Palatin Technologies' (PTN) CEO Carl Spana on Q2 2016 Results - Earnings Call Transcript

| About: Palatin Technologies, (PTN)

Palatin Technologies, Inc. (NYSEMKT:PTN)

Q2 2016 Earnings Conference Call

February 16, 2016 11:00 AM ET

Executives

Carl Spana - President and CEO

Stephen Wills - EVP, COO and CFO

Analysts

Joseph Pantginis - ROTH Capital Partners

John Newman - Canaccord Genuity

Rahul Jasuja - Noble Life Science Partners

Operator

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Second Quarter Fiscal Year 2016 Conference Call. As a reminder this conference 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 an 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’d like to introduce to you today’s host, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead sir.

Carl Spana

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

On today’s call, we will provide updates on our development programs and our second quarter fiscal year 2016 financial results. To begin, Steve will provide the financial updates. Steve?

Stephen Wills

Thank you, Carl, and good morning everyone. Starting with our recent highlights, regarding our bremelanotide development program for female sexual dysfunction, in December 2015, we completed patient enrollment in our Phase III reconnect study with bremelanotide for female sexual dysfunction. We are progressing as planned and meeting our target objectives. Topline results are expected to be released in the third quarter of calendar 2016. Carl, will give more detail on the program during his part of the presentation.

Regarding our intellectual property portfolio, the United States Patent and Trademark Office has issued a Notice of Allowance for our U.S. 258 Patent Application. The allowed claims are for methods of treating female sexual dysfunction using the formulation and dose used in our ongoing Phase III reconnect study with bremelanotide for female sexual dysfunction and commercialization upon FDA approval. Once issued, the patent is expected to expire no earlier than November of 2033.

Regarding financial results, we reported a net loss of $13.2 million, or $0.08 per basic and diluted share, for the quarter ended December 31, 2015, compared to net income of $2.8 million, or $0.03 per basic and diluted share, for the same period in 2014.

The increase in net loss for the quarter ended December 31, 2015 compared to the net income for the quarter ended December 31, 2014 was primarily attributable to the recognition of contract revenue pursuant to a license agreement in the quarter ended December 31, 2014 and secondarily to the increase in expenses related to our Phase III reconnect study with bremelanotide for female sexual dysfunction in the quarter ended December 31, 2015.

Regarding revenue there were no revenues recognized in the quarter ended December 31, 2015 compared to the recognition of $8 million for the quarter ended December 31, 2014. Revenue for 2014 consisted of the recognition of $4.9 million in license revenue plus $3.1 million from the achievement of a development milestone upon the start of the reconnect study with bremelanotide for female sexual dysfunction in the United States. This was under a license agreement that was subsequently terminated.

Regarding operating expenses. Operating expenses for the quarter ended December 31, 2015 were $12.6 million compared to $5.7 million for the comparable quarter of 2014. The increase in operating expenses for the quarter ended December 31, 2015 was a result of higher period cost primarily related to our Phase III reconnect study with bremelanotide for female sexual dysfunction.

Regarding other income and expenses, total other expenses net was approximately $600,000 for the quarter ended December 31, 2015 consisting primarily of interest expense related to the outstanding debt compared to $100,000 for the quarter ended December 31, 2014, which consisted primarily of foreign exchange expense.

Regarding Palatin’s cash position, our cash, cash equivalents and investments were $33.4 million as of December 31, 2015 compared to cash and cash equivalents of $27.3 million at June 30, 2015. Current liabilities were $10 million as of December 31, 2015 compared to $7.4 million as of June 30, 2015.

We believe our existing capital resources will be adequate to fund planned operations through the quarter ended September 30, 2016 assuming our Phase III reconnect study with bremelanotide for female sexual dysfunction is successful as to which there can be no assurance we will need additional funding to complete submission of required regulatory applications to the FDA for bremelanotide for female sexual dysfunction.

Carl?

