Palatin Technologies, Inc.

Greetings and welcome to Palatine's first quarter fiscal year 2025 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 Spanner, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning and welcome to the Palatin First Quarter Fiscal Year 2025 call. I'm Dr. Carl Spanner, CEO and President of Palatin. With me on the call today is Steve Wills, Palatin's Chief Financial Officer and Chief Operating Officer. I'll now turn the call over to Steve. He'll give the financial update.

Thanks, Carl, and welcome, everyone. For the fiscal first quarter ended September 30, 2024, financial results regarding revenue. Pursuant to the completion of the sale of Ilesi's worldwide rights for female sexual dysfunction to Cosette Pharmaceuticals for up to $171 million in December of 2023, Palatin did not record any product sales to pharmacy distributors for the first quarter ended September 30th, 2024. For the first quarter ended September 30th, 2023, gross product sales were $4.6 million and net product revenue was $2.1 million. Regarding operating expenses, total operating expenses were $7.8 million for the first quarter ended September 30th, 2024, compared to $8.2 million for the comparable quarter last year. The decrease was mainly the result of the elimination of selling expenses related to offset by greater spending on our MCR programs, MCR being melanocortin receptor. Regarding cash flows, Palatine's net cash use and operations for the quarter ended September 30, 2024 was $7 million compared to a net cash use and operations of approximately $5.9 million for the same period of 2023. The increase in net cash use and operations is mainly due to the increase in the net loss during the period and secondarily to working capital changes. Regarding net loss, Peloton's net loss for the quarter ended September 30, 2024 was $7.8 million compared to a net loss of $5.2 million for the same period in 2023. The increase in net loss for the quarter ended September 30, 2024 over the quarter ended September 30, 2023 was mainly due to the elimination of ILECE net product revenue offset by the elimination of ILECE selling expenses and the recognition of the change in fair market value of warrant liabilities for the quarter ended September 30th, 2023. Regarding cash position, as of September 30th, 2024, Palatin's cash and cash equivalents were $2.4 million compared to cash and cash equivalents of $9.5 million as of June 30th, 2024. Palatin did receive a scheduled $2.5 million deferred payment in November 2024 from Cosette Pharmaceuticals related to the sale by Leacy, Obviously, since this was received in November, it is not included in our September 30 cash and cash equivalents balance. Regarding our go-forward operations, future investment and activities will be focused and limited to our core programs in obesity. We've retained an investment bank to conduct, explore, and evaluate strategic options for our non-obesity programs. At this stage, there is significant interest in and ongoing discussions for our phase three dry eye disease program, our early stage glaucoma and retina development programs, and our phase two ulcerative colitis program from multiple parties. Now I'll turn the call back over to Carl. Thank you, Steve.

