Palatin Technologies Inc (PTN) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies third quarter fiscal year 2008 conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions for the question-and-answer session will be given at the end of the company's remarks. As a reminder this conference call is being recorded. Before we begin our remarks, I'd like to remind you 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 those anticipated due to a variety of risks and uncertainties discussed in the company's most recent filings with the Securities and Exchange Commission. Please consider such risk and uncertainties carefully in evaluating these forward-looking statements and Palatin's process.

Now I'd like to introduce the host for today's call, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies.

Thank you. Good morning, ladies and gentlemen, and welcome to the Palatin conference call. I'm Carl Spana, President and CEO of Palatin of Technologies. With me is Steve Wills, Palatin Executive Vice President of Operations and Chief Financial Officer; and Dr. Trevor Hallam, Palatin's Executive Vice President of Research & Development. This morning, we announced a strategic restructuring and refocusing of our clinical stage product portfolio and development programs. Palatin will continue to develop products targeting melanocortin and natriuretic receptors in the sexual dysfunction, obesity, and cardiovascular fields, including acute hospital care products for the use and treatment of acute systemic hypertension, congestive heart failure, and hemorrhagic shock. The restructuring is intended to conserve the financial resources of the company and enable us to focus on programs and opportunities that we believe are most likely to increase shareholder value. I will elaborate more on our restructuring plan after Steve Wills has provided our financial update. Steve?

Thank you, Carl, and good morning. Palatin reported a net loss of $5.1 million or $0.06 per basic and diluted share for the quarter ended December 31, 2008, compared to a net loss of $6.7 million or $0.09 per basic and diluted share for the same period 2007. Total revenues for the quarter ended March 31, 2008 were $747,000 compared to $3.1 million for the same period in 2007. The decrease in the net loss for the quarter ended March 31, 2008, compared to the quarter ended March 31, 2007, was primarily attributable to the reduction in development expenses for bremelanotide, our drug previously under development for the treatment of male and female sexual dysfunction. For the quarter ended March 31, 2008, Palatin recognized $0.7 million of contract revenue related to its collaboration agreement with AstraZeneca.

In the comparable quarter of 2007, Palatin recognized $3.1 million of contract revenue primarily related to reimbursement by King Pharmaceuticals of bremelanotide development cost pursuant to the company's collaboration agreement, which was terminated in the quarter ended September 30, 2007. Total operating expenses for the quarter ended March 31, 2008 were $6 million compared to $10.2 million for the comparable quarter of 2007, primarily reflecting lower development costs of bremelanotide. Palatin's cash, cash equivalents, and available for sale investments totaled $17.6 million as of March 31, 2008.

Separately, we announced this morning a strategic restructuring and refocusing of our development and clinical programs. This plan resulted in an immediate reduction in force of 30% of Palatin's employees. The downsizing is expected to result in annual savings of approximately $3 million and leave Palatin with 45 employees. Palatin will take an estimated $400,000 charge for severance and related costs in the quarter ending June 30, 2008. Again, we ended the March 31, 2008 quarter with $17.6 million of cash, cash equivalents, and available for sale investments. We anticipate as a result of the restructuring and refocusing that we'll reduce our cash burn rate to approximately $16 million over the next four quarters.

In addition, we will continue to explore opportunities to monetize portions of our technology assets which may include partnerships, strategic alliances and pursuit of creative product specific financing alternatives.

Thank you, Steve. I would now like to walk you through what the current product portfolio looks like and spend some time on repositioning of bremelanotide. Then Dr. Hallam will go over the upcoming clinical trials and the scientific details of our programs.

Our product portfolio was designed to take advantage of our existing strength in the biology, chemistry, and clinical expertise of melanocortin receptors. We will continue our development efforts in sexual dysfunction and obesity and add to our portfolio an opportunity in the area of hemorrhagic shock, in which we focus bremelanotide as the lead compound. This will complement our growing experience in natriuretic receptors, in which we're developing PL-3994 for acute hypertension and congestive heart failure. We will now have three clinic programs focused on acute in-hospital cardiac care.