Carl Spana

Thank you, Steve. Our second quarter fiscal year 2016 operational update, we will focus on our bremelanotide Phase III female sexual dysfunction program. The bremelanotide Phase III reconnect study protocols 301 and 302 are multicentered, double-blind, randomized, placebo-controlled clinical studies with a six-month randomized treatment phase and open label safety extension phase.

The clinical trials are designed to randomize 1,100 women, which is approximately 550 in each trial to evaluate the efficacy and safety of subcutaneous bremelanotide in premenopausal women with hypoactive sexual desire disorder as an on-demand, as-needed treatment.

The bremelanotide reconnect studies are progressing on schedule. We are now fully enrolled in both Phase III reconnect studies. As we have previously stated, this puts us on track to have topline data by the third quarter of calendar 2016 and if positive to file an NDA in the first half of 2017.

In addition, the BMT or bremelanotide open label safety extension study is also actively enrolling patients and is progressing as planned to meet our timelines for an NDA submission. Over the past year female sexual dysfunction fields has seen major positive changes with the approval and launch of Addyi, the first FDA approved treatment for women suffering with female sexual dysfunction.

The Addyi label contains contraindications for the use of alcohol and drugs that are moderate or strong cytochrome P450 inhibitors. In addition, the Addyi label has a risk evaluation and mitigation program that requires both physicians and pharmacist certifications and patient counseling concerning the risk of using Addyi and drinking alcohol.

We believe that bremelanotide, if approved will play a major role as a treatment for premenopausal women with hypoactive sexual desire disorder. Bremelanotide is highly differentiated from Addyi. BMT is an on-demand product taken only when needed before a sexual event not a chronic medication taken everyday like Addyi.

In clinical trials specifically designed to evaluate interaction of bremelanotide with alcohol BMT did not show any interaction with alcohol. Also BMT is not a cytochrome P450 inhibitor. We therefore believe that it’s likely that if approved bremelanotide product label would not have alcohol restrictions or a significant risk evaluation and mitigation program.

In light of the above events and the significant progress of the bremelanotide Phase III clinical trials we have received increased interest from potential licensing partners. We believe that there is a substantial global market for bremelanotide and we continue to make progress with our licensing activities, working with potential partners as they conduct their due diligence. At this time we cannot predict when or if such an agreement will be entered into.

Moving on to our natriuretic peptide program and our clinical development candidate PL-3994. Natriuretic peptide system is an endogenous system that provides critical compensatory actions that oppose the pathophysiological changes caused by heart failure.

Natriuretic peptide system is one of the body’s primary mechanisms for opposing the disease process which underlie heart failure. It functions to lower blood pressure, suppress the renin angiotensin aldosterone system, and inhibit cardiac hypertrophy and fibrosis and protect cardiac and kidney function.

The natriuretic peptide system is a well validated but underexploited target for the development of novel heart failure treatments. The high value of targeting the natriuretic peptide system as a treatment for heart failure was demonstrated by the recent FDA approval of Entresto, a product that combines angiotensin receptor blocker valsartan with a neutral endopeptidase inhibitor. Entresto works in part by increasing activity in the endogenous natriuretic peptide system.

In Phase III clinical trials Entresto significantly decreased mortality due to cardiovascular causes, reduced hospitalizations and improved the quality of life of heart failure patients. We believe the Entresto data validates natriuretic peptide system as a treatment for heart failure and then highly likely that upregulation of a natriuretic peptide system will become part of the standard of care for heart failure patients.

Our natriuretic peptide program with multiple approaches is uniquely positioned to take advantage of this emerging paradigm shift in the treatment of heart failure. PL-3994, our lead drug candidate is a natriuretic peptide receptor A agonist is in development for patients with heart failure designed to reduce the risk of cardiovascular death and hospitalization.

In addition, the general heart failure patients we believe that PL-3994 also has potential to benefit heart failure patients with a loss-of-function core mutation or other clinically meaningful natriuretic peptide efficiencies, which are patent populations that are particularly resistant into current standard of care, Corin is an enzyme that converts the inactive prohormone into active natriuretic peptides.

