Palatin Technologies Inc (PTN) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies third-quarter fiscal year 2014 conference call. As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that statements made by Paladin 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 filing 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 introduce to your host for today, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you and good morning, everyone. I'm Carl Spana, President and Chief Executive Officer of Palatin Technologies. With me on the call 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 will be providing updates on our programs under development and on our third-quarter fiscal year 2014 financial results.

To begin, Steve Wills will provide the financial update. Steve.

Thank you, Carl. Good morning, everyone. Regarding Palatin's operational highlights for the quarter ended March 31, 2014 and the month of April, Palatin's pivotal Phase III clinical trials of bremelanotide for the treatment of female sexual dysfunction are anticipated to start as early as the second half of calendar year 2014. Carl will provide detail around the program during his presentation.

In January 2014, we received $1.85 million in net proceeds from the sale of New Jersey state net operating loss carryforward, which resulted in the recognition of $1.85 million in tax benefits for the three months ended March 31, 2014.

On April 30, 2014, a potential commercial partner exercised its option, granting it an exclusive time-limited right to negotiate in good faith the terms of a definitive license to bremelanotide for the treatment of female sexual dysfunction in the European Union and other European countries.

The primary financial terms have been negotiated and include an upfront licensing payment, development and regulatory milestones, royalties, and annual sales-related milestones. The $1 million option fee, which was received in August 2013 and is creditable against any upfront or initial license fee in the event we enter into a definitive license agreement, was recorded as unearned revenue as of March 31, 2014.

Regarding financial highlights for the quarter ended March 31, 2014, Palatin reported a net loss of $1.5 million or $0.01 per basic and diluted share, compared to a net loss of $4 million or $0.04 per basic and diluted share for the same period in 2013. The decrease in net loss for the quarter ended March 31, 2014, compared to the same period last fiscal year, was mainly attributable to the recognition of $1.85 million in tax benefits pursuant to the sale of the New Jersey state net operating losses.

Regarding revenue, there were no revenues recorded in the quarters ended March 31, 2014 and 2013.

Regarding costs and expenses, total operating expenses for the quarter ended March 31, 2014 were $3.4 million compared to $4 million for the comparable quarter of 2013. The decrease in operating expenses for the quarter ended March 31, 2014 was primarily the result of lower period costs related to our bremelanotide program for the treatment of female sexual dysfunction.

Regarding Palatin's cash position, our cash and cash equivalents were $16.7 million as of March 31, 2014, compared to cash, cash equivalents, and short-term investments of $24.4 million at June 30, 2013. As stated previously, Palatin did receive $1.85 million in net proceeds in January 2014, related to the sale of the New Jersey net operating losses.

Current liabilities were $3.4 million as of March 31, 2014, compared to $2.1 million as of June 30, 2013. The current liabilities as of March 31, 2014 includes the $1 million of unearned revenue which, as I mentioned previously, is related to the nonrefundable option fee granting an exclusive time-limited right to negotiate in good faith the terms of the definitive license to bremelanotide for the treatment of female sexual dysfunction in the European Union and other European countries.

This payment, which was received in August 2013, is credible against any upfront or initial license fee in the event we enter into a definitive license agreement. We believe that existing capital resources will be adequate to fund our currently planned operations, including submitting and finalizing complete Phase III protocols with the FDA for our bremelanotide program for the treatment of female sexual dysfunction, but not initiating patient enrollment through at least June 30, 2015.

We do not intend to initiate Phase III patient enrollment in our bremelanotide program for the treatment of female sexual dysfunction unless we have adequate funds or commitments for adequate funds to complete the Phase III program. Carl?

Thank you, Steve. Our third-quarter fiscal year 2014 operational and programs update will start with an overview of bremelanotide or BMT Phase III female sexual dysfunction program. Our activities are focused in two areas, operations required to start and conduct bremelanotide Phase III pivotal registration studies and ongoing corporate partnering activities.