I'll now go over the operating update for the quarter. We are currently conducting a phase two study, BMT801, that is evaluating the safety and efficacy of the co-administration of the melanocoron-4 receptor agonist remelanotide with terzepatide, which is a GLP-1-GIP dual agonist in patients with generalized obesity. In addition to safety, the study's primary efficacy endpoint is to evaluate the potential increased efficacy of combining the two treatments on reducing weight. A variety of secondary endpoints, such as effects on satiety, preservation of lean body mass, and weight loss maintenance, will also be evaluated. As of October, the study is fully enrolled And because of the high demand in rapid enrollment, we were able to increase the size of the study from 60 patients to approximately 115. Topline results are expected in the first quarter of 2025. Our obesity and weight loss management portfolio includes both novel acting long-acting melanocortin-4 receptor peptide agonist, and the orally active MCR4-selective small molecule agonist, PL7737. We are interacting with both of these programs into IND-enabling activities and clinical studies in calendar 2025. Our novel next-generation selective MCR4 compounds have reduced activity at the melanocortin-1 receptor, and that means they have a reduced potential to cause skin darkening. We believe that the lack of activity or skin darkening coupled with once-a-week dosing or oral dosing, represent significant improvements over current FDA-approved melanocortin treatments. You can find additional information on our clinical trial at clinicaltrials.gov, and on our website has recent presentations on our novel next-generation MCR4, melanocortin-4 receptor selective compounds. For a PLA177 orally selected MCR1 treatment for ulcerative colitis, the Phase II study will have top-line data in the first quarter of 2025. In anticipation of the data, there has been a significant increase in business development discussions with potential partners, which is in line with our current strategy to out-license this exciting program. And finally, for our Phase II breakout study of remelanotided patients with diabetic kidney disease, we anticipate releasing top-line data this quarter, meaning the fourth quarter of 2024. Before moving on to take questions, I'd like to comment on our strategy. By targeting the melanocortin system, our research team has been highly productive in generating multiple exciting development programs in the areas of anti-inflammation and ocular diseases, sexual dysfunction, and obesity. Senior management discussions with the board of directors, investors, and outside consultants clearly indicate that as a small company, we need to focus our limited resources and efforts in one area to have a long-term success. As you heard Steve mention earlier in the call, we will begin to focus our research and development efforts on our MCR-4 obesity assets. We believe the pharmacological treatment of obesity is in the early stages of a multi-year cycle of innovation and will have a market value greater than $100 billion per year. The melanocortin system plays a critically important role in regulating stored energy and food intake. We strongly believe that melanocortin-4 receptor agonists, such as the ones that we are developing, will be an important part of the future of obesity treatment and waste loss management. Palatin has a longstanding research effort to develop melanocortin therapeutics, that selectively activates melanocortin-4 receptors as treatments for obesity and weight loss maintenance. For our extensive experience in the design and development of melanocortin agonists for treating obesity, including two clinical studies previously completed and published, we are well-positioned to be a leader in the development of melanocortin-based therapeutics, weight loss, and importantly, weight loss maintenance. By focusing our efforts on RMCR-4 acids in obesity and weight loss maintenance, we intend to drive substantial increase in shareholder value. However, As Steve said, focusing our efforts doesn't mean that we believe our other assets have less value. To the contrary, we believe that our ocular assets anchored by the PL9643 Phase III Dry Eye Disease Program and lead compounds in glaucoma and retinal diseases have tremendous value and are worthy of continued investment. We are taking a multi-pronged approach to realizing the value of these programs, which includes potential out-licensing to a larger company, engagement with investors that are interested in funding their further development, and discussions with peer companies concerning potential business combinations. We will take similar approaches with our PL8177 oral inflammatory bowel disease asset and our assets in sexual dysfunction as well to provide a return to our shareholders. So, Steve and I would like to thank you for participating in the call, and we're now going to open the call to questions.

Thank you very much. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Joe Pantgenius of HC Wainwright. Joe, your line is live.

Hey, guys. Thanks for taking the questions and the details as usual. I just wanted to just logistically ask on the back end of your comments, if I heard you correctly, so for the Alternative Colitis Program and following the data, did you say that all the options are available, you know, typical partnering that you might engage with, discussions, project finance, and beyond?

Yes. I mean, in particular, for that one, business development with probably a larger company. Since that study began, we've had very good interest. We probably have five or six large companies under CDA. And in anticipation that the data is coming in the first quarter, we have reengaged with them and are updating them on where we are. So we're pretty confident that with a positive outcome, which we think we're going to have, that program will be outlicensed.

Got it, got it. And then obviously the main focus now is obesity, so a couple questions if you don't mind. So for the 801 study, you know, with data coming out next quarter, you know, what are you viewing as a successful trial? Because obviously you said you're going to be looking at multiple components, and how would that inform your next steps for the combination?

