Palatin Technologies Inc (PTN) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Palatin Technologies fourth quarter fiscal year 2010 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 can 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 such forward-looking statements and Palatin's prospects. Now I would like to introduce your host for today's call, Mr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you. Good morning, and welcome to the Palatin Technologies fiscal 2010 year-end conference call. I am Carl Spana, President and Chief Executive Officer of Palatin. With me on the call are Steven Wills our Executive Vice President of Operations and Chief Financial Officer, who will provide a financial update, and Dr. Trevor Hallam, our Executive Vice President of Research and Development, who will provide an update on our programs.

To start, I will give an overview of some of our key accomplishments for 2010 and address the information that was released by the Company last week. Bremelanotide, our experimental treatment for both female sexual dysfunction and erectile dysfunction, we have conducted three clinical trials in premenopausal women and middle aged men, our target demographics. The goals of these studies were to characterize the effects of subcutaneous Bremelanotide on blood pressure and to show a reproducible plasm exposure level. I'm happy to report that the results of these studies have provided us with the data required to move forward both of these exciting programs.

For PL-3994, our natriuretic peptide receptor A agonist, we have generated very exciting pre-clinical data showing potent dilator activity. We have discussed this data with the FDA and are ready to open up a new IND to support Phase II clinical studies in asthmatic patients. As a reminder, we have already conducted two Phase I studies under an open IND for cardiovascular indications. In addition we have made a good start with our corporate partners for this program.

For melanocortin-4 receptor for obesity and diabetes program, which is partnered with AstraZeneca. We have achieved several important milestones this year. We demonstrated proof of principle that validates the melanocortin-4 receptor as a target for treating obesity. We also successfully completed our joint research program transferring B compounds, acid compounds, and assays to AstraZeneca. This program, now under the direction of AstraZeneca, is moving toward clinical trials early next year.

Our discovery research activities have provided us with multiple backup compounds for our melanocortin receptor-4 and natriuretic clinical programs. In addition, we now have novel compounds in both areas ready to move into new indications. Finally, we brought in approximately $15 million of operating capital from a variety of sources, including our AstraZeneca collaboration and equity financings. This was done in a difficult funding environment for micro cap public companies.

We now have three Phase II clinical programs that address areas of unmet medical need with large market potentials, and a fourth about to enter the clinic with our partner AstraZeneca. These programs are now well positioned to generate substantial value for our shareholders. In order to ensure that these programs successfully move forward, we will need the appropriate resources, which brings me to our disclosures of last week. First, we began a restructuring of our workforce last week, that will provide us with the human resources needed to move our clinical development programs forward.

As part of this restructuring, we reduced our discovery research staff. This reduction frees up valuable resources that will be redirected into our clinical programs and in no way come compromises our ability to move our clinical programs forward. The decision to lay off employees is difficult, particularly in troubled financial times. We would like to thank our departing employees for their many contributions, and we wish them well as they move on to new opportunities.

Second, we announced a one for ten reverse stock split which was effective for the beginning of trading today, September 27th. This reverse stock split was an absolute requirement for the Company to maintain its listing on the NYSE AMEX national exchange. This activity was approved by our shareholders at our annual meeting in May of this year. Management and the Board of Directors determined that it was clearly in the best interest of our shareholders to maintain our listing on a national exchange. The liquidity and exposure this provides is critical for micro cap public companies, and is also important for the Company to execute on its financing plans.

I'm going to turn the call over to Mr. Wills, who will provide an overview of our financials and additional details on the reverse stock split. Mr. Wills?

Thank you, Carl. Good morning, everyone. Palatin's net loss for the year ended June 30th, 2010 was $1.8 million or $0.18 per basic and diluted share, compared to a net loss of $4.8 million or $0.56 per basic and diluted share for the year ended June 30th, 2009. We reported a net loss of $4.2 million or $0.40 per basic and diluted share for the quarter ended June 30th, 2010, compared to a net loss of $0.2 million or $0.02 per basic and diluted share for the same period in 2009.

All share and per share amounts are presented on a post reverse split basis, giving effect for the one for ten stock split announced on September 24th, 2010. The change in net losses for the year and quarter ended June 30th, 2010, compared to the net loss force the year and quarter ended June 30th, 2009 was primarily attributable to the varying amount of revenue recognized under our license and clinical trial agreements with AstraZeneca and their respective periods.

