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

Greetings. Welcome to Palatin's Fourth Quarter and Fiscal Year-End 2026 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.

Good morning, everyone, and thank you for joining us. I'm Carl Spana, President and Chief Executive Officer; of Palatin Technologies. Today, I will discuss our strategic priorities and progress across our development programs. Steve Wills, our Chief Operating Officer and Chief Financial Officer, will then review our fiscal 2026 financial results and liquidity position. We will then conclude with questions. Our principal strategic focus is the development of next-generation, best-in-class melanocortin 4 receptor or MC4R agonist for treating syndromic and rare BC disorders. We are initially targeting hypothalamic obesity, Prady Willow syndrome and Bard Bidell syndrome with potential applicability to other disorders involving the MC4R pathway. MC4R agonism is now clinically and commercially validated in multiple rare and syndromic obesity disorders, establishing a strong foundation for the development of next-generation therapies. Palatin brings more than 25 years of melanocortin research and drug development experience to this opportunity, including the development of FDA-approved bremelanotide or lease. While currently available and emerging therapies have demonstrated meaningful efficacy, gastrointestinal adverse events and hyperpigmentation remain important challenges for patients requiring long-term treatment. Clinical studies of the approved MC4R agonist in the rare obesity space and the next-generation investigational MC4R therapies under development have continued to report high levels of nausea and vomiting as well as incidents of hyperpigmentation. Our objective is to develop best-in-class latocotin-4 receptor therapies that deliver comparable or greater efficacy with improved tolerability, little to no hyperpigmentation and product profiles suitable for lifelong use. We are advancing 2 complementary peptide series, non-lividated PL 1000 and lipidated PL 2000 series. Testing compounds from both series have demonstrated potent MC4 agonism activity without MC1R agonism. Because MC1 activation contributes to pigmentation, these findings support our strategy to minimize or potentially eliminate hyperpigmentation. Both peptide series contribute to our effort to develop a long-acting once-weekly subcutaneous therapy. In preclinical studies, compounds from both the PL1000 and PL2000 series have produced significant dose-dependent reductions in body weight and food intake in diet-induced obese mice. For our PL 1000 lead development candidate, we have established feasibility of once weekly subject tenuous dosing and are working to optimize a controlled release formulation. Our lead MC4R lipid data peptide development candidate has demonstrated significant reductions in food intake and weight loss with once weekly subcutaneous dosing and a diet obese mouse model. Preclinical pharmacokinetic data supports the potential for longer than once weekly or less frequent dosing in humans. We are currently conducting the activities required to file an IND and begin human clinical studies. Our oral small molecule MC4R program provides a third treatment approach, building on learnings from an earlier drug candidate PL-7737 and utilizing multiple approaches, including artificial intelligence, and machine learning tools. We have identified potential drug candidates with improved potency and MC4R selectivity. Our objective is to develop an oral MC4R agonist capable of delivering comparable or greater efficacy than emerging oral MC4R therapies with improved cash flow intestinal tolerability. We are also designing our oral candidates to have limited or avoid MCR1 media off-target activity to minimize or eliminate hyperpigmentation. Subject to appropriate funding, we are targeting initiation of a Phase I single ascending dose and multiple ascending dose studies were lipidated peptide candidate in the first half of calendar 2027 and with data targeted for the second half of 2027 and are targeting initiation of the oral Phase I single ascending dose and multiple ascending dose studies in the second half of calendar '27, with initial data expected in the first half of 2028. These studies will evaluate human safety, tolerability, pharmacokinetics and clinical efficacy. Taken together, our nonpeptide lipidated peptide an oral small molecule programs provide 3 distinct approaches to developing differentiated selective MC4R agonist for the long-term treatment of patients with syndromic and rear obesity disorders. Each approach is being designed around the same core best-in-class objective. Meaningful efficacy to improve tolerability, little to no hyperpigmentation and a dosing profile suitable for lifelong treatment. Beyond our busy programs, our broader melanocortin platform has already generated meaningful strategic collaborations. Under our August 2025 retinal disease research collaboration and license agreement Burgel Ingelheim paid an aggregate of EUR 7.5 million upfront and an initial milestone amounts. The agreement provides for up to EUR 280 million in additional success-based milestones and tiered royalties. We continue to perform reimbursed research under the collaboration. We also sublicense our PL-9643 dry eye program to tesa labs earlier this year. Beyond those partnered assets, our PL-8177 ulcerative colitis program has positive Phase II proof-of-principle findings and our diabetic nephropathy program has encouraging open-label Phase II data as well. We are pursuing partnerships with these noncore assets, so our internal development effort can remain focused on rare obesity MCR4 therapies. Our priorities are clear, advance our complementary nonlipidated and lividated selective MC4R agonist drug candidates and oral program toward clinical development, translate preclinical differentiating findings into human clinical evidence and continue creating value through our strategic collaborations and partnerships. Steve will now review our financial results. Steve, over to you.

