Palatin Technologies Inc (PTN) 2020 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Second Quarter Fiscal Year 2020 Operating Results Conference Call.

As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that these 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 accurate, and actual results may 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 results -- I mean prospects.

Now I would like to turn the call over to today's host, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you. Good morning, and welcome to the Palatin Technologies Second Quarter Fiscal Year 2020 Call. I'm Dr. Carl Spana, CEO and President of Palatin. 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 going to turn the call over to Steve, who will provide the financial update. Steve?

Thank you, Carl, and good morning, everyone. Regarding Palatin's quarter ended December 31, 2019, financial and operational highlights include: with respect to Vyleesi, the first as-needed treatment approved for premenopausal women with acquired generalized hypoactive sexual desire disorder or HSDD.

On January 9, 2020, AMAG announced that as a result of a strategic review, it will divest Vyleesi and another female health care product, Intrarosa. AMAG stated that it has received preliminary expressions of interest regarding these assets. Under the Vyleesi license agreement, AMAG has a contractual obligation to use commercially, reasonable efforts to commercialize Vyleesi. If AMAG materially breaches this obligation and fails to cure such breach, Palatin could potentially have the right to terminate the license agreement and require AMAG to assign and transfer its Vyleesi rights to Palatin.

In the event AMAG assigned its Vyleesi license other than to Palatin, the signee must expressly agree to be bound by the Vyleesi license agreement between AMAG and Palatin.

Regarding Vyleesi collaborations, we are advancing discussions with territories outside the currently licensed territories of North America, China and Korea, and we anticipate executing multiple agreements during calendar year 2020. Vyleesi is licensed to Fosun Pharma in China and Kwangdong Pharmaceutical in South Korea. Both companies are advancing Vyleesi through the regulatory process in their respective territories, which includes the conduct of certain clinical studies in those territories prior to filing for market approval.

With respect to Vyleesi and our other programs under development, Dr. Spana will expand on these during his portion of the presentation.

Switching over to financial highlights for the quarter ended December 31, 2019. Regarding revenue, for the quarter ended December 31, 2019, we recognized as revenue $20,610 in reimbursement of shared Vyleesi costs related to our license agreement with AMAG. There were no revenues recorded in the 3 months ended December 31, 2018.

Regarding operating expenses, total operating expenses for the quarter ended December 31, 2019, were $5.7 million compared to $5.1 million for the comparable quarter in 2018.

The increase in operating expenses was mainly due to the final payment of $625,000 made in connection with the mutually agreed upon termination of our engagement agreement with Greenhill & Company, LLC. Regarding other income, total other income was $397,480 for the quarter ended December 31, 2019, compared to total other income of $7,871 for the comparable quarter of 2018.

The difference is related primarily to the increase in investment income on our cash and cash equivalents. Regarding cash position and working capital, our cash, cash equivalents and accounts receivable were $91.6 million at December 31, 2019, compared to $96.8 million at September 30, 2019, and $103.8 million at June 30, 2019. Current liabilities were $1.4 million at December 31, 2019, compared to $1.9 million at September 30, 2019, and $4.2 million at June 30, 2019.

Our approximate cash and cash equivalent position, a little under $92 million at December 31, 2019 gives us sufficient funding to support our planned programs through calendar 2020 and at least calendar 2021. At this time, I'll turn the call back over to Carl.

Thank you, Steve. I'll start with the operational update with Vyleesi, a first-in-class melanocortin agonist and the only as-needed product approved by the FDA to treat hypoactive sexual desire disorder or HSDD, providing premenopausal women a safe and effective as-needed treatment.

As I'm sure you're all aware, in January 2020, AMAG Pharmaceuticals announced that as a result of the strategic review, it will divest Vyleesi, which is exclusively licensed from Palatin for North America. AMAG's planned divestiture of Vyleesi is based on its change in strategy and the uncertain commercial viability of Makena or premature birth medication and not on the value and commercial potential of Vyleesi.

AMAG divestiture of Vyleesi means that we will have a new North American partner for Vyleesi. As Steve said earlier on the call, we are taking all the appropriate steps to protect our rights under the Vyleesi license agreement and to ensure that the value of Vyleesi remains intact through this process.

