Palatin Technologies Inc 10-K for FY2023
Palatin Technologies Inc (PTN)
About this 10-K
Palatin Technologies Inc filed this 10-K on September 28, 2023, covering the fiscal year ended June 30, 2023 (FY2023).
Headline figures
Fiscal year ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.85M
- up 230.5% from $1.47M a year earlier
- Net loss
- $27.54M
- compared with a net loss of $36.2M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
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Securities registered pursuant to Section 12(b) of the Act:
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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 ☐
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 ☐
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.
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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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
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 30 2022): $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date (September 27, 2023):
PALATIN TECHNOLOGIES, INC.
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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 significant operating losses since our inception and our need to obtain additional financing has caused management to determine there is substantial doubt regarding our ability to continue as a going concern; |
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| · | 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 economic disruptions; |
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| · | our expectation that we will incur losses for the foreseeable future and may never achieve or maintain profitability; |
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| · | our business, financial condition, and results of operations may be adversely affected by increases in costs of and delays in conducting human clinical trials and the performance of our contractors and suppliers, reduction in our productivity or the productivity of our contractors and suppliers, supply chain constraints, and labor shortages; |
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| · | 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; |
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| · | our ability to manage the infrastructure to successfully manufacture, through contract manufacturers, Vyleesi, and to successfully market and distribute Vyleesi in the United States; |
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| · | our ability to meet postmarketing commitments of the U.S. Food and Drug Administration (“FDA”) for Vyleesi; |
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| · | our expectations regarding the potential market size and market acceptance for Vyleesi for HSDD in the United States and elsewhere in the world; |
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| · | our expectations regarding performance of our exclusive licensees of Vyleesifor 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 |
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| o | Kwangdong Pharmaceutical Co., Ltd. (“Kwangdong”) for the Republic of Korea (“Korea”); |
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| · | our expectations and the ability of our licensees to timely obtain approvals and successfully commercialize Vyleesi in countries other than the United States; |
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| · | the results of clinical trials with our late-stage products, including PL9643, an ophthalmic peptide solution for dry eye disease (“DED”), which entered Phase 3 clinical trials in the fourth quarter of calendar year 2021, with top line results from the first Phase 3 clinical trial projected by December 31, 2023, PL8177, an oral peptide formulation for treatment of ulcerative colitis, which entered Phase 2 clinical trials in the third quarter of calendar year 2022, and a proof-of-concept melanocortin agonist clinical trial for diabetic nephropathy, which entered a Phase 2 clinical in the fourth quarter of calendar year 2022; |
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| · | estimates of our expenses, future revenue and capital requirements; |
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| · | our ability to achieve profitability; |
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| · | our ability to advance product candidates into, and successfully complete, clinical trials; |
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| · | the initiation, timing, progress and results of future preclinical studies and clinical trials, and our research and development programs; |
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| · | the timing or likelihood of regulatory filings and approvals; |
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| · | 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; |
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| · | our ability to compete with other products and technologies treating the same or similar indications as our product candidates; |
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| · | the ability of our third-party collaborators to timely carry out their duties under their agreements with us; |
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| · | the ability of our contract manufacturers to perform their manufacturing activities for us in compliance with applicable regulations; |
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| · | our ability to recognize the potential value of our licensing arrangements with third parties; |
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| · | the potential to achieve revenues from the sale of our product candidates; |
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| · | our ability to obtain adequate reimbursement from private insurers and other healthcare payers; |
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| · | our ability to maintain product liability insurance at a reasonable cost or in sufficient amounts, if at all; |
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| · | the performance and retention of our management team, senior staff professionals, other employees, and third-party contractors and consultants; |
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| · | 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; |
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| · | our compliance with federal and state laws and regulations; |
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| · | the timing and costs associated with obtaining regulatory approval for our product candidates; |
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| · | the impact of fluctuations in foreign exchange rates; |
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| · | the impact of any geopolitical instability, economic uncertainty, financial markets volatility, or capital markets disruption resulting from the ongoing military conflict between Russia and Ukraine, and any resulting effects on our revenue, financial condition, or results of operations; |
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| · | the impact of legislative or regulatory healthcare reforms in the United States; |
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| · | our ability to adapt to changes in global economic conditions as well as competing products and technologies; and |
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| · | 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.
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Special Note Regarding Reverse Stock Split of Palatin’s Common Stock
A certificate of amendment (the “Amendment”) of Palatin’s articles of incorporation for a 1-for-25 reverse split of Palatin’s issued and outstanding common stock (the “Reverse Stock Split”) was effective as of 5:00 p.m. Eastern Time on August 30, 2022 (the “Effective Date”). Unless otherwise indicated, all share and per-share numbers herein, including common stock and all securities convertible into common stock, give effect to the Reverse Stock Split.
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.
Risks Related to Our Financial Results and Need for Financing
| · | Our management has determined that there is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing. |
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| · | We have a history of substantial net losses, including a net loss of $27.5 million for the year ended June 30, 2023, and expect to incur substantial net losses over the next few years, and we may never achieve or maintain profitability. |
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| · | 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. |
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| · | We have a limited operating history upon which to base an investment decision. |
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| · | Raising additional capital may cause dilution to existing stockholders, 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. |
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| · | 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. |
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| · | 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. |
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| · | 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. |
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| · | 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 operations will be materially adversely affected. |
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| · | 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. |
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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. |
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| · | 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. |
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Risks Related to the Ownership of Our Common Stock | ||
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| · | 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. |
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| · | Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gains. |
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| · | As of September 27, 2023, there were 4,419,056 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. |
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PART 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 receptor (“MCr”) system. 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.
The 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 (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.
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 Korea, and licensing Vyleesi for the United States and additional regions; |
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| · | Maintaining a team to create, develop and commercialize MCr products addressing unmet medical needs; |
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| · | Entering into strategic alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing, sale, and distribution of product candidates that we are developing; |
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| · | Partially funding our product development programs with the cash flow generated from Vyleesi and existing license agreements, as well as any future research, collaboration, or license agreements; and |
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| · | Completing development and seeking regulatory approval of certain of our other product candidates. |
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Pipeline Overview
The following chart illustrates the status of our drug development programs and Vyleesi, which has been approved by the FDA for the treatment of premenopausal women with acquired, generalized HSDD.
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 regulate 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 selective and multiple MCr selective peptide drug candidates for selected inflammatory disease and autoimmune indications. MC1r selective agonists may have therapeutic benefit in many diseases, including inflammatory bowel disease and ocular indications such as uveitis, diabetic retinopathy, and dry eye disease. Evaluation of MCr agonists in 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. 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.
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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 as 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 pivotal clinical trial (“MELODY-1”) designed to support a New Drug Application (“NDA”) has completed patient enrollment, with top line results expected by December 31, 2023. An interim analysis by an independent Data Monitoring Committee (“DMC”) of the first 120 patients who had completed the MELODY-1 trial recommended the study continue with a sample size of up to 350 patients. Topline results from the MELODY-1 trial are now expected in the fourth quarter of calendar 2023. 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. If results of the MELODY-1 clinical trial are positive, we will initiate a second Phase 3 clinical trial.
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-encapsulated, delayed-release, oral formulation of PL8177.
For ulcerative colitis and other inflammatory bowel diseases we 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 PL8177 at 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-encapsulated, delayed-release, oral formulation of PL8177 initiated patent enrollment in September 2022, and is ongoing. The Phase 2 study is a multi-center, randomized, double-blind, placebo-controlled, adaptive design, parallel group of PL8177 study, with once daily oral dosing in adult ulcerative colitis subjects. The study uses an adaptive design with an interim assessment by an independent DMC after the initial 16 subjects have completed the 8-week evaluation visit.
Diabetic Nephropathy Proof-of-Concept Study. A Phase 2 proof-of-concept study is currently enrolling patients in a study for diabetic nephropathy. Diabetic nephropathy, also called diabetic kidney disease, is the most common cause of end-stage renal disease in the United States and other developed countries. A melanocortin pan agonist is administered by subcutaneous injection to patients taking conventional renin-angiotensin-aldosterone system (“RAAS”) inhibitors.
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 intravitreal and subcutaneous administration. If results support advancing the program, we will conduct required safety studies and manufacture drug product under Good Manufacturing Practices (“GMP”) regulations needed to file an Investigational New Drug application (“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.
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 year 2021. Palatin assumed Vyleesi manufacturing agreements, and AMAG transferred information, data and assets related exclusively to Vyleesi, including existing inventory.
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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.
Gross product sales of Vyleesi increased to $12.5 million in the fiscal year ended June 30, 2023, compared to $5.8 million in the fiscal year ended June 30, 2022 (“fiscal 2022”), with gross product sales in the fourth quarter ended June 30, 2023 increasing 20% over the prior quarter and 78% over the comparable quarter in 2022. Net sales of Vyleesi were $4.9 million in fiscal 2023, compared to $1.2 million in fiscal 2022.
Vyleesi is distributed nationally through a home delivery specialty pharmacy. 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 is exploring 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 first-time 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.
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 the melanocortin receptor system. 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.
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.
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The pharmaceutical and biotechnology industries are characterized by extensive research efforts and rapid technological change. Many biopharmaceutical companies have developed or are working to develop products similar to ours or that address the same markets. Such companies may succeed in developing technologies and products that are more effective or less costly than any of those that we may develop. Such companies may be more successful than us in developing, manufacturing, and marketing products.
We cannot guarantee that we will be able to compete successfully in the future or that developments by others will not render our proposed products under development or any future product candidates obsolete or noncompetitive or that our collaborators or customers will not choose to use competing technologies or products.
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.
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 several agents reported to be in or have completed Phase 2 development. Products under development include perfluorohexyloctane, cyclosporine, TRPM8 selective agonist, aldehyde derivative, partial TrkA receptor agonist, cardiolipin peroxidation inhibitor, tumor necrosis factor antagonists, 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, FXR inhibitor, integrin inhibitors, S1P1 receptor modulators, anti-TL1A monoclonal antibodies, DHODH inhibitor, HIF-1a stabilizer, LANCL2 receptor modulator, 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.
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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.
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 four issued United States patents and pending patent applications 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 have filed patent applications under the Patent Cooperation Treaty claiming PL9643 and other peptides in development for ocular and inflammatory disease indications and have entered national stage prosecution in the United States, European Patent Office, Eurasian Patent Office, and broadly throughout the world. If one or more patents are 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.
We own five issued patents in the United States, and issued patents in Australia, Belgium, Brazil, 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. 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 have additional issued United States patents on melanocortin receptor specific peptides and small molecules, including patents on an alternative class of melanocortin receptor-specific peptides for treatment of sexual dysfunction and other indications, 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.
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.
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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 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; |
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| · | submission to the FDA of an IND, which must be in effect before clinical trials may commence; |
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| · | clinical studies to evaluate safety and efficacy; |
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| · | submission to the FDA of an NDA that includes preclinical data, clinical trial data and manufacturing information; |
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| · | payment of substantial user fees for filing the NDA and other recurring user fees; |
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| · | FDA review of the NDA; |
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| · | satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities; and |
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| · | FDA approval of the NDA, including approval of all product labeling. |
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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.
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.
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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; |
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| · | periodic reporting requirements; |
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| · | GMP requirements related to all stages of manufacturing, testing, storage, packaging, labeling and distribution of finished dosage forms of the product; |
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| · | monitoring and reporting of adverse experiences with the product; and |
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| · | advertising and promotional reporting requirements and restrictions. |
Adverse experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes or product removal. Product approvals may be revoked if compliance with regulatory requirements is not maintained or if problems concerning safety or effectiveness of the product occur following approval. The FDA is developing a national electronic drug safety tracking system known as SENTINEL that may impose additional safety monitoring burdens, and enhanced FDA enforcement authority, beyond the extensive requirements already in effect. As a condition of NDA approval, the FDA may require post-approval testing and surveillance to monitor a product’s safety or efficacy. The FDA also may impose other conditions, including labeling restrictions which can materially impact the potential market and profitability of a product.
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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; |
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| · | Warning Letters or Untitled Letters from the FDA asking us, our collaborators or third-party contractors to take or refrain from taking certain actions; |
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| · | withdrawal of the product from the market; |
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| · | the FDA’s refusal to approve pending applications or supplements to approved applications; |
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| · | voluntary or mandatory product recall; |
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| · | fines or disgorgement of profits or revenue; |
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| · | suspension or withdrawal of regulatory approvals; |
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| · | refusals to permit the import or export of products; |
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| · | product seizure; and |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | 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 |
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| · | 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.
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.
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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.
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.
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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.
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 manufacture Vyleesi for sales in the United States and to our licensees.
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 oral formulation for ulcerative colitis has been manufactured 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 clinical trial or laboratory scale.
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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 28, 2023, we employed 34 people full time, of whom 22 are engaged in research and development activities and 12 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.
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
Our management has determined that there is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
Our management has determined that there is substantial doubt about our ability to continue as a going concern because of our need to raise significant additional financing to complete clinical trials and development of our product candidates. Because we have not yet generated sufficient revenues from our operations, our ability to continue as a going concern is currently heavily dependent upon our ability to obtain additional financing to sustain our operations. Such financing may take the form of the issuance of common or preferred stock or debt securities or may involve bank financing. Our independent registered public accounting firm has issued their report, which includes an explanatory paragraph for going concern uncertainty on our consolidated financial statements as of and for the year ended June 30, 2023. The existence of a “going concern” conclusion may hinder our ability to obtain additional financing in the future. Currently, we have no commitments to obtain any additional financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
We have a history of substantial net losses, including a net loss of $27.5 million for the year ended June 30, 2023. We expect to incur substantial net losses over the next few years, and we may never achieve or maintain profitability.
As of June 30, 2023, we had an accumulated deficit of $415.5 million. We had $27.5 million in net loss for the year ended June 30, 2023, compared to $36.2 million in net loss for the year ended June 30, 2022. We may not achieve or 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.
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We expect to incur significant expenses as we continue our development of MC1r and MCr 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, we had not had any product available for commercial sale since 2005 and we have not received any revenues from the sale of our product candidates. Because our marketing program for Vyleesi is limited and relatively new we cannot accurately forecast sales of Vyleesi. 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 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. As of June 30, 2023, we had cash, cash equivalents and marketable securities of $11.0 million, with current liabilities of $15.1 million. Based on our available cash, cash equivalents and marketable securities, we have concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued and we are seeking 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.
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; |
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| · | our ability to enter into one or more licensing or similar agreements for Vyleesi outside of Korea and China; |
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| · | the timing of obtaining regulatory approvals for Vyleesi for HSDD in markets outside the United States; |
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| · | the expense and timing of obtaining regulatory approvals for our other product candidates; |
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| · | the number and characteristics of any additional product candidates we develop or acquire; |
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| · | the scope, progress, results and costs of researching and developing our future product candidates, and conducting preclinical and clinical trials; |
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| · | the cost of commercialization activities if any future product candidates are approved for sale, including marketing, sales and distribution costs; |
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| · | the cost of manufacturing any future product candidates and any products we successfully commercialize; |
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| · | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms and timing of such arrangements; |
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| · | the degree and rate of market acceptance of any future approved products; |
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| · | the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments; |
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| · | any product liability or other lawsuits related to our products; |
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| · | the expenses needed to attract and retain skilled personnel; |
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| · | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and |
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| · | 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.
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; |
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| · | participating in regulatory approval processes; |
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| · | formulating and manufacturing products, or having third parties formulate and manufacture products; |
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| · | post-approval monitoring and surveillance of our products; |
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| · | conducting sales and marketing activities, either alone or with a partner; and |
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| · | obtaining additional capital. |
If we are unable to obtain regulatory approval of any of our product candidates, to successfully commercialize any products for which we receive regulatory approval or to obtain additional capital, we may not be able to recover our investment in our development efforts.
The clinical and commercial success of our product candidates will depend on a number of factors, including the following:
| · | the ability to raise additional capital on acceptable terms, or at all; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | the prevalence, duration and severity of potential side effects experienced with our product candidates or future approved products, if any; |
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| · | the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; |
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| · | 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; |
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| · | 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; |
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| · | a continued acceptable safety profile and efficacy during clinical development and following approval of our product candidates or any future product candidates; |
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| · | 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; |
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| · | 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; |
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| · | our and our partners’ ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates; |
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| · | our and our partners’ ability to avoid third-party patent interference or intellectual property infringement claims; and |
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| · | 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 our investors 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.
Raising additional capital may cause dilution to existing stockholders, restrict our operations, or require us to relinquish rights.
We will seek the additional capital necessary to fund our operations through public or private equity offerings, collaboration agreements, debt financings, licensing arrangements or combinations of the foregoing. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interests will be diluted, and the terms may include liquidation or other preferences that adversely affect their rights as a stockholder. 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 and our licensees may never successfully commercialize Vyleesi for HSDD or obtain approvals 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.
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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; |
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| · | the ability to demonstrate to the satisfaction of the FDA the safety and efficacy of future product candidates through clinical trials; |
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| · | 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; |
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| · | our success and the success of our licensees in educating physicians and patients about the benefits, administration and use of Vyleesi for HSDD; |
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| · | the prevalence and severity of adverse events experienced with Vyleesi for HSDD or any future product candidates or approved products; |
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| · | the adequacy and regulatory compliance of the autoinjector device, supplied by an unaffiliated third party, used as part of the Vyleesi combination product; |
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| · | the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; |
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| · | our ability to raise additional capital on acceptable terms to achieve our goals; |
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| · | achieving and maintaining compliance with all regulatory requirements applicable to Vyleesi for HSDD or any future product candidates or approved products; |
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| · | the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments; |
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| · | the effectiveness of our own or our future potential strategic collaborators’ marketing, sales and distribution strategy and operations; |
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| · | 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; |
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| · | our ability to successfully commercialize Vyleesi for HSDD in the United States; |
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| · | our ability to successfully commercialize any future product candidates, if approved for marketing and sale, whether alone or in collaboration with others; |
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| · | our ability to enforce our intellectual property rights in and to Vyleesi for HSDD or any future product candidates; |
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| · | our ability to avoid third-party patent interference or intellectual property infringement claims; |
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| · | acceptance of Vyleesi for HSDD or any future product candidates, if approved, as safe and effective by patients and the medical community; and |
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| · | 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 investors 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.
