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Palatin Technologies Inc. (NYSEMKT:PTN)

F1Q12 Earnings Call

November 15, 2011 11:00 ET

Executives

Dr. Carl Spana, Ph.D. – President and Chief Executive Officer

Steve Wills –Executive Vice President, Chief Financial Officer and Chief Operating Officer

Dr. Jeffrey Edelson, M.D. – Chief Medical Officer

Analysts

David Moskowitz - Roth Capital

Rahul Jasuja - Noble Financial

Operator

Good morning, ladies and gentlemen and welcome to the Palatin Technologies Fiscal First Quarter 2012 Conference Call. As a reminder, this call is being recorded.

Before we begin our remarks, I would like to remind you that statements from 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 may differ materially from those anticipated due to a variety of risks and uncertainties discussed in the company’s most recent filings from 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. Please go ahead, sir.

Dr. Carl Spana

Thank you. Good morning. I’m Carl Spana, President and CEO of Palatin Technologies. With me on the call today is Steve Wills, our Chief Financial and Operating Officer and Executive Vice President and Dr. Jeffrey Edelson, our Chief Medical Officer.

On today’s call we will be providing on our product programs and financial results. To begin, Steve Wills will provide an update on our fiscal first quarter 2012 financial results. Steve.

Steve Wills

Thank you, Carl. Good morning, everyone. Regarding the financial update; Palatin’s net loss for the quarter ended September 30, 2011 was $3.4 million or $0.10 per basic and diluted share compared to a net loss of $4.6 million or $0.39 per basic and diluted share for the quarter ended September 30, 2010.

The decrease in net loss for the quarter ended September 30, 2011 compared to the same period last fiscal year is the result of Palatin’s previously announced strategic decision to reduce staffing levels and to focus resources and efforts on clinical trials of bremelanotide for female sexual dysfunction, the pre-clinical development of an inhaled formula of PL-3994 and a new peptide drug candidate for sexual dysfunction.

The decrease in net loss per share was also significantly impacted by the higher number of shares outstanding in the quarter ended September 30, 2011, compared to the same period last fiscal year due to the sale of shares of stock in March of 2011.

Regarding revenue; total revenue for the quarter ended September 30, 2011 was $27,000 compared to $216,000 for the same period in 2010. Revenue for these periods consisted entirely of amounts recognized under our agreements with AstraZeneca.

Regarding costs and expenses for the quarter ended September 30, 2011, total operating expenses were $3.4 million compared to $4.8 million for the same period in 2010. The decrease in operating expenses for the quarter ended September 30, 2011 compared to the comparable quarter in 2010 is the result of our strategic decision to reduce infrastructure costs referenced prior. Regarding our cash position, our cash and cash equivalents were $14.9 million, as of September 30, 2011, compared to $18.9 million, at June 30, 2011. Our current liabilities were $1.7 million, as of September 30, 2011, and $2.8 million, as of June 30, 2011, a reduction of $1.1 million.

We believe, based on our current operating plan, that our cash and cash equivalents will be sufficient to fund our operations for at least calendar year 2012.

Dr. Carl Spana

Thank you, Steve. Now for an update on our plans. Before I give the update, I would just like to draw your attention that earlier in November the company held an Analyst Day in New York City in which we had two invited guest speakers who are experts in the field of female sexual dysfunction. The presentations from that Analyst Day is on the website. For those who would like a little more information, a more detail on FSD and our programs in that area, please go to the website. You might find that those presentations are quite informative.

So to start out the programs, I'll cover obesity and diabetes at melancortin-4 receptor program, which is partnered with AstraZeneca. AstraZeneca continues to progress AZD2820 through a Phase I clinical study. We expect initial data by the end of this calendar year.

The commercial drug candidate AZD2820 is a melancortin receptor for partial agonist, developed by Palatin as part of its collaborative research program with AstraZeneca. The decision to move this program into clinical development was, in part, based on exciting clinical data generated by Palatin as part of our collaboration with AstraZeneca. Results improved principal clinical trials in obese patients with non-commercial compounds that target the melancortin receptor show significant reduction in food intake and weight loss.

