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Palatin Technologies Inc. (NYSEMKT:PTN)

Q4 2009 Earnings Call

February 16, 2010 11:00 am ET

Executives

Carl Spana - President & CEO

Steven Wills - CFO & EVP, Operations

Trevor Hallam - EVP of Research & Development

Analysts

Matt Kaplan - Ladenburg

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Palatin Technologies second quarter fiscal year 2010 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for the question-and-answer session will be given at the end of the company's remarks. As a remainder, this conference call is being recorded.

Before we begin our remarks, I would like to remind you that statements made by Palatin that are not historical facts, may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate and actual results could differ materially from those anticipated due to a 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 and Palatin's prospects.

Now I would like to introduce your host for today's call, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies.

Carl Spana

Thank you. Good morning, ladies and gentlemen and welcome to the Palatin conference call. I am Carl Spana, President and CEO of Palatin Technologies. With me today is Steven Wills, Palatin's Executive Vice President of Operations and Chief Financial Officer, and Dr. Trevor Hallam, Palatin's Executive Vice President of Research and Development.

To start of our conference call, let me say a few words that outline our three main programs. Palatin is focusing on three exciting programs that we believe will create significant shareholder value. These are our sexual dysfunction program, both male and female sexual dysfunction; our obesity and diabetes program, which is partnered with AstraZeneca; and lastly, our natriuretic peptide program, with heart failure as a first indication. All of our programs target patient populations where the medical need is high and with tremendous commercial potential. We are excited by the potential of our melanocortin targeted sexual dysfunction program.

Our lead compound in this program is bremelanotide. intranasal formulation of bremelanotide has been extensively studied in large Phase II clinical studies as a treatment for both erectile dysfunction as well as female sexual dysfunction.

The data from this phase, the bremelanotide intranasal Phase II program has led us to several key conclusions that are guided in the future development of bremelanotide. First, bremelanotide has demonstrated meaning efficacy in a broad range of patients in both erectile dysfunction and female sexual dysfunction patient populations.

Second, intranasal bremelanotide administration results in highly variable absorption with some patients receiving up to five times or more than the targeted dose range. To adjust this variability, we have switched the route of administration from intranasal to subcutaneous.

Finally, these small number of patients receiving intranasal bremelanotide experience a significant increase in systolic blood pressure, a potential safety concern. Working with the FDA to address this potential safety concern, we have designed a bremelanotide subcutaneous cardiovascular safety program which will generate the data required to evaluate the effects of subcutaneous bremelanotide on blood pressure and guide the safe development of bremelanotide.

The first clinical study completed last year, evaluate the safety of multiple daily repeat doses of subcutaneous bremelanotide, the second study which is currently our only subjects will evaluate the safety of a single daily administration of subcutaneous bremelanotide in our target erectile dysfunction demographic, that is men 45 to 65 years old. Palatin has been in discussions with the FDA concerning the clinical development of bremelanotide for men with erectile dysfunction and who do not respond to current phosphodiesterase-5 inhibitor therapy.

We anticipate beginning enrollment of patients in a Phase IIb study designed to evaluate the safety and efficacy of subcutaneous bremelanotide in men with erectile dysfunction and not responsive to current therapy later this calendar year. In addition, we intend to further develop bremelanotide as a treatment for women with female sexual dysfunction and we plan to discuss our female sexual dysfunction Phase II clinical development program with the FDA in the first half of calendar year 2010. Dr. Hallam will cover our subcutaneous bremelanotide program in more detail later in the call.

Obesity and diabetes are two diseases where there remains a strong need for pharmacological intervention. The cost associated with treating these patients is enormous. We along with our partner AstraZeneca, believe that pharmaceutical agents targeting the melanocortin-4 receptor have tremendous potential in treating obesity and diabetes. Our research collaboration with AstraZeneca achieved several team milestones in the past year which has generated a substantial enthusiasm inside of both companies. The program has now transitioned from the research stage into clinical development. As anticipated as part of this transition, research at Palatin has stopped AstraZeneca has now taken over the future development of the program and we anticipate the first clinical studies to begin later this calendar year.

As part of the successful conclusion of the AstraZeneca collaboration, Palatin received a $2.5 million milestone payment later this calendar quarter. We remain excited about the potential of this program as it begins its clinical development under the leadership of AstraZeneca with Palatin providing additional support as needed.

Finally, our natriuretic peptide program has made substantial progress in the past year, resulting in the addition of two new therapeutic areas of interest. The program has been expanded to include pulmonary indications and the additional cardiovascular indication of resistant hypertension. We are generating additional intellectual property and research results to support these areas of interest and both of these new therapeutic areas have generated substantial interest of potential corporate partners.

