Palatin Technologies, Inc.

Please stand by. We're about to begin. Hello, ladies and gentlemen, and welcome to Palatin's fourth quarter and fiscal year-end 2022 operating results conference call. As a reminder, this conference 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 that the actual results may differ materially from those anticipated due to the variety of risk and uncertainties discussed in the company's recent filings with the Security and Exchange Commission. Please consider such risk and uncertainties carefully in evaluating these forward-looking statements by Palatin's prospects. Now I would like to turn the call over to your host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning, and welcome to the Palatin fourth quarter and fiscal year end 2022 call. I'm Dr. Carl Spana, CEO and President of Palatin. With me on the call today is Steve Wills, Palatin's Executive Vice President, Chief Financial Officer, and Chief Operating Officer. I'm going to turn the call over to Steve, and he'll give the financial and operating update.

Steve. Thank you, Carl, and good morning, everyone. Starting with Vileci, some highlights, and Vileci is our commercial product, FDA-approved for hypoactive sexual desire disorder. The goal of the ViLisi program is to demonstrate commercial product value in the marketplace with an objective of relicensing the U.S. rights to a committed women's healthcare company. And we believe the last two quarters are absolutely showing that brand value and the scalability of the program in the right hands. Specifically, for the fiscal fourth quarter ended June 30th, 22, gross product sales increased 79% over the prior quarter, and increased 91% over the comparable quarter in 2021. Net product revenue increased 257% over the prior quarter and increased 857% over the comparable quarter in 2021. Total prescriptions dispensed increased 49% over the prior quarter and increased 54% compared to the comparable quarter in 2021. Refill rates, commercial insurance reimbursement, and net revenue per prescription dispensed all increased over the prior quarter and comparable quarter in 2021. Patients and healthcare providers can learn more about HSDD and Vilisi at vilisi.com and vilisipro.com. Touching base on a few other somewhat non-financial items, regarding redeemable convertible preferred stock, on May 11, 2022, Palatin entered into a securities purchase agreement with institutional investors Total gross proceeds from the offering before deducting offering expenses was $15 million. This money was deposited in and is being held in an escrow account pending the investor's election to redeem the shares for cash or notes or convert the shares to common stock. Regarding our recent reverse stock split, at Palatine's annual meeting of stockholders held on June 24, 2022, the company's stockholders agreed overwhelmingly approved the amendment to the company's amended and restated certificate of incorporation to affect a reverse stock split of the company's common stock. The board of directors approved the implementation of a one for 25 reverse stock split effective as of 5 p.m. Eastern time on August 30th, 2022. The reverse stock split reduced the number of shares of Palatine's common stock outstanding from approximately 232 million shares to a little over 9 million shares. but did not change the authorized number of shares of common stock, which remains at 300 million shares. Palatin's common stock continued its trade on the NYSE American stock market under the symbol PTN. Getting into some of the specific financial highlights, for the fourth quarter and fiscal year ended, June 30th, 2022, revenue, total revenue consists of gross product sales of Vilesi, net of allowances and accruals, and license and contract revenue. The Vileci gross product sales to pharmacy distributors for the quarter ended June 30, 2022, were 2.3 million, with net product revenue of approximately 771,000, compared to gross product sales of 1.2 million, with net product revenue of approximately $81,000 for the comparable quarter of 2021. Gross product sales increased 91% and net product revenue increased 857% over the comparable quarter of 2021. By leasing gross product sales to pharmacy distributors for the fiscal year ended June 30, 2022, were $5.8 million with net product revenue of $1.2 million. This was compared to gross product sales of $4.7 million with a negative, yes, a negative net product revenue of $238,000 for the fiscal year ended 6-30, 2021. Gross product sales increased 23% and net product revenue increased 530% over the fiscal year ended June 30th, 2021. Palatine recognized $250,000 in license and contract revenue for the fiscal year ended June 30th, 2022 related to our license agreement with FOSUN compared to approximately $95,000 of recognized revenue for the quarter and the fiscal year ended June 30th, 2021, all related to our license agreement with Quandon. Regarding operating expenses, total operating expenses were $13.9 million for the quarter ended June 30, 2022 and 2021. Total operating expenses for the fiscal year ended June 30, 2022 were $38.1 million compared to $33.2 million for the fiscal year ended June 30, 2021. The increase in the operating expenses was the result of increased research and development expenses primarily related to our ongoing pivotal Phase III clinical trials of PL9643 and dry eye disease, offset by decreased commercial expenses related to Vileci. The net loss for the quarter at fiscal year-end of June 30, 2022, was $12.8 million and $36.2 million, respectively, compared to a net loss of $13.9 million and $33.6 million, respectively, for the same periods in 2021. The decrease in net loss for the quarter ended June 30th, 22, over the quarter ended June 30th, 21, was mainly due to our increase of net product revenue of Vileci. The increase in net loss for the fiscal year ended June 30th, 22, over the fiscal year June 30th, 21, was mainly due to increased operating expenses, primarily related to our PL 9643 dry eye disease program, which was also offset by increased Vileci total revenues. Regarding our cash position, as of June 30, 2022, Palatine's cash and cash equivalents were $29.9 million with approximately $1.8 million of accounts receivable. And this was compared to cash and cash equivalents of $37.7 million with a little under $1 million of accounts receivable as of March 31, 2022, and $60.1 million of cash and cash equivalents with approximately $1.6 million of accounts receivable as of June 30, 2021. This $29.9 million of cash and cash equivalents at June 30, 2022 does not include the $15 million private placement of redeemable convertible preferred stock. These funds are being held in an escrow account, pending the investor's election to redeem the shares for cash or in notes or convert the shares to common stock. Palatine's audit of the financial statements for the fiscal year end of June 30, 2022 does include in the audit report by the independent registered public accounting firm a going concern explanatory paragraph. We'll talk more during the Q&A, but the going concern is really a math calculation where you look at over the next four quarters based on your operating plan, do you have sufficient cash in place? And this is in the normal ordinary course, so i.e. the conversion of the debt does not, we cannot take that into account at this point If we're bringing in collaborations in the future, again, we can't take that into account at this time. We feel very confident that Peloton is in a position to pursue a number of different funding avenues, and as we move forward, we will keep the shareholders apprised accordingly. Now at this time, we'll turn the call back over to Carl.

