Palatin Technologies, Inc.

Hello, ladies and gentlemen. Welcome to Palatin's third quarter fiscal year 2022 operating results conference call. As a reminder, this 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 Securities 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 Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning and welcome to the Palatin Third Quarter Fiscal 2022 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. To start the call, Steve will take us through the financials and other corporate updates. Steve.

Thank you, Carl, and good morning, everyone. So regarding the third quarter, ended March 31st, 22 financial results, starting with revenue, total revenue consists of gross product sales of Vilesi, which is Palatine's FDA-approved product for premenopausal women with hypoactive sexual desire disorder. The gross product sales of Vilese, net of allowance and accruals, and license and contract revenue. The Vilese gross product sales, which is to pharmacy distributors, for the quarter ended March 31st, 22, amounted to 1.3 million, with net product revenue of 216,000, compared to gross product sales of 1.8 million, with net product revenue of approximately 89,000 for the comparable quarter of 21. Gross product sales decreased 27% and net product revenue increased 144% over the comparable quarter of 21. Regarding operating expenses, total operating expenses for the quarter ended March 31st, 22 were 8 million compared to 6.6 million for the comparable quarter in 21. The increase in operating expenses was the result of increased research and development expenses primarily related to our ongoing pivotal Phase III clinical trial of PL9643 offset by decreased commercial expenses related to Vilesi. Regarding cash flows, Palleton's net cash used in operations for the quarter ended March 31st, 22, was $9.5 million, compared to net cash used in operations of $3.5 million for the same period in 21. The increase is primarily due to a 4.3 payment received in March 21 related to our termination agreement with AMAG offset by increased operating expenses. Regarding net loss, Palatine's net loss for the quarter ended March 31st, 22, with $7.6 million, or $0.03 per basic and diluted common share, compared to a net loss of $5.7 million, or $0.02 per basic and diluted common share, for the same period in 21. The increase in net loss, as I mentioned above, was mainly due to the increase in the operating expenses. Regarding Palatin's cash position, as of March 31st, 2022, Palatin's cash and cash equivalents were $37.7 million with $0.8 million of accounts receivable compared to cash and cash equivalents of $47.3 million with $0.6 million of accounts receivable as of December 31st, 2021, and $60.1 million of cash and cash equivalents with $1.6 million of accounts receivable as of June 30th, 2021. Based on our current operating plan, we believe that existing cash and cash equivalents, along with the 15 million of net proceeds raised from our recent private placement of preferred stock, assuming conversion to common stock or debt, will be sufficient to fund currently anticipated operating expenses through at least calendar 23. Going into a little more specificity regarding VILECI, for the quarter ended March 31st, 22, Gross product sales increased 67% over the prior quarter, prior quarter being December 31st, 2021. Net product revenue increased 200% over the prior quarter. Total prescriptions dispensed increased 20% over the prior quarter. And refill rates, commercial insurance reimbursement, and net revenue per prescription dispensed increased over the prior quarter and frankly over all the comparable quarters sequentially since we've taken over. I'd like to, before I hand it back to Carl, just cover one additional item, and that was our $15 million preferred offering that we announced last week. On May 11th, 2022, Palatin entered into a securities purchase agreement with institutional investors selling and issuing 8.1 million shares of Series B convertible stock and 900,000 shares of Series C convertible preferred stock. Each share of Series B preferred stock and Series C preferred stock had a purchase price of $1.67 and is convertible into Palatin common stock at an initial conversion price of 45 cents. The investors in the Series B preferred stock and Series C preferred stock also received warrants to purchase up to approximately 1.67 million shares of common stock at an exercise price of 50 cents. That 1.67 million of common, of warrants to purchase the common shares equated to approximately 5% warrant coverage. Total gross proceeds for the offering before deducted offering expenses is 15 million. Palatin expects to call a meeting of stockholders to seek approval of including, but not limited to, an amendment to our Certificate of Incorporation authorizing a reverse stock split. Holders of the Series B preferred stock and Series C preferred stock are entitled to vote only on the reverse stock split and any adjournment of the meeting related to the reverse split. To the extent these shares of the Series B or Series C are converted to common shares or redeemed for debt, which is our expectation, the company will use such net proceeds for working capital and general corporate purposes. I'm just checking my notes. That's it. Let me turn it back over to you, Carl.