Let me spend a few minutes on repositioning of bremelanotide, which I may refer to as BMT. In August 2007, the FDA raised concerns about the benefit/risks ratio of bremelanotide, supporting progression in the Phase III studies for erectile dysfunction as a first line therapy in the general population. The major concern was the small number of patients who might experience an clinically meaningful increase in blood pressure while taking bremelanotide. Since that time, we've undertaken a detailed analysis of the potential of the melanocortin approach to treating sexual dysfunction, as well as a specific review of bremelanotide for the indication.

Review of the science, clinical data, commercial opportunity and requirements, regulatory and financial aspects were all part of our analysis and decision. To begin, we had two face-to-face meetings with the FDA to discuss future development of bremelanotide for both erectile dysfunction and female sexual dysfunction. Both meetings were positive and informative and yielded significant feedback on safety concerns and how bremelanotide should be further developed.

As we began to put all the pieces of information together, it became clear that although bremelanotide could be developed for both erectile dysfunction and female sexual dysfunction, it was not the ideal compound for these indications because of its potential to increase blood pressure. We believe that our clinical work with bremelanotide clearly indicates there's a high potential for a melanocortin based approach to treating both erectile dysfunction as well as female sexual dysfunction, but the major safety concern will be control of clinically meaningful increases in blood pressure. As Dr. Hallam will talk about in a few minutes, we believe that through our research efforts, we have identified multiple melanocortin compounds that have a significantly reduced potential to increase blood pressure while maintaining efficacy yo treat sexual dysfunction. We have already selected a lead compound, PL-6983, and begun the work to file an IND to begin clinical trials.

However, this is not the end of the clinical development for bremelanotide, which we are now redirecting as a treatment for hemorrhagic shock. As the signs reposition bremelanotide as a treatment for hemorrhagic shock, we were influenced by the compelling academic signs evaluating the melanocortin mechanism for treating the indication. Animal data, generated by Palatin using bremelanotide as a treatment for hemorrhagic shock, and the medical need for innovative treatments for this indication. A further advantage will be our ability to leverage the extent of clinical, manufacturing, and toxicological data sets we have generated for bremelanotide. We belive there is substantial commercial opportunity for innovative products like bremelanotide that have potential to treat hemorrhagic shock.

Over the last two years, Palatin has invested significant preclinical effort that has resulted in exciting portfolio programs, two that are ready to begin Phase II testing in the areas of acute hypertension and congestive heart failure. Additionally, in the first half of 2009, bremelanotide will enter Phase II testing for hemorrhagic shock, a new molecule -- PL-6983 -- went to Phase I testing for sexual dysfunction. In addition, we have an ongoing collaboration with AstraZeneca to develop novel melanocortin based treatments for both obesity and diabetes.

Before I conclude and pass the discuss to Trevor for more detail, I'd like to draw your attention on our refocused R&D programs and to the fact that we have reduced our workforce to align it with the stage of development of our programs, and assure you that we aim to conserve our financial resources to concentrate efforts on the value drivers with the highest near term potential. Now Dr. Trevor Hallam, Executive Vice President of Research and Development, will share additional details about our refocused discovery and development programs. Trevor?

Thank you, Carl and good morning. First I'll cover our natriuretic peptide receptor programs, and I will come back to our melanocortin programs. As we've previously reported, we've developed a library of novel natriuretic peptide receptor agonist compounds, and during this quarter, completed a Phase I single ascending dose safety trial with PL-3994, a selective natriuretic peptide receptor agent. The Phase I trial was a randomized double blind placebo controlled study in 26 healthy volunteers who received the medication or placebo subcutaneously. The evaluations included safety, tolerability, pharmacokinetics, and several pharmacodynamic endpoints, including levels of cyclic guanosine monophosphate -- GMP -- a natural messenger nucleotide and biomarker. Dosing concluded with the successful achievement of the primary endpoint of the study, a prespecified reduction in systemic blood pressure. No volunteers experienced a serious or severe adverse event. Elevations in plasma cyclic GMP levels; increased diuresis, or urine excretion; and increased natriuresis, or sodium excretion were all observed for several hours after single subcutaneous doses.

