Palatin Technologies Inc (PTN) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies 2011 fiscal year-end conference call.

As a reminder, today's conference is being recorded. Before we begin our remarks, I would like to remind you that statements made by Palatin 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. Please go ahead, sir.

Thank you. Good morning. I'm Carl Spana, President and CEO of Palatin Technologies. With me on the phone today is Steve Wills, our Chief Financial and Operating Officer and Executive Vice President, 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 year-end financial results. Steve?

Thank you, Carl. Good morning, everyone.

Regarding the financial update, Palatin's net loss for the quarter ended June 30, 2011, was $3.3 million, or $0.09 per basic and diluted share, compared to a net loss of $4.2 million, or $0.40 per basic and diluted share, for the same period in 2010.

The change in net loss for the quarter ended June 30, 2011, compared to the net loss for the quarter ended June 30, 2010, was primarily attributable to $1.3 million of non-cash, nonoperating income, which represents the decrease in estimated fair value of the warrant liability from March 31, 2011, through May 11, 2011, which is the date the warrants ceased to be classified as a liability on stockholder approval of the increase in authorized common stock.

For the year ended June 30, 2011, we reported a net loss of $12.8 million, or $0.64 per basic and diluted share, compared to a net loss of $1.8 million, or $0.18 per basic and diluted share, for the year ended June 30, 2010.

The change in net loss for the year ended June 30, 2011, compared to the net loss for the year ended June 30, 2010, was primarily attributable to a decrease in revenue recognized under Palatin's research, license, and clinical trial collaboration agreements with AstraZeneca as a result of the successful completion of the research collaboration portion of the agreements.

Regarding revenue, total revenues for the quarter ended June 30, 2011, were $0.2 million, mainly consisting of grant revenue pursuant to the Patient Protection and Affordable Care Act of 2010, commonly referred to as Section 48D, compared to $0.7 million for the same period in 2010, consisting entirely of amounts recognized under our license and collaboration agreements with AstraZeneca.

Total revenues for the year ended June 30, 2011, were $1.5 million, consisting of $1 million of grant revenue pursuant to Section 48D and the remainder from our collaboration with AstraZeneca. For the year ended June 30, 2010, total revenues were $14.2 million, consisting entirely of amounts recognized from our collaboration with AstraZeneca.

Regarding costs and expenses, for the quarter ended June 30, 2011, total operating expenses were $4.7 million versus $4.9 million for the comparable quarter of 2010.

For the year ended June 30, 2011, total operating expenses were $15.1 million, compared to $17.2 million for the year ended June 30, 2010. The decreases in operating expenses for the respective periods is the result of reducing staffing levels pursuant to Palatin's strategic decision to concentrate on our clinical programs announced in September of 2010.

Regarding our cash position, our cash and cash equivalents were $18.9 million as of June 30, 2011, compared to cash, cash equivalents, and investments of $8.9 million at June 30, 2010, with current liabilities of $2.8 million as of June 30, 2011, compared to $2.4 million at June 30, 2010.

In March 2011, Palatin closed on a $23 million firm commitment public offering consisting of 23 million units at a price to the public of $1.00. Net proceeds to us, after deducting underwriting discounts and other offering expenses, were $21 million. We believe, based on our current operating plan, that our cash and cash equivalents will be sufficient to fund our operations through at least calendar-year 2012.

Thank you, Steve.

Now for an update on our programs. First, I will cover our obesity and diabetes melanocortin receptor 4 program, which is partnered with AstraZeneca.

Over the past year, this program has made excellent progress. Earlier this year, under the direction of AstraZeneca with assistance by the team at Palatin, our melanocortin receptor 4 obesity program took a major step forward when AstraZeneca initiated Phase I clinical studies with a compound they call AZD2820. AZD2820 is a clinical candidate selected by AstraZeneca from its collaborative research program with Palatin.

The decision to move this program into clinical development was in part based on exciting clinical data generated by Palatin as part of our collaboration with AstraZeneca. Results from proof-of-principle clinical trials in obese patients with nonclinical -- noncommercial compounds that target the melanocortin-4 receptor show significant reductions in food intake and weight loss. We believe this clinical data, along with earlier work in animal models of obesity, demonstrates the significant role that the melanocortin pathway plays in regulating food intake and weight, and validates the melanocortin-4 receptor as a major target for obesity therapeutics.