Thank you, Steve. Concerning Vilisi, our operating objective has been to optimize the core metrics that support the commercial value of Vilisi. With a quarter, as Steve said, we saw significant increases in gross sales, product revenue, prescriptions, refills. The continuing increases in Vilisi core metrics improves our ability to relicense Vilisi to a committed partner, ensuring the continued availability of Vilisi 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 reaching acceptable terms with the right partner. 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 treatment 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 and dry eye disease. 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, we can restore the immune system to a normal state and promote tissue healing. We believe that targeting the melanocortin system may lead to the development of highly differentiated therapeutics with efficacy and a superior safety profile. Our scientists are advancing the understanding of the melanocortin system at a molecular level and to establish the clinical validation of melanocortin-based therapeutics. Clinical development programs include ocular and non-ocular indications and are designed to demonstrate the broad utility of melanocortin system as a new target for drug development. If successful, we will have developed a new class of therapeutics for the treatment of inflammatory and autoimmune diseases. Topically delivered PL9643 is our most advanced melanocortin agonist for treating ocular diseases that affect the tissues of the anterior or front 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 and were determined based on detailed analysis of the Phase II data. MELODY-1 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 PL9643 dry eye disease study called MELODY-2 and an open-label safety study called MELODY-3. The three MELODY PL9643 dry eye disease studies are designed to provide the safety and efficacy data required to file a new drug application with the FDA. The emerging profile of PL9-643 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 PL9-643 has the potential for substantial penetration into the multi-billion dollar dry eye disease market. We believe PL9643 and other melanocortin agonists 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 investigational 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 investigational drug application 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 animal models of retinopathy at the 2022 Annual Meeting of the Association for Research in Vision and Ophthalmology. The current drug market for FDA-approved retinopathy drugs It's 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 BL9654, although early in its development, has tremendous potential to positively impact patients with retinal disease and be a significant part of this extremely large market. PL8177 is a selective linocortin-1 receptor agonist in development for treating 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 to read out by early 2023. This will be our first clinical study designed to evaluate the potential of a selective linocortin-1 receptor agonist as a treatment for inflammatory bowel diseases. The study will evaluate the safety and efficacy of PL8177 and deposit the results of the study will add to the validation of the melanocortin system as a target for innovative drugs, as well as support our business development and licensing efforts around oral PL8177. You can find additional information on our science and programs on our website, www.palatin.com. We are well positioned to advance a new mechanism for treating inflammatory and autoimmune diseases based on drugs that modulate the melanocortin system. This year is an exciting one for Palatin with data readout from two major clinical programs and additional programs advancing towards clinical studies. Before we move on to the Q&A session, just to summarize, PL9-643 is actively enrolling patients in a phase three pivotal dry eye disease study called MELODY-1. And we have already enrolled more than the 120 patients required for the interim assessment, which remains on schedule for mid-2022 with data by year end. Oral PL8177 for treating ulcerative colitis remains on schedule to begin patient enrollment in the second quarter of 2022, and a Phase II proof-of-concept clinical study with preliminary data by early 2023. Our pipeline of innovative new treatments continues to grow with PL9654, a novel melanocortin agonist for treating retinopathies advancing toward an investigational new drug filing, as well as a novel melanocortin agonist for a second front-of-the-eye treatment. also advancing towards an IND filing. Our leasing commercial activities continue to show significant improvement in the core metrics of insurance, reimbursement, net revenue per prescription, and prescription refills. Our communication efforts are establishing Paladin as a company, developing exciting new treatments for ocular diseases. As we look forward to the remainder of 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. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, star 1 to ask a question. We'll pause a moment to assemble the phone queue. We'll take our first question from Joe Sopcich. Hi, and thank you for taking our questions.

This is Sarah Nick on for Joe. My first question is regarding PL 9643. You did mention that you are looking into a second front of the eye indication. I was wondering if you could provide some insight into what are some of the indications that you're currently assessing to study?

Sure. So it actually won't be PL9643. It'll be a different monocortin agonist that we move forward. Indications can range anywhere from treatment for post-surgery, you know, cataract surgery or lens surgery, as well as glaucoma. Although glaucoma is not traditionally front of the eye, I categorize it that way because it's generally treated with topical eye drops. So those are some of the indications that we are looking at as a follow-on to dry eye disease.

Okay, great. Thank you. And also moving into PL 8177 for ulcerative colitis. I know the trial initiation will be soon. I was wondering if you could maybe expand on some differentiating factors for this particular agent versus other current commercial treatments for UC.

Sure. So PL8177 is designed to treat the colon topically. So this is a peptide that's in an oral formulation that's released when the drug gets into the colon. So it's encased in a polymer that protects it from digestion until it's released when it gets to the right spot. And what we're doing is we're targeting melanocortin-1 receptors that are on the epithelial cells or the lumen, facing the lumen of the colon. And What you see here is the drug is not systemically absorbed, so it's very safe. So what we have is the potential to essentially provide efficacy with an extremely good safety profile. So we're not, you know, we're not immune suppressing here. And also, it's called another inflammatory bowel disease. As you get past first-line therapy, you now move into, you know, steroids or immunomodulators or biologics, all of which deliver some level of efficacy and certainly represent a huge market. But at the end of the day, they all are mainly given systemically, and they have immune-suppressive properties that really come at a pretty high cost from both economically as well as from a medical or safety standpoint. So we really have the potential here to deliver a safe, effective treatment option that doesn't really currently exist in the IBD space and certainly would be ideally suited for pediatric patients. you know, where you don't necessarily want patients that are progressing, you know, as young adults onto really, you know, severe immune suppressive treatments that essentially are probably not going to have a great outcome for them, you know, over a number of years.

Okay, thank you. And lastly, do you plan on, will there be an interim assessment for this trial?

