Greetings. Welcome to Palatin’s Third Quarter Fiscal Year 2023 Operating Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that 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 would like to turn the call over to Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning and welcome to the Palatin third quarter fiscal 2023 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 will now turn the call over to Steve, and he will give the financial and operating update. Steve?

Thank you, Carl. Hello, everyone. Regarding financial highlights, I’ll start with Vyleesi. Vyleesi is our FDA-approved commercial product for pre-menopausal women with hypoactive sexual desire disorder, or HSDD. The goal of the Vyleesi program is to demonstrate commercial product value in the marketplace with an objective of licensing the U.S. rights to a committed women’s health care company. For the third quarter ended March 31, 2023, gross product sales were $3.4 million, an increase of 31% over the prior quarter and an increase of 165% over the comparable quarter last year. Net product revenue of $1.2 million increased 16% over the prior quarter and increased 453% over the comparable quarter last year. Total prescriptions dispensed increased 27% over the prior quarter and increased 147% over the comparable quarter last year. We have achieved 5 consecutive quarters of double-digit growth. Refill rates, commercial insurance reimbursement and net revenue per prescription dispensed continued with positive and impactful results and trends versus the prior quarter and comparable quarter last year. We are particularly pleased that Vyleesi’s quarterly net product revenue exceeds Vyleesi’s quarterly operating expenses. Yes, that means we are not losing any money on Vyleesi. Also, we were issued a patent titled Use of Bremelanotide in Patients with Controlled Hypertension with a term through April 29, 2041. Regarding other, Palatin did receive $4.7 million in January 2023 from the State of New Jersey’s Technology Business Tax Certificate Transfer program sponsored by the New Jersey Economic Development Authority. Moving over to the actual financial operating results for the third quarter ended March 31, 2023. Regarding revenue, total revenue consists of gross product sales of Vyleesi, net of allowances and accruals and license and contract revenue. I covered the fee revenue, Vyleesi revenue numbers prior. Regarding operating expenses, total operating expenses were $8.5 million…

Thank you, Steve. At Palatin, we were focused on establishing the melanocortin system as a target for safe inspective medicines to treat inflammatory and autoimmune diseases and to develop a pipeline of highly effective drugs with unparalleled safety. Through research in our laboratory, and in collaboration with academic thought leaders, we continue to advance our understanding of the melanocortin system to identify opportunities for novel innovative therapeutics. Our research efforts are helping us to design better clinical trials and becoming a key support for our business development activities. We have three active clinical programs based on melanocortin agonists developed from our research. In addition, we have two new ocular programs ready, pending resources to begin the activities required to start clinical studies. We are actively enrolling patients in the following clinical trials: MELODY-1, a Phase 3 study in dry eye disease; a Phase 2 study evaluating oral PL8177, a selective melanocortin-1 receptor agonist in ulcerative colitis patients; and breakout, a Phase 2 study in diabetic patients with kidney disease. We anticipate all three clinical studies will have data readouts in calendar 2023. Moving on to some of the highlights for the third quarter, Vyleesi continues to show impressive growth, as Steve mentioned, five quarters of double-digit increases in all key metrics, and we anticipate this growth will continue. We continue to make significant progress in establishing the melanocortin system as an innovative target for therapeutics to treat a variety of inflammatory diseases. And as I said, we are enrolling patients in three clinical studies. Our ocular programs continue to make some impressive advances this quarter. We are very excited by the emerging product profile for PL9643, our melanocortin-based therapeutic for dry eye disease. PL9643 is highly differentiated from current treatments with excellent ocular tolerability and broad efficacy that we believe…

[Operator Instructions] Your first question for today is coming from Joe Pantginis at H.C. Wainwright.

Hi, guys. Good afternoon. Thanks for taking the questions. So first, I want to start with Vyleesi. So nice to see the continued early traction here. So just curious, what is the percent inventory that you’re usually keeping, percentage in the distribution centers? And what are your current plans to improve your – or ongoing efforts to improve your gross to net at this point?