PL-3994 has successfully completed two Phase I safety trials and we planned to initiate multiple ascending dose study in heart failure patients in the first half of 2016. Our pre-clinical and clinical studies show that PL-3994 increases circulating cyclic GMP levels, diuresis, natriuresis, inhibits renin angiotensin aldosterone system and also decreases systolic and diastolic blood pressure, while inhibiting cardiac remodeling in fibrosis. In addition to our internal activities we are also currently working with potential partners as they conduct due diligence on this exciting program.

Regarding our melanocortin receptor-1 program and PL-8177, our lead candidate has completed our activities required to file an NDA with the FDA and conduct Phase I human studies. We also continue to make progress with potential partners. And finally, regarding our melanocortin 4 receptor program for obesity and diabetes, we have made excellent progress in developing multiple lead candidates. And our business development efforts are continuing to advance nicely as well.

In summary, we continue to make significant progress towards meeting our long-term strategic objectives. The Bremelanotide Reconnect Phase III pivotal registration program is now completely enrolled and topline data from these studies is on track for the third quarter of calendar 2016.

We have designed a comprehensive Phase III program that if successful will provide the safety and efficacy data to support regulatory submissions or the approval of bremelanotide as a treatment for premenopausal women with sexual dysfunction. The FDA approved the first treatment for female sexual dysfunction in August of 2015. We believe this is a major positive for the female sexual dysfunction field and reduces the regulatory risk in the U.S. for bremelanotide and we continue to make progress with potential global licensing partners.

Recent clinical data indicates natriuretic peptide system has the potential to play a key role in the treatment of heart failure. Our pre-clinical and clinical work for our lead candidate PL-3994 puts us in a good position to take advantage of this emerging paradigm shift in the treatment of heart failure.

And finally, our Melanocortin 1 and 4 programs continue to make substantial progress and we look forward to providing more detailed update on these exciting programs sometime in the future.

I would like to thank all of you for participating in Palatin's second quarter fiscal year 2016 conference call. We’ll now open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Joe Pantginis with ROTH Capital Partners.

Joseph Pantginis

Hey guys, thanks for taking the question. Carl and Steve I want to focus my question basically on your top two products and regarding the competitive landscape and your ongoing due diligence with potential partners. For the BMT program has the tenor changed or how have the discussions changed following the launch of Addyi since it's been lower than expected with regard to how partners might view BMT.

And on the 3994 side, I have the impression that Entresto has also been seeing some potential headwinds as they launch this new drug how might you be potentially differentiated and have any of the Entresto data guided your plans in anyway for the Phase II? Thanks a lot.

Carl Spana

Sure. Joe, certainly I’ll start and Steve will certainly jump in and comment. The approval of Addyi and its launch certainly has changed the nature of discussions we’ve been having around bremelanotide. It’s pretty clear there – it’s going to be two products in this marketplace assuming bremelanotide Phase III is successful. And I think many of the partners that we’re talking to did look at that product I think feel that bremelanotide maybe the best product out there.

So really the seriousness with which partners have looked the due diligence that we’re doing has changed. So we are quite optimistic that they were serious looking – the companies are seriously looking every bremelanotide and it’s doing quite well in its diligence. When we’ll get a deal done that I don’t know, but certainly we feel pretty good about what we have and how we’re being looked at it. Steve I don’t know if you want to comment a bit more.

Stephen Wills

Yes. This is Steve. Thanks for the question Joe. We continue to have significant strong interest from multiple parties regarding the female healthcare space. As Carl mentioned there's one approved product with Addyi and we’re the next one up with our bremelanotide. And again no question and Valeant has stated the same thing. The launch, the initial numbers are below what they had expected.

They have come out with guidance for 2016 where I believe they’ve given guidance of $100 million to $150 million for the calendar 2016 annual sales. Carl will go into maybe more detail regarding the differentiating factors, but we’re comfortable and the partners that we’re talking to are comfortable enough that there's significant differentiating factors that there is interest – very strong interest with our program.

