Palatin Technologies, Inc.

Greetings. Welcome to Palatin's second 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 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 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 second 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, Palatin's executive vice president, chief financial officer and chief operating officer. I'll turn the call over to Steve and he will give a financial and operating update. Steve.

Thank you, Carl. Good morning. Good afternoon. Good evening, everyone. For Palatin's fiscal second quarter ended December 31st, 2023 certain business highlights and recent updates follow. Regarding Vilece, which is our Breen melanotide injection for approved FDA approved for a hyperactive sexual desire disorder or HSDD, we completed an asset sale to COSET Pharmaceuticals for up to 171 million in December of 2023 for female HSDD. We received 12 million upfront plus potential sales based milestones of up to 159 million based on annual net sales ranging from 15 million up to 200 million. Importantly, Palatin retained the rights and use of Vilece for obesity and male erectile dysfunction indications. Regarding other, we had two equity offerings, a registered direct offering in January 30th, 2024. We entered into a securities purchase agreement with healthcare focused institutional investors, selling and issuing an aggregate of approximately 1.8 million shares of Palatin common stock at a purchase price of $5.46 per share of common stock, which was our market price at the time of the transaction. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 1.8 million shares of Palatin common stock at an exercise price of the same $5.46 per share. The offering was completed on February 1st, 2024 with gross proceeds of 10 million. The common warrants are exercisable beginning six months after the date of issuance and will expire on the date that is four years after the closing date. Second equity offering was October 23rd, 2023. We entered into a securities purchase agreement with one institutional investor, selling and issuing an aggregate of approximately 2.4 million shares of Palatin common stock at a purchase price of $2.12 per share of common stock. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 2.4 million shares of Palatin common stock at the exercise price of $2.12 per share. This offering was completed on October 24th, 2023 with gross proceeds of 5 million. The common warrants are exercisable beginning six months after the date of issuance and will expire on the date that is five and a half years after the closing date. Moving over to our fiscal second quarter ended December 31st, 2023 financial results regarding revenue. Total revenue consists of gross product sales of Veilisi, net of allowances and accruals. Veilisi gross product sales to pharmacy distributors for the quarter ended December 31st, 2023 were 4.3 million with net product revenue of approximately 2 million. This compared to gross product sales of 2.6 million and net product revenue of 1 million for the comparable quarter last year. Gross product sales for this period, December 31st, 2023 quarter increased 64% and net product revenue increased 98% over the comparable quarter last year. Regarding operating expenses, total operating expenses were 0.9 million net of a 7.8 million gain on the sale of Veilisi compared to 6.6 million net of a 1 million gain on Veilisi purchase commitments for the comparable quarter last year. The decrease in operating expenses was mainly the result of the gain recognized on the sale of Veilisi to cassette pharmaceuticals. Moving over to other income slash expense. This net figure consists mainly of the change in fair value of warrant liabilities, which Palatin has recorded as a liability on the consolidated financial statements, including the revisions of certain prior period, excuse me, of certain prior period amounts to correct a misstatement with respect to classifying warrants as equity instead of a liability. The statement of operations is adjusted each quarter to reflect changes in the fair value of these warrants. For the quarters ended December 31st, 2023 and 2022, Palatin recorded a fair value adjustment loss of 8.1 million and a gain of 5.2 million respectively. Regarding warrant liabilities, Palatin has assessed the impact of improperly classifying the warrants related to the October 2022 financing within equity rather than as a warrant liability that is adjusted through charges or credits to the statement of operations to reflect changes in the fair value of the warrants. And we've determined that the impact is not material to any prior period impacted. Accordingly, Palatin will adjust prior periods only as those financial statements are presented for comparative purposes in future filings. On January 24th, on January 24, 2024, Palatin and the warrant holders amended the terms of the warrants related to the October 22 and October 2023 financings. As a result, the 11.9 million of warrant liabilities as of December 31st, 2023 will be reclassified to additional paid-in capital upon amendment. So let me give you the concise version. No harm, no foul. There'll be no future adjustments to the statement of operations regarding the warrants starting with the first quarter of 2024 filing. And the liability that's on the balance sheet as of December 31st, 2023 will be reallocated to equity. We amended the warrants to characterize it as equity versus the liability treatment. Regarding Palatin's net loss for the quarter ended December 31st, 2023, was 7.8 million or 56 cents per basic and diluted common share compared to income of 2.7 million or 25 cents per basic and diluted common share for the comparable period of the year. The change in net loss of the comparable quarter last year was due to several factors. Since the derivative liability accounting took place in the fourth quarter, we have several and also the sale of ILCI. So specifically, we had an increase in net product revenue of ILCI of 1 million compared to the prior quarter of last year. We had a gain on the sale by ILCI of 7.8 million and we had a change in fair value of warrant liabilities of 8.1 million of expense in 2023. For 2022, we had 5.2 million of income related to the change in fair value of warrant liabilities. And we had the recognition of an income tax benefit of 4.7 million during the 2022 period. The income tax benefit is related to that very nice program they have in the state of New Jersey for net operating losses. Moving over to cash position, as of December 31st, 2023, Palatin's cash equivalents and marketable securities were 9.5 million plus we had 2.3 million of accounts receivable compared to cash, cash equivalents and marketable securities of 5.5 million plus 1.3 million of accounts receivable as of September 30th, 2023. The 9.5 million of cash, cash equivalents and marketable securities as of December 31st, 2023 does not include the 9.2 million of net proceeds from the Registered Direct Equity Offering, which closed in February of 2024. So pro forma as of December 31st, January 1st, 2024, we have approximately 18.7 million of cash, cash equivalents and marketable securities. We believe that existing cash, cash equivalents and marketable securities and accounts receivable will be sufficient to fund currently anticipated operating expenses and disbursements into the second half of calendar year 2024. Now I'll turn the call back over to Carl. Carl? Thank you, Steve.

