Palatin Technologies Inc (PTN) 2008 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies fourth-quarter fiscal year 2008 conference call. At this time all participants are in listen-only mode. Later we will 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 would like to remind you that 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 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.

Thank you. Good morning, ladies and gentlemen, and I would like to thank you for your patience for putting up with the slight delay that we have had at the start of today's call. We did run into some technical difficulties, which I apologize for.

With me on the call today I have Steve Wills, our CFO and Head of Operations, as well as a Dr. Trevor Hallam, who is our Executive Vice President of Research and Development. As we normally do, we will start the conference call off with Mr. Wills providing a financial update. Then Dr. Hallam and I will take you through more of the details around the programs that we are working on. Steve.

Thank you, Carl, and good morning, everyone. For the quarter ended June 30, 2008, which is the fourth quarter of our fiscal year, Palatin reported a net loss of $5.2 million, or $0.06 per share, compared to a net loss of $6.1 million, or $0.07 per share, for the same period in 2007.

For the quarter ended June 30, 2008, total revenues amounted to $1 million compared to $2.6 million for the same period in 2007. For the year ended June 30, 2008, total revenues were $11.5 million as compared to $14.4 million for the previous fiscal year. For the year ended June 30, 2008, we reported a net loss of $14.4 million, or $0.17 per share, compared to a net loss of $27.8 million, or $0.36 per share, for the previous fiscal year.

The decrease in the net loss and revenue for the current year periods, the year end and the quarter, 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.

The audited consolidated financial statements and Palatin's annual report on Form 10-K for the year ended June 30, 2008, contains a going concern qualification from our independent registered public accounting firm. Going into a little detail regarding revenue for the quarter ended June 30, 2008, Palatin recognized $0.8 million of contract revenue related to our collaboration agreement with AstraZeneca. In the comparable quarter of 2007, Palatin recognized $0.7 million of contract revenue related to our collaboration with AstraZeneca and $1.8 million under our collaboration agreement with King Pharmaceuticals, which was terminated in the quarter ended September 30, 2007.

Regarding costs and expenses, total operating expenses for the quarter ended June 30, 2008, were $6.4 million compared to $9.1 million for the same period in 2007 reflecting lower development costs of bremelanotide. In addition, Palatin took a $400,000 charge for severance and related costs in the quarter ending June 30, 2008, as a result of our May reduction in force of 30% of Palatin's employees.

Some significant developments in Palatin's operations since June 30, 2007, include the following. We have restructured and refocused our development of clinical programs. As part of the restructuring, Palatin discontinued development of bremelanotide for the treatment of sexual dysfunction and reduced its number of employees by one half. The downsizings leave Palatin with 46 employees today and will result in annual savings of approximately $7 million.

We have continued to advance our product portfolio in cardiovascular, obesity, and sexual dysfunction fields. We filed an investigational new drug application and successfully completed both a Phase I and Phase IIa trial with PL-3994, a natriuretic peptide receptor A agonist under development for the treatment of heart failure and difficult to treat hypertension.

We positioned bremelanotide as a therapeutic drug for the prevention of organ damage secondary to cardiac surgery, and for related indications. We developed a new molecule for the treatment of sexual dysfunction, PL-6983, that in animal models show efficacy for sexual dysfunction with significantly less effect on blood pressure than that seen with bremelanotide.

Our agreement with AstraZeneca was amended to license additional compounds and associated intellectual property. The original global licensing and research collaboration agreement with AstraZeneca to discover, develop, and commercialize compounds for the treatment of obesity, diabetes, and related metabolic syndrome was entered into in January of 2007.

Going forward, as of June 30, 2008, Palatin's cash, cash equivalents, and investments totaled $12.8 million. Our operating expenses for the September 30 and December 31 quarters of 2008 are projected to be between $4 million and $5 million per quarter of cash burn. We anticipate receiving a significant milestone payment from AstraZeneca by the end of this calendar year or the first quarter of calendar year 2009 approximating our quarterly cash burn.

Thank you, Steve. Dr. Hallam and I will now give an update on the Company's research and development programs. As you have heard from Steve over the past year, the Company has focused on the restructuring of its product pipeline. Based on the strength of our science and technology and the hard work of our scientists we have been able to put in place a product pipeline that is the strongest that the Company has ever had.

