Palatin Technologies' (PTN) CEO Dr. Carl Spana On Q3 2017 Results - Earnings Call Transcript

| About: Palatin Technologies, (PTN)
This article is now exclusive for PRO subscribers.

Palatin Technologies, Inc (NYSEMKT:PTN) Q3 2017 Results Conference Call May 16, 2017 11:00 AM ET

Executives

Dr. Carl Spana - President & CEO

Steve Wills - EVP, CFO & COO

Analysts

John Newman - Canaccord

Michael Higgins - Roth Capital Partners

Operator

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Third 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 are not historical facts and maybe forward-looking statements. These statements based on assumptions that may or may not prove to be accurate, actual results could for 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 and welcome to the Palatin Technologies' Third Quarter Fiscal Year 2017 call. I'm Dr. Carl Spana, the CEO and President of Palatin, and with me on the call today is Steve Wills, Palatin's Executive Vice President, Chief Financial Officer and Chief Operating Officer. On today's call, we will provide a financial and operating updates

I'm now going to turn the call over to Steve who will provide the financial updates.

Steve Wills

Thank you, Carl. Good morning everyone. Starting with the quarter and recent operational highlights regarding our intellectual property portfolio, the United States Patent and Trademark Office issued a notice of allowance for methods of treating female sexual dysfunction, FSA, and hypoactive sexual desire disorder, HSDD, with bremelanotide.

Our investigational product designed for on demand treatment of HSDD in premenopausal women. Once issued, this patent will have a term to November 2033. Regarding our bremelanotide development program for HSD, HSDD rather, on February 2, 2017, we closed on the license agreement with AMAG Pharmaceuticals for exclusive North American rights to development and commercialize bremelanotide.

Pursuant to the terms of the license agreement, we received an upfront payment of 60 million, AMAG is required to pay up to an aggregate amount of 25 million in reimbursement for our reasonable direct out of pocket expenses incurred by Palatin following the closing date in connection with certain continued development and regulatory activities necessary to file an NDA with the FDA.

For accounting purposes, we have determined that the 60 million upfront payment and the 25 million in the reimbursable direct out of pocket expenses represent a combined unit of accounting totaling 85 million that should be deferred and recognized as revenue over the next year as we complete our development obligation to AMAG related to certain activities necessary to file an NDA with the FDA.

In addition, AMAG is also required to pay us up to 80 million upon achievement of certain development and regulatory milestones, up to 300 million upon achievement of sales milestones and AMAG is also obligated to pay us tiered royalties on annual net sales ranging from high single-digits to low double-digits.

Moving over to our operational results, regarding the third quarter of fiscal year 2017, financial results Palatin reported a net loss of $3.6 million or $0.02 per basic and diluted share for the quarter ended March 31, 2017, compared to a net loss of $12.7 million or $0.08 per basic and diluted share for the same period in 2016. The difference between the three months ended March 31, 2017, and 2016 essentially relates to the recognition of $10.8 million in contract revenue pursuant to the combined unit of accounting related to our agreement with AMG.

Regarding revenue, as I stated, we recognized 10.8 million in contract revenue for the quarter ended March 31, 2017. There was no revenue recorded in the quarter ended March 31, 2016. Regarding operating expenses, total operating expenses for the quarter ended March 31, 2017 was 13.8 million compared to 12.1 million for the comparable quarter of 2016. The increase in operating expenses was mainly the result of professional fees incurred related to the closing of the licensing agreement with AMAG.

Regarding other income/expense, total other expense net was 0.6 million for the quarter ended March 31, 2017, and 2016 which consistent mainly of interest expense related to our venture debt. Regarding Palatin's cash position, as of March 31, 2017, Palatin's cash, cash equivalence and its estimates were 55.4 million compared to cash, cash equivalence and investment of $9.4 million at June 30, 2016.

Current liabilities as of March 31, 2017 was 17.4 million net of 53.8 million of the deferred revenue compared to current liabilities of 13.9 million as of June 30, 2016. We believe that with the proceeds from our license agreement with AMAG, existing capital resources will be adequate to fund our planned operations through at least calendar year 2018. Carl?

Dr. Carl Spana

Thank you, Steve. I will start our third quarter fiscal year 2017 operational update with bremelanotide and then cover our pipeline programs. Concerning bremelanotide, we are working with AMAG Pharmaceuticals, our North American licensing partner to complete the activities required to file a new drug application or NDA with the FDA. These activities include various drug interaction studies, certain manufacturing activities and the preparation of the NDA document.