Following that success, we intend to initiate a Phase IIa study this quarter to evaluate the effect with PL-3994 on blood pressure and other endpoints on subjects with controlled hypertension. Based upon results of this study, we intend to initiate further studies evaluating PL-3994 as a therapeutic for the treatment of subjects with acute systemic hypertension without evidence of target and [organ damage] -- so-called hypertensive urgencies. A percentage of patients presenting at the emergency rooms and other urgent care centers have severe increases in blood pressure, presenting a significant health risk, because prolonged severe hypertension is known to cause irreversible organ damage, including damage to the heart, brain and kidneys. Current treatment options are intravenous drugs, which require establishing and maintaining an intravenous line, and oral therapies which typically have a gradual and prolonged onset of action, in which a [timed consuming] to titrate or reaching effective dose without resulting in an unacceptable decrease in blood pressure.

Natriuretic peptide receptor agonists such as PL-3994 represent an entirely new mechanism and class of drugs for the emergency hyperintensive indication. In the present formulation, PL-3994 is administered by subcutaneous injection, permitting administration without the need to establish an intravenous line, but with more rapid onset of action than most currently approved oral hypertensive therapies. By regaining control of the systemic blood pressure of emergency hypertensive urgency patients, PL-3994 will potentially reduce the necessity for and the burden of hospital admission for such patients, because intensive monitoring and adjustment of dosing on an ongoing intensive basis will not be needed.

In addition, and depending in part on results of the Phase IIa study of PL-3994 in patients with controlled hypertension, we also intend to initiate a Phase IIa study to evaluate the effect of PL-3994 for treatment of acute heart failure. Heart failure is the largest single cause of hospital admissions of people over the age of 65 and remains a major unmet clinical need, with arguably little sign of the current standard of care during hospitalization of the acutely decompensating patient, does much to arrest their eventual progression or decline. PL-3994 differentiates itself from existing therapies in that it has a prolonged duration of action after a single administration and should prove to be amenable to generating the desirable benefits of MPRA activation without driving the system too hard and thereby reducing systemic blood pressure and consequent decreases in renal function. The Phase IIa study to be conducted during the next fiscal year will evaluate the effects of PL-3994 on patients hospitalized with chronic heart failure and will include measures of pulmonary capillary wedge pressure, which is predictive of the extent of acute pulmonary edema, a major complication of congestive heart failure.

Now I wish to return to the melanocortin indications and begin with hemorrhagic shock. As Carl has indicated, hemorrhagic shock is caused by sudden and significant blood loss. This in turn causes a substantial decrease in systemic blood pressure that if not immediately compensated for by the provision of fluid resuscitation can lead to poorly perfused organ beds, multiple organ damage, and potentially organ failure and death. Even in well controlled environments, such as the operating room, where the management of the provision of fluid resuscitation is optimal and immediately available, there are still significant risks that blood pressure and organ perfusion cannot be adequately maintained during certain procedures such as cardiac surgery, abdominal aortic aneurysm repair, or [lipometasticy] surgery to exemplify a few.

In less well-controlled or uncontrolled hemorrhagic shock caused by from trauma resulting from accident or in combat casualties, the access to fluid resuscitation is sometimes delayed and/or insufficient. There is a need for agents that can prolong the critical golden hour in such trauma cases or help to maintain systemic blood pressure and organ perfusion in the operating room during procedures renowned to be rather bloody.

There is academic literature that has demonstrated that melanocortin ligands can support systemic blood pressure in animals that have been subjected to significant blood volume decrease, even in the absence of fluid replenishment. Indeed, limited clinical studies have been conducted with a truncated endogenous melanocortin agonist that was shown to support blood pressure and increase survivability of patients undergoing repair of aortic aneurysm surgery. However, there are no approved melanocortin agents for this indication.