On the operating front, we recently received additional FDA feedback clarifying the use of satisfying sexual events in the female sexual dysfunction index desire subdomain for the 28-day recall period as the co-primary endpoints for the bremelanotide Phase III pivotal registration trials in the United States.

We believe this recent FDA guidance provides additional clarity on the BMT development path and is important for the advancement of BMT in potential licensing of bremelanotide for the North American territory. We are now fully engaged in all the activities required to initiate patient enrollment in the North American bremelanotide female sexual dysfunction Phase III pivotal registration trials.

As you can imagine, this is an extensive undertaking and we are anticipating patient enrollment beginning in the second half of calendar 2014. As stated previously, the start of the bremelanotide Phase III pivotal program in North America is dependent on a number of factors, including the status of our corporate partnering discussions and financial resources.

I will now give an update on the status of our corporate partnering activities. We believe that there is a substantial global market for bremelanotide, with the United States being the largest potential market, followed by the European Union. However, we do believe there is also substantial opportunity for treating female sexual dysfunction with bremelanotide in the rest of the world.

We believe the most effective strategy is to have distinct partners for each of the United States, European Union, and other territories of the world. We previously reported that as part of our corporate partnering activities in the European Union, we entered into a short-term option agreement with a pharmaceutical company with research and development, sales and marketing, manufacturing, and regulatory expertise and activities in the European Union.

We are very pleased that at the end of April this year, our bremelanotide European Union optionee exercised their right to negotiate a license to bremelanotide for the treatment of female sexual dysfunction in European countries, including the European Union. The next step is the execution of a definitive licensing agreement. We believe this will go quickly.

Financial terms of the agreement have already been agreed to, and we believe they reflect the market opportunities of bremelanotide in a licensed territory.

In addition, Palatin and a potential partner are working together to put in place the operating plans for the European Union's Phase III program. We believe the potential licensee will be a strong partner for bremelanotide in the European Union, as they currently have substantial sales and marketing activities, specifically in the women's health area.

As part of the license, they will be committing substantial financial product development and sales and marketing resources to bremelanotide's European female sexual dysfunction program. These commitments speak to the potential value of bremelanotide in a licensed territory.

Now let's move to licensing activities for the North American rights to bremelanotide for female sexual dysfunction. We are currently involved in active discussions and due diligence with multiple parties under CDA. In some cases, preliminary nonbinding terms have been negotiated.

Resolution of the flibanserin non-approval appeal and our recent FDA feedback can provide additional clarity on the development of treatments for female sexual dysfunction in the United States, further strengthening our corporate partnering activities. We continue to make progress with these activities, and we anticipate being in position to select a potential partner or partners and commence a definitive licensing agreement in the next few months.

Now we will move on to our melanocortin-4 receptor obesity program, which is under the direction of our collaboration partner, AstraZeneca. After a period of corporate restructuring, AstraZeneca has assigned a new project development team to our joint melanocortin-4 receptor obesity program.

We recently met with the new Senior Director of the program to discuss how best to jointly move this program forward. We expect the timeline to potential clinical trials will be clarified as we work with AstraZeneca over the next several quarters.

Melanocortin-4 receptor is a well-validated target for obesity therapeutics. Human, genetic, and preclinical experimental evidence indicates a key role for this receptor and associated signaling pathways in the regulation of food intake and weight. Our results from preclinical studies and clinical trials in obese patients with compounds that target the melanocortin-4 receptor show significant reductions in food intake and weight loss. We believe this program has significant commercial potential.

Now we will move on to our PL-3994 natriuretic peptide receptor agonist program. We have been continuing to conduct a variety of nonclinical activities to better define the role of natriuretic pathways in cardiovascular diseases. This work is being done to support our efforts in finding a potential licensing partner. We believe that our ongoing nonclinical work, along with our earlier clinical results, puts us in a strong position to move forward with this clinical development of PL-3994, as well as to attract potential licensing partners.

Our final update on this call is our melanocortin-1 receptor-based therapeutics program. We are very excited by the potential of the melanocortin receptor 1 based therapeutic for the treatment of a variety of inflammatory and immunological indications such as inflammatory bowel disease, kidney disease, and uveitis.

