Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Fourth Quarter Fiscal Year End for 2012 Call. As a reminder, this call is being recorded.
Before we begin our remarks, I would like to remind you that statements 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 the 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. Please go ahead, sir.
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 updates on our product programs and financial results. To begin, Steve Wills will provide an update on our fiscal fourth quarter 2012 financial results. Steve?
Thank you, Carl, and good morning everyone. Regarding our financial operating results, Palatin’s net loss for the quarter ended June 30, 2012 was $5.3 million or $0.14 per basic and diluted share compared to a net loss of $3.3 million or $0.09 per basic and diluted share for the quarter ended June 30, 2011.
For the year ended June 30, 2012, we reported a net loss of $17.3 million or $0.49 per basic and diluted share compared to a net loss of $12.8 million or $0.64 per basic and diluted share for the year ended June 30, 2011. The change in net loss for the quarter and year ended June 30, 2012 compared to the net loss for the same period of last fiscal year, was primarily the result of costs related to our ongoing Phase 2B clinical trial with bremelanotide for female sexual dysfunction.
In addition, in the quarter ended June 30, 2011, Palatin recognized $1.3 million of non-cash, non-operating income related to our March 2011 public offering, which represented the change to the warrant liability accounting.
Regarding revenue, total revenue for the quarter ended June 30, 2012 which consisted entirely of amounts recognized under our obesity collaboration with AstraZeneca, was $11,000 compared to $155,000 for the quarter ended June 30, 2011. Revenue for the quarter ended June 30, 2011 consisted mainly of grant revenue pursuant to the Patient Protection and Affordable Care Act of 2010, commonly referred to as Section 48D, and also amounts recognized from AstraZeneca.
Total revenues for the year ended June 30, 2012 were $74,000 and consisted entirely of amounts recognized from our collaboration with AstraZeneca. Total revenues for the year ended June 30, 2011 were $1.5 million and consisted of $1 million of grant revenue pursuant to Section 48D, and the remainder from AstraZeneca.
Regarding cost and expenses, total operating cost for the quarter ended June 30, 2012 were $5.7 million compared to $4.7 million for the same period in 2011. Staying on cost and expenses, for the year ended June 30, 2012, total operating expenses were $18.9 million compared to $15.1 million for the year ended June 30, 2011. The increase in costs for the quarter and year ended June 30, 2012 compared to the quarter and year-end June 30, 2011, is a result of cost related to our FSD trial with bremelanotide which is currently in Phase 2B.
Regarding our cash position, as of June 30, 2012, our cash and cash equivalents were $3.8 million and we have current liabilities of $3.5 million. This compared to cash and cash equivalents of $18.9 million and current liabilities of $2.8 million as of June 30, 2011. In July 2012, Palatin closed on a $35 million private placement with the net proceeds after deducting operating expenses, amounting to $34.5 million.
Palatin’s audited financial statements for the year ended June 30, 2012, included in our Annual Report on Form 10-K, includes an audit opinion that contains a growing concern explanatory paragraph from our auditors KPMG related to certain redemption rights for Series B 2012 warrants issued in our July 2012 private placement in the event that stockholders do not approve an increase in authorized shares of common stock by a specific period. Carl?
Thank you, Steve. And now for an update of our programs, starting with our obesity and diabetes melanocortin-4 receptor program which is partnered with AstraZeneca. This program is run under the direction of AstraZeneca. As we have previously reported, AstraZeneca has discontinued development of the clinical candidate AZD2820. This decision was based on a single severe adverse event experienced by an obese patient in a Phase I trial of AZD2820. AstraZeneca has competed an investigation of this severe adverse event and it appears that this severe adverse event was not cardiovascular related, and while not confirmed, it could not be excluded that the severe adverse event was linked to AZD2820.
