Palatin Technologies, Inc.

Greetings. Welcome to Palatine's second quarter fiscal year 2023 operating results conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that statements made by Palatin are not historical facts and may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate and that the actual results may differ materially from those anticipated due to the variety of risks and uncertainties discussed in the company's most recent filings with the Securities and Exchange Commission. Please consider such risks and uncertainties carefully in evaluating these forward-looking statements by Palatin's prospects. Now, I would like to turn the call over to your host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning, and welcome to the Palatin's second quarter fiscal 2023 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'll now turn the call over to Steve, and he will give the financial and operating update. Steve?

Thank you, Carl, and good morning, everyone. Carl will provide detail on our development programs a bit later on. Starting with Bylesi, which is our commercial product approved for hypoactive sexual desire disorder in premenopausal women, the goal of the Bylesi program is to demonstrate commercial product value in the marketplace, which we are doing. with an objective of relicensing the U.S. rights to a committed women's healthcare company. For the fiscal second quarter ended December 31st, 2022, gross product sales were $2.6 million, an increase of 14% over the prior quarter and an increase of 238% over the comparable quarter last year. Net product revenue of $1 million increased 18% over the prior quarter and increased 1,323% over the comparable quarter last year. We are pleased, actually very pleased, that net product revenue exceeded by leasing operating expenses for the quarter. Total prescriptions dispensed increased 12% over the prior quarter and increased 134% over the comparable quarter last year. Refill rates, commercial insurance reimbursement, and net revenue per prescription dispensed increased over the prior quarter and comparable quarter last year. Regarding our recent registered direct offering, on October 31, 2022, Palatin entered into a securities purchase agreement with an institutional investor selling and issuing an aggregate of approximately 1 million shares of Palatin common stock, pre-funded warrants to purchase approximately 0.8 million shares of Palatin common stock and common warrants to purchase up to approximately 1.8 million shares of Palatin common stock. Each share of common stock and pre-funded warrant was offered with one accompanying common warrant for a combined offering price of approximately $5.50. The common warrants have an exercise price of $5.83 per share and will expire five and one half years from the date of issuance. The offering was completed on November 2nd, 2022, with Palatin receiving gross proceeds of $10 million. Subsequent to December 31st, 2022, the institutional investor exercised all outstanding pre-funded warrants to purchase approximately 0.8 million shares of Palatin's common stock. Next item, Palatin participated in the State of New Jersey's Technology Business Tax Certificate Transfer Program. This program enables approved biotech companies with unused net operating losses, NOLs, and unused research and development credits to sell these tax benefits to unaffiliated, profitable corporate taxpayers in the State of New Jersey. Palatin received final approval in December 2022 for the sale of the NOLs and R&D credits And this resulted in the receipt of approximately 4.7 million in January of 2023. Accordingly, Palatin recorded the income tax benefit for the three and six months ended December 31st, 2022, and a corresponding receivable as of December 31st, 2022. Again, all the funds were received early January, 2023. Regarding specific financial results for the second quarter ended December 31st, 2022, revenue Total revenue consists of gross product sales of Vilesi, net of allowances and accruals, and license and contract revenue. As noted prior, Vilesi gross product sales were $2.6 million, with net product revenue of $1,026,000, compared to gross product sales of $0.8 million and net product revenue of $72,000 for the comparable quarter last year. Again, gross product sales increased 238%. and net product revenue increased 1,323% over the comparable quarter last year. For the quarter ended December 31st, 2021, Palatin recognized $250,000 in license and contract revenue pursuant to our license agreement with Fosun Pharma. Regarding operating expenses, total operating expenses were $6.6 million compared to $8.8 million for the comparable quarter last year. The decrease in operating expenses was mainly the result of lower spending on our development programs and the gain recognized as a result of amending certain minimum purchase commitments with third-party vendors. Net loss, Paliton's net loss was 1.4 million or 13 cents per basic and diluted common share compared to a net loss of 8.7 million or 91 cents per basic and diluted common share for the comparable period last year. The decrease in net loss over the comparable quarter last year was mainly due to the recognition of the income tax benefit I referenced prior of $4.7 million, again, the sale of New Jersey NOLs, and a decrease in operating expenses of approximately $2.2 million, and an increase in net product revenue from by leasing. Cash position, as of December 31st, 2022, Peloton's cash and cash equivalents were approximately $21.2 million, plus $6.5 million of accounts and other receivables compared to cash and cash equivalents of $21.2 million with $2 million of accounts receivable as of September 30, 2022, and $29.9 million with $1.8 million of accounts receivable as of June 30, 2022. Based on our current operating plan, we believe that existing cash and cash equivalents and receivables will be sufficient to fund currently anticipated operating expenses through calendar year 2023. Now I'll turn the call back over to Carl.

