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

Greetings. Welcome to Palatin Second Quarter Fiscal Year 2024 Operating Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin our remarks, I would like to remind you that statements made by Palatin are not historical facts and may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate and that the actual results may differ materially from those anticipated due to the 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 by Palatin's prospects. Now I would like to turn the call over to our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning, and welcome to the Palatin Second Quarter Fiscal Year 2024 Call. I'm Dr. Carl Spana, the CEO and President of Palatin. With me on the call today is Steve Wills, Palatin's Executive Vice President, Chief Financial Officer and Chief Operating Officer. I'll turn the call over to Steve, and he will give a financial and operating update. Steve?

Thank you, Carl. Good morning. Good afternoon. Good evening, everyone. For Palatin's fiscal second quarter ended December 31, 2023, certain business highlights and recent updates follow. Regarding Vyleesi, which is our bremelanotide injection for approved -- FDA approved for Hypoactive Sexual Desire Disorder, or HSDD. We completed an asset sale to Cosette Pharmaceuticals for up to $171 million in December of 2023 for female HSDD. We received $12 million upfront plus potential sales-based milestones of up to $159 million based on annual net sales ranging from $15 million up to $200 million. Importantly, Palatin retained the rights and use of bremelanotide, Vyleesi for obesity and male erectile dysfunction indications. Regarding other, we had 2 equity offerings. Registered direct offering in January 30, 2024, we entered into a securities purchase agreement with health care-focused institutional investors selling and issuing an aggregate of approximately 1.8 million shares of Palatin common stock at a purchase price of $5.46 per share of common stock, which was our market price at the time of the transaction. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 1.8 million shares of Palatin common stock at an exercise price of the same $5.46 per share. The offering was completed on February 1, 2024, with gross proceeds of $10 million. The Common Warrants are exercisable beginning 6 months after the date of issuance and will expire on the date that is 4 years after the closing date. Second equity offering was October 2023 -- October 23, 2023. We entered into a securities purchase agreement with 1 institutional investor selling and issuing an aggregate of approximately 2.4 million shares of Palatin common stock at a purchase price of $2.12 per share of common stock. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 2.4 million shares of Palatin common stock at the exercise price of $2.12 per share. This offering was completed on October 24, 2023, with gross proceeds of $5 million. The common warrants are exercisable beginning 6 months after the date of issuance and will expire on the date that is 5.5 years after the closing date. Moving over to our fiscal second quarter ended December 31, 2023, financial results. Regarding revenue. Total revenue consists of gross product sales of Vyleesi, net of allowances and accruals. Vyleesi gross product sales to pharmacy distributors for the quarter ended December 31, 2023 were $4.3 million with net product revenue of approximately $2 million. This compared to gross product sales of $2.6 million and net product revenue of $1 million for the comparable quarter last year. Gross product sales for this period, December 31, 2023, quarter, increased 64% and net product revenue increased 98% over the comparable quarter last year. Regarding operating expenses. Total operating expenses were $0.9 million, net of a $7.8 million gain on the sale of Vyleesi compared to $6.6 million, net of a $1 million gain on Vyleesi purchase commitments for the comparable quarter last