Hey, Joe, it’s Steve. Thanks for the question there. The way our distribution is set up, we actually only have one specialty pharmacy called NPR. So we actually sell to the NPR 3PL and then the NPR 3PL, if you will, sells to the pharmacy. We do a, what I believe, a very good job of making sure our dispenses for the month, the quarter, pretty much match up with the sales, which is how we actually report it. So for the first quarter, March 31, ‘23, we had prescriptions dispensed of a little under 4,000 for the quarter, and that’s pretty much what we had that we had sold to the 3PL. So there’s just a point or 2 difference in that regard. To sum it up, we have virtually nothing in the distribution chain that’s not already been sold.

That’s – yes, go ahead, sorry.

So part b of your question is what else are we doing. Well, we’re – our strategy, as we’ve been very clear, we’re not looking to put significant numbers of salespeople, feet on the ground, if you will. Our target is to do a very informed and measured digital social media campaign. We spend a lot of time trying to make sure we have the right algorithms, if you will, for – when patients are searching to – for this condition and a treatment option that they land on Vyleesi. We do have a few sales folk, but they’re mainly inside and remote, albeit they do, do a little bit of traveling. So we’re going to continue the digital and social media. Since our metric is to show value, have somebody be able to, upon review, get very comfortable that they can extrapolate the numbers, based on what we’re doing, we think we can do that – we can show that. It’s been successful from our target model standpoint, five consecutive quarters of double-digit growth. That’s both at the net sales level and also with the prescriptions dispensed. We are increasing demand, but that’s not our top metric. Our metric was to make sure we got significant insurance coverage, making it as successful to the patient as possible. We now have over two-thirds of all our dispensers are covered by insurance. Three quarters of those dispenses, the patient actually pays zero. So we think we have some very robust insurance coverage in that regard. So we are going to continue the path, Joe, which is increasing demand a bit, making sure that our net – gross to net number is good. And we’re now into the position where we’re not losing any money on Vyleesi. And looking forward to the time when someone sees the value that we’ve had yield, and we end up doing a licensing collaboration or sell the asset at some point in the future.

No. Great. I appreciate that color. So what, my second question, I’m going to hop over dry eye because you just – you guys just recently held a KOL event on that. So I’m going to ask a quick question on 8177 for ulcerative colitis. So just curious, when you guys announced later this year, the first data set, what kind of metrics are we going to be potentially given?

So Joe, this is Carl. So this is predominantly a proof-of-concept study, and it’s really done by imaging. So they’re going to be – it’s a colonoscopy and we are looking at biopsy and reduction of inflammation and damage to Vyleesei. So it’s a simple MAYO score. You also get additional things like reductions in these tools and other common metrics that are used in these studies. But it’s predominantly – this is really a study that’s really looking for direct evidence of the reduction of the inflammation and damage that’s occurring in the colon.

Great. Thanks, guys.

Your next question for today is coming from Michael Higgins at Ladenburg Thalmann.

Thanks, guys for taking the questions. Congrats, again, on all the pipeline progress this spring. You’ve certainly kept us quite busy. And thanks for putting together the KOL events. Very helpful. Not much new in the press release here. We do have two questions. The first will follow along the lines of Joe’s thinking on what we’re seeing here in the allowance of project returns. We’re seeing it as a relatively high percent of gross sales seems to be sticky there despite the time since launch. Certainly, it accounts for potential returns. It may include expiration dates as well as financial overstocking, of course. So, surprised to see the rate on gross sales remains so high for so long. Just trying to get an understanding of why that is and then, more importantly, when it might come down as that will accelerate reported net sales. Thanks.

Yes. Michael, I am not sure I am following your question regarding the stickiness or the gross sales. It actually is – we are increasing every quarter, the gross sales. The net sales are increasing for the most part, every quarter, hence, the double-digit growth. We have very little allowances for returns because we don’t have much from a return standpoint. So, if you could clarify the question a bit more, I would appreciate. But again, we have our gross and net sales every quarter. The spreads are getting better other than the first quarter. The difference – we did have a lower yield for net sales for the first quarter, but that was 100% attributable to the first quarter. The insurance reimbursement was not as high, and that’s primarily because of the deductibles that normally hit in the first quarter, first half of the year. And as I look at the second quarter, we are back up to where we were prior.

