Palatin Technologies - Q3 2024

Transcript

Operator (participant)

Greetings. Welcome to Palatin's third quarter fiscal year 2024 operating results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. Before we begin our remarks, I would like to remind you that statements made by Palatin are not historical facts. It may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate, and that the actual results may differ materially from those anticipated due to the variety of risks and uncertainties discussed in the company's most recent filings with the Securities and Exchange Commission. Please consider such risks and uncertainties carefully in evaluating these forward-looking statements by Palatin's prospects.

Now I would like to turn the call over to your host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Carl Spana (President and CEO)

Thank you. Good morning and welcome to the Palatin third quarter fiscal year 2024 call. I'm Dr. Carl Spana, CEO and President of Palatin. With me on the call today is Steve Wills, Palatin's Executive Vice President, Chief Financial Officer, and Chief Operating Officer. I'll now turn the call over to Steve, and he will give the financial and operating update. Steve.

Stephen T. Wills (EVP, CFO, and COO)

Thank you, Carl. Hello, everyone. For Palatin's fiscal third quarter ended March 31st, 2024 financial results. Regarding revenue, total revenue consists of gross product sales of Vyleesi, net of allowances and accruals. Pursuant to the completion of the sale of Vyleesi's worldwide right for female sexual dysfunction to Cosette Pharmaceuticals for up to $171 million in December of 2023, Palatin did not record any product sales to pharmacy distributors for the quarter ended March 31st, 2024. For the quarter ended March 31st, 2023, gross product sales were $3.4 million with net product revenue of $1.2 million. Regarding operating expenses, total operating expenses were $9.2 million compared to $8.5 million for the comparable quarter last year. The increase was related to greater spending on our Melanocortin receptor programs, offset partially by the elimination of selling expenses related to Vyleesi.

Regarding other income and expense, total other income and expense net consists mainly of the change in fair value of warrant liabilities, which Palatin have recorded as a liability on the consolidated financial statements, including revisions of certain prior period amounts to correct a misstatement with respect to classifying warrants as equity instead of liability. To be clear, that's all cleaned up. There is no more liability reflection. As we go forward, again, that item has been cleaned up. The statement of operations was adjusted each quarter to reflect changes in the fair value of these warrants. For the quarters ended March 31st, 2024 and 2023, Palatin recorded a fair value adjustment gain of $0.4 million and a loss of $1.5 million, respectively. Regarding cash flows, Palatin's net cash used in operations was $8.6 million compared to $1.4 million for the same period last year.

The increase is mainly due to changes in working capital. Regarding net loss, Palatin's net loss was $8.4 million or $0.53 per common share compared to a net loss of $8.7 million or $0.76 per common share for the comparable period last year. The decrease over the comparable quarter last year was mainly due to a larger operating loss in fiscal 2024, offset by the higher other income, which was primarily from changes in the fair value of the warrant liabilities. Regarding cash position, as of March 31st, 2024, Palatin's cash, cash equivalents, and marketable securities were $10 million compared to cash, cash equivalents, and marketable securities of $9.5 million + $2.3 million of accounts receivable as of December 31st, 2023, and compared to $5.5 million + $1.3 million of accounts receivable as of September 30th, 2023.

We believe that existing cash and cash equivalents, marketable securities, will be sufficient to fund currently anticipated operating expenses and disbursements well into the second half of calendar year 2024. Now I'd like to turn the call back over to Carl. Carl?

Carl Spana (President and CEO)

Thank you, Steve. As you know, our focus has been on understanding the biology and chemistry of the Melanocortin system with the goal of developing selective Melanocortin agonists for a variety of indications. These research efforts have resulted in a growing portfolio of Melanocortin-based therapeutics. We have three clinical programs based on Melanocortin agonists and are planning to initiate enrollment in two new clinical programs by mid-2024 pending resources, all coming from our highly productive research activities. Now, for our PL9643 dry eye disease program, we reported the positive phase III MELODY-1 results earlier in the quarter. I'd like to highlight some of the key findings that differentiate PL9643 from current therapies and that have us and potential partners very excited. We see excellent ocular tolerability and safety, essentially similar to a dry artificial tear.

I don't think there's any product out there approved or in development that has the ocular tolerability of PL9643. We see rapid onset of efficacy for both signs and symptoms of dry eye disease, with the primary symptom endpoint of pain and 7 of 11 secondary symptom endpoints reaching statistical significance at two weeks, which was the earliest time point that we evaluated. Very importantly, we continue to see improvement of multiple symptom endpoints over the full 12 weeks of treatment. We have not reached maximal efficacy yet, and we believe that as we treat longer in the upcoming phase III program, we'll continue to see even more efficacy for PL9643.