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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.
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.
The ongoing military conflict between Russia and Ukraine could cause geopolitical instability, economic uncertainty, financial markets volatility and capital markets disruption, which may adversely affect our revenue, financial condition, or results of operations.
The current military conflict between Russia and Ukraine may disrupt or otherwise adversely impact our operations and those of third parties upon which we rely. Related sanctions, export controls or other actions that have already been initiated or may in the future be initiated by nations including the U.S., the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.) can adversely affect our business, our contract research organizations, and other third parties with which we conduct business. Resulting volatility, disruption, or deterioration in the credit and financial markets may further make any necessary debt or equity financing more difficult and more costly. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our business strategy, financial performance, and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers, or other partners may be adversely impacted by deteriorating economic conditions, which could directly affect our ability to attain our operating goals and to accurately forecast and plan our future business activities.
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.
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; |
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| · | failure to design appropriate clinical trial protocols; |
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| · | uncertainty regarding proper dosing; |
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| · | for injectable products, inability to develop or obtain a supplier for a suitable autoinjector device that meets the FDA’s medical device requirements; |
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| · | insufficient data to support regulatory approval; |
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| · | inability or unwillingness of medical investigators to follow our clinical protocols; |
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| · | 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; |
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| · | regulatory compliance; |
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| · | good manufacturing practices; |
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| · | intellectual property rights; |
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| · | product introduction; and |
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| · | marketing and competition. |
If clinical trials for our product candidates are prolonged or delayed, we may be unable to commercialize our product candidates on a timely basis, which would require us to incur additional costs and delay our receipt of any revenue from potential product sales.
We may be unable to commercialize our product candidates on a timely basis due to unexpected delays in our human clinical trials. Potential delaying events include:
| · | discovery of serious or unexpected toxicities or side effects experienced by study participants or other safety issues; |
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| · | 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; |
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| · | 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; |
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| · | difficulty in obtaining IRB approval for studies to be conducted at each site; |
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| · | delays in manufacturing or obtaining, or inability to manufacture or obtain, sufficient quantities of materials for use in clinical trials; |
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| · | inadequacy of or changes in our manufacturing process or the product formulation or method of delivery; |
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| · | changes in applicable laws, regulations and regulatory policies; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | scheduling conflicts with participating clinicians and clinical institutions; or |
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| · | 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 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 acceptance, in which case our business, financial condition and results of operation will be materially adversely affected.
Regulatory approval for the marketing and sale of any of our product candidates does not assure the product’s commercial success. Any approved product will compete with other products manufactured and marketed by major pharmaceutical and other biotechnology companies. If any of our product candidates are approved by the FDA and do not achieve adequate market acceptance, our business, financial condition, and results of operations will be materially adversely affected. The degree of market acceptance of any such product will depend on a number of factors, including:
| · | perceptions by members of the healthcare community, including physicians, about the safety and effectiveness of any such product; |
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| · | cost-effectiveness relative to competing products and technologies; |
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| · | availability of reimbursement for our products from third-party payers such as health insurers, HMOs and government programs such as Medicare and Medicaid; and |
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| · | 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 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 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.
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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.
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; |
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| · | we may be required to reformulate such products or change the way the product is manufactured; |
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| · | we may become the target of lawsuits, including class action suits; and |
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| · | 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 pharmaceutical industries, which could make any future approved products obsolete and reduce our revenue.
Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Our competitors may render our technologies obsolete by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages in our drug discovery process that we believe we derive from our research approach and proprietary technologies. In addition, any future products that we develop, including our clinical product candidates, may become obsolete before we recover expenses incurred in developing those products, which may require that we raise additional funds to continue our operations.
Competing products and technologies may make our proposed products noncompetitive.
Flibanserin, a daily-use oral drug 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 and MCr 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 and MCr 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.
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 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.
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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 product candidates or products.
We do not have the facilities to manufacture our early-stage potential products such as PL8177, PL9643, PL9654 and other 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 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.
We have limited 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 may 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 commercialize Vyleesi and ultimately our product candidates, increase our costs and 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 that we decide to commercialize, and we will need to expand the number of our managerial, operational, financial and other employees to support commercialization. Competition exists for qualified personnel in the biopharmaceutical field.
Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.
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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 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 secure adequate pricing and reimbursement in Europe for us or any strategic partner to achieve profitability.
Even if one or more of our products are approved in Europe, we may be unable to obtain appropriate pricing and reimbursement for such products. In most European markets, demand levels for healthcare in general and for pharmaceuticals in particular are principally regulated by national governments. Therefore, pricing and reimbursement for our products will have to be negotiated on a “Member State by Member State” basis according to national rules, as there does not exist a centralized European process. As each Member State has its own national rules governing pricing control and reimbursement policy for pharmaceuticals, there are likely to be uncertainties attaching to the review process, and the level of reimbursement that national governments are prepared to accept. In the current economic environment, governments and private payers or insurers are increasingly looking to contain healthcare costs, including costs on drug therapies. If we are unable to obtain adequate pricing and reimbursement for our products in Europe, we or a potential strategic partner or collaborator may not be able to cover the costs necessary to manufacture, market and sell the product, limiting or preventing our ability to achieve profitability.
We may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability lawsuits.
The testing and marketing of medical products entails an inherent risk of product liability. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products or cease clinical trials. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. We currently carry $10.0 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 fail or suffer security breaches, which could result in a material disruption of our product 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 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.
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 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.
As 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; |
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| · | 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; |
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| · | 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; |
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| · | 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; |
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| · | 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. |
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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-party contractors and consultants, and the loss of their services could materially adversely affect our business.
We rely on our relatively small management team and staff as well as various contractors and consultants to provide critical services. Our ability to execute our clinical programs for Vyleesi, PL8177, PL9643 and our other preclinical programs for MC1r and MC4r peptide or small molecule 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-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.
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 or period of inflation could result in a variety of risks to our business, including weakened demand for Vyleesi for HSDD due to a decrease in discretionary spending.
Risks Related to Government Regulation
Both before and after marketing approval, our product candidates are subject to ongoing regulatory requirements and, if we fail to comply with these continuing requirements, we could be subject to a variety of sanctions and the sale of any approved commercial products could be suspended.
Both before and after regulatory approval to market a particular product candidate, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising and promotion and record keeping related to the product candidates are subject to extensive regulatory requirements. If we fail to comply with the regulatory requirements of the FDA and other applicable U.S. and foreign regulatory authorities, we could be subject to administrative or judicially imposed sanctions, including:
| · | restrictions on the products or manufacturing process; |
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| · | warning letters; |
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| · | civil or criminal penalties; |
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| · | fines; |
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| · | injunctions; |
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| · | 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; |
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| · | product seizures or detentions and related publicity requirements; |
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| · | suspension or withdrawal of regulatory approvals; |
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| · | 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; |
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| · | total or partial suspension of production; and |
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| · | 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.
The regulatory approval process is lengthy, expensive and uncertain, and may prevent us from obtaining the approvals that we require.
Government authorities in the United States and other countries extensively regulate the advertising, labeling, storage, record-keeping, safety, efficacy, research, development, testing, manufacture, promotion, marketing, and distribution of drug products. Drugs are subject to rigorous regulation in the United States by the FDA and similar regulatory bodies in other countries. The steps ordinarily required by the FDA before a new drug may be marketed in the United States include:
| · | completion of non-clinical tests including preclinical laboratory and formulation studies and animal testing and toxicology; |
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| · | 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; |
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| · | 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; |
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| · | submission to the FDA of an NDA that must be accompanied by a substantial “user fee” payment; |
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| · | FDA review and approval of the NDA before any commercial marketing or sale; and |
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| · | 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.
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.
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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 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, and seeking further guidance from the FDA. 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 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.
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; |
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| · | require recall, replacement or discontinuance of one or more of our products; |
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| · | require additional recordkeeping; |
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| · | limit or restrict our ability to engage in certain types of marketing or promotional activities; |
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| · | alter or eliminate the scope or terms of any currently available regulatory exclusivities; and |
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| · | restrict or eliminate our ability to settle any patent litigation we may bring against potential generic competitors. |
Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.
Changes in healthcare policy could adversely affect our business.
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.
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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 from 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 Biden administration. 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.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our intellectual property rights would diminish.
Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes, and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We cannot predict:
| · | 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; |
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| · | if and when patents will be issued; |
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| · | whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; and |
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| · | whether we will need to initiate litigation or administrative proceedings, which may be costly whether we win or lose. |
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; |
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| · | redesign our products or processes to avoid infringement; |
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| · | stop using the subject matter claimed in the patents held by others; |
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| · | pay damages; or |
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| · | 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. |
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We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time consuming.
Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction against an infringer are not satisfied.
An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference, derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic, or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.
Our research, development and commercialization activities may infringe or otherwise violate or be claimed to infringe or otherwise violate patents owned or controlled by other parties. There may also be patent applications that have been filed but not published that, when issued as patents, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical industry. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation or post-grant proceedings declared or granted by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and 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.
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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.
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.
Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States and in some cases may even force us to grant a compulsory license to competitors or other third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
In addition, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in domestic and foreign intellectual property laws.
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If we are unable to keep our trade secrets confidential, our technologies and other proprietary information may be used by others to compete against us.
In addition to our reliance on patents, we attempt to protect our proprietary technologies and processes by relying on trade secret laws and agreements with our employees and other persons who have access to our proprietary information. These agreements and arrangements may not provide meaningful protection for our proprietary technologies and processes in the event of unauthorized use or disclosure of such information 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.
Risks Related to the Ownership of Our Common Stock
Our stock price is volatile and may fluctuate in a way that is disproportionate to our operating performance and we expect it to remain volatile, which could limit investors’ ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given time or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but are not limited to:
| · | publicity regarding actual or potential clinical results relating to products under development by our competitors or us; |
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| · | delay or failure in initiating, completing or analyzing preclinical or clinical trials or unsatisfactory designs or results of these trials; |
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| · | 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; |
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| · | achievement or rejection of regulatory approvals by our competitors or by us; |
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| · | announcements of technological innovations or new commercial products by our competitors or by us; |
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| · | developments concerning proprietary rights, including patents; |
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| · | developments concerning our collaborations; |
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| · | regulatory developments in the United States and foreign countries; |
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| · | economic or other crises and other external factors; |
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| · | period-to-period fluctuations in our revenue and other results of operations; |
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| · | changes in the structure of healthcare payment systems or other actions that affect the effective reimbursement rates for treatment regimens containing our products; |
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| · | changes in financial estimates and recommendations by securities analysts following our business or our industry; |
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| · | sales of our common stock, or the perception that such sales could occur; and |
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| · | the other factors described in this “Risk Factors” section. |
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, 2023, the price of our stock has been volatile, ranging from a high of $8.60 per share to a low of $1.82 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 (“Sarbanes-Oxley”). We can provide no assurance that we will, at all times, in the future be able to report that our internal controls over financial reporting are effective.
Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of Sarbanes-Oxley. Section 404 requires management to establish and maintain a system of internal control over financial reporting. 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.
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If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.
As a smaller company, it may be difficult for us to attract or retain the interest of equity research analysts. A lack of research coverage may adversely affect the liquidity of and market price of our common stock. We do not have any control of the equity research analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of 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 Series A 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. As of September 27, 2023, there are 4,030 shares of Series A Preferred Stock outstanding. 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
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ 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 27, 2023, 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 our stockholders’ sole source of gain for the foreseeable future.
Anti-takeover provisions of Delaware law and our charter documents may make potential acquisitions more difficult and could result in the entrenchment of management.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our charter documents may make a change in control or efforts to remove management more difficult. Also, under Delaware law, our board of directors may adopt additional anti-takeover measures. Under Section 203 of the Delaware General Corporation Law, a corporation may not engage in a business combination with an “interested stockholder” for a period of three years after the date of the transaction in which the person first becomes an “interested stockholder,” unless the business combination is approved in a prescribed manner.
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.
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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 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 27, 2023, there were 4,419,056 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.
As of September 27, 2023, holders of our outstanding dilutive securities had the right to acquire the following amounts of underlying common stock:
· | 3,550 shares issuable on the conversion of our immediately convertible Series A Preferred Stock, subject to adjustment, for no further consideration; |
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· | 1,550,600 shares issuable upon the exercise of stock options at a weighted-average exercise price of $8.27 per share; |
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· | 609,449 shares issuable under restricted stock units which vested or will vest on dates between June 16, 2024 and June 20, 2027, subject to the fulfillment of service or performance conditions; |
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· | 279,700 shares of common stock which have vested under restricted stock unit agreements, but are subject to provisions to delay delivery; |
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· | 66,666 shares issuable upon the exercise of warrants at an exercise price of $12.50 per share, issued in conjunction with the Series B and Series C Preferred Stock, all of which are currently exercisable and expire on May 11, 2026; |
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· | 1,818,182 shares of common stock issuable upon exercise of common warrants issued in conjunction with an offering in November 2022; |
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· | up to 90,909 shares of common stock issuable upon exercise of placement agent warrants with an exercise price of $6.875 per share issued to the placement agent or its designees as compensation in connection with an offering in November 2022; and |
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· | 405,145 shares of common stock available for future issuance under our 2011 Stock Incentive Plan. |
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.
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Our failure to meet the continued listing requirements of the NYSE American could result in 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 our investors 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; |
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| · | reduced liquidity with respect to our securities; |
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| · | 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; |
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| · | a limited amount of news and analyst coverage for our company; and |
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| · | 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 our investors’ ability to sell or purchase our common stock when investors 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.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Not applicable.
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 2026. We believe our present facilities are adequate for our current needs. The corporate offices include private offices, meeting rooms and work spaces for all administrative personnel and over half of the research and development personnel, with the remainder of research and development personnel stationed at the laboratory facility. 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. As of the date of this filing, we are not aware that we are a party to any pending or threatened legal proceeding or proceeding by a governmental authority.
Item 4. Mine Safety Disclosures
Not applicable.
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PART 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 25, 2023 we had approximately 90 record holders of common stock and the closing sales price of our common stock as reported on the NYSE American was $1.45 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 $16,879,088.
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, 2023, 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 27, 2023, 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, the carrying value of inventory, purchase commitment liabilities, accrued expenses, and stock-based compensation are the most critical.
Revenue Recognition
We recognize product revenues in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. The provisions of ASC Topic 606 require the following steps to determine revenue recognition: (1) Identify the contract(s) with a customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract; and (5) Recognize revenue when (or as) the entity satisfies a performance obligation.
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In accordance with ASC Topic 606, we recognize product 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 consolidated balance sheet, net of various allowances as described in the Trade Accounts Receivable policy in Note 2- Summary of Significant Accounting Policies in the accompanying consolidated financial statements.
Product revenues consist of sales of Vyleesi in the United States. We sell Vyleesi to a specialty pharmacy at the wholesale acquisition cost and payment is currently made within approximately 30 days. In addition to distribution agreements with customers, we enter into arrangements with healthcare payers that provide for privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products.
We record product revenues net of allowances for direct and indirect fees, discounts, co-pay assistance programs, estimated chargebacks, and rebates. 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 coverages, economic conditions, and other factors could have a significant impact on our forecasts and therefore the estimated net realizable value of our inventory.
Purchase Commitment Liabilities
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 considering milestones achieved. 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 to employees and nonemployees for services. Compensation costs for stock-based awards with time-based vesting are determined using the quoted market price of our common stock on the grant date 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 grant date 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.
See Note 3 to the consolidated financial statements included in this Annual Report for a description of recent accounting pronouncements that affect us.
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Results of Operations
Year Ended June 30, 2023 Compared to the Year Ended June 30, 2022:
Revenue – For the fiscal year ended June 30, 2023 (“fiscal 2023”) we recognized $4,850,678 of product revenue, net of allowances, and $3,000 in license and contract revenue pursuant to our license agreement with Fosun. For the fiscal year ended June 30, 2022 (“fiscal 2022”) we recognized $1,218,457 of product revenue, net of allowances, and $250,000 in license and contract revenue pursuant to our license agreement with Fosun. The increase in net revenue is a result of increased sales volume of 114% and reduced product sales allowances as a percentage of gross sales during fiscal 2023.
Cost of Products Sold – Cost of products sold was $418,470 for fiscal 2023 compared to $217,529 for fiscal 2022.
Research and Development – Total research and development expenses, including general research and development spending, were $22,630,577 for fiscal 2023 compared to $21,327,434 for fiscal 2022. The increase is a result of higher spending on our MCr programs.
Research and development expenses related to our Vyleesi, MCr programs, and other preclinical programs were $16,202,432 for fiscal 2023 compared to $15,867,511 for fiscal 2022. The increase is primarily related to an increase in spending on our MCr programs.
The amounts of program spending above exclude general research and development spending, which were $6,428,145 for fiscal 2023 compared to $5,459,923 for fiscal 2022. The increase in general research and development spending is primarily attributable to increased compensation costs.