Sure. The – also product returns is an accounting measure that’s been used for all product launches, and it provides the investors or anyone, I guess some insights in the accountants into what potentially may be a return, and it’s highly regulated. It’s something that’s not something that it’s a very subjective, but it comes directly from dating and then also just returns to what’s coming back. A pharmacy may oversubscribe, and then it goes back. Usually, that wears off after the first, say, 12 months. But we are past that now. So, seeing it still up there is a bit surprising. We have not modeled it. We are pretty conservative in that. But eventually, that drops. Here so far, we are about 75% of gross sales is along to product returns. We are at this stage of the launch. Typically, it’s below half. So, at some point, that should turn, and when that does, that hits net sales. It’s a great accelerator. So, I am just trying to gauge when that might come. Thanks.

I can help you when it might not come. It’s not going to come. The data that you are referencing is not accurate, 100% not accurate. We have zero in the channel. The 3PL that we sell to, they pretty much just buy what they need for the week based on the sales that are going to be going over to the pharmacy. And we are able to do that since we only have one pharmacy, and from a distribution standpoint, we have one 3PL, and they are both housed in the same industrial park, which is NPR [ph]. So, I couldn’t stress any greater. I have no problem with stating that, that information is 100% inaccurate. We do not expect, anticipate any significant allowances coming back. There is nothing in the channel to do that, and we actually have very, very low patient returns of the product.

Yes. I am just seeing the 10-Q this morning, so I am referencing that. But I appreciate the feedback there. Carl, one question for you, we are seeing a lot in the melanocortin pipeline advancing, of course, in ophthalmic conditions. You have expanded into ulcerative colitis, diabetic nephropathy. Vyleesi, obviously, is approved in female sexual dysfunction. We are just wondering about the potential in the BCD given the rationale there and some success with melanocortin agents. Thanks.

Sure. Mike, we have had conversations about this before. Clearly, obesity, MCR4, obesity, is a very near and dear to the company and, certainly, to my heart. We have done a lot of resource work there. And we are certainly – in light of the expanse of the GLP-1 inhibitor class in the marketplace and the potential multi – well, $100-plus billion market there, we are certainly actively looking at our options in that space. Our belief is based on what we – our research work and very recent discussions with prescribers of GLP-1, that there is a very key and important role for melanocortin agonist in the treatment of obesity. And we are evaluating that. And I would suggest that you will hear more about it in the upcoming quarters as that plan comes into finalization. But we are very interested in that. And we do think it’s a phenomenal opportunity.

Awesome. Appreciate it. Thanks guys.

[Operator Instructions] We have reached the end of the question-and-answer session, and I will now turn the call over to management for closing remarks.

I think Steve would like to make a quick statement.

Yes. Just regarding Michael Higgins’ question on the allowance and the accruals, what he is actually referencing is in our 10-Q, specifically on note – in the first notes, Note 3, we break out between gross sales to net sales. So actually, for the three months ended March 31, 2023, gross sales were $3.4 million. Net sales were $1.2 million. The difference is what it costs us to go from gross to net. We have a lack of $899, but we have to pay fees to the pharmacies, fees, reimbursement, if you will, to the PBMs, to the various insurance coverage and all the other very standard and customary expenses that you have when you go from gross to net. There is 100% very little, if none, no charges related to allowances for that come back. And actually, if you look at our March 31, 2023, quarter, the net sales as a percentage of the gross sales actually increased. The provision for all the various expenses was approximately 80% in the first quarter of March of ‘22, and it’s now down to 65% for the first quarter of ‘23, very significant increases, all positive. So, I just want to clear that up, if you didn’t mind. Thank you. Carl?

Thanks Steve. So, I would to thank everyone for participating in the third quarter fiscal 2023 call. Steve and I couldn’t be more excited about what we are doing. It was a tremendous quarter with progress in all the programs. I think we really seem to be hitting it pretty well right now, and we are quite enthusiastic about the future and what the rest of the year is going to bring. So, with that being said, thank you all for participating. We would like – Steve and I like you to have a great day, and we look forward to continue updating you on our progress and on the rest of 2023. So, thank you.

This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.