Palatin Technologies Inc (PTN) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies second-quarter fiscal year 2016 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 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 inaccurate, and accurate 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'd like to introduce to you today's host, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you, and good morning. I'm Carl Spana, the 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. On today's call, we will provide updates on our development programs and our second-quarter fiscal year 2016 financial results. To begin, Steve will then provide financial updates. Steve?

Thank you, Carl. Good morning, everyone. Starting with our recent highlights regarding our bremelanotide development program for female sexual dysfunction, in December 2015 we completed patient enrollment in our Phase III RECONNECT study with bremelanotide for female sexual dysfunction. We are progressing as planned and meeting our target objectives.

Top-line results are expected to be released in the third quarter of calendar 2016. Carl will give more detail on the program during his part of the presentation.

Regarding our intellectual property portfolio, the United States patent trademark office has issued a notice of allowance for our US-258 patent application. The allowed claims are for methods of treating female sexual dysfunction using the formulation and dose used in our ongoing Phase III RECONNECT study with bremelanotide for female sexual dysfunction, and commercialization upon FDA approval. Once issued, the patent is expected to expire no earlier than November of 2033.

Regarding financial results, we reported a net loss of $13.2 million, or $0.08 per basic and diluted share, for the quarter ended December 31, 2015, compared to net income of $2.8 million, or $0.03 per basic and diluted share for the same period of 2014.

The increase in net loss for the quarter ended December 31, 2015, compared to the net income for the quarter ended December 31 2014, was primarily attributable to the recognition of contract revenue pursuant to a license agreement in the quarter ended December 31, 2014 and, secondarily, to the increase in expenses related to our Phase III RECONNECT study with bremelanotide for female sex dysfunction in the quarter ended December 31, 2015.

Regarding revenue, there were no revenues recognized in the quarter ended December 31, 2015, compared to the recognition of $8 million for the quarter ended December 31, 2014. Revenue for 2014 consisted of the recognition of $4.9 million in license revenue plus $3.1 million from the achievement of the development milestone upon the start of the RECONNECT study with bremelanotide for female sexual dysfunction in the United States. This was under a license agreement that was subsequently terminated.

Regarding operating expenses, operating expenses for the quarter ended December 31, 2015 were $12.6 million, compared to $5.7 million for the comparable quarter of 2014. The increase in operating expenses for the quarter ended December 31, 2015 was the result of higher period costs primarily related to our Phase III RECONNECT study with bremelanotide for female sexual dysfunction.

Regarding other income and expenses, total other expenses net was approximately $600,000 for the quarter ended December 31, 2015, consisting primarily of interest expense related to the outstanding debt, compared to $100,000 for the quarter ended December 31, 2014, which consisted primarily of foreign exchange expense.

Regarding Palatin's cash position, our cash, cash equivalents and investments were $33.4 million as of December 31, 2015, compared to cash and cash equivalents of $27.3 million at June 30, 2015. Current liabilities were $10 million as of December 31, 2015, compared to $7.4 million as of June 30, 2015.

We believe our existing capital resources will be adequate to fund planned operations through the quarter ended September 30, 2016. Assuming our Phase III RECONNECT study with bremelanotide for female sexual dysfunction is successful, as to which there can be no assurance, we will need additional funding to complete submission of required regulatory applications to the FDA for bremelanotide for female sexual dysfunction.

Carl?

Thank you, Steve. Our second-quarter fiscal year 2016 operational update will focus on our bremelanotide Phase III female sexual dysfunction program. Bremelanotide Phase III RECONNECT study protocols 301 and 302 on multi-centered, double-blind, randomized, placebo-controlled clinical studies with a six-month randomized treatment phase and open-label safety extension phase. The clinical trials are designed to randomize 1,100 women, which is approximately 550 in each trial, to evaluate the efficacy and safety of subcutaneous bremelanotide in premenopausal women with hypoactive sexual desire disorder as an on-demand, as-needed treatment.