AstraZeneca continues to move this program forward, and we expect initial clinical data in this program later this calendar year.

We believe that therapeutics that target the melanocortin-4 receptors have the potential to demonstrate the safety and efficacy required for approval and to dramatically impact the treatment of obesity.

As you can imagine, this program has huge commercial potential, and we believe our partner, AstraZeneca, has the resources and commitment to realize this potential. We are eligible for milestone payments totaling up to $145 million, up to $85 million contingent upon development and regulatory milestones and the balance on achievement of sales, plus mid to high single-digit royalties on sales of approved products. AstraZeneca has responsibility for product commercialization, product discovery, and all associated costs.

The next program I'd like to talk about is our PL3994, our natriuretic peptide receptor agonist, in development as a treatment for acute exacerbations of asthma, which is defined as an ongoing asthma episode in which asthma symptoms do not adequately respond to initial bronchodilator or corticosteroid therapy.

In this fiscal year, our PL3994 program has achieved several key development milestones. PL3994 asthma program includes both subcutaneous formulations and inhalation formulations. This year, we opened up a new IND with the FDA's division of pulmonary products to begin clinical studies in asthma patients. The protocol for PL3994 subcutaneous proof-of-principle asthma clinical trial was part of this IND submission, and the FDA has reviewed this protocol and the trial may proceed at any time. We've also begun formulation work in design of preclinical toxicology studies to support the use of inhaled PL3994.

A key near-term objective for our PL3994 program is to identify a development and marketing partner, and once we do that, to initiate clinical studies. We are in discussions with multiple potential partners that we believe have the developmental, regulatory, and commercial resources to assist us in advancing our PL3994 program forward.

Finally, I'd like to say a little bit about bremelanotide, which is our melanocortin-4 receptor agonist in development as a treatment for female sexual dysfunction and is our lead clinical development program. Over the past fiscal year, this program has made tremendous strides forward. We completed the second of two Phase I pharmacokinetic and safety studies with the subcutaneous bremelanotide formulation, demonstrating that our subcutaneous bremelanotide formulation provides consistent and reproducible exposure to bremelanotide.

We also concluded meetings and discussions with the FDA's Division of Reproductive and Urologic Products and reached an agreement on a Phase IIB protocol. We initiated a major Phase IIB clinical trial in premenopausal women with female sexual dysfunction. The results of this study, if positive, will support transition of this program into Phase III clinical trials.

We also made substantial progress on a number of nonclinical product development activities that are required to support Phase III studies and commercial development of bremelanotide.

Now I'll provide a brief overview of the bremelanotide Phase IIB female sexual dysfunction study. The main objectives of this trial are to generate the safety and efficacy data to support the transition of this program into Phase III registration trials. The trial is designed as a placebo-controlled double-blind study, but it will have four parallel arms, one placebo and three bremelanotide doses. We are targeting to enroll 100 premenopausal female sexual dysfunction patients per arm, for a total of 400 patients.

The primary efficacy measure for the study will be the improvement in 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 target population.

Bremelanotide Phase IIB study in female sexual dysfunction patients initiated patient recruitment in June of this calendar year. I am very pleased to report that enrollment is proceeding on schedule. Enrollment is targeted for completion by the end of this calendar year, and we anticipate delivering the results of this study early in the second half of 2012.

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 III registration trials.

We believe that our bremelanotide female sexual dysfunction program has tremendous potential. 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.

Just a little bit more before we open up to questions. Over the past fiscal year, we have made significant progress in positioning Palatin to advance a number of exciting programs and to build value for our shareholders. On the corporate front, we completed the reorganization started last year in which we significantly reduced our basic research activities. We now have an organization and resources focused on supporting and driving our clinical development programs forward.

In addition, we also conducted an underwritten public offering to obtain the funding required to take us through significant program data points. We have sufficient cash on hand today to fund our planned operations through at least calendar-year 2012.