Cumulative spending from inception to June 30, 2023 was approximately $311,900,000 on our Vyleesi program and approximately $211,600,000 on all our other programs (which include PL8177, PL9643, other melanocortin receptor agonists 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 of costs related to Vyleesi in addition to compensation and related costs, were $15,290,836 for fiscal 2023 compared to $16,511,942 for fiscal 2022. The decrease is primarily attributable to $4,621,001 of selling expenses related to Vyleesi in fiscal 2023 compared to $4,737,426 of selling expenses related to Vyleesi in fiscal 2022 and $1,135,438 of expenses incurred in fiscal 2022 related to the issuance of redeemable convertible preferred stock and warrants.
Gain on Purchase Commitment - Gain on purchase commitments was $1,027,322 for fiscal 2023 as a result of the Company amending the minimum purchase commitment that was previously reserved under the Lonza Agreement.
Other Income (Expense)– Total other income, net was $241,997 for fiscal 2023 compared to $390,149 for fiscal 2022. For fiscal 2023, we recognized investment income of $691,981 offset by $429,971 of unrealized foreign currency loss and $20,013 of interest expense. For fiscal 2022, we recognized unrealized foreign currency gain of $389,868 and investment income of $29,963 offset by $29,682 of interest expense. The increase in investment income is a result of increased interest rates. The increase in unrealized foreign currency loss is a result of increased unrealized foreign currency losses on our inventory purchase commitments.
Income Tax Benefit – Income tax benefit for fiscal 2023 was $4,674,999 as a result of the Company selling New Jersey state net operating losses (“NOLs”) and R&D credits.
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.
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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; |
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| · | dependance on third party contractors and collaborators for part of our research and development; |
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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 2023, net cash used in operating activities was $28,419,001 compared to net cash used in operating activities of $29,922,749 in fiscal 2022. The decrease in cash used in operations in fiscal 2023 compared with fiscal 2022 was a result of a lower net loss in fiscal 2023 due to an increase in net revenue and the sale of NOLs, offset by working capital changes, and increased payments made related to inventory purchase commitments.
During fiscal 2023, net cash used in investing activities was $3,426,817 which consisted of $2,992,890 used for the purchase of marketable securities and $433,927 of leasehold improvements. During fiscal 2022, net cash used in investing activities was $261,374 which consisted of leasehold improvements.
During fiscal 2023, net cash provided by financing activities was $9,896,246 which consisted of proceeds from the sale of common stock and warrants, net of issuance costs of $10,143,152 and the exercise of outstanding warrants of $78 offset by payment of withholding taxes related to restricted stock units of $146,062, and payment of finance lease obligations of $100,922. During fiscal 2022, net cash provided by financing activities was $18,358 which consisted of proceeds from the exercise of outstanding warrants of $280,000 and the exercise of stock options of $16,132 offset by payment of withholding taxes related to restricted stock units of $221,311, and payment of finance lease obligations of $56,463.
We had a net loss for fiscal 2023 of $27,541,887. We may not attain profitability in future years, which is dependent on numerous factors, including, but not limited to whether and when development and sales milestones are met, regulatory actions by the FDA and other regulatory bodies, the performance of our licensees, and market acceptance of our products.
We expect to incur significant expenses as we continue to develop marketing and distribution capability for Vyleesi in the United States and continue to develop our MCr product candidates. These expenses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity, total assets, and working capital.
We have incurred cumulative negative cash flows from operations since our inception, and have expended, and expect to continue to expend in the future, substantial funds to develop the capability to market and distribute Vyleesi in the United States and to complete our planned product development efforts. Continued operations are dependent upon our ability to generate future income from sales of Vyleesi in the United States and from existing licenses, including royalties and milestones, to complete equity or debt financing activities and enter into additional licensing or collaboration arrangements. As of June 30, 2023, our cash, cash equivalents and marketable securities were $10,982,472 with current liabilities of $15,131,830.
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Our obligations include aggregate lease obligations of $460,444 for the year ending June 30, 2024 and $590,337 for the years ending June 30, 2025, 2026 and 2027, and aggregate inventory purchase commitments of $5,940,000 which include $3,856,800 in current liabilities as of June 30, 2023 and $2,083,200 included in other long term liabilities.
We intend to utilize existing capital resources for general corporate purposes and working capital, including establishing marketing and distribution capabilities for Vyleesi in the United States and preclinical and clinical development of our MC1r and MC4r programs, and development of other portfolio products.
Based on our June 30, 2023, cash, cash equivalents and marketable securities, we have concluded that substantial doubt exists about our ability to continue as a going concern for one year from the date our consolidated financial statements are issued. We are evaluating strategies to obtain additional funding for future operations which include but are not limited to obtaining equity financing, issuing debt, or reducing planned expenses. A failure to raise additional funding or to effectively implement cost reductions could harm our business, results of operations, and future prospects. If we are not able to secure adequate additional funding in future periods, we would be forced to make additional reductions in certain expenditures. This may include liquidating assets and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend, or eliminate one or more research and development programs or its commercialization efforts or pursue a strategic transaction. If we are unable to raise capital when needed or enter into a strategic transaction, then we may be required to cease operations, which could cause our stockholders to lose all or part of their investment. Based on our current operating and development plans, we expect that our existing cash, cash equivalents and marketable securities as of the date of this filing will be sufficient to fund currently anticipated operating expenses through calendar year 2023.
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 and its resulting impact to economic conditions 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 2024 and beyond.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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Item 8. Financial Statements and Supplementary Data.
Table of Contents
Consolidated Financial Statements
The following consolidated financial statements are filed as part of this Annual Report:
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Report of Independent Registered Public Accounting Firm
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, 2023 and 2022, the related consolidated statements of operations, changes in redeemable convertible preferred stock and 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, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred operating losses and negative cash flows from operations since inception and will need additional funding to complete planned product development efforts that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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.
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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.
Evaluation of accrued external research and development expenses
As discussed in Notes 2 and 12 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 external research and development expenses were comprised of accrued clinical/regulatory costs and other research related expenses of $2,960,126 and $121,121, respectively as of June 30, 2023.
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 judgement 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 remaining 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/
We have served as the Company’s auditor since 2002.
September 28, 2023
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PALATIN TECHNOLOGIES, INC. | ||||||||
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Consolidated Balance Sheets | ||||||||
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Prepaid expenses and other current assets |
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Property and equipment, net |
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Other assets |
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LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY |
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Commitments and contingencies (Note 13) |
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Series B and Series C Redeemable Convertible Preferred Stock of $ |
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Total liabilities, redeemable convertible preferred stock, and stockholders’ equity |
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The accompanying notes are an integral part of these consolidated financial statements
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PALATIN TECHNOLOGIES, INC. | ||||||||
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REVENUES |
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The accompanying notes are an integral part of these consolidated financial statements
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PALATIN TECHNOLOGIES, INC. | ||||||||||||||||||||||||||||||||||||||||||||||||
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| Total |
| ||||||||||||
Balance June 30, 2021 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Issuance of Redeemable Convertible Preferred stock and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Withholding taxes related to restricted stock units |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Warrant exercises |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Option exercises |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance, June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
| ||||||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Withholding taxes related to restricted stock units |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Redemption of convertible series B & series C preferred stock |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Sale of common stock and warrants, net of costs |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warrant excercises |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ||||||||
Reverse stock split fractional shares |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Balance, June 30, 2023 |
|
| - |
|
| $ |
|
|
| - |
|
| $ |
|
| $ |
|
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||||
The accompanying notes are an integral part of these consolidated financial statements
| 47 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC. | ||||||||
and Subsidiary | ||||||||
Consolidated Statements of Cash Flows | ||||||||
|
|
|
|
|
|
| ||
|
| Year Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
| ||
Decrease in right-of-use asset |
|
|
|
|
|
| ||
Unrealized foreign currency transaction loss |
|
|
|
|
| ( | ) | |
Non-cash warrant expense |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Gain on purchase commitment |
|
| ( | ) |
|
|
| |
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 operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of marketable securities |
|
| ( | ) |
|
|
| |
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 |
|
| ( | ) |
|
| ( | ) |
Proceeds from the sale of common stock and warrants, net of costs |
|
|
|
|
|
| ||
Payment of finance lease obligations |
|
| ( | ) |
|
| ( | ) |
Proceeds from exercise of warrants |
|
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
|
|
|
|
| ||
Net cash provided by financing activities |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of year |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements
| 48 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(1) ORGANIZATION
Nature of Business- Palatin Technologies, Inc. (“Palatin” or the “Company”) is a biopharmaceutical company developing first-in-class medicines based on molecules that modulate the activity of the melanocortin receptor system. The Company’s product candidates are targeted, receptor-specific therapeutics for the treatment of diseases with significant unmet medical need and commercial potential.
Melanocortin Receptor System. The melanocortin receptor 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 commercial product, Vyleesi®, was approved by the U.S. Food and Drug Administration (“FDA”) in June 2019 for the treatment of hypoactive sexual desire disorder (“HSDD”) in premenopausal women and is being marketed by the Company 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.
Business Risks and Liquidity –The Company has incurred operating losses and negative cash flows from operations since inception and will need additional funding to complete its planned product development efforts. As shown in the accompanying consolidated financial statements, the Company had an accumulated deficit as of June 30, 2023 of $
As of June 30, 2023, the Company’s cash, cash equivalents and marketable securities were $
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements — Going Concern, which requires management to assess the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are issued. While the Company has raised funding in the past, the ability to raise funding in future periods is not considered probable, as defined under the accounting standards. As such, under the requirements of ASC 205-40, management may not consider the potential for future funding in their assessment of the Company’s ability to meet its obligations for the next year.
Based on the Company’s cash, cash equivalents and marketable securities at June 30, 2023, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for one year from the date these consolidated financial statements are issued. The Company is evaluating strategies to obtain additional funding for future operations which include but are not limited to obtaining equity financing, issuing debt, or reducing planned expenses. A failure to raise additional funding or to effectively implement cost reductions could harm the Company’s business, results of operations, and future prospects. If the Company is not able to secure adequate additional funding in future periods, the Company would be forced to make additional reductions in certain expenditures. This may include liquidating assets and suspending or curtailing planned programs. The Company may also have to delay, reduce the scope of, suspend, or eliminate one or more research and development programs or its commercialization efforts or pursue a strategic transaction. If the Company is unable to raise capital when needed or enter into a strategic transaction, then the Company may be required to cease operations, which could cause its stockholders to lose all or part of their investment. The consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Assuming no additional funding and based on its current operating and development plans, the Company expects that existing cash, cash equivalents and marketable securities as of the date of this filing will be sufficient to fund currently anticipated operating expenses through calendar year 2023.
| 49 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The Company will receive a royalty on sales of Vyleesi by its licensees. It has licensed third parties to sell Vyleesi in China and Korea. There may be delays in obtaining regulatory approvals to sell Vyleesi in China and Korea, which would delay when the Company receives royalty income from sales in those countries.
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, cash equivalents, and marketable securities are primarily invested in one investment account sponsored by a large financial institution.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Cash, 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 $
Fair Value of Financial Instruments – The Company’s financial instruments consist primarily of cash equivalents, marketable securities, 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, product revenues and related accounts receivable are generated primarily from one specialty pharmacy.
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.
| 50 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
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, short-term operating lease liabilities, and long-term operating lease liabilities in the consolidated financial statements. Finance leases are included in property and equipment for ROU assets, short-term finance lease liabilities, and long-term finance 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. 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. 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.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is recognized and presented as an operating expense separately from interest expense on the lease liability.
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 statements 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.
Revenue Recognition – The Company recognizes product revenues in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers. The provisions of ASC Topic 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 Topic 606, the Company recognizes product revenue when its performance obligation is satisfied by transferring control of the product to a customer. Per the Company’s 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 the Company from contracts with its customers are stated separately in the consolidated balance sheet, net of various allowances as described in the Trade Accounts Receivable policy above.
| 51 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
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 offset by product sales allowances for the years ended June 30, 2023 and 2022 are as follows:
|
| Year Ended June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Gross product sales |
| $ |
|
| $ |
| ||
Product sales allowances and accruals |
|
| ( | ) |
|
| ( | ) |
Net sales |
| $ |
|
| $ |
| ||
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.
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.
| 52 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Stock-Based Compensation –The Company charges to expense the fair value of stock options and other equity awards granted to employees and nonemployees for services. 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 grant date 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 grant date 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 FASB ASC Topic 260, Earnings per Share.
The Company’s Series B and Series C Redeemable Convertible Preferred Stock and warrants issued during the year ended June 30, 2022 met the definition of a participating security given their rights to participate in dividends if declared on common stock, which required the Company to apply the two-class method to compute both basic and diluted net income or loss per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders. In addition, as these securities are participating securities, the Company was required to calculate diluted net income or loss per share under the if-converted and treasury stock method in addition to the two-class method and utilize the most dilutive result. In periods where there is a net loss, no allocation of undistributed net loss to the Redeemable Convertible Preferred stockholders or warrant holders was performed as the holders of these securities were not contractually obligated to participate in the Company’s losses.
For the years ended June 30, 2023 and 2022, 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, 2023 and June 30, 2022 was
Included in the weighted average common shares used in computing basic and diluted net loss per common share are
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.
(3) New and recently Adopted Accounting Pronouncements
In May 2021, the FASB issued Accounting Standards Update (“ASU”) No. 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 issued 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 ASU No. 2021-04 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 guidance is applicable to the Company beginning July 1, 2022. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
| 53 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to 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 ASU No. 2020-06 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 Company early adopted this standard during the year ended June 30, 2022. The adoption of this standard did not have an 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 guidance was applicable to the Company beginning July 1, 2023. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.
(4) MANUFACTURING SUPPLY AGREEMENTS FOR VYLEESI
The Company has 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.
The Company and Catalent then entered into a new Vyleesi manufacturing agreement (the “Catalent Agreement”) which includes reduced minimum annual purchase requirements (see Note 13) as compared to the original Catalent Agreement and modification of other financial terms. The 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 Catalent Agreement through August 21, 2025, unless earlier terminated in accordance with the terms of the Catalent Agreement. The initial term of the 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 Catalent Agreement also includes customary terms and conditions relating to forecasting and minimum commitments, ordering, delivery, inspection and acceptance, and termination, among other matters (See Note 13).
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 13).
The term of the Lonza Agreement was set to expire on December 31, 2022. In November 2022, Lonza and the Company amended the Lonza Agreement to extend contract peptide manufacturing services until June 30, 2024. The Company intends to seek to extend contract peptide manufacturing services with Lonza past June 30, 2024, and is also actively evaluating potential new contract manufacturers. Establishing a new contractual relationship and establishing and validating manufacturing in a manner that complies with FDA regulations is a time-consuming and costly process. The amendment reduced certain minimum purchase commitments that were previously accrued for. As a result, the Company recorded a gain on the purchase commitment of $
(5) AGREEMENT WITH FOSUN
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 $
| 54 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(6) AGREEMENT WITH KWANGDONG
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 $
(7) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expensesand other current assets consist of the following:
|
| June 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Clinical / regulatory costs |
| $ |
|
| $ |
| ||
Insurance premiums |
|
|
|
|
|
| ||
Vyleesi contractual advances |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
(8) FAIR VALUE MEASUREMENTS
The fair value of cash equivalents is classified using a hierarchy prioritized based on inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset’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:
|
| Carrying Value |
|
| Quoted prices in active markets (Level 1) |
|
| Other quoted/ observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
June 30, 2023: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash Equivalents - Money market funds |
| $ |
|
| $ |
|
|
|
|
|
|
| ||||
Cash Equivalents - Treasury bill |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marketable securities - Treasury bill |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
June 30, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market account |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 55 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(9) INVENTORIES
Inventories consist of raw materials and finished goods related to Vyleesi. The following table summarizes the components of inventories:
|
| June 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Raw materials |
| $ |
|
| $ |
| ||
Finished goods |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
(10) LEASES
The components of operating lease cost are as follows:
Operating lease cost |
| Year ended June 30, 2023 |
|
| Year ended June 30, 2022 |
| ||
Operating lease cost |
| $ |
|
| $ |
| ||
Variable lease cost |
|
|
|
|
|
| ||
Total operating lease cost |
| $ |
|
| $ |
| ||
The components of finance lease cost are as follows:
Finance lease cost |
| Year ended June 30, 2023 |
|
| Year ended June 30, 2022 |
| ||
Right-of-use asset amortization |
| $ |
|
| $ |
| ||
Interest expense |
|
|
|
|
|
| ||
Total finance lease cost |
| $ |
|
| $ |
| ||
Supplemental lease term and discount rate information related to leases was as follows:
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Weighted-average remaining lease term (years) operating leases |
|
|
|
|
|
| ||
Weighted-average remaining lease term (years) finance leases |
|
|
|
|
|
| ||
Weighted-average discount rate operating leases |
|
| % |
|
| % | ||
Weighted-average discount rate finance leases |
|
| % |
|
| % | ||
Supplemental cash flow information related to leases was as follows:
|
| Year Ended June 30, 2023 |
|
| Year Ended June 30, 2022 |
| ||
Cash paid for the amounts included in the measurement of lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows for operating leases |
| $ |
|
| $ |
| ||
Operating cash flows for finance leases |
|
|
|
|
|
| ||
Financing cash flows for finance leases |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental non-cash information on lease liabilities arising from obtaining right-of-use assets: |
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease obligation |
| $ |
|
| $ |
| ||
Right-of-use assets obtained in exchange for new finance lease obligations |
| $ |
| $ |
| |||
| 56 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The following table summarizes the maturity of the Company’s lease liabilities as of June 30, 2023:
Operating leases: |
|
|
| |
Year Ending June 30 |
|
|
| |
2024 |
| $ |
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
Less imputed interest |
|
| ( | ) |
Total |
| $ |
| |
|
|
|
|
|
Finance leases: |
|
|
|
|
Year Ending June 30 |
|
|
|
|
2024 |
| $ |
| |
2025 |
|
|
| |
Less imputed interest |
|
| ( | ) |
Total |
| $ |
| |
(11) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
|
| June 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Office equipment |
| $ |
|
| $ |
| ||
Laboratory equipment |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
Included in property and equipment, net as of June 30, 2023 is $
(12) ACCRUED EXPENSES
Accrued expensesconsist of the following:
|
| June 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Clinical / regulatory costs |
| $ |
|
| $ |
| ||
Other research related expenses |
|
|
|
|
|
| ||
Professional services |
|
|
|
|
|
| ||
Personnel costs |
|
|
|
|
|
| ||
Selling expenses |
|
|
|
|
|
| ||
Other |
|
|
|
|
|
| ||
|
| $ |
|
| $ |
| ||
(13) COMMITMENTS AND CONTINGENCIES
Inventory Purchases –The Company has certain supply agreements with manufacturers and suppliers, including the Catalent Agreement, Ypsomed Agreement, and Lonza Agreement. The Company is required to make certain payments for the manufacture and supply of Vyleesi.