year. The decrease in operating expenses was mainly the result of the gain recognized on the sale of Vyleesi to Cosette Pharmaceuticals. Moving over to other income/expense. This net figure consists mainly of the change in fair value of warrant liabilities, which Palatin has recorded as a liability on the consolidated financial statements, including the revisions of certain prior period amounts to correct a misstatement with respect to classifying warrants as equity instead of a liability. The statement of operations is adjusted each quarter to reflect changes in the fair value of these warrants. For the quarters ended December 31, 2023 and 2022, Palatin recorded a fair value adjustment loss of $8.1 million and a gain of $5.2 million, respectively. Regarding warrant liabilities, Palatin has assessed the impact of improperly classifying the warrants related to the October 2022 financing within equity rather than as a warrant liability that is adjusted through charges or credits to the statement of operations to reflect changes in the fair value of the warrants. And we've determined that the impact is not material to any prior period impacted. Accordingly, Palatin will adjust prior periods only as those financial statements are presented for comparative purposes in future filings. On January 24 -- on January 24, 2024, Palatin and the warrant holders amended the terms of the warrants related to the October 22 and October 2023 financings. As a result, the $11.9 million of warrant liabilities as of December 31, 2023, will be reclassified to additional paid-in capital upon amendment. So let me give you the concise version. No harm, no foul. There'll be no future adjustments to the statement of operations regarding the -- regarding the warrants starting with the first quarter of 2024 filing and the liability that's on the balance sheet as of December 31, 2023, will be reallocated to equity. We amended the warrants to characterize it as equity versus the liability treatment. Regarding Palatin's net loss for the quarter ended December 31, 2023 was $7.8 million or $0.56 per basic and diluted common share compared to income of $2.7 million or $0.25 per basic and diluted common share for the comparable period last year. The change in net loss over the comparable quarter last year was due to several factors. Since the derivative liability accounting took place in the fourth quarter, we have several and also the sale of Vyleesi. So specifically, we had an increase in net product revenue of Vyleesi of $1 million compared to the prior quarter of last year. We had a gain on the sale of Vyleesi of $7.8 million, and we had a change in fair value of warrant liabilities of $8.1 million of expense in 2023. For 2022, we had $5.2 million of income related to the change in fair value of warrant liabilities, and we had the recognition of an income tax benefit of $4.7 million during the 2022 period. The income tax benefit is related to that very nice program they have in the State of New Jersey for net operating losses. Moving over to cash position. As of December 31, 2023, Palatin's cash, cash equivalents and marketable securities were $9.5 million, plus we had $2.3 million of accounts receivable compared to cash, cash equivalents and marketable securities of $5.5 million, plus $1.3 million of accounts receivable as of September 30, 2023. The $9.5 million of cash, cash equivalents and marketable securities as of December 31, 2023, does not include the $9.2 million of net proceeds from the registered direct equity offering, which closed in February of 2024. So pro forma as of December 31, January 1, 2024, we have approximately $18.7 million of cash, cash equivalents and marketable securities. We believe that existing cash, cash equipment to marketable securities and accounts receivable will be sufficient to fund currently anticipated operating expenses and disbursements into the second half of calendar year 2024. Now I'll turn the call back over to Carl. Carl?

