Palatin Technologies, Inc. (0KF3) Earnings Call Transcript & Summary

Good morning, and welcome to the Palatin Technologies KOL webinar on dry eye disease. [Operator Instructions] As a reminder, this call is being recorded, and a replay will be made available on the Palatin website following the conclusion of the event. I'd now like to turn the call over to your host, Carl Spana, Chief Executive Officer of Palatin Technologies. Please go ahead, Carl.

Thank you, Sara. Good morning, and welcome, everyone, to the Palatin Dry Eye Disease webinar. We've designed a very nice seminar today. We have Dr. Eric D. Donnenfeld, who will start with covering what dry disease is, how he manages it, current treatments for dry eye disease and the unmet medical need, and some of the recently approved treatments. We'll follow it up with Dr. Michael Raizman, who will cover treatments in development and then we will focus on PL9643, Palatin's melanocortin agonist, which is in Phase III development as a treating -- for treating dry eye disease, and then we'll do a Q&A session. Introducing today's speakers, if I were to cover all their many accomplishments we wouldn't have any time to discuss dry eye disease. Both are experts in the treatment of anterior segment diseases and have been on the forefront of the development of novel therapeutic and surgical interventions. Dr. Donnenfeld is a distinguished graduate of Dermot Medical School. His residency was at the Manhattan, Eye, Ear and Throat Hospital, where he was Chief Resident, and he completed a cornea refracted fellowship at the Wills Eye Hospital. Dr. Donnenfeld is on the Board, overseas Darwich Medical School and a clinical professor of ophthalmology at New York University Medical Center. He's a fellow with the American Academy of Ophthalmology. And I believe he's won every award that they give out. In addition, he's been named America's best eye doctor by Newsweek. He has extensive publication lists, multiple patents. He served on multiple editorial boards and has participated in well over 40 clinical studies, and we're very happy to have a few minutes of his time today. Our second speaker is Dr. Michael Raizman. He's a cornea and cataract specialist at Ophthalmic Consultants of Boston and New England Center at Tufts Medical Center, and he's also our Chief Medical Officer at Palatin. Dr. Raizman received his medical training at the University of Michigan and Harvard Medical School. He completed clinical fellowships at Massachusetts Eye and Ear Infirmary and post-doctoral research at Harvard Medical School as well. Dr. Raizman is an Associate Professor of Ophthalmology at Tufts University School of Medicine. He directs the corneal fellowship program in the cornea and cataract service. He's also on the medical staff of Massachusetts General Hospital, Massachusetts Eye and Ear in Tufts Medical Center. Dr. Raizman has pioneered many of amends in the field of cornea and inflammatory eye disease. He's participated in over 100 clinical trials, very experienced in helping industry through the FDA process. He has received senior award of American Opthomology and in 2020, he was named Ophthalmologists of the Year by the National Keratoconus Foundation. It is really an honor to treat to have both of these very distinguished people. Our doctors on the phone with us today. And I'm going to turn it over to Dr. Donnenfeld to start.

