Palatin Technologies Inc (PTN) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Fourth Quarter Fiscal Year 2017 Conference Call. As a reminder, this conference is being recorded.

And before we begin our remarks, I would like to remind you that the statements made by Palatin that are not historical facts may be forward-looking statements. The statements 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'd like to introduce you to our host for today, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead.

Thank you. Good morning, and welcome to the Palatin Technologies Fourth Quarter Fiscal Year-end 2017 Call. I'm Dr. Carl Spana, the CEO and President of Palatin; and with me on the call today is Steve Wills, Palatin's Executive Vice President, Chief Financial Officer and Chief Operating Officer.

On today's call, we will provide financial and operating updates. I'm now going to turn the call over to Steve who will provide financial update.

Thank you, Carl. Good morning, everyone. For the fourth quarter and fiscal year ended June 30, 2017, I will cover significant and recent operational highlights.

Regarding our bremelanotide development program for Hypoactive Sexual Desire Disorder, or HSDD, in February 2017, we closed on an exclusive North American license agreement with AMAG Pharmaceuticals to develop and commercialize bremelanotide. Pursuant to the terms of the license agreement, we received an upfront payment of $60 million. AMAG is required to pay up to an aggregate amount of $25 million in reimbursement for all reasonable, direct out-of-pocket expenses incurred by us following the closing date, in connection with certain continued development and regulatory activities necessary to file a new drug application, or NDA, with the Food and Drug Administration, or FDA.

For accounting purposes, we have determined that the $60 million upfront payment and the $25 million in reimbursable, direct out-of-pocket expenses represent a combined unit of accounting totaling $85 million that should be deferred and recognized as revenue as we complete our development obligations related to certain activities necessary to file an NDA with the FDA. We estimate that the $85 million will be recognized over the 4 quarters ending first quarter of calendar 2018.

In addition, AMAG is also required to pay us up to $80 million upon achievement of certain development and regulatory milestones, up to $300 million upon achievement of certain sales milestones, and AMAG is also obligated to pay us tiered royalties on annual net sales ranging from high single digits to low double digits.

On September 6, 2017, we announced the signing of a collaboration and license agreement with Fosun Pharma for exclusive rights to develop and commercialize bremelanotide in the territories of Mainland China, Taiwan, Hong Kong and Macau. Under the terms of this agreement, we will receive an upfront payment of $5 million. Fosun is also required to pay us a $7.5 million milestone based on regulatory approval in China and up to $92.5 million in sales-related milestones. In addition, Fosun is also obligated to pay us tiered royalties on annual net sales ranging from high single-digit to low double-digit royalties. All development, regulatory, sales, marketing and commercial activities and associated costs in the license territory will be the sole responsibility of Fosun Pharma.

We continue to work closely with AMAG on completing the tasks and activities necessary to file an NDA with the FDA. This filing is targeted for early calendar year 2018.

Moving over to our operational financial highlights. Regarding the fourth quarter and fiscal year 2017 financial results, Palatin reported a net income of $13.3 million or $0.07 per basic and diluted share for the quarter ended June 30, 2017, compared to a net loss of $13.4 million or $0.09 per basic and diluted share for the same period in 2016. The difference between the 3 months ended June 30, 2017, and 2016 was primarily attributable to the recognition of $33.9 million in contract revenue pursuant to our license agreement with AMAG.

For the year ended June 30, 2017, Palatin reported a net loss of $13.3 million or $0.07 per basic and diluted share compared to a net loss of $51.7 million or $0.33 per basic and diluted share for the year ended June 30, 2016. The decrease in net loss for the year ended June 30, 2017, compared to the net loss for the year ended June 30, 2016, was primarily attributable to the recognition of $44.7 million in contract revenue pursuant to our license agreement with AMAG.

Regarding revenue. As I stated prior, we recognized $33.9 million in contract revenue for the quarter ended June 30, 2017, and $44.7 million in contract revenue for the full year ended June 30, 2017. There was no revenue recorded in the quarter or year ended June 30, 2016.