We - doing a deal say before the data there is pluses and minuses to that versus post the data. Obviously post the data with things being positive there's a significant increase in value. We have the flexibility to have those conversations. The data is coming out late third quarter in the September timeframe. So we’re doing what we need to do from the Phase III trials, dotting the Is and crossing the Ts, there's nothing that’s jumping out at us from the metric tenets that we look at just about every day.

And we’re doing some things to illuminate the asset, the bremelanotide for female sexual dysfunction program, in the marketplace. And that includes some branding that we’re working on now to also including the education and awareness in the marketplace. So we’re – we liked it, we frankly would like Addyi to do better in the marketplace and we do believe they've made some changes and we fully expect that they will do better as they go forward.

Carl Spana

Hey Joe, I’ll answer the second part of your question concerning our natriuretic peptide program PL-3994. You are correct Entresto was approved at about the same time as Addyi was approved in summer of 2015. Sales in the year were tracking I think a little bit over $0.5 billion probably first year, which maybe a little bit less or less than what may have been anticipated.

I’m not too surprised by that in that Novartis is really trying to establish a paradigm shift in how the general heart failure patient is treated and moving patients that are currently on generic ACE inhibitors to Entresto, which is a branded product with a premium price and it will take them some time in the marketplace to drive reimbursement, getting on formularies, getting treatment guidelines in place, continuing to put more clinical trial data out; it does appear however that they are committed doing that.

And I think from our conversations with KOLs and others, they will be successful over time and there are certain marketplaces particularly in Europe where you are seeing very high adoption because of the clinical value that product does bring and I think it will be only a matter of time until it begins to happen here as well.

With that being said there has been an explosion of the science behind natriuretic peptide system and the value that it really has of potentially treating heart failure patients and it’s probably - this needs to be a subject of a more long in-depth discussion. What we find ourselves is in a very unique position to have direct acting agonist that are very drug like, meaning these are peptides that can be - are stable, can be given once a day or put into the [indiscernible] or longer-term formulations that allow for chronic treatment with a direct acting agonists and many patients will require that, they will require more upregulation to natriuretic peptide system than a product like Entresto can have.

In particular, the genetics around heart failure, in particular the natriuretic peptide system are quite compelling, there were a number of mutations particularly the corin mutations in African Americans where we know the system is down regulated, their outcomes are particularly poor, they are not responding to standard therapy.

Our preclinical work particularly with collaborators at Temple University have shown that when we go back into animals with corin knocked out in the heart for example, we can rescue their heart failure phenotype quite nicely and that was data that was presented this September at American Heart Association and is being submitted for publication.

So what you'll see from us in addition to the clinical trial work is we have multiple ongoing academic collaborations and they’re going to start to readout data really showing the value of this system, the value of what we have. It is beginning to be recognized in the business development front as well, there is always a lag period when larger companies start to realize that an indication is reopening up, [indiscernible] are opening up and we’re beginning to see that transition now. We had quite a lot of interest at JPMorgan and it’s continuing to grow. So we’re optimistic that as we continue to push this program forward we will match that with a good collaboration.

Joseph Pantginis

Great. Thanks a lot guys. A lot of helpful information. I appreciate it.

Operator

We’ll go to John Newman with Canaccord.

John Newman

Hi, guys. Thanks for taking the question. So I just wondered if you could talk a little bit about whether if we look forward a bit for bremelanotide program. Are there other things that you would expect the FDA to look at that would be different from what we’ve already seen with Addyi or would you expect them just to consider sort of – some of the same questions [in earnings] [ph] when it comes to an approval? Thanks.

Carl Spana

Thanks for the question John. The key endpoints, the primary endpoints in our Phase III program and the Addyi program are indeed identical so we are looking at the [indiscernible] satisfying sexual events as well as an improvement in desire as measured with the Female Sexual Function Index desire sub-domain and then the key secondary endpoint is the decrease in distress using question 13 from the female sexual distress scale.

So the endpoints are the same, so I would expect that the basis of benefit will be identical, obviously the risk benefit analysis will be different for bremelanotide versus Addyi. Bremelanotide is not a chronic medication so patients aren’t on it chronically, they’re only taking it as needed. These patients average about 3 to 4 doses per month. So we have a much better matching of benefit of the drug versus the risk that you are taking bremelanotide, you are having sexual encounter, you are getting the benefit and then when you're not involved in sexual encounter you are not on the drug.

