Palatin Technologies, Inc.

Hello, ladies and gentlemen. Welcome to Palatin's second quarter fiscal year 2022 operating results conference call. As a reminder, this conference 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 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 careful in evaluating these forward-looking statements by Palatin's prospects. Now I'd like to turn the call over to our host, Dr. Carl Spanich, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning and welcome to the Paliton Technologies second quarter fiscal 2022 call. I'm Dr. Carl Spana, CEO and President of Paliton. With me on the call today is Steve Wills, Paliton's Executive Vice President, Chief Financial Officer, and Chief Operating Officer.

Steve. Thank you, Carl. Good morning. Good afternoon, everyone. Regarding Paliton's second fiscal quarter ended December 31st, 2021, financial results are as follows. Total revenue consists of gross product sales of Vileci, net of allowances and accruals, and license and contract revenue. As a reminder, Vileci is our commercial product for the treatment of premenopausal women with hypoactive sexual desire disorder. Vileci gross product sales to pharmacy distributors for the quarter ended December 31st, 2021 amounted to $800,000 approximately, with net product revenue of approximately $72,000. compared to gross product sales of approximately $900,000 with negative net product revenue of approximately $164,000 for the comparable quarter in 2020. Regarding Vilesi, for the quarter ended December 31st, 2021, gross product sales decreased 18% and net product revenue increased 144% over the comparable quarter in 2020. The gross product sales decreased 46%, and net product revenue decreased 55% over the prior quarter ended September 30, 2021. This decrease, importantly, was primarily a result of pharmacy distributors minimizing their end-of-year inventory levels. Total prescriptions dispensed were flat compared to the same period in 2020, and the prior quarter ended September 30, 2021. Commercial insurance reimbursement and net revenue per prescription dispensed increased significantly over the comparable quarter in 2020, and the prior quarter ended September 30th, 2021. Also, for the quarter ended December 31st, 2021, Palatine recognized $250,000 in license and contract revenue pursuant to its license agreement with Fosun Pharma. There were no license revenues recognized during the comparable quarter in 2020. Moving over to operating expenses, Total operating expenses for the quarter ended December 31, 2021, were $8.8 million compared to $9.1 million for the comparable quarter in 2020. The decrease in operating expenses was the result of decreased commercial expenses related to Vilesi offset by increased research and development expenses, primarily related to the advancement of PL-9643 into a pivotal Phase III clinical trial for patients suffering from dry eye disease. Regarding cash flows, Palatine's net cash used in operations for the quarter ended December 31st, 2021 was $6.3 million compared to net cash used in operations of $14.4 million for the same period in 2020. The decrease is mainly due to a one-time negotiated payment of approximately $7 million in the quarter ended December 31st, 2020. This was related to inventory purchase commitments of Vilesi that Palatin assumed as part of our termination agreement with AMAG Pharmaceuticals, but it also included $16.3 million of payments by AMAG to Palatin. Regarding net loss, Palatin's net loss for the quarter ended December 31st, 2021 was 8.7 million or 4 cents per basic and diluted common share compared to a net loss of 10 million or approximately 4 cents per basic and diluted common share for the same period in 2020. Regarding cash position, as of December 31st, 2021, Palatin's cash and cash equivalents were $47.3 million with approximately $600,000 of accounts receivable compared to cash and cash equivalents of $53.4 million and $900,000 of accounts receivable as of September 30th, 2021. Based on our current operating plan, Palatin believes that existing cash and cash equivalents will be sufficient to fund currently anticipated operating expenses through at least March 31st, 2023. Now I'm going to turn the call back over to Carl.

