Palatin Technologies' (PTN) CEO Carl Spana on Q1 2017 Results - Earnings Call Transcript

| About: Palatin Technologies, (PTN)

Palatin Technologies, Inc (NYSEMKT:PTN)

Q1 2017 Earnings Conference Call

November 15, 2016 11:00 ET

Executives

Carl Spana - President & CEO

Steve Wills - EVP, CFO & COO

Analysts

Joe Pantginis - ROTH Capital Partners

John Newman - Canaccord

Operator

Good morning, ladies and gentlemen and welcome to the Palatin Technologies' First Quarter Fiscal Year 2017 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 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 to you your host for today, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Carl Spana

Thank you and good morning. I am 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 first quarter fiscal year 2017 financial results. To begin, Steve will provide the financial updates. Steve?

Steve Wills

Thank you, Carl. Good morning, everyone. Starting with the first quarter ended September 30, 2016 significant and recent highlights. Regarding our bremelanotide development program for hypoactive sexual desire disorder, or HSDD, earlier this month we reported positive Phase 3 clinical results, both pivotal trials meet the pre-specified co-primary efficacy endpoints of improvement in desire and decrease in the stress associated with low sexual desire reflecting clinical meaningfulness and statistical significance. Carl will give you a more detail on this program during his part of the presentation.

On the financing front, in August 2016, we closed on an underwritten offering of units for gross proceeds of approximately $9.25 million with net proceeds after deducting operating expenses of approximately $8.5 million. We issued approximately 11.5 million shares of common stock and 10-year pre-funded Series I warrants to purchase approximately 2.2 million shares of common stock at an exercise price of $0.01 per share and Series H warrants to purchase approximately 10.3 million shares of common stock at an exercise price of $0.70 per share.

Regarding first quarter fiscal year 2017 financial results, Palatin reported a net loss of $13.1 million or $0.08 per basic and diluted share for the quarter ended September 30, 2016, compared to a net loss of $12.4 million or $0.08 per basic and diluted share for the same period in 2015. The difference between the three months ended September 30, 2016 and 2015 was primarily attributable to the increase in expenses related to our bremelanotide program for HSDD in the quarter ended September 30, 2016.

Regarding revenue, there were no revenues recorded in the quarter ended September 30, 2016 and 2015. Regarding operating expenses, operating expenses for the quarter ended September 30, 2016 were $12.4 million compared to $11.8 million for the comparable quarter of 2015. The increase in operating expenses for the quarter ended September 30, 2016 was the result of an increase in expenses primarily related to our bremelanotide program for HSDD.

Regarding other income and expenses, total other income and expense which was actually expense was approximately $600,000 for the quarter ended September 30, 2016 and 2015 consisting primarily of interest expense related to venture debt. Regarding Palatin's cash positions, Palatin's cash, cash equivalents, and investments were $10.2 million as of September 30, 2016 compared to cash, cash equivalents of $9.4 million at June 30, 2016. Current liabilities were $20.5 million at September 30, 2016 compared to $13.9 million at June 30, 2016.

Palatin believes that existing capital resources will be adequate to fund our planned operations through the quarter ending December 31, 2016. We will need additional funding to complete required ancillary studies, clinical trials, prepare and submit regulatory filings for product approval and establish commercial scale manufacturing capability. Carl?

Carl Spana

Thank you, Steve. Our first quarter fiscal year 2017 operational update will focus primarily on our bremelanotide Phase 3 hypoactive sexual disorder program or HSDD program. The bremelanotide Phase 3 reconnect clinical protocols 301 and 302 have been completed. They were designed as multi-centered, double-blind, randomized, placebo-controlled clinical studies with a four weeks screening period followed by a four weeks baseline period and the subjects were then on 24 weeks of randomized study treatment for a total 32 weeks on study. This was then filed by an open label safety extension trial which is now completely enrolled and still ongoing.

As I'm sure you are aware, in early November we reported that both reconnect studies met their pre-specified co-primary endpoints. Briefly, Phase 3 program randomised 1,267 pre-menopausal women with hypoactive sexual desire disorder and the pre-specified analysis population was the modified intent to treat population which comprised 1,202 subjects. Primary measure of benefit pre-specified co-primary endpoints were the female sexual function index desire domain used to measure improvement in desire in the female sexual distress scale, item 13, which is used to measure the decrease or improvement in the stress associated with the low sexual desires and interest.

As previously reported, treatments with bremelanotide demonstrated both statistically significant and clinically meaningful improvements in both co-primary end points in both Phase 3 studies. In addition, the initial review of the safety data, treatment with the bremelanotide appeared be well-tolerated and the most frequent adverse events were nausea, facial flushing and headache which were generally mild in nature and self-resolving. The safety profile of bremelanotide was consistent with prior clinical experience and no new or unusual safety issues were identified. More information on the bremelanotide Phase 3 reconnect studies can be found on our website www.palatin.com.