Thank you, Steve. Before the operating updates, I would like to go over our key objectives that I believe will help put the results in their context. Our long-term goals are to establish the melanocortin system as a validated target for safe and effective medicines to treat a variety of inflammatory and autoimmune diseases, and through this process, develop a pipeline of innovative drugs. There are two key parts of achieving these goals. The first is to advance our understanding of how the melanocortin system works by defining the molecular mechanisms and key signaling pathways that support its physiological effects. This research is ongoing in Palatin's laboratory and through multiple collaborations with academic researchers. Our success is measured by our multiple scientific publications and presentations at scientific and medical meetings. The second part is a translation of the science into clinical results and ultimately therapeutics that address unmet medical needs. Our phase three dry eye disease, phase two ulcerative colitis, and soon to be initiated phase two diabetic kidney disease studies are all designed to meet these objectives. Our primary goal for Felici is to demonstrate Felici's value in the marketplace with the aim of relicensing the U.S. rights to a committed women's health care company. Some of the key operating highlights for the year and quarter are as follows. Starting with Felici, we continue to show quarter-over-quarter growth with significant increases in growth sales, product revenue, prescriptions, and refills nationwide. The results indicate to us that there is substantial market for Vilissi. The continuing increases in Vilissi's core metrics improves our ability to relicense Vilissi to a committed partner, ensuring the continued availability of Vilissi as a treatment option for premenopausal women with hypoactive sexual desire disorder and a return on our investment. Moving on to our clinical programs, top of the delivered PL9643 is our most advanced melanocortin agonist for treating ocular diseases that affect the tissues of the front of the eye. First indication for PL9-643 is dry eye disease, and we are enrolling in a pivotal Phase III dry eye disease study called MELODY-1. MELODY-1 is using an innovative adaptive trial design to evaluate the safety and efficacy of PL9-643 versus vehicle control in patients with moderate to severe dry eye disease over a 12-week treatment period. In August, the Independent Data Monitoring Committee performed its interim assessment of the first 120 patients to complete their 12 weeks of treatment. The DMC recommended that the study continue and enroll an additional 230 patients for a total of 350. Importantly, no significant safety concerns were identified and PL9643 continues to demonstrate an excellent ocular tolerability profile. After adjusting for the DMC recommendation and the additional patients, top line results are expected in the second quarter of 2023. For PL8177, oral, or MCR1, or melanocortin-1 receptor-selective agonist, we initiated a Phase II clinical trial evaluating the safety and efficacy of PL8177 oral in patients with ulcerative colitis. The study is utilizing an adaptive design with an interim assessment scheduled in the first quarter of 2023 and top-line data in the second quarter of 2023. In the fourth quarter, we anticipate initiating a Phase II clinical trial evaluating the safety and efficacy of a melanocortin agonist in patients with diabetic nephroscopy. Initial results from this study are anticipated in the second half of 2023. You can find additional information about our clinical programs at clinicaltrials.gov. For fiscal year 2022, our commercial research and clinical programs were successful in meeting their objectives. Steve and I look forward with great anticipation to 2023. and the continued advancement of our programs to meet our corporate objectives. Thank you for listening to the Paladin fourth quarter and fiscal year end 2022 conference call. You can find additional information on our science and clinical programs on our website, www.paladin.com, and you can also find additional information, as Steve said, on the Valisi at the Valisi.com website. Thank you, and I'll open the call to questions.