Thank you, Steve. Attorney Valisi, our operating objective has been to optimize the core metrics that support the commercial value of Valisi, meaning how we make money on a prescription. For the quarter, commercial insurance coverage, net revenue for prescription, and prescription refill rates all increased over prior quarters. Our ultimate objective is to relicense Ilesi to a committed partner, ensuring the continued availability of Ilesi as a treatment option for premenopausal women with hypoactive sexual desire disorder and a return on our investment. We continue to engage with potential partners in the U.S. and other territories, and the timing of a potential license is dependent on us reaching acceptable terms with the right partner. Moving on. Across a multitude of inflammatory and autoimmune diseases, there remains a vital medical need for new treatments to provide patients and clinicians with safe and effective options. Our research and development operations are focused on developing drugs that modulate the melanocortin system, a new treatment modality for patients suffering from pathological inflammation with a primary focus on ophthalmic diseases such as diabetic retinopathy, dry eye, and uveitis. Many of the current treatments for inflammatory and autoimmune diseases work by blocking one or more pro-inflammatory pathways, which can cause immune suppression and major safety concerns. By targeting the melanocortin system, one of the body's natural mechanisms for resolving inflammation, Restoring the immune system to a normal state and promoting tissue healing, we believe that we can develop highly differentiated therapeutics with efficacy and superior safety profile. We have a multi-layered plan to advance our understanding of the melanocortin system at a molecular level and to establish the clinical validation of melanocortin-based therapeutics. Our clinical development programs include ocular and non-ocular indications that are designed to demonstrate the broad utility of the melanocortin system as a new target for drug development. It's successful. we will have developed a new class of therapeutics for the treatment of inflammatory and autoimmune diseases. Our first product, topically delivered PL9643, is our most advanced melanocortin agonist for treating ocular diseases that affect the tissues of the anterior or front segment of the eye. The first indication for PL9643 is dry eye disease, and in December 2021, we began enrollment in a pivotal Phase III dry eye disease study called MELODY-1. Melody 1 is evaluating the safety and efficacy of PL9643 versus vehicle control in patients with moderate to severe dry eye disease over a 12-week treatment period. The study is targeted to enroll 240 patients and includes an interim data assessment that will be conducted by an independent data monitoring committee that will allow us to increase the number of subjects, if needed, reducing the risk of an underpowered study. The three co-primary and three key secondary endpoints will be comprised of signs and symptoms of dry eye disease and were determined based on detailed analysis of the Phase II data. Melody I is currently enrolling patients at multiple sites in the U.S., and the interim data assessment is on schedule for mid-2022, with preliminary data in the second half of 2022. If successful, Palatin will initiate the second Phase III PL964-3 dry eye disease study called MELODY-2, and an open-label safety study called MELODY-3. The three MELODY PL964-3 dry eye disease studies will provide the safety and efficacy data required to file a new drug application with the FDA. The Emerging Profile 9643, with its rapid therapeutic onset, excellent ocular tolerability, and safety profile, is a potentially distinct advance in dry eye disease therapy. If the Phase II results are confirmed in the upcoming Phase III clinical study, we believe that PL9643 has the potential for substantial penetration into the multibillion-dollar dry eye disease market. We believe that PL9643 and other of our line-of-court agas will have utility in treating multiple front-of-the-eye disease indications, and we are planning to advance a second front-of-the-eye disease indication to an investigation of new drug filing in 2022 as well. As we move on to the back of the eye, PL9654 is a melanocortin agonist in development for treating various types of retinopathies. We are currently conducting the preclinical development activities to file an IND with the FDA, which will allow us to begin clinical activities with PL9654. We recently presented preclinical data describing the protective effects of PL9654 in mouse models of retinopathy at the 2021 Annual Meeting of the American Society of Retinal Specialists, and the presentation was awarded a top 10 poster designation. The current drug market for the various retinopathy drugs was approximately 20 billion in 2021, and is projected to be in excess of 27 billion by the end of 2025. There remains a large need for new, innovative treatments for retinal diseases, and we believe PL9654, although early in its development, has tremendous potential to positively impact patients with retinal disease and garner a significant part of this extremely large market. Now let's leave the eye and move on to other parts of the body. Our PL8177 oral formulation for ulcerative colitis. We are on schedule to initiate patient enrollment in a phase two proof of concept study in the second quarter of 2022. We anticipate initial data readout in the second half of 2022 as well. This will be our first clinical study designed to evaluate the potential of a selective melanocortin-1 receptor agonist as a treatment for inflammatory bowel diseases. The study will evaluate the safety and efficacy of oral PL8177 And if positive, the results of the study will add to the validation of the line of court and system as a target for innovative drugs, as well as support our business development and licensing efforts around oral PL8177. The market for drugs that treat various inflammatory bowel diseases is multi-billion dollar, and there remains a large need for new, safe, and effective treatment options to expand the treatment of these patients. The emerging safety and efficacy profile of oral PL8177 if confirmed, would be a potential major advance in the treatment of inflammatory bowel disease, particularly in the pediatric population. You can find additional information on our programs on our website, www.paladin.com. As a company, we are well-positioned to advance a new mechanism for treating inflammatory and autoimmune diseases based on drugs that modulate the monocortin system. This year is an exciting year for Paladin, with data readouts from two major clinical programs, and two additional programs advancing towards clinical studies. In summary, before we go into the Q&A, PL9643 is actively enrolling patients in a phase three pivotal dry eye disease study called NELODY1. The interim analysis is on schedule for mid-2022 with data by year end 2022. Oral PL8177 for treating ulcerative colitis remains on schedule to begin patient enrollment in the second quarter of 2022 in a phase two proof of concept clinical study with preliminary data also before year end 2022. Both of these innovative drugs have the potential to be significant players in growing multi-billion dollar markets. Our pipeline of innovative new treatments continues to grow with PL9654, our melanocortin agonist for treating retinopathy, advancing toward 90 filing and start of clinical studies, as well as a novel melanocortin agonist, our second front of the eye treatment, also advancing towards an investigation of drug filing in 2022. ELISI commercial activities continue to show significant improvement in the core metrics of insurance reimbursement, net revenue per prescription, and prescription refills. We are also actively engaged in relicensing ELISI to a committed partner. To support our clinical development programs and business development activities, Palitin scientists and collaborators are presenting at major medical meetings, and we have been actively publishing our research. Our communication efforts are establishing Palitin as a company developing exciting new treatments for ocular diseases. As we look forward to 2022, Steve and I are excited by the tremendous opportunity that we have to advance a portfolio of highly differentiated, innovative drugs that will positively impact patients and build shareholder value. We'd like to thank you for listening to our call and your continued support. The call will now be open for 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. Star 1 for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Joe Pangenis with H.C. Wainwright. Please go ahead.