Well, thank you very much, Carl. I'll just move forward to my opening slides and say it's a pleasure to be here with you today. It's really a pleasure to be the warm-up act, act for Michael Raizman. I've known Michael for 30 years, and he's my go-to person. I have a problem involving inflammatory disease of the eye of anyone in the world, this is a person that I call. He's an extraordinary ophthalmologist, and it's a pleasure to be here. I'll be talking about the importance of dry eye -- and then Michael will [ flaunt ] really exciting things that have been done at Palatin today. I do consult with a variety of companies, probably 20 people in the dry eye space. And I always like to start my talks about dry eye with getting people to understand that the tear film is the most important refracting surface of the eye. Vision starts with the tear film and that's really the important concept that surgeons are beginning to understand, ophthalmologists, that recent advances in technology, when you talk about LASIK and when you talk about cataract surgery, all these advances, which cost hundreds of thousands of dollars of loss or even minimal disruption of the ocular surface. So having a pristine ocular surface is really the rate-limiting step for surgical outcomes for all of us. That includes IOL calculations. It includes topographic and wavefront ablations. It includes postoperative healing and quality of vision and patient satisfaction. If you can advance because I've lost the ability to advance. Can you just advance for me when I ask, please? So let's look at the topography here. This is a topography that you see in a patient before treatment with dry and after treatment with dry eye. And Dr. Raizman will be the first to look at this and see the picture on the left eye and say that no matter what we did for this patient, we couldn't give them good vision. After resolution of the dry eye, you can see that the cornea has become much more regular and is certainly going to do well. Next slide -- so let's ask a very simple question, and that is, what is dry eye. Well, let's start by saying that dry eye is extremely common. It's often underdiagnosed. It can negatively affect visual quality. It results in fluctuating vision, which is my favorite symptom, and that speaks about me in [ droves ] that I do have a favorite symptom, which is fluctuating vision. To me, that's dry eye until proven otherwise. It reduces contrast sensitivity, increase glare, makes it difficult to drive at night. It affects quality of life and has a significant psychological impact. Patients have been reported to have a willingness to trade years and their life to be free of dry eye disease. Next slide. So in looking at the tear film, the tear film is a delicate balance of over 100 proteins, lipid, aqueous and musing components. This is why artificial tears are just not adequate. Artificial tears contain a couple of electrolytes, maybe some liquid as well, but they in no way can replace the beautiful mixture you see in the front of the [ year ], which is an active robust tear film. Next slide. So when you think of the tear film, you think of the 3 different components, it's the lipid that comes from the meibomian glands, and you can see the glands here in the lid with blocked plans causing meibomian glands dysfunction the tear film evaporates too quickly. Next slide. I already mentioned the aqueous. The aqueous comes from the main accessory lacrimal glands. It composes the aqueous, most of the tear proteins, and it requires [ androgen ] for glandular homeostasis, and they converge into expiratory ducts that lead to the ocular surface. This is a normal-looking lacrimal gland you see here with normal [ acinar ] structures. Next slide. And then finally, the mucin comes from the goblet cells of the conjunctiva and these secrete the mucins that allow the viscosity of the tear film to be normal and resist dry spots. In aqueous deficiency dry eye, goblet cells are dramatically reduced, which is another reason why improving the aqueous component also improves the mucin components of dry eye. Next slide. So in the pathophysiology of chronic dry disease, there's a disruption of the normal flow. The ocular service becomes dry, which produces cytokines, which disrupts the neural arc to the brain. The brain then does not tell the lacrimal gland to produce tears and the lacrimal becomes chronically inflamed with T-cell activation and cytokine release. And this is augmented by a disruption of the normal sensation, such as you would see with cataract surgery or LASIK. Next slide. And then finally, when you look at the tears in chronic dry eye, there's lesser concentrations of these important proteins that are found that tear film -- lysozyme, lactoferrin, and antimicrobial protein, growth factors greatly reduced, and cytokine balance shifts from anti-inflammatory to pro-inflammatory with proteases that degrade the extracellular matrix and the electrolyte concentration increase. So a lot of bad things happening in this slide and patients who have dry eye disease. Next slide. So we've talked about dry eye. Well, why is it important? Because it's the single most common problem that patients have today. If you look at these studies, most of these studies are on the older side, 10 to 15 years of age or older. I think they weren't as accurate and looking at dry eyes. I think these numbers are significantly lower than [ they ] occur in real life. But you can see here that most of the -- 2 of the studies show about 14.5% of patients having dry eye. I would go out and say that dry eye is now epidemic in the United States. It's epidemic for a number of reasons. These studies were done before smartphones before computers became all-encompassing. Our diets have changed. Obesity creates a problem, and our population is aging. As we age dry eye increases. Next slide. Dry eyes are more commonly seen in females, it's seen in older age groups. You can see both in men on the left and in women on the right that dry eye is common and increases as we become older. Next slide. So I made this statement before, and I'll back it up and say, again, that dry eye is actually the most common eye disease in the United States. It's the most common Medicare diagnosis and people who come into both ophthalmologists’ and optometrists’ office, and it suggested that 1 of every 7 American adults experience dry eye. I don't think you heard as much about dry in the past because the greater generation didn't really speak about it a lot. However, the baby boomers will complain about everything. And if a patient has dry eye, they tell you about it and they want relief. Next slide. So dry eye deserves our attention. It's the most common complaint in eye doctor's offices. It may impair our ability to perform daily activities like driving a car, watching TV, using a computer monitor. It decreases reading speed and has a direct effect on our productivity. And dry eye does not start out as a significant disease. It's chronic and it's progressive. And that's one of the main conversations I have with patients about dry eye. We can offer them palliative therapy. That's a therapy that treats their symptoms but doesn't treat the disease or we can offer them therapies that actually treat the disease process itself. As a patient myself, I would certainly be most interested in a therapy that treated the