Palatin Technologies' CEO Discusses F2Q2012 Results - Earnings Call Transcript

| About: Palatin Technologies, (PTN)
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Palatin Technologies Inc. (NYSEMKT:PTN) F2Q12 Earnings Call February 15, 2012 11:00 AM ET


Dr. Carl Spana - President & CEO

Steve Wills - CFO & COO


Rahul Jasuja - Noble Financial

David Moskowitz - Roth Capital

Adam Selkin - Chardan Capital Markets


Good morning, ladies and gentlemen and welcome to the Palatin Technologies second quarter fiscal year 2012 conference call. As a reminder, this conference call is being recorded.

Before we begin our remarks, I would like to remind you that statements by Palatin that are not historical facts maybe 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 you to your host for today, 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 updates on our product programs and financial results. To begin, Steve Wills will provide an update on our fiscal second quarter 2012 financial results. Steve?

Steve Wills

Thank you, Carl. Good morning, everyone. First of, I just want to put out an FYI that inadvertently Dow Jones wire services picked up on their tagline regarding Palatin’s operating results that we had $1.9 million of cash and cash equivalents. The actual figure is $11.9 million, so inadvertently they dropped the one and we are working with Dow Jones to correct that.

Regarding our results, Palatin’s net loss for the quarter ended December 31st, 2011 was $2.6 million or $0.08 per basic and diluted share compared to a net loss of $1.1 million or $0.09 per basic and diluted share for the quarter ended December 31st, 2010.

The increase in net loss for the quarter ended December 31st, 2011 compared to the same period last fiscal year was attributable to costs related to our ongoing Phase 2b clinical trial with bremelanotide for female sexual dysfunction and a decrease in grant and contract revenue. The decrease in net loss per share reflects the impact of a greater number of shares outstanding in the quarter ended December 31st, 2011 compared to the same period last fiscal year due to our sale of shares of common stock in March 2011.

Regarding revenue, total revenue for the quarter ended December 31st, 2011 was $11,000 which consisted entirely of amounts recognized under our collaboration agreement with AstraZeneca. For the quarter ended December 31st, 2010 we recognized revenue of $1 million consisting of $200,000 pursuant to our collaboration with AstraZeneca and $800,000 in grant revenue received under the Patient Protection and Affordable Care Act of 2010.

Regarding cost and expenses for the quarter ended December 31st, 2011 total operating expenses were $3.7 million compared to $2.9 million for same period in 2010. The increase in operating expenses for the quarter ended December 31st, 2011 compared to the comparable quarter in 2010 was primarily due to costs related to our ongoing Phase 2b clinical trial with bremelanotide for female sexual dysfunction.

Regarding our cash position, our cash and cash equivalents as of December 31st, 2011 were $11.9 million, again $11.9 million not $1.9 million. We also reflected $1.1 million in accounts receivable due from the sale of New Jersey State net operating loss carry forwards which we received upon in January of 2011. Our current liabilities amounted to $2.2 million as of December 31st, 2011.

Cash and cash equivalents as of June 30, 2011, our last fiscal year end were $18.9 million with current liabilities of $2.8 million. We believe based on our current operating plans that our cash and cash equivalents will be sufficient to fund our operations through at least calendar year 2012. Carl?

Dr. Carl Spana

Thank you Steve and now I am going to update on our programs. I will start with obesity and diabetes, melanocortin-4 receptor program which is partnered with AstraZeneca. This program under the direction of AstraZeneca continues to make substantial progress. In 2011, Astra designated lead compound AZD2820 which was developed by Palatin as a candidate for clinical development.

AstraZeneca has completed a Phase 1 study with AZD2820 and results from this study indicate that AZD2820 has a safety and pharmacokinetic properties for further development.

AstraZeneca plans to conduct a second clinical study in obese subjects that will evaluate the safety and the acceptable food intake of AZD2820. The details of this study can be found on the website, and is our understanding that this study is anticipated to start in this calendar quarter.

The commercial drug candidate AZD2820 is melanocortin-4 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 and proof-of-principle of 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 in 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 demonstrate the safety and efficacy required for approval and 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.

We’re eligible for milestone payments 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, product discovery and all development costs.

Moving on to PL-3994 our natriuretic peptide receptor agonist in development as a treatment for acute exacerbations of asthma which is defined as an ongoing asthma episode in which asthma symptoms do not adequately respond to initial bronchodilator or corticosteroid therapy.

As we have previously stated, a key near-term objective for our PL-3994 program is to identify a development and marketing partner and once we do that, to initiate clinical studies we are in discussions with multiple potential partners that we believe have the development, regulatory and commercial resources to assist us in advancing this exciting program.