During the course of conducting sophisticated pre-clinical cardiovascular studies on bremelanotide to further evaluate the mechanism of the blood pressure increases observed in our clinical studies, we discovered that IV administration of bremelanotide to animals following surgically induced hemorrhagic shock demonstrated impressive restart of increases in blood pressure, survival, and organ preservation. Consequently, we have decided to develop bremelanotide for hemorrhagic shock. Bremelanotide for hemorrhagic shock will be administered by intravenous administration and we'll conduct preclinical toxicology and safety studies of bremelanotide by this [method] of administration. We currently anticipate that human clinical trials of bremelanotide for shock will be conducted in patients undergoing surgery in high blood loss procedures. Anticipated endpoints will be the ability to maintain adequate blood pressure in patients with significant blood loss while potentially decreasing the requirement for blood transfusion. Depending on results from further preclinical and animal studies, we anticipate that an investigation of new drug, IND application, for use of bremelanotide for hemorrhagic shock will be submitted in the first half of calendar 2009 with human clinical trials starting thereafter. Additionally and in parallel, we are keen to explore the military use of bremelanotide in supporting combat casualty survival following traumatic blood loss in (inaudible) -- clearly in these times a high unmet need.

To move on to other melanocortin indications. With the learning derived from clinical studies in erectile dysfunction and female dysfunction with bremelanotide, we are in an excellent position to capitalize both scientifically and clinically. Concerns raised by the U.S. FDA about the acceptable benefit/risk ratio to support the progression of bremelanotide into Phase III studies for erectile dysfunction is the first line therapy in the general population, related primarily to increases in blood pressure observed in some patients. Following a significant drug discovery initiative over the last two years, we've discovered a new and novel lead service of melanocortin agonist that in animal experiments caused a significantly lower increase in blood pressure than does bremelanotide, but with comparable erectogenic efficacy. From that lead series, we've selected PL-6983 as a lead molecule. Scale-up and preclinical studies required to support an IND application with the FDA are in progress. We currently anticipate that Phase I studies, assuming acceptable outcomes in toxicity and other preclinical studies, will be initiated in the first half of calendar 2009.

Lastly, I wanted to give you an update on the obesity collaboration. As you know, last year we began a collaboration with AstraZeneca on melanocortin agonist for obesity, diabetes, and related disorders. The collaboration continues energetically, bringing respective skillsets, technologies, and experience together to generate significant momentum. We look forward to progressing compounds to the clinic. Now I'll hand you back to Carl for the wrap-up.

Thank you, Trevor. Before we open the call to questions, I'd like to summarize our near term focus. The company continues to progress its portfolio of melanocortin and natriuretic receptors in the sexual dysfunction, obesity, and cardiovascular fields. We are developing bremelanotide as a therapeutic drug for treatment of hemorrhagic shock and related indications, initiating a Phase IIa study this quarter for PL-3994 to evaluate the effect on blood pressure and other endpoints in patients with controlled hypertension, initiating a Phase IIa study of PL-3994 during the next fiscal year for treatment of acute congestive heart failure. We will advance PL-6983, a melanocortin compound developed at Palatin Phase I study for the treatment of male and female dysfunction. PL-6993 in animal models caused a significantly lower increase in blood pressure than that seen pre-melanotide. We'll continue to support our collaboration on a melanocortin receptor base, work with AstraZeneca, and hope to move those compounds on to the clinic. We effected an immediate reduction in our workforce of 30% of the company's employees. We'll continue to aggressive pursue corporate collaborations for all our programs, and we'll conserve our financial resources by concentrating our efforts on value drivers for the highest potential for near term value as an immediate priority. Thank you for participating on the call and we'll now turn it back over to the operator for questions. Thank you.

(OPERATOR INSTRUCTIONS) We will take our first question from Matt Kaplan with [Landenberg Dahlman]. Please go ahead.