The term of the Lonza Agreement was set to expire on December 31, 2022. In November 2022, Lonza and the Company amended the Lonza Agreement to extend contract peptide manufacturing services until June 30, 2024. The Company intends to seek to extend contract peptide manufacturing services with Lonza past June 30, 2024, and is also actively evaluating potential new contract manufacturers. Establishing a new contractual relationship and establishing and validating manufacturing in a manner that complies with FDA regulations is a time-consuming and costly process. The amendment reduced certain minimum purchase commitments that were previously accrued for. As a result, the Company recorded a gain on the purchase commitment of $
| 57 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
The following table summarizes the contractual obligations under the New Catalent Agreement, Yposmed Agreement, and Lonza Agreement as of June 30, 2023:
|
| Total |
|
| Current |
|
| 1 - 3 Years |
|
| 4 - 5 Years |
| ||||
Inventory purchase commitments |
| $ |
|
| $ |
|
| $ |
|
| $ | - |
| |||
As of June 30, 2023, the Company has $
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.
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, 2023 and 2022, Company contributions were $
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.
(14) REDEEMABLE CONVERTIBLE PREFERRED STOCK, ESCROWED PROCEEDS, AND STOCKHOLDERS’ EQUITY
Series B and C Redeemable Convertible Preferred Stock – On May 11, 2022, Palatin entered into a securities purchase agreement with institutional investors, and on May 12, 2022, Palatin issued and sold
| 58 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Given that the fee and other costs were not refundable to the Company as of June 30, 2022, regardless of the election selected by the investors, the $
The Company called a meeting of stockholders on June 24, 2022 to seek approval of, among other things, an amendment to its certificate of incorporation authorizing a reverse stock split. Except as otherwise required by law, holders of the Series B Preferred Stock and Series C Preferred Stock were entitled to vote only on the reverse stock split and any adjournment of the meeting relating to the reverse stock split. The Company’s common stock, outstanding Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock voted as a single class on an as-if converted basis. The holders of Series B Preferred Stock had votes equal to the number of shares of common stock into which the Series B Preferred Stock is convertible.
Series A Convertible Preferred Stock – As of June 30, 2023,
Financing Transactions – On October 31, 2022, the Company entered into a securities purchase agreement with a certain institutional investor to sell, in a registered direct offering (the “Offering”), an aggregate of (i)
The Common Warrants have an exercise price of $
The proceeds from the Offering, after deducting the placement agent fees and expenses and other estimated offering expenses, were $
On April 12, 2023, the Company entered into a new equity distribution agreement with Canaccord Genuity LLC (the “2023 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.
| 59 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
As of June 30, 2023, the Company had outstanding warrants for shares of common stock as follows:
|
| Shares of Common |
|
| Exercise Price |
|
| Latest Expiration | |||
Description |
| Stock |
|
| per Share |
|
| Date | |||
May 2022 Warrants |
|
|
|
| $ |
|
| ||||
November 2022 Common Warrants |
|
|
|
| $ |
|
| ||||
November 2022 Placement Agent Warrants |
|
|
|
| $ |
|
| ||||
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, June 25, 2020, June 24, 2022 and again at the annual meeting of stockholders held on June 20, 2023. 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
The following table summarizes option activity and related information for the years ended June 30, 2023 and 2022:
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Term in Years |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding - June 30, 2021 |
|
|
|
| $ |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Forfeited |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ||
Exercised |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ||
Expired |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ||
Outstanding - June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Forfeited |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ||
Exercised |
|
| - |
|
|
|
|
|
|
|
|
|
|
| ||
Expired |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ||
Outstanding - June 30, 2023 |
|
|
|
|
|
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at June 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
| 60 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
On December 16, 2022, Carl Spana, President and CEO of the Company, and Stephen T. Wills, CFO, COO and Executive Vice President of the Company, voluntarily contributed stock options previously issued to them to purchase
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 outstanding options in the table above are
For the years ended June 30, 2023 and 2022, the fair value of option grants was estimated at the grant date using the Black-Scholes model. The Company’s weighted average assumptions for the years ended June 30, 2023 and 2022 were as follows:
|
| Year Ended June 30, |
|
| Year Ended June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Risk-free interest rate |
|
| % |
|
| % | ||
Volatility factor |
|
| % |
|
| % | ||
Dividend yield |
|
| % |
|
| % | ||
Expected option life (years) |
|
|
|
|
|
| ||
Weighted average grant date fair value |
| $ |
|
| $ |
| ||
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, 2023 and 2022, the Company recorded stock-based compensation related to stock options of $
Restricted Stock Units – The following table summarizes restricted stock award activity for the years ended June 30, 2023 and 2022.
|
| Year Ended June 30, |
|
| Year Ended June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Outstanding at beginning of year |
|
|
|
|
|
| ||
Granted |
|
|
|
|
|
| ||
Forfeited |
|
| ( | ) |
|
| ( | ) |
Vested |
|
| ( | ) |
|
| ( | ) |
Fractional shares |
|
| ( | ) |
|
| - |
|
Outstanding at end of year |
|
|
|
|
|
| ||
For the years ended June 30, 2023 and 2022, the Company recorded stock-based compensation related to restricted stock units of $
Included in outstanding restricted stock units in the table above are
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.
| 61 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Included in the outstanding restricted stock units in the table above are
In connection with the vesting of restricted share units during the years ended June 30, 2023 and 2022, the Company withheld
(15) INCOME TAXES
The Company has participated in the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) sponsored by The New Jersey Economic Development Authority. The Program enables approved biotechnology companies with unused Net Operating Losses (“NOLs”) and unused research and development credits (“R&D credits”) to sell these tax benefits for at least
For fiscal 2023 and 2022, 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, 2023, the Company had state NOL carryforwards of approximately $
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 deferred tax assets during the years ended June 30, 2023 and 2022. The Company’s valuation allowance increased by $
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 NOL 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.
| 62 |
| Table of Contents |
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
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.
The Company’s net deferred tax assets are as follows:
|
| June 30, |
|
| June 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
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 |
| $ |
|
| $ |
| ||
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 2023 or 2022. As of June 30, 2023 and 2022, the Company had no liabilities for uncertain income tax matters.
(16) SUBSEQUENT EVENTS
Between July 1, 2023 and September 27, 2023, a total of
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Our management carried out an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2023, 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, 2023. 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, 2023, our internal control over financial reporting is effective based on those criteria.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART 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 20, 2023.
NAME |
| AGE |
| POSITION WITH PALATIN |
Carl Spana, Ph.D. |
| 61 |
| Chief Executive Officer, President and a Director |
John K.A. Prendergast, Ph.D. (3) |
| 69 |
| Director, Chairman of the Board of Directors |
Robert K. deVeer, Jr. (1) (2) |
| 77 |
| Director |
J. Stanley Hull (1) (2) |
| 71 |
| Director |
Alan W. Dunton, M.D. (1) (2) |
| 69 |
| Director |
Arlene M. Morris (2) (3) |
| 71 |
| Director |
Anthony M. Manning, Ph.D. (1) (3) |
| 61 |
| Director |
_____________________
(1) | Member of the audit committee. |
(2) | Member of the compensation committee. |
(3) | Member of the nominating and corporate governance committee. |
CARL SPANA, Ph.D., co-founder of Palatin, has been our Chief Executive Officer and President since June 14, 2000. He has been a director of Palatin since June 1996 and has been a director of our wholly owned subsidiary, RhoMed Incorporated, since July 1995. From June 1996 through June 14, 2000, Dr. Spana served as an executive vice president of the Company 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 Dr. Prendergast has served as a member of the board, he does not serve, 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 Nighthawk Biosciences, Inc. (NYSE American: NHWK), a publicly traded clinical stage immunotherapy company, and a director and Executive Chairman of Recce Pharmaceuticals Ltd. (ASX: RCE), 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.
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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.
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, a consultancy to biotech companies on business development, commercial development and corporate strategy. 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 Viridian Therapeutics, Inc. (NASDAQ: VRDN), a publicly traded therapeutic antibody company, and Cogent Biosciences, Inc. (NASDAQ: COGT), a publicly traded oncology biopharmaceutical company, is a director (since February 2022) and currently chair of TC Biopharm (Holdings) PLC (Nasdaq: TCBP), a United Kingdom biopharmaceutical company, and was previously a director of Viveve Medical, Inc., a publicly traded female healthcare medical device company, until February 2023, 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. 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.
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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 of directors has an audit committee, a compensation committee, and a nominating and corporate governance committee. During the fiscal year ended June 30, 2023 (“fiscal 2023”), the board of directors met four 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 of directors and committees of the board of directors on which he or she served. The independent directors meet in executive sessions at least annually, following the annual board of directors meeting. We do not have a policy requiring our directors to attend stockholder meetings. The directors did not attend the virtual annual meeting of stockholders held on June 20, 2023.
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 of directors 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 of directors and updated as of October 1, 2013, a copy of which is available on our web site at www.palatin.com/investors/corporate-governance/.
Compensation committee. The compensation committee reviews and recommends to the board of directors on an annual basis employment agreements and compensation for our officers, directors, and some employees. 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.
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The responsibilities of the compensation committee are set forth in a written charter adopted by the board of directors effective October 1, 2013, a copy of which is available on our web site at www.palatin.com/investors/corporate-governance/. The compensation 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 of directors 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 of directors 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 of directors in recommending nominees for directors, and in determining the composition of committees. It also reviews, assesses, and makes recommendations to the board of directors concerning policies and guidelines for corporate governance, including relationships of the board of directors, 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 of directors and updated as of October 1, 2013, a copy of which is available on our web site at www.palatin.com/investors/corporate-governance/. 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 of directors 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 members of the board of directors 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 of directors, 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 of directors, 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 of directors 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 of directors, 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 of directors satisfies this responsibility through regular reports directly from our officers responsible for oversight of particular risks. The board of directors’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 of directors’s role in risk oversight has no effect on the board of directors’s leadership structure. In addition, committees of the board of directors assist in its risk oversight responsibility, including:
| · | The audit committee assists the board of directors 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 of directors 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. |
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Board Leadership Structure
Since 2000, the roles of chairman of the board of directors 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 of directors 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 of directors, 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 of directors and chief executive officer, the board of directors 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 of directors; strengthening the board of directors’s independence from management; assisting the board of directors in reaching consensus on particular strategies and policies; and facilitating robust director, board of directors, 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 at www.palatin.com/investors/corporate-governance/. 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 of directors and serve at the discretion of the board of directors. Each officer holds his position until his successor is appointed and qualified. The current executive officers, each of whom hold office under employment agreements, are as follows.
Name |
| Age |
| Position with Palatin |
Carl Spana, Ph.D. |
| 61 |
| Chief Executive Officer, President and Director |
Stephen T. Wills, MST, CPA |
| 66 |
| 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, age 66, 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 from October 2017 until August 2022, and starting September 2022, is the chairman of the audit committee and a member of the compensation committee. He also has served on the board of directors of Gamida Cell Ltd. (Nasdaq: GMDA), a leading cellular and immune therapeutics company, since March 2019, and is chairman of the audit committee and a member of the compensation and finance committees. Mr. Wills serves as the Chief Financial Officer of Cactus Acquisition Corp (Nasdaq: CCTS), a Special Purpose Acquisition Company (SPAC). Mr. Wills served on the board of directors of Amryt Pharma Plc, a biopharmaceutical company focused on developing and delivering treatments to help improve the lives of patients with rare and orphan diseases, from September 2019 through April 2023, when Amryt was acquired by Chiesi Farmaceutici. Mr. Wills served on the board of trustees and executive committee of The Hun School of Princeton, a college preparatory day and boarding school since 2014, and as its Chairman starting June 2018, to his retirement in June 2023. Mr. Wills served on the board of directors of Caliper Corporation, a psychological assessment and talent development company, since March 2016, and as Chairman from December 2016 to December 2019, when PSI Corporation acquired Caliper. 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 chairperson of the audit committee from June 2000 to December 2015, and 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.
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Item 11. Executive Compensation.
Fiscal 2023 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 2023 and fiscal 2022. We have no defined benefit or actuarial pension plan, and no deferred compensation plan.
NAME AND PRINCIPAL POSITION |
| FISCAL |
|
| SALARY ($) |
|
| STOCK (1) ($) |
|
| OPTION (1) ($) |
|
| NONEQUITY INCENTIVE PLAN COMPENSATION (2) ($) |
|
| ALL (3) ($) |
|
| TOTAL ($) |
| |||||||
Carl Spana, Ph.D., Chief |
| 2023 |
|
|
| 700,000 |
|
|
| 170,500 |
|
|
| 154,300 |
|
|
| 262,500 | (4) |
|
| 16,500 |
|
|
| 1,303,800 |
| |
| Executive Officer and President |
| 2022 |
|
|
| 640,000 |
|
|
| 149,942 |
|
|
| 269,098 |
|
| 288,000 | (4) |
|
| 15,250 |
| 1,362,290 |
| ||||
Stephen T. Wills, MST, CPA, Chief Financial |
| 2023 |
|
|
| 650,000 |
|
|
| 148,500 |
|
|
| 134,100 |
|
|
| 243,800 | (4) |
|
| 16,750 |
|
|
| 1,193,150 |
| |
| Officer, Chief Operating Officer and Executive Vice President |
| 2022 |
|
|
| 590,000 |
|
|
| 131,356 |
|
|
| 233,050 |
|
| 265,500 | (4) |
|
| 15,074 |
| 1,234,980 |
| ||||
(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 and performance-based stock options granted in fiscal 2023, assuming that the highest level of performance would be achieved, was as follows: for Dr. Spana, $25,900 for performance-based restricted stock units and $9,700 for performance-based stock options; and for Mr. Wills, $22,600 for performance-based restricted stock units and $8,400 for performance-based stock options. The aggregate grant date fair value of the performance-based restricted stock units and performance-based stock options granted in fiscal 2022, assuming that the highest level of performance would be achieved, was as follows: for Dr. Spana, $17,992 for performance-based restricted stock units and $36,475 for performance-based stock options; and for Mr. Wills, $16,806 for performance-based restricted stock units and $31,528 for performance-based stock options. For a description of the assumptions we used to calculate these amounts, see Note 14 to the consolidated financial statements included in this Annual Report. |
(2) | Annual incentive amounts. |
(3) | Consists of matching contributions to 401(k) plan. |
(4) | Bonus amounts for fiscal years 2022 and 2023 paid after fiscal year end but accrued as of June 30. |
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, 2023, the base salaries remain $700,000 for Dr. Spana and $650,000 for Mr. Wills.
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.
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The fiscal 2023 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 for fiscal 2023:
CORPORATE OBJECTIVES RELATED TO: |
| WEIGHT |
|
| ACHIEVEMENT LEVEL |
|
| DISCRETIONARY ADJUSTMENTS |
|
| TOTAL WEIGHTED ACHIEVEMENT |
| ||||
Vyleesi (bremelanotide) FSD Program |
|
| 15.0 | % |
|
| 100.0 | % |
|
| 5.0 | % |
|
| 20.0 | % |
Anti-Inflammatory Programs |
|
| 25.0 | % |
|
| 50.0 | % |
|
| 0.0 | % |
|
| 12.5 | % |
Ocular Programs |
|
| 35.0 | % |
|
| 50.0 | % |
|
| 10.0 | % |
|
| 27.5 | % |
Other Corporate |
|
| 25.0 | % |
|
| 0.0 | % |
|
| 2.5 | % |
|
| 2.5 | % |
Total Payout |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 62.5 | % |
For fiscal 2023, the compensation committee determined that our named executive officers achieved 62.5% of their target objectives. As a result, each named executive officer received a payout under the 2023 annual incentive program equal to 62.5% of his target annual incentive opportunity, or $262,500 for Dr. Spana and $243,800 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 2023 and fiscal 2022, 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, however for fiscal 2023 and fiscal 2022, to conserve the number of available shares under the plan, the target long-term incentive opportunity for each named executive officer was reduced to 33% of target, or 83% of base salary for Dr. Spana and 78% of base salary for Mr. Wills.
On June 20, 2023, as part of our fiscal 2024 long-term incentive program, we granted 66,000 time-based restricted stock units and 66,000 performance-based restricted stock units to Dr. Spana, and 57,500 time-based restricted stock units and 57,500 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 annual performance criteria relating to corporate objectives, including stock appreciation, advancement of development programs, and licensing of Vyleesi in additional countries or regions.
On June 20, 2023, we granted 103,500 time-based stock options to Dr. Spana and 90,000 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, 2022, we granted 103,500 performance-based stock options to Dr. Spana and 90,000 performance-based stock options to Mr. Wills 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. The options have an exercise price of $2.19, the fair market value of the common stock on the business day immediately preceding the date of grant, and they expire on June 20, 2033.
