Palatin Technologies Inc (PTN) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Palatin Technologies third quarter of fiscal year 2009 conference call. At this time, all participants are in a 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 welcome to the Palatin conference call. Carl Spana, President and CEO of Palatin Technologies. With me is Steve Wills, Palatin's Executive Vice President of Operations and Chief Financial Officer and Dr. Trevor Hallam, Palatin's Executive Vice President of Research and Development.

To start our conference call, let me say a few words that serve to outline our three main programs. Palatin is focusing on three exciting programs that we believe will create significant shareholder value. These are our sexual dysfunction program aimed at both male and female sexual dysfunction, our obesity and diabetes program, which is partnered with AstraZeneca and lastly, our heart failure program with our lead development compound, PL-3994. All our programs target patient populations where the medical need is high and with tremendous commercial potential.

Regarding sexual dysfunction, we are quite excited by the potential of our melanocortin-based sexual dysfunction program. Our lead compound in this program is bremelanotide, which has been evaluated extensively in clinical studies as a treatment for both erectile dysfunction and female sexual dysfunction. A potential safety concern bremelanotide is its ability to significantly raise systolic blood pressure in a small number of patients. Dr. Hallam will be covering new data later in the presentation that leads us to believe that bremelanotide can be safely developed as a treatment for sexual dysfunction. Pending final data analysis and discussions with the FDA, we intend to move BMT forward aggressively, initially as a treatment for men with erectile dysfunction that are nonresponsive to current PDE5 inhibitor therapy.

In addition, we are developing new compounds such as PL-6983 that aim to retain the beneficial effects while reducing or eliminating the potential for increases in blood pressure.

Obesity and diabetes are two diseases where there remains a strong need for pharmacological interventions. The costs associated with treating these patients is enormous. We, along with our partner AstraZeneca, believe that pharmaceutical agents targeting the melanocortin-4 receptor have tremendous potential in treating obesity and diabetes.

Over the past year, the research teams of Palatin and AstraZeneca have made significant progress in our joint MCR-4, obesity and diabetes program resulting in the extension and expansion of our research and development collaboration.

Additionally, we reached a clinical trial agreement earlier this year with AstraZeneca to conduct a proof-of-concept clinical trial in obese patients. Enrollment in this study has been completed and we expect the data in the second quarter of 2009.

Finally, for heart failure, PL-3994 is a novel natriuretic peptide agonist for treating heart failure patients. PL-3994 clinical results and the commercial potential of this program have generated significant interest in the medical community and from potential pharmaceutical partners. PL-3994 is a first-in-class molecule we are developing for subchronic treatment of heart failure patients after an acutely decompensating event. We expect that PL-3994 will be effective in reducing the high re-hospitalization rate in this patient population in three to six-month period after their release from the hospital. We will be meeting with the FDA in the second quarter of 2009 to discuss PL-3994 as a subchronic treatment and the outcomes from this meeting will further define our PL-3994 development plans.

Now I would like to hand the call over to Steve who will provide a financial update before Trevor goes through our research and development programs in more detail.

Thank you, Carl and good morning. For the quarter ended March 31, 2009, which is the third quarter of our 2009 fiscal year, Palatin reported net income of $100,000, or $0.00 per share, compared to a net loss of $5.1 million or $0.06 per share for the same period in 2008.

The net income for the quarter ended March 31, 2009 versus the net loss for the quarter ended March 31, 2008 was primarily attributable to revenue generated related to our license and clinical trial-sponsored research agreements with AstraZeneca.

Regarding revenue, for the quarter ended March 31, 2009, Palatin recognized $5.2 million of revenue under its collaboration agreements with AstraZeneca. In the comparable quarter of 2008, Palatin recognized $0.7 million or $700,000 of contract revenue from AstraZeneca.