Nice lesson in accounting. As you know, our focus has been on understanding the biology and chemistry of the melanocortin system with the goal of developing selective melanocortin agonists for a variety of medical indications. Our research efforts have resulted in a growing portfolio of melanocortin-based therapeutics. We have three active clinical programs based on melanocortin agonists with multiple new programs ready to advance into clinical development pending resources, all coming from our highly productive research activities. As we have previously reported, we have locked the database and instructed the Statistical Contract Research Organization to unblind the data for the PL9643 Melody 1 Phase 3 study in dry eye disease. We expect to report the top-line data this month. On Phase 2 study evaluating oral PL8177, a selective melanocortin receptor 1 agonist in ulcerative colitis patients is on track for an interim assessment of the clinical data in the first half of 2024. Supporting oral PL8177 development are preclinical studies demonstrating that treatment with oral PL8177 and disease models causes disease colons to improve toward a healthy state and to resolve inflammation. Resolving inflammation rather than blocking it provides the possibility of efficacy coupled with significantly differentiating safety in treating colitis and inflammatory bowel disease. Additionally, research work at Paladin has mapped clear mechanisms of action pathways, melanocortin agonists, and supporting the resolution of inflammation. Breakout, our Phase 2 open label study evaluating the melanocortin agonist in diabetic patients with kidney disease is also on track for top-line data in the first half of 2024. So clearly, this is a big half for us, three clinical trial readouts. As far as what is on the horizon at Paladin, I would like to take a minute to highlight two new clinical studies that we are anticipating starting in the first half of calendar 2024. The first is a Phase 2 study evaluating co-administration of remyelanotide, a melanocortin agonist with a phosphodiesterase V inhibitor. Those are just Viagra, Cialis. So those are the drugs that are currently used to treat erectile dysfunction. This would be in erectile dysfunction patients that have not responded to current therapy. So these are guys that are failing Cialis, Viagra, and so on. This clinical study will support the development program of a combination product, which is the co-formulation of our MCR4 agonist remyelanotide with a phosphodiesterase V inhibitor. Just as a reminder, remyelanotide is the active agent in Viagra, our approved product for female sexual dysfunction. All of this work is an extension of our commercial efforts in sexual dysfunction. Just to note, approximately 35% of men with erectile dysfunction fail or have an inadequate response to current therapy and represent a large, underserved market. The only treatment options for these failure patients are highly invasive, such as direct penile injections or penile implants. We have previously conducted clinical trials showing the synergistic effects of combining remyelanotide with a PD5 inhibitor as a treatment for erectile dysfunction and feel well positioned for an efficient and successful development program of this co-formulated product. The second planned study will evaluate a melanocortin 4 receptor agonist in obese patients taking a glucosine like PEP1 or the GLIP1. And you know those as Monjaro or Wagovi. These are all over the rage now. These are the current treatments that are being used for obesity. Since drug treatment for obesity is now established and growing rapidly, we believe the treatment goal will switch from driving down weight loss to overall weight management. This will require a variety of drugs with different mechanisms of action that affect weight loss and, very importantly, weight loss maintenance. We strongly believe that drugs targeting the melanocortin system will be an important part of future obesity treatment and weight loss management. With our extensive experience in the design and development of melanocortin agonists for treating obesity, including two clinical studies completed and published, we are well positioned to be a leader in the development of melanocortin-based therapeutics for weight loss and, importantly, weight loss maintenance. The operating highlights for the second quarter of fiscal year 2024 as follows. As Steve noted, we completed the asset sale of Eilisi-Takose Pharmaceuticals for up to $171 million, with $12 million received as an upfront payment. We are planning on initiating two new melanocortin programs, phase two clinical studies starting in the first half of calendar 24, with readout later in the calendar year. And as we noted, the studies are one, we'll evaluate the co-formulation of remyelanotide with a PD-5 inhibitor and ED patients that have failed first line therapy. And the second, as we also noted, we'll evaluate the addition of a melanocortin-4 receptor agonist, remyelanotide, to these patients taking Eclipse-1 agonist. Our clinical programs also continue to make good advancements for our PL9643 Melody 1 Phase 3 dry eye disease study. We should report top-line data this month. The emerging product profile for PL9643 is highly differentiated from current treatments, with excellent ocular tolerability and broad efficacy that we believe will make it a leading treatment for dry eye disease. Our oral PL8177 clinical trial in ulcerative colitis will have the interim analysis in the first half of this year, as will our breakout open label phase two study evaluating a melanocortin agonist in diabetic kidney disease. I'd like to thank you for listening to the Paladin in the second quarter fiscal year 2024 conference call. You can find additional information on our science and clinical programs on our website, .paladin.com, and you can find additional information on by Lisey at the bylisey.com website. Steve and I would like to thank you all for participating on the conference call, and we will now open the call to 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. The 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 at H.C. Wainwright.