The bremelanotide RECONNECT studies are progressing on schedule. We are now fully enrolled in Phase III RECONNECT studies. As we have previously stated, this puts us on track to have top-line data by the third quarter of calendar 2016 and, if positive, to file an NDA in the first half of 2017.

In addition, the BMT, or bremelanotide, open-label safety extension study is also actively enrolling patients and is progressing as planned to meet our timelines for an NDA submission.

Over the past year, the female sexual dysfunction field has seen major, positive changes with the approval and launch of ADDYI, the first FDA-approved treatment for women suffering with female sexual dysfunction. The ADDYI label contains contraindications for the use of alcohol and drugs that are moderate or strong cytochrome P450 inhibitors. In addition, the ADDYI label has a risk evaluation and mitigation program that requires both physicians and pharmacists certifications in patient counseling concerning the risk of using ADDYI and drinking alcohol.

We believe that bremelanotide, if approved, will play a major role as a treatment for premenopausal women with hypoactive sexual desire disorder. Bremelanotide is highly differentiated from ADDYI. BMT is an on-demand product taken only when needed before a sexual event; not a chronic medication taken every day, like ADDYI.

In clinical trials specifically designed to evaluate interaction of bremelanotide with alcohol, BMT did not show any interaction with alcohol. Also, BMT is not a cytochrome P4 50 inhibitor. We therefore believe that it is likely that, if approved, bremelanotide product label would not have alcohol restrictions or a significant risk evaluation and mitigation program.

In light of the above events and the significant progress of the bremelanotide Phase III clinical trials, we have received increased interest from potential licensing partners. We believe that there is a substantial global market for bremelanotide, and we continue to make progress with our licensing activities, working with potential partners as they conduct their due diligence. At this time, we cannot predict when or if such an agreement will be entered into.

Moving on to our natriuretic peptide program and our clinical development candidate, PL-3994 -- natriuretic peptide system is an endogenous system that provides critical compensatory actions that oppose the path of physiological changes caused by heart failure. Natriuretic peptide systems is one of the body's primary mechanisms for opposing the disease process which underlie heart failure. It functions to lower blood pressure, suppress the renin angiotensin aldosterone system, inhibit cardio hypertrophy and fibrosis, and protect cardiac and kidney function. The natriuretic peptide system is a well-validated but underexploited target for the development of novel heart failure treatments.

The high-value of targeting natriuretic peptide system as a treatment for heart failure was demonstrated by the recent FDA approval of Entresto. The project combines an angiotensin receptor blocker, valsartan, with a neutral anti-peptidase inhibitor. Entresto works in part by increasing activity in the endogenous natriuretic peptide system. In Phase III clinical trials, Entresto significantly decreased mortality due to cardiovascular causes, reduced hospitalization and improved the quality of life of heart failure patients. We believe the Entresto data validates natriuretic peptide system as a treatment for heart failure, and it's highly likely that up-regulation of a natriuretic peptide system will become part of the standard of care for heart failure patients.

Our natriuretic peptide program with multiple approaches is uniquely positioned to take advantage of this emerging paradigm shift in the treatment of heart failure. PL-3994, our lead drug candidate, is a natriuretic peptide receptor A agonist. It's in development for patients with heart failure, designed to reduce the risk of cardiovascular death and hospitalization. In addition, to general heart failure patients, we believe that PL-3994 also has potential to benefit heart failure patients with loss of function Qor mutation or other clinically meaningful natriuretic peptide deficiencies -- which are patient populations that are particularly resistant to the current standard of care. Corn is an enzyme that converts the inactive pro forma hormone into active natriuretic peptides.

PL-3994 has successfully completed two Phase I safety trials, and we plan to initiate a multiple ascending dose study in heart failure patients in the first half of 2016. Our preclinical and clinical studies show that PL-3994 increases circulating (inaudible) gene levels, diuresis, natriuresis, inhibits renin angiotensin aldosterone system, and also decreases systolic and diastolic blood pressure while inhibiting cardiac remodeling and fibrosis.