Our bremelanotide female sexual dysfunction program is enrolling patients in a major Phase IIB clinical trial designed to provide the safety and efficacy data to move to Phase III registration trials. This program is on schedule to deliver data in the second half of 2012. Our PL3994 program for severe asthma is ready to begin a proof-of-principle clinical trial, and we are in discussions with potential partners. And finally, the melanocortin-4 receptor [bc] program, which is partnered with AstraZeneca, is enrolling patients in a Phase I study is on track to deliver data later this calendar year.

We believe that these accomplishments have put the Company in a strong position to generate substantial value for our shareholders.

I'd like to thank you for participating in the Palatin 2011 fiscal year-end conference call, and we will now open the call to questions. Thank you.

(Operator Instructions). Leland Gershell, Madison Williams and Company.

Thanks for taking my question. Question, Carl, I know you discussed partnering opportunities for PL3994. Just thinking about strategic future for bremelanotide as you're getting going into the Phase IIB and looking at data next year, how you see that asset playing out in terms of future development going forward? Thanks.

Sure. Certainly there are a couple of points to that. One, as we stated on the call, there are just a number of activities that we're doing to be prepared for a transition into Phase III, and so what we'd like to do is have a program -- as that data from the Phase IIB study comes out in the second half of next year, we want to be in position for a meeting, end of the Phase II meeting with the FDA and have really a turnkey program that we could partner with a potential partner for the program.

So one of the things we will be looking for as we get a little bit more enrollment under our belt is really starting the corporate development process there -- process for bremelanotide.

Certainly, we want to be positioned to make sure that that program does go forward, but we think that that indication is probably one where a -- minimally, at least someone who can help us with the marketing is required.

Okay, great, and then I guess on the same topic with 3994, any further clarity you can give us in terms of where those discussions may stand, potential timing of an announcement of a deal, and what you might be looking for in terms (multiple speakers)

(Multiple speakers). I'm sorry, what I can say is we have -- we're having good conversations with the companies that we believe have the regulatory and financial resources and also the devices that are needed to really move this from subcu and nebulized to either a small inhaler technology, and they're moving forward. And we're hopeful we'll be able to get something done, but from a timing standpoint we generally don't comment on when we would have a deal done.

All right, great. Thanks, I will jump back in the queue.

David Moskowitz, ROTH Capital Partners.

Yes, thanks. Good morning, guys. Just noticing the expenses that we saw in the fiscal fourth quarter were a little bit higher than I was expecting, and I'm wondering if you guys could comment on why we're seeing that higher level, particularly in the R&D line.

This is Steve Wills. I'll respond to that, David. We're -- as Carl mentioned, we're on target for enrollment. We're also on target for the budget.

So if we spent more, which we did based on our projection in the quarter ended June 30, 2011, and we're on budget for the entire program, that just means we're going to be spending less in some of the subsequent quarters. So with development in this particular case with Palatin spending a bit more on the program, with it being on budget, frankly, it just means we advanced it a little quicker than I might've initially projected.

Interesting. So you're saying that the trial is a little bit ahead of plan at this point? What would that mean in terms of overall trial progress and enrollment, those sorts of metrics?

David, we're out there with our public disclosures. We're targeting complete enrollment at the end of the year and have data as we get into the beginning of the second half of next year. And as I said, we are on track with that, the enrollment is on track with that, and as Steve stated, the expenses -- we're on budget, and if we spend a little bit more now, that just means that we'll spend a little bit less in subsequent quarters. That's all.

Just taking that [outlook] a little further, is there anything going on in particular that is enabling you guys to spend more and move quicker along the timeline?

This is Steve. From the dollar standpoint, one of the reasons we -- the costs were a little greater in the June 30, we got a number of the sites up and running a little quicker than I'd initially projected, and nice way always go a little bit conservative with those projections. We have more sites up and running than we thought would be in the June 30 quarter, which is good because the program is advancing quicker than we targeted.

Okay, and just sticking with the financials for one more question. Can you tie in the $19 million that you had in cash at the end of the fiscal year in your burn rate? Can you just refresh us again with those metrics and how long the cash is expected to last?

We've publicly stated that we -- based on our current operating plan, we have sufficient cash to fund those operations through at least calendar-year 2012.

So to qualify and quantify that a bit for you, we're primarily spending the money on the outside standpoint with BMT, bremelanotide, for the FSD clinical trials. We budgeted -- and when I say budgeted, approved contracts and we're now well into the trial so we're pretty comfortable with the projected spend for the FSD bremelanotide program, and we're targeting that at the $7.5 million range.