Regarding costs and expenses, total operating expenses for the quarter ended March 31, 2009 were $5.1 million versus $6 million for the comparable quarter of 2008. The net decrease in operating expenses was primarily due to the strategic restructuring and refocusing of our clinical stage product portfolio development programs offset by increases to clinical costs associated with our collaboration agreements with AstraZeneca.

Regarding cash position, at March 31, 2009, Palatin's cash, cash equivalents and available-for-sale investments totaled $11 million compared to $17.6 million at March 31, 2008 and $12.8 million at June 30, 2008.

Other items of note during the quarter, in March, we announced that the exchange listing compliance plan Palatin submitted on January 23, 2009 had been accepted by the NYSE AMEX. And regarding our annual meeting, the proxy results, at our annual meeting of stockholders, which convened on May 13, 2009, the stockholders voted on the following issues -- election of directors, ratification of the appointment of our independent registered public accounting firm for the fiscal year ending June 30, 2009, approval of the 2005 stock plan amendment to increase the shares of common stock available for issuance from $10 million to $15 million and approval of an amendment to our restated certificate of incorporation to effect a reverse stock split of our common stock depending on a determination by our Board of Directors that the reverse stock split is in the best interest of the Company and its stockholders.

All directors were reelected and their term of office continues. The selection of our independent registered accounting firm was ratified and both the 2005 stock plan amendment and reverse stock split authorization were approved.

Thank you, Steve. I will hand the call over to Trevor now.

Thanks, Carl and good morning. Let me start with our sexual dysfunction program. In the fall of 2007, our end-of-Phase II data with intranasally-administered bremelanotide revealed a couple of key concerns -- a wide variation in plasma exposure for a given intranasal dose across the erectile dysfunction population and secondly, a propensity to cause a small increase in blood pressure. Of most concern to the program, of course, was that a few individuals in the studies showed larger blood pressure increases.

Palatin's melanocortin-4 receptor sexual dysfunction program has had a major objective to further understand the mechanism or mechanisms underlying the cardiovascular effects of bremelanotide. Palatin had two major goals for the program. One, to redefine the bremelanotide development program to optimize the benefit to risk by reassessing the target patient population by considering adjunct use with PDE5 inhibitors and to reanalyze the route of administration. And two, to define design criteria for subsequent second-generation melanocortin-4 receptor agonists.

We have made substantial progress on both fronts. Since early 2008, Palatin has performed a number of preclinical studies and an additional clinical study with bremelanotide to further elucidate the mechanism of blood pressure increase and its relationship to bremelanotide plasma levels.

Our data to date suggests that by changing the route of administration of bremelanotide from intranasal administration to subcutaneous, there is much less variability in plasma exposure. Additional clinical data expected by the end of the second quarter 2009 will allow us to determine if subcutaneous administration of bremelanotide with its predictable plasma exposure levels reduces or eliminates the bremelanotide blood pressure response when dosed at what would be efficacious levels.

Once our data package is complete, we will meet with the FDA to discuss the development plans for bremelanotide as a second line therapy for erectile dysfunction patients that are nonresponsive to PDE5 inhibitors. Given positive outcomes from the clinical study and from the FDA meeting concerning the ED development program, we would aim to restart bremelanotide development, also potentially for female sexual dysfunction.

Our follow-up program has defined PL-6983 as a new and novel second-generation peptide melanocortin-4 receptor agonist for sexual dysfunction. It has shown strong efficacy in animals with decreased cardiovascular effects. A Phase I trial is planned with PL-6983 to see if this also holds true in man. The Phase I study would seek to evaluate whether doses that produce erectogenic activity measured by RigiScan, a mechanical measure, do so without elevated blood pressure. If this study proves successful, Palatin would aim to develop the agent for male erectile dysfunction and potentially for female sexual dysfunction where there is a great opportunity for an on-demand therapy set for arousal. This is an unmet need with no other therapies presently in development.