In addition to our internal activities, we are also currently working with potential partners as they conduct due diligence on this exciting program.

Regarding hemolytic wartin receptor 1 program and PL-8177, our lead candidate has completed activities required to file an NDA with the FDA and conduct Phase I human studies. We also continued a progress with potential partners.

And finally, regarding our melanocortin-4 receptor program for BC and diabetes, we have made excellent progress in developing multiple lead candidates, and our business development efforts are continuing to advance nicely as well.

In summary, we continue to make significant progress towards meeting our long-term strategic objectives. The bremelanotide RECONNECT Phase III pivotal registration program is now completely enrolled, and top-line data from these studies is on track for the third quarter of calendar 2016. We have designed a comprehensive Phase III program that if successful will provide the safety and efficacy data to support regulatory submissions for the approval of bremelanotide as a treatment for premenopausal women with sexual dysfunction. The FDA approved the first treatment for female sexual dysfunction in August of 2015. We believe this is a major positive for the female sexual dysfunction field and reduces the regulatory risks in the US for bremelanotide, and we continue to make progress with potential global licensing partners.

Recent clinical data indicates natriuretic peptide systems has the potential to play a key role in the treatment of heart failure. Our preclinical and clinical work for our lead candidate, PL-3994, puts us in a good position to take advantage of this emerging paradigm shift in the treatment of heart failure.

And finally, our melanocortin-1 and -4 programs continue to make substantial progress, and we look forward to providing more detailed update on these exciting programs sometime in the future.

I would like to thank all of you for participating in Palatin's second-quarter fiscal year 2016 conference call. We will now open the call to questions.

(Operator Instructions) Joe Pantginis, ROTH Capital Partners.

Carl and Steve -- I want to focus my question basically on your top two products and regarding the competitive landscape and your ongoing due diligence with potential partners. For the BMT program, has the tenor changed? Or how have the discussions changed following the launch of ADDYI since it's been lower than expected with regard to how partners might view BMT? And on the 3994 side, I have the impression that interest has also been seeing some potential headwinds as they launched this new drug. How might you be potentially differentiated, and have any of the Entresto data guided your plans in any way for the Phase II? Thanks a lot.

Joe, certainly I will start, and Steve will certainly jump in and comment. The approval of ADDYI and its launch certainly has changed the nature of the discussions we've been having around bremelanotide. It's pretty clear there were going to be two products in this marketplace, assuming bremelanotide Phase IIIs are successful. And I think many of the partners that we're talking to did look at that product and kind of feel that bremelanotide may be the best product out there. So it's really the seriousness of which partners have looked at the diligence that they are doing has changed. So we're quite optimistic about -- they are seriously looking at bremelanotide, and it's doing quite well in its diligence. When we'll get a deal done, that I don't know. But certainly we feel pretty good about what we have and how we are being looked at.

Steve, I don't know if you want to comment a little bit more.

This is Steve. Thanks for the question, Joe. We continue to have significant, strong interest from multiple parties regarding the female health care space. As Carl mentioned, there is one approved product with ADDYI, and we are the next one up with our bremelanotide.

And, again, no question -- and Valiant has stated the same thing: they are -- the launch of the initial numbers are below what they had expected. They have come out with guidance for 2016 where I believe they have given guidance of $100 million to $150 million of calendar -- for the calendar 2016 annual sales.

The -- Carl will go into maybe more detail regarding the differentiating factors. But we are comfortable and the partners that we're talking to are comfortable enough that there's significant enough differentiating factors that there is interest -- very strong interest with our program.

We -- doing a deal, say, before the data, there's pluses and minuses to that versus post the data. Obviously, post the data, with things being positive, there's a significant increase in value. We have the flexibility to have those conversations. The data is coming out late third quarter, in the September timeframe. So we are doing what we need to do from the Phase III trials. Dotting the I's, crossing the T's -- there's nothing that's jumping out at us from the metric tenants that we look at just about every day.