disease rather than just treating my symptoms and prevented worsening of the disease. Next slide. Dry eyes underdiagnosed in this study by Madison, it was suggested that 55 million Americans have dry eyes, most of them elderly. And most of them have not been diagnosed by an eye care professional, -- there needs to be a lot more education in dry eye as well. Next slide. So who's most likely to have dry eye? Well, it's older patients. It's peri and postmenopausal women, patients taken several different oral medications. As with everything else, cigarette smokers are at greater risk, contact lens wearers are very commonly associated with dry eye. And then those patients who become contact lens intolerant -- then they come to us for LASIK and for cataract surgery, and they don't have good results because the dry eye affects these surgeries as well. You see dry eye after eyelid surgery and patients, most notably with the most severe dry eye have autoimmune disease such as Sjogren's syndrome. Next slide. So when Dr. Raizman or myself think of treating a patient with dry eye, we think of a treatment plan that it can be topical medications, systemic, nutritional, medication elimination, environmental control, and sometimes specialty referral. Next slide. My current therapy to improve the ocular surface [indiscernible] dry eye, starts with artificial tears. We start with preserved tears and then move to nonpreserved tiers and the patients use the drops more than 4x a day. I do believe in nutritional supplements, although it's a controversial area. And then we have topical immunomodulators like cyclosporine Lifitegrast. Cyclosporine has been with us for over 20 years now. Lifitegrast was approved about 7 years ago. And immunomodulators really changed the way we think about dry. For the first time, we thought that dry rather than being a degenerative disease was an inflammatory disease, which is why topical steroids do play a significant role as well. We like [ punctal occlusion ] worked well, but they are a bear to use and patients find them uncomfortable. And finally, serum tear is a nice method where we actually draw blood from a patient, spin it down, remove the blood cells and just use a serum, which contains many of the same proteins that are found in the tear film. Next slide. Many algorithms have been developed to treat dry eye. The Delphi panel was an acknowledged group of experts, and they looked at dry eye, defined it based on symptomatology and on physical findings. Next slide. And if you look at the Delphi, the classification of dry eye was based on severity, with discomfort, visual symptoms, and clinical signs. And once you found the level of dry eye from 1 to 4, then you start thinking about therapy, and I'll stress this very important point is that most patients, by the time they go to an eye doctor, are at Level 2 or higher. I don't know about you listening here today, but I don't go to a doctor unless something is really bothering me. So level 1 is very rarely seen as a primary reason for coming to a doctor's office. Most of the patients we see do have Level 2, 3 or 4. Next slide. And when you have a level 2, 3 or 4, then you start thinking about therapy. Level 1 is just basically environmental and tears. But once you get to Level 2, that's when you start using medications such as anti-inflammatories, tetracycline sometimes used, punctal plugs, nonpreserved tears. And then finally, we need to level 3 or 4, that's when we start getting to very advanced therapies, including surgery. Most of our patients are on Level 2. Next slide. So let's just go and talk about a few recently approved treatments for dry eye disease that many of you are very familiar with. Next slide. We've had Restasis, cyclosporin and Xiidra Lifitegrast now for a number of years. But for the first time, we now have an FDA-approved corticosteroid for treating dry eye. This is from a company named Cala. And when it comes to the realization that dry eye occurs very commonly in flares, not everyone has chronic dry eyes always the same way and that the average patient has 4 to 6 flares a year, and the short-term use of a corticosteroid makes sense in these patients for managing [ flare ] disease but not for baseline product disease. Next slide. Corticosteroids have side effects. They can cause cataracts and glaucoma. But the Cala product is engineered with nanoparticles. It's an ester steroid loteprednol and it gets great intraocular penetration. Next slide. And this was launched a couple of years ago. And I like it. I use it a lot. But again, it's not my first-line therapy for patients because of the side effects of long-term corticosteroid use. Next slide. A recently approved drug is an inhaled nicotine acetylcholine receptor, you actually spray and inhale it. It's like smelling an onion when you're in the kitchen, it causes reflex tearing. Next slide. And this is Tyrvaya, which is varenicline, and it's a nasal spray. It's just been launched now, and it's interesting. It doesn't really treat the disease itself, but it does produce more tears. And the jury is not out on exactly how successful this is going to be. I like the fact that we have a new therapy. I think this is really exciting. But again, it doesn't treat the cause of dry eyes. It just squeezes more tears out of somebody and these tears might not be of the best quality tear. Next slide. Finally, we've had a couple of me-too companies that have looked at cyclosporine, which is the first drug that was approved. Allergan has come up with a multi-dose pack, which is very nice. It makes it easier for patients to use. Next slide. We have Sun that has a [ Nanomi seller ] compound of a little higher concentration of cyclosporin. Next slide. And finally, much to the [indiscernible] Allergan generic cyclosporine was launched about 2 or 3 weeks ago from Mylan. And now we'll have a generic Restasis, which is FDA approved. Next slide. So I've kind of given you an overview over the last 15, 20 minutes about the management of dry eye -- it's a chronic disease that affects millions of patients. It's a multibillion-dollar market. And we have drugs that work a little bit, but we need better drugs. The drugs we have now take a long time to work. They have side effects such as burning and irritation. And dry eye is important. It results in significant morbidity for our patients. I think that also drives a very good area where for the first time, ophthalmology and optometry are working really well together. I have predicted that over time, optometry will actually play a lead role in the management of dry eye as they're much more optometrists to treat the millions of patients who have dry eye. Dry eye decreases vision, it reduces the quality of life. And as I said, there's an enormous unmet need in the management of dry eye for improved patient tolerance. The key to any drug to enter the dry eye market is it has to be efficacious. -- let's say that as a given, but it also has to be tolerable and a drug that doesn't have tolerance such as causing burning or [indiscernible] is going to have problems entering the market. We need drops that increase our efficacy and then have a more rapid onset of action. And with that in mind, I'll turn the podium back to my good friend, Michael Raizman, who tell us about such a drug that I find to be fascinating and interesting. Thank you very much.