Regarding revenue, for the year ended June 30th, 2010, total revenues were $14.2 million, compared to $11.4 million for the year ended June 30th, 2009. Total revenues in the quarter ended June 30th, 2010 were $0.7 million compared to $4.2 million for the same period in 2009. All of the revenue amounts recognized were related to our collaboration agreement with AstraZeneca. Regarding cost and expenses, for the year ended June 30th, 2010, total operating expenses were $17.2 million, compared to $18.7 million for the year ended June 30th, 2009. The decrease is primarily related to our refinement of operations and expense control. For the quarter ended June 30th, 2010, total operating expenses were $4.9 million, versus $4.5 million for the comparable quarter of 2009. The net increases in operating expenses for the quarter was primarily due to expenses related to our clinical stage development programs.

Regarding our cash position, our cash, cash equivalents, and investments were $8.9 million at June 30, 2010, compared to $7.8 million at June 30th, 2009. Palatin's audited financial statements for the year ended June 30th, 2010 included in the Company's annual report on Form 10-K an audit opinion from our independent registered public accounting firm, KPMG, that contains a going concern explanatory paragraph.

During the fourth quarter of fiscal year 2010, Palatin sold in a registered direct offering 10 million units at a price of $0.20 per unit for gross proceeds of $2 million, before deducting placement agent fees and offering expenses. Each unit consisted of one share of common stock and a warrant exercisable upon issuance and expiring one year after issuance to purchase 0.14 of one share of common stock at an exercise price of $0.20 per share of common stock. These amounts that I just referred to were presplit numbers.

For the fiscal year ended June 30th, 2010, we received approximately $15 million of operating cash. The sources included equity financings of $7 million, milestone payments from AstraZeneca of $5 million, full-time equivalent reimbursements from AstraZeneca of $2 million, and approximately $1 million from the sale of New Jersey net operating losses. Regarding the realignment and workforce reductions, on September 24th, 2010 we announced the implementation of our realignment and restructuring program to focus on the advancement of our clinical drug candidates.

This will result in a reduction of our workforce by approximately 50% and the discontinuance of research activities relating to the discovery of new compounds. We anticipate incurring restructuring charges of approximately $800,000, primarily associated with personnel-related termination costs. As a result of this restructuring, our cash operating expenses internally are anticipated to decrease by approximately $1.4 million per quarter.

Regarding the reverse stock split,we implemented a one for ten reverse stock split of our common stock, which had been authorized by the stockholders at our annual meeting on May 13, 2010. The reverse split, which became effective with the opening of trading today, reduced the number of shares of common stock issued and outstanding from approximately 118 million to 12 million. To be clear, the reverse stock split was required by the NYSE AMEX in order for Palatin to maintain the listing status of its common stock. By effecting this reverse stock split, Palatin is in full compliance with the NYSE AmEx listing rules and in a position of greater flexibility to support the development of the Company.

Thank you, Mr. Wills. Now Dr. Trevor Hallam will provide a brief overview of our programs.

Thanks, Carl. Good morning.

Let me start with our sexual dysfunction program. Over the last 15 months, we have completed three repeat dose safety studies in men and in women with the subcutaneous formulation of Bremelanotide. The results from these studies demonstrate that with subcutaneous administration, consistent therapeutically relevant blood plasma levels can be obtained without sustained or clinically significant blood pressure effects and support the continued development of Bremelanotide. We said last call that as part of the analysis of the effects of Bremelanotide on blood pressure, Palatin has engaged a panel of cardiovascular experts to evaluate both the subcutaneous study results and

Integrated cardiovascular safety analysis conducted on data from all completed Bremelanotide studies, administered both intranasally and subcutaneously. Based on recommendations from the outside panel, and our own internal review, Palatin indicated that we would engage the Food and Drug Administration in discussions regarding clinical trial designs to further study Bremelanotide for the treatment of sexual dysfunction. With respect to the erectile dysfunction indication in patients nonresponsive to PDE5 inhibitors, we have asked the FDA for a meeting to discuss the results from a recently completed 45 to 65 year old male subcutaneous study, and to discuss the next step in the development program.

Palatin aims to study the safety and efficacy of dosing subcutaneous BMT alone, or in combination with a normal dose of the PDE5 inhibitor, such as Sildenafil, and PDE5 inhibitor non-responsive. patients. The aim of the study is to optimize the relative doses of Bremelanotide alone for potential monotherapy, and the optimal combination of doses of Bremelanotide and Sildenafil for potential adjunct therapy in this population.