Thank you, Carl, and good morning, everyone. I will review our fiscal fourth quarter and full year 2026 results followed by our cash position and liquidity outlook. Unless otherwise noted, comparisons are with the corresponding fiscal year 2025 periods. For the fourth quarter ended June 30, 2026, Palatin recognized $300,000 in collaboration and license revenue compared with no revenue in the prior year quarter. For the full fiscal year, collaboration and license revenue totaled $13.2 million compared with no revenue in fiscal 2025. This included $9.4 million related to our Bengal Ingelheim collaboration and $3.8 million related to the Altanaspac sublicense. The Altanaspac revenue was recognized in a form of noncash debt cancellation. Fourth quarter operating expenses were $4.7 million compared with $2.3 million in the prior year quarter. The prior year quarter included gains associated with Vyleesi and purchase commitments affecting comparability. Research and development expense was $2.0 million in each fourth quarter while general and administrative expense was $2.7 million as compared with $2.6 million a year earlier. For fiscal 2026, total operating expenses were $21.9 million compared with $17.5 million in fiscal 2025. Research and development expenses decreased to $12.4 million from $14.9 million primarily attributable to lower expenses related to the timing of certain activities on our MC4R programs. General and administrative expenses increased to $9.5 million from $7.8 million primarily due to higher professional fees. Fiscal 2025 operating expenses included a $3.1 million gain on the sale of Vyleesi and a $2.1 million gain on purchase commitments. We reported a fourth quarter net loss of $4.4 million compared with $2.2 million in the prior year quarter. For the full fiscal year, net loss decreased to $8.4 million or a loss of $2.96 per basic and diluted common share compared with a net loss of $17.3 million or a loss of $32.5 per basic and diluted common share in fiscal 2025. The year-over-year improvement in net loss was primarily attributable to collaboration and license revenue and gains related to Vyleesi and purchase commitments. Net cash used in operating activities was $13.5 million in fiscal 2026 compared with $21.3 million in fiscal 2025. Net cash provided by financing activities was $18.5 million, consisting primarily of $16.9 million in net proceeds from common stock and warrant sales and $1.6 million from warrant exercises. Turning to liquidity. We ended June 30, 2026 with $7.5 million in cash and cash equivalents compared with $2.6 million at June 30, 2025. Current liabilities were $1.8 million at fiscal year-end. Based on that cash balance and our current operating and development plans, including our ability to reduce or delay certain expenditures within management's control, we do not expect existing cash to be sufficient to fund operations for at least 12 months following issuance of our financial statements. Accordingly, substantial doubt exists about our ability to continue as a going concern. We will require additional financing to continue advancing our development programs and fund operations. We intend to pursue equity financings, collaboration arrangements and other potential sources of capital, but there can be no assurance that funding will be available when needed or on acceptable terms. The timing of planned development milestones remain subject to appropriate funding. Operationally, we are prioritizing our peptide and oral MC4R obesity programs, executing our collaboration obligations and pursuing opportunities to realize value from our partnered and partnering assets. That concludes my financial review. Carl, I will turn the call back to you for closing comments and questions.

Thank you, Steve. Our focus is on translating the promising preclinical findings from both not lipidated live peptides together with our oral small molecule program into clinical evidence. We are pursuing Minocin 4 receptor agonist therapies designed for meaningful efficacy, improve tolerability in little to no hybridation for patients with rare obesity disorders. Thank you for joining us. We are ready to now take your questions. .

[Operator Instructions] And your first question this morning is coming from Scott Henry from AGP.

Carl, I'll start with you. You mentioned the lipidated and non-lipidated peptide approaches. Could you talk a little bit about the advantages and the differences between those 2 approaches? And eventually, would you narrow it down to 1? Or would you keep both going all the way?

Thanks, Scott. So the main difference is that in the case of a lipid data peptide, it has an apathetic part of it that actually binds to plasma protein. So longevity is built into the molecule. So you don't have to have a formulation Apama formulation. So it's very similar to what you'd see with the GLP-1s. When you go to the non-lipidated, that means you're now formulating in erodable polymers that essentially are injected and then they wrote over a certain period of time and they would slowly release your drug. Both can accomplish long-term delivery. Our preference would be for a lipidated approach in that it gives a little more flexibility. You're not dependent on the release characteristics of the polymer, Essentially, it's a single API that's being made. It's not being formulated. It's not as bulky on the injection side. And we believe it's also going to give maximum flexibility for dose titration. So you'll be able to have multiple doses or more easily have multiple doses that can be used and we're titrating fashion, very similar to with the GLP-1s today. So I think it gives the clinician and the patient the most flexibility over the polymer approach. We will run both of those in parallel. Our goal is really to deliver, as we said, a weekly product that has really good efficacy, so those high MCL selectivity and potency and limited to no hyperpigmentation. Our preference, of course, would be to just follow through on a liquidated. And certainly, as that goes into the clinic and begin to show efficacy and we would probably slow down the polymer part. We wouldn't most likely advance both of them all the way through into Phase II clinical development. We'd make a decision.