Our lead compound, PL-8177, is progressing nicely through the pre-clinical activities required to begin unit clinical trials, and we are on target for first-in-human studies by the end of calendar year 2014. In parallel with these development activities, we have begun discussions with potential corporate licensing partners.

Before we open the call to questions, I would like to make a few concluding remarks. We are extremely pleased with our opportunity regarding bremelanotide for the treatment of female sexual dysfunction and the substantial commercial potential of our product pipeline. Our excitement in bremelanotide is supported by the strength of our Phase IIB efficacy and safety data, regulatory guidance in both the United States and the European Union, and the significant interest from potential collaboration partners.

We have designed a comprehensive Phase III program that, if successful, will provide the safety and efficacy data to support regulatory submission for approval of bremelanotide in the treatment for premenopausal women with female sexual dysfunction. We are actively engaged in the activities required to begin patient enrollment in the bremelanotide Phase III pivotal registration studies, which are on track to begin in the second half of 2014.

We are making substantial progress on the licensing of bremelanotide as a treatment for female sexual dysfunction. Our potential European Union partner exercised their option to negotiate a license for bremelanotide for the European Union. We are excited about our potential partnership in Europe and are working with our potential partner to execute the definitive license agreement, and on the operating plans for the European Union Phase III registration trials.

The continued progress of our bremelanotide Phase III development activities, recent FDA feedback, and our pending European Union partnership, which have occurred over the past quarter, further strengthen our ability to enter into a partnership in North America for bremelanotide. We have an active program to continue to present data from our bremelanotide Phase IIB studies, and you can find these presentations on our corporate website. In addition, we are preparing multiple reports of the Phase IIB data for publication in peer-reviewed journals.

Regarding PL-3994, we have generated a substantial package of pre-clinical data to support our corporate licensing efforts. And finally regarding our melanocortin-1 program, PL-8177, our lead candidate, is progressing through the preclinical activities required to begin human clinical trials, and we are on track to begin those trials later this year. We also continue to make great progress identifying potential corporate partners.

I would like to thank you all for participating on our 2014 third-quarter conference call, and I will turn it back to the operator so they can open up the call for questions.

(Operator Instructions) Charles Duncan, Piper Jaffray.

Hi, Carl and Steve. Thanks for taking my question and congratulations on the recent progress with the EU partner. Carl, what I wanted to ask you about is regarding the FDA guidance, specifically on the endpoints in design. Wondering if you could help us understand some of the difference between the Phase III proposed protocol and the Phase II studies that you ran.

Sure. In the Phase II study, it was a smaller study and that had a single endpoint of satisfying sexual events as the only primary, and the measurement of desire and the decrease in distress were secondary endpoints. In the Phase III program, we will elevate the measurement of desire or changes in desire to a co-primary endpoint.

So we will have two co-primary endpoints to satisfying sexual events. And then the improvement in desire is measured by the female sexual function index. So that's really one of the key changes.

The studies, those studies, Phase II studies ran for 12 weeks. The pivotal trials were run for 24 weeks (inaudible). So it will be a little bit longer in duration as well.

Okay. Once you are able to start enrollment, how much time do you think it will take? What's the rough order of magnitude of the cost of the Phase III study in the United States?

Steve will take that.

This is Steve, Charles. We anticipate starting the US Phase III trials in the second half of this calendar year. If that takes place based on our projections, we would anticipate filing the NDA, the new drug application with the FDA, in the first half of 2016. And that would hopefully yield an approval from the FDA in the first half of 2017.

From a cost standpoint, as of right now we are doing what we believe is a reasonable comprehensive Phase III program, obviously including the two pivotal trials, the long-term safety study, and approximately 8 or 9 ancillary drug-drug interaction studies. And we are targeting that cost to be approximately $75 million, from this period going forward.

Okay, and I believe in your prepared remarks you said that you would not start the Phase III unless you knew that you had enough money or a commitment to have enough funds to complete that Phase III. Is that correct?