We now have four exciting programs that we believe can drive significant shareholder value. These are PL-3994 for the treatment of heart failure, our MCR4 B.C. program which is partnered with AstraZeneca, PL-6983 melanocortin receptor compound for treating both male and female sexual dysfunction, and BMT for organ protection. All our programs target patient populations in which the medical need is high and with tremendous commercial potential.

With that being said, in the current economic environment how we drive value from our programs will vary. Over the next year our primary focus will be on moving PL-3994 through additional Phase II studies and are working closely with AstraZeneca, our partner, on moving our MCR4 B.C. diabetes program through initial clinical trials. We will be seeking additional collaborations for our programs in sexual dysfunction and organ protection.

PL-3994, which is in development as a treatment for heart failure, has completed both Phase I and early Phase II clinical studies and is our lead program. As Dr. Hallam will tell you in more detail, the initial clinical results of PL-3994 have been very encouraging. The PL-3994 clinical results and commercial potential have generated significant interest in both the medical community and from potential pharmaceutical partners.

As you may be aware, heart failure is a progressive disease that affects over five million Americans and 10 million Europeans. In the US 550,000 new cases of heart failure are diagnosed each year with disease incidence expected to increase with the aging of the population. Despite the treatment of heart failure with multiple drugs, the incidence of mortality and hospitalization of heart failure patients remains high.

Heart failure has tremendous human and financial costs. Estimated direct costs in the US for heart failure are $29.6 billion in 2006. Heart failure constituting the leading cause of hospitalization in people over the age of 65, with over 1,100,000 hospitalizations for heart failure in 2004. Heart failure is also a high mortality disease with approximately half of the heart failure patients dying within five years of their initial diagnosis.

[The mechanism] of action and the ability for chronic treatment of heart failure patients leads us to believe that PL-3994 has the potential to become a major treatment option for heart failure patients.

Moving on, over the past year the research teams at both Palatin and AstraZeneca working together have made significant progress in our MCR4 B.C. diabetes program. Obesity and diabetes are two diseases in which there remains a strong need for novel pharmacological interventions. The human and medical costs associated with treating these patients are enormous. We, along with our partner, believe that pharmaceutical agents targeting MCR4 have tremendous potential in treating both obesity and diabetes.

Now I'm going to turn the call over to Dr. Hallam, who will spend some time going over the exciting science and progress of our programs, as well as covering the next steps for the various programs.

Thanks, Carl. Good morning, I'm going to take the time this morning to go through the scientific and clinical rationale underpinning our programs and to describe why we are excited by the opportunities before us. I will start off describing our natriuretic peptide receptor programs, spending most of my time on chronic heart failure, but also discuss the opportunities in difficult to treat hypertensive states. Then I will get to melanocortin agonist programs on obesity, female sexual dysfunction, and lastly on organ preservation during cardiac surgery with cardiopulmonary bypass.

PL-3994 is a novel, long-acting, subcutaneously-administered NPRA agonist that has been designed by Palatin scientists for the chronic treatment of heart failure patients. The expectation is that PL-3994 will be administered daily and will affect heart remodelings, and thereby reduce the rates of hospitalization and extend survival in this population.

So firstly, I want to address the rationale for a selective, chronically administered natriuretic peptide receptor A agonist for heart failure. Secondly, why unlike other heart failure therapies currently on the market, PL-3994 has the desired attributes for a drug that will be efficacious and suitable for chronic use.

A cardinal feature of chronic heart failure is a phenomenon called ventricular remodeling or ventricular hypertrophy. This is a condition in which the size and/or thickness of the ventricles of the heart increases in response to [pathate] physiological states and the condition is a powerful independent risk factor for cardiovascular morbidity and mortality.

This increase in muscle mass of the ventricle is the bodies attempt to deal with cardiac overload, but instead it contributes in multiple ways to the poor prognosis of these patients. The link between remodeling and prognosis is quite solid in that interventions which ameliorate remodeling have had a positive affect on survival, and those that do not have such an effect fail to lengthen the lives of these patients. So this is a clear opportunity to be able to treat these chronic patients.

