Palatin Technologies, Inc. (PTN) Q2 2022 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Welcome to Palatin's Second Quarter Fiscal Year 2022 Operating Results Conference Call. As a reminder, this conference is being recorded. Before we begin our remarks, I'd like to remind you that the statements made by Palatin are not historical facts and 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'd like to turn today's call over to our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning, and welcome to the Palatin Technologies Second Quarter Fiscal 2022 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. Steve?

Thank you, Carl. Good morning, good afternoon, everyone. Regarding Palatin's second fiscal quarter ended December 31 2021, financial results are as follows. Total revenue consists of gross product sales of Vyleesi, net of allowances and accruals and licensing contract revenue. As a reminder, Vyleesi is our commercial product for the treatment of premenopausal women with hypoactive sexual desire disorder. Vyleesi gross product sales to pharmacy distributors for the quarter ended December 31 2021 amounted to $800,000 approximately, with net product revenue of approximately $72,000 compared to gross product sales of approximately $900,000 with negative net product revenue of approximately $164,000 for the comparable quarter in 2020. Regarding Vyleesi, for the quarter ended December 31 2021 gross product sales decreased 18% and net product revenue increased 144% over the comparable quarter in 2020. The gross product sales decreased 46% and net product revenue decreased 55% over the prior quarter ended September 30 2021. This decrease importantly was primarily result of pharmacy distributors minimizing their end-of-year inventory levels. Total prescriptions dispensed were flat compared to the same period in 2020 and the prior quarter ended September 30 2021. Commercial insurance reimbursement and net revenue per prescription dispensed increased significantly over the comparable quarter in 2020 and the prior quarter ended September 30 2021. Also for the quarter ended December 31 2021, Palatin recognized $250,000 in license and contract revenue pursuant to its license agreement with Fosun Pharma. There were no licensed revenues recognized during the comparable quarter in 2020. Moving over to operating expenses. Total operating expenses for the quarter ended December 31 2021 were $8.8 million compared to $9.1 million for the comparable quarter in 2020. The decrease in operating expenses was the result of decreased commercial expenses related to Vyleesi offset by increased research and development expenses primarily related to the advancement of PL9643 into a pivotal Phase 3 clinical trial for patients suffering from dry eye disease. Regarding cash flows, Palatin's net cash used in operations for the quarter ended December 31 2021 was $6.3 million compared to net cash used in operations of $14.4 million for the same period in 2020. The decrease is mainly due to a one-time negotiated payment of approximately $7 million in the quarter ended December 31 2020. This was related to inventory purchase commitments of Vyleesi that Palatin assumed as part of our termination agreement with AMAG Pharmaceuticals but it also included $16.3 million of payments by AMAG to Palatin. Regarding net loss, Palatin's net loss for the quarter ended December 31 2021 was $8.7 million or $0.04 per basic and diluted common share compared to a net loss of $10 million, or approximately $0.04 per basic and diluted common share for the same period in 2020. Regarding cash position as of December 31 2021, Palatin's cash and cash equivalents were $47.3 million with approximately $600,000 of accounts receivable compared to cash and cash equivalents of $53.4 million and $900,000 of accounts receivable as of September 30 2021. Based on our current operating plan, Palatin believes that existing cash and cash equivalents will be sufficient to fund currently anticipated operating expenses through at least March 31 2023. Now I'm going to turn the call back over to Carl.

