Palatin Technologies, Inc.

Greetings. Welcome to Palatine's first quarter fiscal year 2024 operating results conference call. At this time, all participants are in a listen-only mode. A 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 our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning and welcome to the Palatin First Quarter Fiscal Year 2024 call. I'm Dr. Carl Spana, the 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. I'll now turn the call over to Steve, and he'll give the financial and operating update. Steve. Thank you, Carl.

Welcome, everyone. Regarding non-financial highlights for our commercial product, Vilisi, which is approved for premenopausal women, for the treatment of HSDD, which stands for hypoactive sexual desire disorder. As we've mentioned prior, the goal is to demonstrate commercial product value in the marketplace with an objective of relicensing the U.S., possibly even the global rights, to a committed women's healthcare company. Palatin's licensee of Elysian China, Fosun Pharma, reported its first sale in the Hunan province of China. Palatin's licensee of Ilesi in South Korea, Kwondong Pharmaceuticals, completed enrollment in its Phase III clinical trial evaluating the efficacy and safety of Ilesi in premenopausal women with HSD day. Data is currently anticipated by calendar year end 2023 with a potential regulatory submission in the first half of calendar 2024. Palatin entered a strategic partnership with Upscripts Health, a leading direct-to-consumer telemedicine company providing telemedicine services to pharmaceutical and medical technology companies. Regarding operations specific to Vilesi, for the fiscal first quarter ended September 30, 2023, gross product sales of $4.6 million increased 11% over the prior quarter and increased 100% over the comparable quarter last year. Net product revenue of 2.1 million increased 20% over the prior quarter and increased 142% over the comparable quarter of last year. Total prescriptions dispensed increased 14% over the prior quarter and increased 88% over the comparable quarter of last year. Refill rates, commercial insurance reimbursement, and net revenue per prescription dispensed continued with positive and impactful results and trends versus the prior quarter and comparable quarter last year. Bilesi reported its seventh consecutive quarter of double-digit growth across all metrics, both significant and some not as significant. Importantly, Bilesi's quarterly net product revenue continues to exceed Bilesi quarterly operating expenses. Moving over to overall, Operations for the fiscal, for the first quarter ended September 30th, 2023. Regarding revenue, total revenue consists of gross product sales of Vilesi, net of expenses, allowances and accruals, and license and contract revenue. As I mentioned, Vilesi gross product sales to pharmacy distributors for the quarter ended September 30th, 2023 were 4.6 million, with net product revenue of 2.1 million. This compared to gross product sales of 2.3 million, and it looks like it was a double, and net product revenue of a little under $1 million for the comparable quarter last year. Gross product sales increased 100%. Yeah, that'd be a double. And net product revenue increased 142% over the comparable quarter of last year. Regarding operating expenses, total operating expenses were $8.2 million for the quarter ended September 30th, 2023, compared to $9.6 million for the comparable quarter last year. The decrease in operating expenses was mainly related to the overall decrease in expenses on our MC programs and secondarily to the overall decrease in selling expenses related to by leasing and to a certain extent the reduction in cost of products sold due to the sale of fully reserved by leasing inventory. Regarding cash flows, Paliton's net cash use and operations for the quarter ended September 30th, 2023 was 5.9 million compared to net cash use and operations of 8.6 million for the same period in 2022. The decrease in net cash used in operations is mainly due to a decrease in net loss offset by working capital changes. Regarding net loss, Palletson's net loss for the quarter ended September 30, 2023 was $5.9 million or $0.48 per basic and diluted common share compared to a net loss of $8.3 million or $0.86 per basic and diluted common share for the same quarter in 2022. Excuse me, I have a little bit of a lingering cough. Regarding cash position, as of September 30, 2023, Palatine's cash, cash equivalents, and marketable securities were approximately $5.5 million plus $1.3 million of accounts receivables compared to $11 million plus $2.9 million of accounts receivables as of June 30, 2023. This $5.5 million of cash, cash equivalents, and marketable securities as of September 30, 2023 does not include $4.5 million of net proceeds from the Registered Direct Offering, which closed in October 2023. We believe that existing cash, cash equivalents, marketable securities, and accounts receivables will be sufficient to fund currently anticipated operating expenses and disbursements into the first half of calendar year 2024. Now I'll turn it back over to Carl.