Thank you, Eric. That was an excellent presentation, and it's a pleasure to participate in this program with you. I think that doctors and dry eye suffers like the idea of anti-inflammatory therapy for their dry eye. But the tolerability of the currently available products is poor, as we know. I don't believe a nasal spray, which we just heard about or another steroid will really change the landscape in our management. Palatin's PL9643 in Phase II studies showed comparable or superior signs and symptoms compared to FDA-approved treatments as outlined here. We need to be cautious because these were not head-to-head studies, of course, but PL9643 compared favorably to Xiidra, Cequa, and Eysuvis, the loteprednol product as well as Restasis in comparative trials. As important is the excellent tolerability in the Phase II studies that showed that PL9643 far exceeded the tolerability and safety of the commercially available products. There are many dry products in the pipeline, as you are all aware, too many to discuss right now. I would like to single out a few that look promising in comparison to 9643 Phase II results, [ HanAll Biopharma, Tenfanercept ] showed good results in their Phase II, Phase III trials. RegeneRx has a good product, RGN-259, Mitotech's Visomitin, also shows products, in my opinion. So let's talk about this novel product, 9643 in treatment of dry eye disease. 9643 have a novel approach in treating dry eye. It's targeting the ability of the melanocortin system to resolve pathologic inflammation, not just to treat it, but to resolve it. The base patent runs to 2041. Phase 2 was positive. This was completed in 2020, as you know. 9643 treats inflammation underlying the development and maintenance of dry eye disease, and it addresses both signs and symptoms of dry eye disease. The preclinical studies showed that 9643 significantly reduced epithelial damage with effects similar to Restasis in this regard, acting as an anti-inflammatory. When we use 9643 in the dry eye study it is the first evaluation of melanocortin system agonist in ocular inflammatory disease, which I think is important. It's an agonist at melanocortin receptor 1 and 5. The Phase II study was exploratory with a valuation of multiple signs and symptoms, also looking at patient populations, and this gave us guidance in moving forward to MELODY-1 Phase III, which we'll talk about a little bit more. Let's first just review the Phase II results for 9643. This is a 12-week exploratory study comparing 9643 to placebo. We enrolled adults with mild, moderate and severe dry eye. We looked at a number of signs and symptoms at week 2 and week 12. Looking at the entire population, we did not see statistically significant improvement. However, looking at the subset of moderate and severe, we saw a robust effect in signs and symptoms. So taking just the moderate and severe subjects, I'll show you a few examples of the positive effects we were able to determine. At week 12, we saw improvement in fluorescent stain in all areas of the cornea. At week 12, using Lissamine green for staining, we saw improvement as early as week 2 in multiple areas of the cornea. We saw improvements in comfort. In week 2 and at week 12, we saw improvement in redness at both time points. I think most impressively, tear breakup time was statistically significantly improved at week 12, showing the potency of 9643 in this model. Looking at the ocular discomfort scale, we saw a statistically significant improvement at week 2. I think this is very important. This demonstrates the ability of PL9643 to make a difference, patients will notice earlier than any of the currently approved products. The safety and tolerability was unprecedented for a dry eye product. Patients have no safety issues. The drop was perceived as being no different than a placebo lubricating eye drop. Again, this will be a major differentiator of 9643 in the dry eye marketplace. In summary, Phase II allowed us to identify a promising strategy for Phase III studies. PL9643 was rapidly efficacious and incredibly well tolerated. Phase III is similar to Phase II. Most importantly, we will look only at subjects with moderate and severe dry eye. I want to point out, this doesn't mean that 9643 won't be efficacious for those with mild dry eye. In fact, I think the contrary, it will be incredibly effective for that subset of patients. However, from a practical standpoint and a regulatory standpoint, it makes a lot more sense to conduct the trial using moderate or severe dry eye. We'll have 3 co-primary endpoints and 3 key secondary endpoints. We plan to enroll up to 400 subjects. We'll conduct an interim assessment when 120 subjects have completed the 12-week visit. This assessment will allow us to determine the optimal number of subsequent subjects to enroll. MELODY-1 is underway, progressing as planned. First patient visit was in December of last year. The first patient was randomized in January. Our data monitoring committee interim assessment will move ahead as projected. In the middle of this year, we hope to have the last patient, last visit as projected in the fourth quarter of this year. MELODY-2, the second Phase III trial should begin in 2023 with the MELODY-3 safety study to follow soon after with a planned NDA submission in 2024. Thank you.