Hey, guys. Good morning. Thanks for taking the question. A couple of questions first, if you don't mind. Carl, starting at the back end of your comments, I was hoping you could provide me.

OK.

Hello. It looks like we lost the line. Just one moment.

Can you hear me now? We can, Joe. The line

is live.

OK. No idea what happened there because I don't even have a mute on this phone. I was not on mute. Anyway, so I was hoping maybe starting at the back end of your comments about providing some level of the mechanistic rationale of combining Bremelanetide with a GLP-1 agonist or one of those therapies for weight loss right now, about whether it could be the maintenance setting or why those two drugs can really work together for the broader audience.

Sure. I'll try to do it in a simple way. Well, first of all, most we've done and have presented data on combining a melanocortin-4 agonist with a GLP-1 agonist. And they work quite nicely together. They work quite synergistically. When you think about it, in part, the GLP-1s have probably multiple mechanisms of how they bring about a patient feeling being satiated and changing their energy use. And part of that is actually through the leptin-melanocortin system. So these things are working in kind of similar pathways. But when you add the melanocortin-4 agonist on top, you get full activation of the leptin-melanocortin pathway. And that's a very key pathway in regulating energy homeostasis overall. And that actually leads us into why it will be also very useful in weight loss maintenance. There have actually been several studies published, preclinical studies published on weight loss maintenance using a melanocortin agonist in animals. And both of those are actually with paladin compounds. And you see very, very nice maintenance of the reduced weight state. And one way to think about this is there are differences in how obese patients respond to various treatments for weight loss. For example, when you're obese, you respond one way. When you are losing weight, you respond slightly differently. But importantly, when you get to that weight loss reduced state, you don't always respond the same way to the GLP-1s as you do when you're obese. And you're going to need treatments that affect the leptin-melanocortin pathways, things like remyelanotide or some of the new compounds that we are bringing forward to actually maintain that weight. And that's really the key here. We can drive a lot of weight loss with the GLP-1s and the other in-creten therapies, but we really need to keep these patients at a reduced weight if you want to have long-term benefits. So if you think that the weight loss market is huge, the weight loss maintenance market is probably Dorset because these patients are going to be on treatment for many, many years. So that's why we're very excited about where we stand and really the biology and the science behind targeting the leptin-melanocortin pathway for weight loss maintenance is pretty compelling.

That's a humble summary. I appreciate that. So I have a specific question which will then segue into sort of a broader strategy question. So when you look at the upcoming 8177 ulcerative colitis data, you have interim data coming up or I'm sorry, an interim analysis coming up, which is part of my question. What is your communication strategy around the interim analysis? Is this a, you know, just a continuous plan type of announcement that we hope to see or will you be providing any data?

No, we'll provide, we're trying to be transparent, Joe, so we'll provide the data that we have and to the best of our ability are how we see it playing out from the interim analysis to the final analysis. You know, our goal here is to, we do want this out in public because one of our key goals is to continue to work with people that are interested in licensing this product. So we want to make sure that it's out there and people understand where we're going in the ulcerative colitis space.