In addition, we have novel, potent and selective orally bioavailable small molecule melanocortin-4 receptor agonists that will be ready to begin preclinical safety testing in the second half of 2009 with the ultimate aim of having a drug useful as an on-demand simple tablet for use in both female and male erectile dysfunction.

Now moving on to our obesity program with AstraZeneca. Our collaborative R&D program with AstraZeneca for the discovery and development of anti-obesity agents continues to show great progress. Accumulating data from genetic, pharmacological and physiological studies continue to identify the central melanocortin system as an important regulator of energy homeostasis and potentially a key pharmacological target for treatment of obesity.

Palatin's melanocortin receptor obesity program combines our core technologies for lead generation chemistry with our preclinical and clinical experience with the melanocortin system to develop novel therapeutics for treating obesity and related diseases.

In studies using animal models of obesity, melanocortin-4 receptors' selective compounds reduce food intake and body mass, as well as decreasing plasma glucose and insulin levels. As previously mentioned, the research agreement with AstraZeneca was extended and expanded earlier this year and a separate clinical study agreement was also reached specifically to take a proof-of-principle melanocortin agonist to the clinic. Enrollment in this study has been completed and the data will be available in the second quarter of 2009. The data from this proof-of-principle study will form the basis for translation of preclinical data to confirm selection of commercially viable clinical candidates expected to enter clinical studies in 2010. Developments of orally bioavailable clinical candidates is also on track with a timeline defined by a collaborative agreement with AstraZeneca.

Now lastly to our heart failure program and PL-3994. Clinical and preclinical data from studies with natriuretic peptide agonists clearly demonstrates the simulation of natriuretic peptide receptors as an important mechanism to rectify the underlying pathophysiology in heart failure and proper exploitation of this approach has the potential to deliver improved therapeutic agents.

Chronic stimulation of the natriuretic peptide receptors as an approach to treating heart failure patients may decrease re-hospitalization rates and improve survival rates. Palatin has developed novel natriuretic peptide agonists that have natriuretic receptor cell activity, desirable pharmacological and drug-like attributes for use as potential therapeutics.

PL-3994 is a novel, long-acting agonist that has been designed by Palatin scientists for daily subcutaneous self-administration by heart failure patients. Clinical studies have shown that PL-3994 has a half life and duration of effect on the cardiovascular system that is suitable for daily administration.

The expectation is that the chronic underlying pathophysiologies that ultimately lead to progressive worsening of the heart failure patient until they decompensate and then re-hospitalization occurs will be prevented by a three to six-month course of treatment with PL-3994. PL-3994 will do this by a combination of decreased cardiac remodeling and improved kidney function. PL-3994 will be administered as a daily subcutaneous injection as adjunct to other medication such as beta-blockers, ACE inhibitors and angiotensin receptor blockers.

Two early phase clinical studies have been completed -- a Phase I study in healthy volunteers, which was presented at the Heart Failure Society of America meeting in Toronto in September 2008 and a Phase IIa study in controlled hypertensives that will be presented at the Heart Failure Society of America meeting in 2009.

Going forward, PL-3994 will be evaluated in additional Phase II studies. These studies will be designed to characterize the safety, pharmacokinetics and pharmacodynamics in heart failure patients. A key objective of the Phase II program will be to demonstrate the ability of PL-3994 treatment to reduce the re-hospitalization rate in heart failure patients after an acutely decompensating event. We will be meeting with the FDA second quarter 2009 to discuss PL-3994 as a subchronic treatment in heart failure patients and the outcomes from this meeting will further define our PL-3994 development plans. Thank you and I am now going to hand back to Carl.

Thanks, Trevor. Before we move on to the question and answers, I have a few additional comments. I remain very excited about the Palatin product pipeline. The depth and potential of our programs has allowed us to access needed resources during a very difficult economic period. However, we realize that we will not be able to pursue all of our wonderful opportunities and we will have to prioritize.