The investigation further concluded that the severe adverse event did not appear did not appear to be related to the melanocortin mechanism of action. Although the discontinuation of AZD2820 is disappointing, AstraZeneca and Palatin remain committed to the development of the melanocortin-4 receptor agonist for the treatment of obesity. Because of the comprehensive nature of the collaboration, we are fortunate to have multiple classes of backup collaboration compounds in various stages of pre-clinical development.
AstraZeneca has informed us that they remain committed to the continued advancement of collaboration compounds for the treatment of obesity. Based on our discussions with AstraZeneca, it is our expectation that one or more collaboration compounds will move forward to complete pre-clinical testing and enter into clinical development.
Results and proof of principle clinical trials in obese patients with non-commercial compounds that target the melanocortin-4 receptor, showed significant reductions in food intake and weight loss. We believe this clinical data along with earlier work on animal models of obesity demonstrate the significant role that the melanocortin pathway plays in regulating food intake, weight loss, and validates melanocortin-4 receptor as a major target for obesity therapeutics. We believe that therapeutics that target the melanocortin-4 receptor have the potential to 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.
As we go forward, we’re eligible for milestone payments totaling up to $145 million, with up to $85 million contingent upon development of regulatory milestones and the balance on achievement of sales targets plus mid-single to high-single digit royalties on the sales of approved products. AstraZeneca has responsibility for product commercialization, product discovery and development costs.
As we move on, as mentioned by Steve, we concluded a $35 million financing in July of this year. Part of the proceeds from this financing was earmarked to support the progression of our melanocortin receptor and natriuretic peptide programs. One of the areas that we have focused our research efforts is the design and development of compounds that affect the natriuretic peptide system.
The natriuretic peptide system has numerous cardiovascular and pulmonary functions and therapeutic agents modulating this system may be useful in the treatment of pulmonary diseases such as asthma, heart failure and hypertension. Research work at Palatin has generated an extensive library of compounds active at the various natriuretic peptide receptors.
Our clinical candidate, PL-3994, is a selective natriuretic peptide receptor agonist. PL-3994 is a synthetic molecule incorporating a novel and proprietary amino acid mimetic structure and has an extended biological half life when compared to the indigenous hormone, Atrial natriuretic peptide. PL-3994 is in development for treatment of acute exacerbations of asthma, and may have additional utility as a treatment for heart failure and refractory hypertension.
We have conducted two Phase I clinical studies with PL-3994 designed to evaluate the safety and pharmacology of the compound. In these studies, PL-3994 demonstrated the pharmacology expected of a natriuretic peptide receptor agonist, and a safety profile that supports continued development. The lead therapeutic indication for PL-3994 is the treatment for acute exacerbation of asthma, which is defined as an ongoing asthma episode in which asthma symptoms do not adequately respond to initial bronchodilator or corticosteroid therapy. Some patients with acute exacerbations of asthma becomes unresponsive to beta 2 (inaudible) receptor agonist, significant limiting treatment options and increase risk. Patients who do not respond to initial therapy are at risk of severe complications.
We intend to initially target PL-3994 as a treatment for those at-risk, unresponsive patients. As we have previously stated, a key near term objective of our PL-3994 program is to identify a development and marketing partner. To support our business development efforts we have initiated a series of preclinical studies designed to provide additional data that supports the use of PL-3994 as a treatment for asthma. We have also initiated the pre-clinical [tox] studies required to support a nebulized formulation of PL-3994, for inhaled delivery of PL-3994.
I would now like to cover another research areas of interest at Palatin, the melanocortin receptor system. The melanocortin system is involved in a large and diverse number of physiological functions. And therapeutic agents modulating this system may have the potential to treat a variety of conditions and diseases including sexual dysfunction, obesity and related disorders, pigmentation disorders and inflammation related diseases.
Palatin has a long standing research effort in the design and development of therapeutics that affect the melanocortin receptor system. These efforts has resulted in the compound bremelanotide, currently in development as a treatment for female sexual dysfunction, which we are going to talk about in a minute. And the melanocortin-4 receptor selective compounds that are the basis of our obesity and diabetes collaboration with AstraZeneca.