We believe that this clinical data, along with earlier work with animal models of obesity, demonstrates the significant role that melancortin pathway plays in regulating food intake and weight in validates melanocortin-4 receptor, as a major target for obesity therapeutics. We believe that therapies that target the melanocortin-4 receptor have potential to demonstrate the safety of ethics we require for approval and dramatically impact the treatment of obesity.

As you can imagine, this program has huge commercial potential and we believe that our partner, AstraZeneca, has the resources and commitment to realize this potential. We are eligible for milestone payment totaling up to $145 million, with up to $85 million, contingent upon development and regulatory milestones and the balance on achievement of sales targets plus mid-single to high-single digit royalties on sales of approved products. AstraZeneca has responsibility for product commercialization, by discovery and all development costs.

Moving on to PL-3994, our next program. These are the natriuretic peptide receptor agonists in development as a treatment for acute exacerbation of asthma, which is defined as an ongoing, asthmatic episode, in which asthma symptoms do not adequately respond to initial broncho-dilator or corticosteroid therapy. As we have previously stated, the key near-term objective for PL-3994 program, is to identify development and marketing partners, and once we do that, to initiate clinical studies. We are in discussions with multiple potential partners that we believe have the developmental regulatory and commercial resources to assist us in advancing our PL-3994 program.

Finally, we'll cover our female sexual dysfunction program. Bremelanotide in melancortin-4 receptor agonist in development as a treatment for female sexual dysfunction is our lead clinical program. Bremelanotide is currently being studied in a Phase IIb clinical trial designed to evaluate its safety and efficacy as a treatment for premenopausal women with female sexual dysfunction.

The main objectives of this trial are to generate the safety and efficacy data to support the transition of this program into Phase III registration trials. The trial is designed as a placebo controlled double blind study. The study will have four parallel arms, one placebo and three bremelanotide doses. We are targeting to enroll 100 premenopausal female sexual dysfunction patients per arm for a total of 400 patients.

The primary efficacy measure for the study will be the improvement in the number of satisfying sexual events. This will be measured using a validated event log or diary. Additional efficacy evaluations will include changes in arousal, desire, and dysfunction associated distress as measured using validated patient self-assessment questionnaires. We will also evaluate the blood pressure effects of subcutaneously administered bremelanotide in this population.

Bremelanotide Phase IIb study of female sexual dysfunction patients initiated in June of this calendar year. Enrollment is proceeding on schedule. We anticipate delivering the results of this study in the second half of 2012.

We have designed a comprehensive program to evaluate the safety and efficacy of bremelanotide. If the results of this study are positive, they will support the transition into Phase III registration trials.

We believe that our bremelanotide female sexual dysfunction program has tremendous potential. There are no FDA approved treatments for female sexual dysfunction and these patients have limited treatment options. We believe that female sexual dysfunction represents a significant area of medical need and a substantial commercial opportunity.

In closing, over the past quarter, we continue to make significant progress in advancing our programs. Our bremelanotide female sexual dysfunction program is enrolling patients in a major Phase IIb clinical trial designed to provide the safety and efficacy data to move into Phase III registration trials. This program is on schedule to deliver data in the second half of 2012.

Our PL-3994 program for severe asthma is ready to begin a proof of principal clinical trial. We are in discussions with potential partners. Finally, on the melancortin-4 receptor BC program which is partnered with AstraZeneca is enrolling patients in a Phase I study is on track to deliver data later this calendar year.

We believe that Palatin is in a strong position to deliver value for our shareholders. We have several exciting clinical programs, and the financial and human resources needed to reach substantial development milestones.

Thank you for participating in the Palatin fiscal first quarter conference call. We will now open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We now take our first question from David Moskowitz with Roth Capital.

David Moskowitz - Roth Capital

I just wanted to quickly focus on the financials. It looked like the burn was a little bit high in this period. Can you speak to the cash inflows and outflows of the quarter and why the P&L looked a little more burdened than we expected, and at the same time, can you talk about if those trends are going to continue into the fourth quarter?

Steve Wills

OK. Thanks, David. This is Steve Wills. The 95% of what counts as spending money on is the bremelanotide trial for female sexual dysfunction. The overall budget, and the budget being defined as through the period June 30th, calendar year 2012, when we anticipate the trial being completed, we are on target for that budget for both costs and, as Carl mentioned, enrollment target dates.