In the near term, we will focus on our melanocortin program for sexual dysfunction and our melanocortin program for obesity and diabetes. Because of our strength in melanocortin research, partnership with AstraZeneca and the size of the commercial opportunities, we believe that these programs represent the best risk to return ratio for our shareholders.

The sexual dysfunction space is an area where there is clinical need with very few products in development. 35% of the patients with erectile dysfunction do not respond to current PDE5 inhibitor therapy and an additional 20% are only marginally satisfied. We believe this non-responsive population is an excellent commercial opportunity for bremelanotide. Based on our clinical experience with bremelanotide, we believe bremelanotide will have significant benefit in this patient population. Our recent work to address the potential safety concerns of bremelanotide has increased our confidence that bremelanotide can be commercialized with an acceptable benefit to risk ratio.

In the female sexual dysfunction space, patients and their doctors have very limited treatment options. Based on our clinical and preclinical data, we believe that an MCR-4 targeted therapy holds great potential for treating these patients. We are fortunate to have two potential drug candidates -- bremelanotide and PL-6983 -- for this indication.

As previously mentioned, we plan to meet with the FDA later this year to discuss our bremelanotide fulfillment plans. The results of this meeting will guide our final development program and at that time, we will be able to provide you with more details.

Regarding PL-3994 and our early melanocortin programs, we intend to enter into corporate partnerships to access the resources needed to move these exciting programs forward.

In closing, through tight control of our expenses and increasing our projected cash flow by expanding our obesity and diabetes collaboration with AstraZeneca, we are confident we can move Palatin forward and secure additional value for all of our programs. Now I would like to thank Steve and Trevor for their time today and open the call up to questions.

(Operator Instructions). Rahul Jasuja, MDB Capital Group.

Good morning, guys. I am on a cell phone, so I hope you can hear me. You talked about the revival or the reignition of the ED and the FSD programs. I think that is great news. And you also talked about new data coming out that you will I guess review and then meet with the FDA. Could you describe to us the new data needed or the new data that is out there and then take us through maybe your thoughts on what made this more attractive at this stage given the past history with the program? Thanks.

So let me take on the first part, Rahul. Good morning. On leaving -- we had a couple of long meetings with the FDA in the fall of 2007 and early 2008 and we like the FDA. We are particularly concerned to make sure we could fully understand the very small percentage of patients in the larger population, which showed a larger increase in blood pressure. We were seeing a three to four millimeter mercury increase in systolic across the whole population on bremelanotide treatment. And we couldn't really figure out which patients were more susceptible and what the mechanisms were. So we trenched to work that through.

The bottom line is, when we looked at the plasma concentrations and did the analyses for the original end-of-Phase II meeting, we knew that our plasma exposures really varied enormously. On every dose, there was some individuals that really hardly got any exposure at all, presumably because intranasally they weren't absorbing it. And yet, in other individuals on the same dose, they could be getting as high as four or five times the plasma concentration that we believe is required for optimal efficacy for erectogenesis.

And we know that because we have done dose-ranging with subcutaneous doses in the past and we have got a very tight relationship between plasma concentration and efficacy. So the fact that we get this huge variation in all doses was a problem and the FDA would much prefer that we would see from the end-of-Phase II data that we have an approval dose.

So what we have done, concurrent with the FDA's agreement on the outcomes of this meeting, was that we felt we had to get much better control, we had to understand the relationship between plasma concentration and blood pressure increases and what we undertook to do was to take a set of individuals and repeatedly dose them subcutaneously, which will give good control on the plasma concentration and to look to see what happens to the blood pressure.

And that is exactly the study that we are doing and we are taking a number of folks that are being dosed a number of times over that period and this full information will come out sometime this summer. And in parallel, we have a placebo group. And we are looking at the blood pressure changes and see whether there is any difference at all between the two populations.

When we have gone back and looked at previous small studies, it has been suggested that we can get to these plasma concentrations required to drive efficacy without a blood pressure increase. So we are very hopeful but we will prove that that is the case in a larger, more rigorous study that we are in the middle of right now.

