Palatin Technologies, Inc.

Good day, ladies and gentlemen, and welcome to the Palatin's third quarter fiscal year 2021 operating results conference call. As a reminder, this call is being recorded. Before we begin our remarks, I would like to remind you that the 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 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 Security Exchange Commission. Please consider such risk and uncertainties carefully in evaluating these forward-looking statements and Palatin's prospects. Now I'd like to turn the call over to your host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead, sir.

Thank you. Good morning and welcome to the Palatin Technologies third quarter fiscal year 2021 call. I'm Dr. Carl Spana, CEO and President of Palatin. With me on the call today is Steve Wills, Palatine's Executive Vice President, Chief Financial Officer, and Chief Operating Officer. On today's call, we will provide financial and operating updates. I will now turn the call over to Steve, and he'll provide financial updates as well as an update on the exciting and significant progress we are making with Bilesi. Steve.

Thank you, Carl, and good morning, everyone. Regarding our third quarter 2021 financial results, which is Palatine's quarter-ended March 31st, 21, Total net revenue consisting of net product revenue of Vilesi was $88,741. There was no revenue reported for the third quarter of 2020. Vilesi gross sales amounted to $1,780,020 with net product revenue, again, of $88,741 net of allowances and accruals compared to gross sales for the quarter ended December 31st, 2020 of $943,950 with net product revenue of negative $163,971 net of allowances and accruals. Total operating expenses were $6.6 million, compared to $5.7 million for the same period in 2020. The increase was mainly due to commercial expenses related to Varlisi. Palatin's net loss was $5.7 million, or two cents per share, compared to a net loss of $5.4 million, or two cents per share, for the comparable quarter of 2020. As of March 31st, 2021, Palatin had $68.6 million in cash and cash equivalents and $1.9 million in accounts receivable, compared to $82.9 million in cash and cash equivalents and no accounts receivable as of June 30th, 2020. Palatin has no outstanding debt. Regarding Vyleesi, our FDA-approved product for hypoactive sexual desire disorder, or HSD, date, For the quarter ended March 31st, 2020, over the prior quarter ended December 31st, 2020, gross product sales increased 89 percent, net revenue increased 154 percent, and prescriptions increased 24 percent. Very significant numbers for the quarter. Geo-targeted marketing efforts are expected to drive healthcare provider and consumer engagement. The current digital campaign applications reach thousands of healthcare providers and millions of premenopausal women monthly and has resulted in increased website and telemedicine traffic and conversions. We continue to focus on expanding access and reimbursement coverage. We estimate ByLisi has achieved approximately 75% of commercially insured lives and approximately 50% of commercial formulary coverage, including two of the three major pharmacy benefit managers and numerous regional plans. Prescription increases and expanding access and reimbursement coverage have resulted in more favorable gross to net adjustments and positive quarterly net product revenue for the first time. I'll now turn the call back over to Carl. Carl?