No, perfect. And then with us having saying ulcerative colitis, I said going to the broader question and strategy. You know, when you look at the indications that you guys are addressing overall with your different assets, you know, these are very large markets. So I guess, you know, as of today, you know, how do you view your business development strategy, you know, because they're very large markets, you know, are you looking at, you know, the potential for global, regional, you know, when you're balancing against, you know, your current cash needs?

Well, you hit it on the head, you know, let me backtrack for a second. I'm talking a little bit faster or thinking faster than I'm talking. When it comes to ulcerative colitis or dry eye disease, you know, our goals for those are really to partner those programs. You know, they represent very large markets. But in the case of dry eye disease, you know, we have multiple larger, you know, assuming success with 9643, there are still several phase three trials that have to be done. Plus all the commercial manufacturing. And that really in today's world is a more of a commercial market, right? A consumer market. So we really like to see that product, you know, assuming success in the hands of a larger company that's going to eventually market it and has the ability to do the outreach there. And that's not really what Paladin plays. You know, Steve will tell you he learned a tremendous amount about marketing, you know, to consumers through Vilece. And it's expensive and it requires a very consistent effort. And that's not kind of where Paladin is set up and certainly not with the resources we currently have. Again, when ulcerative colitis, medical need is extremely high. But again, a competitive marketplace, meaning there are lots of therapies out there competing for patients for the larger trials and then for voice in the commercial sphere. But with that being said, you know, the need is very high. So we believe it or not, that's one of the programs that even in its early stage has a huge amount of corporate interest already. And then again, you know, when we think about where we want to go with regards to the obesity and rectal dysfunction, the rectal dysfunction one is an area we know extremely well. We've studied thousands of patients there. It's one where a company of our size can probably make good headway, meaning that we know how to take it, we know how to get it into commercialization. And there are already distribution channels available and there's high awareness among patients. So that's one where we would probably try to keep longer because it's one where we can conceptualize, you know, thinking about, you know, assuming things go well for us commercializing it. Obesity market is hot and I think we're trying to position ourselves, which in particular is in that weight loss maintenance and then in the supplementation or the adjunct therapy, the GLIP-1s. Those are novel spaces where people aren't thinking about them. I think very shortly they will be and I think we'll be in a great position to monetize our early assets there relatively quickly. Got it. Appreciate it. I think we're saying it. And Steve actually Steve has a visit development people directly reporting to him and it's really on top of all the visit development activities that we're doing and making sure that they're getting done.

Got it. Appreciate it,

man. Your next question for today is coming from Michael Higgins with Lattenberg Salmon.

Thanks, Debra. Good morning, guys. How are you?

Hello, Michael. Hi,

Mike. Glad you can hear me. All right. Congrats on the quarter. Looking forward to seeing Melody's data read out here in February. Wondering ahead of the data here what you would consider to be a clinically meaningful threshold from this readout, whether it be signs, symptoms or both. What is beyond that SIG, but you may feel is important for its commercial value.

I think the you know, in tri-I disease, the FDA does not require, you know, the only requires just a significant endpoint. And with regards to the signs, there really aren't the only in the FDA except for signs outside of tier production is a complete resolution of the disease, which is unrealistic. Really, what we think about it's really on the symptom side, which is really more important because that's really where that's really what affects the patient. You know, the signs of dry eye disease, the staining result, patients don't understand that. It doesn't really mean anything to them. So on the symptom front, you'd like to see a 10 point change, 10 point difference between vehicle and active. That would be clinically meaningful change. So that's what we that would be a really nice response for us. We could talk 10 percent, 10 points on the scale.

We hope to see that too. Thanks for that detail. And ahead of this, we don't hold you to it, but just to get your sense for timing for additional data, obviously you'll have a very busy first half of the year. Is there a chance you can get additional data out of conferences? How do you expect to get this a bit more than the top line? Sure.

I think the there are there are a lot of Ocula meetings throughout the year. And assuming positive data, we'll have we'll have we'll have presentation that every one of the upcoming Ocula meetings. If again, positive data will go to the Arvo, which is in the we've missed a date there, but we'll go for late breaking if it's if it's good. So we'll keep it. We'll keep a very good flow out of the data.

That'd be great. Look forward to that. And then switching over to breakout any feedback you can give us as to what type of data we'll see when we do read it out for.