Now that is part of your question answered. I think the other part was around commercial opportunity.

I will jump in. Certainly, we have always been -- as you know, the Company has really been always very focused in the sexual dysfunction space and as we said in the presentation today, there is tremendous opportunity there. Certainly outside of the PDE5 inhibitors, there are many patients that are just not responding well and they have little to no treatment options today.

And we are just -- we're just pretty excited that we think we will be able to really hit a risk-benefit ratio in these patients if we move from intranasal to subcutaneous that will allow us to commercialize bremelanotide. And because of our extensive history, our experience, we can move very quickly. So we really believe this is a program that we will be able to move very rapidly forward, great commercial opportunity and we believe it will have very low regulatory, as well as clinical risk. So that is why we are quite excited about it. And obviously, on the female front, it is wide-open space where we believe the mechanism works just as well, very well.

So on the commercial opportunity, I am a believer obviously of that, that there is a need for something that is differentiated. But I guess the other part of my question really was, in the past meeting you had with the FDA, wasn't there some discussion -- maybe it was unsolicited from the FDA -- that could be an opportunity for a combination therapy with PDE5 inhibitors?

Yes. We were exploring -- as I said when I went through the script just now, we have been looking at every aspect of this to try and understand the mechanisms and the control of this blood pressure effect. And certainly there was a good deal of encouragement to get into less responsive populations. So remember, 50% of PDE5 population are partially are not responsive to PDE5 inhibitors. So clearly, the unmet need is there. Whether or not we go for monotherapy or adjunct, I think it leaves both open.

Clearly because of the mechanism, we are providing a stimulation to the on-rate as it were neuronally where as PDE5 inhibitors are actually at the end organ. There is a potential, because the mechanisms coincide, that we will see a lot better benefit. So in those that are hard to respond folk who have not got any treatment options other than injections into the penis right now, we figure this is a great opportunity to help those folk.

A couple of last questions and then I will take the answers off-line. So I guess the strategy here is to plan a [B] list program given the past history. And then the second question is how are things going with the obesity partnership with AstraZeneca, any inkling as to how things are going there, any information for us?

Well, a couple things. From a derisk standpoint with bremelanotide, we are essentially working very closely with the agency with regards to addressing the issues that were raised at the end of Phase II. We are confident we will be able to do that. And the question with bremelanotide was never one of efficacy. Even in the partially responsive population, we have pretty good confidence the drug will work. It is a matter of will we reach a risk-benefit ratio that is acceptable for approval. And the new data coming out in the next couple of months will let us know and so if that is in hand, I think we are in a very good position of a very derisked program.

For obesity, I will give you a CEO perspective, then Trevor can give you a little more granularity to it. I cannot be more pleased with the collaborative effort that both a very large-company like AstraZeneca working with a very small company like Palatin has been able to achieve. I think this program is meeting all of its marks and I believe that there is very good satisfaction on both sides of the collaboration. And as Trevor told you, we have data coming from a study this quarter and we are all expectantly looking forward to that data and Trevor may want to add a little more color.

I will add some, but I won't add much. As part of the terms of the collaboration with a company such as AstraZeneca, clearly there have been some really very exciting parts of the information that are getting out of the preclinical and the clinical program. Those won't be shared publicly because they at least feel there is a great deal of potential competitor advantage in some of the findings we have. So hopefully that will communicate a little bit of excitement that we feel, but the granularity I'm afraid is not going to be there.

Thank you all.

Matt Kaplan, Ladenburg.

Hi, good morning, guys.

Good morning, Matt.

Just a couple of follow-up questions, specifically on the obesity program with the data coming out I guess pretty soon. What should we look for in that data when it is announced or what should we focus on? And are you going to be able to announce that data?