Through June 30, we've already spent $2 million of that, so the remainder is going to be approximately $5.5 million. We'll probably spend another $500,000 on some ancillary-related R&D for some of the other programs we have under development, say for a total of $6 million over the next six quarters. I'm going to try and tie you into calendar-year 2012.

So if we started with $19 million at the end of June 30, 2011, and we're going to spend approximately $6 million, $5.5 million, another $500,000 on BMT FSD and some other R&D, the $6 million less the $19 million leaves you $11 million.

The inside burn, the inside burn being defined as anything other than our outside third-party cost, over the next six quarters should be approximately $9 million. The $9 million is made up of approximately $1.3 million per quarter for the inside burn, and then some working capital changes. We'll come up -- let's just say the $1.3 million totals in the $8 million range. We'll probably have approximately $1 million of working capital changes to get us to the $9 million.

So the $9 million inside burn, which includes working capital changes over the next six quarters, plus the $6 million, $5.5 million for the FSD, another $500,000 for other R&D items. $9 million plus the $6 million is $15 million. Less the $19 million at 6/30/11, we are targeting to have approximately $4 million at 12/31/2012.

Nice and granular. Thank you for that. In terms of any interim results that we could get, kind of the trial, do you guys have any plans for any interim looks or, you know, in terms of clinical trial progress, how will you be updating us on that?

We don't have any interim analyses planned. These studies only run total of 16 weeks for the patients, so they go very quickly, so there's really no reason why we're doing the term analysis for them, and we will update as enrollment progresses. We generally will update you as enrollment is completed, as last patient is out, as the database is locked, and then as the data comes out.

So, normal steps as we go through. We certainly will be informing the investors that the progress has been made and those boxes have been checked, and that we're on track to deliver the data when we said we are.

So what I'm hearing is potential enrollment completion by year-end, perhaps January. Add four months to that for the last patient to be dosed (multiple speakers), so by April the data should start being locked in.

A little bit longer than that. It should be June -- we update a lot probably in the June timeframe, and then it has to be QC'd and analyzed, QC'd, and then we're out after that. But we'll keep you informed as that -- we will be keeping you guys informed as those events occur. But those are generally -- those are the marks to be looking for -- completion of enrollment, last patient out, data lock, and then release of data.

Okay. One last question I have for you guys, so there is going to be some visibility on the female sexual dysfunction area, right? Everybody's looking at the LibiGel product from BioSante. So I'd like to just pose to you a question on those potential results. What if the data are good? Does that mean we now have our treatment for female sexual dysfunction, this Phase III data? And then, again, what if the data are bad? How do we look at the space at that point?

I think you can look at them in both the same way.

LibiGel is being targeted for postmenopausal women that have been ovariectomized and are on hormone replacement therapy. That's a very different population, and they also have to have hypoactive sexual desire or low desire. So that's really the target population that that is being targeted for.

Bremelanotide is targeting a different patient population. First of all, we are targeting premenopausal women that have -- not only do they have hypoactive sexual dysfunction, they also have -- they may also have FSAD, for female sexual arousal disorder, or both. So we have a broader patient population and we're targeting a younger patient population. So the patient populations are different, and by no means do I think that if -- which we hope it does get approved, that product has good data and gets approved. I think it's a totally different patient population.

So, I think that we are in a very strong position with our product moving forward, and we certainly wish BioSante and that product the best and hope it goes forward because that helps to -- the impact that it does have if it goes forward for us is that it does help to set the paradigm for satisfying sexual events as a measure of efficacy in these types of studies.

But from an overall positive or negative, if it works or doesn't work, I don't think it -- it's nice to have it out there, but I don't think it affects us.

Got it. Okay, thanks for taking my questions.

Rahul Jasuja, Noble Financial.

Good morning, folks. They were all very informative questions. I'm going to take my question to a different direction, maybe redundant for many of you guys, but a refresher. You know, given the fact that there's plenty of data with the previous experience with bremelanotide, and then the upcoming package, the end of Phase II package that you're developing now, Carl, what is it from these studies that we can correct from the past? Given the fact that, of course, this is now subcutaneous delivery, how would these studies correct the safety and tolerability that -- [issue] efficacy was fine. Some of the [prod] safety was fine. So how can we correct this going forward?