Hey guys, good morning. Thanks for taking the question. A couple if you don't mind. So first, with regard to the pivotal DED study, maybe a little more specifics around the interim and what kind of news flow can be expected by the street. Is it anything beyond just continuous planned or the study will be upsized?

That's it, Joe. It's an assessment, not a data analysis. So they're really going to be looking at the power calculations that underpin the study and give us guidance on whether or not we need to upsize or we stay as is. And just a little follow-up there. It's an important innovation to add these things in. You'll drive these studies, have a degree of variability in And this type of approach really does allow us to make sure that we don't underpower the study, particularly in regards to the key secondary endpoints. We really want to get some of those key secondary endpoints in because they will be important for our label.

Got it. That's helpful. And I guess let's just stick with ocular for a second. I know this is a very broad stroke type of question. You might not be willing to necessarily go too deep right now. But, you know, other types of front of the eye indications that you might be interested in, as well as, you know, additional indications in the ocular setting, even with 9654 and beyond.

Sure. Well, 9654 is a back-of-the-eye treatment, but 9643 and other compounds that we haven't yet disclosed, there are only so many indications for the front of the eye. I mean, ones that we're interested in outside of dry eye would be things like glaucoma, for example, a very big market that needs really desperate need of new treatments. And there are various types of diseases that are related to corneal function, things around, for example, cataract surgery, other types of surgeries that are done. that where we need better healing, where I think melanocortin agonists really can help promote better tissue healing and what have you. In addition to that, there are a few indications that we're just not ready to disclose yet that we think if the preclinical data continues to pan out, will really represent new front-of-the-eye indications. So we're really looking very deeply, and I think over the next year, we'll have a lot of information flow there.

No, that's fair. Thanks. And my last question, if I could just switch gears, obviously, you know, Vilesi is the long history with your company. And, you know, it's glad to see that you're seeing increasing reimbursement engagement and, you know, with the commercial payers. So I guess, you know, the overarching question is, you know, to the level that you can discuss or want to discuss. You know, how can you describe the tenor of your, say, ongoing discussions right now? But even more specifically, you know, depending on the outcome of those discussions, you know, are you potentially considering other options for Vilesi, whether, you know, I don't know, I'll just take some wild shots here, a spin-out company, or, you know, even keeping for yourselves, you know, to expand women's health again?