Our lead molecule in our natriuretic peptide program is PL-3994, a novel natriuretic peptide agonist. PL-3994 is a first-in-class molecule in development for the sub chronic treatment of heart failure patients after an acutely decompensating event. We expect that PL-3994 will be effective in reducing the highly hospitalization rates and as patient population in the three to six month period after they are released from the hospital. We have met with the FDA to discuss the PL-3994 in the sub chronic treatment. The outcome of this meeting have provided guidance as a novel indication that's clearly defined in our PL-3994 clinical development plan with agreement on the next study. Dr. Hallam will provide additional details later in the call.

Now I am going to hand the call over to Steven Wills who will provide the financial update before Trevor goes into detail about our research and development programs. Steve?

Steven Wills

Thank you Carl and good morning. For the quarter ended December 31, 2009 which is the second quarter of our fiscal year, Palatin reported net income of $4.5 million or $0.04 per share basic and diluted compared to a net loss of $0.4 million or $0.00 per share for the same period in 2008. For the quarter ended December 31, 2009, total revenues amounted to $7.3 million compared to $1.2 million for the same period in 2008. The increase in net income for the quarter ended December 31, 2009 compared to the same period last fiscal year was primarily due to an increase in revenue recognized under Palatin's license and clinical trial agreements with AstraZeneca.

Regarding revenue for the quarter ended December 31, 2009 Palatin recognized $7.3 million of contract revenue under its collaboration agreement with AstraZeneca compared to $1.2 million for the same period in 2008. Based on the September 2009 amendment, Palatin provided research services to AstraZeneca through January 2010. Accordingly, contract revenue is being recognized over that performance period.

Regarding costs and expenses, total operating expenses for the quarter ended December 31, 2009 amounted to $3.8 million compared to $4 million for the comparable quarter of 2008. Regarding our cash position, as of December 31, 2009, Palatin's cash, cash equivalent and investments totaled $7.4 million compared to $7.8 million at June 30, 2009 and $6.3 million for the same period last year. We anticipate receiving 2.5 million from AstraZeneca related to our September 2009 amendment to our collaboration agreement later this calendar quarter.

Carl Spana

Thanks Steve, Hallam and I will now go over the research and development program.

Trevor Hallam

Thanks Carl. Good morning. Let me start out with our sexual dysfunction program. The bremelanotide program continues to move forward as we plan to begin Phase II at home studies and subjects non-responsive to PDE-5 inhibitors later this year. Our primary concern is to establish safe procedures and protocols to assure safe execution of Phase 2 at home studies and the target population by the subcutaneous root.

Over the last 18 months, Palatin has performed a number of pre-clinical studies and additional clinical study bremelanotide to further understand the relationship between bremelanotide plasma levels, its root of administration and blood pressure changes. The dates that show that controlling BMT plasma exposures and the range required for efficacy by dosing subcutaneously. Appears to reduce to the point of elimination the blood pressure response in addition the incidence of gastrointestinal side effects such as nausea and vomiting observed in intranasal studies were also much better controlled.

Palatin had a guidance meeting with the FDA late last year to discuss the development program for bremelanotide as a second line therapy for ED patients that's non-responsive to PD-5 inhibitors. The meeting was very constructive and we have a clear and a great plan to proceed forward cautiously to assure safe execution of phase II at home studies in the target population

The subcutaneous clinical program has began with a phase I study in 45 to 65 year old men who have been subjected to several subcutaneous administrations of BMT and placebo. The aim of the study is to show that observe blood pressure changes are consistent from one dose to the next for a given individual, this is important to provide assurance that the name of this first testers could be utilized in future Phase 2 studies to remove a subject that might be particularly sensitive to bremelanotide. bremelanotide will be targeted as a second line therapy for those men with ED who were non-responsive to PDE-5 inhibitors. The Phase 2 program will evaluate whether bremelanotide mono therapy is optimal or whether the urgent use of bremelanotide together with PDE-5 inhibitor will bring better benefit.

In terms of new and improved molecules our follow-up program was defined PL-6983 as the new and novel second generation peptide melanocortin-4 receptor agonist for sexual dysfunction which is showing strong efficacy in animals with greater separation of the cardiovascular effects. The Phase 1 trial is been planned with PL-6983 to see if this also holds true in man by seeking to evaluate whether doses that produce erectogenic activity measured by RigiScan and mechanical measure erectile response do so with an even greater separation than those that elevate blood pressure.