So we think that's very favorable, but certainly we expect just like they do with Addyi, they will give a very strong look at the risk side of the equation. The FDA has been clear that’s – although this is an important indication and requires and is needing multiple-drug treatment, it’s not a life-threatening indication and therefore the risk-benefit analysis will be thorough and we’re preparing for that. We are making sure that we have all of our ducks in a row, all of our pre-clinical studies and our safety studies are up to speed and support a approval.

John Newman

And moving over to the natriuretic peptide program. Could you talk about what your plans are there in terms of additional clinical work or would you at this moment wait until you complete the program for bremelanotide to consider starting additional clinical studies for the natriuretic peptide?

Carl Spana

We are scheduled – the next study for PL-3994 is a – we call it a Phase IIa study so it’s a study in heart failure patients who will be looking at multiple ascending doses in heart failure patients over a short duration time point. It’s more of a – with a safety regulatory study that’s required before we can actually send patients home for an extended period of time to really look at overall benefit of the drug.

However, with that being said we’ll get a lot of useful information on a number of markers of heart failure in the study. So it’s not overly expensive study, but it is one that we should be able to get started as the second quarter ends third quarter begins and it is in our plan than in our financial model that Steve went through.

John Newman

Great, thank you.

Operator

We’ll go next to Rahul Jasuja, Noble Life Science Partners.

Rahul Jasuja

Hey guys, good morning. So just a few more questions on maybe each of the main areas. Regarding the FSD program and some of this maybe little redundant, but do you guys think that the slow uptake of Addyi is related to all of these factors I’m going to state or one of them. Number one, the factor that’s daily use and it takes about two or three weeks for patients to really see entrenched efficacy or is that the REMS and the issues with sort of clinicians being certified and so on. Could you discuss those issues, if all of them are barriers or just one of them or and how is the interface with your take on BMT?

Carl Spana

Sure. I’ll give you my opinion I guess which is I guess which should be somewhat educated based on our discussions with KOLs and what we see. Clearly in launching a product like Addyi because of their restrictions the marketplace does need to be educated a little bit more and probably maybe had the people wanting that and spend a little more time getting the physician certified and the pharmacy certified and spending more of an educational process it would have had a better launch, so certainly all of those things impact.

With that being said, I think Valeant understands what went wrong. I think they are correcting those issues and certainly this will require education. We’ve been doing a fair amount of commercial work led by Steve and we are learning a lot about the marketplace how OB/GYNs think about sexual dysfunction how primary care physicians that treat women, think about it with the messages are going to be required to do that. And let’s keep in mind that Valeant didn't have a – didn’t run the Phase III program for the product and therefore it wasn't necessarily engaged in commercialization works prior to the NDA submission during the NDA process.

So there is a lot of catch up work that’s going on there. That will be the beneficiary, they will begin educating, they will be making presentations at major meetings which haven’t occurred before and for example at ACOG at American Neurology Association there will be – having seminars there. So I think the educational process is started I think the registration process for physician and pharmacies are started and we would expect that this should be an uptick in prescriptions for that drug.

Rahul Jasuja

Okay. That’s good, that’s helpful. And then – okay so by the way what have you guided that there is a number on the cost of launch just in case you plan to sort of take it on your own or is that something that’s not discussed internally that the cost of launching BMT?

Carl Spana

I am going to let Steve to answer that.

Stephen Wills

It’s absolutely discussed internally we have a number of different budgets and models that take the program past the data point say in the third quarter of this calendar year to the NDA filing, to the approval and a nice way including the launch of the product. We try to just make sure we are covered for all the various scenarios.

I don’t want to say the most likely one is that we have a partner post the data it's a matter of where we are looking at partnering before the data, post the data and possibly even further down the pathway, so we believe we’re prepared whichever way it ends up going.

Rahul Jasuja

And Steve you haven’t discussed or provided any details on the numerical value of the cost of launch right?