Well, I'm going to take just a little bit of a step back and kind of give a slightly global view, and then I'll get into more specifics. Right now, the current line of treatment for obesity are the incretins, so those are things that you know as Zepbound or Wachovie, and there are more versions of those coming out. But they all represent relatively a similar mechanism, and they work, and quite frankly, some of the new ones work probably too well. I think over the long run, what you're going to see is combination therapy, where you're going to have to combine different mechanisms so that the broad number of patients out there that have obesity can actually safely reach their treatment goals. I mean, although it does work, I'm not a big fan of these newer ones that are coming out that are driving 25%, 30% weight loss in six months. I don't think that's healthy. And probably outside of the morbidly obese, it's probably not the right way to go. I think the right way to go is probably slower weight loss, combining mechanisms so that you have prolonged weight loss so that these patients can reach their weight loss goals. In fact, we know that the current treatments really, by the end of one year, they pretty much stop working. They plateau out. So you're going to need other treatments like the melanocortin mechanism to really prolong that weight loss so that people can really reach their weight loss goals. So that's really the genesis of why, or the top-line reason why we're doing it. More specifically, we have been doing preclinical research work, and there is also clinical work being done at Oklahoma that indicate that combining a melanocortin mechanism with an incretin therapy like Wagovi or terzapatide in this case actually enhances weight loss. So that's really what we're trying to demonstrate here. that by combining these two mechanisms, we can see that one and one hopefully equals more than two. Now, this is an exploratory study. It's a first step in that direction. We're not going to claim that we've got all the doses and stuff optimized, but I do think that we should see really an increase in weight loss when remelanotide is added to terzapatide. In addition to that, because of the way the study is set up, we'll be able to look at things like weight loss maintenance, And in addition to that, we'll be looking at lean muscle mass, which is a very key thing today. When you're driving weight loss with the incretins, you begin to lose more muscle mass than you should. And it's been reported in the literature, and we've seen preclinically, that weight loss derived from melanocortin mechanism actually preserves lean muscle mass. That's another one that we look at, and it's a very important one. And then, of course, safety, obviously combining two different mechanisms if we want to see that there are no safety signals.

That's very helpful. I appreciate those details. And I guess when you look at the rapidly changing dynamic, you're seeing more companies talk about the weight loss maintenance component that you just alluded to. So when you consider, and I'm trying to take a little bit of a leap here, when you consider both your MCR4 long-acting peptide approach as well as your oral small molecule approach, you know, is that for general obesity, weight loss management, and, you know, do you view it as potential monotherapies or combination therapies?

Well, I mean, it's kind of a mixture of all the above. You know, what I mean by that is, you know, certainly you started with weight loss maintenance, which is really something I think that is extremely important, and it's becoming more important. I was just down at Obesity Week, and it's starting to be talked about But the benefit, both Lilly and Noble have put their long-term data out, and what's pretty clear is once you remove the treatment, patients rapidly regain the weight, and the cardiometabolic benefits and other benefits that were there due to the treatment and the weight loss disappear. So in order to really capture those benefits of the weight loss and treatment, you're going to have to be on treatment for a long term. And that's going to require different mechanisms. And the monocortin system is very well suited for that. I won't get into the science, but there's a lot of good science that supports its role in energy storage and energy balance. And by low-dose activation of that system, you probably can help maintain weight loss. When we think about it more broadly in the general population as well, certainly add-on therapy to the incretins are there. a potential monotherapy for patients that are failing therapy, that are dropping off because they don't tolerate as they dose escalate, and they need to move on to different therapies as well. So there's a lot of options for a good melanocortin. In a way, I talked to some investors, it's almost like a utility player, right? There's a lot of different places where you can put it to drive value in treating these patients, anywhere from weight loss maintenance to primary treatment. And that goes for both the small molecule as well as the peptide. They'll probably find slightly different patient populations where they'll have their maximal benefit, but both are valuable and should be brought forward.

That's really helpful again. Thanks. And then I guess one last obesity question, you know, when you look at the broader obesity market, you know, especially hypothalamic obesity, you know, where do you think you fit in with regard to other compounds and development? Because you seem like the, especially with the MC, Melana Corton approaches, you know, you seem to have broad applicability.