So in addition to these two exciting programs which target the melanocortin-4 receptor, we have accelerated our efforts to bring forward compounds that work through activation of the melanocortin-1 receptor. We are conducting preclinical studies to finalize selection of a number of lead compounds for development as treatment for immune modulation, inflammatory and skin pigmentation diseases. There has been substantial interest in our melanocortin-1 receptor research work and we have begun discussions with potential partners interested in licensing programs in the melanocortin-1 receptor area.
Finally, I will cover our female sexual dysfunction program. Bremelanotide is a melanocortin-4 receptor agonist in development as a treatment for female sexual dysfunction and it is our lead clinical program. Bremelanotide is currently being studied in a Phase 2B clinical trial designed to evaluate its safety and efficacy as a treatment for pre-menopausal women with female sexual dysfunction. We are happy to report that the last patient has completed the study and we anticipate the results from this study early in the fourth quarter of this calendar year.
As a reminder, the main objectives of this trial are to generate the safety and efficacy data to support the transition of this program into Phase 3 registration trials. The trial was designed as a placebo-controlled double-blind study. The study has four parallel arms, one placebo and three bremelanotide doses. This study uses multiple end points to measure the effects of bremelanotide on improving the symptoms of female sexual dysfunction. These include improvement in the number of satisfying sexual events as measured by a validated event log or diary, and changes in arousal, desire and sexual 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 patient population as well. We believe we have designed a comprehensive program to evaluate the safety and efficacy of bremelanotide and if the results of this study are positive they will support the transition of this program in to Phase 3 registration trials. We believe that our bremelanotide female sexual dysfunction program has tremendous potential. There was no FDA approved treatment for female sexual dysfunction and these patients have limited treatment options. We also believe that this area represents a significant area of unmet medical need and substantial commercial opportunity.
So before we open to questions, our efficacy program is on track to deliver data early next quarter for a major Phase 2B clinical study designed to provide the safety and efficacy data to move into Phase 3 registration trials. We were able to secure a substantial $35 million financing to provide the financial resources required to advance our programs. Our PL-3994 program for severe asthma is ready to begin a proof of principle clinical trial. And we have initiated pre-clinical activities on a number of melanocortin-1 receptor programs and our discussions with our potential partners.
Finally, our obesity and diabetes program partnered with AstraZeneca had a setback with the discontinuation of AZD2820, however we remain quite excited by the potential of the melanocortin-4 receptor agonist and a treatment for obesity and will be supporting AstraZeneca’s efforts to move a new clinical candidate into development.
In closing, I would like to thank you all for participating on the Palatin conference call, and we are now going to open the call to questions.
(Operator Instructions) And we will hear first from Joe Pantginis with Roth Capital Partners.
Joseph Pantginis - Roth Capital Partners
Good morning. Thanks for taking the question. Couple of questions if you don’t mind. Let's start with the lead program. With FSD, when you do have the data to present, what will you be presenting? Obviously, you know the top line primary end point but you do have a lot of endpoints that you are looking at. So I wanted to get a sense of what we could expect on the street.
We are going to try and present as comprehensive a picture as we can. There are multiple endpoints in this study. As we said, satisfying sexual events, there are patient reported outcome measures that -- such as the female sexual function index that measured changes in arousal and desire. So we will have that data. And then the important third measure that we have is another a (inaudible) that’s called female sexual dysfunction scale. And that also will have data that we will read out as well.
So we are not going to just say we hit a primary end point in that set. We will give a fairly comprehensive look at the endpoints that we believe are required to move forward into Phase 3, and as well as a good look of the safety of the drug, how it’s performed in this particular population in the study.
Joseph Pantginis - Roth Capital Partners
Well, that’s great. And then if you sort of translate to that with your recent raise, you do have a decent amount of money to move into Phase 3. How quickly do you think you would be able to move into Phase 3 and would the design sort of mimic your current Phase 2B or how should we look at that?