With that being said, we understand AMAG's reasons for divesting Vyleesi, and we will support their efforts to ensure that a new North American Vyleesi partner is committed to a robust commercialization program that can realize the potential of Vyleesi.

In late September 2019, AMAG made Vyleesi available nationally with prescriptions being processed by 2 specialty pharmacies. But Vyleesi commercial launch remains ongoing under AMAG's direction. Based on the initial launch data and additional information we have collected, we remain strongly committed to the belief that Vyleesi has significant commercial potential.

Outside of North America, we are working with our Chinese partner, Fosun Pharma and our South Korean partner, Kwangdong Pharmaceutical, to advance Vyleesi development in those territories towards regulatory filings. With the FDA approval of Vyleesi, commercial interest for unlicensed territories continues to grow, and we are now actively engaged with multiple potential partners that are evaluating Vyleesi in all available territories.

We do not believe that AMAG's divestiture of Vyleesi will have a major impact on our ability to license Vyleesi for other territories. We are working to identify the best Vyleesi partners and to executing additional Vyleesi licensing and commercialization agreement. As Steve stated, our goal is to have Vyleesi partnerships for all major global territories done by the end of calendar year 2020. We believe our Vyleesi licensing strategy will maximize the return on our investment and allow us to focus our resources on our pipeline programs.

Moving on. In the past quarter, we continued to advance our pipeline programs in autoimmune and inflammatory diseases. These programs are based on our research work and the underlying science of the melanocortin system in regulating and resolving inflammatory and average immune responses. We have a specific interest in targeting the melanocortin system to treat ocular diseases. And we have 3 active ocular programs in dry eye disease, diabetic retinopathy and noninfectious uveitis.

We are excited to report that our PL-9643 dry eye program is beginning clinical trials. A Phase II study of the PL-9643 ophthalmic solution, which just means topical eye drops for treating dry eye disease will begin patient screening later this week. Dry eye disease also known as keratoconjunctivitis sicca affects the cornea and conjunctiva of the eye resulting in irritation, redness, pain and blurred vision. Causes are varied, and we believe that by activating the melanocortin system locally, PL-9643 will reduce the inflammation that underlies many aspects of dry eye disease.

Briefly, the Phase II study is a randomized, placebo-controlled study to evaluate the efficacy and safety of PL-9643 ophthalmic solution compared to placebo in patients with dry eye disease. This targeted -- the study is targeted to enroll 150 patients in 2 arms.

There is a 2-week screening period for patient selection and randomized patients will undergo 12 weeks of treatment. The primary end points are inferior corneal fluorescein staining evaluated at Day 85, pre and post controlled adverse environment challenge and ocular discomfort measured at Day 85. In addition, there are multiple secondary and exploratory end points.

Data from the study is expected to be available in the fourth quarter of 2020. Additional details of the study will be available on the clinicaltrials.gov website. A successful study will provide the data required to advance PL-9643 ophthalmic solution into pivotal Phase III studies.

The market for dry eye disease treatments represents a substantial commercial opportunity with over $2 billion in annual sales and continued growth based on patient demographics. We believe the potential favorable efficacy, tolerability and safety profile of 9643 will allow for substantial market penetration of the dry eye market.

Our other ocular pipeline programs include PL-8331, a melanocortin-1, -5 agonist for treating diabetic retinopathy and subcutaneous PL-8177, a selective MCR melanocortin-1 receptor agonist for treating noninfectious uveitis.

The preclinical animal disease models, both compounds have shown significant efficacy and the potential to affect the underlying disease process. For PL-8331, we are conducting the preclinical research and development activities required to file an IND and begin clinical studies with the objective of starting and completing a Phase II proof-of-principle study in 2021.

For PL-8177, for which we have received orphan drug designation as a treatment for noninfectious uveitis, we have also completed all the work required to file an IND and commence clinical studies. We intend to conduct a Phase II clinical study in noninfectious uveitis in 2021 after reviewing the data from the diabetic retinopathy study.

In addition to our ocular pipeline programs, we have developed an oral colon release formulation for PL-8177 as a treatment for ulcerative colitis and other inflammatory bowel diseases. We have completed 2 Phase I PL-8177 clinical trials. The first was a combined single-ascending and multiple-ascending dose study, evaluating the systemic safety of subcutaneously administered 8177.