Thank you, Steve. As you know, our focus is on establishing the Milano-Corton system as a target for safe and effective medicines to treat inflammatory and autoimmune diseases and to develop a pipeline of highly effective drugs with unparalleled safety. We have three active clinical programs based on melanocortin agonists with multiple new programs ready to advance into clinical development pending resources, all of these coming from our highly productive research activities. As you previously reported, we have completed patient enrollment in the PL9643 Melody I Phase III study for dry eye disease. As a reminder, PL9-643 is a topically delivered melanocortin agonist that works by resolving inflammation on the ocular surface that is the cause or a key cause of dry eye disease. We've also conducted an interim analysis of initial 120 patients enrolled in Melody I, which showed statistical separation for clinical efficacy across multiple signs and symptoms of dry eye disease. Importantly, PL9-643 has excellent ocular safety and tolerability. With the last patient about to complete randomized treatment, we are working to have the top-line data by year-end. We believe the emerging efficacy and tolerability profile of PL9643 gives you the potential to be a leading treatment for dry eye disease. Moving on, our Phase II study evaluating oral PL8177, a selective melanocortin-1 receptor agonist in ulcerative colitis patients is on track for an interim assessment of the clinical data in the first quarter of 2024. Supporting oral PLA-177 development are preclinical studies demonstrating that treatment with oral PLA-177 in disease models causes disease colon to improve to a healthy state and to resolve the pathological inflammation. Resolving inflammation rather than blocking it provides the possibility of efficacy coupled with safety in treating colitis and inflammatory bowel disease. Finally, our breakout study, which is a Phase II open-label study in diabetic patients with kidney disease, is on track for top-line data in the first part of 2024 as well. I'd like to take a minute to highlight two new clinical studies that we are anticipating starting in the first quarter of calendar 2024. The first is a Phase II study evaluating a novel formulation combining bremelanotide, a melanocortin agonist, with a phosphodiesterase 5 inhibitor, and these are drugs such as Cialis in Viagra. This is an extension of our commercial efforts in sexual dysfunction. Approximately 35% of men with rectal dysfunction fail or have an inadequate response to PD-5 inhibitor treatment and represent a large underserved market. The only treatment options for these failure patients are highly invasive, such as penile injections or penile implants. We have previously conducted clinical trials showing the synergistic effects of combining remolanotide with a PD-5 inhibitor as a treatment for erectile dysfunction. The second clinical study will evaluate a melanocortin-4 receptor agonist in obese patients taking GLP-1 agonists. The GLP-1 agonists are things such as Ozempic or Rogovi. These are drugs that are being used. You hear them on the news all the time. These are the drugs that are the current standard of care for treating obese patients. As drug treatment for obesity is now established and growing rapidly, we believe the treatment goal will switch from driving weight loss to overall weight management. This will require a variety of drugs with differing mechanisms of action that affect not only weight loss, but importantly weight loss maintenance. We strongly believe that drugs targeting the melanocortin system will be an important part of the future of obesity treatment and overall weight management. With our extensive experience in the design and development of melanocortin agonists for treating obesity, including two clinical studies, We are well-positioned to be a leader in the development of Elanocortin-based therapeutics. Just a few operating highlights before we move on to questions. I just want to just reiterate again, you know, we are so pleased with Ilesi. Seven consecutive quarters of double-digit growth across all value matrix. Notably, a net product revenue increased 20% over the previous quarter. Prescriptions dispensed another 14% over the prior quarter. Listen, we are also very excited that the Leacy quarterly net product revenue continues to exceed by Leacy quarterly operating expenses. As we stated, we're planning to initiate two new monocortin programs with Phase II clinical studies starting in the first quarter of calendar 24, with the data readout in 24 as well. The two studies are, as we just said, one will evaluate the co-formulation of bromelanotide with a PD-5 inhibitor. patients with erectile dysfunction that have failed first-line therapy. So in other words, Viagra or Cialis isn't working for them and they need to move on to more aggressive therapy. The second, we'll evaluate the addition of the melanocortin-4 agonist remelanotide to obese patients taking a GLP-1 agonist. Our ocular programs continue to make impressive advances. Our MELODY-1 phase 3 DED study or dry eye study is fully enrolled, data coming at the end of the year. We're very excited by the emerging product profile for PL9-643, highly differentiated from current treatments. We've got excellent ocular tolerability, and we think we're going to have broad efficacy across multiple signs and symptoms. And I think we're really excited this can become a leading treatment for dry eye disease as well. And finally, PL9-588, we've talked about it in the past, but it's a novel melanocortin agonist for glaucoma. We are now on track to file an IND. sometime around the end of the first half of 2024, and then move on to Phase II clinical studies. I'd like to thank you for listening to the Paladin first quarter fiscal year 2024 call. You can find additional information on our science and clinical programs on our website, www.paladin.com. You can also find additional information on Vilisi at the Vilisi website, vilisi.com. And Steve and I would certainly like to thank you for your support, your interest, and we'll now open up to call the questions.