And we're doing some things to illuminate the asset -- the bremelanotide for female sexual dysfunction program -- in the marketplace. And that includes some branding that we are working on now to also including the education and awareness in the marketplace. So we'd like to -- we, frankly, would like ADDYI to do better in the marketplace, and we do believe they've made some changes, and we fully expect that they will do better as they go forward.

Joe, I'll answer the second part of your question concerning our natriuretic peptide program, the PL-3994. You are correct; Entresto was approved about the same time as ADDYI was approved in the summer of 2015. Sales there are tracking, I think, a little bit over $0.5 billion probably the first year, which may have been a little bit less than what may have been anticipated.

I'm not too surprised by that in that Novartis is really trying to establish a paradigm shift in how the general heart failure patient is treated, in moving patients that are currently on generic ace inhibitors to Entresto, which is a branded product with a premium price. And it will take them some time in the marketplace to drive reimbursement, getting on formularies, getting treatment guidelines in place, continuing to put more clinical trial data out. But it does appear, however, that they are committed to doing that. And I think from our conversations with KOLs and others, they will be successful over time. And there are certain marketplaces, particularly in Europe, where you are seeing very high adoption because of the clinical value that that product does bring. And I think it will only be a matter of time until it begins to happen here as well.

With that being said, there is -- has been an explosion of the science behind natriuretic peptide systems and the value that it really has potentially treating heart failure patients. And it's probably -- needs to be the subject of a more long, in-depth discussion. But what we find ourselves is in a very unique position to have direct acting agonists that are very drug-like. Meaning, these are peptides that can be -- are stable, can be given once a day or put into pumps or longer-term formulations that allow for chronic treatment with a direct-acting agonist. And many patients will require that. They will require more up-regulations natriuretic peptide systems than a product like Entresto can have.

In particular, the genetics around heart failure, in particular the natriuretic peptide system, are quite compelling. There are a number of mutations, particularly the Qor mutations in African-Americans, where we know the system is down-regulated. Their outcomes are particularly poor; they are not responding to standard therapy. Our preclinical work, particularly with collaborators at Temple University, have shown that when we go back into animals with qor knocked out in the heart, for example, we can rescue their heart failure phenotype quite nicely. And that was data that was presented in September at the American Heart Association and it ended up being submitted for publication.

So what you'll see from us in addition to the clinical trial work is we have multiple ongoing academic collaborations, and they are going to start to read out data really showing the value of the system and the value of what we have. It is beginning to be recognized in -- there's a development front as well. There's always a lag period when larger companies start to realize that an indication is reopening up and new methods are opening up, and we are beginning to see that transition now. We had quite a lot of interest at JPMorgan and it is continuing to grow. So we're optimistic that as we continue to push this program forward we will match that with a good collaboration.

Great. Thanks a lot, guys. A lot of helpful information. I appreciate it.

John Newman, Canaccord.

Hi, guys. Thanks for taking the question. I just wondered if you could talk a little bit about whether, if we look forward a bit for the bremelanotide program -- are there things that you would expect the FDA to look at that would be different from what we've already seen with ADDYI? Or would you expect them to consider some of the same questions when it comes to an approval? Thanks.

Certainly. Thanks for the question, John. The key endpoints -- the primary endpoints in our Phase III program, in the ADDYI program, are indeed identical, so we are looking at the change in satisfying sexual events as well as the improvement in desire, as measured with a Female Sexual Function Index desire subdomain. And then the key secondary endpoint is the decrease in distress using question 13 from the Female Sexual Distress Scale.

The endpoints are the same, so I would expect that the basis of benefit will be identical. Obviously, the risks/benefit analysis will be different for bremelanotide versus ADDYI. Bremelanotide is not a chronic medication, so patients aren't on it chronically; they are only taking it as needed. These patients average about 3 to 4 doses per month. So we have a much better matching of the benefit of the drug versus the risk. So as you are taking bremelanotide, you are having a sexual encounter, you are getting the benefit. And then when you are not involved in a sexual encounter, you are not on the drug.