Thank you, Steve. As I stated on previous calls, our major objectives are to establish the melanocortin system as a target for safe and effective medicines to treat inflammatory and autoimmune diseases and to develop a pipeline of innovative drugs. there are two key parts to achieving our objective. The first is to advance our understanding of how the melanocortin system works by defining the molecular mechanisms and key signaling pathways that determine its physiological effects. We accomplish this through research in Palatine's laboratory and multiple collaborations with academic researchers. In calendar 2023, we already have multiple abstracts accepted for presentations at scientific and medical meetings. In addition, we have manuscripts that have undergone peer review and that have been accepted for publication. Our research efforts are helping us to design better clinical trials and to support our business development activities. The second part is the translation of the science into clinical results and ultimately therapeutics that address unmet medical needs. We are now enrolling patients in three studies. Melody 1, a phase 3 study in dry eye disease. A phase 2 study evaluating oral PL8177, a selective melanocortin-1 receptor agonist in patients with ulcerative colitis. And our third is called Breakout, a phase two study in diabetic patients with kidney disease. We anticipate all three clinical studies will have data readouts in calendar 23. In addition, all three clinical studies are evaluating compounds that work by modulating the ability of the melanocortin system to resolve pathological inflammation and promote tissue repair. Summarizing our second quarter fiscal 2023 results and looking forward to calendar 23. As Steve told you, Bilisi continues to show impressive quarter-over-quarter growth in all key metrics, and we anticipate this growth will continue. We continue to make significant progress in establishing the Milana-Corton system as an innovative target for therapeutics to treat a variety of inflammatory diseases. We are enrolling patients in three clinical studies that are evaluating the efficacy and safety of a Milana-Corton target therapeutics, and all three have planned data readouts in 2023. Our research efforts continue to expand our understanding of the Milana-Corton system and are being recognized by the broader scientific and biotechnology and pharmaceutical communities. If successful, our efforts will support the continued advancement of our innovative therapeutics and our efforts to attract partnerships with larger biotechnology and pharmaceutical companies to help advance our programs. Thank you for listening to the Paladin Second Quarter Fiscal 2023 Conference Call. You can find additional information on our science and clinical programs on our website, www.paladin.com, And you can find additional information on Vilisi at the vilisi.com website. I'd like to thank you all, and we will now open the call for questions.

At this time, we will be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question for the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Hold just one moment while we poll for questions. Your first question is coming from Bo Tangenis with Paul, I'm sorry, Joe Tangenis with H.E. Wainwright. Please pose your question. Your line is live.

Hey, guys. Good afternoon or good morning still. Thanks for taking the question. A couple if you don't mind. So just focusing in by Lisi for the moment. So Steve, I was hoping you could provide some more color regarding the current refill rates that you're seeing. Let's start with that.

