Palatin Technologies Inc (PTN) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Third Quarter Fiscal Year 2011 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 is being recorded. Before we begin our remarks, I would like to remind you that statements by Palatin that are not historic 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 filing with the Securities and Exchange Commission. Please consider such risks and uncertainties carefully when evaluating these forward-looking statements and Palatins' prospects. Now I'd like to introduce your host for today's call, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you. Good morning. I'm Carl Spana, President and Chief Executive Officer of Palatin Technologies. With me on the phone today is Steve Wills, our Executive Vice President of Operations and Chief Financial Officer; and Dr. Jeffrey Edelson, our Chief Medical Officer. On today's call, we'll be providing updates on our product programs and financial results. To begin, Steve Wills will provide an update on our fiscal third quarter financial results. Steve?

Thank you, Carl, and good morning, everyone. Regarding the financial update, Palatin's net loss for the quarter ended March 31, 2011 was $3.8 million, or $0.17 per basic and diluted share, compared to a net loss of $2 million, or $0.20 per basic and diluted share for the quarter ended March 31, 2010. The increase in net loss for the quarter ended March 31, 2011, compared to the net loss for the same period last fiscal year, was primarily due to a decrease in revenue recognized under our collaboration agreements with AstraZeneca. As a result of the successful completion of the research collaboration portion of the agreements in January 2010. And, secondarily, to a non cash, non operating expense of $1.3 million, which represents the increase in the estimated fair value of a warrant liability recorded on the balance sheet in connection with our previously announced underwritten public offering, which resulted in net proceeds of $21.1 million.

In connection with this underwritten public offering, a portion of the warrants issued in March 2011, required that the Company seek stockholder authorization to increase Palatin's authorized common stock and are therefore classified as a liability at their estimated current fair value on our balance sheet as of March 31, 2011. Warrants that are classified as a liability are revalued at each reporting date until the classification, as a liability, changes. On May 11, 2011 at our annual meeting, the stockholders approved an increase in authorized common stock from 40 million shares to 100 million shares, providing sufficient, available and authorized common stock to permit exercise of all Series B warrants. Accordingly, these warrants ceased to be classified as a liability and will not be reported or revalued at any subsequent reporting date after May 11, 2011. In essence, the amount classified as a liability will be reclassified to the equity section of our balance sheet during the quarter ended June 30, 2011.

In addition to the approval to increase Palatin's authorized common stock, the following proposals were submitted to and approved at our annual stockholders meeting on May 11; the election of seven directors to Palatin's Board of Directors; the appointment of KPNG LLP as Palatin's independent registered public accounting firm for fiscal year ending June 30, 2011; and the ratification of Palatin's 2011 stock incentive plan.

Regarding revenues for the quarter ended March 31, 2011, we had $0.1 million of contract revenue recognized under our agreement with AstraZeneca, compared to $2.6 million for the same period in 2010. For the quarter ended March 31, 2011, total operating expenses were $2.7 million, compared to $4.6 million for the comparable quarter of 2010. The decrease in operating expenses for the quarter was primarily related to our previously disclosed realignment of resources. At March 31, 2011, Palatin's cash and cash equivalence were $22 million, compared to cash and cash equivalence of $8.9 million at June 30, 2010. We anticipate, based on our current operating plan, being able to fund our operations through calendar year 2012. Having a strong cash position on our balance sheet eliminates the need and distraction of quarterly or semi-annual fundraising and allows us to focus our efforts on the advancement of our programs.

