Palatin Technologies

Specialty Pharmaceuticals   

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)

The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all

the companies and securities that are the subject of this report discussed herein.

US Equity Research

10 February 2017

BUY

unchanged

PRICE TARGET

US$6.00

unchanged

Price (9-Feb)

Ticker

US$0.43

PTN-NYSE:MKT

52-Week Range (US$):

0.36 - 0.86

Avg Daily Vol (M)  :

138.1

Market Cap  (US$M):

76.5

Shares Out. (M)  :

177.8

FYE Jun

2016A

2017E

2018E

Revenue 

(US$M)

0

0

100

EPS  Adj&Dil

 (US$)

(0.33)

(0.22)↑

(0.03)

Previous

-

(0.23)

-

Quarterly

Revenue 

Q1

Q2

Q3

Q4

2016A

0

0

0

0

2017E

0A

0

0

0

2018E

-

-

-

-

Quarterly EPS 

Adj&Dil  

Q1

Q2

Q3

Q4

2016A

(0.08)

(0.08)

(0.08)

(0.09)

2017E

(0.08)A

(0.06)

(0.05)

(0.04)

2018E

-

-

-

-

0.9

0.8

0.7

0.6

0.5

0.4

0.3

M

ar

-1

6

A

p

r-

16

M

ay-

16

Ju

n

-1

6

Ju

l-

16

A

u

g

-1

6

Se

p

-1

6

O

ct

-1

6

N

o

v-

16

D

ec

-1

6

Ja

n

-1

7

Fe

b

-1

7

PTN

Source:�FactSet

Priced as of close of business 9 February 2017 

Palatin Technologies is a biopharmaceutical company
developing targeted, receptor-specific peptide therapeutics.

John Newman, Ph.D.

 | Analyst |  Canaccord Genuity Inc. (US) |  JNewman@canaccordgenuity.com |  212.389.8042

Estimates Revised

Rekynda now partnered with AMAG, pipeline
moves ahead

Favorable deal with AMAG, fits with Makena
PTN is entitled to tiered, high single-digit to low double-digit royalties on Rekynda in

North America, and we believe that Rekynda fits well with Makena for pre-term birth.

We see AMAG as an ideal partner for PTN, given the former’s experience in women’s

health product development, and anticipate AMAG to provide the critical salesforce and

experience to successfully launch Rekynda™. PTN expects Rekynda™ NDA filing in early

2018, and approval and launch in 2019.
Expect full Phase 3 data presentation in 2017
We expect PTN to present full Phase 3 data for Rekynda in early 2017, and we will

pay particular attention to satisfying sexual event (secondary endpoint), which will be

important for commercialization. We also look to learn more regarding long-term patient

safety.
Pipeline moving forward in 2017
Within heart failure treatment space, PTN is planning Phase 2 trial for PL-3994 to

evaluate its safety and efficacy for heart failure in 1H17; and preliminary data readout

expected by end of 2017. In addition, PTN plans to complete required preclinical work

for PL-5028 in preparation for Phase I trial in 1H18. For the inflammatory bowl disease

space, PTN is planning to initiate the IBD clinical program for PL-8177 1H17, with Phase

2 POC study in 2018, and to complete required preclinical work in preparation for

PL-8331 Phase 1 trial in 1H18. We will be paying close attention on the development and

viability of these clinical programs.
Maintain BUY, $6 PT
We maintain our BUY rating and $6 price target based on our NPV valuation. We expect

primary and secondary endpoints for Rekynda™ such as satisfying sexual events to be

positive and provide support to the stock price.

For important information, please see the Important Disclosures beginning on page 4 of this document.

 

Figure 1: PTN - upcoming expected catalysts 

 

Source: Company Reports, Canaccord Genuity estimates 

 

 

Figure 2: PTN - valuation 

 

Source: Company Reports, Canaccord Genuity estimates 

 

Q1

Q2

Q3

Q4

Bremelanotide

PL-3994

PL-8177

CORE PROGRAMS

2017

1H

2H

Rekynda Phase  3 data

DATA

Phase 2 trial for heart 
failure

Trial Initiation

Preliminary Phase 2 data 
readout

Data

Initiate IBD clinical 
program

Program Initiation

Product

Peak 

Sales/Royalty

($MM)

Year

NPV at launch

Probability

Adjustment

Current Value

($MM)