Thank you, Steve. We continue to conduct our operations under the conditions imposed by the ongoing COVID-19 pandemic. To date, we believe that the adjustments we have made have allowed us to continue to advance our preclinical, clinical, and commercial programs while maintaining the safety of our employees, patients, healthcare providers, and partners. As you heard during Steve's presentation, we have made substantial progress in correcting and enhancing the Ilesi commercial infrastructure and putting in place an excellent and motivated commercial team. The changes that have been put in place have improved the patient experience, patient access, relationship with prescribers, and the profitability of Ilesi. Results from the quarter demonstrate their positive effects on prescriptions and revenue. We are now in a strong position to demonstrate the potential value of Ilesi in a cost-effective manner and obtain our ultimate objective, the relicensing of Ilesi to a committed partner, ensuring the continued availability of Ilesi as a treatment option for premenopausal women with HSDD or hypoactive sexual desire disorder and a return on our investment. During the quarter, we updated our website and logo to reflect our transition to a focus on the development of therapeutics that target the ability of the melanocortin system to resolve or turn down inflammation and reduce fibrosis. Using our extensive technology and experience in the biology, chemistry, and development of therapeutics that interact with the body's melanocortin system, we are building a portfolio of therapeutics that we believe will have significant potential in treating diseases that affect the eye, gastrointestinal system, and kidney. The melanocortin system plays a critical role in protecting the eye from harmful inflammation, and we are developing multiple products for ocular diseases. Topically delivered PL9643 is our melanocortin agonist for treating ocular diseases that affect the tissues that comprise the anterior segment of the eye. The first indication for PL9643 is dry eye disease, and we have previously reported positive data in our Phase II dry eye disease clinical study. We are incredibly pleased to have been selected to present the detailed data at a podium session at the Association for Research in Vision and Ophthalmology 2021 Annual Meeting in May. The presentation was well received by the ophthalmology community. We are advancing topical PL9643 into a Phase III study in moderate to severe dry eye disease patients, which is scheduled to begin in the second half of calendar 2021. To support this program, we have scheduled an end-of-Phase II meeting with the FDA to discuss the details of the Phase III program. The emerging profile of PL9643 with its rapid therapeutic onset, excellent ocular tolerability profile, is a potentially distinct advantage in dry eye therapy. If the results are confirmed in the upcoming phase three clinical study, we believe that PL9643 has the potential for substantial penetration into the multi-billion dollar dry eye disease market. In the past quarter, we also continued to advance our preclinical programs for retinal and corneal diseases. Our data on various preclinical models of retinal disease was also presented at ARGO as a poster. If you're interested in learning more about our ocular programs, you can visit our new website where you will find both of the oral presentations. In addition, we are hosting a key opinion leader presentation on May 21st, which is focused on our ocular programs, PL9643 clinical data, design of the PL9643 phase three clinical study, and the role of the melanocortin system in ocular diseases. Moving on to our PL8177 oral formulation for ulcerative colitis, we are conducting activities required to initiate a phase two proof of concept study, which is targeted to start patient enrollment in the second half of 2021. with a potential data readout in 2022. This will be our first clinical study designed to evaluate the potential of a selective linocortin-1 receptor agonist as a treatment for ulcerative colitis. This study will evaluate the safety and potential efficacy of Oral-PL8177, and if positive, the results of the study will support our efforts to license Oral-PL8177. Finally, based on our research work, On the natriuretic peptide system, our drug candidate PL3994, which is a selective natriuretic peptide receptor A agonist, is being evaluated in a Phase IIa clinical study in heart disease patients with preserved ejection fracture. The study is in cooperation with two major academic medical centers and is supported by a grant from the American Heart Association. The study continues to enroll patients, and we anticipate preliminary data in early 2022. You can find additional information on our programs on our new website, www.palatin.com. During the past quarter, we continued to make significant progress across all our programs, and our healthy cash position will allow us to emerge from the pandemic in a strong position. Under Steve Wills' direction, our Valisee commercial activities have made significant progress. These changes are beginning to have a positive impact on increasing Valisee prescriptions and revenue. For PL9643, a topical treatment for dry eye disease, we are conducting activities required to begin a Phase III study, second half of the calendar year, and this includes preparing for an end-of-Phase II meeting with the FDA. We had two presentations at the Association for Research and Vision Ophthalmology 2021 Annual Meeting, one covering the details of the PL9643 Phase II clinical trial results in dry eye disease and the preclinical data concerning our melanocortin agonists and retinal diseases. We continue to build out our melanocortin-based oculotherapeutics portfolio and anticipate initiating a clinical development program for a second ocular indication starting in the second half 2021. We remain on track to start a Phase II proof-of-concept clinical study with an oral formulation of PL8177 in ulcerative colitis patients, which is targeting to start in the second half of calendar 2021. Finally, we are hosting a key opinion leader webinar on May 21, 2021, on melanocortin agonists for treating ocular indications, with a primary focus on PL9643 and and our data from our recently completed Phase II clinical trial for dry eye disease, and introducing our growing portfolio of melanocortin agonists to treat the harmful effects of inflammation in the eye. As we look forward to the rest of 2021, we have a strong pipeline of novel clinical candidates, and we'll remain focused on their advancement. In closing, Steve and I would like to thank the Paladin team and all of our partners for their continued dedication to the advancement of our programs. We will now open the call to questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from John Newman with Canaccord. Please go ahead.