Thank you, Steve. Turning to Vyleesi, our operating objective has been to optimize the core metrics that support the commercial value of Vyleesi meaning how we make money on a prescription. For the quarter, commercial insurance coverage, net revenue per prescription and prescription refill rates all increased over prior quarters. Our ultimate objective is to relicense Vyleesi to a committed partner ensuring the continued availability of Vyleesi as a treatment option for premenopausal women hypoactive sexual desire disorder and a return on our investment. We continue to engage with potential partners and in the U.S. and other territories and the timing of potential license is dependent on us reaching several terms with the right partner. Moving on, across a multitude of inflammatory and autoimmune diseases there remains a vital medical need for new treatments provide patients and clinicians with safe and effective options. Our research and development operations are focused on developing drugs that modulate the melanocortin system, a new treatment modality for patients suffering from pathological inflammation, with a primary focus on ophthalmic diseases such as diabetic retinopathy, dry eye and uveitis. Many of the current treatments for inflammatory autoimmune diseases work by blocking one or more pro-inflammatory pathways, which can cause immune suppression and major safety concerns. By targeting the melanocortin system, one of the body's natural mechanisms for resolving inflammation, restoring the immune system to a normal state and promoting tissue healing. We believe that we can develop highly differentiated therapeutics with efficacy and superior safety profile. We have a multi layered plan to advance our understanding of the melanocortin system at a molecular level and to establish the clinical validation, melanocortin based therapeutics. Our clinical development programs include ocular, non-ocular indications are designed to demonstrate the broad utility of melanocortin system as a new target for drug development. A successful, we will have developed a new class of therapeutics for the treatment of inflammatory and autoimmune diseases. Our first product happily delivered PL9643 is our most advanced melanocortin agonists for treating ocular diseases that affect the tissues of the interior or front segment of the eye. The first indication for PL9643 is dry eye disease in December 2021, we began enrollment in a pivotal Phase 3 dry eye disease study called Melody 1. Melody 1 is evaluating the safety and efficacy of PL9643 versus vehicle control in patients with moderate to severe dry eye disease over a 12 week treatment period. The study is target to enroll 240 patients and includes an interim data assessment that will be conducted by an independent data monitoring committee that will allow us to increase the number of subjects if needed, reducing the risk of an underpowered study. Three co-primary and three key secondary endpoints will be comprised of scientists hypnosis, dry disease. More determine based on detailed analysis of the Phase 2 data. Melody 1 is currently enrolling patients at multiple sites in the U.S. and the interim data assessment is on scheduled for May 2022 with preliminary data in the second half of 2022. This successful, Palatin will initiate the second Phase 3 PL9643 drive the study called Melody 2 an open label safety study called Melody 3. The three melody PL9643 drives these studies will provide the safety and efficacy data required to file a new drug application with the FDA. The emerging profile of 9643 with its rapid therapeutic onset, excellent ocular tolerability and safety profile is a potentially distinct advance in dry eye disease therapy. If the Phase 2 results are confirmed in the upcoming Phase 3 clinical study we believe that PL-9643 has a potential for substantial penetration into the multi-billion dollar dry eye disease market. With the PL9643 and other melanocortin will have utility in treating multiple front of the eye disease indications and we are planning to advance a second part of the eye disease indication to an investigational new drug filing in 2022 as well. As we move on to the back of the eye. PL9654 is a melanocortin agonist in development for treating various types of retinopathies. We are currently conducting the pre-clinical development activities to file an IND with the FDA, which will allow us to begin clinical activities with PL9654. We recently presented pre-clinical data describing the protective effects of PL9654 immense models of retinopathy at the 2021 Annual Meeting of the American Society of Retinal Specialists, and the presentation was awarded a top 10 poster designation. The current market -- the current drug market for the various retinopathy drugs was approximately $20 billion in 2021 and is projected to be in excess of 27 billion by the end of 2025. There remains a large need for new innovative treatments for retinal diseases and we believe PL9654 a little early in its development has tremendous potential to positively impact patients for retinal disease and garner a significant part of this extremely large market. Obviously, the eye move on other parts of the body. Our PL8177 oral formulation for Ulcerative Colitis, we are on schedule to initiate patient enrollment, and a Phase 2 proof-of-concept study in the second quarter of 2022. We anticipate initial data readout in the second half of 2022 as well. This will be our first clinical study designed to evaluate the potential of a selected melanocortin 1 receptor agonist as a treatment for inflammatory bowel diseases. This study will evaluate the safety and efficacy of oral PL8177 and a positive the results of the study will add to the validation of a melanocortin system as a target for innovative drugs as well as important our business development and licensing efforts around oral PL8177. Market for drugs that treat various inflammatory bowel diseases is multi-billion dollar and there remains a large need for new, safe and effective treatment options to expand the advanced the treatment of these patients. The emerging safety and FC profile or appeal 8177, if confirmed, would be a potential major advance in the treatment of inflammatory bowel disease, particularly in the pediatric population. You could find additional information on our programs on our website www.palatin.com. As a company we are well-positioned to advance a new mechanism for treating inflammatory and autoimmune diseases based on drugs that modulate the melanocortin system. This year is an exciting year for Palatin with data readouts on two major clinical programs and two additional programs advancing towards clinical studies. So in summary, before we go into the Q&A, PL9643 is actively enrolling patients in a Phase 3 pivotal dry disease study called Melody 1, the interim analysis on schedule for May 2022 with data by year end 2022. Oral PL8177 for treating Ulcerative Colitis remains on schedule to begin patient enrollment in the second quarter of 2022. And a Phase 2 proof-of-concept clinical study with preliminary data also before at year end 2022. Both of these innovative drugs have the potential to be significant players in growing multi-billion dollar markets. Our pipeline of innovative new treatments continues to grow with PL9654 of melanocortin agonist for treating retinopathy advancing towards an IND filing in sort of clinical studies, as well as a novel melanocortin agonist, our second front of the eye treatment also advancing towards an investigational drug filing in 2022. Vyleesi commercial activities continue to show significant improvement in the core metrics of insurance reimbursement that revenue per prescription, and prescription refills. We're also actively engaged in relicense, at least to a committed partner. The support of clinical development programs and business development activities Palatin scientists and collaborators are presenting at major medical meetings, and we have been actively publishing our research. Our communication efforts are establishing Palatin as a company developing exciting new treatments for ocular diseases. As we look forward to 2022, Steve and I are excited by the tremendous opportunity that we have to advance a portfolio of highly differentiated innovative drugs that will positively impact patients and build shareholder value. We like to thank you for listening to our call and your continued support. The call will now be open for questions.