That is correct. We don't think it makes any sense to start the trial and not be able to finish it.

That makes a lot of sense to me as well. So your suggestion that you are able to or prepared to start in the second half of 2014, does that suggest that either a US partnership or even the European partnership will provide the majority of funding for that Phase III program?

The short answer is yes. The European partnership based on the financial terms we negotiated would not get us all the way home. As Carl mentioned, we are in advanced discussions with a number of -- with multiple potential collaboration partners. So our scenario is that we ink a US/North American deal sometime, as soon as possible, to fully fund those trials.

We are in a position from an operational standpoint to pull the trigger very shortly. We could have the trials up and running within, say, 8 to 10 weeks as we speak. All the contracts are, if you will, in the final stages with the third-party vendor, most notably the CRO. We are anxious to move forward now that we have received, let's call it, the final guidance and handshake with the FDA on the Phase III protocols.

Okay. And then finally with regard to non-European and non-US markets for FSD, are there other partnering activities, say, for example, either Asian markets or a South American market?

Yes. We have had some discussions with Latin American marketing partners. We haven't yet engaged with Asian. But really as we progress, really the focus is North America right now. As that gets concluded and we get the trials up and running, we will focus on bringing in potential partners throughout the rest of the world.

And in part, we don't want to rush on those others because a North American partner may want to take some of those territories or they may be part of a larger agreement. So although we have interest, we have good interest, we want to wait a little bit and play out North America before we ink anything there.

That makes sense. Thanks for taking my questions.

Joe Pantginis, ROTH Capital Partners.

The simplistic question I have first is what's going to get the EU potential partnership over the finish line? Then just looking towards some of the nuance there, you did mention that this is a time-limited negotiation and you do have primary terms. So what is still outstanding there?

We are really working on taking everything now and putting it into a license agreement. As I said, the financial terms are agreed to, so those are -- will be moved into the agreement. The rest of it is really the standard stuff of dispute resolution, how we operate, how we work together.

I think the goals will go quite easily from the standpoint of we have been working with this potential partner for a while. We have, as you may remember from previous calls, we actually jointly went to meet with the EMA to get the regulatory guidance.

We've also been supporting a lot of their efforts to define the market in Europe. So the operating relationship between the two companies is quite good, and so I think that we should be able to write that down and get that into an agreement pretty quickly.

We are not going to put timelines on it. We are not going to do business development in the public format. But suffice it to say both parties are very eager and working aggressively to get this done as quickly as we can. I think they are committed to going forward and once they have made that commitment in their mind, they have conveyed to us that they want the license agreement in place. And in parallel they want the operating activities running because they want to get moving and get this product into trials in Europe and approved as quickly as they can.

No, that's very helpful, thanks. Then if you look at in the discussions that you guys have been having, another way that you've also taken part that you've disclosed was I know part of the negotiation periods was for that company to conduct a marketing research study that you guys assisted with.

Would you be able to share any of the outcomes of that study with regard to the perceived market size of the potential market size in Europe? And then -- what would this -- from a geographical standpoint what would this collaboration or partnership cover with regard to numbers of countries?

Well, I will do a little bit of it and I will turn it over to Steve. Obviously, that -- I don't think they would have exercised the option to go forward to a license if it wasn't a substantial opportunity in Europe. We are not at liberty to disclose the absolute market size yet. We'll let that occur as a definitive license is signed, and we can do that on a joint basis with them.

With that being said, we have our own internal projections, and Steve may want to talk about that. These are separate from -- not based on their marketing works. They're based on Palatin's.

I agree with what Carl stated. We publicly stated that our -- we engaged a third-party to do a comprehensive market assessment, and they came back with, if you will, three scenarios on a low, a base, and a high case. And the parameters of that were $600 million annual US sales in the low case, $900 million on the high case.

Traditionally, I think it also covers with this particular type of treatment, Europe is going to be less. We are not at liberty to disclose the proprietary market assessments that our potential European partner prepared, but it's what we believe is a reasonable substantive market, less than the $600 million of $900 million range, but still a very substantial market.