Hey, Joe, it's Steve. I'll take that one. So let's, in not a particular order, but on the last point, as Carl mentioned and we've mentioned prior, our objective is to relicense Vyleesi to a company that frankly just fits better than we do. Our strategy going forward is absolutely the autoimmune, anti-inflammatory, the ocular focus, the dry eye disease trials, the ulcerative colitis, and at some point, some additional ocular treatments that we will illuminate on. We needed to concentrate. I mean, we targeted certain metrics that we believed would show the brand in, I don't know if I want to use the term, the right hands, but in the hands where someone can do it justice, that they have the infrastructure, they have the resources, and frankly, their strategic vision is to expand the female health care landscape. We've done that. I'm not going to get into where we started per se, but when we got the product back, we had single-digit insurance reimbursement. We actually had negative, don't stutter, negative net revenue, so gross to net going down to net. So we now, we have greater than 50% of every prescription dispense is covered by insurance. We have very good insurance coverage. And importantly, When you get that type of insurance coverage, your gross to net is going to increase significantly. So that's where we've concentrated our efforts. We do have social media that we are still engaging in, but we're not going to be putting feet on the ground. We have several sales folk in place right now, but we're not looking to expand 10, 15, 20 type of sales folk. That's going to be for the new partner. So specifically on the tenor, we think the tenor is good and it's positive. because we're showing that if we do A, something B, which is good, will happen. Increased insurance reimbursement, increased gross to net on the prescriptions dispensed. So then it's very, very somewhat easy to extrapolate in the right hands, the hands being that this is their strategy and their objective going forward, that they can even do a better job than we've done with the insurance reimbursement and the gross to net. And then layer that in with the infrastructure that they have, specifically with whether it's feet on the ground or just a lot more wherewithal for the market access, we think that the product can do very well. So to be clear, the objective is to license it, continue the path of showing progress in our primary targeted metrics, and we're doing that. And our expectation is that we will find a good home for Vileci sometime in calendar 22. On your point, Joe, not to take too much of the response there, but the, you know, this is, we're approved for pre-menopausal women in HSD day. In the right hand, life cycle management, looking at other treatment paradigms, whether it's the post-menopausal or some other areas, possibly even with the male for the hard to treat. men out there. There's other opportunities that could actually be quite exciting in the right hands. So hopefully that was responsive, Joe.

No, it certainly was. Thanks a lot, guys. Appreciate it.

We'll take our next question from Michael Higgins with Landenburg Thelmans. Please go ahead.

Thanks, everybody. Good morning, guys. Appreciate the opportunity to ask you some questions here. First off, looking forward to your KOL event March 7th. but that sparks a question since you've held them before. How would this one be different from your previous event?

Thanks. Sure. Actually, I think that just went out today. So actually, well, we didn't mention it, but we are having a dry eye disease key opinion leader event on March 7th, and you'll find information coming out on the website shortly on how to listen to that. Our viewpoint in these things is, as Steve and I just pointed out, These are not just designed as, you know, commercials for PL9 or 4.3. We really want – the first part is going to be Dr. Aaron Dondefel. He's going to talk about really how he sees and manages a dry eye disease patient, current options that he's using. And we're also going to review – there's been several new approvals in the space. We're going to go cover those, how they're impacting treatment, and also – what's coming down the pike. Besides PL9643, there are other things that are in development, so we'll be covering some of those as well. We will, of course, also cover Dr. Michael Raisman, our chief medical officer, who's also a well-respected ophthalmologist. We'll be covering the PL9643 profile, how that fits into the potential disease treatment as well, as well as the Phase III trial. So it really will be something you want to listen to it if you want to learn about dry eye disease. You'll learn a lot.

That's very helpful. Appreciate that. Thanks. Staying with 964.3, so we're looking for data, as you noted, back half of this year. How does the data potentially impact your thoughts on partnering it? What are your thoughts going in on that?

Thanks. Sure. Clearly, we always have a strong business development effort. We're actually – routine basis talking to various potential partners about all of our programs. Clearly, if it's strong, positive data, I would expect we're going to have a tremendous amount of interest, and we'll have to make some decisions based on what the opportunities are, whether or not we want to partner at this stage or we want to continue to go forward. Steve and I will never tell you that we're not going to engage in business development activities around our various programs. Our goal is to maximize the value, and if that's the right strategy based on the data, that's what we're going to do.