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.

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. We are targeting to enroll 100 pre-menopausal female dysfunction patients per arm for a total of 400 patients.

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 validated event log or diary and 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 patient population.

The bremelanotide Phase 2b study of female sexual dysfunction patients initiated enrolment in June of 2011 and is on schedule to complete patient enrolment this quarter and we remain on track to release top line data in the second half of calendar 2012. 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 as there our no FDA approved treatment for female sexual dysfunction and these patients have limited treatment options. We believe that female sexual dysfunction represents a significant area of medical need in a substantial commercial opportunity.

So in closing we continue to make significant progress in advancing our programs. Our bremelanotide female sexual dysfunction program will complete patient enrolment this calendar quarter in a major Phase 2b clinical study designed to provide the safety and efficacy data to move into Phase 3 registration trials. This program remains on schedule to deliver top line data in the second half of 2012.

Our PL-3994 program for severe asthma is ready to begin a proof of principle clinical trial and we are in discussions with potential partners. And finally our melanocortin-4 receptor obesity and diabetes program, which is partnered with AstraZeneca has achieved a significant milestone is completing its first clinical study. We are quite excited that AstraZeneca has made the decision to continue to progress AZD2820 and will begin the next clinical study this calendar quarter.

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.

I would like to thank you for participating in the Palatin fiscal second quarter conference call and we will now open the call for questions.

Question-and-Answer Session


Thank you. (Operator Instructions) We’ll take our first question from Rahul Jasuja from Noble Financial.

Rahul Jasuja - Noble Financial

Hi, good morning guys. Just a couple of questions on the FSD space and then one on the AstraZeneca partnership. Let met start with FSD. One of the issues that has been discussed actively in the FSD space is the potential for a high placebo response. How would you want us to think as to how the mechanism of action of bremelanotide against MCR-4 based agonists. Or the clinical trial design can mitigate such aspects of high placebo response maybe on demand kind of therapy versus chronic of the things. And secondly how driven out these pre-menopausal women compared to say the postmenopausal and are there any co-morbidities that the postmenopausal have that the pre-menopausal don’t have?

Dr. Carl Spana

Such a lot of questions here. So let me try to take them one at a time and I think one of things we have touched on is the potential for placebo response or an increased placebo response in clinical trials in patients with female sexual dysfunction and its certainly has been seen in another large programs most recently the one conduct by BioSante. We’ve been in a pretty good position at Palatin because we were aim to look at some of the other programs that has gone before us and look at some of the ways those studies were conducted and some of the parameters around how those studies were conducted and it began to incorporate some different thinking about how this trials can be conducted, substantially minimize or better characterize the placebo effect and the impact it may have on your results.

So from a medical standpoint we are taking a product that is certainly taken on demand. So there is a very strong correlation between cause and effect. One is going to engage in sexual intercourse, take the product, have sexual intercourse and if there is a benefit you can relate that very nice to the fact that you took treatment intervention as opposed to more chronic therapy that she may take disassociated from what is needed. Meaning they may take it every morning or every night and then you have to try to, remember try to relate that has some benefit when you are having an encounter.

So that’s one aspect where we are different. So more chronic medication, more chronic approaches. Other thing we have done, we were able to and looking that currently we are enrolling. We are very fortunate in that Boehringer Ingelheim had published the results of their study with flibanserin in the same, very similar patient population, pre-menopausal women with FSD. And we were able to take a look at what the placebo response rate was in that study and to incorporate that in our calculations or power calculations or statistical calculations for this study. So I think we will have a much better handle on what we might see as a placebo response.

And finally we have incorporated a number of screening and clinical design parameters and I don’t want to go into them because the trial is ongoing and this is going to be posted for people to see. So I don’t want potential patients to be blinded or to think about that design. That would minimize the potential effect of placebo on the trial. And these types of things have been taken from other discipline such as depression studies, pain studies where placebo response rates can be higher. So I think overall we really attack that potential issue and incorporated a number of elements that we feel give us a really good shot at seeing a very clear drug affect in the patient population and set us up for Phase III.

I think there is some other parameters asking about commodities and patient enthusiasm. Certainly, this study from patient enthusiasm standpoint, we get many, many women coming in for screening. So, many of them of course, need a formal definition and they’ll commit to the study but it certainly indicates that the demand for these products is very high. We have many, many patients coming in. So, that allowed us to get this trial done very quickly. So, we do believe that based on what we can see from patient recruitment that the demand for this type of product is very high and we expect that there will be a lot of use, should we be fortunate to get approval of the product.