Value /

Share

Bremelanotide

US

$828

2024

$1,009

75%

$765

$5

Ex-US

$331

2024

$171

75%

$128

$1

Total Product Value

$893

$6

Cash

$22

$0.1

Total Equity Value

$914

$6

Shares Outstanding (MM)

156

Risk-Free Rate

3.0%

Beta

1.8

                         

Risk Premium

4%

Discount Rate

10%

Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 2

 

Figure 3: PTN – Income statement 

 

Source: Company Reports, Canaccord Genuity estimates 

A more detailed financial model, including balance sheet, income statement, and cash flow projections, if available, may be obtained by contacting your Canaccord Genuity Sales Person or the Authoring 
Analyst, whose contact information appears on the front page of this report.

 

 

($000's)   [FY - JUN]

2016A

1Q17A

2Q17E

3Q17E

4Q17E

2017E

2018E

2019E

2020E

Revenues (000's)

Bremelanotide

US

-

                      

-

                       

-

                       

-

                       

-

                       

-

                   

97,603

             

158,060

           

234,286

           

Ex-US royalty

-

                       

2,130

               

6,832

               

12,448

             

Total revenues (royalty)

-

                      

-

                       

99,733

             

164,892

           

246,733

           

Income Statement ($000's)

2016A

1Q17A

2Q17E

3Q17E

4Q17E

2017E

2018E

2019E

2020E

License and contract - Gedeon Richter

-

                      

-

                       

-

                       

-

                       

-

                       

Total Revenue

-

                      

-

                       

-

                       

-

                       

-

                       

-

                       

99,733

             

164,892

           

246,733

           

COGS

11,968

             

19,787

             

29,608

             

Gross Profit

-

                      

-

                       

87,765

             

145,105

           

217,125

           

Operating expenses

Research and Development

43,071

            

11,226

             

8,135

               

6,508

               

5,857

               

31,725

             

31,914

             

47,819

             

54,281

             

SG&A

6,179

              

1,209

               

1,306

               

1,703

               

1,703

               

5,922

               

60,922

             

63,968

             

67,167

             

Total Operating Expense

49,250

            

12,435

             

9,441

               

8,211

               

7,560

               

37,647

             

92,837

             

111,787

           

121,448

           

Income (loss) from operations

(49,250)

           

(12,435)

            

(9,441)

              

(8,211)

              

(7,560)

              

(37,647)

            

(5,072)

              

33,318

             

95,677

             

Investment income

50

                   

7

                      

6

                      

10

                    

10

                    

33

                    

34

                    

36

                    

38

                    

Interest expense

(2,513)

             

(624)

                 

(595)

                 

(317)

                 

(317)

                 

(1,853)

              

(839)

                 

(273)

                 

-

                       

Increase in fiar value of warrants
Gain (loss) on disp of supplies and equipment
Foreign exchange transaction loss

-

                       

-

                       

-

                       

-

                       

Pre-tax income (EBT)

(51,713)

           

(13,053)

            

(10,029)

            

(8,518)

              

(7,867)

              

(39,467)

            

(5,038)

              

33,354

             

95,715

             

Income tax benefit

Net Income

(51,713)

           

(13,053)

            

(10,029)

            

(8,518)

              

(7,867)

              

(39,467)

            

(5,038)

              

33,354

             

95,715

             

Adjustments to Net income
GAAP EPS

($0.33)

($0.08)

($0.06)

($0.05)

($0.04)

($0.22)

($0.03)

$0.19

$0.53

Adjusted EPS excl options expense

Diluted Weighted Average Shares

156,554

165,848

177,799

179,576

181,372

176,149

177,910

179,689

181,486

Palatin Technologies

Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 3

Appendix: Important Disclosures

Analyst Certification
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the

recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and

objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring

analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the

specific recommendations or views expressed by the authoring analyst in the research.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of

Canaccord Genuity Inc. and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications

with a subject company, public appearances and trading securities held by a research analyst account.
Sector Coverage
Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring

analysts of the report.