Sure, I'll make some comments, and then if Dr. Edelson wants to jump in, he can as well.

The key issue that we faced with the intranasal formulation was the variability in patient exposure to the drug. So we had some -- we have absolute bioavailability of only about 15%, and some patients absorbed the whole 100% of the dose, so you had almost up to seven times more drug being absorbed by some patients. And then, we also had a subset of patients that absorbed very little drug.

So from a safety standpoint, there were two types of issues. There were GI side effects, nausea and some emesis, and those are very tightly correlated with exposure to the drug. And as we transition to subcutaneous exposure, we know that we can actually put these patients in a very tight exposure range to bremelanotide, and when we look at the safety deck for our subcu studies, there is very -- there is not any emesis and there is very little -- very moderate to very little nausea. So it appears that the GI issues should be well resolved with regards to the transition of intranasal subcu.

With regards to blood pressure, that was slightly less tightly correlated with exposure levels but still was, and we have generated a very extensive safety -- or blood pressure monitoring deck with the subcutaneous Phase I studies in the premenopausal population, and it would appear to be to us that these larger changes that we saw in blood pressure do not seem to occur at the levels that we're targeting in this patient population; and therefore, we should have a pretty clean safety profile from both the GI and the blood pressure as well.

With that also being said, we also expect that now instead of having a subset of patients in the therapeutic zone for the drug, we should have almost all patients in the therapeutic zone. So I think we should be able to maintain efficacy, if not even do a little bit better than we've seen in the past because that subset of patients, that 15%, 20% of patients on intranasal that didn't get any drug, it didn't have any potential benefit, now won't exist. They will all be in the therapeutic range.

So I think that this is a much cleaner profile, and with this particular drug this is the right format to go forward in. And I don't know, Jeff, if you wanted to say a few more words about it or not.

Just to supplement, Carl, thanks, this is Jeff speaking, in addition to the items that Carl mentioned, the current trial actually much more rigorously defines the patient populations at entry in terms of their baseline characteristics.

And in fact, the two subpopulations of HSDD, FSAD, and patients who may have both conditions concomitantly is a much more rigorous delineation of the hemodynamic profile after a supervised clinic doses, and in fact a much more rigorous definition of outcome in terms of SSEs, but also a number of other endpoints including the subscales of the FSFI instrument. So this is a much more rigorous trial that I think will really give us good information and allow us to proceed into late-phase studies.

And then, you know, given the fact that there's been past discussions with the FDA, and you've got now sort of a developing Phase II plan, was this Phase II study designed as sufficient based on the preponderance of past data, or was this, you think, just standing alone, given the fact that the past data was inhaled, but you have, I guess, other data using IV or maybe subcutaneous BMT.

I think whenever you sit down with the agency and discuss a development program, the precedent or the previous database, from a safety standpoint in particular, is certainly relevant to go forward.

So the whole package -- all previous studies intranasally and subcu that were done in a target population, overall safety, intranasally subcu from the 30 some-odd previous studies that were done were all considered as part of the decision-making process to go forward by the agency. So this is not -- this is a build, and this study will certainly form the bulk of the decision to transition into Phase III, but it certainly won't be just alone.

One final question, quickly. Do these women with FSD present to a gynecologist, psychologist, or primary care, or all three of them?

I think it is a bit of a mix in terms of who their -- where their initial point of contact and who -- possible subsequent referral. Many of these patients would likely present to a family physician; many may present to a primary care, obstetrician/gynecologist. Many actually may come in through mental health or counseling services. So I think you're right; it is sort of a diverse set of entry points.

And with no further questions in the queue, I would like to turn the call back to Carl Spana for any additional or closing remarks.

Thank you. I'd like to thank everyone for participating on our call. We're very excited about what we're doing here. I think we have a lot of great, exciting programs going forward. We're well capitalized and we have a lot that we intend to deliver over the next year.

So I hope you guys pay attention to the story and keep involved, and I look forward to updating you, and the team looks forward to updating you guys as we continue to progress. Thanks. Have a great day. Bye.

And this does conclude today's conference. We thank you for your participation.