Our intention is to hold PL-6983 to potential backup and not proceed with the Phase 1 trials at this time. In addition to the psychic peptide therapies, we also have novel in selective, orally bioavailable, small molecules melanocortin-4 receptor agonist. The ultimate aim would be to have an oral on demand simple tablet form for use in both female and male erectile dysfunction.

Now moving to our obesity program with AstraZeneca, the research phase with AstraZeneca for the discovery of novel melanocortin-4 receptor agonist anti-obesity agents reach the successful conclusion this year Two clinical candidates and Palatin discovery effects have been selected and entered into AstraZeneca's development program. And we expect clinical studies to commence this year.

Palatin has enabled AstraZeneca to establish a mature discovery program to develop orally bioavailable clinical candidates. And together with AstraZeneca; Palatin has performed a proof of principle clinical study on the melanocortin-4 receptor agonist.

The data from this proof of principle study has formed the basis for translation analysis to confirm selection of commercially viable clinical candidates and further collaborative proof of principle clinical studies with AstraZeneca are planned.

Now turning to our heart failure program which where we're targeting on natriuretic peptide program and PL-3994. Palatin and its scientific advisors believe that chronic stimulation of natriuretic peptide receptors as an approach to treating heart failure patients may decrease re-hospitalization rates and improve survival rates.

Clinical and pre-clinical data from studies with natriuretic peptide agonists clearly demonstrate that stimulation of natriuretic peptide receptors is an important mechanism to rectify the underlying pathophysiology in heart failure and proper exploitation of this approach has the potential to deliver improved therapeutic agents.

Palatin has developed novel natriuretic peptide agonists that have natriuretic receptor selectivity and desirable pharmacological and [drug-latch] for use as potential therapeutics. One such molecule is PL-3994. PL-3994 is a long-acting agonist that's been designed to be suitable for daily subcutaneous self-administration. Clinical studies have shown that PL-3994 has a half life and duration of effect on the cardiovascular system that is suitable for daily administration. The expectation is that the chronic underlying pathophysiologies that ultimately lead to progressive worsening of the heart failure patient until re-hospitalization occurs will be decreased or prevented by a three to six month course of treatment with PL-3994. PL-3994 which will administered as a daily subcutaneous injection as adjunct to other medications such as beta blockers, ace inhibitators and angiotensin receptor blockers. As intended to prevent re-hospitalization by combination of decrease cardiac remodeling and the improving kidney function.

As earlier described, two early phase clinical studies have been completed. The phase one study in healthy volunteers and a phase two study in control hypertensives, both of which have been presented half way of American meetings over the last year or two.

Going forward, the plan is to evaluate PL-3994 in additional phase two studies to characterize the safety pharmacokinetics and pharmacodynamics in the heart failure patients. A key objective of the Phase II program will be to demonstrate the ability of PL-3994 treatment to reduce the re-hospitalization rate in heart failure patients after an acutely decompensating event.

Palatin met with the FDA in mid 2009 to discuss the development plans for PL-3994 in heart failure. The outcomes with that PL-3994 could be developed for a novel and registerable indication to reduce re-hospitalization. And secondly, the FDA guidance clarified the clinical development plan and the design of the next clinical study was conceptually agreed. Additionally, we received guidance as to the likely requirements for adequate safety and tolerability data that would be both appropriate from a patient safety perspective and manageable from a clinical development perspective.

Now we continue to evaluate potential for other key indications with unmet need in addition to heart failure for natriuretic peptide receptor program. Of these, acute severe asthma, resistance and hyper tension and pulmonary arterial hypertension all represents therapeutic opportunities for stimulators of the NPRA mechanism and are therefore of great relevance to PL-3994. Palatin is conducting a number of preclinical studies to evaluate the feasibility of use, the PL-3994 in the emergency room for acute severe asthmatics. In acute severe asthma, patients presenting the emergency room are commonly unresponsive to beta 2 agonists. This unresponsiveness sometimes relates to the over use of Beta 2 agonists but then render the airways unable to adequately dilate.

And sometimes they have a different root cause. Despite there been some excellent beta agonists bronchodilators available there are no bronchodilators that have been shown to provide relief under these conditions and treatment relies on the administration of large doses of glucocorticoids, with symptoms improving gradually only after several hours at risk. This period of unresponsiveness is associated with significant mobility and occasional mortality and represents a huge unmet need. So here is an example in 2004 in the United States alone asthma exacerbations resulted in 14.7 million outpatient visits, 1.8 million emergency room visits, 497,000 hospitalizations and 4055 deaths.