Investment Recommendation
Date and time of first dissemination: February 10, 2017, 08:26 ET
Date and time of production: February 10, 2017, 08:26 ET
Target Price / Valuation Methodology:
Palatin Technologies - PTN
Our $6 price target is based on a probability adjusted NPV valuation.
Risks to achieving Target Price / Valuation:
Palatin Technologies - PTN
The FDA may deny or delay approval of any application for Bremelanotide if the agency determines that the clinical data do not

adequately establish the safety of the drug, even if efficacy is established. Additionally, although phase 2B clinical trials for FSD

demonstrated an acceptable safety profile and statistically significant efficacy with the 1.75 mg dose, results obtained in the larger

Phase 3 clinical trials may not show the same outcomes. Specifically, the endpoints for the phase 3 study are slightly different than the

phase 2B study, which increases the risk of a negative trial. However, when Palatin re-analyzed the phase 2B data with these new phase

3 endpoints, the 1.75 mg dose continued to demonstrate statistical significance in all endpoints vs. placebo, which gives confidence in a

positive outcome for the pivotal trials.
The regulatory landscape in approving drugs for female sexual dysfunction has not been favorable historically, as multiple drugs have

been denied by the agency due to lack of clear clinical benefit and safety risks. Specifically, Flibanserin has been denied FDA approval

when submitted by Boehringer Ingelheim in the past due to cognitive safety risks, and when Sprout Pharmaceuticals re-submitted

the drug with additionally safety data, the agency again denied approval with a CRL. Therefore, we believe there is risk with the FDA

regulatory pathway, which may not believe the endpoints of Sexual Satisfying events and Female Sexual Function Index (FSFI) of the

phase 3 Bremelanotide trials is convincing enough for the drug’s approval.
Palatin does not have control over the development of compounds in the MC4r platform for obesity, since all development decisions

are based on AstraZeneca. Based on a serious adverse event, AstraZeneca has decided to discontinue development of AZD2820, a

subcutaneously-administered peptide melanocortin-4 receptor partial agonist. AstraZeneca may decide to abandon further development

of this program, including terminating the agreement, if the results of further development efforts are negative or inconclusive, which

can negatively affect the stock.
Palatin is also likely to need substantial additional funding going forward, potentially creating downward pressure related to financing.

The company may seek out additional fudding through the equity markets, which could impact the price of Palatin’s stock price if

investors believe they will experience meaningful dilution. Additionally, Research and development costs may be higher than we have

anticipated, requiring additional capital and potential dilution. Palatin expects to continue to incur substantial operating losses for

the foreseeable future. The company may never become profitable, or profitability may take much longer than originally anticipated,

disappointing some investors and resulting in downside to the share price.

Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 4

Distribution of Ratings:
Global Stock Ratings (as of 02/10/17)

Rating

Coverage Universe

IB Clients

#

%

%

Buy

587

61.15%

36.97%

Hold

279

29.06%

16.49%

Sell

32

3.33%

18.75%

Speculative Buy

62

6.46%

72.58%

960*

100.0%

*Total includes stocks that are Under Review

Canaccord Genuity Ratings System
BUY

: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.

HOLD

: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.

SELL

: The stock is expected to generate negative risk-adjusted returns during the next 12 months.

NOT RATED:

 Canaccord Genuity does not provide research coverage of the relevant issuer.

“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or the

relevant issuer.
Risk Qualifier
SPECULATIVE

: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the

stock may result in material loss.
12-Month Recommendation History

 (as of date same as the Global Stock Ratings table)

A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period

may be obtained at the following website (provided as a hyperlink if this report is being read electronically) 

http://disclosures-

mar.canaccordgenuity.com/EN/Pages/default.aspx

Required Company-Specific Disclosures (as of date of this publication)
Palatin Technologies currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this

period, Canaccord Genuity or its affiliated companies provided investment banking services to Palatin Technologies.
In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from

Palatin Technologies .
In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-manager of

a public offering of securities of Palatin Technologies or any publicly disclosed offer of securities of Palatin Technologies or in any related

derivatives.
Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Palatin

Technologies or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking

services from Palatin Technologies in the next three months.

Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 5

Apr 2014

Jul 2014

Oct 2014

Jan 2015

Apr 2015

Jul 2015

Oct 2015

Jan 2016

Apr 2016

Jul 2016

Oct 2016

Jan 2017

7
6
5
4
3
2

1

0

Palatin Technologies Rating History as of 02/09/2017

Closing Price

Target Price

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

B:$4.00

03/02/15

B:$6.00

06/05/15

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Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 6

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Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 7

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Palatin Technologies

Estimates Revised

Buy unchanged  Target Price US$6.00 unchanged  | 10 February 2017

Specialty Pharmaceuticals 8