Great. At this time, we'll be conducting our question-and-answer session. As a reminder, if you would like to submit a question, you may do so by using the Q&A text box at the bottom of the webcast player or by e-mailing your questions to questions@lifesciadvisors.com. Please hold for a brief moment while we poll for questions. So our first question comes from Michael Higgins from Ladenburg Thalmann.

Appreciate the presentation. These are really helpful. A couple of questions for the KOLs [indiscernible], and I'll probably jump back in the queue and see the questions come up here. But just trying to get a good sense for your views on the trial design, the Phase II that we've seen so far, one of the bigger questions for investors is this trigger from 240 patients to 400? Just trying to get your thoughts as to powering the data we've seen so far, if you think MELODY-1 is going to be sufficient at 240 or would it -- go to 400. And kind of a question maybe for both you management is are there any other numbers along the way? Could be DSMB suggest 300 or another number besides 400?

It's a complicated question really. It's -- this is a matter of strategy and practicality or a model is not perfect. And dry eye disease is heterogeneous. So as we've seen from many other very effective products that have failed in the regulatory process, the view is to try to find a strategy that is most likely to lead us to success. We need a lot of patients to power the study because of the variability involved. And from a practical standpoint, we've designed this in a way that's most likely to lead to success.

That's fair. Appreciate it. The additional question then would be basing your experience in the Phase IIs in dry eye and then going on to Phase III. How common is it for a Phase II to generate as 9643 did here, better results in the moderate and severe and less so in the mild and kind of the back half of that question then is what's been done in Phase III of the MELODY study so that we don't see this effect in the mild patients hurting the overall dataset.