With so many variables, we believe that the quickest and the most cost effective route to determine the optimal dose combinations for definitive at-home Phase II-b studies would be to conduct dose evaluation in the clinic using rigid scan methodology to measure erectogenesis. Since the next study will be in clinic, the agency has agreed that we do not need to set up an interim meeting, but should submit the results from our recently completed Phase I study in 45 to 60 year-old males, together request our Phase II protocol.

Now to our female sexual dysfunction program. With respect to next steps in the development of Bremelanotide for female sexual dysfunction, we've taken guidance from our cardiovascular expert panel and have sought guidance also from experts in the fields of women's sexual health and have concluded that we have sufficient cardiovascular and PK data using the subcutaneous route to support moving forward to Phase II studies in premenopausal women. Two repeat dose Phase I studies are now being completed, and we look forward to submitting this data together with the protocol to the FDA describing a Phase II at home sub-Q dose-ranging study in premenopausal women diagnosed with FSD within the next few weeks.

Under our sexual dysfunction program, in addition to Bremelanotide, we have identified a backup peptide molecule, PL-6983, that demonstrates even better separation of efficacy in cardiovascular effects by dose and by plasma exposures in preclinical models. At this stage in Bremelanotide's development, it isn't clear whether better separation is necessary in humans; however, we have decided to progress PL-6983 through preclinical as a potential backup.

Now I want to shortly address the obesity program sponsored by AstraZeneca. As previously mentioned, our research with AstraZeneca for the discovery of novel molecules in antiobesity agents reached a successful conclusion this year. Two clinical candidates in Palatin's discovery efforts have been selected and entered into AstraZeneca's development program. We expect clinical studies to commence in early 2011.

In addition, Palatin has enabled AstraZeneca to establish a mature discovery program to develop orally bioavailable clinical candidates. Further proof of principle clinical studies have been carried out collaboratively with AstraZeneca under an ongoing clinical study agreement under a new Palatin IND filed with the FDA's Division of Endocrinology and Metabolic Products. The results of these studies will be informative for both obesity and sexual dysfunction programs.

Now lastly, to our natriuretic peptide receptor programs, specifically PL-3994. As we previously described, Palatin and its scientific advisors believe that chronic stimulation of natriuretic peptide receptors may have a valuable therapeutic role in several areas of high unmet need. One, as an approach to treating heart failure patients that may decrease rehospitalization rates and improve survival rates. Two, as an approach to treat refractory hypertension there is precedent that increased NPRA as adjunct to improved agents that inhibit the RAS system can give much better blood pressure lowering responsiveness. And three, there is compelling data from clinical proof of principal studies using short acting natriuretic peptides that NPRA stimulation will cause bronchodilation in humans with pulmonary disease.

Palatin has decided that the pulmonary area will be the primary area of focus at this stage in the product life cycle of PL-3994, initially for acute use in the emergency room, but progressing to broader and more chronic indications in both asthma and COPD. Palatin has conducted a number of preclinical studies to evaluate the feasibility of use of PL-3994 in the emergency room for acute severe asthmatics. In acute asthma, patients presenting in the emergency room are commonly unresponsive to beta-2 agonists. This unresponsiveness often relates to the overuse of beta-2 agonists that then render the airways unable to adequately dilate. There are no alternative bronchodilators that have been show to provide relief under these conditions.

Published data, both preclinical as well as clinical studies, with infused endogenous peptides have shown good bronchodilator activity, those are natriuretic peptides. Furthermore, the mechanism is independent of the known mechanism driven by Beta agonists or other approved bronchodilator mechanisms, therefore, Palatin believes that the entirely different mechanism, through meta-beta agonists, together with a long half life offered by PL-3994 allows either subcutaneous or nebulizer administration and is likely to bring great benefit to the acute severe asthmatic in the emergency room.

Initially, the program will explore the current subcutaneous routes of administration as a first proof of principle in stable asthmatics. The published human studies using short acting agonists support the hypothesis that there should be sufficient window in order to develop a subcutaneous dose for emergency room use. We plan to proceed to the subcutaneous proof of principle study in stable asthmatics toward the end of this year after filing an IND within the next few weeks that will include full responses to the received FDA's Pulmonary Division's review of our pre-IND documentation of protocol synopsis.

Simultaneously, Palatin will progress a nebulizer formulation of PL-3994 through preclinical safety and toxicology studies in preparation for the first inhaled human studies towards the end of 2011. Pre-clinical work in guinea pigs has shown that administration of PL-3994 by the airways can give a potent and full bronchodilator response with no detectable effect on cardiovascular parameters. Once shown to be effective by nebulizer in man, further developments of formulation and devices will be warranted to provide wider availability to broader and chronic asthma and COPD indications.

Finally, Palatin has identified a number of potential backups to PL-3994 that allow us to progress one of several options, should early clinical experience with this class of NPRA agonists demonstrate there will be an opportunity to further optimize the pharmacological selectivity and/or degree of resistance to clearance mechanisms, and thereby satisfy additional pulmonary indications. Thank you. Now I'm going to hand back to Carl.

Thank you, Dr. Hallam. Palatin Technologies has three exciting Phase II clinical programs ready to advance forward, and a fourth program, partnering with AstraZeneca, headed towards the clinic early next year. These programs have potential to generate substantial value as they progress forward for our shareholders. Over the next year, as I think we've clearly stated, we'll be focused on driving these programs forward. We believe that 2011 will be a great year for Palatin, and look forward to updating you on our progress. I will now open the call to questions.

Thank you. (Operator Instructions). We'll go first to Keay Nakae with Chardan Capital.

Yes, good morning.

Good morning.

My question is regarding your obesity program with AZ and your specific compound. We've seen recently that the FDA has set the bar pretty high in terms of safety for any type of oral obesity pill trying to make it through with a specific focus on side effects and even more intense focus on preclinical effects of either teratogenicity or tumorgenicity. Give us your thoughts on first of all anything you're seeing preclinically that avoids the problems that some of the others have run into or also the side effect profile you might expect with your drug compared to some of the other CNS targeting drugs.

Sure. Thanks. Let's take that in a couple of parts. I'll start and then Dr. Hallam can jump in and add some more details. With regards to preclinical, the compounds are under the direction of AstraZeneca and they're really going through their first initial tox studies that will allow them to go with the first in man. However, what I think is probably acceptable to do is with regards to the MCR-4 target, bremelanotide is an agent that actually binds to an active AC MCR-4 target. There we have completed quite extensive tox work including nine month two species repeat dosing, as well as carcinogenicity studies, what have you.

In that case, we know that at least activating the target appears to be quite clean. We don't see any teratogenicity, we don't see any concern about potentially causing any spurious tumors which is the same with some of those drugs that you referenced earlier. So we think overall the target itself should be quite clean.

We won't know obviously with regard to the specific compounds that AstraZeneca chooses to advance if they would have issues, but based on the class that they are, we would expect that they should parallel bremelanotide fairly well with regards to their preclinical tox, and we wouldn't expect to see anything there. So we think that these compounds will transition that.

When we're dealing with melanocortin-4 receptor, the critical thing as we've clearly shown is that these agents can have changes in systolic blood pressure and you wear -- a small transient change may be acceptable for once in a while or limited use drug like you would have for sexual dysfunction, certainly for a chronic indication we're certainly seeing from a regulatory standpoint that type of change is probably not ideal and that's why we work very hard with them to profile these compounds and we believe that they have a very nice separation between where they will be efficacious and where they might see some potential increase in blood pressure and I think that's gotten AZ excited, and that's -- basically we are still moving forward. We think these should have clean profiles and I certainly can tell you we are as well as AZ quite aware of what's going on from a regulatory standpoint. And maybe it's very helpful to have very clear guidance coming out as to how these chronic medications are going to be treated.

Well, thanks for that answer. And then with respect to the two compounds that we're looking at, can you help us understand what the primary differences between the two are?

I'm going to turn it over to Dr. Hallam.

No, I probably can't. To be respectful and specific to your question, AstraZeneca is obviously keeping this very tight, very confidential and just rest assured that there are two different molecules and that makes sense in terms of spreading your chances should something unpredictable occur.

Okay. But they're closely related; correct?

I can't comment on that. They came out of our program so we worked with a number of different chemotypes. Clearly it would be advantageous to distance them structurally as far as possible.

Okay. Well, thanks for that.

Thank you very much.

We'll go next to Matt Kaplan at Ladenburg Thalmann.

Hi, good morning, can you hear me?

Yes, good morning.

Great. A few questions. Talk a little bit about the structure of the Company now following the realignment and specifically focusing a little bit on your operating expense lines.

I'll give you just a quick word and I'll hand that over to Steve. Obviously, discovery research activities are being wound down and will discontinue as we end the year so we won't be doing any new discovery efforts and I think quite frankly what we've covered here and things that we haven't already covered, we have quite a full plate of development candidates so we think it was appropriate to make that transition now. I'm going to pass it over to Steve who will give you a little bit better on the expense side.

The Palatin last week, before the realignment, had approximately 40 employees. Within the next two weeks, approximately 10 of those employees, positions will be transitioned and a few months after that, another 10 employees' positions will be transitioned. So approximately in the November, December time frame, we will have 20 employees going forward. The reason for the stage is when you shut down a research discovery type engine it's not like a faucet where you just turn it on and turn it off so there's a number of steps and processes we have to go through.

The internal costs for being a public Company prior to this was approximately at Palatin approximately $3 million per quarter. These reductions will basically cut that in half and we will have the capabilities to dot the Is and cross the Ts from a public Company standpoint but more importantly to be able to advance our clinical drug candidates forward and support our realignment structure.

Great. Thanks for that. Couple other questions. Now, following the realignment, talk to us about how we should think about in terms of prioritizing your internal programs now with respect to -- obviously the stuff that you have ongoing with bremelanotide and then also the natriuretic peptide programs, how do you think about those?

That's why we think they all are great programs and, however, we are a small Company and how many of them we can progress and how rapidly we can progress them will depend on our access to a variety of resources, so we will have to most likely prioritize. Female sexual dysfunction is a very strong indication. Clearly a strong unmet medical need there. We've got good supporting data of efficacy. The safety profile looks strong as well. And it's one in which we think we can progress quite quickly so that's quite exciting and it's one which we know will generate lots of interest from potential partners as well.

We also think when you look at the natriuretic space, when you're looking at it particularly for pulmonary indications, clearly we would like to get the data outlined, well as some nebulize tox and we think that's also pretty important and it will support our efforts to partner that program. As I briefly mentioned, we've been quite pleased with the potential corporate interest in that program and it's one in which I think a little bit of work will generate a huge reward with regards to being able to bring a third party in to help pick that up. That's probably how we prioritize there.

And of course with regards to the nonresponsive men, I mean, that's again one where we then do think it's a good opportunity and would love to make sure we have the resources to advance that as well. That's probably how we view them, FSD, pulmonary and ED, in that order, should we be pushed into a position where we have to prioritize. We're working hard not to have to do that.

Good. With the AstraZeneca program, you mentioned in your prepared remarks that they should be -- they're on track to start clinical studies early next year. What type of milestones do you get from that program going forward?

As the program, the next significant milestone is the commencement of clinical trials for these candidates. We haven't disclosed the exact amount but the range is $5 million to $7.5 million as they enter the next stage.

And right now AstraZeneca bears all the costs associated with that?

100% of all costs, and anything that we may supply from a support standpoint is reimbursed.

Well, thanks for taking my questions.

Thank you.

Thank you.

Have a good day.

(Operator Instructions). We'll go next to Michael Higgins at Rodman and Renshaw.

Hi, good morning, thanks for taking my question. Thanks for the updates on the programs. Most of my questions have been asked and answered. A couple left here. Can you give us an update on the costs to run the ED and the FSD Phase IIs?

Sure. I'll let Steve handle that.

Depending on where we finally end up with the FDA, most notably being the number of patients in the trial, but using an estimate based on our history, we believe each Phase II trial, ED and FSD separately would be in the $5 million to $6 million range.

For each one, that is?

For the ED Phase II program, $5 million to $6 million, and the FSD Phase II program, approximately $5 million to $6 million.

Okay. And then just to clarify, the $5 million to $7 million that could come in as the next milestone from AstraZeneca, the timing of that would be generally the first half of next year?

It depends on a few sources where the program -- we don't want to get too specific because of competitive reasons but depending on the compounds and depending on a few other factors, it could be sometime in the second half of 2011, but we don't want to get any more specific than that. It could easily go into the first half of 2012. Again, depending on number of competitive type factors.

Okay. And then one last one here on your follow-up peptides in sexual dysfunction, does not sound like it would cost a lot to move those forward. Any comments there in terms of the cost and timing for those?

Well, the requisite, what we call the preclinical tox work to be able to commence trials first in humans as of right now we are targeted at about $1.5 million, and it would probably take give or take about 12 months.

And that's to file an IND?

Well, to file an IND, and actually to commence the Phase I trials in men.

Right. Okay. Very good. Great. Thanks, guys.

Thank you.

And that does conclude today's question-and-answer session. At this time I will turn the conference back over to Dr. Spana.

Thank all of you for participating in the Palatin Technologies fiscal 2010 year end conference call. We look forward to getting out and seeing all of you over the year and updating you on our progress. Have a great day and once again thanks for participating. Take it easy.

That does conclude today's conference. Again, thank you for your participation.