Thank you. [Operator Instructions]. We'll take our first question from Joe Pantginis with H.C. Wainwright. Please go ahead.

Hey guys, good morning. Thanks for taking the question. A couple if you don't mind. So first, with regard to the pivotal DED study, maybe a little more specifics around the interim and what kind of news flow can be expected by the street? Is it anything be on just continue as planned or the study will be upsized?

It's an assessment, not a data analysis. So they're really going to be making looking at the power calculations that underpin the study and give us guidance on whether or not we need to upsize or we stay as is. And just look, it's an important innovation to add these things to drive these studies have a degree of variability. And this type of approach really does allow us to make sure that we don't under power the study, particularly in regards to the key secondary endpoints, we really want to get some of those key secondary endpoints in because they will be important for our label.

Got it, that's helpful. And I guess let's just stick with ocular for a second. I know this is a very broad stroke type of question, you might not be willing to necessarily go too deep right now but other types of front of the eye indications that you might be interested in, as well as additional indicators in ocular setting even with 9654 and beyond?

Sure, the 9654 is the back of the eye treatment but 9643 and other compounds that we haven't yet disclosed, there are only so many indications for the front of the eye. I mean, ones that we're interested in outside of dry eye would be things like glaucoma, for example, a very big market that needs really desperately need new treatments. And there are various types of diseases that are related to corneal function, things around for example, cataract surgery and other types of surgeries that are done that need better healing where I think lot of important agonists really can help promote better tissue healing, and what have you. In addition to that, there are a few indications that we're just not ready to disclose yet that we think preclinical data can use to pan out what really represent new front of the eye indications. So we're really looking very deeply. And I think over the next year, we'll have a lot of information flow there.

No, that's fair. Thanks. And my last question, if I could just switch gears, obviously Vyleesi has the long history with your company and it's glad to see that you're seeing increasing reimbursement engagement and with the commercial payers, so I guess the overarching question is, to the level that you can discuss or want to discuss, how can you describe the tenor of your say ongoing discussions right now, but even more specifically depending on the outcome of those discussions, are you potentially considering other options for Vyleesi whether I don't know, I'll just take some wild shots here a spin out company, or even keeping for yourself to expand Women's Health again?