And we've also done some work with the rest of the globe separate than, if you will, the US and the Europe, and we think that market in the aggregate is about the size of the European -- the EU and the European country market.

I apologize for the background noise. Evidently, the landscapers are doing some work at our facility, exactly the timing of our conference call.

That's helpful. Thanks, guys.

Rahul Jasuja, Noble Capital Markets.

Good morning, Steve and Carl. Just a few more questions. The first one relates to the clinical trials in Europe versus US, the Phase III trials. So my question really stems from the fact that the US has, or you have a template with the Sprout ongoing for FSD trials, and endpoints that are now sort of firmed up. But the European body doesn't have that template.

So should we be thinking that the European body is in agreement with what the US is looking at the endpoints? So will that Phase III Europe be very, very similar in terms of endpoints and patient population and so on, as FDA discussions have gone?

Sure. The short answer is yes. The programs are designed to be mutually supportive, so the endpoints will be very similar, if not identical. Obviously, we haven't nailed them down 100% in Europe, but they will be most likely very similar. They will probably include satisfying sexual events as well as a measurement of improvement in desire using the female sexual function index. And then in addition, we will want to show an increase in the sexual dysfunction-associated distress.

So these will be quite similar patient populations. We will work to make sure they match as closely as possible as well. Whether it be premenopausal women, the co-medications, comorbidities and what have you, will all be very similar. As I said, we have had discussions with both the EU regulatory as well as the potential partner over making sure that these are going to be mutually supportive programs.

Okay. Then, of course, we talked about the US Phase III being about 600 patients and two trials, and that would again be the similar case in Europe I guess, just to confirm.

The short answer again is yes. Again, we may -- we have two doses in the US. We may choose to evaluate a third dose in Europe. Again, those are things that we are discussing with the potential partner. But to answer your question, generally you are looking -- depending on the number of arms you have in the study or the number of doses, you are talking about 300 patients per arm. So US will be two doses, so that will be 600.

So I have in my notes one dose at 1.75 mix, so you are now planning two doses.

All I'm saying is it's under discussion. In the US -- there are weight differences between the US and Europe, so you may want to evaluate a lower dose in Europe because they just -- the body mass index for a number of those women is lower than it will be in the United States.

All right, that's fair. The other question I have is in trying to understand the US partnership here, should we be thinking that there's a potential that you would have something akin to maybe a codevelopment, a 50-50 kind of structure, or should we be thinking a complete set of out-licensing?

It runs the gamut, depending on the Company that we are talking to. So some of the specialty pharma may be more joints and the larger guys will want more of a traditional straight license. It really just depends on the company. And that's part of what we are working through now with these various entities as to what makes the most sense for us, what's the best value that we can extract, and also who is the right partner. Most importantly, who is the right partner to eventually hand this off to?

Although we may be involved very integrally in the development of the program through Phase III, at some point the person who licenses this in North America will be taking this over and be responsible for generating the sales, marketing, and all of the other ancillary things that go on. So we want to make sure we do have the right partner.

So the terms will vary depending on the size of the company and what is most important to them, and what Palatin -- what we believe use is most important to Palatin.

Okay, and then one question regarding the Phase III study then, and the opportunity that is outside of premenopausal women. Steve mentioned those numbers; those apply to the premenopausal FSD population.

Is there any discussion of having a postmenopausal track in the Phase III or just sort of a supplemental population that needs to be looked at, or is that not even in discussion?

Certainly I will take that in two fronts. From a safety standpoint, in both the EU and the US, we would like to have safety evaluations done because it is not unreasonable that although we don't try off-label use, the drug could be prescribed to women who are menopausal. So we certainly want the safety data.

We believe and we have had discussions with various partners, I think some of them feel the same way, that there is probably also a substantial market in the postmenopausal arena. And depending on the partner or partners, how rigorously that will be studied during the Phase III program, it depends on the partner that comes on board.

