Palatin Technologies Inc (PTN) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies fourth-quarter fiscal year 2006 conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

Before we begin our remarks, I would like to remind you that the statements made by Palatin that are not historical facts may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate, and actual results could differ materially from these anticipated due to a variety of risks and uncertainties discussed in the Company's filings with the Securities and Exchange Commission. Please consider such remarks -- risks and uncertainties carefully in evaluating these forward-looking statements and Palatin's prospects.

Now, I would like to introduce your host for today's call, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to the Palatin conference call. I am Carl Spana, President and CEO of Palatin Technologies. With me today is Stephen Wills, Palatin's Executive Vice President for Operations and Chief Financial Officer, and Dr. Trevor Hallam, Palatin's Executive Vice President of Research and Development. To start our conference call today, Steve will provide a financial update. Steve?

Thank you, Carl, and good morning. For the quarter ended June 30, 2006, we reported a net loss of 7.9 million or $0.11 per share as compared to a net loss of 5.1 million or $0.09 per share for the same period in 2005. For the year ended June 30, 2006, we reported a loss of 29 million or $0.48 per share compared to a net loss of 14.4 million or $0.27 per share for the previous fiscal year. The increase in the net loss for the quarter and year ended June 30, 2006 versus the same period in 2005 was mainly attributable to increased development expenses, primarily for bremelanotide, our drug under development for the treatment of male and female sexual dysfunction, and the withdrawal of NeutroSpec from the market in December 2005.

For the quarter ended June 30, 2006, which is the fourth quarter of our fiscal year, Palatin reported total revenues of 5 million compared to 5.8 million for the same period in 2005. For the year ended June 30, 2006, total revenues amounted to 19.7 million as compared to 18 million for the previous fiscal year. As of June 30, 2006, Palatin had cash, cash equivalents and investments totaling 30.7 million.

Now going into a little detail related to the revenue and the cost of expenses, regarding product sales and royalty income for the quarter ended June 30, 2006, we reported no product sales or royalty revenues related to NeutroSpec. While for the 2005 period, we reported 0.8 million in product sales and 0.6 million of royalty revenues related to NeutroSpec, pursuant to our collaboration agreement with Mallinckrodt. The decrease in product and royalty revenue for the quarter and year-end is due to the withdrawal of NeutroSpec from the market in December 2005.

Regarding contract revenue for the quarter ended June 30, 2006, we reported 5 million of contract revenue, substantially all from King, versus 4.5 million for the same period in 2005 pursuant to our collaboration agreement with King. For fiscal year June 30, 2006, we reported 18.2 million of contract revenue, again primarily from King, versus 13.9 million for the previous fiscal year. This increase was attributable to higher costs associated with the development of bremelanotide, subject to reimbursement by King.

Regarding cost and expenses, total operating expenses for the quarter ended June 30, 2006 were 13.2 million compared to 11 million for the same period in 2005. For fiscal year 2006, total operating expenses were 50.2 million compared to 33.4 million for the previous fiscal year. The quarter and fiscal year increases were primarily due to increased expenses associated with the development of bremelanotide and our other product candidates in discovery.

During the quarter ended June 30, 2006, we completed a 27 million equity offering, which closed on April 17. This transaction significantly enhanced our financial resources and provided additional operational flexibility as we advanced the development of our lead product candidate, bremelanotide. Importantly, we raised this new capital from highly-respected, long-term investment firms that we feel will expand the strength of our investment base in the financial markets.

Finally, the year ended June 30, 2006, operating expenses of 50.2 million were largely offset by revenue of 19.8 million, the receipt of a 10 million equity-based payment from King under our collaboration agreement and an equity investment offering which provided net proceeds of approximately 25 million.

Thank you, Steve. Now, Dr. Hallam and I will give you a brief update of Palatin's research and development programs, which will include bremelanotide, our sexual dysfunction therapeutic; NeutroSpec, our aid for imaging and detecting sites of infection; and our other discovery pipeline projects. I will start with bremelanotide.

As many of you know, bremelanotide is Palatin's lead drug candidate under development for the treatment of male and female sexual dysfunction. It is the first compound in a new drug class called melanocortin receptor agonists under development to treat sexual dysfunction. Earlier this year, the US Adopted Names Council and the World Health Organization formally recognized melanocortin agonists as a distinct therapeutic class and made bremelanotide the first melanocortin agonist to have an approved generic name.