Ventricular mass increase in heart failure is driven primarily through activation of the renin-aldosterone-angiotensin system, which I will abbreviate to RAAS. Multiple preclinical studies and clinical studies have shown that suppression of the RAAS slows or reverses remodeling. Agents affected in this way are angiotensin converting enzyme inhibitors, angiotensin receptor blockers, and [B trigenonic] blocking agents.

Combinations of these agents can be more effective than either single agent alone. While these classes of medication are effective in reducing symptoms, reducing the rate of hospitalization, and extending life, chronic heart failure patients nonetheless have poor prognosis. Thus there is clearly a high medical need for newer agents which can provide further improvement.

So the notion is quite simple, the addition of a novel medication with a different mechanism of action which both further suppresses RAAS and affects ventricular mass and remodeling directly is likely to provide additional benefit to heart failure patients. And this is where we want to play.

So what are the data supporting the expectation that chronic NPRA stimulation will do these things, will reduce remodeling and improve outcomes in heart failure patients? Well, the natural natriuretic peptides, ANP and BNP are potent natriuretic and beta relaxant hormones that are secreted by cardiomyocytes and play a significant role in cardio vascular homeostasis.

They do this through stimulation of their receptor, the natriuretic peptide receptor A, NPRA. Stimulation of the NPRA receptor actually suppresses reactivation of the RAAS system, and therefore the drive for cardiac hypertrophy. But in addition, there is recent evidence that NPRA stimulation can suppress cardiac hypertrophy directly.

Natriuretic peptides are able to directly decrease ventricular muscle mass via receptors in cardiomyocytes. In some rather elegant preclinical studies, genetic manipulation via the levels of the endogenous ANP all the levels of the receptor NPRA show that stimulation of the NPR receptor chronically reduces cardiac remodeling. And pharmacologically, Palatin scientist has shown that PL-3994 acting through the NPRA receptor can suppress aldosterone and slow cardiac remodeling in a rat model of renovascular hypertension and heart failure.

Most importantly, there is also compelling evidence in humans of the importance of chronic NPRA stimulation to suppress cardiac hypertrophy. Human genetic studies have shown that known polymorphisms in receptors for natriuretic peptides, or for the natriuretic peptides themselves, result in decreased in decreased ANP NPRA activity and appear to increase the severity of heart failure clinically providing evidence of a natural feedback mechanism controlling cardiac mass.

The direct evidence for the role of the ANP/NPRA system in the regulation of cardiac hypertrophy in humans suggests that the mechanism appears to be overwhelming patients with heart failure. If this is indeed the case, then exogenously administered natriuretic peptide receptor A agonists could improve survival by slowing or reversing ventricular hypertrophy.

In fact, several clinical studies conducted in Japan over the last two to three years have shown that continuous infusions of human ANP for greater than 96 hours when given immediately after myocardial infarction reduced left ventricular remodeling and removed -- sorry, improved cardiac function when measured one month later. Similar benefits were also evident when ANP was infused into patients with decompensated congestive heart failure.

This evidence suggests that chronic treatment with an NPRA agonist will prevent or reverse the degree of left ventricular hypertrophy and improve survival in heart failure patients.

So what is different about PL-3994 that makes it suitable for chronic administration, where NATRECOR (nesiritide) was not? NATRECOR and nesiritide of course is the J&J product that has been on the market since 2000 indicated for acute decompensated heart failure and also acts through the NPRA receptor. Well in the well-publicized Fusion II study, nesiritide failed to provide any long-term benefit when administered as one or two four- to six-hour intravenous infusions weekly.

Given that the human heart half-life of nesiritide is 22 minutes, the result probably reflects the small fraction of time when the pharmacologic action of the drug was available. Positive signals in the Japanese studies that I just alluded to with continuously infused ANP for durations of greater than 96 hours suggest that chronic NPRA stimulation is in fact a sound approach.

PL-3994 has a half-life of approximately three hours in humans and the duration of its effect on the cardiovascular system is eight to 12 hours. Based on this, once-a-day or twice-a-day subcutaneous injections of PL-3994 should provide round-the-clock coverage and are therefore more likely to show benefits. Should two injections per day prove superior to the single daily injection in clinical trials, a shift to a single injection of a slow release formulation will be made to improve market acceptance.