Yeah, I think there's just an open label study with a single dose study. It's really was one it really it's really a supportive study because people realize as we haven't had a chance to talk about it, but we're actually in the final stages of selecting it actually an orally active small molecule that targets the M01 receptor. So this is really a study that was kind of set up for that. It's an injectable study. But what we expect to see is really a drop in proteinuria and the creatinine protein ratios change. These patients don't really spontaneous. They don't spontaneously remit. So any change you see in the improvement you see is going to be really due to the drug activity. They don't get better. They just progressively get worse. So it was one of the reasons why we chose the indication, although the disease progresses relatively slowly, it doesn't have spontaneous remission. So you can do an open label study. And if you see effects on your kidney function, they'll be most likely really pretty much due to the drug.

Right. Yeah, because I look forward to seeing that. And then on the obesity and ED programs, have you met with the agency to excuse me to discuss trial designs? I'm not clear on that

thing. For the for the ED one, neither have been submitted yet. We haven't opened up INDs. We're going to probably run the ED study for expediency as a physician sponsored trial. We have we have clinicians that were involved in the early days working with us in the early development of remyelanotide that are very urologists and they have some large practices that can really help get a lot of patients very quickly. So that will be probably run as I said, a physician sponsored IND. We should be submitting, I think, the IND or the pre-IND request to the agency by the end of this month for the obesity study.

Interesting. And then the follow up on the obesity. I believe your phase two on this would be with BNT, but your phase three would be kind of a BNT XR version. Is that right?

So we have so we've been using the remyelanotide as a as a as a test model for adding extended release onto all various peptides across the board. It's been working very, very well. We can extend remyelanotide quite nicely. The overall program, although it's really being used as a proof of concept, we will go forward and we'll be having a little bit more information out on this probably in the second quarter of the year of this calendar year. We have novel compounds that really are highly selective of the melanocortin 4 receptor. So they have a much cleaner profile than remyelanotide does, and they're much more suited for long term chronic use. And also the receptor profiling for long term obesity treatment. So in other words, the degree of let me let me not go through that part at this point, but how you interact with the receptor should maybe be a little bit different than remyelanotide. So one of the things that, again, I've done not to bore the laypeople that are listening is that we have a tremendous understanding of the structural function relationships with regards to all the various monocortin receptors and their peptide agonists. And we're able to dial in a degree of activity that we think is probably really ideal for obesity treatment. And that's what you're going to see going forward towards the phase twos and the phase three eventual phase three studies.

Yeah, these are really exciting programs. So your expertise in this, we're looking forward to seeing in greater detail. So thanks for that. That's it for us for now. After that again. Thank you.

Thanks,

Mike.

Your next question for today is coming from John Newman with can accord.

Thanks a lot for taking the question. Carl. So I just had a general question about the dry program rather than getting into the data details. You know, we've had several drive products proved and I know that sometimes the endpoints can be. Hard to use in order to gauge the effectiveness and success of the product, but I wonder if you could talk more about how you believe nine six four three could be differentiated from some of the other products in the market, maybe on the safety side is 12.

Thanks. Well, I think you hit it. Your last statement kind of hits it. I think you at the end of the day, you know, most of the treatments that are in approves for for dry disease have tolerability issues. Your safety in these treatments are pretty good. You know, you're giving a small amount of drug topically. So, you know, there's not an overall large concern about systemic effects. So it's really about the patient acceptance and tolerability in long term use. And that's what's really plagued a lot of the drugs that have were in the market for a long period of time and are coming into the marketplace. So, you know, the PL nine six four three has really excellent ocular tolerability and safety. So that would be a very key differentiating factor. You know, a comfortable installation without itching and tearing and burning or feeling goopyness or off taste and things that nature is really key to for a product like this because I said it is very consumer driven. So that's the key important factor. I think one of the things I'd like to kind of distinguish is in the dry space, we see different types of products. Right. So a product like nine six four three really is trying to address the underlying disease. So we're trying to modify the disease condition and through that have an overall effect on on the corneal surface health. And then how the patient perceives their disease or idea symptoms improving. That's a little bit of a much more difficult challenge than agents that are what I would classify just really symptomatic treatment. In other words, I they just drive a tearing of the eye short term tearing of the eye that maybe can alleviate symptoms over relatively short period of time but don't really have long term benefit in treating. You know, dry eye disease. So so there there's another distinct thing factor there. Again, assuming success, you know, we're really we're likely to be having that success because we're really modifying the underlying disease, not just addressing a symptom.

And great. Thank you.

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

Thank you, Steve. And I would like to thank everyone for participating on the call and we'd like to thank our analysts for the very insightful questions that they ask. It helps us to even I to more or less illuminate or doing here. So again, thanks everyone. Big half for us, obviously a big month for us. So we're looking forward to the data and take care and we'll catch up with you soon. Thank you.

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