Thank you. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you'd like to ask a question. We'll take our first question from Joe Pettigas with H.C. Wainwright. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the question. So, Carl and Steve, I just wanted to focus on Vilisi for a bit. You know, I appreciate the growth that you've been having, you know, with, you know, very little effort and showing that the, you know, potential success of the drug based on that. So, first, when you look at the current drug status, can you discuss the overall reimbursement that you're seeing in the rates and, you know, anything else that needs to be done on the blocking and tackling side, on the payer side?

Sure. Thanks, Joe. This is Steve. Specifically, when most people talk about the covered lives and getting these contracts, there's really three big boys. We have contracts with two of the three. The third one, frankly, we're not really pursuing a contract because you don't 100% have to be on the contract to be on the formulary. So we're doing well enough, we believe, in the marketplace where we're not pursuing that additional contract. And, you know, when you correlate, you know, I think the best phrase to help shareholders and analysts understand where we are with the reimbursement, approximately 60% of all of our dispenses are covered by insurance. We, you know, we have a copay system and The number is eight, which is now my favorite number because the more eights there are, the more insured drug covered. So 60% is a very good number for our drug. No one's going to get 100%. There's always plans. And even within the plans, you're covered. There could be a high deductible. You could be on the formulary not covered, but Having a 60% rate is considered definitely a very good rate. And just to correlate that a little bit from where we started, when we took this product over in the second half of 2020, we were below 30%. And it's tough to scale a model when you have more money going out the door than is coming in the door, pretty much one-on-one. So that was one of Carl and my... number one targets from the metric standpoint. You've got to have that insurance in place and the foundation. And we've targeted other metrics, but hopefully that was responsive to your insurance reimbursement question.

No, it certainly was, Steve. I appreciate that. And I guess, you know, I want to focus a bit on next potential steps for Vileci. Obviously, you've talked about, you know, what the company's primary goal is, you know, with regard to out licensing. So first is, you know, can you maybe describe the maturity of those discussions? But I guess more importantly, as you go down, you know, your corporate decision tree, you know, the optionality that you have, like if, if, you know, I hope it comes to fruition. I think it's going to come to fruition with regard to your primary goal. But when you look at future options, if it doesn't happen with regard to outlicensing, you know, what do you think you'd like to do with it?