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question for today is coming from Joe Pangenis with HC Wainwright.

Hey, guys. Thanks a lot. So first, Carl, I wanted to ask about the logistics around the news flow for Melody One coming up. So when you say top-line data in the, you know, late this year and final data in the first quarter, I guess I wanted to get a sense of what you're expecting to show for the top-line data aspect.

Well, we'll be focused on the primary endpoints of the study and overall safety. So, I mean, there will be a sign and a symptom. There most likely will be tear film breakup time, inferior corneal fluorescein staining. Those types of things will be for your signs. And then for your symptom, it will most likely be ocular pain.

And it will be... I'm sorry, we'll be getting numbers on top line or just more of like you either met those endpoints and then we'll get them at the top line or we're actually looking towards numbers at the top line aspect?

Well, Steve and I like numbers, so we put numbers out.

They'll be numbers.

If we hit it, we're going to be, if we hit it. which I think we will, we're going to be pushing it, promoting it.

Got it. Got it. And then, look, the data you put out recently on the preclinical front regarding the combination of bremelanotide and the GLP-1 for obesity is exciting. And like you said, this is all that we're seeing in the news here. So I'm hoping to get a little more color on the clinical and regulatory path for this combination, what the studies are going to look like initially and You know, where do you think you can fit, you know, as the competitive landscape continues to evolve? You know, any particular patients you might be targeting? And then maybe any additional color when you say about, you know, maintenance of the weight loss, because as it stands right now, these GLP-1s, you know, you need to be on them essentially for life. So I want to get a sense of how BMT might contribute to that. Sure.