Hey, Joe, it's Steve. I'll take that one. So let's in not a particular order. But on the last point, as Carl mentioned, and we've mentioned prior, our objective is to relicense Vyleesi to a company that that frankly just fits better than we do. Our strategy going forward is absolutely the autoimmune anti-inflammatory, the ocular focus, the dry eye disease trials, the Ulcerative Colitis and at some point, some additional ocular treatments, that we will illuminate on. We needed to concentrate. I mean we targeted certain metrics that we believe which shows the brand. And I don't know if I want to use the term the right hands, but in the hands where someone can do it justice, that they have the infrastructure, they have the resources, and frankly, their strategic vision is to expand the female healthcare landscape, we've done that. I'm not going to get into where we started per se, but when we got the product back, we had single digit insurance reimbursement, we actually had negative don't start negative net revenue, so gross to net going down to net. So we now, we have greater than 50% of every prescription dispense is covered by insurance, we have very good insurance coverage. And importantly, when you get that type of insurance coverage, your gross to net is going to increase significantly. So that's where we've concentrated our efforts. We do have social media that we are still engaging in but we're not going to be putting feet on the ground. We have several sales folks in place right now. But we're not looking to expand 10, 15, 20, 25 to sales, that's going to be for the new part. So specifically on the tenor, we think the tenor is good, and it's positive, because we're showing that if we do A, something B which is good will happen increase insurance reimbursement, increase gross to net on the prescriptions dispense, so then it's very, very, somewhat easy to extrapolate in the right hands, the hands being someone this is their strategy and their objective going forward, they can even do a better job than we've done with the insurance reimbursement and the gross to net. And then layer that in with the infrastructure that they have, specifically with whether it's feet on the ground or just a lot more wherewithal for the market access. We think the product can do very well. So to be clear, the objective is to license it, continue the path of showing progress in our primary targeted metrics. And we're doing that and our expectation is that we will find a good home for Vyleesi sometime in calendar '22. On your point, Joe, not to take too much of the response there. But this is we're approved for premenopausal women in HSDD in the right hand, Lifecycle Management looking at other treatment paradigms, whether it's the postmenopausal or some other areas possibly even with the with the male for the hard to treat man out there. There's other opportunities that that could actually be quite exciting in the right hand. So hopefully that was responsive, Joe?

It certainly was. Thanks a lot, guys. Appreciate it.

We'll take our next question from Michael Higgins with Ladenburg Thalmann. Please go ahead.

Thanks operator, good morning guys. I appreciate the opportunity to ask some questions here. First off, looking forward to your KOL event March 7 but that sparks a question, since you tell them before how would this one be different from previous events? Thanks.

Sure, Mike sure. Actually, I think that just one out today. So actually what we did mentioned, but we are having a dry eye disease Key Opinion Leader event on March 7, and you'll find information coming out on the website shortly on how to listen to that. Our viewpoint and we think this is point, these are not just designed as commercials for PL9643, we really want is the first part of that is going to be Dr. [indiscernible] he's going to talk about really how he sees and manage the dry eye disease patients, current options that he's using. And we're also going to review there's been several new approvals in the space. We're going to go cover those, how they're impacting treatment, and also what's coming down the pike besides PL9643, there are other things that are in development. So we'll be covering some of those as well. We will of course, also cover Dr. Michael Raizman, our Chief Medical Officer who's also a well respected ophthalmologist, we'll be covering the field 9643 profile, how that fits into potential disease treatment as well and as well as the Phase 3 trial. So it really would be something you want to listen to it, if you want to learn about dry eye disease, you'll learn a lot.

That's very helpful. Appreciate that. Thanks for staying with 9643. So we're looking forward data, as you noted back half of this year? How does the data potentially impact your thoughts on partnering it? What are your thoughts going in on that? Thanks.

Sure. Listen clearly -- we have a -- obviously have a strong business development effort. We're actually routine basis talking to various potential partners about all of our programs. The data of it, clearly, if it's strong positive data, I would expect to have a tremendous amount of interest. And we'll have to make some decisions based on what the opportunities are whether or not we want to partner at this stage where we want to continue to go forward. Steve, and I've never tell you that we're not going to engage in business development activities around our various programs. Our goal is to maximize the value and if that's the right strategy, based on the data that we're going to.

Make sense. [Indiscernible] but switching to 8177. What are your thoughts as well there with partnering. And also in terms of that trial design. Will there be an interim for 8177 as well? Thanks.