The quarters will fluctuate between a little bit high, a little bit low based on the budget, but frankly that's just a timing difference on when certain expenses based on the projected trial costs. I'm comfortable that if we're a little over in the September 30th quarter, it'll be adjusted in the 12/31 first quarter of calendar 2012. I think the take home here is that the trial is on track from an enrollment standpoint, projected data points and projected costs say through June 30th, calendar 2012.

David Moskowitz - Roth Capital

So no unusual uses of cash in the quarter?

Steve Wills

Everything was expected, just a little bit of a timing difference when some of the accrued expenses hit. September 30th quarter, again, could be a little bit high or low and more than likely that will take care of itself in the subsequent two quarters.

David Moskowitz - Roth Capital

Can you talk about how the cash is going to work through 2012, specifically, as it relates to obtaining the results from the phase II BMT trial?

Steve Wills

The cost for the bremelanotide female sexual dysfunction trial should be completed by June 30th of calendar 2012. At that time our operating cash burn will be reduced to approximately $1.3 million per quarter. So when we talk about how the $15 million September 30th, 2011, I make the statement that based on our current operating plan that we have sufficient cash to fund operations through calendar 2012, the reason being the significant burn related to the bremelanotide female sexual dysfunction trial will be completed on June 30th, 2012. At that point we're projected to have between $6 and $7 million of cash, and our burn, again, will be reduced to approximately $1.3 million per quarter.

David Moskowitz - Roth Capital

Steve, is that including things from AstraZeneca or the natriuretic peptide program?

Steve Wills

No, those are conservative figures. It does not include any potential milestone that we may receive from AstraZeneca in calendar year 2012, or any potential collaboration type funds related to our collaboration efforts on PL-3994.

David Moskowitz - Roth Capital

Excellent and, Carl, with regards to the AstraZeneca partnership, when are we expected to get the next data? I think, Steve, you might have said in your prepared remarks we could see data in the first quarter. Can you just clarify what that data would be? What kind of trial results?

Dr. Carl Spana

Sure. Two things in this program; one, AstraZeneca is currently conducting a Phase I dose escalation study in normal, healthy humans for first demand with a commercial compound. That study should be close to being concluded and we would expect the data either late this year or early next year.

The data from that would really be that there was no safety signal seen with the compound, and that they are ready to go forward into additional clinical trials, most likely in obese patients where we will begin to collect additional safety and the initial efficacy data. So that's the type of data that we are looking for. The key take home there would be that one, the program is still progressing, and that they are moving into the next phase of studies which will really give us additional safety and efficacy data.

David Moskowitz - Roth Capital

What do you think the propensity is for AstraZeneca to actually release that data? It's phase I data. Do you think AstraZeneca will come to the forefront with it?

Dr. Carl Spana

I don't know in what level of detail they would release it. I'm not even sure how interesting phase I dose escalation in normal people really are. I think the take home message would be are they doing the next study, which means that they didn't see anything of any significance and they are committed to taking the product forward.

David Moskowitz - Roth Capital

Do you have any idea when we might know? When does AstraZeneca give a pipeline update?

Dr. Carl Spana

We would expect it before the end of the year. That's our expectation.

David Moskowitz - Roth Capital

OK. With regard to that program, when would there be an opportunity for you guys to get a milestone from the program?

Steve Wills

Based on certain criteria, hopefully you can appreciate that some of the criteria is confidential for competitive reasons, if things stay positive and progress, we would have an opportunity for a potential milestone in the second half of calendar 2012 of $2.5 million.

David Moskowitz - Roth Capital

OK. Thanks for that clarification. I appreciate it. Let me jump back in queue.

Operator

We'll take our next question from Rahul Jasuja with Noble Finance.

Rahul Jasuja - Noble Financial

Hi guys, thanks for taking my question. Sticking to the AstraZeneca partnership for a minute here, Steve, you mentioned $2.5 million sometime next year. Is that tagged to the initiation of phase II?

Steve Wills

Again, as I mentioned, for confidential and competitive reasons, we've agreed to not disclose the specific performance criteria. It's for the advancement of the program, we're just not in a position to state how specific that performance criteria is.

Rahul Jasuja - Noble Financial

OK. At the risk of being redundant, from the investor/analyst point of view, the expectation for phase I data coming out later this year or early next year from AstraZeneca, we should just be really looking forward to the progress to the next stage and not really any efficacy and safety, safety, of course, will come up, but no efficacy signals?