So I'd like to take a step back just a second, kind of think maybe a little more globally in the sense that this is a 20-year process. I mean, not for us, but I mean, weight loss management, treatment, this is going to roll out similar to hypertension. You're going to have multiple classes of therapeutics enter into the marketplace, each with their own niche and providing their own risk, reward, and benefits. The overall goal here now is going to be how do we get most of the patients that are coming in to really reach their weight loss goals and maintain that Because we as a society want to pay for this. Well, we're not going to get the benefits. If you lose weight over six or 10 months and say you get that 50 pounds off, if it comes back on in six months, that's not good. We pay a lot of money and we don't get the overall long-term benefits. All those beautiful things that Novo's reporting about their work on reducing cardiovascular risk, overall mortality, those occur because you keep weight off. It's not just the weight loss process itself. So in that context, Looking at, say, brimelanotype, for example, which is what the study we're going to be doing, in the context of the backdrop of a GLP-1, it's really there as a first step, right? We have the preclinical data. There were just some recent case studies reported on the use of the lanocortin-4 agonist added on to Zepatide or Wagobi treatment, showing that you can really enhance weight loss with the two mechanisms together without having to elevate that GLP-1 dose. And that's an important point because, you know, we hear all about these GLP-1s, but what we don't really hear about is really start talking to the patients. A lot of them are taking it because they want to lose weight. They're not taking them because they have a great experience on them. And so combining mechanisms allows a clinician to have the opportunity to essentially, you know, modulate the side effects, making sure that each patient gets the treatment that they need so that they reach their goals. Now, let's switch to the other side, maintenance. Now, you guys are probably unaware, but we had a collaboration with AstraZeneca a while back looking at melanocortin for weight loss, and in particular, weight loss maintenance. But as part of that, we actually have paladin compounds that were evaluated in weight loss models. And very interestingly there, what we were able to show is that in melanocortin, you don't need to give a tremendous amount of melanocortin to actually maintain weight loss. So if you take an animal that's obese, you bring them through the weight loss process and now they're in a weight loss state. One of the things that, whether it's an animal or a human, you're fighting is that your body wants to go back. You want to consume more calories, your skeletal muscles don't work as well, you're using less calories, so you have to fight that process. It turns out that the monocortin mechanism may be very, very well suited there. we noticed that it was one-sixth the dose required to maintain versus cause weight loss. So we think there's a very, very good opportunity there, and that's going to be very key to the overall success of weight management. So we think about it more globally and where we can play. There are going to be multiple pockets where we can play, from being addition to maybe GLP-1 therapy so that patients reduce more weight without having to go up in dose or have more tolerable effects, weight loss maintenance, Patients that aren't tolerating the GLIP1s are contraindicated. So there are a lot of places where lanocortin can play, and I think it's probably one of the best mechanisms because it's one of the first mechanisms that really evolved or was the genesis of thinking about treating weight loss from a pharmaceutical perspective.

Very helpful callers. Carl, thanks a lot.

Your next question is coming from Michael Higgins with Ladenburg Salmon.

Hey, good morning. This is Farhana on behalf of Michael. Congrats on the continued progress this quarter and we're really looking forward to the MELDI data. Just wanted to follow up on your question earlier regarding the MELDI readout. So I got that the data in the fourth quarter is going to have the primary endpoint and safety, but could you provide some more specifics on what can we see in the final data readout that's going to be in the first quarter next year?

Sure. Look, I mean, there are probably 20 different endpoints that we look at in addition to all the safety endpoints as well. So you'll see the full data set as quickly as we can get it done and out. I mean, it's not appropriate for a press release, so that would normally be found in publication or in presentations, or maybe we'll have a conference call to go over it. You'll also look at any of the sub-analyses that we may do on various types of patients. These are very data-rich studies. So, I mean, I'm sure we'll be analyzing this data for the next six months to see what comes out. But in general, we will try to get out as quickly as we can the full data set, all of the endpoints that are there, both the primary key secondaries and then the corresponding secondaries and then exploratory endpoints as well. And there will be a variety of signs and symptoms, everything from all of the different staining, using either fluorescein or lisamine green that we're using, or the various symptom endpoints, ocular pain, dryness, stinging, burning, all those types of standard types of things that are evaluated in dry eye studies. So we will try to be as transparent as we can be. The only caveat I will put there is it is reasonable to assume on a positive study that we may be involved in certain discussions, and maybe as part of that we may not want to disclose certain things. But otherwise, we will try to be as transparent as we can.

Okay, great. And then on Wiley C., so on outlicensing or the sale in the U.S., how confident are you that you can complete this maybe by this spring?

When we were three consecutive quarters of double-digit growth, we were pretty confident. At seven, that confidence has just enhanced and expanded. We don't anticipate – well, we actually do anticipate eight consecutive quarters of double-digit growth, but we are advancing discussions, and we're reasonably confident that we will transact on Vileci in the very near future.

All right. And then one follow-up on the GLP-1 program. Could you give us any feedback on the trial design? And in particular, are you looking for any particular type of obese patients to target, such as, like, those who have a minimum BMI or who are refractory to GLPs?