We anticipate that the bremelanotide NDA will be filed by the first quarter of calendar 2018. Regarding development of bremelanotide outside of the North American market, we will do this only in the context of a partnership. To this end, we’re focusing our business development efforts on bremelanotide partnership with the European Union as well as other regions of the world and we currently have ongoing discussion with multiple potential partners.

Palatin’s drug development efforts are focused on our natriuretic peptide program for cardiovascular disease specifically heart failure and melanocortin autoimmune and anti-inflammatory disease program specifically targeting inflammatory valve disease and ocular inflammatory indications.

On last quarter's conference call, we presented our long-term objectives for drug development programs and over the past quarter, we continue to make progress in meeting those objectives. I'll provide more detail on our pipeline program starting with our natriuretic peptide heart failure program and our two development candidates PL-3994 and PL-5028.

PL-3994 is a selective agonist at the natriuretic peptide A receptor, the compound has been extensively evaluated and preclinical models of heart failure demonstrating suppression of the renin-angiotensin-aldosterone system, cardiac hypertrophy, fibrosis and remodeling. PL-3994 has been evaluated in two Phase 1 clinical studies, which has allowed us to establish initial safety, pharmacogenetic and pharmacodynamic properties and define a dosing range.

We will be evaluating the safety and efficacy of PL-3994 in a Phase 2 clinical study that is planned to start in the first half of 2017. This study will enroll heart failure patients with preserved ejection fraction, and we anticipate preliminary data by year-end 2017. We plan to provide further details on this clinical trial when patient enrollment begins.

PL-5028 is agonist of [Indiscernible], C receptor and A receptor. The emerging signs conducted by Dr. Adrian Hobbs, a Member of Palatin Science Advisory Board indicate that NPR-C agonist plays a key role in reducing cardiac fibrosis, which is a major component of the underlying cardiac dysfunction in heart failures. The dual agonist activity of PL-5028 should allow for superior efficacy and a much broader dosing window when compared to the indirect activation of ENTRESTO.

PL-5028 has demonstrated excellent efficacy in preclinical miles of heart failure and we are planning to begin preclinical activities to support human clinical studies with first in human studies target to begin in the first half of 2018. Heart failure is a major health issue. In 2013, there were 5 million patients with heart failure in the U.S., and the management of these patients represents a significant cost to the healthcare system. Although, there are numerous classes in medication approved to health, the management of heart failure patient most patients have progressive disease in a poor five year prognosis. Clearly, they remain high unmet medical needs in the treatment of heart failure.

We believe the natriuretic peptide system represented under exploited mechanism for treating between heart failure with potential to not only improve patient symptoms, but alter the underlying pathophysiology. We also believe our research and development efforts have put us a in a leading position to develop direct acting natriuretic peptide receptor agonist at treatments for heart failure and potentially other disease indications.

We’ve established multiple sets of compound that are selective for each of the three natriuretic peptide receptors in combination thereof. Our development work is protected by broad intellectual property program as our clinical development programs in this area advance we will continue to expand our knowhow intellectual property.

Now moving onto our second area of focus, which is our melanocortin autoimmune and anti-inflammatory disease program. In this area, we initially focused in our development efforts on inflammatory bowel disease and ocular inflammatory indications. The current treatment available for managing patients with inflammatory bowel disease or ocular inflammation, in general suppresses key proteins in pro-inflammatory pathways. Use of these agents result in moderation of symptoms with few patients having meaningful remissions of their disease.

We believe targeting of the melanocortin pathways as a treatment for inflammatory disease incorporated a novel mechanism of action that has the potential to induce resolution of disease and restore homeostasis in the immune system. Activation of the melanocortin systems result in both the pro-resolution and anti-inflammatory effects. Our compound PL-8177 is a selective agonist of the melanocortin 1 receptor that has demonstrated efficacy in multiple models of inflammatory disease including IBD and Uveitis. We are excited to be moving the compound into clinical development.

PL-8177 has completed all preclinical activities needed to support moving into clinical trials and we anticipate the first PL-8177 clinical study will begin enrolling patients in the second half of calendar 2017. Lead indication for this compound is inflammatory bowel disease. Our second development candidate is PL-8331, an agonist that both melanocortin 1 and 5 receptors. We believe there were number of autoimmune and inflammatory disease such as ocular inflammation with the dual agonist activity of PL-8331 may provide superior treatment benefit. We are currently evaluating PL-8331 in multiple preclinical disease models and drug safety studies. If they support continued develop PL-8331, we plan to start the activities required to file an R&D which should allows us to be in clinical studies in the first half of 2018.