Hi guys, thanks for taking my question. Can you tell us a little bit how the 3994 differentiates from the other natriuretic peptides, specifically [Natricor]? Besides the sub-cue route administration.

I'm going to let Trevor handle that question.

Hi, Matt. Yes, 3994 is a novel molecule. It's not an endogenous naturally produced molecule. We've designed 3994 to be selective to the natriuretic peptide receptor type A. It has a much longer half-life than Natricor or the other endogenous ligands. And the Phase I results are consistent with the predicted half-life that we would expect for the pharmacodynamic effect lasting several hours. It's administered subcutaneously and gives a very low dose. A single dose gives an exposure lasting several hours, which effectively -- originally we were designing it to mimic an infusion, a controlled infusion just by a single simple subcutaneous dose.

And did you see any hypotension in the Phase I dose escalation study?

No, we haven't seen that. In fact our -- we were, is a single ascending dose study. We wouldn't have seen it. We were cutting out where we were seeing a reasonably effective decrease in the proportion of the patients in the cohort.

And you're going to start the studies, the Phase II study in the acute congestive heart failure setting in 2009? Is that correct?

Yes, we've got -- all toward of this year, but it will be in the next fiscal year. We've got two Phase IIa studies. One is on the hypertensives, so we'll be doing a controlled hypertensive study, and the other will be in heart failure patients to look at the effect there on pulmonary capillary wedge pressure.

Great, thanks for taking my questions.

(OPERATOR INSTRUCTIONS) We'll take our next question come from Rahul Jasuja with MDB Capital Group. Please go ahead.

Morning guys. A few questions. Let me start with the hemorrhagic shock segment off it and then I have a couple questions on the other programs. This is more for Carl and Trevor, I guess. So my superficial readings of hemorrhagic shock that I've done this morning sort of leave me with a lot of gaps here. Could you guys fill in the evolution of the program from literature or from the internal research that points to cardiovascular regulation by melanocortins? And also, was the work done at Palatin that helped tease out maybe MCR 3 and 4 or aspects that optimize the use of this? Or just a rough PMT that you use for the ED and FSDs is sufficient as you've stated at this point, but if you could tell me if it's and MCR, or MCR 3 or 4 aspect. And also if you could maybe provide a little more color on sort of a global account of the clinical trials plans going forward, and after you filed the IND in '09 so we get a flavor as to how this timeline of development would pan out?

Okay, well, we have a couple things here. I'm going to, I'll answer in part and Trevor will jump in and color the rather complex series of questions, but very good ones. There is fairly extensive literature that you cited, academic literature looking at melanocortin-based mechanism in the treatment of hemorrhagic shock in which there was -- shown an improvement in both the hemodynamic aspects as well as the ischemic and reperfusion injury aspects of hemorrhagic shock. Those are the two things that doctors are concerned about when a patient has hemorrhagic shock. That literature occurs in both studies being done in both rodents as well as large animals such as dogs and pigs. There's also a study that Trevor referenced to in aortic aneurysm patients, in which which they looked at 30 day survival patients that had a ruptured aorta. As they arrive in the emergency room, they were given a melanocortin-like agent and their survival at 30 days was evaluated, and it showed a dramatic improvement -- somewhere on the order of about 30 to 40% improvement in 30 days survival when the agent was given as the patients arrived in the emergency room. We felt this was quite a compelling backdrop to the work that we were doing with the cardiovascular aspects of bremelanotide for the sexual dysfunction as we were starting to tease that apart to get a handle on how we might better address developments in the sexual dysfunction space.

So we went ahead and began to evaluate bremelanotide in both rodents as well as large animals models of hemorrhagic shock internally and were impressed to see very dramatic improvements in the hemodynamic parameters, meaning the ability to increase blood pressure, heart rate, cardiac output and potentially also maintenance of a better environment for organ preservation, meaning that both pH levels of the plasma, as well as other evidence of ischemic injury improved quite a lot. We think this is quite compelling -- when you put the whole picture together, it's quite a compelling scientific-based story or basis to go forward and look at hemorrhagic shock as an indication for bremelanotide. There's certainly a very strong need for new agents in the area and both in civilian as well as military uses, and the first clinical trial that we'll have up should be a Phase II study and Trevor can fill in the details.