Now, with the successful results from the bremelanotide Phase 3 studies, we are focusing our operational activities on completing the additional items needed to file new drug application with the FDA. These include the following; Phase 1 drug-drug interaction safety studies, Phase 1 biodistribution and drug metabolism studies, potential abuse liability program and completion of the bremelanotide manufacturing program. We are working diligently to complete these activities and believe we will be able to file the bremelanotide NDA in the second half of calendar 2017.

Currently the only FDA approved treatment for HSSD is Addyi. 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 pharmacists certifications and patient counselling concerning the risk of using Addyi and drinking alcohol. We believe that bremelanotide, if approved, will play a major role in the treatment for pre-menopausal with HSDD and positive Phase 3 data strengthens this position.

Bremelanotide is highly differentiated from Addyi, being an on-demand product taken only when needed before a sexual event, and not a chronic medication taken every day. In clinical trials specifically designed to evaluate the interaction of bremelanotide with alcohol, bremelanotide did not show any interaction with alcohol. Also, bremelanotide is not a cytochrome P450 inhibitor; we therefore believe that if approved, bremelanotide product label would likely not have alcohol restrictions or a significant risk evaluation and mitigation program.

We are also continuing our pre-launch and commercial activities for our bremelanotide program. These include pricing, insurance reimbursement, packaging and trade name activities. The recent positive Phase 3 bremelanotide results highlight the significant commercial potential of bremelanotide as a treatment for pre-menopausal women with HSDD. We are committed to advancing bremelanotide towards an NDA submission and potential FDA approval. We are also working with potential licence partners as they evaluate the bremelanotide opportunity.

Now moving on to our natriuretic peptide program and PL-3994 early candidate; the natriuretic peptide system is one of the body's primary mechanisms for opposing the disease processes that underlie heart failure. Its functions to lower blood pressure, suppress the rennin angiotensin aldosterone and inhibit cardiac hypertrophy and fibrosis and to protect cardiac and kidney function. The natriuretic peptide system is a well validated but underexploited target for development of the novel heart failure treatments.

Research conducted in academic laboratories and by Palatin demonstrates that PL-3994 has significant effects on reducing cardiac hypertrophy and fibrosis, down regulating the rennin angiotensin aldosterone system and restoring cardiac function without causing significant hypotension. PL-3994 is in development as a treatment for patients with heart failure, with the objective of improving cardiac function, to reduce the patient risk of cardiovascular death and hospitalization. PL-3994 has successfully completed two Phase 1 safety trials and will be moving into a Phase 2 clinical study in the first quarter of calendar 2017.

In addition to our internal activities, we have established research collaborations with multiple leading academic research institutions to help advance our natriuretic peptide program. And we are also currently working with potential partners as they conduct their due diligence on this exciting program.

Now regarding our melanocortin receptor-1 program for inflammation and autoimmune diseases, PL-8177 is our lead candidate. We have conducted and completed activities required to file a new drug application with the FDA and conduct Phase 1 human studies. We are also continuing to make progress with potential partners. And finally, regarding our melanocortin-4 receptor program for obesity and diabetes, we made excellent progress in developing multiple peptide and small molecule lead candidates and continue to work with potential partners as they evaluate this program.

Now summarizing our first quarter fiscal year 2017 operating results are as follows; our reconnect studies 301 and 302 completed all patient enrollment and randomized treatment. Our reconnect open label safety extension trial is now fully enrolled and ongoing. And importantly and excitingly, bremelanotide meet both co-primary endpoints in both Phase 3 studies showing both statistical significance and clinically meaningful effects in treating patients with HSDD. Our natriuretic peptide program to work with our academic collaborators continues to advance and it strengthens our understanding of the role of this system plays in heart failure. And 3994, our lead clinical candidate for treating heart failure is scheduled to begin a Phase 2 clinical trial in the first quarter of 2017.

And finally, our MCR-1 and 4 programs have continued to make progress even though we have limited funding.

I would like to thank all of you for participating in Palatin's first quarter fiscal year 2017 conference call. We will now open the call to questions. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We'll take our first question from Joe Pantginis with ROTH Capital Partners.

Joe Pantginis

Hey, guys. Good morning. Thanks for taking the question. Two questions; first, of course perspective partners are under CDA and have access to the data room. Can you just provide a little more color on whether they have the full extent of the raw data at their disposal? I'm asking to see if they will be able to do their own analysis ahead of public released data and all the secondary endpoints that could help them make their decisions?

Steve Wills

Joe, this is Steve. Short answer is yes. Once you're under CDA in a nice way, everything that we have available that we've done from an analysis and an assessment standpoint for [indiscernible] for HFDD program will be available to those partners that in a nice way we've granted that CDA and they're in advanced due diligence.

Joe Pantginis

No, that's great. Thanks. And maybe for you, Steve, since you're also doing a lot of the blocking and tackling on this, the device, how is our manufacturing capacity and what kind of further investment might you need for that?

Steve Wills

I would say we're at what we call 'stage appropriate', the device -- there is really two manufacturers regarding the device that we have to concern ourselves with. One is Ipsimid [ph] for the actual device, but also Catalin to be able to do the fill and finish. So we are what we believe at definitely stage appropriate from where we stand for the capacity. You start off in a nice way of being semi-automated, but we have to be able to show the FDA by the time we do the NDA filing, say in the second half of next year that we are capable of learning things at commercial scale.

Again, we're stage-appropriate, there's a little more work that we have to do and now I can take your phrase. I think it's more along the lines of blocking and tackling. We have been able to get the required devices we need for Phase 3, both from Ipsimid [ph] and also for the drug product manufacturing from Catalin. So we're really going from the stage of what you call 'semi-automated' to fully automated where we will be able to fully validate the commercial scale capabilities and also be prepared for the launch.

Joe Pantginis

Got it. Thank you very much.

Operator

Our next question comes from John Newman with Canaccord.

John Newman

Hi, guys. Thanks for taking my question. First one I had was just in terms of the partnership; could you remind us again what types of role you're looking to play in the U.S. commercialization of the product of your content? Just taking a royalty if you'd like to be actively involved? And then the second question I have is just [indiscernible] system when we might see the data on satisfying sexual event? Just to confirm the activity that's been seen on that endpoint before? Thanks.

Steve Wills

I'll take the first part of that, then Carl will jump in on the second part. We're flexible. Just to summarize, there's really three types of scenario and in no particular order. You do the more traditional of a compass with a collaboration partner, you get something upfront, you have development, sales milestones, you have the royalties. The involvement of Palatin, in a nice way it's depending. We'll be as involved as necessary. Our expertise is around the development both on the clinical side and also on the CMC side. From the sales and marketing standpoint, we're short guys, but that's not what we play. So our involvement for commercial standpoint will definitely be limited.

There also could be an acquisition of the asset. Several companies as their looking at these types of franchises, it must make more sense for them to just buy the asset upfront. There still could be some type of milestones or royalties on the back end, but that would be another scenario. And the third scenario – and again, we're flexible. It just really depends on what's thoughtful from the valuation standpoint and what makes sense for the shareholders. We have several other programs that probably fit in quite nicely with some of the larger potential collaboration partners that we're chatting with. It could be a sale of the company. We're going to do whatever we think makes the most sense for the shareholders there. Again, I use this phrase about thoughtful evaluation a lot, but that's what it comes down to it. We're in the good position of, we've completed the Phase 3, the efficacy part of the trial and the safety if you will through the Phase 3 – only significant item we have going forward is the open-label extension which is going quite well as planned.

We're in a good position because we hit those endpoints and this is an indication that we know what's happening with the market right now with the drug in front of us. We don't believe there's anything of significance behind us. When I say significant being defined, there's no one through Phase 2. I'm not saying there is no other programs there but no one has finished the Phase 2 program. Is that responsive for you, John?

John Newman

Yes, thank you.

Steve Wills

Okay. Carl?

Carl Spana

Sure. On the secondary endpoints, our [indiscernible] has not yet provided the secondary analysis to us, so I don't have them. We are looking expectingly for the complete set of not just a particular secondary endpoint, we want the complete set of secondary endpoint, so we have a better idea as to the full treatment effect that the product has. I do expect that many of these will be positive and we'll be in the right direction. When we have them and we had a chance to see them, we'll figure out a venue for getting them out there, so that everybody else can see them as well.

John Newman

Okay, great. Thank you.

Operator

That concludes our question-and-answer session. I would like to turn the conference back over to Dr. Spana for any additional or closing remarks.

Carl Spana

Okay. I'd like to thank everyone for participating in our first quarter fiscal year 2017 quarterly conference call. Obviously, it's a very exciting time here at Palatin with the positive data and really moving forward to activities towards a successful NDA filing. And we're looking forward to doing that and we're looking forward to updating you as we continue to make progress with this program and the other programs we have in the company as well. Have a great day. Once again, thank you for participating on the call, and we'll talk to you next quarter.

Operator

And this concludes today's conference. We thank you for your participation.

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