We believe that our research and development efforts have put us in a leading position to develop melanocortin receptor agonist as novel treatments for autoimmune and inflammatory diseases. We have established multiple sets of compounds that are selective with the melanocortin receptors, involved in resolving pro-inflammatory pathways. We have bought intellectual property that protects our development work. As our clinical development programs in this area advance, we will continue to expand out knowhow and intellectual property in this area.

As I think about the future of our company, I am very excited about the potential of our development program to lead the new treatments that can significantly impact the lives of patients. The success we have had developing bremelanotide from concept through Phase 3 clinical study and a North American partnership not only provides the potential for realizing the value of bremelanotide, but it provided us with the resources to unlock the value in the our pipeline programs, without having to access capital market.

As you look forward to 2017 and 2018, we have an aggressive set of objectives that we are trying to achieve. We will be working diligently with AMAG Pharmaceuticals, our bremelanotide North American commercial partner to complete the remaining activities required to file a new drug application with FDA by early 2018. This should put us track for a potential bremelanotide approval in early 2019.

Our business development activities will be focused on bremelanotide partnerships with European Union and other territories. Our natriuretic peptide system program has the following objectives. PL-3994 to begin a Phase 2a clinical study in heart failure patients to preserve ejection fraction with initial data by the end of calendar 2017. PL-50283 to complete required preclinical activities to begin clinical studies with Phase 1 studies to start in the first half of 2018.

While melanocortin and peptide system program has the following objectives, PL-8177 to initiate IBD clinical development program in the first half of 2017 followed by a Phase 2 proof-of-concept studies in 2018 and for PL-8331 to complete the required preclinical activities to begin studies with a Phase 2 start in the first half of 2018. Management Palatin will be focused on achieving our objectives and building value for our stakeholders.

With that being said, I am going now turn the call back over to the operator and open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Now, we will take our first question from John Newman with Canaccord.

John Newman

One question to start. In terms of the bremelanotide NDA filing, I just wondered if you could talk a little bit about the orally study the drug-drug interaction study and the manufacturing work that you will be completing before that submission in the first quarter of '18?

Carl Spana

Sure, the open label is obviously fully enrolled as we previously stated, and we will be done --- last patient out by the end of first half of this year. So, that really is winding down. We only have a few patients left and that will wind down as I said by over the next few months. The drug-drug interaction studies are all fairly typical some of these would have been done in conjunction with the Phase 3, but based on the finance of the Company, we needed to move little bit more. That includes standard things like working on patients that have hepatic impairment or renal impairment to see how the drug metabolized looking at the most common types of drugs that patients that we are treating.

So these are the patients that are premenopausal that they're maybe taking such as birth control pills, certain anti-inflammatory, flu medications things of that nature. So all the common drugs that you might find these patients taking just to make sure that there were no direct interactions, these were all Phase 1 of studies. I think all of them are currently enrolling patients and some of them have actually completed the enrollment. Many of these are checkbox studies, we don’t anticipate seeing any interactions with them based on the work that we’ve done in the clinic already or work that we’ve done pre-clinically. So, those are being done. With regards to manufacturing, I'll pass over to Steve since he is running that part of the business and let him really talk about some of those activities.

Steve Wills

Yes, we’re actually very comfortable with our budget and our timelines for the NDA submission. We’re working very closely with the AMAG team. We have an excellent professional and collegial relationship and we’re on target to have the activities completed by the end of the year and filed the NDA with the FDA in the first quarter of 2018. As Carl mentioned, we’re very comfortable with the specific items that have been to be done.

We’ve had a lot of communication correspondence with the FDA and our outside consultants. And specifically regarding the CMC, there is nothing we haven't done before we’re in the final stages of some of the process of allocation work and again we’re very comfortable that we are on target to complete all the task by the end of the year and filed the NDA with the FDA in the first quarter of calendar 2018.

John Newman

Great. And then one other question bremelanotide, on the commercial side, assuming FDA approval in 2018, I'm just wondering if you plan on launching the drug immediately after approval for given of the approval maybe in the end of the year, if you might take some time, we after the approval we prep disposition and the patient?

Carl Spana

Well, John to be clear, the NDA submission with the FDA in the first quarter of 2018, we would not be approved if everything goes well to the say first quarter of calendar 2019. Even though, AMAG is, they're our North American partner and they are absolutely the lead regarding the commercialization and also what we recall the market preparedness. They with us, but they are again over the lead, they are taken steps right now and frankly spending money to increase the market awareness whether its education with the HCPs or with the consumers. So, those particular items, they will accelerate and increase as we get closer. And definitely post the NDA application with the FDA let say post first quarter of calendar 2018, I would anticipate those activities will increase even greater as we approach the approval. But again, we’re working very closely with AMAG, but they are taking the lead in that regard.