Thank you, Steve, and now for an update on our programs. First up is our obesity and diabetes Melanocortin 4 Receptive program which is partnered with AstraZeneca. As I am sure you are all aware, obesity is a major health issue. A recent report by Thomson Reuters noted the following -- obesity is the global epidemic of the 21st century. The center for disease control has declared it to be the number one health threat in the United States. At the present time, worldwide, there are over 1 billion adults who are overweight with 300 million classified as clinically obese. By 2015, the World's Health Organization predicts these figures to rise to 2.3 billion overweight and 700 million clinically obese adults. We believe that therapeutics that target the Melanocortin 4 Receptor have the potential to demonstrate the safety and efficacy required for approval will dramatically impact the treatment of obesity. As you can imagine, this program has huge commercial potential and we believe our partner, AstraZeneca, brings the resources and commitment to realize this potential. Through our collaboration with AstraZeneca, we have conducted proof of principal clinical trials in obese patients with non commercial compounds that target the Melanocortin 4 Receptor, which have show significant reductions in food intake and weight loss. We are pleased to report that this program has made excellent progress and has now entered into the clinical stage of development. This past quarter, AstraZeneca initiated clinical studies with a commercial lead compound which was generated as part of our collaboration. As a reminder, AstraZeneca is responsible for all clinical and commercial activities and their associated costs.

Our next program I'd like to talk about is our PL-3994, a natriuretic peptide receptor agonist in development as a treatment for acute exacerbations of asthma. Acute exacerbations of asthma, also called acute severe asthma, is an ongoing asthma episode in which asthma symptoms do not adequately respond to initial bronchial dilator or corticosteroid therapy. Inhaled, beta 2 agonergic receptor agonist, such as Albuterol and inhaled corticosteroids, are primary treatments for asthma episodes. Some patients with acute exacerbation of asthma become unresponsive to beta 2 agonergic receptor agonist, significantly limiting treatment options and increasing their risk. In many cases, these patients are admitted to the emergency room where they may be treated with high doses of beta 2 agonergic receptor agonist, oxygen, systemic steroids and anticholinergic agents. A major limitation of this standard of care treatment is that it typically takes several hours before the patient sees significant improvement, a period in which they remain at risk for adverse outcomes. We are targeting PL-3994 as a treatment to bridge this at-risk period. PL-3994 development program includes both subcutaneous formulations and inhalation formulations. We recently received FDA review of the protocol for the PL-3994, subcutaneous proof of principle asthma clinical trial and this trial may proceed at any time. We have also begun the preclinical toxicology studies to support the use of inhaled PL-3994. A key near term objective for our PL-3994 program is to identify a development and marketing partner. We are in discussions with multiple potential partners that we believe have the developmental, regulatory and commercial resources to assist us in advancing our PL-3994 program.

Moving on, Bremelanotide and Melanocortin-4 Receptor agonist in development as a treatment for female sexual dysfunction is our lead clinical program. Female sexual dysfunction is a persistent or recurrent problem during one or more of the stages of the female sexual response cycle with associated distress. The symptoms of female sexual dysfunction are quite prevalent, affecting approximately 43% of women at some point during their adult life and it is estimated that approximately 20% of these women can currently experience dysfunction associated distress. There are no FDA approved treatments for female sexual dysfunction and these patients have limited treatment options. We believe that female sexual dysfunction represents a significant area of medical need and a substantial commercial opportunity.

Earlier this year, we met with the FDA to discuss our Bremelanotide female sexual dysfunction program. At that meeting we reached agreement with the FDA on the protocol and clinical trial design for a Phase 2B study. Subsequently, we submitted a revised protocol to the FDA reflecting that agreement and we are on track to start this Phase 2B at-home clinical trial for premenopausal women with female sexual dysfunction in the second quarter of calendar 2011.

I'd like to take a few more moments to review the protocol and objectives for this Phase 2B trial. The key objectives of trial are to generate the safety and efficacy data to support the transition of this program into Phase 3 registration trials. The trial is designed as a placebo controlled double blind study. The study will have four parallel arms, one placebo and three Bremelanotide doses. We are targeting to enroll 100 premenopausal female sexual dysfunctional patients per arm for a total of 400 patients. The primary efficacy measure for the study will be the improvement and the number of satisfying sexual events. This will be measured using a validated event log or diary. Additional efficacy evaluations will include changes in arousal, desire and dysfunction associated distress as measured using validated patient self-assessment questionnaires. We will also evaluate the blood pressure effects of subcutaneously administered Bremelanotide in this patient population. We believe that we have designed a comprehensive program to evaluate the safety and efficacy of Bremelanotide and if the results of this study are positive, they will support the transition into Phase 3 registration trials.

I'm going to stop here and open the call to questions.

(Operator Instructions) We'll take our first question from David Moskowitz from Roth Capital.

Excellent. Thanks. Good morning, gentlemen. On the BMT compound, Bremelanotide for female sexual dysfunction, can you give us a little bit of color in terms of how the trials are going thus far? When you expect them to be fully enrolled and what are you seeing so far with regard to the enthusiasm for the product or any issues you might be having with regard to enrollment.

Sure. We'll we haven't started enrollment. Enrollments will start a little bit later this quarter. So, we're on track to do that. We're projected to complete enrollment in the study around the end of the year and we would expect the data to be released, or have the first data coming in, around the end of the second quarter 2012. With regards to -- since trials are not enrolling, we are not having trouble getting sites. We've got plenty of excellent sites that are lining up to enroll patients. So, we feel pretty confident that we'll be able to get this trial enrolling and on track, as I just said.

And any -- again, back to the appetite for the product, what sort of feedback -- early feedback are you getting ahead of actually flipping the switch for enrollment? Do you feel like -- you say things are on track, so can you give us some indication of how --.

Sure. We don't -- I mean the clinical trial sites are enthusiastic. They're very happy to see this product is moving forward. Jeff, I don't know -- you've been dealing with a number of these clinical trial sites. I don't know if you have any color you want to add to that.

Thank you, Carl. Really good uptake from sites. We're essentially finished our initial round of site identification. We're now in the process of negotiating contracts, IRB submissions, et cetera. I would say, compared with other studies, this study appears to be gaining traction quite rapidly.

Okay. Excellent. And just moving on to PL-3994 for now, first of all you talked about cash lasting through 2012. If I look at your current burn rate, which looks to be $1.5 million a quarter. The potential for warrant conversions but also the fact that you might partner out the PL-3994, can you give us a little bit better characterization of how good the cash is for a period of time?

Sure. I'll let Steve handle it.

As I mentioned, March 31, we finished with $22 million of cash and cash equivalence. You are correct. Our inside burn -- cash burn is a little less than $1.5 million per quarter. We have projected and budgeted a very comprehensive Phase 2 trial that Carl and Jeff have referenced. And some of the budget and costing also includes us getting ready for the Phase 3 -- some device work and some additional CMC work. So, the -- those moneys are in the -- for the FSD trial, et al, are in the $7 million to $8 million range. So, if you just do the math quickly with $22 million at the end of March, the little bit less than $1.5 million per quarter and a target, say on conservative side, $8 million for the FSD trial, you'll see that we still have several quarters of potential burn as of 12/31, calendar 2012. And that does not take into account any type of collaboration revenue from PL-3994 or any warrant conversion upon exercise. And frankly, lastly, would be any potential milestones from the advancement of our obesity collaboration compounds with as AstraZeneca. As Carl mentioned, we are -- we now have collaboration compounds in Phase 1.

That's a good point. So, I guess two questions then and then I'll get back in queue; one is, can you characterize a little bit more of the discussion with potential interested parties, perhaps how many companies are you discussing PL-3994 with? And you bring up the AZM program -- it's a good point -- when would we expect another milestone from the program?

Why don't I jump in on just the milestone one and get that out of the way. Just like most big pharma collaborations, there's a lot of items that are confidential for a variety of reasons, most notably, the competitive. We are able to disclose that we would receive, again, if everything progresses in a positive mode, sometime mid to the second half of calendar 2012, we would have a milestone. And it's going to be -- the best I can give you is a range because the milestone is based on a number of different criteria and without Nostradamus calling me back, I can't really predict what criteria will be met. But it should be in the $5 million to $7.5 million range.