Let me give you one or two little bits more about that. The literature is, has been added to over several years, actually since the mid- to late 80s in this area. Many of the original ligands that we used were endogenous ligands. By that, of course, they were relatively non-selective across the different melanocortin receptors So your specific question about MC 3 and MC 4 I can answer because it appears in more recent years that really come down to the fact that this is most likely the hemodynamic effect -- most likely a centrally acting MC 4 agonist requiring an (inaudible) nerves. That's the hemodynamic effects. It's this very profound restoration of blood pressure after there's been significant blood loss, which reduces the systemic blood pressure.

If I can interrupt you and ask you, it doesn't really matter for this acute setting if there's some cross reactivity with MCR 3.

No, but you did ask the question so I'm trying to answer it from the list that you made. As far as bremelanotide goes, you're absolutely right. You want to develop a drug, then I'll take what the outcomes are and hope that translates to man. But it is important to understand something of the mechanism, because I'm anxious to make sure we don't make these patients worse, of course. So the fact that this is differentiated -- what we can effectively do is administer bremelanotide and recover the blood pressure with no volume, significant volume increase added in. No fluid reperfusion or resuscitation taking part. So that's rather remarkable, because what appears to be happening is redistribution of pooled blood into the critical circulation to support that. That's not what you'd get with typical phase of constrictor, which is often used in critical practice now to try and support blood pressure. You would get sort of rather panned constriction of many organs, which can in turn make matters worse is causing ischemia and then severe end organ failure in other critical organs, but the death is later -- a matter of a day or two later. We believe is bremelanotide is actually a melanocortin agonist, but can support the blood pressure while maintaining a low level of perfusion in these other organs, and that would be remarkable.

Great, thanks. Now as I understand, there's nothing really on the market that is, that I guess is, fulfills the need. Is there something on the market that you're competing against?

I think the things that are on the markets are ways in which alternative blood, fluid resuscitation products predominantly.

All right, I want to move to the next set of questions on the remaining programs if I could.

Sure.

Regarding the approach with the, I guess we can call it second generation or next generation of program for ED and FSD using a new version of BMT. Given the fact that you've already got past dealings with the FDA, could you provide us with some sort of snapshot as to where you're going to be starting off with and what are the plans? I assume there would be a second line therapy and the prospects of maybe a combination with [PDE5] would be in the plans?

Little bit of comment there, certainly I think we have a very large advantage in that we have a tremendous amount of experience in developing products of both FSD and ED. The compound that -- we have PL-6983 --- its profile looks quite attractive assuming that we profile from the animal data into humans, which I think we will do that from a safety standpoint. So I don't think we'll have a restriction on first line versus second line. That's number one. I think probably past the first Phase I study, we'll focus more on the female sexual dysfunction space where we think there's a large and still unmet medical need where there are no precedent compounds in the marketplace. That's probably where we'll focus the program, much more towards the female front. That doesn't mean that the early studies won't necessarily -- they may be done with men in the earlier studies, in a nice way, men have a very rapid readout. We can give them the drug and they get erections. It's very rapid way to see that you're getting efficacy and where the approximate dosing range may be, and then use that as a guide to go into female studies.

Got it, thanks.

All right.

Thank you, and there are no further questions at this time. I would like to turn your conference back over to Dr. Carl Spana for additional or closing remarks.

Thank you. I'd like to thank all of you for participating in the third quarter Palatin Technologies teleconference. I certainly look forward to getting out and seeing all of you and talking about the new company. I think we have a very exciting portfolio of products. The science supporting these is outstanding. I think we have the resources required to drive forward to some very meaningful milestones. I look forward into getting out and talking to you guys about it and continually updating you on the progress. Again, thanks. Have a great day. We'll talk to you next quarter if not sometime in between. Bye-bye.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect.