PALATIN TECHNOLOGIES INC (PLTN)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto
filed as part of this Form 10-QSB. Unless otherwise indicated herein, all references to the Company include Palatin and its
wholly owned subsidiary, RhoMed.
Certain statements in this Form 10-QSB contain "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially
different from any future results, performance, or achievements express or implied by such forward looking statements.
The Company's business is subject to significant risks, including the uncertainties associated with product development of
pharmaceutical products, problems or delays with clinical trials, failure to receive or delays in receiving regulatory approval,
lack of enforceability of patents and proprietary rights, manufacturing capacity, industry trends, competition, material costs and
availability, changes in business strategy or development plans, quality of management, availability of capital, availability of
qualified personnel, the effect of government regulation, the possible effect of Year 2000 issues and other risks detailed in the
Company's Commission filings, including the Company's Form 10-KSB for the year ended June 30, 1997. The Company
expects to incur substantial operating losses over the next several years due to continuing expenses associated with its research
and development programs, including pre-clinical testing, clinical trials and manufacturing. Operating losses may also fluctuate
from quarter to quarter as a result of differences in the timing of when expenses are incurred.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1997 COMPARED TO THREE
AND SIX MONTH PERIODS ENDED DECEMBER 31, 1996.
Grants and contracts - During the six month period ended December 31, 1997, the Company completed its four Phase I
grants under the Small Business Innovative Research program with the National Institutes of Health of the Department of
Health and Human Services. Grant revenue from these grants was $33,967 in the six month period ended December 31,
1997, compared to no grant revenues in the three month period ended December 31, 1997 and the three and six month
periods ended December 31, 1996.
Sales - There was no revenue from the sale of products in the three and six month periods ended December 31, 1997, and the
three month period ended December 31, 1996, compared to $22,184 in the six month period ended December 31,1996.
During the fiscal year ended June 30, 1997 the Company discontinued the manufacture and sale of RhoChek, the sole product
sold by the Company, due to insufficient sales.
Research and development expenses increased to $1,474,070 for the three month period ended December 31, 1997
compared to $562,315 for the three month period ended December 31, 1996, and increased to $2,863,848 for the six month
period ended December 31, 1997 compared to $1,250,267 for the six month period ended December 31, 1996. The
Company substantially increased research and development spending, primarily relating to development of the LeuTech
product for diagnostic imaging of infections, including increased expenses for manufacturing scale-up, consulting and clinical
trials, and also relating to research expenses on the Company's MIDAS technology. The Company expects research and
development expenses to continue to increase in future quarters as the Company expands manufacturing efforts and clinical
trials on the LeuTech product, significantly expands its efforts to develop the MIDAS technology and initiates development on
the PT-14 peptide therapeutic product. See Part II, Item 5.
General and administrative expenses increased to $799,379 for the three month period ended December 31, 1997 compared
to $492,103 for the three month period ended December 31, 1996 and expenses increased to $1,479,616 for the six month
period ended December 31, 1997 compared to $946,568 for the six month period ended December 31, 1996. The increase
in general and administrative
expenses were mainly attributable to the amortization of deferred compensation, totaling $164,000 for the three month period
ended December 31, 1997 and $380,000 for the six month period ended December 31, 1997, and the value of options
granted at exercise prices below the then current market price of the Company's Common Stock. General and administrative
expenses are expected to remain consistent with the current levels through the remainder of fiscal year 1998.
Interest income increased to $122,879 and $268,758 for the three and six month periods ended December 31, 1997
compared to $50,571 and $122,695 for the three and six month periods ended December 31, 1996. The increase in interest
income is primarily the result of interest on net proceeds from the Company's offering of Series A Convertible Preferred Stock.
Interest expense decreased to $48,656 and $124,179 for the three and six month periods ended December 31, 1997
compared to $87,001 and $216,272 for the three and six month periods ended December 31, 1996. The decrease is mainly
due to the repayment by the Company of certain notes, the principal amount of which was $1,000,000, in August and
September of 1996.
Net loss increased to $2,199,226 and $4,164,918 for the three and six month periods ended December 31, 1997 compared
to $1,090,848 and 2,268,228 for the three and six month periods ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and, as of December 31, 1997, had an accumulated deficit
of $17,598,020. The Company has financed its net operating losses through December 31, 1997 by a series of debt and
equity financings. At December 31, 1997, the Company had cash and cash equivalents of $7,144,772.
For the six months ended December 31, 1997, the net decrease in cash amounted to $5,661,945. Cash used for operating
activities was $4,352,855, net cash used for investing activities was $821,341 and cash used for financing activities was
$487,749.
Pursuant to a license option agreement with Nihon Medi-Physics Ltd. ("Nihon"), Nihon can maintain its option to license
certain products based on the Company's MIDAS technology provided Nihon makes certain milestone payments based on
progress in product development. Nihon may exercise its right to negotiate a license at any time upon notice and payment of
additional monies to the Company. In the event that the parties cannot agree on terms of a license agreement, then the
Company may be required to repay $550,000 to Nihon. There can be no assurance that the Company and Nihon will ever
enter into a definitive license agreement, that additional payments provided for in the license option agreement will be made, or
that a strategic alliance between the Company and Nihon will result in the development or commercialization of any product.
Pursuant to the terms of certain notes payable to stockholders, the principal of which aggregated $80,000, repayment of
principal and interest was made during the three months ended December 31, 1997.
The Company's monthly payments on long-term debt provided by Aberlyn are $91,695, representing payment of current
interest and principal. The final monthly payment is scheduled to be made in May 1999.
In March 1997, the Company entered into a ten-year lease on research and development facilities in Edison, New Jersey
which commenced August 1, 1997. Minimum future lease payments escalate from approximately $116,000 per year to
$200,000 per year after the fifth year of the lease term. The lease will expire in fiscal year 2007.
Effective August 1, 1997, the Company entered into a five-year lease on administrative offices in Princeton, New Jersey.
Minimum future lease payments are approximately $97,000 per year.
The Company has entered into two license agreements, which require minimum yearly payments. Future minimum payments
under the license agreements are as follows: 1998 - $100,000, 1999 - $100,000, 2000 - $125,000, 2001 - $50,000 and
2002 - $50,000.
The Company believes that it has sufficient cash and cash equivalents to fund the Company's projected debt obligations and
operations through the fiscal year ending June 30, 1998.
The Company expects to continue actively searching for certain products and technologies to license or acquire in the future. If
the Company is successful in identifying a product or technology for acquisition, substantial funds may be required for such
acquisition and subsequent development or commercialization. To date, the Company has not completed an acquisition and
there can be no assurance that any acquisition will be consummated in the future.
The Company anticipates incurring additional losses over at least the next several years, and such losses are expected to
increase as the Company expands its research and development activities relating to its MIDAS technology, its direct
radiolabeling technology and other product areas. To achieve profitability, the Company, alone or with others, must
successfully develop and commercialize its technologies and proposed products, conduct pre-clinical studies and clinical trials,
obtain required regulatory approvals and successfully manufacture and market such technologies and proposed products. The
time required to reach profitability is highly uncertain, and there can be no assurance that the Company will be able to achieve
profitability on a sustained basis, if at all. |