The benefit of once-daily injection of PL-3994 for six weeks were demonstrated in a rat model of renovascular hypertension and heart failure supporting the above assertion. So the ability to achieve daily coverage with a self-administered subcutaneous injection positions PL-3994 to provide benefit in chronic heart failure.

What is the expected clinical benefit and market positioning for PL-3994? PL-3994 is expected to be useful for the treatment of chronic heart failure. It is expected to affect heart remodeling and thereby reduce the rate of re-hospitalization and extend survival in this population. It will be administered as a daily subcutaneous injection as an adjunct to other standards medications such as beta and adrenergic blocking agents, ACE inhibitors, and (inaudible).

Initial development will focus on patients with New York Heart Association classifications of heart failure stage two and three, with stage four patients being studied later. The natural natriuretic peptides have as part of their pharmacology renal and peripheral vasodilate reaction, and when the doses are pushed high can lower systemic blood pressure.

With PL-3994 our base case chronic heart failure population would initially include the 90% of heart failure patients who have normal or elevated blood pressure of greater than 100 mm per mercury. And this will be the appropriate population should PL-3994 lower systemic blood pressure at the same doses that down regulate rat activity and prevent cardiac hypertrophy.

So of interest to note that 1% to 2% of the acutely decompensated heart failure patients who receive nesiritide infusions decrease systemic blood pressure to the point where there is system hypertension. And of course there is then concern that the kidneys might not be properly perfused. This is particularly true with patient populations starting with lower blood pressures of less than 90 mm of mercury.

And of course what the nesiritide problem show is that 98 of patients infused -- 98% of patients infused with nesiritide do not have the problem. Nesiritide still down regulates rat activity in the wider population, the 98% of whom do not develop systemic hypertension. What this means is that we do not anticipate a significant problem with hypertension with PL-3994 in the chronic heart failure population.

PL-3994 is also expected to provide relief of the symptoms of heart failure. Acute decompensated heart failure, a condition in which there is a sudden inability of the heart to pump efficiently, is a significantly smaller market than the chronic heart failure market. However the shorter nature of the clinical development program means that the acute decompensated heart failure program can be completed more quickly and can reach regulatory submission earlier. Thus the plan is to start the developments of both indications in parallel with the expectation that the acute indication is approved first and the chronic indication as a supplement.

So how can proof of concept with PL-3994 for the chronic indication be achieved in the short term given that survival studies are so lengthy? The strong link between ventricular remodeling and survival provides a surrogate market. This allows the study of relatively brief duration of smaller size compared to a full-blown survival study which can provide an early indication of the likelihood of success of the survival study and achieving approval for the chronic indication.

Specifically, a study is planned which would randomize chronic heart failure patients to receive daily subcutaneous injections of PL-3994 in addition to their existing regiments. Cardiac remodeling measured by cardiac MRI before and after six months of treatment would show whether PL-3994 is effective in preventing worsening of or reversing cardiac hypertrophy.

A positive result in this study will be a strong indicator of the probability of success of the longer survival studies needed for registration. So as to our clinical development plans, two early phase clinical studies have been completed, a Phase I study in healthy volunteers which has been presented at the Heart Failure Society of America meeting in Toronto this month and a Phase IIa study in controlled hypertensives.

Going forward a single-dose ranging study in heart failure patients will begin this year with a multi-dose 28-day pilot study in chronic heart failure patients planned to begin the first half of 2009. Proof of concept studies for both chronic heart failure, a six-month treatment, and for acute heart failure are both planned to commence at the second half of 2009.

Now I want to switch and talk to an opportunity potentially also for PL-3994 in the chronic treatment of difficult to treat or resistant hypertension indications. As I have described, at high concentrations peptides acting on the NPRA receptor can cause a decrease in blood pressure. While the doses used for heart failure will be selected to minimize this effect, the ability of PL-3994 to reduce blood pressure for at least eight to 12 hours provides an opportunity using higher doses for treatments of elevated blood pressure in specific populations where this blood pressure lowering effect is therapeutic.