From a co-morbidity standpoint. I mean, there is no distinguishing characteristics that we can tell that concur with disease or with other dysfunctions.

Rahul Jasuja - Noble Financial

So, between postmenopausal and pre-menopausal are really, it’s not the case with the postmenopausal women are sicker or something. That’s not true?

Dr. Carl Spana

No, that’s not the case. I mean, the phase, the certainly hormonal status is different because there are postmenopausal. They have other charge-offs-morbidities, such as they probably have higher rates of diabetes and cardio-vascular disease, in general will help that may impact their perception of FSD and their desire to use female sexual dysfunction products. But certainly for us, we focus on the pre-menopausal population because it’s larger than the postmenopausal population and they are more sexually active. So, they’re a larger market opportunity.

Rahul Jasuja - Noble Financial

I have one more question, then I will get offline. This is about the AstraZeneca MCR-4 partnership. Could you provide some color to MCR-4 as target for obesity and diabetes? And also maybe in the context, if at all, it’s relevant, to the other obesity drugs and some of them are coming up for a review, or rather re-review? Thanks.

Dr. Carl Spana

So that’s a very good question. The melanocortin-4 receptor is predominantly found in regions of the hypothalamus that are involved in regulating food intake and energy expenditure. We do know that loss of function of that receptors and subsequent signaling pathway does lead to early onset of obesity and diabetes in humans as well as animals. And it does appear to play it is a key function in both food intake and energy homeostasis.

Now we also know that many of the agents that bring about reduction in food intake actually require function of MCR-4 receptors so for example the majority of the effect that leptin has in reducing weight requires an actually functioning MCR-4 program. Based on my understanding of mechanism of action for some of the other drugs. For example we know that the Arena product certainly needs a functioning MCR-4 to bring about its weight loss. Based on literature we would assume that Arena product would capture and probably does as well. So we do know that some of these things have been tried, they are in development or activated in the same pathway. We believe that we are in better position because we are further down, probably less chance for side effects or target effects based on where the MCR-4 receptor is in the reduction pathway. So we know that we are in a key place and we know that the sample size we have done in a preliminary clinical results that we generated with not much of compounds would clearly indicate that you can drive substantial reduction in food intake and weight loss with an MCR-4 agonist.


We will go next to David Moskowitz with Roth Capital.

David Moskowitz - Roth Capital

The first serious question is, I jumped on the call a little late; did you guys talk about whether or not the trial enrollment is still on-track? Do you expect to complete the trial enrollment this quarter? And also could you give us an update on the status of the potential oral formulation for BMT for FSD? Thanks.

Dr. Carl Spana

So, we are definitely on-track. We will complete enrollment this quarter and we will have top-line data in second half of this calendar year. So the program David is absolutely on-track and quite frankly from what we can tell, we've been very pleased with the recruitment rates and the patients we’re getting into the study, so we think its going to be a really good study for us we could tell. The second part was, I think you asked about potential for oral formulation for bremelanotide?

David Moskowitz - Roth Capital

Yes; and the status of that?

Dr. Carl Spana

Sure. We are working with a number of companies that have technologies for oral formulation of peptides for oral delivery. I am sure you are familiar with some players in that space. And the preliminary results are only with small numbers of animals, but they are encouraging and we are going to continue to push down that pathway. Certainly, more probably are ready for a Phase 3 start, but it certainly is a goal for us to make sure that we have a clear read as whether or not oral delivery is possible for this; and if so, we certainly will aggressively pursue that. And I think we’re working with the right companies that bring the right technology for this.


We’ll take our next question from Adam Selkin with Chardan Capital Markets.

Adam Selkin - Chardan Capital Markets

Hey guys, going back to FSD treatment, why do you think BMT will be different to something like flibanserin and LibiGel, which both failed recently?

Dr. Carl Spana

Well, kind of addressed that in the initial question from Dr. Jasuja, but I’ll just kind of summarize again, they were really transitioning from those approaches or attempting to have a general increase in a women’s level of desire. And because of that characteristic they were required to measure by the FDA, the change in desire on a daily basis.

Now, we don’t necessarily believe that that’s the right way that you should do those studies, but do that something that both Boehringer Ingelheim and BioSante unfortunately had to contend with and probably led to a high placebo response rate than they may have anticipated.

Bremelanotide is on demand, we don’t take it chronically; we are not trying to chronically elevate their desire; its episodic; you take it just before sexual encounter and therefore we’re only really interested in the results around the sexual encounter and any change that they may perceive in desire or arouse or decrease in the stress are measured on a longer time frame which is generally four week recall.