You know, the data coming in, as I said in the October timeframe, so by the time we get full data sets in, move forward to end of Phase 2 meeting, we really are targeting second half 2013 to move into Phase 3 trials. I mean we have a lot of activities that have to be done. Such as the end of Phase 2 meeting, setting up the full trials and then going forward from there. In addition, we also want to allow a little bit of time for potential partnership discussions to play out as well. As we expect we will be having substantial interest in the project.
Joseph Pantginis - Roth Capital Partners
Sure. No, absolutely. And then just switching real quickly over to AstraZeneca. Beyond 2820, obviously you have made a big point though obviously that AstraZeneca still remains committed. They are working on other development compounds. Maybe you could provide a little more color with regard to the stage of those compounds and when we could see some potential news out of those programs.
Sure. I mean I am going to be a little bit restricted here because of, obviously competitive issues and confidentiality concerns on the part of AstraZeneca. But you know the programs they run really -- when we say preclinical, they really run from compounds that are just discovered to compounds that have gone through tox evaluation. So they really approach this with a lot of resources. So it really runs the gamut from close to being able to go into clinic to or [lay] back to vey early.
News flow from here, again, what we can't say is having looked at where they are and what's going on, is we are pretty excited about what they have. I think that they really believe this is a key program and that they have a proprietary position. We will battle within as much as we can to be able to disclose as much as we can, as quickly as we can to the Street. But it’s going to be a battle because they do believe this is a validated mechanism and that they have the answer to solving obesity with this mechanism. And they [really] have a [partner] position. So as quickly as we can we will get it out there but, as I said, they go anywhere from readily going to humans to further back.
We will take our next question from Rahul Jasuja with Noble Financial Capital Markets.
Rahul Jasuja - Noble Financial Capital Markets
Just wanted to go through basically most of the leading programs. Let me start with FSD. So you did talk a little bit about that and the endpoints and so on, but could you -- what's a successful trial? What do you want to tell the Street that will comfort us going into a pivotal study? And then obviously there is, I guess, a lack of experience in understanding FSD from the Street’s point of view. There hasn’t been a lot of drugs in that path. We have had (inaudible) with its use, but what is interesting is a couple of months ago, Sprout reviving Boehringer Ingelheim’s FSD drug and forming a new company around it. So obviously there is huge need there. Could you just comment on those aspects?
Sure. A couple of things here. Let's start from the basics. There have been two ways of measuring efficacy in this indication. And one has been satisfying sexual events which is a very simple counting mechanism. And patients takes the drug or is on the drug that have a sexual encounter and very simple yes or not, was it satisfying. And you count it on a screening period of a base line period and you compare to a period at the end of the study, subtracting, you have got an answer.
You know it’s somewhat of a controversial endpoint and has posed problems for a number of sponsors. The other way of measuring efficacy is using patient reported outcome measures which take a more global look at changes in desire, arousal and distress associated with your sexual dysfunction. And those endpoints tend to probably be tracked with the disease and tend to be probably more relevant to the patient in satisfying sexual events.
And what's happening, from what we can tell from our discussions with people and thought leaders, we are aware of Sprout. As you can imagine we try to do the best in competitive intelligence that we can, the endpoints are changing a little bit here. It’s not clear what Sprout will present to the FDA as the key endpoints for flibanserin. There will be some mixture of patient [supported] outcome measures like the female sexual function index as well as satisfying sexual events. The question is order, which will be primary and which will be secondary. And that’s really what is up for discussion.
The two things that I feel, and we think we believe very strongly on that are very important really, are results on the female sexual function index and then on the female sexual distress scale. Those are the key elements of the diagnosis and they are key elements that need to be improved for the patient to feel that they have gotten better. That’s not to diminish satisfying sexual events, it’s a key endpoint we well, but it probably doesn’t track as well with the disease and is probably not as well related. And trying to read the tea leaves is, I think is going to be some flexibility on which of those are primary endpoints in Phase 3. So we are really looking to hit all of them but clearly we want to hit FSFI and FSDS and have a successful study.