With the help of its scientific advisors, Palatin has identified a number of specific areas of unmet medical need within the hypertension field where a product of the specific pharmacological properties of PL-3994 is favorable. These clinical areas include [hypotension] in renal dialysis patients, hypertension in postoperative patients who cannot take oral medication, and resistant hypertension patients.

Resistant hypertension is defined as blood pressure which cannot be brought back to healthy levels despite up to three appropriate blood pressure medications used in combination. Now in order to focus its efforts, Palatin plans to start developing the antihypertensive indication in renal dialysis patients. Approximately 300,000 patients are on renal dialysis in the United States and studies have shown that up to half of them are hypertensive between their dialysis sessions.

This form of hypertension is poorly treated with approved oral medications. Because cardiovascular disease is a major problem in these patients, a novel therapy would be welcome and would likely experience rapid uptake in use. We plan a Phase II proof-of-concept study to study PK and efficacy in dialysis patients with hypertension. It's anticipated that this study will provide adequate information to support an end of Phase II meeting with the FDA.

Now I'm going to continue and discuss our melanocortin for agonist programs and I will start with the program for obesity. This is a collaborative research and development program with AstraZeneca for the discovery and development of anti-obesity agents. The global increase in the number of the rate at which people are becoming obese or overweight will continue to stress healthcare systems. The health risks associated with obesity and the difficulty of treating the disease indicate there is a large growing need for [a number] of therapeutics for treating obesity.

Palatin's melanocortin receptor obesity program combines our core technologies for lead generation with our preclinical and clinical experience with the melanocortin system to develop novel therapeutics for treating obesity and related diseases. Accumulating data from genetic pharmacological and physiological studies identified the central melanocortin system as an important regulatory of energy and homeostasis and potentially a key drug for obesity.

Palatin has developed some molecules, peptide mimetic, and peptide compounds that modulate the function of melanocortin 4 receptor. The activity profile indicates that they have potential as treatments for obesity and associated diseases. The studies using animal models of obesity selected compounds to reduce food intake and body mass as well as decrease in plasma glucose and insulin levels.

As Steve mentioned, in January 2007 AstraZeneca and Palatin Technologies announced an exclusive global licensing research collaboration agreement to discover, develop, and commercialize compounds that target melanocortin receptors. In June 2008, AstraZeneca and Palatin Technologies amended the collaboration agreement to include additional compounds and associated intellectual property developed by Palatin.

Under the terms of the initial agreement, Palatin received an up-front payment of $10 million from AstraZeneca and is eligible for milestone payments totaling $300 million with up to $180 million contingent on developments of regulatory milestones and the balance on achievements of sales targets., together with the pains of step royalties and product sales to double digit rates dependant on the sales achieved.

AstraZeneca has assumed responsibility for product commercialization, product discovery, and development costs with both companies contributing scientific expertise in the research collaboration. Palatin and AstraZeneca have made significant progress under the collaboration agreement using core technologies and lead generation and expertise in melanocortin biology developed by Palatin Technologies.

We expect to take a proof of principle compound to the clinic later this year for clinical evaluation.

Now to female sexual dysfunction. And Carl mentioned PL-6983, which is a novel second-generation peptide agonist for the melanocortin 4 receptor with decreased cardiovascular effects for the treatment of female sexual discussion. The melanocortin system has long been recognized as integrally involved in the pathways controlling sexual arousal, notably those located in the hypothalamus.

Palatin performed a series of Phase I and Phase II clinical trials of the first-generation peptide, bremelanotide, for both male and female sexual dysfunction. Promising efficacy results would have supported Phase III trials for both indications, however as bremelanotide is associated with an increase in systemic blood pressure new compounds were sought which preserve the efficacy of bremelanotide but with less cardiovascular effects.

Nevertheless, bremelanotide development provided import insights. First, it demonstrates an improvement in erectile function in men with erectile dysfunction. The magnitude of improvement was similar to that of the marketed PDE5 inhibitors, Viagra, Cialis, and Levitra. Second, it lets highly-statistical significant improvements in desire, arousal, and orgasm in female patients with hyperactive arousal disorder, particularly in postmenopausal patients.

This result was particularly remarkable since there are no other on-demand agents with these properties. Since on-demand agents are given only at the time of planned sexual intercourse rather than chronically, it is likely that it will face a lower regulatory hurdle than agents which must be given daily even if intercourse is not planned.