On June 22, 2022, as part of our fiscal 2023 long-term incentive program, we granted 18,200 time-based restricted stock units and 18,200 performance-based restricted stock units to Dr. Spana, and 15,800 time-based restricted stock units and 15,800 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 annual performance criteria relating to corporate objectives, including stock appreciation, advancement of development programs, and licensing of Vyleesi in additional countries or regions.
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On June 22, 2022, we granted 27,080 time-based stock options to Dr. Spana and 23,500 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, 2022, we granted 27,080 performance-based stock options to Dr. Spana and 23,500 performance-based stock options to Mr. Wills 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. The options have an exercise price of $7.25, the fair market value of the common stock on the business day immediately preceding the date of grant, and they expire on June 22, 2032.
Employment Agreements
Effective July 1, 2022, we entered into employment agreements with Dr. Spana and Mr. Wills which continue through June 30, 2025 unless terminated earlier. Under these agreements Dr. Spana is serving as Chief Executive Officer and President at an initial base salary of $700,000 per year and Mr. Wills is serving as Chief Financial Officer and Chief Operating Officer at an initial base salary of $650,000 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 |
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|
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| · | 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.
Other Compensation Practices and Policies
At our last annual meeting of stockholders on June 20, 2023, 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 67% 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 May 2022. 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 2022 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. | Clearside Biomedical, Inc. |
| AIM ImmunoTech, Inc. | Cumberland Pharmaceuticals, Inc. |
| Aldeyra Therapeutics, Inc. | Eton Pharmaceuticals, Inc. |
| Aptevo Therapeutics, Inc. | Kala Pharmaceuticals, Inc. |
| Ardelyx, Inc. | Kezar Life Sciences, Inc. |
| Athersys, Inc. | MEI Pharma, Inc. |
| MeiraGTx Holdings plc | Savara Inc. |
| Paratek Pharmaceuticals, Inc. | Verastem, Inc. |
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| · | 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. |
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| · | 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: |
| ○ | Base salary, which targets the comparable position median salary for our peer group; |
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| ○ | An annual incentive compensation opportunity, with a target bonus payout of no less than 60% of base salary, depending on performance; and, |
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| ○ | A long-term incentive program consisting of stock option and restricted stock unit awards. In fiscal 2023, approximately 50% of all long-term incentive awards were allocated to performance-based stock options and performance-based restricted share units. |
| · | 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, 2023, the most recent “Determination Date” under the stock ownership policy, all board members met the target ownership level of shares of at least two times the annual retainer for board members. Current named executive officers did not meet the target ownership levels of shares as of June 30, 2023 of a value equal to at least five times the annual base salary, due to a decrease in share price. Our stock ownership policy, which is on our website at www.palatin.com/investors/corporate-governance/, provides that if covered individuals meet the minimum ownership level of our common stock, a decrease in share price or increase in salary will not result in recalculation of the number of shares needed to satisfy the stock ownership policy unless the covered individual’s actual ownership levels drop below the number of shares required as of the Determination Date that he or she first satisfied the guidelines. The current named executive officers met the target ownership levels of shares as of June 30, 2022 and at all prior Determination Dates. 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. |
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| · | 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/investors/corporate-governance/. |
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| · | Maintain an Independent Compensation Committee. The compensation committee consists entirely of independent directors. |
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| · | 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. |
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| · | “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). |
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| · | 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. |
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| · | 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. |
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| · | 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 restricted stock unit awards or vested restricted stock unit awards subject to delayed delivery. |
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| · | 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. |
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| · | 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 2023 Fiscal Year-End
The following table summarizes all of the outstanding equity-based awards granted to our named executive officers as of June 30, 2023, the end of our fiscal year.
|
| OPTION AWARDS (1) |
| STOCK AWARDS (2) |
| |||||||||||||||||||||||||||||||
NAME |
| OPTION OR |
| NUMBER OF |
|
| NUMBER OF |
|
| EQUITY INCENTIVE PLAN AWARD: NUMBER OF SECURITIES UNDERLYING UNEXERCISED UNEARNED OPTIONS (#) |
|
| OPTION |
|
| OPTION |
| NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED |
|
| MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED |
|
| EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNIT OR OTHER RIGHTS THAT HAVE NOT VESTED (#) |
|
| EQUITY INCENTIVE PLAN AWARDS: MARKET OR PAYOUT VALUE OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED ($)(3) |
| ||||||||
Carl Spana |
| 06/20/17 |
|
| 37,520 |
|
|
| - |
|
|
| - |
|
|
| 9.25 |
|
| 06/20/27 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/16/20 |
|
| 32,146 |
|
|
| 10,714 |
|
|
| - |
|
|
| 14.50 |
|
| 06/16/30 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/16/20 |
|
| 26,901 |
|
|
| - |
|
|
| 15,959 |
|
|
| 14.50 |
|
| 06/16/30 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/22/21 |
|
| 23,000 |
|
|
| 23,000 |
|
|
| - |
|
|
| 13.75 |
|
| 06/22/31 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/22/21 |
|
| 17,609 |
|
|
| - |
|
|
| 38,391 |
|
|
| 13.75 |
|
| 06/22/31 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/22/22 |
|
| 6,770 |
|
|
| 20,310 |
|
|
| - |
|
|
| 7.25 |
|
| 06/22/32 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/22/22 |
|
| 4,231 |
|
|
| - |
|
|
| 22,849 |
|
|
| 7.25 |
|
| 06/22/32 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/20/23 |
|
| - |
|
|
| 103,500 |
|
|
| - |
|
|
| 2.19 |
|
| 06/20/33 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/20/23 |
|
| - |
|
|
| - |
|
|
| 103,500 |
|
|
| 2.19 |
|
| 06/20/33 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 06/16/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,465 |
|
|
| 13,577 |
|
|
| 9,629 |
|
|
| 20,221 |
|
|
| 06/22/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 14,090 |
|
|
| 29,589 |
|
|
| 11,221 |
|
|
| 23,564 |
|
|
| 06/22/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,650 |
|
|
| 28,665 |
|
|
| 15,356 |
|
|
| 32,248 |
|
|
| 06/30/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 66,000 |
|
|
| 138,600 |
|
|
| 66,000 |
|
|
| 138,600 |
|
|
| Total Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 100,205 |
|
|
| 210,431 |
|
|
| 102,206 |
|
|
| 214,633 |
|
Stephen T. Wills |
| 06/20/17 |
|
| 34,360 |
|
|
| - |
|
|
| - |
|
|
| 9.25 |
|
| 06/20/27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/16/20 |
|
| 27,690 |
|
|
| 9,230 |
|
|
| - |
|
|
| 14.50 |
|
| 06/16/30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/16/20 |
|
| 23,173 |
|
|
| - |
|
|
| 13,747 |
|
|
| 14.50 |
|
| 06/16/30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/22/21 |
|
| 19,880 |
|
|
| 19,880 |
|
|
| - |
|
|
| 13.75 |
|
| 06/22/31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/22/21 |
|
| 15,221 |
|
|
| - |
|
|
| 24,539 |
|
|
| 13.75 |
|
| 06/22/31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/22/22 |
|
| 5,875 |
|
|
| 17,625 |
|
|
| - |
|
|
| 7.25 |
|
| 06/22/32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/22/22 |
|
| 3,672 |
|
|
| - |
|
|
| 19,828 |
|
|
| 7.25 |
|
| 06/22/32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/20/23 |
|
| - |
|
|
| 90,000 |
|
|
| - |
|
|
| 2.19 |
|
| 06/20/33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/20/23 |
|
| - |
|
|
| - |
|
|
| 90,000 |
|
|
| 2.19 |
|
| 06/20/33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 06/16/20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,570 |
|
|
| 11,697 |
|
|
| 8,295 |
|
|
| 17,420 |
|
|
| 06/22/21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,180 |
|
|
| 25,578 |
|
|
| 10,097 |
|
|
| 21,204 |
|
|
| 06/22/22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,850 |
|
|
| 24,885 |
|
|
| 13,331 |
|
|
| 27,995 |
|
|
| 06/20/23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 57,500 |
|
|
| 120,750 |
|
|
| 57,500 |
|
|
| 120,750 |
|
|
| Total Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 87,100 |
|
|
| 182,910 |
|
|
| 89,223 |
|
|
| 187,369 |
|
| 74 |
| Table of Contents |
__________________
(1) | Stock option vesting schedules: all options granted before June 16, 2020 have fully vested. Options granted on or after June 20, 2018 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, June 22, 2021, June 22, 2022 and June 20, 2023, which vest according to the terms of the grants described above. |
|
|
(2) | Time-based stock award vesting schedule: restricted stock units granted on June 16, 2020 as to 25,860 shares for Dr. Spana and 22,280 shares for Mr. Wills; restricted stock units granted on June 22, 2021 as to 28,180 shares to Dr. Spana and 24,360 shares for Mr. Wills; restricted stock units granted on June 22, 2022 as to 18,200 shares for Dr. Spana and 15,800 shares for Mr. Wills and restricted stock units granted on June 20, 2023 as to 66,000 shares for Dr. Spana and 57,500 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 $2.10, the closing market price of our common stock on June 30, 2023, the last trading day of our most recently completed fiscal year. |
Termination and Change-In-Control Arrangements
The employment agreements, stock option agreements and restricted stock unit agreements with Dr. Spana and Mr. Wills contain the following provisions concerning severance compensation and the vesting of stock options and restricted stock units upon termination of employment or upon a change in control. The executive’s entitlement to severance, payment of health benefits and accelerated vesting of options is contingent on the executive executing a general release of claims against us.
Termination Without Severance Compensation. Regardless of whether there has been a change in control, if we terminate employment for cause or the executive terminates employment without good reason (as those terms are defined in the employment agreement and set forth below), then the executive will receive only his accrued salary and vacation benefits through the date of termination. He may also elect to receive medical and dental benefits pursuant to COBRA for up to two years 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.
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.
| 75 |
| Table of Contents |
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) | 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; |
|
|
|
| (b) | 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 |
|
|
|
| (c) | 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. |
| 76 |
| Table of Contents |
Director Compensation
The following table sets forth the compensation we paid to all directors during fiscal 2023, 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 |
| Fees earned or paid in cash ($) |
|
| Stock awards ($) (1) (2) |
|
| Option awards ($) (1) (2) |
|
| Total ($) |
| ||||
John K.A. Prendergast, Ph.D. |
|
| 97,500 |
|
|
| 28,700 |
|
|
| 28,675 |
|
|
| 212,890 |
|
Robert K. deVeer, Jr. |
|
| 70,000 |
|
|
| 21,250 |
|
|
| 21,216 |
|
|
| 155,000 |
|
J. Stanley Hull |
|
| 60,000 |
|
|
| 21,250 |
|
|
| 21,216 |
|
|
| 145,000 |
|
Alan W. Dunton, M.D. |
|
| 70,000 |
|
|
| 21,250 |
|
|
| 21,216 |
|
|
| 155,000 |
|
Arlene Morris |
|
| 55,000 |
|
|
| 21,250 |
|
|
| 21,216 |
|
|
| 140,000 |
|
Anthony Manning, Ph.D. |
|
| 55,000 |
|
|
| 21,250 |
|
|
| 21,216 |
|
|
| 140,000 |
|
(1) | The aggregate number of shares underlying option awards and unvested stock awards outstanding at June 30, 2023, for each director was: |
|
| Option awards |
|
| Stock awards |
| ||
Dr. Prendergast |
|
| 60,280 |
|
|
| 19,400 |
|
Mr. deVeer |
|
| 40,780 |
|
|
| 13,200 |
|
Mr. Hull |
|
| 40,780 |
|
|
| 13,200 |
|
Dr. Dunton |
|
| 40,780 |
|
|
| 12,800 |
|
Ms. Morris |
|
| 40,180 |
|
|
| 12,000 |
|
Dr. Manning |
|
| 37,280 |
|
|
| 10,600 |
|
(2) | 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 14 to the consolidated financial statements included in this Annual Report. Amounts in this column include options granted on June 20, 2023 for our current fiscal year ending June 30, 2024. |
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 of directors. Directors who are employees of the Company receive no additional compensation for their service on the board of directors.
The compensation committee annually reviews compensation paid to our non-employee directors and makes recommendations for adjustments, as appropriate, to the full board of directors. 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 of directors 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.
Non-Employee Directors’ Equity Grants. Our non-employee directors receive an annual equity grant at the board of directors meeting closest to the beginning of each fiscal year, or such other date as may be determined by the board of directors.
| 77 |
| Table of Contents |
On June 20, 2023, the Chairman of the board of directors received 13,000 restricted stock units which vest on June 20, 2024 and an option to purchase 22,000 shares of common stock, and each other serving non-employee director received 10,000 restricted stock units which vest on June 20, 2024 and an option to purchase 16,000 shares of common stock. All of the options have an exercise price of $2.19 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, 2023, 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 22, 2022, the Chairman of the board of directors received 3,960 restricted stock units which vest on June 22, 2023 and an option to purchase 6,920 shares of common stock, and each other serving non-employee director received 2,920 restricted stock units which vest on June 22, 2023 and an option to purchase 5,120 shares of common stock. All of the options have an exercise price of $7.25 per share, the closing price of our common stock on the business day immediately preceding the date of grant, vest in 12 monthly installments beginning July 31, 2022, 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 of directors and for fiscal 2023 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 $20,000, the chairperson of the compensation committee received an additional annual retainer of $20,000 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, 2024, Dr. Prendergast serves as Chairman of the board of directors and will receive 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 of directors 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 of directors 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 of directors and any committees on which they serve.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans. The table below provides information on our equity compensation plans as of June 30, 2022:
Equity Compensation Plan Information as of June 30, 2023 |
| |||||||||||
Plan category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted-average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders |
|
| 2,538,121 | (1) |
| $ | 8.27 | (2) |
|
| 405,145 |
|
Equity compensation plans not approved by security holders |
|
| - |
|
|
| - |
|
|
| - |
|
Total |
|
| 2,538,121 |
|
|
|
|
|
| 405,145 |
| |
| 78 |
| Table of Contents |
(1) | Includes 1,550,600 options and 987,521 restricted stock units granted under our 2011 Stock Incentive Plan. |
|
|
(2) | The amount in column (a) for equity compensation plans approved by security holders includes 987,521 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 20, 2027, 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. |
Beneficial Ownership Tables. The tables below show the beneficial stock ownership and voting power, as of September 27, 2023, 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 27, 2023. 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 one vote 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 27, 2023, on which date 11,946,646 shares of common stock and 4,030 shares of Series A preferred stock, convertible into 3,550 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.
| 79 |
| Table of Contents |
MANAGEMENT:
CLASS |
| NAME OF BENEFICIAL OWNER |
| AMOUNT AND NATURE |
|
| PERCENT OF CLASS |
|
| PERCENT OF TOTAL |
| |||
Common |
| Carl Spana, Ph.D. |
|
| 366,303 | (1) |
|
| 3.0 | % |
| * |
| |
Common |
| Stephen T. Wills |
|
| 332,520 | (2) |
|
| 2.7 | % |
| * |
| |
Common |
| John K.A. Prendergast, Ph.D. |
|
| 76,256 | (3) |
| * |
|
| * |
| ||
Common |
| Robert K. deVeer, Jr. |
|
| 49,211 | (4) |
| * |
|
| * |
| ||
Common |
| J. Stanley Hull |
|
| 47,718 | (5) |
| * |
|
| * |
| ||
Common |
| Alan W. Dunton, M.D. |
|
| 47,940 | (6) |
| * |
|
| * |
| ||
Common |
| Arlene M. Morris |
|
| 46,426 | (7) |
| * |
|
| * |
| ||
Common |
| Anthony M. Manning, Ph.D. |
|
| 38,026 | (8) |
| * |
|
| * |
| ||
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| All current directors and executive officers as a group (eight persons) |
|
| 1,004,400 | (9) |
|
| 7.9 | % |
|
| 2.6 | % |
__________
*Less than one percent.
(1) | Includes 148,177 shares of common stock underlying outstanding options and 120,640 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. |
|
|
(2) | Includes 129,871 shares of common stock underlying outstanding options and 106,540 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. |
|
|
(3) | Includes 41,946 shares of common stock underlying outstanding options and 6,400 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. |
|
|
(4) | Includes 27,446 shares of common stock underlying outstanding options and 3,200 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. |
|
|
(5) | Includes 27,446 shares of common stock underlying outstanding options and 3,200 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 27,446 shares of common stock underlying outstanding options and 2,800 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) | Includes 26,846 shares of common stock underlying outstanding options and 2,000 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. |
|
|
(8) | Includes 23,946 shares of common stock underlying outstanding options and 600 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 698,504 shares of common stock underlying outstanding options and restricted stock units. |
| 80 |
| Table of Contents |
MORE THAN 5% BENEFICIAL OWNERS:
CLASS |
| NAME AND ADDRESS OF BENEFICIAL OWNER |
| AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP (1) |
|
| PERCENT |
|
| PERCENT OF TOTAL VOTING POWER | |||
Series A Preferred |
| Steven N. Ostrovsky 43 Nikki Ct. Morganville, NJ 07751 |
|
| 500 |
|
|
| 12.4 | % |
| * | |
Series A Preferred |
| Thomas L. Cassidy IRA Rollover 38 Canaan Close New Canaan, CT 06840 |
|
| 500 |
|
|
| 12.4 | % |
| * | |
Series A Preferred |
| Jonathan E. Rothschild 300 Mercer St., #28F New York, NY 10003 |
|
| 500 |
|
|
| 12.4 | % |
| * | |
Series A Preferred |
| Arthur J. Nagle 19 Garden Avenue Bronxville, NY 10708 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Thomas P. and Mary E. Heiser, JTWROS 10 Ridge Road Hopkinton, MA 01748 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Carl F. Schwartz 31 West 87th St. New York, NY 10016 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Michael J. Wrubel 3650 N. 36 Avenue, #39 Hollywood, FL 33021 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Myron M. Teitelbaum, M.D. 175 Burton Lane Lawrence, NY 11559 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Laura Gold Galleries Ltd. Profit Sharing Trust Park South Gallery at Carnegie Hall 154 West 57th Street, Suite 114 New York, NY 10019 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred |
| Laura Gold 180 W. 58th Street New York, NY 10019 |
|
| 250 |
|
|
| 6.2 | % |
| * | |
Series A Preferred
|
| Nadji T. Richmond 20 E. Wedgewood Glen The Woodlands, TX 77381 |
|
| 230 |
|
|
| 5.7 | % |
| * | |
__________
*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. |
| 81 |
| Table of Contents |
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, 2022, 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”), Philadelphia, PA, Auditor Firm ID: 185, served as our independent registered public accounting firm for fiscal 2023 and fiscal 2022.
