payment to the Company on March 31, 2021. The
Company initially recorded a liability related to estimated losses on inventory purchase commitments of $18,194,000
as well as accrued expenses for an inventory production run obligation assumed of $2,300,000. The Company
assumed all Vyleesi manufacturing agreements, and AMAG transferred information, data, and assets related
exclusively to Vyleesi to the Company, including existing inventory and prepaid expenses with an estimated fair value
of $5,817,795 as of the date of the Termination Agreement. As a result, the Company initially recorded a net gain for
the Termination Agreement of $1,623,795. During the three months ended June 30, 2021, the Company reassessed the
estimated net realizable value of the inventory, prepaid expenses and losses on the inventory purchase commitments
resulting in recording of a loss on Termination Agreement of $4,407,987 for the three months ended June 30, 2021 and
a total loss on the Termination Agreement for the year ended June 30, 2021 of $2,784,192.
Under the Termination Agreement, AMAG provided certain transitional services to the Company for a period to ensure
continued patient access to Vyleesi during the transition back to the Company. The Company reimbursed AMAG for
the agreed upon costs of the transition services.
MAN UF ACTUR IN G SUPPLY AGR EEMEN TS F OR VYLEESI
(5) MAN UF ACTUR IN G SUPPLY AGR EEMEN TS F OR VYLEESI
(5)
Pursuant to the Termination Agreement, the Company assumed Vyleesi manufacturing contracts with Catalent
Belgium S.A. (“Catalent”), a subsidiary of Catalent Pharma Solutions, Inc., to manufacture drug product and prefilled
syringes and assemble prefilled syringes into an auto-injector device (the “Catalent Agreement”), Ypsomed AG
(“Ypsomed”), to manufacture the auto-injector device (the “Ypsomed Agreement”), and Lonza Ltd. (“Lonza”), to
manufacture the active pharmaceutical ingredient peptide (the “Lonza Agreement”).
On September 29, 2020, the Company and Catalent entered into an agreement to terminate the Catalent Agreement
(the “Catalent Termination Agreement”) in consideration for a one-time payment of six million euros (€6,000,000)
which was paid in October 2020 and accrued as part of the estimated losses on inventory purchase commitments
assumed as part of the Termination Agreement as discussed in Note 4.
59
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
The Company and Catalent then entered into a new Vyleesi manufacturing agreement (the “New Catalent
Agreement”) which includes reduced minimum annual purchase requirements (see Note 15) as compared to the
original Catalent Agreement and modification of other financial terms. The New Catalent Agreement provides that
Catalent will provide manufacturing and supply services to Palatin related to production of Vyleesi, including that
Catalent will supply specified minimums of Palatin’s requirements for Vyleesi during the term of the New Catalent
Agreement through August 21, 2025, unless earlier terminated in accordance with the terms of the New Catalent
Agreement. The initial term of the New Catalent Agreement will be automatically extended for one 24-month period
unless either party notifies the other of its desire to terminate as of the end of the initial term. The New Catalent
Agreement also includes customary terms and conditions relating to forecasting and minimum commitments,
ordering, delivery, inspection and acceptance, and termination, among other matters.
The term of the Lonza Agreement is through December 31, 2022. There are specified minimum purchase requirements
under the Lonza Agreement, and under specified circumstances, termination fees may be payable upon termination
of the Lonza Agreement by the Company (see Note 15).
The initial term of the Ypsomed Agreement is through December 31, 2025, with automatic renewal for successive one-
year periods unless either party terminates the Ypsomed Agreement by ten months’ written notice prior to the
expiration of the Ypsomed Agreement or any automatic renewal period. There are specified minimum purchase
requirements under the Ypsomed Agreement, and under specified circumstances, termination fees may be payable
upon termination of the Ypsomed Agreement by the Company (see Note 15).
AGR EEMEN T W ITH F OSUN
(6) AGR EEMEN T W ITH F OSUN
(6)
On September 6, 2017, the Company entered into a license agreement with Shanghai Fosun Pharmaceutical Industrial
Development Co. Ltd. (“Fosun”) for exclusive rights to commercialize Vyleesi in China (the “Fosun License Agreement”).
Under the terms of the agreement, the Company received $4,500,000 in October 2017, which consisted of an upfront
payment of $5,000,000 less $500,000 that was withheld in accordance with tax withholding requirements in China and
recorded as an expense during the year ended June 30, 2018. The Company will receive a $7,500,000 milestone
payment when regulatory approval in China is obtained, provided that a commercial supply agreement for Vyleesi has
been entered into. The Company has the potential to receive up to $92,500,000 in additional sales related milestone
payments and high single-digit to low double-digit royalties on net sales in the licensed territory. All development,
regulatory, sales, marketing, and commercial activities and associated costs in the licensed territory will be the sole
responsibility of Fosun.
AGR EEMEN T W ITH K W AN GD ON G
(7) AGR EEMEN T W ITH K W AN GD ON G
(7)
On November 21, 2017, the Company entered into a license agreement with Kwangdong Pharmaceutical Co., Ltd.
(“Kwangdong”) for exclusive rights to commercialize Vyleesi in Korea (the “Kwangdong License Agreement”). Under the
terms of the agreement, the Company received $417,500 in December 2017, consisting of an upfront payment of
$500,000, less $82,500, which was withheld in accordance with tax withholding requirements in Korea and recorded as
an expense during the year ended June 30, 2018. The Company will receive a $3,000,000 milestone payment based on
the first commercial sale in Korea. The Company has the potential to receive up to $37,500,000 in additional sales
related milestone payments and mid-single-digit to low double-digit royalties on net sales in the licensed territory. All
development, regulatory, sales, marketing, and commercial activities and associated costs in the licensed territory will
be the sole responsibility of Kwangdong. For the year ended June 30, 2021, the Company recorded $94,689 of license
and contract revenue.
PR EPAID EX PEN SES AN D OTHER CUR R EN T ASSETS
(8) PR EPAID EX PEN SES AN D OTHER CUR R EN T ASSETS
(8)
Prepaid expenses and other current assets consist of the following:
Clinical / regulatory costs
Insurance premiums
Vyleesi contractual advances
Other
June 30,
June 30,
June 30,
June 30,
20212021
20202020
$ 454,750 $
259,468
1,200,000
1,145,461
43,625
84,741
-
609,850
$ 3,059,679 $ 738,216
60
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
F AIR VALUE MEASUR EMEN TS
(9) F AIR VALUE MEASUR EMEN TS
(9)
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’s 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:
Quoted
Quoted
prices in
prices in
active
active
Other
Other
Carrying
Carrying
Value
Value
markets(Level
markets(Level
1)1)
quoted/observable
quoted/observable
inputs (Level 2)
inputs (Level 2)
Significant
Significant
unobservable
unobservable
inputs(Level
inputs(Level
3)3)
June 30, 2021:
Money Market Account
June 30, 2020:
Money Market Account
IN VEN TOR IES
(10) IN VEN TOR IES
(10)
$59,730,428 $59,730,428 $
$82,406,697 $82,406,697 $
-
$
-
$
-
-
Inventories consist of raw materials and finished goods related to Vyleesi. The following table summarizes the
components of inventories as of June 30, 2021:
Raw materials
Finished goods
LEASES
(11) LEASES
(11)
$ 526,000
636,000
$ 1,162,000
The Company has operating leases for office and laboratory space, which expire on June 30, 2025 and October 31,
2023, respectively. The Company also has operating leases for copier equipment that expire October 15, 2021 and
phone equipment that expires on June 30, 2023.
The components of lease expense are as follows:
Le ase c ost
Le ase c ost
Operating lease cost
Variable lease cost
Short-term lease cost
Total lease cost
Year ended
Year ended
June 30,
June 30,
20212021
Year ended
Year ended
June 30,
June 30,
20202020
$ 287,440 $ 209,226
71,297
18,120
108,023
-
$ 395,463 $ 298,643
61
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Supplemental lease term and discount rate information related to leases was as follows:
Weighted-average remaining lease term (years)
Weighted-average discount rate
Supplemental cash flow information related to leases was as follows:
Cash paid for the amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
June 30,
June 30,
20212021
June 30,
June 30,
20202020
3.5
5.50%
4.6
5.51%
Year Ended
Year Ended
June 30,
June 30,
20212021
Year Ended
Year Ended
June 30,
June 30,
20202020
$ 394,926 $ 318,244
Supplemental non-cash information on lease liabilities arisng from obtaining right-of-use
assets:
Right-of-use assets obtained in exchange for new lease obligation
$ 365,881 $ 1,339,556
The following table summarizes the maturity of the Company’s operating lease liabilities as of June 30, 2021:
Year Ending June 30
2022
2023
2024
2025
Less imputed interest
Total
PR OPER TY AN D EQUIPMEN T, N ET
(12) PR OPER TY AN D EQUIPMEN T, N ET
(12)
Property and equipment, net, consists of the following:
Office equipment
Laboratory equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
62
$ 410,007
414,374
398,042
265,037
(235,087)
$ 1,252,373
June 30,
June 30,
June 30,
June 30,
20212021
20202020
$ 1,193,162 $ 1,193,162
648,673
751,226
648,673
756,948
2,598,783 2,593,061
(2,503,966) (2,452,845)
$
94,817 $ 140,216
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
ACCR UED EX PEN SES
(13) ACCR UED EX PEN SES
(13)
Accrued expenses consist of the following:
Clinical / regulatory costs
Other research related expenses
Professional services
Inventory purchases
Selling expenses
Other
N OTES PAYAB LE:
(14) N OTES PAYAB LE:
(14)
June 30,
June 30,
June 30,
June 30,
20212021
20202020
$ 778,705 $ 1,722,729
586,185
217,662
-
-
372,521
569,370
84,094
2,340,000
1,839,724
185,485
$ 5,797,378 $ 2,899,097
On July 2, 2015, the Company closed on a $10,000,000 venture loan led by Horizon Technology Finance Corporation
(“Horizon”). The debt facility was a four-year senior secured term loan that bore interest at a floating coupon rate of
one-month LIBOR (floor of 0.50%) plus 8.50% and provided for interest-only payments for the first eighteen months
followed by monthly payments of principal 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 the Company’s common
stock exercisable at an exercise price of $0.91 per share. The Company recorded a debt discount of $305,196 equal to
the fair value of these warrants at issuance, which were amortized to interest expense over the term of the related
debt. This debt discount was offset against the note payable balance and was included in additional paid-in capital on
the Company’s balance sheet. In addition, a final incremental payment of $500,000 was due on August 1, 2019. This
final incremental payment was accreted to interest expense over the term of the related debt and was included in
other current liabilities on the consolidated balance sheet as of June 30, 2019. The Company incurred $146,115 of costs
in connection with the loan agreement. These costs were capitalized as deferred financing costs and were offset
against the note payable balance. These debt issuance costs were amortized to interest expense over the term of the
related debt. During the year ended June 30, 2020, the loan matured, and on July 31, 2019, the Company made the final
incremental payment of $500,000.
63
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
COMMITMEN TS AN D CON TIN GEN CIES
(15) COMMITMEN TS AN D CON TIN GEN CIES
(15)
Inventory Purchases - As a result of the Termination Agreement and subsequent activity, the Company has certain
supply agreements with manufacturers and suppliers, including the New Catalent Agreement, Lonza Agreement, and
Ypsomed Agreement. The Company is required to make certain payments for the manufacture and supply of Vyleesi.
The following table summarizes the contractual obligations under the New Catalent Agreement, Lonza Agreement,
and Ypsomed Agreement as of June 30, 2021:
Inventory purchase commitments
$10,933,014 $ 3,721,907 $ 5,202,307 $ 2,008,800
Total
Total
Current
Current
1 - 3 Years
1 - 3 Years
4 - 5 Years
4 - 5 Years
As of June 30, 2021, the Company has $3,721,907 and $6,232,907 accrued within other current and long-term liabilities,
respectively, in the consolidated balance sheet related to estimated losses for firm commitment contractual
obligations under these agreements. Losses on these firm commitment contractual obligations are recognized based
upon the terms of the respective agreement and similar factors considered for the write-down of inventory, including
expected sales requirements as determined by internal sales forecasts.
The commitment contractual obligation amounts above are denominated in Swiss Francs and Euros and have been
translated using period end exchange rates. The Company may experience a negative impact on future earnings and
equity solely as a result of future foreign currency exchange rate fluctuations.
64
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
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, 2021 and 2020 Company contributions were $168,210 and $116,807, respectively.
Contingencies – The Company accounts for litigation losses in accordance with ASC 450-20, Loss Contingencies. In
addition, the Company is subject to other contingencies, such as product liability, arising in the ordinary course of
business. 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.
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.
STOCK HOLD ER S’ EQUITY
(16) STOCK HOLD ER S’ EQUITY
(16)
Series A Convertible Preferred Stock – As of June 30, 2021, 4,030 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,
2021, the Series A Conversion Price was $6.10, so each share of Series A Convertible Preferred Stock is currently
convertible into approximately 16.4 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 $403,000
in the aggregate as of June 30, 2021. 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.
Financing Transactions – On June 21, 2019, the Company entered into an equity distribution agreement with
Canaccord Genuity LLC (“Canaccord”) (the “2019 Equity Distribution Agreement”), pursuant to which the Company
may, from time to time, sell shares of the Company’s common stock at market prices by methods deemed to be an
“at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The 2019
Equity Distribution Agreement and related prospectus is limited to sales of up to an aggregate maximum $40.0 million
of shares of the Company’s common stock. The Company pays Canaccord 3.0% of the gross proceeds as a
commission.
65
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Proceeds raised under the 2019 Equity Distribution Agreement are as follows:
Year Ended June 30, 2020
Year Ended June 30, 2020
Cumulative from inception
Cumulative from inception
Shares
Shares
Proceeds
Proceeds
Shares
Shares
Proceeds
Proceeds
Gross proc e e ds
Gross proc e e ds
F e e s
F e e s
Ex pe n se s
Ex pe n se s
N e t proc e e ds
N e t proc e e ds
1,895,934 $ 1,723,195 9,460,509 $12,330,242
(369,908)
(90,000)
(51,697)
(90,000)
-
-
-
-
1, 895, 934
1, 895, 934 $$1, 581, 498
1, 581, 498 9, 460, 509
11, 870, 334
9, 460, 509 $$11, 870, 334
No proceeds were raised under the 2019 Equity Distribution Agreement during the year ended June 30, 2021.
Stock Purchase Warrants – On September 13, 2019, the Company’s Board of Directors approved a plan to offer to
purchase and terminate certain outstanding common stock purchase warrants through privately negotiated
transactions. The purchase and termination program has no time limit and may be suspended for periods or
discontinued at any time.
During the year ended June 30, 2020, the Company entered into several warrant termination agreements to
repurchase and cancel the following previously issued Series F, Series H, and Series J warrants for the following
aggregate buyback prices:
Series F Warrants
Series H Warrants
Series J Warrants
Year Ended June 30, 2020
Year Ended June 30, 2020
Warrants
Warrants
Buyback
Buyback
price
price
62,712
297,352 $
1,466,432
577,373
4,774,889 1,907,381
6,538,673 $ 2,547,466
During the year ended June 30, 2020, the Company issued 26,861 shares of common stock upon the cashless exercise
provisions of 666,666 Series D warrants at an exercise price of $0.75 per share.
As of June 30, 2021, the Company had outstanding warrants exercisable for shares of common stock as follows:
Descripton
Descripton
Series H warrants *
Financial services warrants
Series J warrants*
Shares of
Shares of
Common
Common
Stock
Stock
Exercise
Exercise
Price per
Price per
Share
Share
$ 7,974,881 $
25,000
4,639,614
12,639,495
0.70
0.70
0.80
Latest Termination
Latest Termination
DateDate
August 4, 2021**
August 4, 2021**
December 6, 2021
* Subject to a limitation on their exercise if the holder and its affiliates would beneficially own 9.99% of the total
number of the Company's shares of common stock following such exercise.
** Expired unexercised on August 4, 2021.
Stock Plan – The Company’s 2011 Stock Incentive Plan (“2011 Stock 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 8, 2017, June 26, 2018, and again at the annual meeting of stockholders held on June 25,
2020. The 2011 Stock Incentive Plan, as amended, provides for incentive and nonqualified stock option grants,
restricted stock unit awards and other stock-based awards to employees, non-employee directors and consultants for
up to 42,500,000 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 Company’s former 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, 2021, 738,817 shares were available for grant under the 2011 Stock
Incentive Plan. The Company expects to settle option exercises under any of its plans with authorized but currently
unissued shares.
66
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
The following table summarizes option activity and related information for the years ended June 30, 2021 and 2020:
Weighted
Weighted
Average
Average
Exercise
Exercise
Price
Price
Weighted
Weighted
Average
Average
Remaining
Remaining
Term in
Term in
Years
Years
Aggregate
Aggregate
Intrinsic
Intrinsic
Value
Value
Number of
Number of
Shares
Shares
Outstanding - June 30, 2019
14,435,650 $
0.85
7.3
Granted
Forfeited
Exercised
Expired
5,779,850
(235,950)
-
(77,100)
0.58
0.86
-
2.72
Outstanding - June 30, 2020
19,902,450
0.76
7.4
Granted
Forfeited
Exercised
Expired
Outstanding - June 30, 2021
3,546,100
(568,300)
-
(997,750)
21,882,500 $
0.56
0.75
-
0.95
0.72
7.2 $ 1,034,273
Exercisable at June 30, 2021
13,229,109 $
0.75
6.0 $ 733,738
Expected to vest at June 30, 2021
8,653,391 $
0.68
9.1 $ 300,535
Stock options granted to the Company’s executive officers and employees generally vest over a 48-month period,
while stock options granted to its non-employee directors vest over a 12-month period.
Included in the options outstanding above are 1,994,500 and 188,084 performance-based options granted in June 2020
to executive officers and employees, respectively. The performance-based options vest on performance criteria
relating to advancement of MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional
countries or regions.
67
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Also included in the table above are 1,075,000 and 117,500 performance-based options granted in December 2017 to
executive officers and employees, respectively, which were eligible to vest during a performance period ended on
December 31, 2020, if and upon either i) as to 100% of the target number of shares upon achievement of a closing price
for the Company’s common stock equal to or greater than $1.50 per share for 20 consecutive trading days, which is
considered a market condition; or ii) as to thirty percent (30%) of the target number of shares, upon the acceptance
for filing by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is
considered a performance condition; iii) as to fifty percent (50%) of the target number of shares, upon the approval by
the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the performance period, which is also
considered a performance condition; iv) as to twenty percent (20%) of the target number of shares, upon entry into a
licensing agreement during the performance period for the commercialization of Vyleesi for Female Sexual
Dysfunction (“FSD”) in at least two of the following geographic areas (a) four or more countries in Europe, (b) Japan, (c)
two or more countries in Central and/or South America, (d) two or more countries in Asia, excluding Japan and China,
and (e) Australia, which is also considered a performance condition. The fair value of these options was $602,760. The
Company amortized the fair value over the derived service period of 1.1 years or upon the attainment of the
performance condition. Pursuant to the FDA acceptance of the NDA filing of Vyleesi, 30% of the target number of
options vested in June 2018 and 50% of the target number of options vested in June 2019 upon FDA approval of
Vyleesi. During the year ended June 30, 2021, the performance period ended for the remaining performance-based
stock options. As a result, 240,000 unearned stock options were forfeited and added back to the 2011 Stock Plan and
available for future grant.
For the years ended June 30, 2021 and 2020, the fair value of option grants was estimated at the grant date using the
Black-Scholes model or a multi-factor Monte Carlo simulation. The Company’s weighted average assumptions for the
years ended June 30, 2021 and 2020 were as follows:
Risk-free interest rate
Volatility factor
Dividend yield
Expected option life (years)
Weighted average grant date fair value
Year Ended
Year Ended
June 30,
June 30,
Year Ended
Year Ended
June 30,
June 30,
20212021
20202020
1.0%
68.3%
0%
6.1
0.34 $
0.5%
67.1%
0%
6.1
0.33
$
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, 2021 and 2020, the Company recorded stock-based compensation related to stock
options of $1,863,266 and $1,372,931, respectively. As of June 30, 2021, there was $3,154,522 of unrecognized
compensation cost related to unvested options, which is expected to be recognized over a weighted-average period of
2.6 years.
Restricted Stock Units – The following table summarizes restricted stock award activity for the years ended June 30,
2021 and 2020.
For the years ended June 30, 2021 and 2020, the Company recorded stock-based compensation related to restricted
stock units of $1,305,390 and $1,765,533, respectively.
Included in outstanding restricted stock units in the table above are 8,164,080 vested shares that have not been
issued as of June 30, 2021 due to a provision in the restricted stock unit agreements to delay delivery.
68
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
Outstanding at beginning of year
Granted
Forfeited
Vested
Outstanding at end of year
Year Ended
Year Ended
June 30,
June 30,
Year Ended
Year Ended
June 30,
June 30,
20212021
20202020
12,965,570 10,327,833
3,244,350 3,397,950
(123,438)
(636,775)
(411,068)
(958,090)
14,840,762 12,965,570
Time-based restricted stock units granted to the Company’s executive officers, employees and non-employee
directors generally vest over 48 months, 48 months, and 12 months, respectively.
In June 2021, the Company granted 414,500 performance-based restricted stock units to its executive officers and
144,080 performance-based restricted stock units to other employees which vest during a performance period ending
June 22, 2025. The performance-based restricted stock units vest on performance criteria relating to advancement of
MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional countries or regions.
In June 2021, the Company granted 450,000 performance-based restricted stock units to its executive officers which
vest if, prior to June 22, 2023, the price per share of the Company’s common stock, as traded on the NYSE American,
was at least $2.00 for at least twenty consecutive trading days.
In June 2020, the Company granted 1,203,500 performance-based restricted stock units to its executive officers and
113,484 performance-based restricted stock units to other employees which vest during a performance period ending
June 24, 2024. The performance-based restricted stock units vest on performance criteria relating to advancement of
MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional countries or regions.
In June 2019, the Company granted 438,000 performance-based restricted stock units to its executive officers and
182,725 performance-based restricted stock units to other employees which vest during a performance period ending
June 24, 2023. The performance-based restricted stock units vest on performance criteria relating to advancement of
MC1r programs, including initiation of clinical trials and licensing of Vyleesi in additional countries or regions.
In December 2017, the Company granted 1,075,000 performance-based restricted stock units to its executive officers
and 670,000 performance-based restricted stock units to other employees which were eligible to vest during a
performance period, ended on December 31, 2020, if and upon either i) as to 100% of the target number of shares
upon achievement of a closing price for the Company’s common stock equal to or greater than $1.50 per share for 20
consecutive trading days, which is considered a market condition; or ii) as to thirty percent (30%) of the target number
of shares, upon the acceptance for filing by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during
the performance period, which is considered a performance condition; iii) as to fifty percent (50%) of the target
number of shares, upon the approval by the FDA of an NDA for Vyleesi for HSDD in premenopausal women during the
performance period, which is also considered a performance condition; iv) as to twenty percent (20%) of the target
number of shares, upon entry into a licensing agreement during the performance period for the commercialization of
Vyleesi for FSD in at least two of the following geographic areas (a) four or more countries in Europe, (b) Japan, (c) two
or more countries in Central and/or South America, (d) two or more countries in Asia, excluding Japan and China, and
(e) Australia, which is also considered a performance condition. The fair value of these awards was $913,750 and
$569,500, respectively. The Company amortized the fair value over the derived service period of 1.1 years or upon the
attainment of the performance condition. Pursuant to the FDA acceptance of the NDA filing for Vyleesi, 30% of the
target number of shares vested in June 2018. Pursuant to the FDA approval of Vyleesi, 50% of the target number of
shares vested in June 2019. During the year ended June 30, 2021, the performance period ended for the remaining
performance based restricted stock units. As a result, 319,500 unearned restricted stock units were forfeited and
added back to the 2011 Stock Plan and available for future grant.
69
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
In connection with the vesting of restricted share units during the years ended June 30, 2021 and 2020, the Company
withheld 166,799 and 93,875, shares, respectively, with aggregate values of $93,638 and $122,868, respectively, in
satisfaction of minimum tax withholding obligations.
IN COME TAX ES
(17) IN COME TAX ES
(17)
For fiscal 2021 and 2020, the Company recorded no income tax expense as a result of the generation of operating
losses that were subject to a full valuation allowance.
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, 2021, the Company had state net operating loss carryforwards of approximately $128,200,000, which will
expire, if not utilized, between 2034 and 2041, federal net operating loss carryforwards of approximately $109,800,000
and federal research and development credits of approximately $6,500,000, which expire, if not utilized, between 2035
and 2041, and foreign tax credits of $582,500, which expire, if not utilized, in 2028.
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. The Company assesses the available positive and negative evidence to estimate if sufficient future
taxable income will be generated to use the existing deferred tax assets. The Company also considers the scheduled
reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected
future taxable income, and tax-planning strategies in making this assessment. Based on a history of losses incurred,
the Company has recognized a full valuation allowance against its net deferred tax assets during the years ended June
30, 2021 and 2020. The Company's valuation allowance increased by $9,513,000 and $5,837,000 for the years ended
June 30, 2021 and 2020, respectively.
A sustained period of profitability in the Company’s operations is required before it would change its judgment
regarding the need for a full valuation allowance against its net deferred tax assets. Until such time, the use of net
operating loss carryforwards and tax credits to offset profits, if any, will reduce the overall level of deferred tax assets
subject to valuation allowance.
The Tax Reform Act of 1986 (the “Act”) provides for limitation on the use of the Company’s 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. Since its inception, the Company has completed
several financings and sales of common stock which has resulted in multiple ownership changes defined by Section
382 of the Act. Accordingly, the Company’s ability to utilize the aforementioned carryforwards are subject to limitation
under Section 382.
If the Company undergoes a future ownership change or as it completes its Section 382 limitation assessments, any
unutilized carryforwards that were not previously subject to a Section 382 limitation may become subject to limitation
which may result in a significant limitation and loss of net operating loss carryforwards and research and development
credits.
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. Accordingly, a portion of the carryforwards may expire unutilized.
70
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
an d Su bsidiary
an d Su bsidiary
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
N ot e s t o Con solidat e d F in an c ial St at e m e n t s
The Company’s net deferred tax assets are as follows:
Net operating loss carryforwards
Research and development and AMT tax credits
Foreign tax credits
Basis differences in fixed assets and other
Valuation allowance
Net deferred tax assets
June 30,
June 30,
June 30,
June 30,
20212021
20202020
$32,169,000 $24,321,000
6,461,000 6,443,000
583,000
2,723,000 1,076,000
583,000
41,936,000 32,423,000
(41,936,000) (32,423,000)
$
- $
-
The Company recognizes interest expense and penalties on uncertain income tax positions as a component of
interest expense. No interest expense or penalties were recorded for uncertain income tax matters in fiscal 2021 or
2020. As of June 30, 2021 and 2020, the Company had no liabilities for uncertain income tax matters.
71
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, 2021, 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, 2021. 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 2013. Based on its assessment,
management believes that, as of June 30, 2021, our internal control over financial reporting is effective based on those
criteria.
Item 9B. Other Information.
None.
72
PAR T III
PAR T III
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors
The following table sets forth the names, ages, positions and committee memberships of our current 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 8, 2021.
NNAMEAME
AA GEGE
Carl Spana, Ph.D.
John K.A. Prendergast, Ph.D. (3)
Robert K. deVeer, Jr. (1) (2)
J. Stanley Hull (1) (2)
Alan W. Dunton, M.D. (1) (2)
Arlene M. Morris (2) (3)
Anthony M. Manning, Ph.D. (1) (3)
(1) Member of the audit committee.
(2) Member of the compensation committee.
(3) Member of the nominating and corporate governance committee.
PPOSITION
OSITION WITHWITH P PALATIN
ALATIN
Chief Executive Officer, President and a Director
59
67 Director, Chairman of the Board of Directors
75 Director
69 Director
67 Director
69 Director
59 Director
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 held pharmaceutical company, where he was involved in scientific
research in the field of immunology. 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 scientific expertise, leadership experience, business judgment, and
industry knowledge. As a senior executive of Palatin for over twenty 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., has served as the non-executive Chairman of the board since June 14, 2000, and as a
director since August 1996. While Mr. Prendergast has served as a member of the board, he does not, and has not,
served in a management or operational role with the company. 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 lead director of Heat Biologics, Inc., a publicly traded clinical stage
immunotherapy company, and a director and non-executive chairman of Recce Pharmaceuticals Ltd., a publicly
traded Australian pharmaceutical company developing a new class of anti-infective agents. 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.
73
ROBERT K. deVEER, Jr. has been a director of Palatin 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.
J. STANLEY HULL has been a director of Palatin since September 2005. Mr. Hull has over three decades of experience in
the field of sales, marketing, and drug development. Mr. Hull joined GlaxoSmithKline, a research-based pharmaceutical
company, in October 1987 and retired as Senior Vice President, Pharmaceuticals – North America in May 2010. Mr. Hull
was responsible for all commercial activities including sales, marketing, sales training, and office operations. Previously
Mr. Hull 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 his service in the R&D organization he was
Vice President of Marketing – Infectious Diseases and Gastroenterology for Glaxo Wellcome-U.S. 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 of Palatin since June 2011. He founded Danerius, LLC, a biotechnology
consulting company, in 2006. From November 2015 through March 2018, he was senior vice president of research,
development, and regulatory affairs for Purdue Pharma L.P., with responsibilities for overall research strategy and
development programs. 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 companies Recce Pharmaceuticals
Ltd (ASX: RCE), CorMedix Inc. (NYSE: CRMD) and Oragenics, Inc. (NYSE: OGEN). 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, including president and managing director of the Janssen Research Foundation, the primary global
R&D organization for 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, regulatory, 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
and officer for both large pharmaceutical companies and smaller biotechnology and biopharmaceutical companies.
ARLENE M. MORRIS has been a director of Palatin since June 2015. Since May 2015 she has served as the chief
executive officer of Willow Advisors, LLC. From April 2012 until May 2015, she was President and 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 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 Viveve Medical, Inc., a publicly traded female healthcare medical device company,
Viridian Therapeutics, Inc., a publicly traded microRNA therapeutics company, and Cogent Biosciences, Inc., a publicly
traded oncology biopharmaceutical company, and was a director of Neovacs SA, a publicly traded French company,
Biodel Inc., a publicly traded specialty pharmaceutical company, from 2015 until its merger with Albireo Limited in
2016, and Dimension Therapeutics, Inc., a publicly traded gene therapy company, until its acquisition by Ultragenyx
Pharmaceutical Inc. in 2017. Ms. Morris received a B.A. in Biology and Chemistry from Carlow College.
74
Ms. Morris has extensive experience in the biotechnology industry, including prior leadership positions, senior
management, and board service, and experience as chief executive officer of companies with product candidates in
phase 3 clinical trials.
ANTHONY M. MANNING, Ph.D., has been a director of Palatin since September 2017. Since March 2021 Dr. Manning
has been providing scientific and strategic advice to biotechnology companies as the principal of Manning Bio
Worldwide LLC. From 2013 until March 2021, Dr. Manning was senior vice president of research, and since 2018 was
chief scientific officer, at Momenta Pharmaceuticals, Inc., a publicly traded biopharmaceutical company developing
innovative therapeutics for rare immune-related diseases which was acquired by Johnson & Johnson in October 2020.
From 2011 to 2013, he was senior vice president of research and development at Aileron Therapeutics, Inc., a publicly
traded biopharmaceutical company developing stapled peptide therapeutics for cancers and other diseases. From
2007 to 2011, he was vice president and head of inflammation and autoimmune diseases research at Biogen, Inc., a
publicly traded biopharmaceutical company developing medicines for neurological and neurodegenerative conditions.
From 2002 to 2007, he was vice president and global therapy area head for Inflammation, Autoimmunity and
Transplantation Research at Roche Pharmaceuticals, the pharmaceutical division of Roche Holding AG, and from 2000
to 2002 he was vice president of Pharmacia, a global pharmaceutical company acquired by Pfizer in 2002. Dr. Manning
received his Ph.D., M.Sc. and B.Sc. from the University of Otago, Dunedin, New Zealand.
Dr. Manning has extensive experience in translational research and development of new pharmaceutical products,
and in pharmaceutical and biotechnology research, development, and business strategy.
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 2021, the board met six times, the audit committee met four times, the
compensation committee met two times and the nominating and corporate governance committee met two times.
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 virtual annual meeting of stockholders held on June 8, 2021.
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, Dr. Manning 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 American, and satisfy the requirements of
the NYSE American 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/about-us/.
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
American. 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.
75
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/about-us/. 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 Exchange Act.
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/about-us/. The nominating and corporate governance committee is composed of Dr. Prendergast
(chair), Ms. Morris and Dr. Manning, each of whom meets the independence requirements established by the NYSE
American.
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, including the Chairman or non-management directors as a group, 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.
76
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, together with our chief financial officer and chief operating officer, is responsible for
leading our day-to-day performance and operations. 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.
Code of Corporate Conduct and Ethics
We have adopted a code of corporate conduct and ethics, updated as of March 8, 2021, 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/about-us/. 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 American 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
Name
Carl Spana, Ph.D.
Stephen T. Wills, MST, CPA
AgeAge
59
64
Position with Palatin
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, CPA, MST, currently serves as the Chief Financial Officer (since 1997), Chief Operating Officer (since
2011), Treasurer and Secretary of Palatin. Mr. Wills has served on the board of directors of MediWound Ltd. (Nasdaq:
MDWD), a biopharmaceutical company focused on treatment in the fields of severe burns, chronic and other hard to
heal wounds, since April 2017, and as Chairman since January 2018, and also has served on the board of directors of
Gamida Cell Ltd. (Nasdaq: GMDA), a leading cellular and immune therapeutics company, since March 2019 (chairman
of audit committee and member of the compensation, and finance committee), and of Amryt Pharma, a
biopharmaceutical company focused on developing and delivering treatments to help improve the lives of patients
with rare and orphan diseases, since September 2019 (chairman of audit committee and member of the compensation
and finance committee). Mr. Wills also serves on the board of trustees and executive committee of The Hun School of
Princeton, a college preparatory day and boarding school, since 2013, and as its Chairman since June 2018. Mr. Wills
served as Executive Chairman and Interim Principal Executive Officer of Derma Sciences, Inc., a provider of advanced
wound care products, from December 2015 to February 2017, when Derma Sciences was acquired by Integra
Lifesciences (Nasdaq: IART). Previously, Mr. Wills served on the board of directors of Derma Sciences as the lead
director and chairman of the audit committee from June 2000 to December 2015. Mr. Wills served as the Chief Financial
Officer of Derma Sciences from 1997 to 2000. Mr. Wills served as the President and Chief Operating Officer of Wills,
Owens & Baker, P.C., a public accounting firm, from 1991 to 2000. Mr. Wills, a certified public accountant, earned his
Bachelor of Science in accounting from West Chester University, and a Master of Science in taxation from Temple
University.
77
Delinquent Section 16(A) Reports
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 2021, except that a report on Form 4 relating to a disposition of our
common stock by a director was filed one day late on behalf of Robert K. deVeer, Jr. on October 2, 2020.
Item 11. Executive Compensation.
Fiscal 2021 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 fiscal 2021 and fiscal 2020. We have no defined
benefit or actuarial pension plan, and no deferred compensation plan.
NNAMEAME ANDAND P PRINCIPAL
RINCIPAL P POSITION
OSITION
FFISCAL
ISCAL
YYEAREAR
SSALARY
ALARY
($)($)
AWARDS
AWARDS
AWARDS
AWARDS
COMPENSATION
COMPENSATION
COMPENSATION
COMPENSATION
(1) ($)
(1) ($)
(1) ($)
(1) ($)
(2) ($)
(2) ($)
(3) ($)
(3) ($)
TT OTALOTAL
($)($)
NNONEQUITY
ONEQUITY
INCENTIVE
INCENTIVE
SSTOCK
TOCK
OO PTION
PTION
PLANPLAN
AA LLLL
OTHER
OTHER
Spana, Ph.D., Chief
and
Officer
Spana, Ph.D., Chief
and
Officer
Carl
Executive
President
Carl
Executive
President
Stephen T. Wills, MST, CPA,
Chief Financial Officer, Chief
Operating
and
Executive Vice President
Stephen T. Wills, MST, CPA,
Chief Financial Officer, Chief
Operating
and
Executive Vice President
Officer
Officer
20212021
620,000 542,538 193,766 290,000 14,500 1,660,804
20202020
600,000 712,443 712,559 252,000 15,615 2,292,617
20212021
570,000 466,064 167,482 267,000 14,933 1,485,479
20202020
550,000 613,814 613,805 231,000 16,207 2,024,826
(1) Amounts in these columns represent the aggregate grant date fair value for stock awards and option awards
computed using either the Black-Scholes model or a multifactor Monte Carlo simulation. The aggregate grant
date fair value of the performance-based restricted stock units granted in fiscal 2021, assuming that the
highest level of performance would be achieved, was as follows: for Dr. Spana, $155,063; and for Mr. Wills,
$131,114. The aggregate grant date fair value of the performance-based stock options and performance-
based restricted stock units granted in fiscal 2020, assuming that the highest level of performance would be
achieved, was as follows: for Dr. Spana, $337,500 for performance-based stock options and $337,500 for
performance-based restricted stock units; and for Mr. Wills, $290,750 for performance-based stock options
and $290,750 for performance-based restricted stock units. For a description of the assumptions we used to
calculate these amounts, see Note 16 to the consolidated financial statements included in this Annual Report.
(2) Annual incentive amounts.
(3) Consists of matching contributions to 401(k) plan.
Base Salary
The salary for each named executive officer is based, among other factors, upon job responsibilities, level of
experience, individual performance, comparisons to the salaries of executives in similar positions obtained from
market surveys, and internal comparisons. The compensation committee considers changes in the base salaries of our
named executive officers annually. Effective July 1, 2021, the compensation committee approved increases in base
salaries to $640,000 for Dr. Spana and $590,000 for Mr. Wills.
78
Annual Incentive Program
We provide annual incentive opportunities to our named executive officers to promote the achievement of annual
performance objectives. Each year, the compensation committee establishes the target annual incentive opportunity
for each named executive officer, which is based on a percentage of his base salary. For fiscal 2021 and fiscal 2020, the
target annual incentive opportunity for each named executive officer equaled 60% of his annual base salary.
The fiscal 2021 annual incentive bonus for the named executive officers was determined based on corporate
performance and individual achievements and performance, as warranted. In determining the annual incentive bonus
opportunity for executives, the executive’s annual base salary is multiplied by the target bonus percentage. The
resulting amount is then multiplied by the corporate performance percentage approved by the compensation
committee, which is dependent on the achievement of corporate performance goals, and also potentially adjusted
upwards or downwards for individual executives based on their individual contribution toward the corporate results
during the relevant year. The corporate objectives are established so that target attainment is not assured. Instead,
our executives are required to demonstrate significant effort, dedication, and achievement to attain payment for
performance at target or above.
The following table briefly describes each category of corporate objectives, the relative weighting of each objective,
and the related achievement level:
CCORPORATE
ORPORATE O O BJECTIVES
BJECTIVES
ELATED TOTO::
RRELATED
Vyleesi (bremelanotide) FSD Program
Anti-Inflammatory Programs
Ocular Programs
Other Corporate
Total Payout
AA CHIEVEMENT
CHIEVEMENT L L EVEL
EVEL
WW EIGHT
EIGHT
25.0%
7.5%
32.5%
35.0%
90.0%
30.0%
95.0%
57.0%
DDISCRETIONARY
ISCRETIONARY
AA DJUSTMENTS
DJUSTMENTS**
10.0%
0.0%
0.0%
0.0%
TT OTALOTAL W W EIGHTED
EIGHTED
AA CHIEVEMENT
CHIEVEMENT
25.0%
2.0%
31.0%
20.0%
78.0%
*Discretionary adjustment for Vyleesi was related to the restructuring of a CMC contract.
For fiscal 2021, the compensation committee determined that our named executive officers achieved 78.0% of their
target objectives. As a result, each named executive officer received a payout under the 2021 annual incentive
program equal to 78.0% of his target annual incentive opportunity, or $290,000 for Dr. Spana and $267,000 for Mr. Wills
(subject to rounding conventions).
Long-Term Incentive Program
The total direct compensation levels for our named executive officers are heavily weighted to long-term incentive
opportunities. This structure is intended to align executives’ interests with those of our stockholders, enhance our
retention incentives and focus our executives on delivering sustainable performance over the longer-term.
The design of this program has evolved over the past several years to reflect core performance metrics and an
incentive structure the compensation committee believes is necessary to drive our long-term success and that reflects
feedback received from investors during our stockholder engagement process.
Each year, the compensation committee establishes the target long-term incentive opportunity for each named
executive officer, which is based on a percentage of his base salary. For both fiscal 2020 and fiscal 2021, the target long-
term incentive opportunity for each named executive officer equaled 250% of base salary for Dr. Spana and 235% of
base salary for Mr. Wills.
79
On June 16, 2020, as part of our fiscal 2021 long-term incentive program, we granted 646,500 time-based restricted
stock units and 646,500 performance-based restricted stock units to Dr. Spana, and 557,000 time-based restricted
stock units and 557,000 performance-based restricted stock units to Mr. Wills. The time-based restricted stock units
vest as to 25% of the number of shares granted at each anniversary of the date of grant. The performance-based
restricted stock units vest on performance criteria relating to advancement of MC1r programs, including initiation of
clinical trials, and licensing of Vyleesi in additional countries or regions.
On June 16, 2020, we also granted 1,071,500 time-based options and 1,071,500 performance-based options to Dr.
Spana, and 923,000 time-based options and 923,000 performance-based options to Mr. Wills, a portion of which were
contingent on increasing the shares reserved for grant under the 2011 Stock Incentive Plan, which was approved by
the stockholders at a meeting on June 25, 2020. The time-based options vest as to 25% of the number of shares
granted at each anniversary of the date of grant. The performance-based options vest on performance criteria relating
to advancement of MC1r programs, including initiation of clinical trials, and licensing of Vyleesi in additional countries
or regions. The options have an exercise price of $0.58, the fair market value of the common stock on the business day
immediately preceding the date of grant, and they expire on June 16, 2030.
On June 22, 2021, as part of our fiscal 2022 long-term incentive program, we granted 704,500 time-based restricted
stock units and 472,350 performance-based restricted stock units to Dr. Spana, and 609,000 time-based restricted
stock units and 392,150 performance-based restricted stock units to Mr. Wills. The time-based restricted stock units
vest as to 25% of the number of shares granted at each anniversary of the date of grant. The performance-based
restricted stock units vest as to 450,000 restricted stock units, comprising 250,000 to Dr. Spana and 200,000 to Mr.
Wills, on performance criteria only if within two years of the date of grant for a twenty consecutive trading day period
the price of common stock on the NYSE American for Palatin Technologies, Inc. closes at $2.00 per share or greater (a
market condition), and as to 414,500 restricted stock units on annual performance criteria relating to corporate
objectives, including stock appreciation, advancement of development programs, and licensing of Vyleesi in additional
countries or regions (a performance condition). Additionally on June 22, 2021, we granted 1,150,000 performance-
based stock options and 232,150 performance-based restricted stock units to Dr. Spana and 994,000 performance-
based stock options and 216,850 performance-based restricted stock units to Mr. Wills, which are subject to an
increase in our authorized shares and shares reserved under our 2011 Stock Incentive Plan, and which vest based on
annual performance criteria relating to corporate objectives, including stock appreciation, advancement of
development programs, and licensing of Vyleesi in additional countries or regions (a performance condition).
On June 22, 2021, we granted 575,000 time-based stock options to Dr. Spana and 497,000 time-based stock options to
Mr. Wills, which vest as to 25% of the number of shares granted on each anniversary of the date of grant. Additionally
on June 22, 2021, we granted 575,000 time-based stock options to Dr. Spana and 497,000 time-based stock options to
Mr. Wills, which are subject to an increase in our authorized shares and shares reserved under our 2011 Stock
Incentive Plan, and which vest as to 25% of the number of shares granted on each anniversary of the date of grant.
The options have an exercise price of $0.55, the fair market value of the common stock on the business day
immediately preceding the date of grant, and they expire on June 22, 2031.
Employment Agreements
Effective July 1, 2019, we entered into employment agreements with Dr. Spana and Mr. Wills which continue through
June 30, 2022 unless terminated earlier. Under these agreements Dr. Spana is serving as Chief Executive Officer and
President at an initial base salary of $600,000 per year and Mr. Wills is serving as Chief Financial Officer and Chief
Operating Officer at an initial base salary of $550,000 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. 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.
80
Other Compensation Practices and Policies
At our last annual meeting of stockholders on June 8, 2021, our non-binding stockholder advisory vote to approve the
compensation of our named executive officers (commonly known as a “Say-on-Pay” vote) was supported by
approximately 66% of the votes cast for or against advisory approval. We continue to evaluate our executive
compensation program and solicit input from our largest investors. Following is a summary of our current
compensation practices and policies.
Retain an Independent Compensation Advisor. The compensation committee engaged Aon Consulting, Inc.
through its Aon Rewards Solutions division (“Aon Rewards”), a nationally recognized global human resources
consulting firm, as its independent compensation advisor in April 2021. Aon Rewards principally provided
analysis, advice, and recommendations on named executive officers and non-employee director
compensation. Our compensation peer group for named executive officer awards made in June 2021 was
designed to reflect the industry and sector in which Palatin competes, as well as companies comparable to
Palatin in terms of company life cycle, phase of development of potential products, market capitalization and
talent market, and consists of:
AcelRx Pharmaceuticals, Inc.
Aldeyra Therapeutics, Inc.
Ardelyx, Inc.
Calithera Biosciences, Inc.
Clearside Biomedical, Inc.
Crinetics Pharmaceuticals, Inc.
CymaBay Therapeutics, Inc.
Geron Corporation
Kala Pharmaceuticals, Inc.
Kezar Life Sciences, Inc.
La Jolla Pharmaceutical Company
MEI Pharma, Inc.
MeiraGTx Holdings plc
Oyster Point Pharma, Inc.
Paratek Pharmaceuticals, Inc.
RAPT Therapeutics, Inc.
Savara Inc.
Syndax Pharmaceuticals, Inc.
Verastem, Inc.
Compensation at Risk. Our executive compensation program is designed so that a significant portion of
compensation is “at risk” based on our performance, as well as short-term cash and long-term equity
incentives to align the interests of our executive officers and stockholders. Long-term equity incentives will be
no less than base salaries, with at least half of long-term equity incentives being performance-based.
Use a Pay-for-Performance Philosophy. The compensation committee employs a mixture of compensation
elements designed to balance short-term goals with longer-term performance. Our executive compensation
program includes these principal elements:
o Base salary, which targets the comparable position median salary for our peer group;
o An annual incentive compensation opportunity, with a target bonus payout of no less than 60% of
base salary, depending on performance; and,
o A long-term incentive program consisting of stock option and restricted stock unit awards. In fiscal
2021, approximately 50% of all long-term incentive awards were allocated to performance-based stock
options and performance-based restricted share units.
81
Maintain a Stock Ownership Policy. We adopted a stock ownership policy effective April 1, 2019, that requires
our named executive officers, as well as our board members, to maintain a minimum ownership level of our
common stock. As of June 30, 2021, the most recent “Determination Date” under the stock ownership policy,
all current named executive officers and board members meet the target ownership levels of shares with a
value equal to at least five times the annual base salary of named executive officers and at least two times the
annual retainer for board members. Our stock ownership policy is on our website at www.palatin.com/about-
us/. In addition, certain time-based and performance-based restricted stock unit awards contain deferred
delivery provisions providing for delivery of the common stock after the grantee’s separation from service or a
defined changed in control.
Maintain a Clawback Policy. We have adopted a clawback policy allowing Palatin to recover related
compensation should the board determine that compensation paid to named executive officers resulted from
material noncompliance with financial reporting requirements under federal securities law. Our clawback
policy is on our website at www.palatin.com/about-us/.
Maintain an Independent Compensation Committee. The compensation committee consists entirely of
independent directors.
Annual Executive Compensation Review. The compensation committee conducts an annual review and
approval of our compensation strategy, utilizing an independent compensation advisor. This review, including
a peer group review, is intended to ensure that our compensation programs appropriately reward corporate
growth without encouraging excessive or inappropriate risk-taking.
“Double Trigger” Feature for Acceleration of CEO and CFO/COO Equity Awards. Under employment
agreements with our named executive officers, outstanding equity awards granted to our named executive
officers provide that, upon a change in control of Palatin, the vesting of such awards will accelerate only in the
event of a subsequent involuntary termination of employment (a “double-trigger” provision).
No Excise Tax Gross-Ups. Prior to July 1, 2019, our employment agreements for the named executive officers
provided that they were entitled to a tax gross-up for any golden parachute excise tax imposed on payments
received in connection with a change in control. Most investors disfavor this type of tax gross-up benefit. In
response to stockholder feedback, effective with new employment agreements for our named executive
officers commencing July 1, 2019, we removed all golden parachute excise tax gross-up provisions. As a result,
the Company no longer provides tax gross-ups for named executive officers or any other employees in the
event they are subject to golden parachute excise taxes on payments received in connection with a change in
control.
No Stock Option Re-pricing. Our 2011 Stock Incentive Plan does not permit options to purchase shares of our
common stock to be repriced to a lower exercise or strike price without the approval of our stockholders.
No Dividends or Dividend Equivalents Payable on Unvested or Undelivered Equity Awards. Under our
restricted share unit agreements, we do not pay dividends or dividend equivalents on unvested RSU awards
or vested RSU awards subject to delayed delivery.
No Executive Retirement Plans. We do not offer pension arrangements or retirement plans or arrangements
to our executive officers that are different from or in addition to those offered to our other employees.
No Special Welfare or Health Benefits. Our executive officers participate in broad-based Company-sponsored
health and welfare benefit programs on the same basis as our other full-time, salaried employees.
Outstanding Equity Awards at 2021 Fiscal Year-End
The following table summarizes all of the outstanding equity-based awards granted to our named executive officers as
of June 30, 2021, the end of our fiscal year.
82
OO PTION
PTION AWARDS
(1)
AWARDS (1)
EE QUITY
QUITY
INCENTIVE
INCENTIVE
PLANPLAN
AWARD::
AWARD
NUMBER
NUMBER
NN UMBER
UMBER
NN UMBER
UMBER
OFOF
OFOF
OFOF
SECURITIES
SECURITIES
SECURITIES
SECURITIES
SECURITIES
SECURITIES
OO PTION
PTION OROR
UNDERLYING
UNDERLYING
UNDERLYING
UNDERLYING
UNDERLYING
UNDERLYING
STOCK
STOCK
UNEXERCISED
UNEXERCISED
UNEXERCISED
UNEXERCISED
UNEXERCISED
UNEXERCISED
OO PTION
PTION
SS TOCK
TOCK AWARDS
(2)
AWARDS (2)
EE QUITY
QUITY
INCENTIVE
INCENTIVE
PLANPLAN
AWARDS::
AWARDS
MARKET
MARKET
OROR
PAYOUT
PAYOUT
VALUE OFOF
VALUE
UNEARNED
UNEARNED
SHARES,,
SHARES
UNITS OROR
UNITS
EE QUITY
QUITY
INCENTIVE
INCENTIVE
PLANPLAN
AWARDS::
AWARDS
NUMBER
NUMBER
OFOF
UNEARNED
UNEARNED
SHARES,,
SHARES
UNITUNIT OROR
OTHER
OTHER
OTHER
OTHER
RIGHTS
RIGHTS
RIGHTS
RIGHTS
NN UMBER
UMBER
OFOF SHARES
SHARES
OROR UNITS
UNITS
OFOF STOCK
STOCK
MM ARKET
ARKET
VALUE OFOF
VALUE
SHARES
SHARES
OROR UNITS
UNITS
OFOF STOCK
STOCK
THAT
THAT
HAVEHAVE NOTNOT
THAT
THAT
HAVEHAVE NOTNOT
THAT
THAT
HAVEHAVE NOTNOT
THAT
THAT
HAVEHAVE NOTNOT
AWARD
AWARD
GRANT
GRANT
DATEDATE
OPTIONS
OPTIONS
(#)
(#)
EXERCISABLE
EXERCISABLE
NNAMEAME
Carl Spana
OPTIONS
OPTIONS
(#)
(#)
UNEARNED
UNEARNED
EXERCISE
EXERCISE
OO PTION
PTION
UNEXERCISABLE
UNEXERCISABLE
OPTIONS
OPTIONS
(#)
(#)
PRICE
PRICE
($)
($)
EXPIRATION
EXPIRATION
DATEDATE
VESTED
VESTED
(#)
(#)
VESTED
VESTED
($) (3)
($) (3)
VESTED
VESTED
(#)
(#)
VESTED
VESTED
($)(3)
($)(3)
-
-
-
-
-
-
-
-
-
-
-
- 862,558
-
07/17/12 150,000
-
06/27/13 275,000
-
06/25/14 175,000
-
06/11/15 300,000
-
09/07/16 432,000
06/20/17 938,000
-
12/12/17 468,750 156,250
12/12/17 500,000
-
06/26/18 399,750 133,250
06/24/19 372,000 372,000
06/16/20 267,875 803,625
06/16/20 208,942
06/22/21
12/12/17
06/24/19
06/16/20
06/22/21
Total
Stock
Awards
- 575,000
Stephen
T. Wills
-
07/17/12 135,000
-
06/27/13 250,000
-
06/25/14 150,000
-
06/11/15 270,000
-
09/07/16 396,000
06/20/17 859,000
-
12/12/17 431,250 143,750
12/12/17 372,500
-
06/26/18 340,500 113,500
06/24/19 319,000 319,000
06/16/20 230,750 692,250
06/16/20 179,985
06/22/21
-
-
-
-
-
-
-
-
-
-
-
- 743,015
- 497,000
0.72 07/17/22
0.62 06/27/23
1.02 06/25/24
1.08 06/11/25
0.68 09/07/26
0.37 06/20/27
0.85 12/12/27
0.85 12/12/27
1.00 06/26/28
1.34 06/24/29
0.58 06/16/30
0.58 06/16/30
0.55 06/22/31
156,250 95,313
-
118,000 71,980 132,927 81,085
484,875 295,774 520,432 317,464
704,500 429,745 472,350 288,134
-
1,463,625 892,812 1,125,709 686,683
0.72 07/17/22
0.62 06/27/23
1.02 06/25/24
1.08 06/11/25
0.68 09/07/26
0.37 06/20/27
0.85 12/12/27
0.85 12/12/27
1.00 06/26/18
1.34 06/24/29
0.58 06/16/30
0.58 06/16/30
0.55 06/22/31
12/12/17
06/24/19
06/16/20
06/22/21
Total
Stock
Awards
143,750 87,688
-
101,000 61,610 113,776 69,403
417,750 254,828 448,385 273,515
609,000 371,490 392,150 239,212
-
1,271,500 775,616 954,311 582,130
(1)
(2)
Stock option vesting schedules: all options granted on or before December 11, 2017 have fully vested. Options
granted after December 11, 2017 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 for a description of events that could accelerate
vesting, except for performance-based options granted on June 16, 2020, which vest according to the terms of
the grant described above.
Time-based stock award vesting schedule: restricted stock units granted on December 12, 2017, as to 625,000
shares for Dr. Spana and 575,000 shares for Mr. Wills, which vest in equal amounts over a four year period,
provided that the named executive officer remains an employee; restricted stock units granted on June 24,
2019 as to 236,000 shares for Dr. Spana and 202,000 shares for Mr. Wills; restricted stock units granted on June
16, 2020 as to 646,500 shares for Dr. Spana and 557,000 shares for Mr. Wills and restricted stock units granted
on June 22, 2021 as to 704,500 shares to Dr. Spana and 609,000 shares for Mr. Wills, which vest in equal
amounts over a four year period, provided that the named executive officer remains an employee. Both time-
based and performance-based restricted stock unit awards prior to fiscal 2019 contain deferred delivery
provisions providing for delivery of the common stock after the grantee’s separation from service or a defined
change in control. See “Stock Options and Restricted Stock Unit Awards” above and “Termination and Change-
In-Control Arrangements” below.
(3)
Calculated by multiplying the number of restricted stock units by $0.61, the closing market price of our
common stock on June 30, 2021, the last trading day of our most recently completed fiscal year.
83
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 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 After Death or Disability. In the event of the executive’s death or disability, we will provide
lump sum severance pay equal to 24 months of base pay, as well as the opportunity for COBRA benefits as described
above under “Termination Without Severance Compensation.”
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 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.
84
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% 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 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. 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. Pursuant to the employment agreements,
options and restricted stock units granted under the 2011 Stock Incentive Plan vest upon termination of the
employee within twelve months following 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)
any person or entity acquires more than 50% of the voting power of our outstanding securities;
(b)
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;
(c)
the consummation of a merger or consolidation; or
(d)
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)
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;
(b)
a material reduction in the executive’s salary;
(c)
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;
(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.
85
Director Compensation
The following table sets forth the compensation we paid to all directors during fiscal 2021, 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
Name
John K.A. Prendergast, Ph.D.
Robert K. deVeer, Jr.
J. Stanley Hull
Alan W. Dunton, M.D.
Angela Rossetti (3)
Arlene Morris
Anthony Manning, Ph.D.
Fees earned or paid in
Fees earned or paid in
cash ($)
cash ($)
Stock awards ($) (1)
Stock awards ($) (1)
(2)(2)
Option awards
Option awards
($) (1) (2)
($) (1) (2)
97,500
66,250
57,500
69,750
53,750
53,750
47,500
57,500
42,500
42,500
42,500
-
42,500
42,500
57,500
42,500
42,500
42,500
-
42,500
42,500
Total ($)
Total ($)
212,500
151,250
142,500
154,750
53,750
138,750
132,500
(1)
The aggregate number of shares underlying option awards and unvested stock awards outstanding at June 30,
2021 for each director was:
Option
Option
awards
awards
Stock
Stock
awards
awards
Dr. Prendergast
Mr. deVeer
Mr. Hull
Dr. Dunton
Ms. Morris
Dr. Manning
(2)
265,000
157,000
157,000
147,000
127,000
105,500
Amounts in these columns represent the aggregate grant date fair value for stock awards and option awards.
For a description of the assumptions we used to calculate these amounts, see Note 16 to the consolidated
financial statements included in this Annual Report. Amounts in this column include options granted on June
22, 2021 for our current fiscal year ending June 30, 2022.
866,500
536,500
536,500
536,500
476,500
404,000
(3)
Angela Rossetti resigned as a director effective December 17, 2020, but under an agreement with the board in
connection with her resignation was paid cash retainers she would have received had she remained on the
board through June 30, 2021.
Our director compensation program is designed to enhance our ability to attract and retain highly qualified directors
and to align their interests with the long-term interests of our stockholders. The program includes an equity
component, which is designed to align the interests of non-employee directors and stockholders, and a cash
component, which is designed to compensate non-employee directors for their service on the board. Directors who
are employees of the Company receive no additional compensation for their service on the board.
The compensation committee annually reviews compensation paid to our non-employee directors and makes
recommendations for adjustments, as appropriate, to the full board. As part of this annual review, the compensation
committee considers the significant time commitment and skill level required by each non-employee director in
serving on the board and its various committees. The compensation committee seeks to maintain a market
competitive director compensation program and, with the assistance of its independent compensation consultant,
Aon Rewards, benchmarks our director compensation program against the peer group we use to evaluate our
executive compensation program.
86
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 22, 2021, the Chairman of the board received 105,000 restricted stock units which vest on June 22, 2022 and an
option to purchase 173,000 shares of common stock, and each other serving non-employee director received 77,000
restricted stock units which vest on June 22, 2022 and an option to purchase 128,000 shares of common stock. All of
the options have an exercise price of $0.55 per share, the closing price of our common stock on the business day
immediately preceding the date of grant, vest in twelve monthly installments beginning July 31, 2021, expire ten years
from the date of grant and provide for accelerated vesting in the event of involuntary 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 16, 2020, the Chairman of the board received 99,000 restricted stock units which vest on June 16, 2021 and an
option to purchase 172,000 shares of common stock, and each other serving non-employee director received 73,000
restricted stock units which vest on June 16, 2021 and an option to purchase 127,000 shares of common stock. All of
the options have an exercise price of $0.58 per share, the closing price of our common stock on the business day
immediately preceding the date of grant, vest in twelve monthly installments beginning July 31, 2020, expire ten years
from the date of grant and provide for accelerated vesting in the event of involuntary 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 fiscal 2021
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 $17,500, the chairperson of the compensation committee received an additional annual retainer of
$17,500 and the chairperson of the corporate governance committee received an additional annual retainer of
$10,000. 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, 2022, Dr.
Prendergast serves as Chairman of the board and will received an annual retainer of $87,500, payable quarterly. Other
non-employee directors will receive an annual base retainer of $40,000, payable on a quarterly basis. The chairperson
of the audit committee will receive an additional annual retainer of $20,000, the chairperson of the compensation
committee will receive an additional annual retainer of $20,000 and the chairperson of the corporate governance
committee will receive an additional annual retainer of $10,000. Members of the foregoing committees, other than the
non-employee Chairman, receive an additional retainer of one-half the retainer payable to the committee chairperson.
The board also formed a program development committee, charged with reviewing new product opportunities and
product development strategy. The chairperson of the program development committee receives $3,500 per day of
service, and members of the committee receive $2,500 per day of service.
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.
87
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, 2021:
Equ it y Com pe n sat ion Plan In form at ion
Equ it y Com pe n sat ion Plan In form at ion
as of Ju n e 30, 2021
as of Ju n e 30, 2021
Number of
Number of
securities
securities
remaining
remaining
available
available
for future
for future
issuance
issuance
under
under
equity
equity
compensation
compensation
plans
plans
(excluding
(excluding
securities
securities
reflected in
reflected in
column (a)
column (a)
Number of
Number of
securities
securities
to be issued
to be issued
uponupon
exercise of
exercise of
outstanding
outstanding
options,
options,
warrants
warrants
and rights
and rights
Weighted-
Weighted-
average
average
exercise
exercise
price of
price of
outstanding
outstanding
options,
options,
warrants
warrants
and rights
and rights
(a)
(b)
36,723,262(1) $
25,000(3) $
36,748,262
0.72(2)
0.70
(c)
738,817
-
738,817
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(1)
(2)
Includes 21,882,500 options and 14,840,762 restricted stock units granted under our 2011 Stock Incentive Plan.
The amount in column (a) for equity compensation plans approved by security holders includes 14,376,762
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 22, 2025, subject to the fulfillment of service, market
conditions, or performance 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.
(3)
Consists of two warrants to purchase 12,500 shares at $0.70 per share issued in connection with a contract for
financial advisory services. These warrants expired unexercised on August 4, 2021.
Beneficial Ownership Tables. The tables below show the beneficial stock ownership and voting power, as of September
24, 2021, 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 24, 2021. 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 16 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 24, 2021, on which date 231,258,137 shares of common stock and 4,030
shares of Series A preferred stock, convertible into 66,059 shares of common stock, were outstanding.
Under our Insider Trading and Securities Law Compliance Policy directors and officers may not engage in hedging,
monetization or pledging transactions of our securities. None of the shares of our management and directors shown
on the table below are pledged.
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.
88
MAN AGEMEN T:
MAN AGEMEN T:
C CLASS
LASS
N NAMEAME OFOF BENEFICIAL
BENEFICIAL OWNER
OWNER
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.
J. Stanley Hull
Alan W. Dunton, M.D.
Arlene M. Morris
Anthony M. Manning, Ph.D.
AA MOUNT
MOUNT ANDAND NATURE
BENEFICIAL OWNERSHIP
OWNERSHIP
BENEFICIAL
NATURE OFOF
PPERCENT
ERCENT OFOF CLASS
CLASS
PPERCENT
ERCENT OFOF TOTAL
TOTAL
VOTING POWER
POWER
VOTING
8,552,677 (1)
7,640,464 (2)
1,404,933 (3)
845,306 (4)
807,966 (5)
818,518 (6)
730,666 (7)
520,666 (8)
3.6%
3.2%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
All current directors and executive officers as
a group (eight persons)
21,321,196 (9)
8.6%
1.8%
*Less than one percent.
(1)
(2)
(3)
(4)
(5)
Includes 4,487,318 shares of common stock underlying outstanding options and 2,859,750 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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 3,933,985 shares of common stock underlying outstanding options and 2,519,750 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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 751,166 shares of common stock underlying outstanding options and 160,000 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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 451,166 shares of common stock underlying outstanding options and 80,000 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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 451,166 shares of common stock underlying outstanding options and 80,000 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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.
(6)
Includes 451,166 shares of common stock underlying outstanding options and 70,000 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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.
(7)
(8)
Consists of 391,166 shares of common stock underlying outstanding options and 50,000 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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 318,666 shares of common stock underlying outstanding options and 28,500 shares of common
stock underlying restricted stock units, all of which shares of common stock underlying restricted stock units
have vested but not been delivered under deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in control, 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.
(9)
Includes 17,083,799 shares of common stock underlying outstanding options and restricted stock units.