Thank you, Steve. Nice listening accounting. As you know, our focus has been on understanding the biology and chemistry of the melanocortin system with the goal of developing selective melanocortin agonist for a variety of medical indications. Our research efforts have resulted in a growing portfolio of melanocortin-based therapeutics. We have 3 active clinical programs based on melanocortin agonist with multiple new programs ready to advance into clinical development pending resources, all coming from our highly productive research activities. As we have previously reported, we have locked the database and instructed statistical contract research organization to unblind the data with the, PL9643 MELODY-1 Phase III study in dry eye disease. We expect to report the top line data this month. Our Phase II study evaluating oral PL8177, a selective melanocortin receptor 1 agonist in ulcerative colitis patients is on track for an interim assessment of the clinical data in the first half of 2024. Supporting oral PL8177 development or preclinical studies demonstrating that treatment with oral PL8177 and disease models causes diseased colons to improve toward a healthy state and to resolve inflammation. Resolving inflammation rather than blocking it provides the possibility of efficacy coupled with significantly differentiating safety in treating colitis and inflammatory bowel disease. Additionally, research work at Palatin has mapped clear mechanism action pathways, melanocortin agonist in supporting the resolution of inflammation. BREAKOUT, our Phase II open-label study evaluating the melanocortin agonist in diabetic patients with kidney disease is also on track for top line data in the first half of 2024. So clearly, this is a big half for us, 3 clinical trial readouts. As far as what is on the horizon at Palatin, I would like to take a minute to highlight 2 new clinical studies that we are anticipating starting in the first half of calendar 2024. The first is a Phase II study evaluating co-administration of bremelanotide, a melanocortin agonist with a phosphodiesterase-5 inhibitor, and those are just Viagra, Cialis. So those are the drugs that are currently used to treat erectile dysfunction. This would be [ eek ] in erectile dysfunction patients that have not responded to current therapy. So these are guys that are failing Cialis, Viagra and so on. This clinical study will support the development program of a combination product, which is the co-formulation of our MCR4 agonist bremelanotide with a phosphodiesterase-5 inhibitor. Just as a reminder, bremelanotide is the active agent in Vyleesi, our approved product for female sexual dysfunction. All of this work is an extension of our commercial efforts in sexual dysfunction. Just to note, approximately 35% of men with erectile dysfunction fail or have an inadequate response to current therapy and represent a large underserved market. The only treatment options for these failure patients are highly invasive such as direct penal injections or penile implants. We have previously conducted clinical trials showing the synergistic effects of combining bremelanotide with a PDE5 inhibitor as a treatment for erectile dysfunction and feel well positioned for an efficient and successful development program of this co-formulated product. The second planned study will evaluate a melanocortin-4 receptor agonist in obese patients taking a glucagon like peptide-1 or the GLP-1. And you know those as Mounjaro, Wegovy, these are all with the rationalities of the current treatments that are being used for obesity. Since drug treatment for obesity is now established and growing rapidly, we believe the treatment goal will switch from driving down weight loss to overall weight management. This will require a variety of drugs with different mechanisms of action that affect weight loss and very importantly, weight loss maintenance. We strongly believe that drugs targeting the melanocortin system will be an important part of future obesity treatment and weight loss management. Through our extensive experience in the design and development of melanocortin agonist for treating obesity, including 2 clinical studies completed and published, we are well positioned to be a leader in the development of melanocortin-based therapeutics for weight loss and importantly, weight less maintenance. The operating highlights for the second quarter of fiscal year 2024 are as follows. As Steve noted, we completed the asset sale of Vyleesi to Cosette Pharmaceuticals for up to $171 million, with $12 million received upon as an upfront payment. We are planning on initiating 2 new melanocortin programs with Phase II clinical study starting in the first half of calendar '24 with readout later in the calendar year. And as we noted, these studies are, one, we'll evaluate the co-formulation of bremelanotide with a PDE5 inhibitor in ED patients that have failed first-line therapy. And second, as we also noted, we'll evaluate the addition of melanocortin-4 receptor agonist meaning bremelanotide to these patients taking a GLP-1 agonist. Our clinical programs also continue to make good advancements for our PL9643 MELODY-1 Phase III dry eye disease study, which should report top line data this month. The emerging product profile for PL9643 is highly differentiated from current treatments with excellent ocular tolerability and broad efficacy that we believe will make it a leading treatment for dry eye disease. Our oral PL8177 clinical trial in ulcerative colitis will have the interim analysis in the first half of this year, as will our breakout open-label Phase II study evaluating melanocortin agonist in diabetic kidney disease. I'd like to thank you for listening to the Palatin Second Quarter Fiscal Year 2024 Conference Call. You can find additional information on our science and clinical programs on our website, www.palatin.com and you can find additional information on Vyleesi at vyleesi.com website. Steve and I would like to thank you all for participating on the conference call, and we will now open the call to questions.