The mechanism of action of bremelanotide may offer important benefits over currently available products for the treatment of erectile dysfunction because it appears to act on a central pathway that controls sexual function without directly acting on the vascular system. Clinical data indicates that bremelanotide has a rapid oxidative action and may be effective in treating a broad range of patients suffering from erectile dysfunction. We have a strategic collaboration agreement with King Pharmaceuticals to jointly develop and commercialize bremelanotide in North America.

Now, let me go on to a status update of our clinical development program for both male and female sexual dysfunction. Regarding erectile dysfunction, earlier this summer, the last patients completed the study in our two large Phase IIb clinical trials and we are in the process of data analysis. As a reminder, the primary objective of these two Phase IIb dose ranging clinical trials is to identify safe and efficacious doses that will be furthered evaluated in a scientifically-rigorous pivotal Phase III trial program.

The first of these two Phase IIb trials evaluated the safety and efficacy of bremelanotide in nine diabetic patients suffering from mild to severe erectile dysfunction. The second clinical trial similarly evaluated bremelanotide in diabetic patients with erectile dysfunction. Both of these Phase IIb clinical trials are double-blind, placebo-controlled trials that included a one-month running period and a three-month treatment period.

The primary endpoint for both studies is the change from baseline to the end of the three-month treatment period in the erectile function domain of the International Index of Erectile Function. Most importantly, the endpoint, the trial duration and the trial design of these two Phase IIb trials are similar to both our planned Phase III pivotal trials and the Phase III trials for the three FDA-approved PDE5 inhibitors -- Viagra, Cialis and Levitra. We have specifically constructed our Phase II clinical development plan to maximize our ability to accurately project the outcome of Phase III pivotal trials. We expect to report top-line results from these two clinical trials as soon as they're available and to present a more detailed analysis of the results at appropriate medical meetings and through publication in peer-reviewed journals.

In addition to completing the data analysis of these two studies, we are actively preparing to submit a request for an end of Phase II meeting with the FDA. Subject to FDA approval, the Phase III pivotal trial program is slated to begin in the first half of 2007.

At this point, I would like to transition to a progress update on the development of bremelanotide for the treatment of female sexual dysfunction. In August, we reported top-line results for a successful Phase IIa clinical trial of bremelanotide in post menopausal women diagnosed with female sexual disorder. This trial was a double-blind, placebo-controlled crossover study in which 26 patients received bremelanotide and placebo at separate study visits in a randomized fashion. In this trial, women receiving bremelanotide reported increased levels of sexual arousal and desire compared to placebo. Additionally, patients receiving bremelanotide were more likely to engage in sexual activity than patients receiving placebo.

Importantly, these results corroborated the data from our previous study in premenopausal patients. The two -- the premenopausal patients also reported increased levels of desire and arousal. Two independent studies yielding the same positive results strengthens the Company's resolve to fully and thoroughly evaluate the potential of bremelanotide in patients with female sexual dysfunction.

The results of the Phase IIa trial in premenopausal FSD patients were published in a peer-reviewed journal in July 2006 issue of the Journal of Sexual Medicine. The Company plans to present the full results of the trial of postmenopausal female sexual dysfunction patients at a future medical conference and also publish the results in a scientific journal.

We are currently enrolling patients in a Phase IIb trial that is designed to evaluate the safety and efficacy of bremelanotide in premenopausal women with female sexual dysfunction over an eight-week at-home treatment period. Given the positive results of the Phase IIa trial in postmenopausal women, we have decided to also allow enrollment of postmenopausal female sexual dysfunction patients in this at-home study.

Now, I'd like to take a second talk about the commercial potential of bremelanotide. We continue to believe that the market potential for an innovative sexual dysfunction therapeutic with a differentiated product profile, such as bremelanotide, is significant. Erectile dysfunction, we believe market opportunity exists with bremelanotide due to both anticipated market growth and the potential to penetrate the existing market. Recent data indicates erectile dysfunction market is growing and is projected to grow at nearly a 10% [CADR] through 2010. Relative to the potential market for penetration, IMS, a leading provider of business information for the pharmaceutical industry, has data showing that approximately 50% of the patients that received an initial prescription for a PDE5 inhibitor, such as Viagra and Cialis, do not refill their prescription. We believe that a significant percentage of these patients are not refilling their prescriptions due to lack of efficacy and/or intolerable side effects. We believe bremelanotide's novel mechanism of action may mean that it can bring benefit to these poor PDE5 inhibitor responders.