Case fatality from asthma in United States have estimated at 5.2 per 100,000. Published data, both pre-clinical as well as clinical studies have shown NPRA agonist are very effective bronchodilators acting to relax airway smooth muscles by increasing cyclic GMP. This is an entirely different mechanism from that of beta agonists that acts of course bronchodilation by stimulating increases in cyclic ANP levels. An alternative bronchodilators such as PL-3994 should meet this high unmet medical need. The program would explore the current subcutaneous route of administration as well as emerges a use of nebulizer for optimal therapy. If effective further developments of formulations and devices maybe warranted to provide wider availability to broader asthma and COPD populations.

Finally, let me say a few words about our late stage discovery research. First, we have succeeded in identifying extremely potent and selective melanocortin ligaments that will be evaluated and sophisticated ex vivo human disease models of airways inflammation. If successful, we aim to progress to clinical develop and target the smoking asthmatic population on accounts for 20% of the total asthmatic population and because of this smoking, these folk are wholly responsive to glucocorticoid treatment.

We would envision that the clinical population that would derive benefit could be expanded to those with COPD. In addition, we continue to have interest in antagonists and inverse agonists that the melanocortin-4 receptor. We're in the late stage discovery process to identify potent melanocortin antagonist of the MC-4 receptor for cachexia. associated with COPD and also with tumor growth.

Now I'm going to hand back to Carl.

Carl Spana

Thank you Trevor, just a few words before we open to Q&A. At Palatin we're very excited about our product pipeline. The depth in potential of our programs has allowed us to access needed resources during a very difficult economic period. However, we realized that we will not be able to pursue all opportunities and will have to prioritize. In the near term, we will continue to focus on a melanocortin programs with sexual dysfunction and for obesity and diabetes. Because of our strength in melanocortin research, our partnership with AstraZeneca and the size of the commercial opportunities, we believe these programs represent the best risk we turn ratio for shareholders. Sexual dysfunction space we're targeting is an area where there is clinical need with limited products development. 35% of the patients with erectile dysfunction do not respond to current PD-5 inhibitive therapy, an additional 20% only marginally satisfied. We believe this non responsive population is an excellent commercial opportunities bremelanotide. Based on our clinical experience with bremelanotide we believe that bremelanotide will have significant benefit in this patient population. Our recent work to address the potential safety concerns of bremelanotide has increased our confidence that bremelanotide can be commercialized with an accessible risk to benefit ratio.

Regarding female sexual dysfunction patients and their doctors have limited treatment options. Based on our clinical data we believe that a melanocortin-4 targeted therapy holds great potential for treating these patients. We are fortunate to have two potential drug candidates bremelanotide and PL-6983 for its indication. As previously mentioned we are targeting to begin Phase 2 advocacy studies later this calendar year and erectile dysfunction in patients. Finally, regarding our natriuretic peptide program our lead molecule PL-3994 and the expansion of the program within two new therapeutic areas has increased our confidence and the potential to attract corporate partnerships to access the resources required to move these exciting opportunities forward.

In closing, we have made substantial progress in all of our programs while maintaining tight control of our expenses and increasing our cash flows by expanding our BC and diabetes collaboration with AstraZeneca. We are looking forward to an exciting year in 2010 with the recommencing of the bremelanotide sexual dysfunction program and ED and FSD and the potential of the corporate partnership for natriuretic peptide program. We are confident that we can move Palatin forward and secure significant value for our programs and our shareholders.

Thank you for joining the Palatin conference call and the operator will now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we will take our first question from Matt Kaplan with Ladenburg.

Matt Kaplan - Ladenburg

So a couple things. First, with the BMT program, bremelanotide program, the study that you have just recently started, that's ongoing and then, when could you see data from that?

Carl Spana

We'd expect to complete the dosing part in the first quarter and then we'd have the date out in the second quarter and right now we're on track

Matt Kaplan - Ladenburg

And do you have to take that data to FDA before you start the Phase IIb study sometime later this year?

Carl Spana

That would be the prudent course of action, we would intend to put that in front of the FDA along with the final protocol for the Phase IIb and then your clearance will begin the enrollment.

Matt Kaplan - Ladenburg

And what are you looking to see in this single dose, daily dose study? And then just to be able to move it forward?

Carl Spana

Sure couple of these, there are really a couple of main things that we're looking for and trying to jump-in as well. Well we're looking to see if are there difference, are there any changes in blood pressure, pre or post dose when you compare Bremalanotide to placebo. Based on our work in earliest of queue we would expect to see a little to no change and in addition to that what we also want to do is re-doing multiple doses so that we can see that if there is any change on the first dose for example, does it hold or does it stay over the course of treatment. So we want to do is also potentially qualify the first dose as a screening dose and that would mean that if your blood pressure is fine on your first dose you would want to see it go up on any subsequent dose.

