Palatin Technologies, Inc.

Greetings. Welcome to Palatine'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's 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, Palatine'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 Palatine's fiscal, second quarter ended December 31st, 2023. Certain business highlights and recent updates follow. Regarding by LISI, which is our pre-melanotide injection for a FDA approved for a hypoactive 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 up front, 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 remolanotide 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 1, 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 23, 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 24, 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 Vilesi, net of allowances and accruals. Vilesi 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 percent, and net product revenue increased 98 percent 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 By Lisi, compared to $6.6 million net of a $1 million gain on By Lisi purchase commitments for the comparable quarter last year. The decrease in operating expenses was mainly the result of the gain recognized on the sale by Leacy to Cosette 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 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 31, 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 last 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 Vilesi. So specifically, we had an increase in net product revenue of Vilesi of one million compared to the prior quarter of last year. We had a gain on the sale of Vilesi 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, Peloton's cash, cash equivalents, excuse me, 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 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.