Regarding operational expenses. Total operating expenses for the quarter ended June 30, 2017, were $19.6 million compared to $12.7 million for the comparable quarter of 2016. For the year ended June 30, 2017, Palatin incurred $55.3 million of operating expenses compared to $49.3 million for the year ended June 30, 2016. The increase in operating expenses was mainly attributable to the continued progress of Phase III clinical trials and development of bremelanotide for HSDD as well as professional fees incurred related to closing our license agreement with AMAG.

Regarding other income and expense. Total other income -- total other expense, rather, net was $0.5 million for the quarter ended June 30, 2017, compared to $0.6 million for the quarter ended June 30, 2016. For the year ended June 30, 2017, total other expense net was $2.3 million compared to $2.5 million for the year ended June 30, 2016. Total other expense net for both fiscal years consisted mainly of interest expense related to our venture debt.

Regarding income tax expense. Income tax expense was $0.5 million for the quarter and year ended June 30, 2017. Yes, we do have income tax expense now compared to no income tax expense or benefit for the quarter and year ended June 30, 2016. Income tax expense relates to the alternative minimum tax, known as AMT, expense based on federal alternative taxable income attributable to the $60 million upfront payment from AMAG.

Regarding cash position. Palatin's cash, cash equivalents and investments were $40.5 million, and accounts receivable, all from AMAG, were $15.1 million as of June 30, 2017, compared to cash, cash equivalents and investments of $9.4 million and no accounts receivable at June 30, 2016. Current liabilities were $19.9 million. This is net of deferred revenue of $35.1 million, which is just a timing difference on the recognition of the revenue related to our license agreement with AMAG, and this compares with current liabilities of $13.9 million as of June 30, 2016.

We believe that our existing capital resources, along with the additional proceeds of $5 million from our license agreement with Fosun Pharma, will be adequate to fund our planned operations through at least calendar year 2018.

Carl?

Thank you, Steve. I see you had some fun with that presentation. I'll start our fourth quarter fiscal year-end 2017 operational update with bremelanotide and then cover our pipeline programs.

Concerning bremelanotide. As Steve mentioned, we're working with AMAG Pharmaceuticals, a North American licensing partner, really to complete all the activities that are required to file a new drug application with the FDA. These activities include various clinical pharmacology studies, certain manufacturing activities and the preparation of the NDA. We anticipate that the bremelanotide NDA will be filed in the first quarter of calendar 2018.

Our development of bremelanotide outside of North American market will be done only in the context of a partnership. To this end, we are focusing our business development efforts on the bremelanotide partnership to the European Union as well as other regions of the world.

As Steve also reported, our business development efforts have resulted in a licensing deal with Fosun Pharma, granting the exclusive rights of bremelanotide in China, Taiwan, Hong Kong and Macau. I won't go into the financial details. They've already been covered. Fosun is a leading Chinese pharmaceutical company, and we do believe that they will be an excellent partner for bremelanotide in the territories that they have.

Moving on, Palatin's drug development efforts are focused in 2 areas: our natriuretic peptide program for cardiovascular diseases; and our melanocortin programs for autoimmune and anti-inflammatory diseases.

Regarding melanocortin obesity and diabetes program, we will not progress this program on our own. We are working to find partners to work with us to bring this program forward.

I'll provide a little more detail on our pipeline programs starting with our natriuretic peptide. PL-3994 is our lead candidate and is a selective agonist at the natriuretic peptide A receptor. And the compound has been extensively evaluated in preclinical models of heart failure, demonstrating supression of the renin-angiotensin-aldosterone system, cardiac hypertrophy, fibrosis and remodeling. PL-3994 has been evaluated in 2 Phase I clinical studies, which have allowed us to establish initial safety, pharmacokinetic and pharmacodynamic properties and to define dosing range. We will be evaluating the safety and efficacy of PL-3994 in a Phase IIa clinical study that is planned to start by the end of this year. This study will enroll heart failure patients with preserved ejection fraction, and we anticipate preliminary data in 2018. We plan to provide further details on this clinical trial when patient enrollment begins.