[Operator Instructions] Your first question for today is coming from Joe Pantginis at H.C. Wainwright.

A couple of questions first, if you don't mind. Carl, starting at the back end of your comments, I was hoping you could provide... [Technical Difficulty]

It looks. Like we lost the line, just one moment.

Okay. No idea what happened there because I don't even have a mute on this, not muted. Anyway. So I was hoping maybe starting at the back end of your comments about providing some level of the mechanistic rationale of combining bremelanotide with GLP-1 agonist, your one of those therapies for weight loss right now about whether it could be the maintenance setting or why those 2 drugs can really work together for the broader audience?

Sure. I'll try to do it in a simple way. Well, first and foremost, we've done and have presented data on combining melanocortin-4 agonist with a GLP-1 agonist. -- and they work quite nicely again we're -- I would say they work quite synergistically. When you think about it, the -- in part, the GLP-1s have probably multiple mechanisms of how they bring about a patient feeling being satiated in changing their energy use. And part of that is actually through the leptin-melanocortin system. So these things are working in kind of similar pathways. But when you add the melanocortin-4 agonist on top, you get full activation of the leptin-melanocortin pathway, and that's a very key pathway in regulating energy homeostasis overall. And that actually leads us into why it will be also very useful in weight loss maintenance. There have actually been several studies published -- or preclinical studies published on weight loss maintenance using melanocortin agonist in animals. And both of those are actually with Palatin compounds. And you see very, very nice maintenance of the reduced weight state. And one way to think about this is there are differences in how these patients respond to various treatments for weight loss. For example, when you're obese, you respond one way; when you are losing weight, you respond slightly differently. But importantly, when you get to that weight loss, reduced state, you don't always respond the same way to the GLP-1s as you do when you're obese, and you're going to need treatments like -- that effectively leptin-melanocortin pathways, things like bremelanotide or some of the new compounds that we are bringing forward to actually maintain that weight. And that's really the key here. We can drive a lot of weight loss with the clips and the other [indiscernible] therapies, but we really need to keep these patients at reduced weight if you want to have a long-term benefit. So if you think that the weight loss market is huge, the weight loss maintenance market is probably [ worse ] because these patients are going to be on treatment for many, many years. So that's why we're very excited about where we stand and really the biology and the science behind targeting the leptin-melanocortin pathway for weight loss maintenance is pretty compelling.

That's a helpful summary. I appreciate that. So I have a specific question, which will then segue into sort of a broader strategy question. So when you look at the coming 8177 ulcerative colitis data, you have interim data coming up. Or I'm sorry, an interim analysis coming up, which is part of my question. What is your communication strategy around the interim analysis? Is this just a continuous plan type of announcement that we hope to see? Or will you be providing any data?

No, we'll provide -- we're trying to be transparent, Joe, we have -- we'll provide the data that we have and to the best of our ability or how we see it playing out from the interim analysis to the final analysis, the goal here is to -- we do want this out in public because one of our key goals is to continue to work with people that are interested in licensing this product. So we want to make sure that it's out there and people understand where we're going in the ulcerative colitis space.

No, perfect. And then with us having saying ulcerative colitis, as I said, going to the broader question and strategy. When you look at the indications that you guys are addressing overall with your different assets, these are very large markets. So I guess, as of today, how do you view your business development strategy because they're very large markets, are you looking at the potential for global, regional, when you're balancing against your current cash needs?

Well, you've hit on the head, what -- let me backtrack for a second. I'm talking a little bit faster or thinking faster than I'm talking. When it comes to ulcerative colitis or dry eye disease, our goals for those are really to partner those programs. They represent very large markets but in the case of dry eye disease, we have multiple larger -- assuming success with 9643, there are still several Phase III trials that have to be done, plus all the commercial manufacturing. And that really in today's world is more of a commercial market, right, a consumer market. So we really like to see that product assuming success in the hands of a larger company that's going to eventually market it and has the ability to do the outreach there. And that's not really what Palatin plays. Steve will tell you, he learned a tremendous amount about marketing to consumers through Vyleesi. And it's expensive, anyway, it requires a very consistent effort, and that's not kind of where Palatin is set up and certainly not with the resources we currently have. Again, with ulcerative colitis, medical need is extremely high. But again, a competitive marketplace, meaning there are lots of therapies out there competing for patients for the larger trials and then for voice in the commercial sphere. But with that being said, the need is very high. So -- and believe it or not, that's one of the programs that even in its early stage, has a huge amount of corporate interest already. And then again, when we think about where we want to go with regards to the obesity and erectile dysfunction, the erectile disfunction one is an area we know extremely well. We've studied thousands of patients there. The -- it's one where a company of our size can probably make good headway, meaning that the -- we know how to take it, we know how to get it into commercialization. And they're already distribution channels available and there is high awareness among patients. So that's one where we would probably try to keep longer because it's one where we can conceptualize thinking about assuming things go well for us commercializing it. Obesity market is hot, and I think we're trying to position ourselves which, in particular, is in that weight loss maintenance and then in the supplementation or the adjunct therapy, the GLP-1s, those are novel spaces where people aren't thinking about them. I think very shortly, they will be, and I think we'll be in a great position to monetize our early assets there relatively quickly. And Steve, actually, Steve has a business development people directly reporting to him, and it's really on top of all the business development activities that we're doing and making sure that they're getting done.

Your next question for today is coming from Michael Higgins with Ladenburg Thalmann.

Congrats on the quarter. Looking forward to seeing MELODY data readout here in February. Wondering ahead of the data here, what you would consider to be a clinically meaningful threshold from this readout, whether it be sign, symptoms, or both, what is beyond that thing that you may feel is important for its commercial value?