For female sexual dysfunction, a study published in the Journal of American Medical Association indicated that some form of FSD is prevalent in approximately 43% of female population. There are currently no FDA-approved pharmaceutical products for the treatment of FSD. Although estimates of the FSD market have not been precisely established, the consensus opinion is that the female sexual dysfunction market is at least as large as the current $2.5 million erectile dysfunction market. More importantly, there are no pharmaceutical therapies that are standards of care for the FSD market. This is a nation's evolving market and the future bremelanotide clinical studies are positive and corroborate the positive findings of our pilot Phase IIa trials. Bremelanotide has the potential to command a significant share of the FSD market. To capitalize on the potential market opportunity for bremelanotide in the treatment of both male and female sexual dysfunction, Palatin and King will be seeking ex-US licensing partner after the presentation of the Phase IIb results for men with erectile dysfunction.

I'm going to transition now and talk a little bit about NeutroSpec. On December 19, 2005, Palatin and Mallinckrodt announced the voluntary suspension of the sales, marketing and distribution of NeutroSpec, a diagnostic imaging agent, following the occurrence of several serious adverse events in patients with severe underlying cardiopulmonary compromise who received NeutroSpec for off-label uses. Palatin and Mallinckrodt are currently conducting non-clinical experiments in assessing the approaches for understanding the relationship between NeutroSpec use and the observed serious adverse events. Palatin and Mallinckrodt believe that NeutroSpec is a product that positively impacts the treatment of patients. We are committed to the safe reintroduction of NeutroSpec to the market for its label indication as well as the initiation of new trials for additional indications.

Our plan is to complete the analysis of non-clinical studies designed to understand the mechanism of the severe adverse events and to meet with the FDA to discuss the reintroduction of NeutroSpec and the initiation of clinical trials to expand the indications of use for NeutroSpec. After we complete our assessment and meet with the FDA, we will issue a prospective timetable for NeutroSpec.

Now, I'm going to turn the presentation over to Dr. Hallum, who will talk about our preclinical and pipeline projects. Trevor?

Thanks, Carl. In addition to our sexual dysfunction program, our internal research and development, which has been based on a proprietary MIDAS technology platform, has generated mature discovery programs for the generation of novel therapeutics, aimed at treatment of obesity and congestive heart failure. In our obesity program, we have identified melanocortin receptor 4, small molecule agonists that decrease food intake, bodyweight and body fat percentage in both diet induced and genetically of these animals. The compounds have the added benefits of reducing circulating glucose and insulin, a common complication of obesity and a hallmark of metabolic syndrome. Importantly, these molecules do not stimulate erectile activity, an issue that has complicated the developments of MC4 receptor agonists for the treatment of obesity.

The objectives of the program are twofold. First, we want to deliver clinical development candidates that can be administered intranasally -- and we're on track to do that next year -- and secondly, to generate orally bioavailable compounds. The late-stage clinical developments of obesity therapeutics requires prolonged clinical studies to large numbers of patients. And so for these reasons, we continue to explore the possibility of licensing our obesity program at some stage.

Our congestive heart failure program has identified novel natriuretic agonists with physical and chemical properties optimized for development as intravenously-administered therapeutics for use in acutely-decompensated patients and also compounds optimized for use as long-acting subcutaneously-administered agents for the treatment of chronic heart failure, currently an unmet need. Our lead molecules in this program are now in preclinical safety testing. That's it, Carl.

Thank you, Trevor. Before we open the call to questions, I would like to summarize Palatin's corporate strategy and the areas we will focus on in the near-term to enhance long-term shareholder value. We plan to build upon the success we have achieved thus far by completing the analysis of the Phase II bremelanotide erectile dysfunction programs and moving into Phase III pivotal trials for erectile dysfunction; advancing our bremelanotide clinical program for female sexual dysfunction by completing our Phase IIb at-home study; selecting a corporate partner for the international regulatory approval and commercialization of bremelanotide; continuing our review of NeutroSpec with Mallinckrodt with the goal to resume sales and marketing; and finally, pursuing licensing opportunities related to our drug discovery programs as we advance our preclinical product candidates towards IND filings.

I would like to thank you for listening in on the Palatin conference call. I will now turn it over to the operator, who will begin the question-and-answer period.