Dr. Carl Spana

Correct. The phase I trial, the details of that are at clinicaltrials.gov. These are normal humans, they are single-dose, so there would be no expectation that you would see any efficacy in that I will go on the assumption that AstraZeneca would be relatively conservative and wanting to keep proprietary as much of the safety data as possible, which I don't blame them for because it is a competitive field and they don't want to give out their information.

But I think the real take home message is the progression of the program to the next step, which really would be a phase II-type study in probably the in-clinic setting with obese patients. That's really what you want to see because they are committed to the program and continuing to progress the program forward, and that's what we're really looking for.

Rahul Jasuja - Noble Financial

OK. Then to move on to the FSD program, Carl, the older studies that were done with the intranasal delivery looked fairly promising in the short four weeks or so pre- and post-menopausal FSD clinical trials you guys ran in 2007 or 2008. I remember those were intranasal 10 milligram doses. For my clarity, could you just talk about the fact that now you are using these 0.75 milligrams to 1.75 milligrams dose ranges? The dose you used the intranasal with was limited at the time because there were issues with mainly compliance and nausea and so on, could you talk about these doses as it relates to that?

Dr. Carl Spana

Sure. The 10 milligram intranasal, the Cmax that was attained with that 10 milligram dose, we should be covering that range with the doses that we have subcutaneously. What we expect from this type of study is to have much better control over the pharmacokinetics and exposure, and really we knew from looking at those studies and many of the other intranasal studies, particularly the gastrointestinal effects, nausea and emesis, track fairly closely with overexposure to the drug. So we would expect that the rates of nausea and emesis really should be very low in this study with little to no emesis and nausea should be very low and very mild in nature. So like we said, a very good tolerability profile and maintain the efficacy that we are seeing in those studies. That's really what the goal of this move from intranasal to sub-c was. It was really to get control of the dosing.

I don't know if Jeff wants to add anything on to that or not...

Dr. Jeffrey Edelson

Only to add that the extensive experience that was accumulated with the intranasal program was used to perform some fairly detailed pharmacokinetic, pharmacodynamic analyses which allowed us to model the dosing with a much more controlled subcutaneous program. So we've clearly reduced variability in PK, and based on the modeling that we were able to do with the prior data, I think we focused in on a range of doses that will interrogate the safety and efficacy in a much tighter range.

Rahul Jasuja - Noble Financial

OK. That's fair. Thanks. I recall that the FSD program had women that were really driven. This was about premenopausal and postmenopausal. One of the issues that may often come up with those looking at Palatin is when you look at a different delivery system, are these women equally driven? For example, versus the intranasal versus now the subcutaneous?

Dr. Carl Spana

We think on two levels. We know from marketing research work that we've done that you will lose. About 15% of these patients will not want to take a needle versus a pill so you will have some loss, which is pretty typical. In general, the FSD patients, in sexual dysfunction patients in general, are fairly motivated to come in for treatment options. As we had in our Analyst Day, it doesn't appear, with regards to this particular trial, that the subcutaneous rhythm administration is posing any problem. I don't know if Jeff wants to comment or not.

Dr. Jeffrey Edelson

Well, no. But these are people who have agreed to participate in a four-month period of subcutaneous self administration. I think Carl has mentioned the data we have. There are some women who will not voluntarily (inaudible) subcutaneous product. But there are a lot of precedence for PTH and TNF products and a range of products that are routinely self administered.

Rahul Jasuja - Noble Financial

OK, good. One final question that seems to be a question on many investors and (inaudible) when looking at FSD is, number one, the fact that there is no drug approved in the U.S. so far. There's LibiGel coming up for post-menopausal women. How should we be looking at the FDS stance on FSD given the fact that there's nothing approved. It's a big market. There seems to be strong demand and now you have potentially a post-menopausal approval. Could you just comment on those factors?

Dr. Carl Spana

Sure, my viewpoint is in experience dealing with the FDA in particular in this indication is that I think there is a desire to have a safe, effective treatment option for these patient. It's evidenced by the fact that there are Phase III programs, the LibiGel program has gone forward, (inaudible) before that. We had a very constructive and substantial meeting with them concerning the study that we're currently conducting and I think we've found them to be very helpful.