Sure. So obviously there is monocortin product approved for a variety of what we call genetic or syndromic obesity. That's set melanotide. And that is in a large study that should read out sometime next year in hypothalamic obesity. You know, and that's a space where, you know, we're evaluating as well, you know, how do we play there. And I think, you know, through both the newer compounds that are, you know, Set melanotide is what I would call a first-generation compound, very similar to our remelanotide. It has skin darkening and other side effects that you might not want to have in a long-term obesity treatment. And it's also given daily. We think when we look at where we want to go with our compounds, we want either an orally active small molecule, which we have in PL7737, or you want a long-acting peptide that's given once a week, very similar to the way the incretins are. And if it's melanocortin agonist, you really would like to drop out the MCR-1 so you don't have skin darkening. Because, again, a lot of patients don't necessarily mind it, but there are patients that do. So if you can get rid of it, which we have, that's better.

No, I appreciate that again. So when you look at the overall, I guess, company thesis right now, you know, things have been quite dynamic. And, you know, we have some definitive catalysts to look forward to in the first quarter. Now, you were also talking a lot more regarding the different business development opportunities and strategic options. So you mentioned different options, whether, again, it's typical BD, project finance, or I'll even throw in there, you know, Well, you said project finance may be from investors, but you also have, like, say, the different royalty aggregators out there. I guess how would you portray, if you can, the mix of those types of financial approaches right now?

Well, I think we've got to kind of look at them slightly differently. So for our Ocular franchise, that's really almost part of one of the reasons that we're doing what we're doing is, is that franchise has really got to a point where it's almost a company, right? You've got dry eye disease in phase three. You've got glaucoma and the retinal programs that are ready to go and move forward into development. They're held back by lack of investment because we're a small company. So that really started, that genesis started when we came out with the phase three data early in the year for the dry eye disease product that we really need to move these things forward. They require a lot more work. more financial resources than we have. So when looking at that, everything is on the table. We do have large companies that are very interested in the dry eye disease programs, as well as the glaucoma and the retinol. So it may be a mixture. You may see an outlicensing of dry eye disease and then a corporate combination of assets for the others that are a little bit earlier. Or you may see a split. You may see front of the eye going one way and the back of the eye, glaucoma and retina, going to a different large company. So one of the things that Steve has always been very clear on is that we want to keep our optionality open, and we want to do the best transaction for Paladin and its shareholders. And so we're not going to be wedded to saying it has to be this or it has to be that. It's got to be the right transaction that gives the best potential for return for the company.

Jeff, if I could just add, when we put a statement in a press release that we have good interest, significant interest, ongoing discussions, these are, and it's not just with multiple parties, it's different types of multiple parties, as Carl alluded to, from the big pharma to the smaller specialty pharma. They may have an asset. Combining our asset could be a two plus two equals five, six, or seven. But this interest in these discussions They're under CDA. They're in the data room. They're advancing on multiple fronts. Our expectation, non-Nostradamus confirmed, is that we're going to have multiple deals as we go forward, and some of them could be absolutely as early as the first quarter of next year.

Guys, really appreciate all the details and especially looking forward to see how these strategic options play out. Thanks a lot.

Thanks for the question, Joe.

Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to Carl for any closing remarks.

Thank you. Steve and I would like to thank everyone for participating in the first quarter fiscal year 2025 quarter. We are very excited about what we have here. You know, we have had a very long-term interest in line of court system as it pertains to obesity and weight loss maintenance. And we now find ourselves really at a great time where there's an extremely high interest in what we're doing, and we really have the right set of assets to build tremendous value. As always, you can find more information on our website. It's actually a very nice resource. If you look under resources, you can find all of our publications and presentations and posters that we do. They're quite extensive, so you can always get more information there. And once again, Steve and I and the full staff here are really, really quite excited about the future for the company, and we look forward to keeping you all updated as we go forward. So thank you guys, and all have a great day.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.