(Operator Instructions). Ilya Kravets, Rodman & Renshaw.

Just want to clarify a couple of things for the Phase IIb trials. I just want to make sure that they are in the data analysis mode and the third-quarter timeline for top-line data release is still something that you guys are looking at and that is realistic.

Then on the FSD side, the Phase IIb, you've opened up that trial for postmenopausal women as well. So, what is the timeline now for that trial to complete enrollment and how is it going to look? And are you going to be releasing data for separate -- these patient populations at a time, or we'll wait for all of them to complete?

With regards to the ED program, they're in the -- we're doing a data analysis as we speak. We will wrap that up as quickly as we can. And, we are also beginning discussions now with the coordinator -- those two medical conferences. Really depending on the outcome of those discussions that we get what we want out of those discussions with our podium presentations, that will color the nature of what we release. But we are on track to try and come in before the end of the third quarter with the data on that.

With regards to female sexual dysfunction, the results from the postmenopausal study were quite strong because the current site that is enrolling is an experimental Phase IIb. We would like to also get some postmenopausal data. We would like to have all the patients enrolled before the end of the year. And as soon as the last patient is out, we would wrap up the database and get the data out as quickly as we can.

And that's on both--?

I don't expect that we would separate. You may see it in the more detailed analysis. But I don't think in a press release format, we would separate the populations (multiple speakers).

Then, we shouldn't expect data from this trial until probably sometime in the first quarter or second quarter of --

Right, correct. I think what we are shooting for is to do that, and I think that we have been very pleased with the data. So by making this a little more rigorous, I think we may be able to actually speed up our overall timeline to pivotal trials for FSD.

So does that mean that this experimental Phase IIb may shape up to be a pre-Phase 3 trial, where you will move straight into a Phase III rather than I guess--?

I think that would be an ideal goal for the study. That is our hope if the data is as robust as we think it's going to be, then we don't necessarily see much impediment to moving into Phase III for the FSD indication as well, keeping in mind that bremelanotide is a maturer product as far as a lot of the things required to be in Phase III. The preclinical program is pretty much complete, commercial manufacturing being established. And we will have obviously an end of Phase II meeting with the FDA concerning erectile dysfunction probably late this year, early next year in which a lot of the dose selection and so on -- additional safety studies and so on and so forth will have been worked out. So, we are optimistic that this -- if the data comes in strong, we can swing for the fences and go straight into pivotals.

What are the doses that you are looking at for the pre and the postmenopausal?

We are looking at a very simple study -- just two doses, placebo and 10 mg.

Then finally on NeutroSpec, when is the meeting with the FDA scheduled?

We have not yet scheduled it. We are just completing the analysis of preclinical work, which I think has yielded a pretty good understanding of why we think NeutroSpec ran into issues. We are now preparing a package and plan to submit it to the FDA as quickly as we can get it in. So I would assume late this year, we should be able to sit down with them and then give guidance as to what we will do next.

Rahul Jasuja, MDB Capital Market.

Carl, could you -- if possible -- sort of maybe briefly give us some sort of expectation on the top-line data? I know it's going to be skinny, but what should we expect? That's my first question.

Second question is -- if you could talk about the triggers for the milestones from King for FSD.

My third question and I will get off line is -- is it fair to expect that NeutroSpec would of course only be on the market -- only drives value after the osteomyelitis trial? I guess you probably have talked about that. But I will get off line, and congratulations on a good year.

Our expectations for the two Phase IIb trials -- would be non-diabetic and diabetic -- are that they will yield the doses that we will take forward into pivotal trials and into commercialization. These are large studies. They are looking at a broad-dosing range. Our expectation is that these will be classic dose-ranging studies in that the top dose will have tolerability issues, which is what we expect. It was there to push the safety envelope. The lowest dose should have marginal efficacy, and the three doses in the middle is where your sweet spot is. So we expect these to yield a full evaluation of the dose range and the selection of doses that are highly effective in patients with erectile dysfunction and have a very good safety and tolerability profile. We will take those obviously forward into Phase III and into commercialization.

Details would be presented most likely end of --

Well, you know, we are trying. That is -- of course, we are trying to get to a podium session at two upcoming meetings in the fall. We are negotiating with the sponsors of those meetings now. We have to keep in mind that they are academic meetings. We are a company, so it is sometimes a little unusual that companies get podium sessions but we are trying. And you know, we are optimistic that we will be able to get a format in which we can present the data in much more detail than we could in a press release format. Can you -- also would say other questions were--?