These results have been presented at recent urology, sexual medicine, and gynecology meetings and are being prepared for publication. In addition, efficacy has been confirmed in a non-company-sponsored study out of Iran.

A goal of our discovery program has been to separate the pro-erectile and blood pressure responses of selective MC4 receptor agonists. Recent compounds have been designed that appear in animal models to have similar efficacy to bremelanotide, but with a wider separation from blood pressure affects compared with bremelanotide.

A Phase I trial is planned for the first half of 2009 with PL-6983, a peptide agonist which would seek to demonstrate a better therapeutic window than bremelanotide by comparing the doses needed to produce an erectile effect measured with (inaudible) and that needed to raise blood pressure. If this can be demonstrated, Palatin would focus development efforts on female sexual dysfunction, both disorders of arousal and desire, as the medical needs and commercial opportunity is significantly higher there compared to erectile dysfunction where approved agents are satisfactory for many patients.

The market opportunity for an effective agents helping women with sexual dysfunction is potentially quite large. Estimates of the rate of sexual dysfunction in postmenopausal women range as high as 43%. As the population ages, the proportion of postmenopausal women is only expected to grow.

Now lastly, I want to talk a little about organ preservation so this is specifically the use of melanocortin for receptor agonist for the prevention of organ dysfunction after cardiac surgery with cardiopulmonary bypass.

Organ damage, particularly kidney damage, is a recognized complication of many surgical procedures including cardiac surgeries involving use of a heart lung machine or cardiopulmonary bypass. Patients with acute renal, kidney, failure resulting from surgery have higher death rates, longer hospital stays, and may require dialysis. Ischemia reperfusion injury, that is injury resulting from inadequate blood flow or reintroduction of blood flow, and inflammation are believed to be primary contributors to surgically-induced organ injury.

The kidneys, which have high metabolic requirements, are particularly vulnerable to this type of energy. The brain, liver, lungs, and gut may also suffer injury following cardiopulmonary bypass or high blood loss surgeries. There are no approved drugs for prevention of acute renal injury secondary to cardiac surgery. This remains a major unmet medical need.

Palatin Technologies is developing bremelanotide for this and related indications. There is an extensive preclinical extra on the use of melanocortin 4 agonist in hemorrhagic shock states Palatin has been able to confirm these findings in its own laboratories with the use of bremelanotide. Furthermore, small clinical trials of other melanocortin 4 agonists has shown promise in lowering mortality in very severe hemorrhagic states.

In particular, one randomized trial showed a significant decrease in mortality in patients with ruptured abdominal aortic aneurysms undergoing emergency surgery. Palatin plans to initially develop bremelanotide in clinical situations with a lower degree of hemodynamic compromise, but with significant morbidity and excess resource utilization nonetheless.

Acute renal failure remains a major complication of cardiopulmonary bypass surgery that is strongly associated with in-hospital mortality. Over 450,000 coronary artery bypass graft surgeries are performed annually in the United States. The incidence rate of acute renal failure has increased, resulting in increases in health care resource utilization and length of intensive care and hospital stay.

Prevention of organ dysfunction in patients undergoing cardiac surgeries including surgeries requiring cardiopulmonary bypass is the initial projected indication for bremelanotide. Other potential indications include improvements in survival and prevention of organ dysfunction in patients with traumatic injuries resulting in hemorrhagic shock. This patient population includes potential emergency medicine and military applications.

Our clinical development plan is to conduct a Phase III study in patients undergoing procedures requiring cardiopulmonary bypass. After patients have a couple of units of blood removed, but before commencing bypass, patients will have either placebo or a single escalating dose of bremelanotide. Primary endpoints of the study is related to safety and the secondary endpoints will be hemodynamic.

This will allow a safe dose to be selected for the next study which would be a Phase IIb study in patients undergoing procedures associated with hypertension and post-operative organ dysfunction. Primary endpoints will be based on prevention of organ dysfunction setting up potential registration endpoints. I hope you appreciate how excited we are by these programs at Palatin and I'm going to hand back to Carl.