I'll move on, in just a little bit on the partnering discussions. There are multiple ones on going. They're with all the large companies that you would expect with water product and respiratory and asthma area. We've been very pleased with the response we've gotten to the program. And Jeff may want to give a little color on that. He's actually, just as matter of background, he's a critical care pulmonologist with lots of industry experience in the space. So, he's really helping to lead those discussions and really get these guys up to speed on the program. So, Jeff, I don't know if you have any colors you want to add or not?

Sure. Thanks, David. In fact, I'm in Denver at the American Thoracic Society Meeting, as we speak. Several of our partnering discussions are ongoing here and, obviously, not for public disclosure at this point. As has been said, although we are funded to the next set of milestones and in fact through 2012, there's a couple of elements of partnering that are important to us. One of them is that the product has the potential for both parental and inhalational delivery. And as you may know, the optimization of a product for inhalational delivery, either as a mono-component therapy or potentially in combination therapy, is quite large but also complex. And one of the goals that we have of such a potential collaboration would be to be working with a partner with experience in this specific challenge. That is, of developing multi-dose chronic formulations that are appropriate for chronic use, which may help us to find the best -- ultimate best use of the compound. We hope to initiate trials in the acute severe segment that Carl identified, which is an area of exquisite high end need, either with a parental and/or a nebulized formulation as was laid out.

Okay, thanks. I appreciate it. And when Nostradamus calls you back, I have other questions to ask him. So, thank you.

We'll go next to Leland Gershell with Madison Williams and Company.

Hi, thanks for taking my question. Carl, first a question on the BMT program. I wanted to ask, are you able to disclose at this time what the doses you'll be testing in the Phase 2 are? And if so, how those compare to what dose levels you tested in the Phase 1 sub-queue? Thanks.

Sure. We're testing across the dosing range, so we should have three doses. One, low dose would be considered a minimally affective dose and then we're looking to cover two other doses that would be middle-low and middle-high of the dosing range. The highest dose here is actually substantially less than the doses that were tested in the Phase 1. So, we're giving ourselves a very nice cushion, so to speak. The Phase 1 inspection population was quite clean and we're dosing even below the top dose we did in Phase 1. So, just for competitive reasons, I won't give out the actual doses. But we got -- they are below top dose in Phase 1.

Okay. Great. And then just one question on the asthma program , if you could just clarify -- and I know you are in discussions with multiple partners, but you were heading towards starting the next trial there fairly soon. Should we think about the partnership as a gating factor or are you prepared to proceed with the next trial, with or without a partner having signed

Ideally, we'd like to really let the partnership discussions play out before we pull the trigger on that study. So right now, we want the discussions to play out, get the feed back before we make any final decisions that we'll pull the trigger and do it on our own we'll wait to conclude a partnership before we do it.

Great. Thanks for taking the question.

Thanks.

We'll go next to Adam Selkin with Chardan Capital Markets.

Hi, guys. Congratulations on getting all the cash in the bank this quarter.

We're quite pleased with that.

Yes, that's great. I'm interested in hearing a little bit more about your collaboration with AstraZeneca in regards to obesity. You say that you've advanced to clinical stage there. Can you provide a little more detail about exactly where you are with them and what we can expect to see over the next year or so?

Sure. What we've done is, these are compounds that were developed at Palatin as part of the collaboration with AstraZeneca, and they were passed over to AstraZeneca who qualified them as actual leads, meaning that they met all the characteristics from a efficacy and safety -- preclinical safety standpoint that AstraZeneca has for their hurdle rates. And they've been entered into clinical trials this quarter that would be a standard dose escalation study, looking for first in man with novel compounds. That would -- we'd assume be followed up with additional -- probably multi-dosing Phase 1 studies and then Phase 2 efficacy studies. So with that, we don't control the development. So the timing, how long, how many Phase 1 studies they may do, those are a little bit out of our control. So really, this program is in the hands of AstraZeneca and we know they're quite committed. They've got one compound in. We expect the second one probably entering in the clinical trials shortly as well. So, they like this target and they're going to push to get one of these things through.