Okay. Great. And I know you've spoken a lot about hyperpigmentation. I did hear a little bit more about improving gastrointestinal tolerability. What are you doing specifically to address that with the MC4R agonist?

Sure. So there are 2 approaches. So one, there's going to be -- there's the GI side effects are indeed driven by MCR4 agonism. One way of reducing that is to essentially not overdose patients. So when you're going with, for example, lipidated peptide, it's a lot easier to keep the patient in the intended therapeutic range without going over. So 1 of the problems you have with these simpler peptides that aren't formulated, is that you're injecting a big bolus dose, right, because of a short-acting drug. So you go way above the therapeutic window for the drug and then you get yourself into higher levels of AE. So 1 approach is simply by flattening out the absorption of the drug and keeping it in a defined therapeutic window you should -- you'll limit some of the GI side effects and you'll be left with, say, some of the inherent effects that occur by just activating the receptor. Second way of doing, which is a little more complicated is to try to develop compounds that inherently don't have any ability to cause to amass. And then there are structural elements that we're working on that can lead to that, but we're not quite there yet. So right now, the primary way you're going to do is really by limiting that essentially that bolus dosing, keeping it in that flat therapeutic window. And that's ideally done with these lipidated peptides.

Okay. Great. Final question for you, Carl. Have you given thought to what rare obesity indication you would likely pursue first?

I think the first 1 will be the hypothetic obesity indication. There were certain advantages there that patients are relatively easy to identify. They have had a type of cancer that causes damage to the hypothalamus when it's treated, and they're relatively healthy patients that essentially have had a damage to type of toll that can be corrected with a MCR4 agonist, that the first indication. Prader-Willi syndrome would be also probably done pretty closely, if not in parallel. There is a little bit different. You're working on hypers -- and trying to reduce some of the BC as well. And then the third would be the debate syndrome. So those are the 3 pretty much in order. But I think the first 2, we would -- depending on resources, we try to run in parallel as close to parallel as we can.

Okay. Great. A couple of questions for Steve. Steve, how should we think about collaboration license revenue in fiscal year 2027, should it be material, significant? Just trying to get a thought relative to what we saw in fiscal 2026.

Well, thanks, Scott. In our mind, achieving any milestone with these collaborations is significant. We do anticipate just to back up, we have 2 ongoing collaborations, 1 in taco with DenglIngelheim, another in the ocular with Altana -- we anticipate and expect to receive a milestone achieved milestone from Barnangen sometime within the next 2 to 3 quarters. Altaba is it a little further out. But also, notwithstanding the existing ongoing collaborations, we do have interest. We have very good interest in some of our other programs, the non-obesity specifically around our ulcerative colitis and also some other ocular indications and MCR1 autoimmune anti-inflammatory. It's -- we're not to the point where I could say we expect to get something within the next several quarters, but we wouldn't be surprised if someone does pull the trigger on a research or an early-stage collaboration in that regard.

Okay. Great. And then OpEx trends, certainly lower in Q4 as you prepare to move things along more aggressively? Should we expect OpEx to sequentially increase throughout 2027?

Well, for -- initially, yes. The -- for the quarter ended June 30 and the same thing with the quarter prior to that. Certain activities are -- they're done sequential. So based on timing, you're going to fluctuate a bit, but we do anticipate the next several quarters, the quarter ended 12/31 in the first quarter or frankly, even -- excuse me, the first half of '27 to move -- to increase. Nothing -- it's not going to double if you will, it's going to be more than likely around what we've done in the first few quarters of calendar '26. But again, we're advancing the program and it's -- I know people like, oh, you're spending -- we're investing the money. We couldn't be more pleased with where we are from a differentiating standpoint in the obesity space where we're moving forward with. .

Okay. Great. And final question, when we think about the balance sheet and funding development, are we still thinking about those -- I believe they were the Series J warrants that were activated, I believe, by an IND acceptance. Is that still part of the financing picture?

Is part of the funding picture, and that's why we set it up. In November 2025, financing included a, we call it a short-term warrant, the Series J warn is correct, and that actually triggers -- the -- and it's triggered on either 18 months -- the lesser of 18 months or the IND filing of 1 of our internal obesity MCR4 compounds. And if that was exercised at 100% that would yield approximately $18.5 million. So 100%, that's part of the future funding. And if we hit that trigger, things are going well. .

Your next question is coming from I-Eh Jen from Laidlaw Company.

My first question is about the -- this is the updated 1 that you anticipate to start trial in the first half of next year, calendar next year. So what are the remaining IND-enabling work remain before you can start the filing and Phase I study? And then I have a follow-up.

The main thing remaining is really is just getting the initial animal tox work done. So we're in scale up now and those studies are scheduled and getting ready to start. But that's really the main largest bulk of what we need to get done. There's always a bunch of other earlier studies or in vitro studies, but a lot of those have been done already. So it's really getting the animal work done in the reports in. .