Thank you, Trevor. I believe we have given you a rather detailed overview of the past year's activities and where we plan to go in the upcoming year to drive increased shareholder value. I just want to give a quick summary and then we will turn things over to questions.

The key focus for us will be to drive PL-3994 forward to establish a strong foundation for Phase IIb and Phase III clinical studies as a chronic treatment for heart failure patients. We believe this will set the stage for significant corporate collaborations for this program. In fact, we are already making progress on the collaboration front with multiple discussions already opened.

As you have heard from Dr. Hallam, we anticipate that we will enter into our first clinical studies for MCR4 obesity diabetes program later this year. We want to remain focused on supporting this program for these important indications. For our programs in organ protection and sexual dysfunction, we are actively engaged in entering into corporate partnering and strategic collaborations for these programs.

Finally, we anticipate that we will receive significant milestone payments from our MCR4 obesity diabetes program which we will compliment with additional funds from new collaborations and from strategic investors.

Before I turn the call over to questions, in my opinion the Company has gone through a very successful reorganization of its product portfolio. This has been done in the backdrop of a very difficult financial and operating environment. I believe that we are well positioned to continue to attract the corporate, human, and financial resources required to drive substantial shareholder value in the upcoming year.

As the coming year progresses, we will be evaluating all means possible for the Company and its shareholders to realize the growing value of our Company as the Board, management, and employs of Palatin remain committed to the success of our Company.

Before we open this call up to calls just a couple of quick notes. One, this is a rather detailed presentation and for those that are new to the Company we don't normally cover our programs in this much detail. But because this is one of the first times that we were introducing the full Company and all of its potential, we wanted to give you a little more detail about the science and why we are so excited about the programs.

Because at that, we will of course make this -- replay of this available for the next week. In addition, we will put a transcript of the teleconference up on our website as well so that you have a little more time to go through the detail as you wish. With that, we are going to open the call to questions.

(Operator Instructions) Amy Wang, MDB Capital.

Good morning, Carl, Trevor, and Steve. Thanks for taking my call. A couple of questions, the first is how do you see 3994 fitting in the CHF market? Do you think that 3994 will be taken along with ACE inhibitors and beta-blockers and other drugs that are currently available?

Amy, it's Trevor here. Absolutely, we will develop it. It could be used as monotherapy, but I think in this chronic treatment paradigm which really does have very poor prognosis at the moment there is plenty of room for an adjunct therapy on the top of those other medications. I think that is how this will be actually used in that patient population.

Great. That is helpful. Secondly, what aspect of 3994 do you think -- I know you touched on this -- but differentiates itself from NATRECOR? And in particular can you address if it has perhaps a better safety profile, and can you touch a little bit on hypotension or the risk of hypotension?

Yes, of course. Firstly, in any chronic treatment of any chronic disease you need the ability to get coverage 24 hours a day so that you can have the maximum possible benefit. The Fusion II studies with nesiritide were really trying to get to a more chronic cover in those patients visiting outpatient clinics, but it only amounted to a couple of infusions per week.

Remember nesiritide, or NATRECOR, has a 22-minute half-life and there are two very active mechanisms for getting rid of it once you dose. One is an endopeptidase in the plasma which degrades it and the other is because the compound, nesiritide, binds to be in the NPRC receptor and gets rapidly cleared. So it's very difficult to actually adjust dose because as soon as you infuse it it's getting churned out by two mechanisms. So getting it accurately dosed is tough.

Trying to infuse something 24 hours a day, seven days a week is not feasible, of course, for chronic treatment. So the reason why we have developed 3994 is to really go for the same receptor, which is so fundamentally linked to that heart remodeling and the survival outcomes, and that is the genetic evidence I covered. But also it's supports by clinical precedence so the other short-acting agonist, the ANP, which is commercialized in Japan.

There they have shown that continuous infusions for greater than three days can show a signal that you are improving heart remodeling measured three to four weeks later. So I think that clinical precedence assets are coming back to 3994. 3994 has got a three hour half life, certainly twice a day will cover the 24-hour exposure you need on a chronic basis.

It's available -- it will be developed as a subcutaneous injection, so it could be self-administered. The good thing about it is that we have designed it to be NPRA selected. It doesn't be cleared by the NPRC receptor, it doesn't get degraded by the endopeptidase so it's got a very long half-life because of that.