But most of the people we are talking to believe that it is a substantial market opportunity. And how we get at it, whether it's done simultaneously with the premenopausal or it's done in a more staggered fashion, will just depend. But certainly the safety data will be collected.

Okay. Then you mentioned that -- moving onto MCR-1, you mentioned that potentially you should be in clinic towards the end of this year. When can we see animal data on the MCR-1 program?

We are pulling together a lot of that and we are trying to decide what's the best format. We do have some upcoming scientific presentations, so we will be announcing those as they occur and we will be putting out some of the data there. But at some point we probably will, either on a conference call or more formally in an analyst day, provide a lot of that data and present a lot of that data.

We think it's quite exciting and it's also on a number of indications as we've mentioned on the call, and so you should expect that probably in the third quarter a lot of that data will start to become public.

Okay, thanks. That's all I had.

Well, thank you.

Charles Duncan, Piper Jaffray.

Thanks for taking the follow-up. There have been at least one IPO filing that I know of that focuses on genetically-defined obesity. So I guess I'm interested in learning more about your MCR-4 obesity program.

First of all, partner with AstraZeneca, has that partnership fundamentally shifted? You did make some prepared comments, but with the potential acquisition of Astra, is there any change to there?

Obviously, none that they have notified us. But obviously, that potential collaboration or acquisition by Pfizer hasn't been concluded. So it's reasonable to expect that if they get acquired by Pfizer that all programs will go under some level of review. So that's just reasonable, but nothing's been conveyed to us.

Okay, and you don't have any kind of change of control provision or anything that automatically results in that one coming back to you, Carl?

We essentially -- to be honest with you, we don't. We can go forward without them if we make a decision to do that.

Okay, with regard to that program, do you have a lead compound moving through preclinical development that is kind of IND-enabling?

We believe that we have identified more than one lead compound. They have not yet transitioned into clinical development. So we believe that we have multiple lead compounds that are identified. We just have to make a final selection.

And in discussing potential paths forward with the partner that you have, is the focus on general obesity or is that more narrowly defined for genetically-defined obesity? For example, for mutants in the MCR-4 receptor?

I think the ultimate goal is to have to potentially treat the broadest patient population. We have had a number of discussions as to what's the best way to get there. Obviously, the environment for treating general obesity, there are two products approved, and the third with a PDUFA date in early June. So I don't see it poses difficulties.

Certainly that means that -- it's hard to claim that there's no -- that it's unmet or purely unmet. There may be additional need or those products may not work that well, and we may bring something that works better. But I think there are a number of potential indications, not necessarily genetic or purely genetic, that you can study that provide a high unmet medical need and a very nice pathway forward to highlight the attributes of an MCR-4-based treatment that then can be generalized to a broader population as the product gets approved and spreads out. So those are the types of things that we have -- types of discussions we've been having.

Over the course of the next year or say by mid-2015, could you see any milestones being met which would result in a payment to you from that program?

Yes, calendar 2015, as in the second half of calendar 2015, if things progress we would be due a milestone. If I could just back up on an earlier comment or question where you've mentioned, we do have rights not on a change of control with the current AstraZeneca collaboration program. But if they did decide to not go forward in that area with that type of the MCR-4 agonist program, we do have a lot of rights regarding that program.

Okay, good deal. Thanks for taking the follow-up.

Ladies and gentlemen, that does conclude our question-and-answer session today. Dr. Spana, I would like to turn the call back over to you for any closing remarks.

I would like to thank everyone for participating in our third-quarter 2014 update. We are quite excited about what is going on here at Palatin. I think we have put a very nice company together.

Bremelanotide is moving towards its Phase III trial start quite nicely. As you can see, we have been able to attract corporate interest and we will continue to do that. As both Charles and Rahul alluded to, the earlier program is also coming along quite nicely. So we think we've built a very comprehensive pipeline that is stretching really from Phase III back to late preclinical.

And we are quite excited about the Company, and we look forward to updating you next quarter and as we do other presentations throughout the quarter as well. So with that, have a great day, and thank you for participating on our call.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.