PL-5028 is an agonist at both natriuretic peptide C and A receptors. The emerging science conducted by Dr. Adrian Hobbs, a member of Palatin Scientific Advisory Board, indicates that the NPR-C agonism plays a key role in reducing cardiac fibrosis, which plays a major role in the underlying cardiac dysfunction and heart failure. We believe the dual agonist activity of PL-5028 should allow for superior efficacy in a much broader dosing window compared to other natriuretic peptide approaches.

PL-5028 has demonstrated excellent efficacy in preclinical models of heart failure. We are planning to begin preclinical activities to support human clinical work in first-in-man studies in 2018.

Heart failure is a major health issue. In 2013, there were approximately 5 million patients with heart failure in the U.S. The management of these patients represents a significant cost to the health care system. Although there are numerous classes of medications approved to help the management of heart failure, most patients have progressive disease and a poor 5-year prognosis. There clearly remains a high unmet medical need for new treatments in heart failure.

We believe our research and development efforts have put us in a leading position to develop direct-acting natriuretic peptide receptor agonist as treatments for heart failure and potentially other disease indications. We have established multiple sets of compounds that are selected for each of the 3 natriuretic peptide receptors or combinations thereof. Our development work is protected by a broad intellectual property program. And as our clinical development programs in this area advance, we will continue to expand our know-how and intellectual property.

Our second area of focus is on melanocortin autoimmune and anti-inflammatory disease program. In this program area, we are initially focusing our development efforts on inflammatory bowel disease and ocular inflammatory indications. The current treatments available for managing patients with inflammatory bowel disease or ocular inflammation, in general, suppress key components of parts of the pro-inflammatory pathways. Use of these agents results in moderation of symptoms, with few patients having meaningful remission of their disease. Targeting of melanocortin pathways as a treatment for inflammatory disease incorporates a novel mechanism of action that we believe has the potential to induce resolution of disease and restore homeostasis in the immune system.

Our compound, PL-8177, is a selective agonist of the melanocortin 1 receptor that has demonstrated efficacy in multiple models of inflammatory diseases, including inflammatory bowel disease, uveitis, and we are excited to be moving the compound into clinical development. PL-8177 has completed all preclinical activities needed to support moving into clinical trials, and we anticipate the first PL-8177 clinical study will begin enrolling patients by the end of this year.

Our second development candidate is PL-8331. It's an agonist of both melanocortin 1 and 5 receptors. We believe there are a number of autoimmune and anti-inflammatory diseases such as ocular inflammation where the dual agonist activity of PL-8331 may provide superior treatment benefit. We are currently evaluating PL-8331 in multiple preclinical disease models and drug safety studies. If the data supports continued development, we plan to start activities required to file an IND or an investigation or initial new drug application, which should allow us to begin clinical studies in 2018.

We believe our research and development efforts have put us in a leading position to develop melanocortin receptor agonist as novel treatments for autoimmune and inflammatory diseases. We have established multiple sets of compounds that are selective for the melanocortin receptors involved in resolving pro-inflammatory pathways, and we have broad intellectual property to protect our development work. And as our clinical development programs in this area advance, we will continue to expand our know-how and intellectual property in this area.

We believe that the potential of targeting the natriuretic and melanocortin peptide systems has potential beyond the indications that we spoke about above. We plan to allocate resources and activities that will expand the potential indications of our compounds and strengthen our intellectual property.

As we think about the future of Palatin, I'm very excited about the potential of our development programs to lead to new treatments that can significantly impact the lives of our patients. The success we have had in developing bremelanotide from concept to Phase III clinical trials and now into multiple commercial partnerships not only provides the potential for realizing the value of bremelanotide, but it provided us with the resources to unlock the value in our pipeline programs.

Looking forward, we aim to achieve the following objectives. We'll be working diligently with AMAG Pharmaceuticals, our bremelanotide North American commercial partner, to complete the remaining activities required to file a new drug application with the FDA in the first quarter of 2018. This will put us on track for a potential bremelanotide approval in early 2019. In addition, we'll be working with Fosun Pharma to support their development efforts for bremelanotide for the Chinese market. And we will continue our business development activities with bremelanotide looking for partnerships in the EU and other territories.