They're doing their job obviously, but very helpful in giving us a number of items that we need to keep in mind as we progress our program forward. So I think it's a good regulatory environment, but let's be clear, people don't die from this indication. So we do have to make sure that our products are safe and effective and give a true benefit to the patients. So I don't think that's going to change.

Obviously we're hopeful that LibiGel will have positive data and continue to go forward and we'll have an ability to look at that regulatory process as it unfolds and certainly we will take as much of it as we possibly can.

Operator

We'll now go to David Moskowitz with Roth Capital

David Moskowitz - Roth Capital

Thanks for the follow-up. I wanted to just focus a little bit on enrollment. Ca you guys talk a little bit anecdotally about the enthusiasm that you're seeing with regard to enrollments, I guess, as it pertains to you being on track. Specifically the trial design as I understand it is pretty burdensome with some of the monitoring that's going on, so can you also speak to how you're getting over those hurdles with regard to enrollment.

Dr. Jeffrey Edelson

Yes, thanks, David. This is Jeff speaking. Your comments are correct. This is a fairly complex study given the number of safety and efficacy parameters that we're examining. The trial population is actually one of the first to examine patients with HSDD and FSAD, Hypo-Sexual Desire Disorder and Female Sexual Arousal Disorder. The two components of FSD. We have a series of end points that are unique to each sub group as well as a mixed population. So it's a fairly complex trial that being said, the uptake from the site has been excellent. We really appreciate the dedication and courage of the patients who participate in such a trial and appreciate the burden that they are bearing on this.

David Moskowitz - Roth Capital

Can you just quickly touch on some of the monitoring that takes place and what is the most burdensome within the trial?

Dr. Jeffrey Edelson

Well, there is a fair survey burden given that most of the diagnostic and efficacy tools here are patient reported outcomes. I would say the survey burden is significant. We also have three 24-hour monitored ambulatory blood pressure assessments that allow us to examine any possible hemo-dynmaic signal that emerges over the program.

David Moskowitz - Roth Capital

So in other words, the patient has to come in and be monitored for 24-hours?

Dr. Jeffrey Edelson

No. These are ambulatory blood pressure measurements following in-clinic dosing.

David Moskowitz - Roth Capital

OK. How long do they have to remain, when you do in-clinic dosing, how long do they have to remain on site for that?

Dr. Jeffrey Edelson

They stay in-clinic for a period of four hours and they're discharged home with the APM device.

David Moskowitz - Roth Capital

Got it. OK. Just with regard to safety, is there anything that you guys can comment on at this point? I imagine there is a DSMB that's monitoring the trial and there's obviously key parameters, blood pressure and some of the other adverse events that we're seeing with the nasally delivered formulation, anything you guys can say with regard to that and any comments or anything out of that at all?

Dr. Carl Spana

I think you hit it. We have a DSMB and obviously we would take any news from them quite seriously and that would be obviously discloseable and you can take the fact that we haven't disclosed anything as a, for what it is. If there was an issue, they'd know it, we'd know it, and I'm pretty sure you'd know it.

David Moskowitz - Roth Capital

Got it. You have a fair amount of patients that have been dosed thus far?

Dr. Carl Spana

We have retained some of you guys, enrollment is going fine, we're on tract. We put our data out. You do the math any way you want.

David Moskowitz - Roth Capital

OK. Excellent. Thanks so much, guys for the update, appreciate it.

Operator

That concludes today's Question-and-Answer Session. Dr. Spana, at this time I'll turn the conference back to you for any additional or closing remarks.

Dr. Carl Spana

Thank you all for participating in the Palatin first quarter conference call. I've certainly enjoyed seeing you guys when I'm out on the road, meeting investors and the analysts. We love keeping you guys informed. We feel that the program is progressing quite nicely. We're very excited about what's going on at Palatin. I think we're very well positioned. As I said, we're financed through some major milestones. Programs are progressing quite well. Just a reminder, if you want a little more information on FSD, please see the website. The presentations are quite informative that are on there.

With that being said, enjoy your day, enjoy your holiday season and I look forward to seeing you when I'm out on the road. Thank you. Bye-bye.

Operator

Ladies and gentlemen, this does conclude today's conference call and we thank you for your participation.

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