Trevor Hallam

This is purely very cautious (inaudible) in relation to sub-queue, we just want to make sure, we know we've got some very good data which show three doses a day for 15 days, it's a very consistent PK and it appear to show there is no increase in blood pressure. Now that was great because that tells us that such chronic stimulation of the 15 days has many effect on drifting baseline. What this study is slightly different and that is looking to check consistency so just to make sure that should there be an individual that's particular sensitive to BMT and you see a blood pressure increase, do you see that every time and that would qualify a test dose for use in the home studies just to be sure that keeping people safe. We're not expecting to see it but that's the sort of data that we need to collect.

Carl Spana

Yes, we really are taking a very thorough approach here to put the potential safety risk of bremelanotide behind us and with a strong foundation so that we go forward safely with no surprises as we conduct the remaining development program for the compound.

Matt Kaplan - Ladenburg

And just to be clear, can you describe the subcu injection, how long does it take? Where is it given?

Carl Spana

Sure it's a very small volume less than 100 micro litres, 0.3. It can be give essentially upper arm, abdomen, upper leg, thigh, so this a very short needle so we probably in commercialization use devise where you're just essentially a pen device where just essentially click it, it would deliver and essentially, almost instantaneously deliver the dose of the drug. So very easy where it can be into use.

Matt Kaplan - Ladenburg

And just changing the subject a little bit, with AstraZeneca, the obesity program, you mentioned that you were expecting to see a milestone payment, $2.5 million, this quarter. Are there other milestone payments that you could get from that program in the future?

Carl Spana

Absolutely if you recall, we signed the deal in January 2007 where we see $10 million up front during the period of '07, '08 and through '09, we received approximately $25 million of additional milestones and FTE of reimbursements and that doesn't include this next $2.5 million that's due this quarter. We have remaining approximately $85 million of development milestones related to the collaboration and another $60 million of sales milestones and on top of that we have tiered royalties upon commercialization.

Matt Kaplan - Ladenburg

And you expect that to move into the clinic sometime later this year, you indicated?

Trevor Hallam

Yes.

Matt Kaplan - Ladenburg

Then in terms of the natriuretic peptide program, what do you see really needing to get partners excited about this program? Do you need additional clinical data? Or where are you in that?

Trevor Hallam

Well, this is an intriguing space and I think I would be a little crazy if we weren't to acknowledge the heart failure areas been really tough for a number of different indications and made worse by failures of agents slightly roughly and then from that (inaudible) late last year. So it's sense of all this to explore a number of different indications. We're very excited about the pulmonary indications we're exploring, they're well precedented. You know partners, have got their own strategic alignments and we're hearing loud and clear from one or two that they are getting a little put off the heart failure area. They are finding it very difficult. We still believe in the program. We think there's a great opportunity there, and so it's probably about finding the right partner and getting the right timing, but just to make sure we're getting the most out of our asset. We're also chasing down what we think is an extremely exciting indication in the cu asthma area.

Carl Spana

And again that's been generating good interest in corporate interest as well. So, I think overall I don't necessarily view the program just as a single indication. I think we're seeing interest across the board with potential indications for natriuretic peptides that not just with PL-3994 but also with compounds that we have behind that based on the underline technology. So we feel pretty confident we can get something done in from a corporate partner stand point to continue to drive some value out of those assets.

Matt Kaplan - Ladenburg

Then just one other question on bremelanotide. What do you see gauging your ability to start in the FSD indication? Is it also the ongoing study right now? Or…

Carl Spana

I mean certainly any safety study that's ongoing will be reviewed by the FDA, be part of the package that's reviewed. I think for us its really just sitting down with the NC now and combining the existing safety net that we have subcu because with the earlier study, Trevor was referencing was done in females, and the efficacy data that we have, and really just finalizing what the program would look like, what additional safety data any is required before we begin up on dosing of some of the larger studies and really making sure that we got the right patient population defined and the right end points as we look forward. So that deal is a lot of it is just really getting down and getting guidance from them so that we make sure that we have the right clinical programs.

Operator

It appears we have no further questions. At this time, I'd like to turn the call back over to Dr. Carl Spana.

Carl Spana

Thank you. I'd like to thank everyone for participating in our quarterly conference call and we look forward to updating you next quarter. Have a great day and we'll talk to you soon. Bye, bye.

Operator

This does conclude today's conference. We thank you for your participation.

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