For our natriuretic peptide system programs, have the following objectives: PL-3994 to begin a Phase IIa clinical trial in heart failure patients with preserved ejection fraction; and for PL-5028 to complete required preclinical activities to begin clinical studies in 2018.

Our melanocortin peptide program has the following objectives: for PL-8177, an IND submission and completion of Phase I study; establishment of an oral formulation; initiation of Phase II proof-of-principle studies in 2018; and for PL-8331 to complete the required preclinical activities to begin first-in-human studies in 2018.

As previously stated, for our melanocortin obesity and diabetes program, we have an activist development program, and our goal is to bring in one or more corporate partners for that program as well.

As we conclude, the management and employees of Palatin are focused on achieving our objectives and building value for our shareholders.

As a reminder, you can find additional information on our website, which is www.palatin.com. We're now going to open the call for questions. Thank you.

(Operator Instructions) And we will take our first question from John Newman from Canaccord.

Just curious if you have had your pre-NDA meeting with the agency with regard to bremelanotide.

John, that's a good question. We actually have had our pre-NDA meeting with the division. It went very well. We feel that we are in a very strong position; that we'll have all the components necessary to file a really top-notch NDA. So we're quite excited about the meeting and where we are, and we're working real hard. Really, no surprises in the meeting. It went as we expected and as it should have.

Okay. And with regard to 3994, I know that you've been working on this in the background for some time. And now that you have some additional funding, you're pushing it forward. Just wondering what you can tell us about the Phase I study at this point in terms of design and sort of what you're looking to learn at this point in the clinical development there.

Sure. So it will be really more of a Phase II study. This study is designed to really look at natriuretic peptide mechanism in patients that have heart failure with preserved ejection fraction. And patients with preserved ejection fraction -- or about 50% of the heart failure patients have preserved ejection fraction, and there are currently no FDA-approved treatments for them. So what we're doing in this study is we'll be actually -- these patients very commonly come in, and they get what's known as a right heart workup. And so they have a catheter that's put in, and the function of the right heart is monitored. So while they're going through that procedure, we'll be introducing PL-3994. We'll be looking at its effects on pulmonary arterial blood pressure, in particular, pulmonary capillary wedge pressure, in particular. And we'll also be taking a biopsy of the heart, and the goal of that biopsy is actually to look at the signaling pathways that are activated by PL-3994, making sure that they're functioning in these types of patients. If that's the case, that will be a major step forward for us. That will really give us a key indication that the product, the drug will work in these patients or there's a chance that it will work in these patients. And we can think about how we go forward and design trials to actually show benefits in a more natural setting. So it's a pretty important study that will be done in conjunction with 2 academic centers, and we'll talk a little bit more about that when we announce the start of the study a little bit later this year.

And we will take our next question from Michael Higgins from Roth Capital Partners.

Hoping an update from you on bremelanotide's pre-NDA trials. You got some small PK trials that you've been running. And I think you may actually have some coming up as well, abuse liability and drug interaction studies. Any update for us on those?

Sure. I mean, these are -- a lot of these studies are -- they're important to be able to meet regulatory requirements. They're all fully enrolled, and almost all, I think, except for one, have actually completed the in-patient part. We're just waiting for study reports. We don't really have much in the way. I mean, they're fairly benign as far as outcome. There's no negative results that we report. As far as we can tell, the drug looks quite clean as far as its drug interactions. The abuse liability, from a preclinical standpoint, there are a number of studies that we've done. Doesn't appear to be any interaction there. The clinical component is, again, fully enrolled, and we haven't yet received the clinical study results. But my suspicion is that we won't see any effect there either. So really, overall, these are at their -- they're either complete or at the tail end of being completed, and they will be incorporated into the NDA as we get the study reports and submitted into the FDA. But there's nothing here that will have a negative impact on the label, which is what we're most concerned about.