Audit Fees. For fiscal 2023, 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 and services provided in connection with regulatory filings and comfort letters were $491,500. For fiscal 2022, 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 and services provided in connection with regulatory filings and comfort letters were $433,000.
Audit-Related Fees. For fiscal 2023 and fiscal 2022, KPMG did not perform or bill us for any audit-related services.
Tax Fees. For fiscal 2023, KPMG billed us $26,600 for professional services rendered for tax compliance services. For fiscal 2022, KPMG billed us $22,000 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 2023 and fiscal 2022.
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.
| 82 |
| Table of Contents |
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(a) Documents filed as part of the report:
| 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 Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity
— Consolidated Statements of Cash Flows
— Notes to Consolidated Financial Statements |
|
|
|
| 2. | Financial statement schedules: None. |
|
|
|
| 3. | List of Exhibits |
The following exhibits are incorporated by reference or filed as part of this report:
Exhibit Number |
| Description |
| Filed Herewith |
| Form |
| Filing Date |
| SEC File No. |
| Restated Certificate of Incorporation of Palatin Technologies, Inc., as amended. |
|
| 10-K |
| September 27, 2013 |
| 001-15543 | ||
|
|
| 8-K |
| September 17, 2021 |
| 001-15543 | |||
| Certificate of Designation of Series B Convertible Redeemable Preferred Stock. |
|
|
| 10-Q |
| May 16, 2022 |
| 001-15543 | |
| Certificate of Designation of Series C Convertible Redeemable Preferred Stock. |
|
|
| 10-Q |
| May 16, 2022 |
| 001-15543 | |
| Certificate of Elimination with respect to Series A Preferred Stock and Series B Preferred Stock. |
|
|
| 10-Q |
| May 16, 2022 |
| 001-15543 | |
| Certificate of Decrease of Series A Convertible Preferred Stock |
|
|
| 10-Q |
| May 16, 2022 |
| 001-15543 | |
|
|
|
| 8-K |
| August 31, 2022 |
| 001-15543 | ||
|
|
|
| 10-Q |
| February 14, 2023 |
| 001-15543 | ||
|
|
|
| 8-K |
| November 2, 2022 |
| 001-15543 | ||
|
|
|
| 8-K |
| November 2, 2022 |
| 001-15543 | ||
|
|
|
| 8-K |
| November 2, 2022 |
| 001-15543 | ||
|
|
| 8-K |
| July 6, 2012 |
| 001-15543 | |||
|
|
| 8-K |
| July 6, 2012 |
| 001-15543 | |||
|
|
|
| 8-K |
| December 30, 2014 |
| 001-15543 |
| 83 |
| Table of Contents |
Exhibit Number |
| Description |
| Filed Herewith |
| Form |
| Filing Date |
| SEC File No. |
|
|
| 8-K |
| December 30, 2014 |
| 001-15543 | |||
|
|
| 8-K |
| July 7, 2015 |
| 001-15543 | |||
|
|
|
| 8-K |
| July 7, 2015 |
| 001-15543 | ||
|
|
| 8-K |
| July 7, 2015 |
| 001-15543 | |||
|
|
|
| 8-K |
| August 2, 2016 |
| 001-15543 | ||
|
|
|
| 8-K |
| August 2, 2016 |
| 001-15543 | ||
|
|
|
| 8-K |
| December 1, 2016 |
| 001-15543 | ||
|
|
|
| 10-K |
| September 12, 2019 |
| 001-15543 | ||
|
|
| 10-K |
| September 28, 2009 |
| 001-15543 | |||
10.2† |
| Form of Option Certificate (Incentive Option) Under the 2005 Stock Plan. |
|
| 8-K |
| September 21, 2011 |
| 001-15543 | |
10.3† |
| Form of Incentive Stock Option Under the 2005 Stock Plan. |
|
| 8-K |
| September 21, 2011 |
| 001-15543 | |
10.4† |
| Form of Opinion Certificate (Non-Qualified Opinion) Under the 2005 Stock Plan. |
|
| 8-K |
| September 21, 2011 |
| 001-15543 | |
10.5† |
| Form of Non-Qualified Stock Option Agreement Under the 2005 Stock Plan. |
|
| 8-K |
| September 21, 2011 |
| 001-15543 | |
|
|
| 10-Q |
| February 8, 2008 |
| 001-15543 | |||
|
|
| 10-Q |
| May 15, 2009 |
| 001-15543 | |||
|
|
| 10-Q |
| May 14, 2008 |
| 001-15543 | |||
|
|
|
| 10-Q |
| May 14, 2008 |
| 001-15543 | ||
| Form of Amended Option Certificate (Incentive Option) Under the 2005 Stock Plan. |
|
| 10-Q |
| May 14, 2008 |
| 001-15543 | ||
| 2011 Stock Incentive Plan, as amended, restated and adopted by the stockholders on June 20, 2023. |
| X |
|
|
| ||||
| Form of Restricted Share Unit Agreement Under the 2011 Stock Incentive Plan. |
|
| 10-Q |
| May 13, 2011 |
| 001-15543 | ||
| Form of Nonqualified Stock Option Agreement under the 2011 Stock Incentive Plan. |
|
| 10-Q |
| May 13, 2011 |
| 001-15543 | ||
| Form of Incentive Stock Option Agreement under the 2011 Stock Incentive Plan. |
|
| 10-Q |
| May 13, 2011 |
| 001-15543 |
| 84 |
| Table of Contents |
Exhibit Number |
| Description |
| Filed Herewith |
| Form |
| Filing Date |
| SEC File No. |
| Form of Restricted Share Unit Agreement under the 2011 Stock Incentive Plan. |
|
|
| 8-K |
| December 11, 2015 |
| 001-15543 | |
| Form of Performance-Based Restricted Share Unit Agreement under the 2011 Stock Incentive Plan. |
|
|
| 8-K |
| December 11, 2015 |
| 001-15543 | |
|
|
|
| 8-K |
| December 11, 2015 |
| 001-15543 | ||
| Amended form of Restricted Share Unit Agreement under the 2011 Stock Incentive Plan. |
|
|
| 10-Q |
| February 12, 2016 |
| 001-15543 | |
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|
| 10-Q |
| February 12, 2016 |
| 001-15543 | ||
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| 10-Q |
| February 12, 2016 |
| 001-15543 | ||
|
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| S-3 |
| August 17, 2018 |
| 333-226905 | ||
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| 8-K |
| July 7, 2015 |
| 001-15543 | ||
|
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| 10-Q |
| November 16, 2020 |
| 001-15543 | ||
|
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| 10-Q |
| November 16, 2020 |
| 001-15543 | ||
|
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| 10-Q |
| February 10, 2017 |
| 001-15543 | ||
|
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| 10-Q |
| November 13, 2017 |
| 001-15543 | ||
|
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| 8-K |
| June 24, 2022 |
| 001-15543 | ||
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| 8-K |
| June 24, 2022 |
| 001-15543 | ||
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| 8-K |
| July 27, 2020 |
| 001-15543 | ||
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| 10-K |
| September 25, 2020 |
| 001-15543 | ||
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| 10-K |
| September 25, 2020 |
| 001-15543 |
| 85 |
| Table of Contents |
Exhibit Number |
| Description |
| Filed Herewith |
| Form |
| Filing Date |
| SEC File No. |
|
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|
| 10-Q |
| November 16, 2020 |
| 001-15543 | ||
|
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| 10-Q |
| November 16, 2020 |
| 001-15543 | ||
|
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|
| 10-Q |
| May 16, 2022 |
| 001-15543 | ||
|
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| 10-Q |
| May 16, 2022 |
| 001-15543 | ||
|
|
|
| 10-Q |
| May 16, 2022 |
| 001-15543 | ||
|
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|
| 8-K |
| November 2, 2022 |
| 001-15543 | ||
|
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|
| 8-K |
| April 20, 2018 |
| 001-15543 | ||
|
|
|
| 8-K |
| June 21, 2019 |
| 001-15543 | ||
|
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| 8-K |
| April 12, 2023 |
| 001-15543 | ||
|
| X |
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| X |
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| X |
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| X |
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| X |
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| X |
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101.INS |
| Inline XBRL Instance Document. |
| X |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
| X |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| X |
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101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
| X |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| X |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| X |
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104 |
| Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101). |
| X |
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† | 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. |
§ | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 and 32.2 hereto is deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference. |
Item 16. Form 10-K Summary.
None
| 86 |
| Table of Contents |
SIGNATURES
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 TECHNOLOGIES, INC. | ||
| By: | s/ Carl Spana | |
| Carl Spana, Ph.D. | |
| President and Chief Executive Officer | ||
| (principal executive officer) | ||
Date: September 28, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
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/s/ Carl Spana |
| President, Chief Executive Officer and Director |
| September 28, 2023 |
Carl Spana |
| (principal executive officer) |
|
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/s/ Stephen T. Wills |
| Executive Vice President, Chief Financial Officer |
| September 28, 2023 |
Stephen T. Wills |
| and Chief Operating Officer (principal financial and accounting officer) |
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/s/ John K. A. Prendergast |
| Chairman and Director |
| September 28, 2023 |
John K. A. Prendergast |
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/s/ Robert K. deVeer, Jr. |
| Director |
| September 28, 2023 |
Robert K. deVeer, Jr. |
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/s/ J. Stanley Hull |
| Director |
| September 28, 2023 |
J. Stanley Hull |
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/s/ Alan W. Dunton |
| Director |
| September 28, 2023 |
Alan W. Dunton |
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/s/ Arlene M. Morris |
| Director |
| September 28, 2023 |
Arlene M. Morris |
|
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/s/ Anthony M. Manning |
| Director |
| September 28, 2023 |
Anthony M. Manning |
|
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| 87 |
EXHIBIT 10.11
PALATIN TECHNOLOGIES, INC.
2011 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
1. Establishment, Purpose, Duration.
a. Establishment. Palatin Technologies, Inc. (the “Company”) established an equity compensation plan known as the Palatin Technologies, Inc. 2011 Stock Incentive Plan (the “Plan”) effective as of March 11, 2011 (the “Effective Date”). The Company’s stockholders originally approved the Plan on May 11, 2011 (the “Approval Date”). The Plan was amended and restated as of March 3, 2015, amended as of April 1, 2016, and re-approved by the Company’s stockholders on June 9, 2016, amended and restated as of June 8, 2017, amended as of June 26, 2018, amended as of March 24, 2020, amended and restated as of June 10, 2022, and amended and restated as of June 20, 2023. Definitions of capitalized terms used in the Plan are contained in Section 2 of the Plan.
b. Purpose. The purpose of the Plan is to attract and retain Directors, Consultants, officers and other key employees of the Company and its Subsidiaries and to provide to such persons incentives and rewards for superior performance.
c. Duration. No Award may be granted under the Plan after March 10, 2030, or such earlier date as the Board shall determine. The Plan will remain in effect with respect to outstanding Awards until no Awards remain outstanding.
d. Prior Plans. The Palatin Technologies, Inc. 2005 Stock Plan, as amended (the “Prior Plan”) terminated in its entirety effective on the Approval Date; provided that all outstanding awards under the Prior Plan as of the Approval Date remain outstanding and shall be administered and settled in accordance with the provisions of the Prior Plan.
2. Definitions. As used in the Plan, the following definitions shall apply.
“Applicable Laws” means the applicable requirements relating to the administration of equity-based compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, the rules of any stock exchange or quotation system on which the Shares are listed or quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan.
“Approval Date” has the meaning given such term in Section 1(a).
“Award” means a Nonqualified Stock Option, Incentive Stock Option, Stock Appreciation Right, Restricted Shares Award, Restricted Share Unit, Other Share-Based Award, or Cash-Based Award granted pursuant to the terms and conditions of the Plan.
“Award Agreement” means either: (i) an agreement, either in written or electronic format, entered into by the Company and a Participant setting forth the terms and provisions applicable to an Award granted under the Plan; or (ii) a statement, either in written or electronic format, issued by the Company to a Participant describing the terms and provisions of such Award, which need not be signed by the Participant.
“Board” means the Board of Directors of the Company.
“Cash-Based Award” shall mean a cash Award granted pursuant to Section 12 of the Plan.
| Page 1 |
“Cause” as a reason for a termination of a Participant’s employment shall have the meaning assigned such term, if any, in the employment agreement, if any, between the Participant and the Company or a Subsidiary, or if none, under a severance plan or arrangement maintained by the Company or a Subsidiary that applies to the Participant on the date of termination. If the Participant is not a party to an employment agreement with the Company or a Subsidiary in which such term is defined or if during the applicable severance protection period, the Participant is not a participant in any severance plan or arrangement maintained by the Company or a Subsidiary, then unless otherwise defined in the applicable Award Agreement, then the term “Cause” shall mean: (a) (i) the Participant’s material breach of, or habitual neglect or failure to perform the material aspects of his or her duties; (ii) the Participant’s material failure to follow the reasonable directives or policies established by or at the direction of the board; or (iii) the Participant’s engaging in conduct that is materially detrimental to the interests of the Company such that the Company sustains a material loss or injury as a result thereof, provided that the breach or failure of performance by the Participant under subparagraphs (i) through (iii) hereof is not cured, to the extent cure is possible, within ten (10) days of the delivery to the Participant of written notice thereof; (b) the willful breach by the Participant of any provision of any confidentiality, invention and non-disclosure, non-competition or similar agreement between the Participant and the Company; or (c) the conviction of the Participant of, or the entry of a pleading of guilty or nolo contendere by the Participant to, any crime involving moral turpitude or any felony.
“Change in Control” means the occurrence of any of the following events: (a) Any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company) becoming the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities; (b) the date the individuals who, during any twelve month period, constitute the board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director during the twelve month period whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; (c) the consummation of a merger or consolidation of the Company approved by the stockholders of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 50% or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or (d) a sale of all or substantially all of the assets of the Company.
“Code” means the Internal Revenue Code of 1986, as amended.
“Committee” means the Compensation Committee of the Board or such other committee or subcommittee of the Board as may be duly appointed to administer the Plan and having such powers in each instance as shall be specified by the Board. To the extent required by Applicable Laws, the Committee shall consist of two or more members of the Board, each of whom is a “non-employee director” within the meaning of Rule 16b-3 promulgated under the Exchange Act and an “independent director” within the meaning of applicable rules of any securities exchange upon which Shares are listed.
“Company” has the meaning given such term in Section 1(a) and any successor thereto.
| Page 2 |
“Consultant” means an independent contractor that (a) performs services for the Company or a Subsidiary in a capacity other than as an Employee or Director and (b) qualifies as a consultant under the applicable rules of the SEC for registration of shares on a Form S-8 Registration Statement.
“Date of Grant” means the date as of which an Award is determined to be effective and designated in a resolution by the Committee and is granted pursuant to the Plan. The Date of Grant shall not be earlier than the date of the resolution and action therein by the Committee. In no event shall the Date of Grant be earlier than the Effective Date.
“Detrimental Activity” except as may be otherwise specified in a Participant’s Award Agreement, means: (a) Engaging in any activity of competition, as specified in any covenant not to compete set forth in any agreement between a Participant and the Company or a Subsidiary, including, but not limited to, the Participant’s Award Agreement or any severance plan maintained by the Company or a Subsidiary that covers the Participant, during the period of restriction specified in the agreement or plan prohibiting the Participant from engaging in such activity; (b) Engaging in any activity of solicitation, as specified in any covenant not to solicit set forth in any agreement between a Participant and the Company or a Subsidiary, including, but not limited to, the Participant’s Award Agreement or any severance plan maintained by the Company or a Subsidiary that covers the Participant, during the period of restriction specified in the agreement or plan prohibiting the Participant from engaging in such activity; (c) The disclosure of confidential information to anyone outside the Company or a Subsidiary, or the use in other than the Company’s or a Subsidiary’s business in violation of any covenant not to disclose set forth in any agreement between a Participant and the Company or a Subsidiary, including, but not limited to, the Participant’s Award Agreement or any severance plan maintained by the Company or a Subsidiary that covers the Participant, during the period of restriction specified in the agreement or plan prohibiting the Participant from engaging in such activity; (d) The violation of any development and inventions, ownership of works, or similar provision set forth in any agreement between a Participant and the Company or a Subsidiary, including, but not limited to, the Participant’s Award Agreement or any severance plan maintained by the Company or a Subsidiary that covers the Participant; (e) Participant’s commission of any act of fraud, misappropriation or embezzlement against or in connection with the Company or any of its Subsidiaries or their respective businesses or operations; or (f) a conviction, guilty plea or plea of nolo contendere of Participant for any crime involving dishonesty or for any felony.
“Director” means any individual who is a member of the Board who is not an Employee.
“Effective Date” has the meaning given such term in Section 1(a).