Okay, so, yes, this trial as well as the DRAHIZI trial, they use somewhat of adaptive designs, and when the first 16 patients go through, we'll do an interim assessment and see if there are any adjustments that are needed to the types of patients that we're doing, timing of assessment of endpoints, so on and so forth. The goal of the study really is a really pure proof concept study, and it's really designed to give us the information, the one to show that the drug has indeed significant efficacy to go forward, and then the types of patients and endpoints that are most appropriate for this mechanism.

Okay, great. Thank you so much.

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

Hi, this is Farhana on behalf of Michael. We have four questions. So I guess just following up on the phase 248177, could you provide like a little more detail? So how many patients are you expecting and what sort of primary endpoints are you looking into?

So we're looking into about 30 to 32 patients. We certainly will go up. If we are seeing significant efficacy and we want to push that number, we certainly can go up. The endpoint is we're looking at mucosal healing. So the treatment time period here is eight weeks. And we're looking for, by colonoscopy, we're looking for evidence of mucosal healing. And we certainly will look at a whole variety of other Mayo scores with regards to clinical outcome as well.

Okay, great. Thank you. And then one more question on the front of the eye disease. When can we expect that IND? You mentioned that you will disclose in 2022, but some sort of time.

It'll be late in the year. We'll be more towards the end of the year. So right now we have several opportunities that we want and several compounds that we can advance. And what we're doing now is really completing some of the final preclinical evaluations. And then Steve and his group are actually matching that with the commercial side. So when we look at some of these opportunities, not only do we look at, okay, what does the science support? What's the preclinical evidence doing? How do we translate that clinically? And we're matching that with regulatory strategy. And then overall, what's the best opportunity based on what's the market opportunity, risk-adjusted profiles, and so on and so forth. So all those things are ongoing now. We'll probably come out early third quarter with the indication. And then from there, we'll complete. When you look at the front of the eye, the preclinical toxic requirements are relatively straightforward, and we'll get those completed and get an application in to start studies by the end of the year.

Okay, great. And just two quick questions. So PL9654, is the IND still on track for 2022? And then for PL3994, is the Part 8 data still on track for the first half of 2022?

So for the latter, yes, it is for PL3994, yes. For PL9654, our IND filing would be, if we stated that as 22, I'll stand corrected, it would be in 2023. Keep in mind that is a diabetic retinopathy, or any other retinopathies are long-term systemic treatment, potential systemic treatments, so they require that you would have long-term tox before you start. So we're getting ready to start that program, long-term tox, which will take anywhere from nine plus months to complete. We wouldn't go forward. When you look at the front of the eye, you're talking about 12 weeks of treatment, so your tox program is much shorter. But for the back of the eye, it makes no sense to advance a compound unless you're going to complete all of the longer-term tox in two species, which takes about nine months to do the in-life, and then you get your reports and then can file. So that's about the start, probably late third quarter, early fourth quarter, and then from there you can add 12 months on for an IND filing.

Okay, great. Thank you. Thank you so much for taking our questions.

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

Hi, gentlemen. Thank you for taking my question. Just had a question on the MELODY-1 study. Wondering if you could remind us of the way that you'll be doing the endpoint analysis there. I believe you previously said you've got some flexibility in terms of which sign and which symptom you need to hit to show statistical significance.

That's a good question, and thank you for reminding us to address that, John. So the issue with dry eye disease is that you've got a wide range of patients. Their underlying disease conditions or what causes their disease can be very variable. When we do clinical trials, variability is not something we particularly like. But to address that, what we've done is we've not locked ourselves into a single primary or a single secondary. We have three co-primaries, so two signs and one symptom, and then we have three key secondaries, two symptoms and one sign. And the goal here is you want to get a sign and a symptom in the same study, because that really allows you to do just two studies and then submit to the FDA. So what we've done from a statistical analysis standpoint is we split the alpha. So instead of .05, we would need to hit the primary at one-third of that, 167. And the way the study is designed, if we hit a single one of the co-primaries, we then can maintain statistical hierarchy and go on and look at the key secondaries. And if we hit one of the key secondaries, we can continue to go forward and continue the analysis. So the way it's designed, if we hit a sign in the key, primary and a symptom in the key secondary, that acts as a sign of the symptom in the same study, and then we can go use that as a submission. Or vice versa, if we get the symptom in the co-primary and the sign as a key secondary, we're good as well. So it really gives us multiple ways of going without having to lock ourselves into just a sign or a symptom as an endpoint. In addition, the interim assessment is coupled with that strategy so that, for example, what if we hit a sign in the primary position but we missed the symptom, they'll be looking to see how many patients more we would necessarily have to add in to hit the key secondary symptom. So we really have built in as many belts and suspenders and used as much of what modern clinical trial design allows to deal with the variability of these studies and to give us the best chance to reduce our risk and be able to deliver two phase three studies with the sign and symptom in both.

Okay, great. Thank you.

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

I'd like to thank everyone, and Steve and I would like to thank everyone for your participation in the third quarter of the 2022 conference call. We have some Big points coming up over the next couple of quarters. We're looking forward to keeping you guys informed. With that being said, have a great day, and we'll talk to you soon. Bye-bye.

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