Sure. So these are patients that will already be on GLP treatment, and most likely it's her zepatide, so it's a mixed GLP-GIP. You're looking for BMIs probably in excess of 35% So these are going to be pretty obese patients. We certainly will genetically profile the patients, so we'll get a full understanding of any mutations they have in the leptin POMC pathways as well. But we're not stratifying on that. We're really looking for more general obesity. I think one of the things that we really are looking for is mainly the transition of melanocortins now from more specialized treatment to specific populations with genetic mutation into the more general obese population. And so this is really just a first look at really confirming the interaction between the two, because I think it will be important for the GLP-1s to really reach their maximum potential. And not that Lilly or Novo need any help from Little Paladin, but really for them to reach their maximum potential, you're going to have to add other mechanisms to them, because not every patient can tolerate, not every patient can move up in the dosing for those treatments. And if you talk to a lot of patients, the side effects, deadening some of the pleasure of not just food intake but other things that people do can be troublesome. And a lot of patients do experience the GI side effects. And so being able to minimize those and keep people on so that they really do lose the weight that they need to lose is going to be key.

Okay. I'm going to ask one more and then I'll hop back in the queue. With regards to Bremelon in the breakout study, Is the primary goal to out-license this as well, or do you see yourself developing it?

Well, there are two objectives. One was to, you know, look, we believe that as from an autoimmune, anti-inflammatory type of diseases, that monocortin system will play a key role there. So this is one to show how broad it can be. So we have a UC study, we have kidneys, you have the ocular studies that are going on. And it is also to support out-licensing. I don't see us necessarily moving forward as a, you know, kidney company. It's really to support out-licensing or continued use. Keep in mind that behind bremelanotide in any of our programs, you know, we have an extensive portfolio of selective compounds for the various melanocortin receptors. So this is, you know, we're using bremelanotide in many cases, such as a potential for obesity and kidney studies, for example. as a proof of concept, proof of mechanism. And then if there are opportunities for brimelanotide itself, great. We'll try to pursue those or bring in third parties to help us. If not, it does provide the evidentiary basis for earlier compounds to move into development and also be part of collaborations with larger companies. And we're seeing that in other indications where We've gotten previous data, and now the fact that we have novel compounds is attracting larger companies.

Okay, great. I'm going to hop back in the queue. Thank you.

As a reminder, if you would like to ask a question, please press star 1. We do have a follow-up question coming from Michael Higgins.

So we've got PL8177 and ulcerative colitis. Are you seeing the data in real time? And if so, any feedback for us?

Well, this is a blinded study. It's not an open-labeled study. So I don't like to really speak out of school on it. Let's just say we are optimistic that there will be a signal. Let's leave it at that.

All right. And then last one from me with regards to the erectile dysfunction study. Can you share with us your regulatory plans for this combination, like how many patients in phase two and three, and then any specifics regarding the number of refractory attempts with a single, you know, PD?

Sure. So in general, we would stick with, you know, general guidance on that. So you'd like to see that the patient to be a PD5 inhibitor failure should be on a maximum dose of the PD5 inhibitor with correct instructions and then would have a, we would probably use the international index erectile function, the erectile function subdomain score, so we would characterize them based on the cutoff on that domain. I'm blanking on the exact numbers, but they're established and well published. But you've hit on a key thing, one of the things that we will, as a regulatory process, as we advance from a study that we're doing now to more of a formal registration study, we will have to reach final consensus with the agency on the exact definition of a failure. But that should be pretty easy to do, as I said, based on guidance from that's already out there, publications that are already out there, using the International Index of Rectal Function and making sure that patients have been on a maximal dose with appropriate education.

Okay, great. Thank you so much for all the feedback. No problem.

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

Great. Steve and I would like to thank you for your participation. Obviously, the great questions from our analysts, we appreciate their support as well. We look forward to keeping you updated. Obviously, Q4 for us, big quarter, as everyone is, but we're really looking forward to what we're going to deliver over the next couple of quarters. So, Steve and I would like to thank you. Have a great day, and happy holidays.

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