The second question was -- if you could -- if at all you can -- what would be the triggers for milestone payments from King for FSD?

I'm going to let Steve Wills answer that.

Neither Palatin nor King have publicly disclosed -- or in the filings -- the specific numbers or the specific performance criteria for those types of payments. The initial deal that we -- collaboration we signed with King in August of 2004 totaled 100 million of development and regulatory milestones. They are broken out between both ED and FSD. The majority are ED. We have disclosed that our next milestone is $5 million, ED related as we make the decision jointly to go forward into Phase III. I'm comfortable with stating that there will be milestones as we go forward and as we progress into Phase III with the ED and also with the FSD.

And then just one question on NeutroSpec concerning what we think the market potential is for that product. Certainly, it always has been our intention to always expand the label for NeutroSpec as an agent for imaging bone infection, which is where we think it has its best use. And that will indeed be part of our discussions with the FDA -- will be requesting to be able to reinitiate trials or registration or expansion of the indication of NeutroSpec for imaging in osteomyelitis, which is bone infection. And that is an intention of the upcoming meeting with the FDA.

Matt Kaplan, Punk, Ziegel & Company.

A couple questions -- could you give us a sense in terms of the obesity program your business strategy there? Is it a situation where you -- it's obviously a large market. Do you plan to partner that earlier or do you plan to partner that after it reaches the clinic or what is your strategy there? And then a similar question with respect to European partnering for the ED and FSD program. When do you expect to do something or (multiple speakers)?

Sure. I will do it in reverse order. With regards to bremelanotide for territories outside of the US, we are beginning discussions with potential partners now that have shown an interest in that product. Our strategy is obviously to bring in partners, either for global -- for the whole global area outside the US as a single partner or to break it up by territory. A lot of that may be colored by the outcome from the female sexual dysfunction trials. We have good interest and we have people obviously that are aware of the product and have gotten up to speed on it. I think the driving factors for concluding something will be the data coming out from the two Phase IIb trials. And our goal is to conduct something, and I don't think we will get it done before first half '07 but that is our goal. I will let Trevor talk about the obesity program.

The obesity program is really very intriguing because it is obviously one of the -- probably one of the three hottest targets for the antiobesity approach, the MC4 receptor mechanism, which we know a lot about for sexual dysfunction the compound bremelanotide. But the difficultly for the whole industry has been trying to separate some of the pharmacologists to give compounds that really have the legs to go for chronic treatment and obesity. And there have been companies that have gone to the clinic and have failed or have stopped or at least there's no news of any progress.

We've got some of what we believe are truly differentiating pharmacophores in this area built out of a proprietary technology-based MIDAS. And this has allowed us to separate some of those pharmacologists. Now, we are committed and confident that these molecules are going to be differentiating. We are committed to go into the clinic hopefully second half of next year through intranasally-administered agents, which we think all in all with the differences in the pharm -- or to the compounds and the reach of administration, we can overcome a lot of the tolerability issues with this mechanism.

We have generated a lot of interest as we talked about this program in public forum. There has been a lot of interest from large pharmaceutical companies and some of whom are known to be in the field. So that gives us more confidence that we are differentiating. Although we have committed to go into Phase I under our own steam, these trials are very complex and long-term. There's a lot of knowledge out there based on the many failures. It would be probably of most value to the program to go for success to partner with a company that had those sorts of experiences and can bring that wealth of knowledge to the program.

So, we are flexible on it. We are in discussions and have been for a little while. Some want to wait and see what we have until we go to the clinic. Others are quite keen to partner earlier. So we are just going to see how that plays out.

That concludes the question-and-answer session today. Dr. Spana, I will turn the conference back to you for any additional or closing remarks.

Thank you all for participating in our fourth-quarter 2006 conference call. As always, I've been very impressed and excited about the progress that we've made. We certainly are getting ready to move into Phase III with regards to the erectile dysfunction program. It's really a very exciting time for Palatin, and we look forward to keeping you updated through our quarterly conference calls as well as upcoming press releases and hopefully scientific presentations on the data regarding bremelanotide. With that, thank you. Have a good day. We look forward to talking with you next quarter.

Ladies and gentlemen, that does conclude today's call. Thank you for your participation, and you may now disconnect.