We are now currently preparing for the remaining clinical study to support a New Drug Application submission, which we anticipate will begin in the second half or begin enrollment in the second half of calendar 2024, an upcoming Type C meeting with the FDA to discuss the remaining program studies that we have to do. Our phase II study evaluating oral PL8177, a selective Melanocortin I receptor agonist in ulcerative colitis patients, is on track for an interim assessment release of data in mid-2024. Supporting oral PL8177 development are preclinical studies demonstrating that treatment with 8177 causes diseased colons to improve toward a healthy state and to resolve inflammation. Resolving inflammation rather than blocking it provides the possibility of efficacy coupled with significantly differentiating safety in treating ulcerative colitis and other types of inflammatory bowel disease.

BREAKOUT, our phase II open-label study evaluating a melanocortin agonist in diabetic patients with kidney disease, is also on track for top-line data release in mid-2024 as well. I'd like to take a minute to highlight two new clinical programs that we are planning on starting this year. These two programs leverage our extensive expertise in the chemistry and biology of the melanocortin IV receptor agonist. Both have strong clinical validation, and they address large markets in need of new therapeutic options. The first is a phase II obesity clinical study designed to enroll up to 60 obese patients that are currently using tirzepatide at 2.5 milligrams weekly. The primary endpoint is to evaluate the safety and increased efficacy of co-administration of bremelanotide with tirzepatide in reducing weight. A secondary endpoint will evaluate the weight loss maintenance effect of bremelanotide in patients that have stopped using tirzepatide.

The initial drug application and the protocol for this study have been reviewed by the FDA, and we are clear to begin enrolling patients. In support of this study and our obesity program in general, we recently hosted a key opinion leader event titled "Beyond GLPs: The Multiple Roles for Novel Melanocortin IV Receptor Agonists in Treating Obesity and Weight Loss Maintenance." The speaker was Dr. Jesse Richards from the University of Oklahoma, and he discussed co-administration of Melanocortin IV receptor agonists with tirzepatide in obese patients, the continued need for novel obesity treatments, and the multiple uses of Melanocortin IV receptor agonists in treating obesity and weight loss maintenance. You can find the link to the recording of the event on our website. Drug treatment for obesity is now established and growing rapidly.

We believe multiple drugs with differing mechanisms of action that affect weight loss and, importantly, weight loss maintenance are needed. We strongly believe that drugs targeting the Melanocortin receptor system will be an important part of the future of obesity treatment and weight loss maintenance. Our extensive experience in the design and development of Melanocortin agonists for treating obesity includes two clinical studies previously completed and published, and we are well positioned to be a leader in the development of Melanocortin-based therapeutics for weight loss and weight loss maintenance. We are also planning a phase II clinical study evaluating the co-administration of bremelanotide with a PD-5 inhibitor for treating erectile dysfunction patients that have failed PD-5 inhibitor monotherapy.

This clinical study will support the development program for a combination product, which is a co-formulation of bremelanotide with a phosphodiesterase V inhibitor and is an extension of our commercial efforts in sexual dysfunction. Approximately 35% of men with erectile dysfunction fail or have an inadequate response to PD-5 inhibitor treatments. These are things like Cialis and Viagra. They represent a large underserved market. The only treatment options for these failure patients are highly invasive, such as direct penile injections or penile implants. We have previously conducted clinical studies showing the synergistic effects of combining bremelanotide with a PD-5 inhibitor as a treatment for erectile dysfunction and feel well positioned for an efficient and successful development program of the co-formulated product. Key highlights for the third quarter in fiscal year 2024 are as follows.

We reported the positive results for PL9643 phase III MELODY-I dry eye disease clinical study, and PL9643 is emerging as a highly differentiated treatment for dry eye disease with excellent ocular tolerability, rapid onset of efficacy, and broad relief from multiple symptoms of dry eye disease. We are planning on initiating two new Melanocortin-based programs with phase II clinical studies that have data readouts in 2024. And finally, our clinical programs continue to advance with multiple clinical data milestones from four clinical programs and the initiation of the remaining PL9643 phase III studies by calendar year end. Steve and I would like to thank you for listening to the Palatin third quarter fiscal year 2024 conference call. You can find additional information on our science and clinical programs on our website, www.palatin.com, and you can find additional information on Vyleesi at the vyleesi.com website.

I'd like to thank you and now open the call to questions.

Operator (participant)

Certainly. The floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. If you are posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we pull for questions. Our first question is coming from Joe Pantginis with H.C. Wainwright. Please pose your question. Your line is live.