Again, we will have discussions with AstraZeneca when the data comes in as to how much they will allow us to communicate publicly. I am hopeful that we will be able to come to a compromise that allows us to get the message across that -- let's assume that the data is positive. If it is positive, hopefully we will be able to convey enough of the excitement that we probably will jointly feel about that to the street. But keep in mind, they are a large company and it may be best for the program to be more in their mind to be a little more circumspect. But yes, we will be probably able to provide a few more details as to what the trial was, how it was conducted, patient population potentially. But the actual p values and things, if they are there, I don't know if they will let us talk about that.

I think the most clear signal you will get is that we are on one of these earnings call and we are saying, right, we are now going to be in the clinic by a certain quarter with a new candidate because what this clinical data will do, Matt, is set the criteria so that we know which of the molecules we have identified for clinical development is on the money. So I don't know whether there will be too much more detail that we will be allowed to share.

Okay. So you don't think we will get data on the impact on food intake or (multiple speakers)?

I doubt it. I doubt they will let us put p values out.

Okay, fair enough. And do you think a compound like this, depending on its profile, could have also utility I guess beyond obesity or what is your sense on that?

I think the answer is yes and I will let Trevor walk you through.

There is a great literature out there in terms of central control of peripheral insulin sensitivity. Leptin is a gut hormone that is released when you get a full stomach and it acts on the hypothalamus to give you that sense of fullness, satiety. So what we know is Leptin actually can reset by the action on the hypothalamus, the way in which muscle and fat stores are sensitive to insulin. And we know that melanocortin-4 receptors are downstream of leptin; that is in the literature. We have preclinical evidence to suggest, and it is published too not just by us, that stimulation centrally of the melanocortin-4 receptors can change peripheral insulin sensitivity. So your answer is absolutely. There is a great deal of interest there in what could be done above and beyond just weight loss.

And hence, the collaboration is for both obesity and diabetes and I would expect that both of those would be actively pursued.

And just a follow-up question on the [DMT] program. With the subcue dosing route, do you think you will be able to or -- be able to have a predictive ability in terms of taking a look at a patient and if he or she comes in, can you predict if they might be susceptible to an increase in blood pressure with the drug and then kind of rule them out as a good candidate for the drug?

That is certainly a major part of the rationale for doing this repeat dosing, a proof-of-principle study at the moment. And we will get that information and we will know exactly where we stand with that because, if we have got a small and controlled blood pressure response to a given plasma concentration, which is very consistent by the subcue route, then clearly that will allow a rather different development program that if there is no blood pressure signal at all where you could then open it up as monotherapy for both ED and FSD. So it really depends on the outcome of that study and we will communicate that as soon as we are able.

And just one last question. In terms of the cardiovascular program, the 3994 program, what do you think you need or what data do you need to generate to be able to stimulate partnership interest? (inaudible).

I am not sure that we need any additional data than we already have. One of the things that we are going to do and as we have mentioned, we will sit down with the agency and I think what we would like to do is get a little bit more prospective, a viewpoint from the agency as to how they view the subchronic indication. And I think that will probably be the last piece of data that we need. We expect that should be favorable and I think that will allow us a good opportunity to sit down with partners and conclude a deal that allows us to move the program forward.

So essentially once you get a regulatory path -- (multiple speakers).

Right and that is -- obviously the quarter is more than half over and we will be meeting with them before the end of the quarter. That is already scheduled.

Great. Thanks, guys.

Thank you.

And that does conclude our question-and-answer session for today. I would like to turn the conference back over to Dr. Carl Spana for any additional or closing remarks.

Thank you all for participating on the call. It is very exciting times at the Company. Everyone here is really just very bullish on our prospects and I look forward, as always, to talking to everyone throughout the quarter as we go around and do our investor meetings and sit down with the various analysts and so on and so forth. So everybody, have a great day, great weekend and we look forward to talking to you for the next quarter. Thanks.

That concludes today's conference. Thank you for your participation.