I'll start with that maybe and say that patient characteristics are really important to the design kind of a study. And if you select patients with certain characteristics, you're going to get better results. So you have to choose the right patients for the right study. For example, a patient who has significant symptoms before you start is not going to show -- I'm sorry, starting over again. A patient who has minimal symptoms before surgery is going to very unlikely show an improvement in symptoms afterward. So in the selection of the patients who enter the trial, you have to put in the right group of patients to power the study to get the results you're looking for. What we've learned very commonly is that patient signs and symptoms move in opposite directions. So many times when you develop a trial you end up finding symptoms move in one direction and signs moving the other direction. I think that's what the case that you saw here. As far as real-world application of dry eye therapies, you're absolutely right. Most dry therapies respond better in mild-to-moderate cases and in moderate-to-severe. However, in trials, sometimes you'll see the exact opposite when you're looking at specific characteristics.

That's a good explanation. I wanted to add that in the oral model, the placebo effect is always quite strong. And so to differentiate a mild subject, as Eric pointed out, with minimal room for improvement when there's a strong placebo effect it is very difficult. So our strategy is to look at the subjects that are most likely to demonstrate the efficacy and safety of 9643 and that's why we've chosen this approach. 400 subjects is not a lot in these trials. So it's just -- it's a practical number. We could probably show efficacy and safety with the mild in a much larger study. But as I pointed out, we're looking at practical issues in our design and the regulatory strategy.

One last one kind of a follow-up on that trial sizing. How common is it for these pivotals and have a DSMB interim [indiscernible]?

I'll answer. I don't think it's very common at all, Michael. But we're not -- Palatin is not a traditional ocular company. So we kind of come in maybe a little bit of a different viewpoint, in that we look at it in a lot of things that both Eric and Michael are pointing out, is that you have to have the right patient population, you are looking at multiple endpoints that comprise both signs and symptoms. They can move in different directions. There's a lot of variability, maybe enhanced placebo effect. So how do you protect against those things? And the design that we're using here kind of does that, right? You're picking multiple primary and key secondaries. Only one of the primaries has the [ way ] for you to go forward. We'd obviously like to [ sign on ] a symptom, but we only get one that's fine. And then the ability to go up in size. Whether there -- if we're a little bit off on our power calculations and you need to go up, you can go up in size to kind of account for that. So we're trying to build in a diverse patient population in a variable disease and a variable clinical trial format, how do you protect yourself? And so using some of the more common types of things that you would do in other outside of the ocular space. With regards to co-primaries and splitting off, I think another company has just started -- announced a second Phase III doing that. So I think some of things we're doing will probably be used a little more often because what it does do is if we're right -- we got a study that's going to be around 240 patients versus 600 plus. And if we need to go up, we can go up, and we're not really taking a hit to do that. So I think it's a good design and [ it really ] protects us.

Yes. So I have been involved with a number of studies like this where there have been intermittent evaluation, not in dry eye, however. And I just write back to Carl and that is that in the trials that I've done in the past, if your intimate evaluation show statistical significance, you can stop the study at that point and be done, which is an amazing advantage in a trial like this is that the guidance that you've gotten from the FDA as well, Carl?

No, no. Well, you could if we do that -- we're actually not doing -- we're doing an assessment, not an analysis. So all we're looking at the power calculation -- is a power calculation correct. Because even if we were at 120, that would still be pretty short for a Phase III trial. We want more patients anyway. You're trying to build a database here. So you want a larger database. So it's only a power [ calculation ]. If we were to do an analysis, then we'd have to take a much larger hit on the alpha. So you have to go way down your p-value to hit it. So right now, it's just an assessment, and all they're going to give us is guidance, stay the course, go up -- exceed 300, exceed 400. And then look, if they tell us to go to 500 or 600, we may go that high because these studies -- and the reason why we do that is one of the things that they'll be looking at is not just the calculation on the primary, it will be on the secondaries, and we would like to get some -- make sure we hit some of those key secondaries as well. And we want to -- so we'll be flexible on it and be guided by what they tell us.

Well, I've been educated.

Our next question comes from Joseph Pantginis from H.C. Wainwright.

Okay. Great. I want to start my questions for Dr. Donnenfeld. Obviously, I don't expect you to comment on the commercial strategy of the company. But if 9643 were to make it to the market, how do you see it being positioned originally for moderate to severe patients, what do you think overall for positioning because you're obviously going up against a lot of different drugs. You're going up against a bigger pharma in the space. But as you alluded to and Dr. Raizman as well alluded to, obviously, this drug has a different mechanism where you're really treating the underlying disease and not just the symptoms. So positioning overall.