So I think with different mechanism, different approach, different dosing and as I said before that on demand characteristic really does allow a very you know causing affect so to speak to be attributed to the product. They take it, sexual intercourse, positive benefits there they can describe it very easily to the product. So hope that also clarified some of that issue, because I know its question I quite frequently get from investors.


We’ll take a follow-up question from David Moskowitz with Roth Capital.

David Moskowitz - Roth Capital

So the follow-up is, you guys mentioned in your earlier remarks that you incorporated at the placebo effect from flibanserin in the design of the BMT trials; what about the placebo response that you saw in the LibiGel trial; does that confirm a similar type of placebo response or was it the LibiGel that just didn’t show response or was it higher than expected placebo response and again do you believe you accounted for that kind of a placebo response in the BMT trials? Thanks.

Dr. Carl Spana

So again, we did have the benefit that the flibanserin data have been presented at a scientific meeting in some detail, I mean, we’re able to get hold on some of those presentations. That has not yet occurred for LibiGel; we only have a little bit as the company has put out not a full analysis.

But with that things said, it would appear on its face that the placebo response rate, with regards to satisfying sexual sense maybe similar between both flibanserin and testosterone. But that really remains to be finalized; as the BioSante finishes their analysis and puts the data out. So we did look at and from our perspective, the patient population that BioSante study was post-menopausal, we’re in pre-menopausal, so the flibanserin data is more relevant or directly relevant to us and we did incorporate that data and the design of the study.

David Moskowitz - Roth Capital

And my final question is on the AstraZeneca obesity partnership; I believe there was some data that was expected to come out in the near-term, sometime in the first half of the year. Can you talk about that is there any update that AstraZeneca has provided to you with regard to any Phase I data or dosing data that’s going to be announced? Thanks.

Dr. Carl Spana

Sure. Again, I think we have this, on the call in November, typically for Phase I study, we really don’t save that much, if you are going forward. And I anticipate that’s the approach that AstraZeneca is taking. We have this, had a discussion about the preliminary results from that study; I think AstraZeneca was quite pleased with those results; I am not at the liberty to disclose them to you.

Suffice it to say that one of the key hallmarks that we did say was that the program will progress – we really want to look the program to progress in the next study; and that is happening. So they have posted the second study on and we have had a preliminary discussion about the study and they anticipate launching that study probably this quarter.

So the program is progressing and so what I can tell, they appear quite happy with the progress and what they’ve seen so far and they believe that it’s worth continuing to develop the compound.

David Moskowitz - Roth Capital

Does that mean that it’s advancing in Phase 2 and I guess again, they simply have an opportunity to….

Dr. Carl Spana

Sure. I’ll give you what I know. You know, I have not yet discussed the protocol in any detail with AstraZeneca and if I had, I am sure, they wouldn’t allow me to disclose it, but they have put a very nice summary on They would call this a Phase 1 study; Palatin would call it a Phase 2a study. It’s just some ethics. It will be a study that it will be in obese subjects they will be looking at the effects of multiple doses of the agent on reductions in food intake in the patients as well as a whole variety of safety parameters as you might imagine. This would be the first time that that drug will be given in multiple doses to patients.

So it is going to be done in obese subjects. They will continue to be looking at safety which is required and they also will be monitoring food intake in the study. So in those parameters, we would call it a Phase 2a. They call it a Phase 1 or a Phase 1b. It’s really just some ethics. We would expect that they should be able to complete the study before the end of the year.

Again, we are not in control of the study. And we’re of course, always at the discretion of AstraZeneca to how much we can disclose of the results that we do have to be, you know cognizant of that confidentiality. Long-term goal here is for the study to be successful and for also our partner to have the longest window possible before potential competitors may come in to the space. So we wanted to preserve the confidentiality when we can.


At this time, we have no further questions in queue. Dr. Spana, I would like to turn the conference back to you for any closing remarks.

Dr. Carl Spana

Well thanks, thank to all of you for participating in the call. I think there were some very key questions that were raised in the Q&A. I think we hope we have addressed them. And this is a big year for us; I mean, two programs moving forward in very exciting areas, very large areas. The funding to get them through major milestones, we are really enthusiastic about the efficacy program. We really expect a good study, a clean study and we’re looking for some real positive results there. So thank you and have a great day and I look forward to seeing you guys throughout the quarter as we go out and meet with the investors. Thanks. Bye, bye.


Ladies and gentlemen, this concludes today’s teleconference call. We thank you for your participation.

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