Stephen Wills

Well, when you say the cost of the launch it’s more – we sort of break this out into segments. I mean we have disclosed very specifically the amount to get us through the spend which was going into calendar 2016 and this was public. It would be approximately $30 million for calendar 2016 expenditures then you have the expenditure for the NDA filing, which we’ve publicly stated is the first half of calendar 2017.

And that filing includes not just the clinical trials there's some CMC issues that we need to address and not just a Phase III trial there is the drug interaction trials things of that nature. We have not disclosed the exact number yet; it's going to be a standard customary number could be another $30 million to get us to that stage is probably in that range, but that range includes significant commercial launch readiness.

So when you break it out between what would it take to justify the NDA that's a much less number, but if you’re taking the program forward in a nice way you either in or you not in and that includes making sure the education is in place, the branding is in place or moving or progressing if you will for launch readiness, building inventory all those things. It's not a faucet that you just turn on Tuesday and you have it available on Wednesday. So we actually have full Gantt chart going out to – actually through calendar 2018 because of things are positive with the data we would then have the filing and the approval would be in the first half of calendar 2018.

I will tell you that we have – there’s only so many people here at Palatin and only so much expertise that we have from the full-time employee standpoint and we do utilize a number of outside consultants and key opinion leaders. We did hire a Commercial Officer, Head of Commercial Operations here at Palatin in the fourth quarter of calendar 2015 and that's just to make sure we’re doing the things that we need to do.

This person comes with a significant background not just in the sales and marketing, but also in the female healthcare space and she has been extremely helpful with our discussions and negotiations as we talk to potential collaboration partners.

Rahul Jasuja

Thanks. Then I’ve one more question on the 3994 program. So and maybe this is for Carl. Carl, the Novartis study was actually halted at the interim analysis based on superior efficacy in the treatment arm for a drug and a clinical trial that was so well run and showed this kind of efficacy. Would we not expect interested to do even better you’ve sort of talked about the fact that it’s taking longer. What are your thoughts there in terms of the fact that the efficacy was robust, but the market is not accepting this as it normally as it should?

Carl Spana

Well so couple of things, one is that Steve led the charge on was taking it a first commercial look at the heart failure space and the role that the product like 3994 Entresto would play there. That was really designed to help support our business development efforts and to give help support our development of 3994 if you are bringing in more of a commercial view a little bit earlier because heart failure is a very big space extend to develop products and a competitive space and we did learn a couple of things there that are interesting.

It is indeed true; Novartis ran a very nice Phase III clinical trial. It showed robust results. But let’s keep in mind those were stable heart failure patients they are treated with predominantly generic medicine today. There was a criticism of that study that maybe have a – up to doses of those generic medications that they may have seen a smaller spread on the benefit.

With that being said, it’s an educational process, you have to get physicians, cardiologists in particular view heart failure as a progressive disease. So you don't take people off drugs you actually had drugs on to use Entresto, you have to take the patient off the ACE inhibitor and put them on Entresto. That’s something that requires education that requires there would be guidelines, their professional organization guidelines which are not yet in place.

So I think what you will see is they are the tremendous value to Entresto. It will be a $1 billion product. It's going to take some time in education and Novartis's is committed to doing that and does have the resources and the time to do that. So we remain very optimistic on natriuretic peptide system as a treatment for heart failure I mean what they did was quite astounding and I think we can match that and do better in the significant of heart failure patients as well.

Rahul Jasuja

Okay. Great, thanks. That’s all I had.

Carl Spana

Thank you.

End of Q&A

Operator

It does conclude today’s question-and-answer session. Mr. Spana at this time, I would like to turn the conference back over to you for any additional or closing remarks.

Carl Spana

Well, thank you. Thank you everyone for participating on Palatin Technologies second quarter fiscal year 2016 conference call. We look forward to continue to update you progress on bremelanotide and where the programs has been very strong. We’re very excited here and look forward to updating you on the next call. Thank you.

Operator

And this does conclude today’s conference. Thank you for your participation. You may now disconnect.

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