Joseph Pantginis (Managing Director and Equity Research)

Hey, guys. Good morning. Thanks for taking the question. So Steve and Carl, I wanted to focus on the overall profile for 9643 right now. Post the Melody I data, you have an upcoming Type C meeting. What are you looking to clarify or get agreement on with regard to moving forward? And before you get that feedback, have any of the learnings from Melody I impacted how you're going to potentially approach Melody II?

Carl Spana (President and CEO)

Sure. Well, let me take that in the reverse order. The answer is yes. I mean, obviously, MELODY-I was a very large clinical trial. There was a lot of data. And like most dry eye disease programs, you continue to learn as you do these studies. You don't always get what you want. But the way we're thinking about this is we'd like to do two more studies, MELODY-II and MELODY-III, to provide the remaining data that we need. And that way, it'll give us three large phase III clinical trials to really support the profile of the drug, the safety, and the overall efficacy. And we think that's the most prudent course to go forward. It is very atypical for dry eye disease products to be approved on just two studies.

Most of these programs have three, four, five phase III studies that support their overall approval. So that's our overall strategy. We've learned, I think, additionally, the endpoint with regards to symptoms will most likely be the ocular pain. But importantly, we really want to continue to highlight the broad efficacy that we're seeing on symptoms. I mean, we're seeing eight symptoms out of the 11 measured all reach significance starting at two weeks and then moving forward. There's no product out there that has that type of symptom relief. So we really want to make sure we get these studies to drive that home. In addition to that, we need to get the sign. The sign is more of a regulatory endpoint, and I think we've figured out how to do that, when to measure, what to measure. It'll be inferior corneal fluorescein staining.

We'll do it at two weeks. So it'll be a relatively rapid measurement. And so we think we're now really well positioned to deliver the rest of the program and support an NDA submission. With regards to the first part, which is the Type C meeting, there are a number of more technical things there. I don't think the agency will have, and I don't think we're posing any real questions as to the design and overall endpoints that we're using in Melody II and III and the open-label. Pain, eye dryness, inferior corneal fluorescein staining, these are all well-known endpoints and well-validated endpoints for use in these trials. The analyses we're doing are pretty straightforward. They're all ITT analyses, so there's no subgroup analysis that we're planning. So I don't think there's anything there.

So none of the questions will be around just the sufficiency of what we intend to deliver. And I expect that they will agree with that. I think three large, well-controlled studies will be more than sufficient to support an NDA submission and their evaluation. And then in addition, there are a number of questions around manufacturing or what have you that are more things that we need guidance on what the next steps should be or they're more I would say you could do either A or B. We just want to make sure, "Which one do you want? Do you want A? Do you want B?" So nothing really, I think, significant, just more guidance as to what type of data they want there. So overall, I expect a very fruitful meeting on the Type C.

And as I said, we're planning now to really move the next set of studies forward. And we're quite excited about the product.

Joseph Pantginis (Managing Director and Equity Research)

No, I appreciate those comments. And I guess I'll just take it a little further with regard to potential endpoints for the next study. And you brought up, I guess, one of the interesting concepts in dry eye development where you said you're looking at eight different signs. And would you look to keep the same sign? Because I know you basically have to pick one in decision with the FDA. So how would you look to address that?

Carl Spana (President and CEO)

So on the sign side, it'll be inferior corneal fluorescein staining. On the symptom side, we have a lot. We have the flexibility there. Both pain and eye dryness I think actually, eye dryness reached the highest degree of significance in Melody I. Either one is acceptable. I mean, one of the questions we will ask the agencies is that if we elevate eye dryness as opposed to pain, will that be and it should be okay. Will they accept that in Melody I as well? As we delivered in Melody II, Melody III, will they accept that and be the endpoint in Melody I as well? And I think that they will do that. But where you're going is we'll probably have a lot more of the secondary endpoints be symptom-based.

One of the things we do want to discuss with them is if we hit all these symptoms again and as we replicate them, can we get some of these on the label? Can we get some specific symptoms on the label? I think that would be another differentiating feature.

Joseph Pantginis (Managing Director and Equity Research)

Got it. Got it. Appreciate the comments.

Operator (participant)

Once again, if you have any remaining questions or comments, please press star one at this time. Please hold a moment while we pull for any additional questions. There are no additional questions in queue. At this time, I would like to turn the floor back over to Dr. Spana for any closing remarks.

Carl Spana (President and CEO)

Great. Thank you. I'd like to thank everyone for participating on the Palatin Technologies third quarter fiscal year 2024 conference call. Have a great day. Steve and I look forward to updating you on our progress. We're very excited about where we're going with the company and the milestones that we have coming up throughout the remainder of this year. Have a great day. Thank you.

Operator (participant)

Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.