“Employee” means any employee of the Company or a Subsidiary; provided, however, that for purposes of determining whether any person may be a Participant for purposes of any grant of Incentive Stock Options, the term “Employee” has the meaning given to such term in Section 3401(c) of the Code, as interpreted by the regulations thereunder and Applicable Law.
“Exchange Act” means the Securities Exchange Act of 1934 and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
“Fair Market Value” means the value of one Share on any relevant date, determined under the following rules: (a) the closing sale price per Share on that date as reported on the principal exchange or national market system on which Shares are then trading, or if there are no sales on that date, on the next preceding trading day during which a sale occurred; (b) if the Shares are not reported on a principal exchange or national market system, the average of the closing bid and asked prices last quoted on that date by an established quotation service for over-the-counter securities; or (c) if neither (a) nor (b) applies, (i) with respect to Stock Options, Stock Appreciation Rights and any Award of stock rights that is subject to Section 409A of the Code, the value as determined by the Committee through the reasonable application of a reasonable valuation method, taking into account all information material to the value of the Company, within the meaning of Section 409A of the Code, and (ii) with respect to all other Awards, the fair market value as determined by the Committee in good faith.
| Page 3 |
“Incentive Stock Option” or “ISO” means a Stock Option that is designated as an Incentive Stock Option and that is intended to meet the requirements of Section 422 of the Code.
“Nonqualified Stock Option” means a Stock Option that is not intended to meet the requirements of Section 422 of the Code or otherwise does not meet such requirements.
“Other Share-Based Award” means an equity-based or equity-related Award not otherwise described by the terms of the Plan, granted in accordance with the terms and conditions set forth in Section 10.
“Participant” means any eligible individual as set forth in Section 5 who holds one or more outstanding Awards.
“Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code.
“Performance Objectives” means the measurable performance objective or objectives established by the Committee pursuant to the Plan. Any Performance Objectives may relate to the performance of the Company or one or more of its Subsidiaries, divisions, departments, units, functions, partnerships, joint ventures or minority investments, product lines or products, or the performance of the individual Participant, and may include, without limitation, the Performance Objectives set forth in Section 14(b). The Performance Objectives may be made relative to the performance of a group of comparable companies, or published or special index that the Committee, in its sole discretion, deems appropriate, or the Company may select Performance Objectives as compared to various stock market indices. Performance Objectives may be stated as a combination of the listed factors.
“Plan” means this Palatin Technologies, Inc. 2011 Stock Incentive Plan, as amended from time to time.
“Prior Plan” has the meaning given such term in Section 1(d).
“Restricted Shares” means Shares granted or sold pursuant to Section 8 as to which neither the substantial risk of forfeiture nor the prohibition on transfers referred to in such Section 8 has expired.
“Restricted Share Unit” means a grant or sale of the right to receive Shares or cash at the end of a specified restricted period made pursuant to Section 9.
“SEC” means the United States Securities and Exchange Commission.
“Share” means a share of common stock, par value $.01, of the Company, or any security into which such Share may be changed by reason of any transaction or event of the type referred to in Section 16.
“Stock Appreciation Right” means a right granted pursuant to Section 7.
“Stock Option” means a right to purchase a Share granted to a Participant under the Plan in accordance with the terms and conditions set forth in Section 6. Stock Options may be either Incentive Stock Options or Nonqualified Stock Options.
“Subsidiary” means: (a) with respect to an Incentive Stock Option, a “subsidiary corporation” as defined under Section 424(f) of the Code; and (b) for all other purposes under the Plan, any corporation or other entity in which the Company owns, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
“Ten Percent Stockholder” shall mean any Participant who owns more than 10% of the combined voting power of all classes of stock of the Company, within the meaning of Section 422 of the Code.
| Page 4 |
3. Shares Available Under the Plan.
a. Shares Available for Awards. The maximum number of Shares that may be issued or delivered pursuant to Awards under the Plan shall be 3,300,000, plus the number of Shares that, on the Approval Date, were available to be granted under the Prior Plan but which were not then subject to outstanding awards under the Prior Plan, all of which may be granted with respect to Incentive Stock Options. Shares issued or delivered pursuant to an Award may be authorized but unissued Shares, treasury Shares, including Shares purchased in the open market, or a combination of the foregoing. The aggregate number of Shares available for issuance or delivery under the Plan shall be subject to adjustment as provided in Section 16.
b. Share Usage. In addition to the number of Shares provided for in Section 3(a), the following Shares shall be available for Awards under the Plan: (i) Shares covered by an Award that expires or is forfeited, canceled, surrendered or otherwise terminated without the issuance of such Shares; (ii) Shares covered by an Award that is settled only in cash; (iii) Shares granted through the assumption of, or in substitution for, outstanding awards granted by a company to individuals who become Employees, Consultants or Directors as the result of a merger, consolidation, acquisition or other corporate transaction involving such company and the Company or any of its Affiliates (except as may be required by reason of Section 422 of the Code or the rules and regulations of any stock exchange or other trading market on which the Shares are listed); (iv) any Shares subject to outstanding awards under the Prior Plans as of the Approval Date that on or after the Approval Date are forfeited, canceled, surrendered or otherwise terminated without the issuance of such Shares; and (v) any Shares from awards exercised for or settled in vested and nonforfeitable Shares that are later returned to the Company pursuant to any compensation recoupment policy, provision or agreement. Notwithstanding the foregoing, the following Shares issued or delivered under this Plan shall not again be available for grant as described above: Shares tendered in payment of the exercise price of a Stock Option, Shares withheld by the Company or any Subsidiary to satisfy a tax withholding obligation, and Shares that are repurchased by the Company with Stock Option proceeds. Without limiting the foregoing, with respect to any Stock Appreciation Right that is settled in Shares, the full number of Shares subject to the Award shall count against the number of Shares available for Awards under the Plan regardless of the number of Shares used to settle the Stock Appreciation Right upon exercise.
c. Per Participant Limits.
(i) Subject to adjustment as provided in Section 16 of the Plan, the following limits shall apply with respect to Awards that are intended to qualify for the Performance-Based Exception: (A) the maximum aggregate number of Shares that may be subject to Stock Options or Stock Appreciation Rights granted in any calendar year to any one Participant shall be 750,000 Shares; (B) the maximum aggregate number of Restricted Shares and Shares issuable or deliverable under Restricted Share Units granted in any calendar year to any one Participant shall be 750,000 Shares; (C) the maximum aggregate compensation that can be paid pursuant to Cash-Based Awards or Other Share-Based Awards granted in any calendar year to any one Participant shall be $750,000 or a number of Shares having an aggregate Fair Market Value not in excess of such amount; and (D) the maximum dividend equivalents that may be paid in any calendar year to any one Participant shall be $100,000 or a number of Shares having an aggregate Fair Market Value not in excess of such amount.
(ii) Awards granted under the Plan are subject to a minimum vesting period of one year, except in the case of substitute awards issued in connection with acquisitions or awards that vest in connection with certain acceleration events. Additionally, the Committee has the authority to grant awards covering up to 5% of the Plan’s share pool that are not subject to this minimum vesting requirement.
(iii) Notwithstanding any other provision of the Plan to the contrary, the aggregate grant date fair value (determined as of the applicable Date(s) of Grant in accordance with applicable financial accounting rules) of all Awards granted to any Director during any single calendar year, taken together with any cash fees paid to such person during such calendar year, shall not exceed $350,000.
| Page 5 |
4. Administration of the Plan.
a. In General. The Plan shall be administered by the Committee. Except as otherwise provided by the Board, the Committee shall have full and final authority in its discretion to take all actions determined by the Committee to be necessary in the administration of the Plan, including, without limitation, discretion to: select Award recipients; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; grant waivers of terms, conditions, restrictions and limitations applicable to any Award, or accelerate the vesting or exercisability of any Award, in a manner consistent with the Plan; construe and interpret the Plan and any Award Agreement or other agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and take such other action, not inconsistent with the terms of the Plan, as the Committee deems appropriate. To the extent permitted by Applicable Laws, the Committee may, in its discretion, delegate to one or more Directors or Employees any of the Committee’s authority under the Plan. The acts of any such delegates shall be treated hereunder as acts of the Committee with respect to any matters so delegated.
b. Determinations. The Committee shall have no obligation to treat Participants or eligible Participants uniformly, and the Committee may make determinations under the Plan selectively among Participants who receive, or Employees, Consultants or Directors who are eligible to receive, Awards (whether or not such Participants or eligible Employees, Consultants or Directors are similarly situated). All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee shall be final, conclusive and binding on all persons, including the Company, its Subsidiaries, its stockholders, Directors, Consultants, Employees, Participants and their estates and beneficiaries.
c. Authority of the Board. The Board may reserve to itself any or all of the authority or responsibility of the Committee under the Plan or may act as the administrator of the Plan for any and all purposes. To the extent the Board has reserved any such authority or responsibility or during any time that the Board is acting as administrator of the Plan, it shall have all the powers of the Committee hereunder, and any reference herein to the Committee (other than in this Section 4(c)) shall include the Board. To the extent that any action of the Board under the Plan conflicts with any action taken by the Committee, the action of the Board shall control.
5. Eligibility and Participation. Each Employee, Consultant and Director is eligible to participate in the Plan. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, Consultants and Directors those to whom Awards shall be granted and shall determine, in its sole discretion, the nature of any and all terms permissible by Applicable Law and the amount of each Award.
6. Stock Options. Subject to the terms and conditions of the Plan, Stock Options may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
a. Award Agreement. Each Stock Option shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Stock Option, the number of Shares covered by the Stock Option, the conditions upon which the Stock Option shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan. The Award Agreement also shall specify whether the Stock Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option.
| Page 6 |
b. Exercise Price. The exercise price per Share of an Option shall be determined by the Committee at the time the Stock Option is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price per Share of any Option be less than one hundred percent (100%) of the Fair Market Value of a Share on the Date of Grant.
c. Term. The term of an Option shall be determined by the Committee and set forth in the related Award Agreement; provided, however, that in no event shall the term of any Option exceed ten (10) years from its Date of Grant.
d. Exercisability. Stock Options shall become exercisable at such times and upon such terms and conditions as shall be determined by the Committee and set forth in the related Award Agreement. Such terms and conditions may include, without limitation, the satisfaction of (a) performance goals based on one or more Performance Objectives, and (b) time-based vesting requirements.
e. Exercise of Options. Except as otherwise provided in the Plan or in a related Award Agreement, a Stock Option may be exercised for all or any portion of the Shares for which it is then exercisable. A Stock Option shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Company which sets forth the number of Shares with respect to which the Stock Option is to be exercised and full payment of the exercise price for such Shares. The exercise price of a Stock Option may be paid: (i) in cash or its equivalent; (ii) by tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the aggregate exercise price; (iii) by a cashless exercise (including by withholding Shares deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by Applicable Law); (iv) by a combination of the methods described in clauses (i), (ii) and/or (iii); or (v) though any other method approved by the Committee in its sole discretion. As soon as practicable after receipt of the notification of exercise and full payment of the exercise price, the Company shall cause the appropriate number of Shares to be issued to the Participant.
f. Special Rules Applicable to Incentive Stock Options. Notwithstanding any other provision in the Plan to the contrary:
(i) Incentive Stock Options may be granted only to Employees of the Company and its Subsidiaries. The terms and conditions of Incentive Stock Options shall be subject to and comply with the requirements of Section 422 of the Code.
(ii) To the extent that the aggregate Fair Market Value of the Shares (determined as of the Date of Grant) with respect to which an Incentive Stock Option is exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Subsidiaries) is greater than $100,000 (or such other amount specified in Section 422 of the Code), as calculated under Section 422 of the Code, then the Stock Option shall be treated as a Nonqualified Stock Option.
(iii) No Incentive Stock Option shall be granted to any Participant who, on the Date of Grant, is a Ten Percent Stockholder, unless (x) the exercise price per Share of such Incentive Stock Option is at least one hundred and ten percent (110%) of the Fair Market Value of a Share on the Date of Grant, and (y) the term of such Incentive Stock Option shall not exceed five (5) years from the Date of Grant.
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7. Stock Appreciation Rights. Subject to the terms and conditions of the Plan, Stock Appreciation Rights may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
a. Award Agreement. Each Stock Appreciation Right shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Stock Appreciation Right, the number of Shares covered by the Stock Appreciation Right, the conditions upon which the Stock Appreciation Right shall become vested and exercisable and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
b. Exercise Price. The exercise price per Share of a Stock Appreciation Right shall be determined by the Committee at the time the Stock Appreciation Right is granted and shall be specified in the related Award Agreement; provided, however, that in no event shall the exercise price per Share of any Stock Appreciation Right be less than one hundred percent (100%) of the Fair Market Value of a Share on the Date of Grant.
c. Term. The term of a Stock Appreciation Right shall be determined by the Committee and set forth in the related Award Agreement; provided however, that in no event shall the term of any Stock Appreciation Right exceed ten (10) years from its Date of Grant.
d. Exercisability of Stock Appreciation Rights. A Stock Appreciation Right shall become exercisable at such times and upon such terms and conditions as may be determined by the Committee and set forth in the related Award Agreement. Such terms and conditions may include, without limitation, the satisfaction of (i) performance goals based on one or more Performance Objectives, and (ii) time-based vesting requirements.
e. Exercise of Stock Appreciation Rights. Except as otherwise provided in the Plan or in a related Award Agreement, a Stock Appreciation Right may be exercised for all or any portion of the Shares for which it is then exercisable. A Stock Appreciation Right shall be exercised by the delivery of a notice of exercise to the Company or its designee in a form specified by the Company which sets forth the number of Shares with respect to which the Stock Appreciation Right is to be exercised. Upon exercise, a Stock Appreciation Right shall entitle a Participant to an amount equal to (a) the excess of (i) the Fair Market Value of a Share on the exercise date over (ii) the exercise price per Share, multiplied by (b) the number of Shares with respect to which the Stock Appreciation Right is exercised. A Stock Appreciation Right may be settled in whole Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.
8. Restricted Shares. Subject to the terms and conditions of the Plan, Restricted Shares may be granted or sold to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
a. Award Agreement. Each Restricted Shares Award shall be evidenced by an Award Agreement that shall specify the number of Restricted Shares, the restricted period(s) applicable to the Restricted Shares, the conditions upon which the restrictions on the Restricted Shares will lapse and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
b. Terms, Conditions and Restrictions. The Committee shall impose such other terms, conditions and/or restrictions on any Restricted Shares as it may deem advisable, including, without limitation, a requirement that the Participant pay a purchase price for each Restricted Share, restrictions based on the achievement of specific Performance Objectives, time-based restrictions or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Shares. Unless otherwise provided in the related Award Agreement or required by Applicable Law, the restrictions imposed on Restricted Shares shall lapse upon the expiration or termination of the applicable restricted period and the satisfaction of any other applicable terms and conditions.
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c. Custody of Certificates. To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Restricted Shares in the Company’s possession until such time as all terms, conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
d. Rights Associated with Restricted Shares during Restricted Period. During any restricted period applicable to Restricted Shares: (i) the Restricted Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated; (ii) unless otherwise provided in the related Award Agreement, the Participant shall be entitled to exercise full voting rights associated with such Restricted Shares; and (iii) the Participant shall be entitled to all dividends and other distributions paid with respect to such Restricted Shares during the restricted period; provided, however, that any dividends or other distributions with respect to unvested Restricted Shares shall be accumulated or deemed reinvested in additional Restricted Shares until such Award is earned and vested, and shall be subject to the same terms and conditions as the original Award (including the satisfaction of service-based vesting conditions and the achievement of any Performance Objectives).
9. Restricted Share Units. Subject to the terms and conditions of the Plan, Restricted Share Units may be granted or sold to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion.
a. Award Agreement. Each Restricted Share Unit shall be evidenced by an Award Agreement that shall specify the number of units, the restricted period(s) applicable to the Restricted Share Units, the conditions upon which the restrictions on the Restricted Share Units will lapse, the time and method of payment of the Restricted Share Units, and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
b. Terms, Conditions and Restrictions. The Committee shall impose such other terms, conditions and/or restrictions on any Restricted Share Units as it may deem advisable, including, without limitation, a requirement that the Participant pay a purchase price for each Restricted Share Unit, restrictions based on the achievement of specific Performance Objectives or time-based restrictions or holding requirements.
c. Form of Settlement. Restricted Share Units may be settled in whole Shares, Restricted Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.
10. Other Share-Based Awards. Subject to the terms and conditions of the Plan, Other Share-Based Awards may be granted to Participants in such number, and upon such terms and conditions, as shall be determined by the Committee in its sole discretion. Other Share-Based Awards are Awards that are valued in whole or in part by reference to, or otherwise based on the Fair Market Value of, Shares, and shall be in such form as the Committee shall determine, including without limitation, unrestricted Shares or time-based or performance-based units that are settled in Shares and/or cash.
a. Award Agreement. Each Other Share-Based Award shall be evidenced by an Award Agreement that shall specify the terms and conditions upon which the Other Share-Based Award shall become vested, if applicable, the time and method of settlement, the form of settlement and such other terms and conditions as the Committee shall determine and which are not inconsistent with the terms and conditions of the Plan.
b. Form of Settlement. An Other Share-Based Award may be settled in whole Shares, Restricted Shares, cash or a combination thereof, as specified by the Committee in the related Award Agreement.
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11. Dividend Equivalents. At the discretion of the Committee, Awards granted pursuant to the Plan, other than awards of Stock Options or Stock Appreciation Rights, may provide Participants with the right to receive dividend equivalents, which may be credited to an account for the Participants, and may be settled in cash and/or Shares, as determined by the Committee in its sole discretion; provided, however, that any such dividend equivalents with respect to any unvested Award shall be accumulated or deemed reinvested until such Award is earned and vested, and shall be subject to the same terms and conditions as the original Award (including the satisfaction of service-based vesting conditions and the achievement of any Performance Objectives). No dividend equivalents shall be granted with respect to Shares underlying a Stock Option or Stock Appreciation Right.