Yes, so to that point one 8177, the oral formulation that is designed, as we've said it multiple times for two things. One, when we think is a great potential treatment of UC patients. And but our goal is really to license that program. We don't do not see ourselves going forward pass this study in and any time of inflammatory bowel disease, whether it's UC cons or any anything else. This is really designed it's actually has -- there was actually input from potential various partners. So when it has been very helpful as we I don't think there's a GI franchise out there that hasn't taken a meeting around oral PL8177. We have gotten a tremendous amount of feedback as to what we would need to demonstrate in the trial. And those are things have been built in. According the interim, there is an interim analysis, there is an interim just last part, there is an interim analysis built in that study it, that's what we will have identity or that is the first 16 patients we will have a look at and that's what the data will have by the end of the year.

Perfect. Thanks. And then a couple of financial related ones here for Steve. How many in the money warrants did you have at year end? And the milestone that came from Palatin, what milestone did they earned? I guess kind of a third, maybe a back half of that milestone related question would be any others looking forward this year? Thanks.

Thanks, Michael. Let me take the easy one warrants in the money at the end of the year. Zero. You know why? Because we have no warrants outstanding, which is a good thing very clean cap table. $232 million common outstanding and 10%, 15% of that. We also add on top of that are the options, equity grants for employees, for total about $266 million fully diluted. But again, no outstanding warrant. So obviously, knowing the money. Regarding the focus on 250,000. I don't think I call that a milestone it was contract revenue that was for payment for the trial -- for the clinical trial material for them to advance the program from a regulatory standpoint. So the next milestones for either -- for each, whether it's planned on or focus on, is going to be on regulatory. So we're not going to get any milestones, as they're advancing any types of clinical activity for the regulatory filing. It's going to be on the regulatory filing and the approval. So we don't expect -- don't anticipate anything else in '22 coming from them. That would be a 2023 event.

Awesome. Appreciate the color. Thanks, guys. Congrats again.

Thanks Mike.

Thanks Mike.

We'll take our next question from John Newman with Canaccord. Please go ahead.

Hi guys, thanks for taking the question. Just wondered for the PL8177 study. It sounds like we'll see some interim analysis there later this year. Just curious, what are the endpoints that you'll be looking at just at this stage of development there?

The primary endpoint is we're looking for evidence of mucosal healing based on colonoscopy. So we're using the Mayo score, the Mayo biopsy score is a primary one that we'll be looking for. Of course, we also have secondary endpoints looking at symptom relief. But this is these patients are being treated for eight weeks. So we should expect to see pretty strong evidence of mucosal healing, which generally translates into eventually translates into patient symptoms being relieved. There's also a whole variety of secondary endpoints. This is a -- this is a lot of data is being collected here, which is pretty typical for proof-of-concept study.

Great. And then just one additional question on PL9643 Melody study. When you take a look at the interim, will you have the opportunity, if desired to extend either the treatment period, or the follow-up for that study? Or will you primarily be focused on simply the number of patients that you might look to potentially add there? Thanks.

So it's just a number of patients added. So the typical drive of these studies are 12 week treatment periods. We're not extending past that, in this particular study, we may choose to do that in the second study Melody 2 and we certainly will have that data in Melody 3, which is the open label safety extension, we'll be collecting data over the course of a full-year of treatment. But it's a pretty straightforward question, just really looking at the power calculations. And based on the standard deviations that are being seen, are they are matching? And if so, then we will hold as we are and if they feel that they need to be moved up a little bit numbers need to be moved up. They'll give us guidance as to how to move up.

Great, thank you.

And ladies and gentlemen, this concludes today's question-and-answer session. At this time, I'd like turn the conference back to Dr. Spana for any additional or closing remarks.

I'd like to thank everyone for participation in the Paladin Technologies second quarter fiscal 2022 conference call. Good things going on here. A lot of stuff happening. All of our programs are moving forward and progressing nicely. So I want to thank all your participating. Certainly we'd like to thank all of our employees and collaborators and patients for their participation as well. And we look -- Steve and I look forward to continuing to update you on our progress throughout the year. Thank you and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.