Hi, guys. Thanks for taking my question. Just had a question on Valisi. like you guys have been making some changes here that have certainly been moving things in the right direction. Just curious as to what we should expect for the rest of the year, just in terms of continued efforts that you're making. And I'm also curious if you believe that sort of coming out of COVID, you might have a positive tailwind there as well. I'm not sure if this is a product where face-to-face interaction with the physician is required, but just wanted to ask about that. Thanks.

All right. Thanks, John. This is Steve. Well, I can't give you my Nostradamus prediction for the rest of the year, but we hope the 331 quarter will be duplicated as we go forward. Regarding the pandemic, I mean, I think... Face-to-face, I think, is always better. Us, you know, Palatin, just like most other companies, doing the best we can with the limited face-to-face. We are now experiencing some face-to-face contact, but the vast majority continues to be the Zoom or the video streaming. So we would anticipate that as the market opens up more because of the pandemic getting a little bit better, for people and the access on the face-to-face being greater, that we'll also see some greater uptake in our prescription care.

And I think you have, you've seen more favorable gross to net adjustment. Is that something that you would expect would continue to improve as we go forward?

Absolutely. I mean, that was one of the A items that Carl and I targeted very early on. Notwithstanding increasing prescriptions, Palatin generates the most significant amount of net revenue on a prescript basis based on the higher insurance coverage. So we've worked hard to increase our covered lives, our formulary coverage. And what that results in is we're going to have a more favorable gross to net. Our strategy right now is to continue the copay program. So patients, the first dose is $0 out of pocket, and any subsequent dose is no more than $99 out of pocket. Now, that doesn't mean we can't collect the insurance. So we've done, as I mentioned, I think a pretty good job of increasing the coverage in that area, but we've also improved on the processes. We've switched out one of our specialty pharmacies, and I feel we're working pretty close with the pharmacies to make sure the process is as streamlined and as efficient as possible for both the healthcare provider and also for the patient.

Okay, great. Also wondered if you could give us an update on partnership activities here. I know that you guys have been working really hard on getting the prescriptions to a good point, but also curious if you can talk to us a bit about the potential for

uh a partner here for raleigh c thanks well thanks john the um no question that's that's that's palestine strategy that's carl and steve's strategy which is to to relicense the product uh in the us and also to expand um collaborations throughout throughout the other regions those those discussions slash negotiations are are advancing and they're ongoing um i i feel very comfortable that the first quarter results are going to um assist with those discussions because we're showing very significant progress. We're showing that the brand has value. And our investment, you know, is limited. So our strategy is to find a committed partner that's in the female healthcare space that has the type of infrastructure that you can either put behind this product as a standalone product or you want to add it on to other existing products that you have. So we think the first quarter results are very important. regarding those negotiations, but they are advancing.

Okay, great. Thank you.

We'll take our next question from Joe Pandenas with HC Wainwright.

Please go ahead. Hey, guys. Good morning. Thanks for taking the question. I wanted to focus on the evolution of 9643, because now you have the opportunity for a second potential commercial product. And And I know we'll be getting more details at the end of the week on the clinical program, but I first wanted to see if you could talk a little more about the endpoints of the planned Phase III study versus the Phase II trial that read out in December 2020 and, you know, what kind of adjustments that you made. But what I want to do here is really tie it to the business development or potential business development around this asset because as you're now going to – and the phase two meetings with the FDA and looking to start a phase three by the end of the year, you know, a potential partner might want to have a say in the design of the program or conduct of the program. So I just wanted to combine those two. Thanks.