Also you get the luxury then of having a very predictable drug which allows you to dose range properly so you don't overshoot the dose and dangerously drop --. If you really push it, you could increase -- decrease the blood pressure. But we won't get into that situation for these reasons.

Okay.

Let me just finish. So with this nesiritide we know that there are 1% to 2% of patients that do get a systemic hypertension. And that is largely because it's tough to actually control the infusion rates, I think it's only approved for one infusion rate.

We are anticipating we can avoid that in two ways. One is we will get the dose right. As we develop it we will do much more comprehensive dose ranging studies. But the other thing that counts in our favor is that we will initially start off with not the 100% of heart failure patients, but 90% of heart failure patients who are normatensive or hypertensive. So any drop in blood pressure that we would get with 3994 that we would predict will not have the result of driving people into systemic hypertension that will potentially compromise kidney perfusion and renal effects. So there is the full answer.

Great. So if I understand correctly then the 3994 is differentiated from NATRECOR in its extended half-life, its subcu delivery so that you can better control the amount of 3994 you are administering to that patient which is not necessarily what you have with NATRECOR?

Yes, that is largely correct.

Okay, great. Thank you.

(Operator Instructions) Rahul Jasuja, MDB Capital.

Good morning, guys. That was great that you differentiated those NATRECOR attributes in 3994. I have a follow up on that same area. Trevor, you mentioned ventricular modeling as a surrogate endpoint that equates to survival. Now was that -- you have got a template that you can follow based on what NATRECOR did. Is this one of the endpoints that NATRECOR also used or is this something that is novel given recent findings for 3994?

Let me address that. The link between -- why I am making such a strong case for the link between hypertrophial remodeling and ultimately the outcomes and the survival which is the bee's knees for these patients is it that that has been linked --. When you look at ACE inhibitors and beta-blockers you can see an improvement that go along, so the better you affect the hypertrophy the better the survival is although there is plenty of room for improvement.

The direct effects of the NPRA agonist, the natural agonist, and the NPRA receptors through human genetics and through the Japanese infusion studies, further support that therapeutic application of NPRA agonists they are going to work chronically. So that is the rationale for it.

Nesiritide was trying to play to the chronic market by reducing re-hospitalization. You remember it's approved for acutely decompensated IV infusions in the ER. That was where it is approved but it got taken up in these outpatient clinics by physicians that were trying to offload some fluid, reduce the blood pressure somewhat, and keep people out of the re-hospitalization. And that is what the fusion studies and fusion II study was all about, which failed to show any benefit at all.

I guess my conclusion from that, the conclusion of Palatin scientists, and those experts that we have talked to externally is that simply the NPRA mechanism is a good mechanism. It's just that nesiritide just didn't have what it takes to give you that coverage to allow benefit to be seen.

I will ask one more question and get off the line. It seems like you have been able to tease out the blood pressure effects that you were seeing with the melanocortin receptor program and get the desired effect of obesity or erectile genesis. Was the move from using peptide-based agents to small molecule agents the secret answer there?

No, in short. Obviously we have done a lot of peptide work, bremelanotide is a psychic peptide. And we started -- we had a chemistry and peptide chemistry program going on in the background over the last year and a half to two years looking for something that will be better than bremelanotide should the blood pressure affect another selectivity not previous.

So we were always looking for something better and of course we were always into small molecules because ultimately we would have liked to emulate the success of something like Viagra by having a once -- an on-demand oral tablet. So we have been looking for that as another opportunity as well.

The obesity deal with AstraZeneca was largely around small molecules, but we have actually been exploring small molecules as well as peptides for sexual dysfunction. We have moved with AstraZeneca to include peptide structures, too. So for both series we are into both peptides and small molecules, and that is separate again from the blood pressure affects that we are separating in both series.

Great, thanks.

That concludes today's question-and-answer session.

Thank you all for participating on the call. I thank you also for your patience in the delay in the start of the call as well. As always I look forward to seeing many of you as I go around and talk to the investors and we look forward certainly to updating you on our progress at the end of the next quarter. Have a good day and thank you all for participating. Bye-bye.

We thank you for your participation in today's call. Have a wonderful day.