12. Cash-Based Awards. Subject to the terms and conditions of the Plan, Cash-Based Awards may be granted to Participants in such amounts and upon such other terms and conditions as shall be determined by the Committee in its sole discretion. Each Cash-Based Award shall be evidenced by an Award Agreement that shall specify the payment amount or payment range, the time and method of settlement and the other terms and conditions, as applicable, of such Award which may include, without limitation, restrictions based on the achievement of specific Performance Objectives.
13. Compliance with Section 409A. Awards granted under the Plan shall be designed and administered in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A of the Code. To the extent that the Committee determines that any award granted under the Plan is subject to Section 409A of the Code, the Award Agreement shall incorporate the terms and conditions necessary to avoid the imposition of an additional tax under Section 409A of the Code upon a Participant. Notwithstanding any other provision of the Plan or any Award Agreement (unless the Award Agreement provides otherwise with specific reference to this Section 13): (a) an Award shall not be granted, deferred, accelerated, extended, paid out, settled, substituted or modified under the Plan in a manner that would result in the imposition of an additional tax under Section 409A of the Code upon a Participant; and (b) if an Award is subject to Section 409A of the Code, and if the Participant holding the award is a “specified employee” (as defined in Section 409A of the Code, with such classification to be determined in accordance with the methodology established by the Company), then, to the extent required to avoid the imposition of an additional tax under Section 409A of the Code upon a Participant, no distribution or payment of any amount shall be made before the date that is six (6) months following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code) or, if earlier, the date of the Participant’s death. Although the Company intends to administer the Plan so that Awards will be exempt from, or will comply with, the requirements of Section 409A of the Code, the Company does not warrant that any Award under the Plan will qualify for favorable tax treatment under Section 409A of the Code or any other provision of federal, state, local, or non-United States law. The Company shall not be liable to any Participant for any tax, interest, or penalties the Participant might owe as a result of the grant, holding, vesting, exercise, or payment of any Award under the Plan.
14. Compliance with Section 162(m).
a. In General. Notwithstanding anything in the Plan to the contrary, Restricted Shares, Restricted Share Units, Other Share-Based Awards and Cash-Based Awards may be granted in a manner that is intended to qualify the Award for the Performance-Based Exception. As determined by the Committee in its sole discretion, the grant, vesting, exercisability and/or settlement of any Awards intended to qualify the Award for the Performance-Based Exception shall be conditioned on the attainment of one or more Performance Objectives during a performance period established by the Committee. Any such Award must meet the requirements of this Section 14.
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b. Performance Objectives. If an Award is intended to qualify for the Performance-Based Exception, then the Performance Objectives shall be based on specified levels of, or growth in, one or more of the following criteria: revenues, earnings from operations, operating income, earnings before or after interest and taxes, operating income before or after interest and taxes, net income, cash flow, earnings per share, return on total capital, return on invested capital, return on equity, return on assets, total return to stockholders, earnings before or after interest, or extraordinary or special items, operating income before or after interest, taxes, depreciation, amortization or extraordinary or special items, return on investment, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, cash flow in excess of cost of capital, operating margin, profit margin, contribution margin, stock price and/or strategic business criteria consisting of one or more objectives based on meeting specified product development, strategic partnering, research and development milestones, clinical trial status, product approvals in geographic regions, market penetration, geographic business expansion goals, cost targets, customer satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology, and goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. To the extent consistent with the Performance-Based Exception, the Performance Objectives may be calculated without regard to extraordinary items or adjusted, as the Committee deems equitable, in recognition of unusual or non-recurring events affecting the Company or its Subsidiaries or changes in applicable tax laws or accounting principles.
c. Establishment of Performance Goals. With respect to Awards intended to qualify for the Performance-Based Exception, the Committee shall establish: (i) the applicable Performance Objectives and performance period, and (ii) the formula for computing the payout. Such terms and conditions shall be established in writing while the outcome of the applicable performance period is substantially uncertain, but in no event later than the earlier of: (x) ninety days after the beginning of the applicable performance period; or (y) the expiration of twenty-five percent (25%) of the applicable performance period.
d. Certification of Performance. With respect to any Award intended to qualify for the Performance-Based Exception, the Committee shall certify in writing whether the applicable Performance Objectives and other material terms imposed on such Award have been satisfied, and, if they have, ascertain the amount of the payout or vesting of the Award. Notwithstanding any other provision of the Plan, payment or vesting of any such Award shall not be made until the Committee certifies in writing that the applicable Performance Objectives and any other material terms of such Award were in fact satisfied in a manner conforming to applicable regulations under Section 162(m) of the Code.
e. Negative Discretion. With respect to any Award intended to qualify for the Performance-Based Exception, the Committee shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated Performance Objectives. However, the Committee may, in its sole discretion, reduce the amount of compensation that is payable upon achievement of the designated Performance Objectives.
15. Transferability. Except as otherwise determined by the Committee, no Award or dividend equivalents paid with respect to any Award shall be transferable by the Participant except by will or the laws of descent and distribution; provided, that if so determined by the Committee, each Participant may, in a manner established by the Board or the Committee, designate a beneficiary to exercise the rights of the Participant with respect to any Award upon the death of the Participant and to receive Shares or other property issued or delivered under such Award. Except as otherwise determined by the Committee, Stock Options and Stock Appreciation Rights will be exercisable during a Participant’s lifetime only by the Participant or, in the event of the Participant’s legal incapacity to do so, by the Participant’s guardian or legal representative acting on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.
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16. Adjustments. In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation), such as a stock dividend, stock split, reverse stock split, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend, the Committee shall cause there to be an equitable adjustment in the numbers of Shares specified in Section 3 of the Plan and, with respect to outstanding Awards, in the number and kind of Shares subject to outstanding Awards, the exercise price or other price of Shares subject to outstanding Awards, in each case to prevent dilution or enlargement of the rights of Participants. In the event of any other change in corporate capitalization, or in the event of a merger, consolidation, liquidation, or similar transaction, the Committee may, in its sole discretion, cause there to be an equitable adjustment as described in the foregoing sentence, to prevent dilution or enlargement of rights; provided, however, that, unless otherwise determined by the Committee, the number of Shares subject to any Award shall always be rounded down to a whole number. Notwithstanding the foregoing, the Committee shall not make any adjustment pursuant to this Section 16 that would (i) cause any Stock Option intended to qualify as an ISO to fail to so qualify, (ii) cause an Award that is otherwise exempt from Section 409A of the Code to become subject to Section 409A of the Code, or (iii) cause an Award that is subject to Section 409A of the Code to fail to satisfy the requirements of Section 409A of the Code. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on all Participants and any other persons claiming under or through any Participant.
17. Fractional Shares. The Company shall not be required to issue or deliver any fractional Shares pursuant to the Plan and, unless otherwise provided by the Committee, fractional shares shall be settled in cash.
18. Withholding Taxes. To the extent required by Applicable Law, a Participant shall be required to satisfy, in a manner satisfactory to the Company or Subsidiary, as applicable, any withholding tax obligations that arise by reason of a Stock Option or Stock Appreciation Right exercise, the vesting of or settlement of Shares under an Award, an election pursuant to Section 83(b) of the Code or otherwise with respect to an Award. The Company and its Subsidiaries shall not be required to issue or deliver Shares, make any payment or to recognize the transfer or disposition of Shares until such obligations are satisfied. The Committee may permit or require these obligations to be satisfied by having the Company withhold a portion of the Shares that otherwise would be issued or delivered to a Participant upon exercise of a Stock Option or Stock Appreciation Right or upon the vesting or settlement of an Award, or by tendering Shares previously acquired, in each case having a Fair Market Value equal to the amount required to be withheld. In no event will the Fair Market Value of the Shares to be withheld or tendered pursuant to this Section 18 to satisfy applicable withholding taxes exceed the amount of taxes required to be withheld based on the maximum statutory tax rates in the applicable taxing jurisdictions. Any elections pursuant to this Section 18 subject to such conditions or procedures as may be established by the Committee and may be subject to disapproval by the Committee.
19. Foreign Employees. Without amending the Plan, the Committee may grant Awards to Participants who are foreign nationals on such terms and conditions different from those specified in the Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, and the like as may be necessary or advisable to comply with provisions of Applicable Laws of other countries in which the Company or its Subsidiaries operate or have employees.
20. Detrimental Activity; Forfeiture of Awards.
a. Detrimental Activity. If a Participant has engaged in any Detrimental Activity, as determined by the Committee in its sole discretion, either during service with the Company or a Subsidiary or after termination of such service, then, promptly upon receiving notice of the Committee’s determination, the Participant shall: (i) forfeit all Awards granted under the Plan to the extent then held by the Participant; (ii) return to the Company or the Subsidiary all Shares that the Participant has not disposed of that had been acquired, pursuant to Awards granted under the Plan, within two (2) years prior to the date of the Participant’s initial commencement of the Detrimental Activity, in exchange for payment by the Company or the Subsidiary of any amount actually paid therefor by the Participant; and (iii) with respect to any Shares acquired, within two (2) years prior to the date of the Participant’s initial commencement of the Detrimental Activity, pursuant to an Award granted under the Plan that were disposed of, pay to the Company or the Subsidiary, in cash, the excess, if any, of: (A) the Fair Market Value of the Shares on the date acquired, over (B) any amount actually paid by the Participant for the Shares.
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b. Compensation Recovery Policy. Any Award granted to a Participant shall be subject to forfeiture or repayment pursuant to the terms of any applicable compensation recovery policy adopted by the Company, including any such policy that may be adopted to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act or any rules or regulations issued by the Securities and Exchange Commission rule or applicable securities exchange.
c. Set-Off and Other Remedies. To the extent that amounts are not immediately returned or paid to the Company as provided in this Section 20, the Company may, to the extent permitted by Applicable Laws, seek other remedies, including a set off of the amounts so payable to it against any amounts that may be owing from time to time by the Company or a Subsidiary to the Participant for any reason, including, without limitation, wages, or vacation pay or other benefits; provided, however, that, except to the extent permitted by Treasury Regulation Section 1.409A-3(j)(4), such offset shall not apply to amounts that are “deferred compensation” within the meaning of Section 409A of the Code.
21. Change in Control. In the event of a Change in Control, the Committee may, in its sole discretion and without providing prior notice or receiving the consent of the Participant, take such actions, if any, as it deems necessary or desirable with respect to any Award that is outstanding as of the date of the consummation of the Change in Control. Such actions may include, without limitation: (i) the acceleration of the vesting, settlement and/or exercisability of an Award; (ii) the payment of a cash amount in exchange for the cancellation of an Award; (iii) the cancellation of Stock Options and/or Stock Appreciation Rights without payment therefor if the Fair Market Value of a Share on the date of the Change in Control does not exceed the exercise price per Share of the applicable Awards; and/or (iv) make provisions for the assumption or conversion of Awards, or the issuance of substitute Awards that, in either case, substantially preserve the value, rights and benefits of any affected Awards.
22. Amendment, Modification and Termination.
a. In General. The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no alteration or amendment that requires stockholder approval in order for the Plan to comply with any rule promulgated by the SEC or any securities exchange on which Shares are listed or any other Applicable Laws shall be effective unless such amendment shall be approved by the requisite vote of stockholders of the Company entitled to vote thereon within the time period required under such applicable listing standard or rule.
b. Adjustments to Outstanding Awards. The Committee may in its sole discretion at any time (i) provide that all or a portion of a Participant’s Stock Options, Stock Appreciation Rights, and other Awards in the nature of rights that may be exercised shall become fully or partially exercisable; (ii) provide that all or a part of the time-based vesting restrictions on all or a portion of the outstanding Awards shall lapse, and/or that any Performance Objectives or other performance-based criteria with respect to any Awards shall be deemed to be wholly or partially satisfied; or (iii) waive any other limitation or requirement under any such Award, in each case, as of such date as the Committee may, in its sole discretion, declare. Unless otherwise determined by the Committee, any such adjustment that is made with respect to an Award that is intended to qualify for the Performance-Based Exception shall be made at such times and in such manner as will not cause such Awards to fail to qualify under the Performance-Based Exception. Additionally, the Committee shall not make any adjustment pursuant to this Section 22(b) that would cause an Award that is otherwise exempt from Section 409A of the Code to become subject to Section 409A of the Code, or that would cause an Award that is subject to Section 409A of the Code to fail to satisfy the requirements of Section 409A of the Code.
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c. Prohibition on Repricing. Except for adjustments made pursuant to Sections 16 or 21, the Board or the Committee will not, without the further approval of the stockholders of the Company, authorize the amendment of any outstanding Stock Option or Stock Appreciation Right to reduce the exercise price. No Stock Option or Stock Appreciation Right will be cancelled and replaced with an Award having a lower exercise price, or for another Award, or for cash without further approval of the stockholders of the Company, except as provided in Sections 16 or 21. Furthermore, no Stock Option or Stock Appreciation Right will provide for the payment, at the time of exercise, of a cash bonus or grant or sale of another Award without further approval of the stockholders of the Company. This Section 22(c) is intended to prohibit the repricing of “underwater” Stock Options or Stock Appreciation Rights without stockholder approval and will not be construed to prohibit the adjustments provided for in Sections 16 or 21.
d. Effect on Outstanding Awards. Notwithstanding any other provision of the Plan to the contrary (other than Sections 16, 20, 21, 22(b) and 24(d)), no termination, amendment, suspension, or modification of the Plan or an Award Agreement shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award. Notwithstanding the preceding sentence, any ISO granted under the Plan may be modified by the Committee to disqualify such Stock Option from treatment as an “incentive stock option” under Section 422 of the Code.
23. Applicable Laws. The obligations of the Company with respect to Awards under the Plan shall be subject to all Applicable Laws and such approvals by any governmental agencies as the Committee determines may be required. The Plan and each Award Agreement shall be governed by the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction.
24. Miscellaneous.
a. Deferral of Awards. Except with respect to Stock Options and Stock Appreciation Rights, the Committee may permit Participants to elect to defer the issuance or delivery of Shares or the settlement of Awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of the Plan. The Committee also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts. All elections and deferrals permitted under this provision shall comply with Section 409A of the Code, including setting forth the time and manner of the election (including a compliant time and form of payment), the date on which the election is irrevocable, and whether the election can be changed until the date it is irrevocable.
b. No Right of Continued Employment. The Plan shall not confer upon any Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor shall it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate such Participant’s employment or other service at any time. No Employee, Consultant or Director shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive future Awards.
c. Unfunded, Unsecured Plan. Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right or title to any assets, funds or property of the Company or any Subsidiary, including without limitation, any specific funds, assets or other property which the Company or any Subsidiary may set aside in anticipation of any liability under the Plan. A Participant shall have only a contractual right to an Award or the amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
d. Severability. If any provision of the Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended or limited in scope to conform to Applicable Laws or, in the discretion of the Committee, it shall be stricken and the remainder of the Plan shall remain in full force and effect.
e. Acceptance of Plan. By accepting any benefit under the Plan, each Participant and each person claiming under or through any such Participant shall be conclusively deemed to have indicated their acceptance and ratification of, and consent to, all of the terms and conditions of the Plan and any action taken under the Plan by the Committee, the Board or the Company, in any case in accordance with the terms and conditions of the Plan.
f. Successors. All obligations of the Company under the Plan and with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or other event, or a sale or disposition of all or substantially all of the business and/or assets of the Company and references to the “Company” herein and in any Award Agreements shall be deemed to refer to such successors.
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EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
| Name of Subsidiary | State of Incorporation | Name Under Which Subsidiary Does Business |
| RhoMed Incorporated | New Mexico | RhoMed Incorporated |
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-33569, 333-56605, 333-64951, 333-72873, 333-84421, 333-52024, 333-54918, 333-74990, 333-100469, 333-101764, 333-104370, 333-112908, 333-128585, 333-132369, 333-140648, 333-146392, 333-174251, 333-183837, 333-185113, 333-201821, 333-206003, 333-206047, 333-226905, and 333-262555) on Form S-3 and in the registration statements (Nos. 333-57079, 333-83876, 333-128854, 333-149093, 333-163158, 333-174257, 333-191467, 333-206009, 333-214618, 333-221554, 333-227354 and 333-267615) on Form S-8 of our report dated September 28, 2023, with respect to the consolidated financial statements of Palatin Technologies, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
September 28, 2023
EXHIBIT 31.1
Certification of Chief Executive Officer
I, Carl Spana, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: September 28, 2023
| /s/ Carl Spana |
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| Carl Spana, President and Chief Executive Officer |
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EXHIBIT 31.2
Certification of Chief Financial Officer
I, Stephen T. Wills, certify that:
| 1. | I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.; |
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| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
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| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: September 28, 2023
| /s/ Stephen T. Wills |
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| Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief Operating Officer |
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EXHIBIT 32.1
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Carl Spana, President and Chief Executive Officer of Palatin Technologies, Inc., hereby certify, to my knowledge, that the Annual Report on Form 10-K for the year ended June 30, 2023 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Palatin Technologies, Inc.
Dated: September 28, 2023
| /s/ Carl Spana |
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| Carl Spana, President and Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 32.2
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief Operating Officer of Palatin Technologies, Inc., hereby certify, to my knowledge, that the Annual Report on Form 10-K for the year ended June 30, 2023 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Palatin Technologies, Inc.
Dated: September 28, 2023
| /s/ Stephen T. Wills |
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| Stephen T. Wills, Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial Officer) |
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