Hey, thanks for the question there, Joe. The way we respond to the refill rate, there's two metrics you look at. One is the percentage of the the TRX, you know, the total prescriptions dispensed that you have, you know, how much of that is from refills. And we've been increasing that every month and definitely quarter over quarter. And that's not because the TRX is going down. It's because it's actually even stronger than that because our TRX is actually going up, greater. The second metric is, you know, indigenous to the patient. In a nice way, you know, if there were just 10 10 women getting a prescription slash dispense, how many of them are getting back in line? And that's also a very significant metric. And we have seen that number also increase every month, quarter over quarter. And we're now in excess of 40% of any woman that's taken the first prescription or a dispense has gotten back in line for a renewed script.

That's helpful and nice to hear. So I guess this is more of a scenario question. So obviously you guys are real busy in the background regarding the potential U.S. licensing of Vilesi. So I guess let me ask this scenario. Excluding a U.S. licensee, what are you guys prepared to do internally with Vilesi?

As I mentioned, the objective of Carl and Steve and the board is to find a home for Vilesi that's in a nice way with a company that has a reasonably significant female healthcare franchise. This is not our primary focus going forward. We have made what we believe are measured informed investments. When we first got the product back, we were actually losing significant money, multiple seven digits on a quarterly basis. We now, we had a little greater than break even for the quarter, which is great. What we're still concentrating on is showing that these metrics, you can extrapolate, you can see that you can scale it up, and in the right organization, in the right hands, this product can do so much more than it's doing with us. So we're in a better position for these discussions. We're not going to rush into anything. We think MyLisi has significant value, so It's not costing us anything, if you will. Carl says he doesn't care if I have to work extra nights and weekends. I'm on a fixed salary, so that's okay. But we absolutely have interest, and we do believe that at some point, when it's right, we will be handing off the baton to a new partner. And that's on the U.S. front.

Got it. And then, you know, with that, you know, talking about geography, I guess, we haven't had a lot of visibility. And hopefully you could share any expectations coming out of your current ex-U.S. licensees in both China and South Korea.

All right. So with FOSUN is in the latter stage of their, let's just call it somewhat smaller, much smaller phase three trial for regulatory approval. And that should finish up by mid-year, and then they will be filing their, if everything goes as planned, filing for regulatory approval. And that would not, you know, the first commercial sale, we don't anticipate until we, let's just say mid-20, maybe second half of calendar 24, I think would be the best that they would be in a position. And this is, of course, Kwandong in South Korea. With FOSUN, I think we're going to hold off a little bit on some coming attractions. We're making some good progress with the FOSUN partner, and they're exploring several avenues to accelerate the revenue, the regulatory approval. So Carl and I would rather just hold off on that until we get a little bit more granularity, but they are 100% committed to moving the program forward and to commencing sales of Ilesi in China as soon as possible.

Got it. Real helpful. Thanks a lot.

Your next question is coming from Michael Higgins with Ladinburg Salmon. Please pose your question. Your line is live.

Hey, good morning. This is Farhana on behalf of Michael. We have three questions first on the breakout trial. So the first one is that clinicaltrials.gov currently shows that five sites are recruiting. Is that accurate, and when do you expect all the seven sites to be enrolling? The second question is, why not have an arm for the RAASS therapy alone? And the third question is, when will you decide to advance this program, considering that there is a renal biopsy in these patients after 12 months? Thank you.

Okay. So let's take them in order. So... So part of the reason we're doing this study is that we're really collaborating with a group of nephrologists, a nephrology group that has lots of patients. So we actually think this study will pretty much do complete enrollment probably by the middle to the end of the second quarter. So we have five sites up now. The other seven should come on pretty quickly. We actually are enrolling patients quite readily in that study, and we actually already have started dosing patients. So I expect that study will go very, very quickly because of the group that we're working with. They're very motivated. They've actually been looking for a melanocortin-based therapeutic to actually evaluate in diabetic patients with kidney disease. So the other question is, why do we not have a straight control arm? That was really due to the fact that this was designed, first of all, these patients don't spontaneously revert. This is not a type of inflammatory condition or immune condition where these patients, or it's not actually an immune condition, it's more inflammatory, where these patients actually wax and wane. They will continue to steadily progress. So that's one reason. And then the second reason is because this really was designed to be a first look to really gather, you know, how well can a melanocortin really work in this patient population. So that's really the reasoning there. And also it's an issue of cost because we'll be able to do 40 patients pretty quickly. We'll get a really good look at the six-month time point, and then we'll go from there. And then I'm forgetting what was in your third point.