Great. Thank you, guys. Good luck moving forward.

Thank you.

Take care.

We'll go once again to David Moskowitz with Ross Capital.

Hi, guys. In terms of the first patient to be dosed on BMT, are you guys -- first of all, when should we expect that to happen? And will you guys notify us that you have begun dosing of the first patient.

Sure. We -- obviously as we said, we expect to have it in the first quarter of this -- second quarter of this calendar year. And when we open up and begin enrolling patients we certainly will let everyone know that the process has started.

Okay. And just over to 3994 one more time. So you guys have, I guess, completed Phase 1 with the product. How are the larger companies viewing this compound? I know when you deal with state pharma companies, they may want to take you back a little bit and do more work on Phase 1 or so. Are they seeing this as a Phase 1 or Phase 2 compound at this point?

It would depend on how you look at it. The subcutaneous is certainly considered -- it would be considered -- the subcutaneous formulation would be considered a Phase 2 compound. The inhalation formulation would be -- I guess you would consider it a Phase 1, Phase 2. We certainly know what the systemic effects of the drug are but we would have to complete our inhaled [tox] and then do first in man with inhaled. Now -- and Jeff may jump in here -- that's being contemplated as being done in asthmatic patients, where we'd be able to collect potentially some efficacy data, but it would have to start with a traditional set of dosing in an in-clinic setting. I don't know, Jeff, if you want to --

Yes, I think that covers -- I mean, David, the different people assign these terms in different ways, but essentially the compound has been in -- has completed two human clinical studies, one in healthy volunteers, one in controlled hypertensives, which gives us a sense of the dose limiting effects which in fact are on target vasodilation when administered perennially. The inhaled program remains to complete its preclinical toxin and will go into a dose finding paradigm by inhalation. The feedback we've had for potential partners is quite interesting. Clearly, there's great interest in a bronchodilator that is not acting through the beta receptor, cyclic AMP pathway, as available products.

There's a lot of, as you know, published data with the natural occurring peptides that show this material can be an effective bronchodilator, either administered perennially or by inhalation. And there's appreciation of the fact that 3994, by virtue of its resistance to proteolytic degradation and it's relatively low affinity for the scavenger receptor, has an extended half life, which we've shown in our human clinical studies with PK and reasonably PK/PD relationships in effects lasting out in towards eight hours in terms of blood pressure effects. So, I think it's an interesting and reasonably compelling program. Each partner has their own criteria for assessment and sort of wish list in terms of evidentiary basis. And we're working with them to better understand these.

Okay. Thanks. I will save the rest of my questions for offline.

No other questions in queue at this time. I'll turn the call back over to Dr. Carl Spana for closing remarks.

Thank you -- thank all of you. In closing, I think over the last two quarters we've really been able to move the ball forward quite a lot with this Company and we've been very happy with what we've been able to accomplish. Just some of the things to note as we've had on the call here. We've attained regulatory guidance to move our programs forward. We were able to do an underwritten public offering that really brought the funding in and really alleviates the -- any type of financing overhangs, so we can really run our programs to major milestones without having to think about going through the equity markets. BMT, as we've noted, is on track to begin rolling this quarter. 3994, as I said, the sub-queue formulation is ready to go. We're working in the inhaled and we're making good progress with the potential partners. And finally, we've been very happy that the obesity program is now moved into the clinic and we're really looking forward to seeing that data come out later this year.

So, we think we've got a very nice Company. We've got really good accomplishments, very strong programs. Three of the programs are clinical ready or in the clinic. And we think we can really drive a lot of value with this Company, and so we're quite excited about it here at Palatin. So, we'd like to thank you, again, for your time and, obviously, look forward to seeing some of the investors as I go around and we do our one-on-ones. And we look forward to keeping you abreast of our progress and have a good day.

This does conclude today's conference call. Thank you for your participation.