So we think that that's very favorable. But certainly we expect, just like they did with ADDYI, they will give a very strong look at the risk side of the equation. The FDA has been clear that although this is an important indication and requires meeting multiple drug treatments, it's not a life-threatening indication and therefore the risk benefit analysis will be thorough. And we are preparing for that. We're making sure that we have all of our ducks in a row. All of our preclinical studies and our safety studies are up to speed and supportive of approval.

And moving over to the natriuretic peptide program, could you talk about what your plans are there in terms of additional clinical work? Or would you at this moment wait until you complete the program before bremelanotide to consider starting additional clinical studies for the natriuretic peptide?

We're scheduled -- the next study for PL-3994 is a -- we call it a Phase IIA study, so it's a study in heart failure patients where we will be looking at multiple ascending doses in heart failure patients over a short-duration time point. It's more of a safety regulatory study that's required before we can actually send patients home for an extended period of time to really look at overall benefit of the drug. However, with that being said, we will get a lot of useful information on a number of markers of heart failure in the study. So it's not an overly expensive study, but it is one that we should be able to get started as the second quarter ends, third quarter begins. And it is in our plan and in our financial model that Steve went through.

Great. Thank you.

Rahul Jasuja, Noble Life Science Partners.

Just a few more questions on maybe each of the main areas. Regarding the FSD program, and some of this may be a little redundant --. But do you guys think that the slow uptake of ADDYI is related to all of these factors I'm going to state or one of them? Number one, the fact that it's a daily use, and it takes about two or three weeks for patients to really see entrenched efficacy? Or is it the rems and the issues with clinicians being certified and so on? Could you discuss those issues -- if all of them are barriers or just one of them, and how does it interface with your take on BMT?

Sure. I'll give you my opinion, I guess, which should be somewhat educated based on our discussions with KOLs and what we see. Clearly, when launching a product like ADDYI, because of the restrictions the marketplace does need to be educated a little bit more. And probably maybe had the people wanting that -- spend a little bit more time getting the physicians certified and the pharmacies certified and spending more of an educational process -- it would have been a better launch. So, certainly all of those things are impacts.

With that being said, I think Valiant understands what went wrong. I think they are correcting those issues. And certainly this will require education. We've been doing a fair amount of commercial work, led by Steve. And we are learning a lot about the marketplace: how OB/GYNs think about sexual dysfunction, how primary care physicians that treat women think about it, what the messages are that are going to be required to do that. And let's keep in mind that Valiant didn't have -- didn't run the Phase III program for the product and therefore wasn't necessarily engaged in commercialization works prior to the NDA submission during the NDA process.

So there is a lot of catch-up work that is going on there that we will be the beneficiary of. They will begin educating. They will be making presentations at major meetings, which haven't occurred before. For example, at ACOG, at the American Urology Association, they will be having seminars there. So I think the educational process has started. I think the registration process for physicians and pharmacists have started, and we would expect that there should be an uptake in prescriptions for that drug.

Okay. That's good. That's helpful. And then -- okay, so by the way, what do you -- have you guided that there's a number on the cost of launch just in case you plan to sort of take it on your own? Or is that something that's not discussed internally: the cost of launching BMT?

I'm going to let Steve handle that.

It's absolutely discussed internally. We have a number of different budgets and models that take the program past the data point -- say, in the third quarter of this calendar year -- to the NDA filing, to the approval and, in a nice way, including the launch of the product. We try to just make sure we're covered for all the various scenarios. I don't want to say the most likely one is that we have a partner post the data. It's a matter of where we are looking at partnering before the data, post the data and possibly even further down the pathway. So we believe we're prepared whichever way it ends up going.

And Steve, you haven't discussed or provided any details on the numerical value of the cost of launch, right?