Rahul Jasuja - Noble Financial Capital Markets
And Carl, you know the FDA really hasn’t weighed in with a guidance document of late on FSD, have they?
Well, actually the pulled the typed guidance document that they had out and I think what they are looking for are for responses to come in with well designed Phase 2 programs that have the data that validates why the endpoints you propose for Phase 3 are the ones that are meaningful to the patient and should be there. And that’s what our study is designed to do.
We are looking at three types of endpoints here and the ones that are successful or most relevant to the patients are the ones that we will propose to go forward within the Phase 3. And we will be in the fortunate position to actually have real Phase 2B data from a decent sized study that’s supports the selection of those endpoints. And that’s a little bit different then other sponsors have been
Rahul Jasuja - Noble Financial Capital Markets
All right, thanks. Let me move on to couple of questions on obesity. You know we have that [assay] in that one patient and it was potentially the highest dose. And the healthy volunteers were given that particular dose or higher and there wasn’t an issue. Could you talk to us about, is this AstraZeneca being really conservative, and they probably should do that, but was it a patient specific event, was it a highly compromised patient? It wasn’t an allergic or immune response, it was probably something else. Could you just add to that?
Sure. Again, a couple of caveats here. We didn’t run the study. It’s not in our direction. This is under the direction of AstraZeneca and we have to observe their confidentiality. And again, we weren’t directly involved in working with the site that ran the trial, or handling the SAE or in that nature. So we have been in discussions with AstraZeneca. What we can say is it was not a cardiovascular event. It was temporary related to the administration of AZD 2820 but it couldn’t be definitively said that it was related to the drug or not. And they made their decision. What's important for us is that it wasn’t cardiovascular related and not related to the mechanism of action. I think those are the two key things followed up with the fact that we have a number of great compounds behind that that can go into development quickly. And really we will have to leave it at that because anything past that really becomes speculation.
Rahul Jasuja - Noble Financial Capital Markets
All right. Then finally on to preclinical program. The MCR [pathway] you just alluded to, that seems interesting. What is the -- so you have got cash now, what are the plans in terms of propagating the preclinical programs. And where do you see the path for MCR-1, or is it just MCR-1 or is it MCR-2 as well in looking at future therapeutic areas?
Well, certainly MCR-2 is the ACDH receptor and it’s not been an area for interest for us. We have done a lot of work here that we have not talked a lot about because we have had programs that were in the clinical. In the melanocortin-1 receptor area, and we believe that those compounds are quite interesting. The science behind them has been growing over the last several years, evidenced by the fact that there are now several MCR-1 compounds actually in clinical development for various indications. There is an IBD drug getting ready to enter phase 2 from a Japanese company, and then Abbott bought a mixed MCR-1 receptor for protection of renal damage from ischemic disease earlier this year. So it is an area that is heating up and there is lot of corporate interest.
So we would find ourselves in a very fortuitous position in that we have a comprehensive library of compounds. We have got good pharmacology, good activity in a number of systems and the resources to put to work to bring them forward. And on top of that we have quite a lot of corporate interest. So I we think we can bring a partner in as well to help. So you will see us moving really in the immune modulatory and anti-inflammatory indications with compounds. And as we generate more preclinical data and we make decisions to go forward, we will inform the Street and get strong clarity as to what programs we think are the most promising.
Ladies and gentlemen, that is all the time we have for questions. I would now like to turn the call back over to Dr. Spana for any additional or closing remarks.
I would like to thank everyone for participating on our year-end conference call. Also thank the questioners, there were some very good questions. And with that I would like to say have a great day and we look forward to keeping you informed of our progress and certainly we are looking forward to our upcoming data. We are quite excited here and we think we have a great product in bremelanotide and a number of interesting programs behind that. And I would say we are excited and we are looking forward to data and getting it out to you as soon as we can. So have a great day and talk to you as soon as we have data.
Again, thank you ladies and gentlemen. That does conclude today's presentation. You may now disconnect.
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