Great. I appreciate that. Steve, any update for us on the penny warrant conversions and how that's been going?

Sure. The penny warrants or what we call the prefunded warrants have been exercised of a penny. In the last 4 months, June, July, August and September, we've actually experienced approximately $32 million of exercises from the prefunded warrants and -- which we believe all those prefunded warrants are -- the vast majority were sold into the marketplace. In the month of September alone, we received $16 million of exercises related to the prefunded warrants. So as of chatting today, we have approximately $11.5 million prefunded or penny warrants outstanding, and our expectation is that these will be down to 0 within the next 30 to 60 days.

Great. Any update for us on the discussions with the European partners for bremelanotide and what you're looking for in partnership agreements if it's region-wide or country-wide?

Sure. Sure, Michael. The -- as I mentioned, and I think most people are aware, we've licensed the North American rights and the Mainland China and a few surrounding territories already. We're in discussions with multiple parties for multiple regions. They -- some of those discussions are, for the rest of the world, under one umbrella. The rest of the world, again, sans North America and China. And some of those discussions also include European-based companies and some other companies in select territories, i.e. Japan, Latin America separate then Europe. So as of right now, we're moving forward with these advanced discussions. And similar to what we've done with the partner, with AMAG as a collaboration partner and also with Fosun Pharma as a collaboration partner, we're not necessarily -- upfront payments are nice, and it's -- we want to be -- we want a competitive number. But our A item is finding the right collaboration partner. We think AMAG fits that profile perfectly. We think Fosun Pharma is going to be an excellent collaboration partner in that territory. And as we advance these discussions, we can very well do a rest of the world territory deal or some additional territories, i.e. European and some surrounding countries separately, Latin America separately, some of the other territories separately. But we're very pleased with the amount of activity and enthusiasm we're receiving in the marketplace. And we anticipate that, that's going to even increase now that we've done another deal, i.e. China with Fosun Pharma.

Okay. I appreciate it. Just a follow-up on 3994, a follow-up on an earlier question. What biomarker data would you be looking for from your biopsy data?

Sure. With -- it's a -- secret to ANP is the common downstream modulator looking for other types of things like phosphorylation, protein kinase activation. So there are number of downstream biomarkers that -- or intracellular biomarkers that we'll be looking for. There'll be a number of genes that we'll be looking for as well. Phosphodiesterase 9 will be another one that we're looking at. So we have a whole panel of things that we'll look at intracellularly. What we'd also like to see, from a physiological standpoint, though, is we'd like to see how much of an impact we have on the pulmonary capillary wedge pressure, which is -- it can be an important component in these patients that have right heart failure.

That's helpful. And then one last, if I could. I noticed Q4 R&D spend was higher than the previous quarters of fiscal '17. What drove that? And might that continue into '18?

It won't continue into '18, Michael. The way you have to account for this, per generally accepted accounting principles, the cost reimbursement we receive from AMAG is actually accounted as contract revenue above the line. So that's under the revenue. So we anticipate a significant dropoff in the R&D spend, which is primarily bremelanotide, after the fourth quarter of this year. Because as we mentioned, our target is to file the NDA early in calendar 2018. And the R&D spend post, if you will, the fourth quarter of this year, maybe a little bit into the first month or 2 in calendar 2018, will be primarily, and vast majority, primarily on our MCR1, MCR1 5, the inflammatory targets and also our heart failure targets.

And this concludes today's question-and-answer session. Dr. Carl Spana, I'd like to turn this -- the call back to you for any closing or additional remarks.

Great. Thank you for the good questions. We appreciate it. Here at Palatin, as you can hear it, we're quite excited about what we've accomplished in the last year and what we intend to accomplish in the upcoming year. It's a good time to be here. We really have a lot of potential. And as I said, there's a lot of enthusiasm on the employees and our partners. And really, we're just excited to be coming in every day and look forward to updating you as we go forward over the next 4 quarters. So have a great day, and we'll talk to you next quarter.

And this concludes today's conference. Thank you for your participation, and you may now disconnect.