89
MOR E THAN 5% B EN EF ICIAL OW N ER S:
MOR E THAN 5% B EN EF ICIAL OW N ER S:
NNAMEAME ANDAND ADDRESS
ADDRESS OFOF BENEFICIAL
BENEFICIAL OWNER
OWNER
AA MOUNT
MOUNT ANDAND NATURE
BENEFICIAL OWNERSHIP
BENEFICIAL
NATURE OFOF
(1)
OWNERSHIP (1)
PPERCENT
ERCENT
OFOF CLASS
CLASS
VOTING
VOTING
POWER
POWER
PPERCENT
ERCENT OFOF TOTAL
TOTAL
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
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%
*
*
*
*
*
*
*
*
*
*
*
CCLASS
LASS
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.
(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.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The board of directors has determined that all the directors except for Dr. Spana (our Chief Executive Officer and
President) are independent directors, as defined in the listing standards of the NYSE American.
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, 2015,
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.
Item 14. Principal Accounting Fees and Services.
KPMG LLP (“KPMG”), served as our independent registered public accounting firm for fiscal 2021 and fiscal 2020.
Audit Fees. For fiscal 2021, fees for professional services rendered for the audit of our annual consolidated financial
statements and review of our consolidated financial statements in our Forms 10-Q were $398,000. For fiscal 2020, fees
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 comfort letters were
$329,000.
90
Audit-Related Fees. For fiscal 2021 and fiscal 2020, KPMG did not perform or bill us for any audit-related services.
Tax Fees. For fiscal 2021, KPMG billed us $18,600 us for professional services rendered for tax compliance services. For
fiscal 2020, KPMG billed us $23,600 for professional services rendered for tax compliance services.
All Other Fees. KPMG did not perform or bill us for any services other than those described above for fiscal 2021 and
fiscal 2020.
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.
91
PAR T IV
PAR T IV
Item 15. Exhibits, Financial Statement Schedules.
(a) D oc u m e n t s file d as part of t h e re port :
(a) D oc u m e n t s file d as part of t h e re port :
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
— Consolidated Statements of Cash Flows
— Notes to Consolidated Financial Statements
2. Financial statement schedules: None.
92
3.
List of Exhibits
The following exhibits are incorporated by reference or filed as part of this report:
Ex h ibit
Ex h ibit
N u m be r
N u m be r
D e sc ript ion
D e sc ript ion
F ile d
F ile d
He re wit h
He re wit h
F ormF orm
F ilin g D at e
F ilin g D at e
SEC F ile N o.
SEC F ile N o.
1.1
1.2
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
10.1†
10.2†
10.3†
10.4†
10.5†
Equity Distribution Agreement, dated April
20, 2018, by and between Palatin
Technologies, Inc. and Canaccord Genuity
LLC
Equity Distribution Agreement, dated June
21, 2019, by and between Palatin
Technologies, Inc. and Canaccord Genuity
LLC
Restated Certificate of Incorporation of
Palatin Technologies, Inc., as amended.
Amended and Restated Bylaws of Palatin
Technologies, Inc.
Form of Series A 2012 Warrant.
Form of Series B 2012 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.
Form of Series H 2016 Common Stock
Purchase Warrant.
Form of Series I 2016 Common Stock
Purchase Warrant.
Form of Series J 2016 Common Stock
Purchase Warrant.
Form of warrant issued to PSL Business
Development Consulting and SARL Avisius in
connection with a contract for financial
advisory services.
Description of Securities
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.
8-K
April 20, 2018
001-15543
8-K
June 21, 2019
001-15543
10-K
September 27, 2013
001-15543
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
September 17, 2021
001-15543
July 6, 2012
July 6, 2012
December 30,
2014
December 30,
2014
001-15543
001-15543
001-15543
001-15543
July 7, 2015
001-15543
July 7, 2015
001-15543
July 7, 2015
001-15543
August 2, 2016
001-15543
August 2, 2016
001-15543
December 1, 2016
001-15543
10-Q
February 10, 2017
001-15543
10-K
10-K
8-K
8-K
8-K
8-K
September 12, 2019
September 28, 2009
September 21, 2011
001-15543
001-15543
001-15543
September 21, 2011
001-15543
September 21, 2011
001-15543
September 21, 2011
001-15543
93
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21
10.22
10.23††
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.
2011 Stock Incentive Plan, as amended and
restated.
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.
Form of Restricted Share Unit Agreement
under the 2011 Stock Incentive Plan.
Form of Performance-Based Restricted Share
Unit Agreement under the 2011 Stock
Incentive Plan.
Form of Restricted Share Unit Agreement for
Non-Employee Directors under the 2011
Stock Incentive Plan.
Amended form of Restricted Share Unit
Agreement under the 2011 Stock Incentive
Plan.
Amended form of Performance-Based
Restricted Share Unit Agreement under the
2011 Stock Incentive Plan.
Amended form of Restricted Share Unit
Agreement for Non-Employee Directors
under the 2011 Stock Incentive Plan.
Form of Indenture.
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.
Termination and Release Agreement dated
September 29, 2020, by and between
Catalent Belgium S.A. and Palatin
Technologies, Inc.
94
10-Q
10-Q
10-Q
10-Q
February 8, 2008
May 15, 2009
May 14, 2008
May 14, 2008
001-15543
001-15543
001-15543
001-15543
10-Q
May 14, 2008
001-15543
8-K
June 29, 2020
001-15543
10-Q
May 13, 2011
001-15543
10-Q
May 13, 2011
001-15543
10-Q
May 13, 2011
001-15543
8-K
8-K
December 11, 2015
001-15543
December 11, 2015
001-15543
8-K
December 11, 2015
001-15543
10-Q
February 12, 2016
001-15543
10-Q
February 12, 2016
001-15543
10-Q
February 12, 2016
001-15543
S-3
8-K
August 17, 2018
July 7, 2015
333-226905
001-15543
10-Q
November 16, 2020
001-15543
10-Q
November 16, 2020
001-15543
10-Q
February 10, 2017
001-15543
10-Q
November 13, 2017
001-15543
8-K
June 26, 2019
001-15543
8-K
June 26, 2019
001-15543
8-K
July 27, 2020
001-15543
10-K
September 25, 2020
001-15543
10-K
September 25, 2020
001-15543
10-Q
November 16, 2020
001-15543
10-Q
November 16, 2020
001-15543
10.24††
10.25††
10.26††
10.27†
10.28†
10.29
10.30†††
10.31†††
10.32
10.33†††
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
Commercial Supply Agreement dated
September 29, 2020, by and between
Catalent Belgium S.A. and Palatin
Technologies, Inc.
License Agreement, dated January 8, 2017, by
and between AMAG Pharmaceuticals, Inc.
and Palatin Technologies, Inc.
License Agreement, dated September 6,
2017, by and between Shanghai Fosun
Pharmaceutical Industrial Development Co.,
Ltd. and Palatin Technologies, Inc.
Employment Agreement, effective as of July
1, 2019, between Carl Spana and Palatin
Technologies, Inc.
Employment Agreement, effective as of July
1, 2019, between Stephen T. Wills and Palatin
Technologies, Inc.
Termination Agreement between Palatin
Technologies, Inc. And AMAG
Pharmaceuticals, Inc., dated July 24, 2020.
Manufacturing Serves Agreement, dated as
of June 1, 2019, by and between Palatin
Technologies, Inc. (as assignee from AMAG
Pharmaceuticals, Inc.) and Lonza Ltd.
Supply Agreement, dated as of December 20,
2018, by and between Palatin Technologies,
Inc. (as assignee from AMAG
Pharmaceuticals, Inc.) and Ypsomed AG.
Commercial Supply Agreement dated
September 29, 2020, by and between
Catalent Belgium S.A. and Palatin
Technologies, Inc.
Termination and Release Agreement dated
September 29, 2020, by and between
Catalent Belgium S.A. and Palatin
Technologies, Inc.
Subsidiary 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
X
X
X
X
X
X
X
X
X
X
X
Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition
Linkbase Document.
X
† Management contract or compensatory plan or arrangement.
†† Confidential treatment granted as to certain portions of the exhibit, which portions are omitted and filed separately
with the SEC.
††† Portions of the exhibit are omitted pursuant to Regulation S-K Item 601(b)(10). Palatin agrees to furnish to the U.S.
Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request. The confidential
portions of this exhibit were omitted by means of marking such portions with asterisks because the identified
confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
Item 16. Form 10-K Summary.
None.
95
SIGN ATUR ES
SIGN ATUR ES
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.
PALATIN TECHN OLOGIES, IN C.
PALATIN TECHN OLOGIES, IN C.
By: /s/ Carl Spana
Carl Spana, Ph.D.
President and Chief Executive Officer
(principal executive officer)
Date: September 28, 2021
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.
Sign at u re
Sign at u re
Tit le
Tit le
D at eD at e
/s/ Carl Spana President, Chief Executive Officer and Director
September 28, 2021
Carl Spana
(principal executive officer)
/s/ Stephen T. Wills
Stephen T. Wills
Executive Vice President, Chief Financial Officer
September 28, 2021
and Chief Operating Officer (principal financial and
accounting officer)
/s/ John K. A. Prendergast
Chairman and Director
September 28, 2021
John K. A. Prendergast
/s/ Robert K. deVeer, Jr.
Director
September 28, 2021
Robert K. deVeer, Jr.
/s/ J. Stanley Hull
Director
September 28, 2021
J. Stanley Hull
/s/ Alan W. Dunton
Alan W. Dunton
/s/ Arlene M. Morris
Arlene M. Morris
Director
Director
September 29, 2021
September 28, 2021
/s/ Anthony M. Manning
Director
September 28, 2021
Anthony M. Manning
96