Operator

We’ll take the next question from Michael Higgins with Roth Capital Partners.

Michael Higgins

It looks like your pipelines programs remain on track PL-8177 seems to be back half of the year from Q2 to PL-3994 looks a little bit earlier. A question on 3994 in the last call, you have noted the AJ and academic centers are running slowly. Just if you could give us any updates as to what the size the trial make and you already you want to get us an update when that starts, but just curious as to the potential size of this trial?

Carl Spana

We’ll put the full protocol out in a lot more detail when we get enrolling patients that really more difference to our partners on a trial. As you referenced, we are working with two academic centers and that is trial that's funding by an outside funding agency. But if that trial we want -- if that's going to be about 60 patients and it's an open label study.

So, we will get data in real time. It's an important study because it's looking at patients with preserve ejection fraction and those patients don’t currently have any FDA approved products. So, this will really allow us to take a very detailed look mechanistically at how the natriuretic peptide system can potential work in treating these patients, and I think if we see the right type of biomarkers moving and changing, I think that would be very positive towards.

Natriuretic peptide is playing a potential role in treating these patients really which are represent, really almost 60% of the heart failure patients have preserved ejection fraction, and they are as I said no treatments approved for themselves. It really is a very large, very untapped market that’s out there. So, it's an important study and it’s the one that we’re very interested in seeing get started. And based on our discussions with the centers that are running it, we should see it start relatively soon.

Michael Higgins

Okay, that’s very helpful. Just a follow-up on that, you mentioned you'll receive the data in real time. Would you expect on quarterly call to just get some update as to enrollment feedback that you’re getting in terms of safety and efficacy, anything like that?

Carl Spana

Yes, I think we would probably do is -- probably, we’ll do it every quarter, but probably every other quarter we get enough patients, I don’t think putting data out on you know three or four patients at a time makes any sense, but when we get say core of the patients through and we have some type of look at the data than we’ll probably report on it. And obviously safety has always monitored in any study in an ongoing basis and certainly we wouldn’t anticipate based on the dosing that we’re doing, that we would acute safety issues, but obviously if there was something significant it had to be reported it would be reported probably in the quarter, but that’s not something we would anticipate.

Michael Higgins

Very helpful. Thanks. A couple of on bremelanotide, if I could, we talked in the last quarter about update from many marketing-based clinical programs that the joint steering committee may pursue. Any updates for us on that?

Carl Spana

The short answer is we’re not ready to publicly release what specific targets. The longer answer is that we are in very healthy discussions with AMAG and we anticipate definitely into the second half of the year that we will be getting some updates on some additional target indications areas for bremelanotide.

Michael Higgins

Okay, that’s very helpful. And then lastly ex-U.S., you mentioned you are ongoing discussions with multiple partners. What are you looking for in broad sense? You're looking more upfront, more back-end loaded, regional or independent by country?

Carl Spana

To a certain extent everything is on the table, we really only started this significantly post the closing of the North American lights with AMAG because at that time prior to that we were in discussions whether it's going to be a global deal or a specifically North American deal. So, now post February that we know the North American lights are now locked up with AMAG, we are pursuing rest of our territories and the way it's coming -- moving along right now, I mean some of the larger territories say Europe and Europe is always a little bit more of Asia, Western Asia there.

We’re getting activity there, Latin America, but we’re also getting some in where we’re pursuing some of the smaller regions, the standalone countries and that could be China, Korea, new territories as Russia -- not Russia, its New Zealand and Australia appears to be a territory that’s linked together. Our anticipation is that we will have multiple collaborations there. There are a number of people that had discussions advance as they could handle multiple territories i.e. some of the people that handled Europe, our significant players in Latin America.

Regarding your question on what are we looking for I mean it really depends on the territory i.e., some of the smaller, rest of all territories -- there is no market there. There is a lot of development that for market that's going to take place. So, there is only so much upfront, you're going to be able to get. So it's going to be a variable deal. We don’t -- a nice way since we now have the AMAG North American rights close and we do have cash its -- we are looking more for the right partner and a variable deal. I am not looking to trying to beat somebody while we get the upfront but they may not be the best partner from an infrastructure or distribution standpoint. And the best partnerships are the variable ones. When they do well we want to share.

Michael Higgins

One follow-up on the ex-U.S. market opportunities, any front season you are looking and for us to use as a potential value of for an ex-U.S.?