Yeah, the third point was when will you decide to advance the program, given that there is a renal biopsy in these patients after 12 months?

So, again, we'll have – again, being an open-label study, obviously data will continue to roll in. So we'll see – as each patient's data comes in, we'll see it. And we obviously – we'll get a look from there. We have to make some decisions post the data coming in and then to be prepared to go forward. So even though the last patient out, you know, it's still six months further until you get their final data on – I think we'll know if the study works, and we'll be able to make some decisions in that intervening period. And quite frankly, in today's world, turning around clinical trial times, getting clinical trial sites, materials, and so on and so forth, will take longer than from last patient leaving until their last data point comes in.

Okay. Great. Thank you. I'll get back in line.

Your next question is coming from John Newman with Canaccord. Please pose your question. Your line is live.

Hi, guys. Thanks for taking my question. The question is just on the regulatory filing strategy for the dry eye indication. If you could just remind us what you think you'll need just in terms of the number of clinical studies, and then also just kind of your thinking on the endpoint that you'll look to take forward to the agency there. Thanks.

So, John, thanks for it. So, in dry eye, obviously, there are multiple strategies that one can employ. The most efficient, of course, would be to have two clinical, phase three clinical trials that replicate and in which both a sign and a symptom met statistical significance in both studies, obviously the same sign and symptom in both studies. In addition to that, you would need your open label safety. So it's technically three studies, depending on how you do it. And that's really what we're really shooting for here, right? That's the most efficient way to do it, and that's one of the reasons why we built in an interim assessment in the first study. It's really to make sure that we could take a look, make sure that we were on track, make sure we have the right signs, right symptoms as we go forward, and have a successful first phase three trial, which is where we get a sign and a symptom. and then that would have to be replicated in a second study. If one was only to hit, say, for example, a sign and had a very good idea of how you might reach the symptom or vice versa, then you could take an alternative strategy, which would be to do four phase three studies. They could be smaller, of course, in size, where you would look for hitting the sign in two and then the symptom in the second. That's a longer term strategy, obviously a more expensive strategy, So our overall objective is really to nail the sign and the symptom in both, you know, Melody 1 and then the subsequent Melody 2, and then Melody 3 would be an open label safety study. That would be the most cost-effective and efficient way to go forward. With regards to signs and symptoms, we have some that are predefined, but of course, based on the interim assessment, we have some flexibility there. And I think I would rather wait until the second quarter kind of give a little more detail on that. We have an abstract that has been on the first 120 patients that's been accepted for presentation. So I don't want to front run that. But there will be some nice coming attractions in late April at the ARBO meeting, which is a meeting on vision and research and ophthalmology, which is occurring, as I said, in April down in New Orleans. And we have a nice presentation going on there on those first 120 patients. And we'll get a lot more clarity on how we expect the first phase three study to read out.

Okay, great. Thank you.

We have reached the end of our question and answer session, and I will now turn the call back over to Carl Spana for any closing remarks.

Great. Everyone, Steve and I would like to thank you all for participating in the Palatine Second Quarter Fiscal 2023 Conference Call. As you can see, I mean, we're really shaking and moving here. I mean, Vaileese is doing great under Steve's leadership. The research development activities, I mean, we now have three clinical trials that are enrolling patients. Lots of data readouts this year. It's a big year for us. Steve and I are very excited about what we're going to deliver. So stay tuned. There's a lot coming. So again, Steve and I thank you all. Have a great day, and we look forward to updating you next quarter. Thanks.

This does conclude today's conference and you may disconnect your lines at this time. Thank you for your participation.