Well, when you say the cost of the launch, it's more -- we sort of break this out into segments. We have disclosed very specifically the amount to get us through the spend, which was going into calendar 2016 -- and this was public -- was it would be approximately $30 million for calendar 2016 expenditures. Then you have the expenditure for the NDA filing, which we have publicly stated is the first half of calendar 2017.

And that filing includes not just the clinical trials. There are some CMC issues that we need to address. And not just the Phase III trials; there's the drug/drug interaction trials, things of that nature.

We have not disclosed the exact number yet. It's going to be a standard customary number. Could it be another $30 million to get us to that stage? It's probably in that range, but that range includes significant commercial launch readiness. So when you break it out between what would it take just to file the NDA, that's a much less number. But if you are taking the program forward, in a nice way, you are either in or you are not in. And that includes making sure the education is in place. The branding is in place or moving -- or progressing, if you will. The launch readiness, building inventory -- all those things. It's not a faucet that you just turn on on Tuesday and you have it available on Wednesday. So we actually have full (inaudible) charts going out to -- through calendar 2018 because, if things are positive with the data, we would then have the filings, and the approval would be in the first half of calendar 2018.

I will tell you that we have -- there's only so many people here at Palatin and only so much expertise that we have from a full-time-employee standpoint. And we do utilize a number of outside consultants and key opinion leaders. We did hire a commercial officer -- head of commercial operations here at Palatin in the fourth quarter of calendar 2015, and that's just to make sure we're doing the things we need to do. This person comes with a significant background, not just in the sales and marketing but also in the female health care space. And she has been extremely helpful with our discussions and negotiations as we talk to potential collaboration partners.

Thanks. And I have one more question on the 3994 program. So -- and maybe this is pointed directly at Carl. Carl, the Novartis study was actually halted at the interim analysis based on the degree of efficacy in the treatment arm. For a drug in a clinical trial that was so well run and showed this kind of efficacy, would we not expect Entresto to do even better? You sort of talked about the fact that it's taking longer. What are your thoughts there in terms of the fact that the efficacy was robust but the market is not accepting this as warmly as it should?

A couple of things there. One of the things that Steve led the charge on was taking a commercial -- a first commercial look at the heart failure space and the role that a product like 3994 Entresto would play there. And that was really designed to help support our business development efforts and to help support our development of 3994 -- bringing in more of a commercial deal a little bit earlier because heart failure is a very big space, expensive to develop products, and a competitive space.

And we did learn a couple of things there that are interesting. It is indeed true: Novartis ran a very nice Phase III clinical trial. It showed robust results. But keep in mind, those were stable heart failure patients. They are treated with predominantly generic medicine today. There was a criticism of that study that maybe had they upped the doses of those generic medications, that they may have seen a smaller spread on the benefit.

With that being said, it's an educational process. You have to get physicians, cardiologists in particular, view heart failure as a progressive disease. So you don't take people off drugs; you actually add drugs on. To use Entresto, you have to take the patient off the ace inhibitor and put them on Entresto. That may be -- that is something that requires education, that requires there to be guidelines -- the professional organization guidelines which are not yet in place.

So I think what you will see is there is a tremendous value to Entresto. It will be a billion-dollar product. It's going to take some time and education. And Novartis is committed to doing that and does have the resources at the time to do that. So we remain very optimistic on natriuretic peptide system as a treatment for heart failure. It's -- what they did was quite astounding, and I think we can match that and do better in a significant number of heart failure patients as well.

Okay. Great. Thanks. That's all I had.

Thank you.

That does conclude today's question-and-answer session. Mr. Spana, at this time I'd like to turn the conference back over to you for any additional or closing remarks.

Well, thank you. Thank you to everyone for participating on Palatin Technology's second-quarter fiscal year 2016 conference call. We look forward to continuing to update you. Progress on bremelanotide and our other programs has been very strong. We are very excited here and look forward to updating you on the next call. Thank you.

And this does conclude today's conference. Thank you for your participation. You may now disconnect.