Unidentified Company Representative

Right now, I mean I have a lot on my desk, I'll tell you it's not like I have a lot of history, right. There is never female sexual dysfunction anything that's ever been approved in the U.S., single North America is Addyi. The only thing that’s been approved outside the U.S. is in ENTRESTO, the Procter & Gamble won in Europe and that one you know very well.

So, this is I don’t think you are going to be able to point to something that -- because I don’t have it, and I'll also not restarting the work that I do a call -- we do have some outside consultants that has expertise in these areas there.

So it's really going to be a country-by-county basis, maybe what some of the larger territories i.e. EMEA or Latin America, you might be able to have a biomarker there. But regarding the smaller territories with no history and just a lot of work that has to be done from an awareness standpoint, from an education standpoint for the market, I don’t think you are going to be able to point to what I call any biomarkers there.

Michael Higgins

One last follow-up on this question here, you mentioned in your conference in March, conference that there was some stock sales occurring from shareholders, can you provide us any update as to where you believe that situation fits?

Carl Spana

We actually -- we filed our Q last night Michael. And this is public, not public, we don’t -- we don’t disclose that they have -- but we actually put in the queue both in our equity note and also there is a subsequent event note and we call them the penny warrants, these are warrants that the exercise price is a penny. Since the approval, there has been over 60 million since -- I am sorry not approval. Since our fourth quarter of 2016 Phase 3, bremelanotide Phase 3 results, the positive results where we met the co-primary after endpoints. There has been a reduction in those penny warrants above 60 million. As of March 31, and this number has gone down from to 121 million to as of March 31, we have approximately 51 million of penny warrants still outstanding.

We haven’t disclosed exactly who the two shareholders are that hold those pay wants, but we do disclose in our queue the activity related to any equity. And what transpire with these penny warrants in essence they are exercise and sold. So, our common stock has have increase significant also, a year ago we were 80 million of common outstanding and we’re now approximately 145 million of common shares outstanding. Our expectation is that these penny warrants will continue to the exercise and sold over the next quarter or two.

Operator

And we have a follow-up question from John Newman with Canaccord Genuity.

John Newman

Just wondered if you could talk a little bit about, how you're thinking about 8177 specifically in IBD, and if you would go for something more serious ulcerative colitis and Crohn's or if you would go for something little bit front mile site? Thanks.

Carl Spana

Sure. Thanks, John. Really, initially, we will be looking at probably ulcerative colitis. And 8177 is a peptide and we’re actually -- although it's not orally bioavailable meaning that, if you take it orally it doesn’t get absorb into systemic circulation, which is when we’re treating ulcerative colitis or other types of bowel disease, what we’re talking about is local deliveries. So, we’re actually working and we should hope by the end of the year have a pretty good read on under the development of a capsule that you would take essentially it would dissolve in the lower part of the colon and release the drug for treatment there.

So, really what some of the initial indications would be ulcerative colitis. When you're initially going into the clinics to those types of indications, it was attractive about it and as you can do biopsy, although you have to treat for 8 to 10 weeks before you see healing of the luminal wall. You can't do biopsies earlier in that and begin to look at difference biomarkers or is the target being engaged or we seeing suppression of some of the inflammatory cytokines in the right types of cells infiltrating.

So, it's a first type of study we will be looking at doing would be one where you're going to be -- you probably not looking for an overt clinical outcome, which you're really going to be looking more for treatment and demonstration of target engagement and suppression of pro-inflammatory pathways and changing the cellular infiltrate. So, that’s where we’re -- again from a positioning standpoint, one of the best -- one of the interesting things about, you're targeting melanocortin pathway is that they have very little to no systemic toxicity here. These are drug that can be -- the system is only up regulated and when the patient is undergoing an inflammatory condition and its local at the site where the inflammation is occurring.

So, we think we can build those quite well here and we really would see this coming in post the steroid, methotrexate types stuff and before you go on to the more expensive and more difficult to use injectable products anti TNS some of the other injectable antibodies that are coming out. So, we think there is a very nice position with this product and its one where we’d like to be able to show that we can actually see good remission rates in maintenance of remission in patients that go into inflammatory.

Dr. Carl Spana

All right, if there are no other questions, I'd like to thank you all for participating on our third quarter conference call. It’s a very busy time at Palatin, a lot of work been getting that bremelanotide NDA going forward and the team is also quite excited about we're pushing some of these earlier programs forward, and we’re very excited to see them move forward and have the resources that probably do, that and we certainly look forward to continuing to update everyone as we make progress. And that being said, have a great day and we’ll some of you throughout the quarter and will look forward to updating you at the end of the next quarter. Thank you.

Operator

This concludes today’s call. Thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!