Sure. Thanks, Joe. This is Carl speaking. A couple of things. So just as a, for those that may be listening that don't know the dry eye disease, you know, environment, variable regulatory environment, One strategy for showing efficacy is to think about it as signs and symptoms. So there are symptoms of dry eye disease, such as, you know, scratchy eyes, dry eyes, you know, painful, burning. Those are all symptoms, and the others are signs which are more indicative of the underlying inflammation or damage that may be occurring to the tissues in the eye and the surface of the cornea and the conjunctiva, what have you. And so the strategy is if you show an improvement in a sign and a symptom, that forms the basis for approval of the product. So with that being said, we'll be looking at multiple signs and symptoms in the phase three program. And I don't want to go too much into the details because I think we have some great people on the call coming up on Friday that will really walk you through the data, how that was translated into the design of the Phase II trial, the design that we're using, which is a little bit innovative, and how that's going to play out. But suffice it to say, we'll be looking at signs and symptoms. And again, some that were pulled from the Phase II data. So the ones that are coming out of the Phase II data where we have the strongest results in moderate to severe patient population, which is the one that we're looking at, will be the ones that will be the basis of both the primary and key secondary endpoints. So these will be things such as improvement in ocular pain, conjunctival staining, inferior corneal fluorescein staining. These are the types of things that we showed very strong results on in the Phase II study, and they'll be the basis of the Phase III. But how they're going to be structured, analyzed, I think I'd like to leave a little suspense for the end of the week because I think we have some really great guys that can walk you through. And I think we've designed a very, very innovative program that reduces our risk as we go forward into Phase III, and we're quite excited about it. So I'll leave it there on that subject. With regards to licensing and what have you, Joe, we've learned a lot through Vilisi, and although we're not necessarily in a great hurry to license this asset and the ocular assets as we come through, I mean, we have the capital to go through into the clinical study, the Phase III clinical study, So although we're getting interest and we're starting to obviously engage with potential partners, I think that the things that we're doing with the feedback we're getting are the types of things that they're comfortable with. So I don't think there would be much of a change in the design of the trial if we bring a partnership in. And we want to make sure that It gets a broad viewing. We don't want to just talk to one partner. Of course, we'll talk to one partner if they offer us a lot of money. That's a different story. But we do want to make sure that we've got a good partnership and we get true value for what we think is an asset that really, if it continues to show positive results here, will be really impactful in the treatment of dry eye disease, as well as other diseases in the front of the eye. I mean, I don't think this is limited to one indication.

No, absolutely. That's fair. Thanks a lot, and looking forward to Friday.

Yeah, I think we've got a great set of people coming to talk to you, and we're excited by it.

We'll take our next question from Michael Higgins with Lattenberg. Salman, please go ahead.

Thanks, guys. Sounds like you're sending a lot of the comments on 9643 for the KOL event, so I'll hold mine off until then, as teams you want to discuss it in further detail then. So, appreciate it. Thanks, though. Good. Okay.

Thank you. Ladies and gentlemen, this will conclude today's question and answer session. At this time, I'd like to turn the conference back to Dr. Spana and Michael Higgins for any additional or closing remarks.

I think he meant Steve Wilson. That's okay. Michael, I don't think you have to make any further remarks. Thank you guys for calling and insightful questions. You know, we continue to make a lot of progress here, and we're very excited about where we're going in a future direction, not just in the ocular space, but in others. And although the near term is ocular, don't forget about the assets in ulcerative colitis, and there are some other things that we'll be looking at as well. For those that are on the call now or listen to it, I think you can find an invitation to the webinar on Friday on the website. Please sign up. We've got really some of the best in the world that we're working with, and they'll be presenting the data, trial design and where we're going, and really the role of the monocortin system in ocular inflammation. So quite a lot to learn, and I think quite an exciting time for us. So thank you. Be safe, and we look forward to Friday's call, and then also continue to update you on our progress. Thanks.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.