All right. Thanks, Joe. I'll take that one. The primary objective is to relicense it. And there's several criteria on why we think that makes the most sense. One is, you know, For the patients, we're just not in a position, and it's not part of our corporate strategy, to be investing in a sales force. Most companies, whether it's even with one product or multiple products, they have 50, 100, 200 sales folk. We have single digit. So our plan always has been, and we maintain it, that it's an informed, targeted approach in that regard to show the brand has value and it's very readily scalable. I will tell you, because of the results in the first quarter, the March 31st quarter and the second quarter, we're in a much better position for these discussions. We're, for lack of a better phrase, we're running a process. We're talking to a number of parties. Some of the parties we might have talked to in the past. Certain times strategies change, but what I think changes, the factor that's changing the most for these discussions is we're able to show the metric. The value metrics are are quite strong. And this is, you know, there's, yes, it's tough for me to say, but there's smarter people out there than me and Carl, but there's definitely more of those. In the right hands, we believe this product could be a very significant, significantly valuable asset. So, again, because of our recent, because of the work we've put in and the results we've gotten, we believe these discussions are going to advance and we We're reasonably confident that we will have a licensing deal with the right party by the end of the year. That said, if I have a quick coconut hot dog in between, this is not costing Palatin much money. We don't have 50, 100 sales folk. We're very close to cash flow break even. If we maintain the growth we have just between the first quarter and the second quarter and the third quarter and the fourth quarter, we'll be break-even by the end of the year. So what that means is we have some optionality, right? I want to be clear that Carl's objective and my objective is to license the product, get it in the right hands, get it as much awareness and engagement with the patient population that is suffering from HSDD, and concentrate 100% on our autoimmune anti-inflammatory. We couldn't be any more excited with our dry eye disease, the ulcerative colitis and then the things we have behind that. So I don't want to say it's a distraction, but it's really not part of our core strategy as we go forward. But we have optionality, and it's – but the primary objective is to license it by year end. So any – if you have a follow-on question, I've tried to be – responsive, but also add a bit more color so you can understand how we're looking at it in that even if, you know, even though, again, we, you know, the target is the license by the end of the year, if it slides to the first part of next year, you know, because it's, you know, we're always data-driven, the market is a challenging market out there, we'll be break-even by year end.

Understood. I appreciate that color, Steve. Thanks a lot.

Thank you. Once again, that's Star 1. If you'd like to ask a question, we'll hear next from Michael Higgins with Leidenberg Thalmann.

Thanks, Operator. Morning, guys. How are you?

We're well. Thank you.

Hey, guys. Good, good. A couple questions in different buckets here. Let me just stay with 9643 for a bit. Just wanted to circle back to the interim results and what the DSMB did at that moment when they were reviewing this. Did they, in making their decision, assess the potential p-value considering the variability that they saw with that first data set to project out to 350 patients? I believe they did. Just want to confirm that. And if so, are you aware of those results? Thanks.

Thanks for the question, Michael. So the interim assessment is essentially, it's to determine if, one or more of the primary or key secondary endpoints is in a promising zone and if so you know how many more patients would you have to add in hit the value so the answer is yes they did so it's so based on their interim assessment it's logical that one or more of the endpoints were and would be successful again of considering

No need to share it with you, I guess. When they say proceed forward with 350, their answer is yes. At 350, this would be stat seg. Now we just need to enroll the other 200-plus patients and confirm it. Is that fair?

That would be a good assumption.

Okay. And then rolling to the second question here, if I could. Any amendments or changes in the enrollment practices since the trial started? Thanks.

No, it's identical. We're making no changes. The next patients coming in will be treated identical to the first 120.

Sounds good. And then lastly here on N643, considering there are several dry eye meds that are approved but not necessarily sound well, would you consider a meaningful clinical response as we wait in the LIDI1 results? Thanks.

I think the ideal response for us would be obviously that we hit multiple signs and symptoms in the same study. And I think that would go very well for the drug and its potential as we go forward. But I think as we think about dry eye studies, that doesn't always happen. And of course, we don't know what we'll get. But the assumption that we hit at least one sign or at least one symptom, we have a pathway forward And from a commercial perspective, a lot of the market is driven by the tolerability, the ocular tolerability concerns that patients have. And that's one of the things that we were very pleased in both the Phase II study and the first 120 patients plus that have gone through. The product continues to maintain excellent ocular tolerability. From a clinical efficacy standpoint, you know, there really, there are no validated scales or measures of that necessarily, right? The FDA doesn't require a measurement of clinical benefit. All they look for is a statistical separation between your vehicle control and your active. So I think one has to look at it more or less, you know, how many patients are responding and are they responding to those signs and symptoms? And if that's what you hit, you're in a really good position, I think, from a commercial standpoint.

I appreciate that. Thanks, guys. I'll jump back in the queue.

Thank you. And at this time, it appears there are no additional questions in the queue. I'd like to turn the conference back over to Dr. Spina for any additional closing remarks. Okay.

Well, there are no additional questions. I'd like to thank all of you for participating in the Palatin fourth quarter and fiscal year and 2022 conference call. As always, Steve and I appreciate your support, and we look forward to continue to update you. 2023 is shaping up to be a really great year, as I said, across all fronts for the company. So we're quite excited. Employees here are quite excited. And as I said, we look forward to keeping you updated. So have a great day, and we'll talk to everybody soon. Thank you.

Thank you. And that does conclude today's conference. We thank you all for your participation.