Makes sense. Same theme, but switching to 8177 and UC. What are your thoughts as well there with partnering? And also, in terms of that trial design, will there be an interim for 8177 as well? Thanks.

Yes, two different points. One, 8177, the oral formulation, that is designed, as we've said multiple times, for two things. One, we think it's a great potential treatment option for UC patients. But our goal is really to license that program. We do not see ourselves going forward past this study in any type of inflammatory bowel disease, whether it's UC, Crohn's, or anything else. This is really designed, it actually has, there is actually input from potential various partners. So one thing that has been very helpful is we, I don't think there's a GI franchise out there that hasn't taken a meeting around oral PL8177. We have gotten a tremendous amount of feedback as to what we would need to demonstrate in the trial, and those things have been built in. According to the interim, there is an interim analysis. There is an interim analysis built into that study, and that's what we will have by the end of the year. It's the first 16 patients we will have a look at, and that's what the data will have by the end of the year.

Perfect. Thanks. And then a couple of financial-related ones here for Steve. How many in-the-money warrants did you have at year-end and the milestone that came from POSEN? What milestone did they earn? I guess kind of a third, maybe a back half of that milestone-related question would be any others you're looking for this year. Thanks.

Sure. Thanks, Michael. Let me take the easy one. Warrants. In-the-money at the end of the year. Zero. You know why? Because we have no warrants. outstanding, which is a good thing. Very clean cap table, $232 million common outstanding, and 10%, 15% of that, we also, on top of that, are the options, equity grants for employees, for a total of about $266 million fully diluted. But again, no outstanding warrants, so obviously no in the money. Regarding the FOSUN $250,000, we I don't think I called that a milestone. It was contract revenue. That was for payment for the trial, for the clinical trial material for them to advance the program from a regulatory standpoint. So the next milestones for each, whether it's Kwandong or Fosun, is going to be on regulatory. So we're not going to get any milestones as they're advancing any type of criminal activity for the regulatory filing. It's gonna be on the regulatory filing and the approval. So we don't expect, don't anticipate anything else in 22 coming from them. That would be a 2023 event.

Awesome, appreciate the color. Thanks guys, congrats again.

Thanks Michael. Thanks Michael. We'll take our next question from John Newman with Canaccord. Please go ahead.

Hey guys, thanks for taking the question. The PL8177 study sounds like we'll see some interim analysis there later this year. Just curious, what are the endpoints that you'll be looking at just at this stage of development there?

The primary endpoint is we're looking for evidence of mucosal healing based on colonoscopy. So we're using the Mayo score, the Mayo biopsy score is the primary one that we'll be looking for. Of course, we also have secondary endpoints looking at symptom relief, but these patients are being treated for eight weeks, so we should expect to see pretty strong evidence of mucosal healing, which generally translates into, eventually translates into patient symptoms being relieved. There's also a whole variety of secondary endpoints. This is a lot of data that's being collected here, which is pretty typical for a proof of concept study.

Great. And then just one additional question on PL9643, Melody's study. When you take a look at the interim, will you have the opportunity, if desired, to extend either the treatment period or the follow-up for that study? Or will you primarily be focused on simply the number of patients that you might look to potentially add there? Thanks.

It's just the number of patients added. Typical dry eye disease studies are 12-week treatment periods. We're not extending past that in this particular study. We may choose to do that in the second study, MELDI-2, and we certainly will have that data in MELDI-3, which is the open-label safety extension where we'll be collecting data over the course of a full year of treatment. But it's a pretty straightforward question. Really, they'll be looking at the power calculations And based on the standard deviations that are being seen, are they matching? And if so, then we'll hold as we are. And if they feel that they need to be moved up a little, the numbers need to be moved up, they'll give us guidance as to how to move up.

All right, great. Thank you. Yep.

And ladies and gentlemen, this concludes today's question and answer session. At this time, I'd like to turn the conference back to Dr. Spana for an additional closing remarks.

I'd like to thank everyone for participation in the Paladins Technology second quarter fiscal 2022 conference call. Good things going on here. A lot of stuff happening. All of our programs are moving forward and progressing nicely. So I'd like to thank all of you for participating. Certainly would like to thank all of our employees and collaborators and patients for their participation as well. And Steve and I look forward to continuing to update you on our progress throughout the year. Thank you and have a great day.

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