The second study evaluated the pharmacokinetics and safety of the oral colon delivery formulation of PL-8177. We're now in a position to advance into Phase II proof-of-principle clinical study in ulcerative colitis with the oral colon release formulation. The study is anticipated to start in mid-calendar 2020 with data readout in mid-calendar 2021.

We also have 2 programs that are supported by our research on the natriuretic peptide system, PL-3994, a selective natriuretic peptide receptor A agonist is scheduled to start a Phase II trial sponsored by the American Heart Association, which will be conducted by 2 major medical academic research centers.

The trial has received required regulatory approvals and we anticipate the study will begin in 2020. Although still preclinical, we are excited by our compound, PL-5028, a dual natriuretic peptide A and C receptor agonist for potentially treating cardiovascular and fibrotic diseases. Preclinical studies of liver fibrosis and pulmonary fibrosis completed last year, PL-5028 has produced encouraging results. Our development plan for 5028 is to complete additional preclinical efficacy studies in myelofibrosis disease and these are positive to begin the preclinical activities required to file an IND and begin clinical studies.

You can find additional information on our programs on our website, www.palatin.com. In closing, our $92 million in cash as of December 31, 2019, and the growing revenue stream from new Vyleesi licenses, sales and milestones gives us a strong current balance sheet to support the advancement of our exciting pipeline programs. We believe that the approval of Vyleesi provides validation of the melanocortin system as a target for drug development, and we are excited by the potential of our melanocortin autoimmune and inflammatory development programs.

During calendar year 2020, we'll be focused on the following: taking the appropriate steps to safeguard our rights provided by the Vyleesi North American license agreement to ensure that the value of Vyleesi remains intact and continues to grow. We will also continue to be opportunistic and flexible as the divestiture process advances with the objective that the ultimate licensee of the North American rights to Vyleesi is committed to the robust commercialization of the product. We will continue to support Vyleesi development work of Fosun Pharma and Kwangdong Pharmaceuticals as they move Vyleesi towards regulatory submissions in their territories and to work to execute additional Vyleesi commercialization agreements.

We also continue to advance our pipeline programs with the start of the Phase II PL-9643 dry eye clinical study. The final activities to begin the Phase II PL-8177 study in ulcerative colitis, and advancing PL-8331 to an IND filing in diabetic retinopathy.

Thank you. We will now open the call for questions.

Our first question comes from John Newman.

Just had a question on Vyleesi. So I'm just curious if just roughly speaking, if there's any sort of time frame that you and AMAG are thinking about in terms of locating a new partner for the (inaudible) specific items that are laid out in the agreement that you signed? Or if it's -- if the timing is different there? I was just curious.

Sure. Thanks for the question, John. It's Steve. Well, let's be clear. This is AMAG's process. They're the North American licensee and based on strategic factors, they've decided to divest Vyleesi and Intrarosa. AMAG has publicly stated that they are moving forward with the divestiture process, and they hope to have something completed or in advanced discussions by the end of the first quarter or sometime in the second quarter of this calendar year. We are -- we're supportive of the process, what -- we get along very well with AMAG. And if Palatin is brought into the process with discussions with potential partners, we will cooperate accordingly.

We want to make sure that if AMAG is no longer the North American licensee that the next owner of Vyleesi, the licensee for North America is -- we talk about the commitment, but it's also the capabilities, right? You want a company that's committed to the advancement of this female health care product, but also has the capabilities to move it forward. So the value and norm of Vyleesi can be achieved. We hope and anticipate that, with this being the 12/31 year-end, we're actually fiscal June 30, AMAG will not be having their conference call until early March. So we would anticipate and expect that they will give a lot more granularity around the divestiture process at that time.

Okay. Great. And as far as you know, the full promotional activities and support for Vyleesi remains in place and active. Is that an accurate statement?

Well, I mean I think that's a statement -- that's a question that AMAG can answer a lot better from an accuracy standpoint. We are aware that they're not going forward with the product as if they owned it, and that was stated at the JPMorgan conference, which is not a surprise. It's moving forward on a product that you're going to be divesting is different than moving forward on a program that you're investing in for the greatest value and norm. So we're -- we understand where that is in the process and again, I would anticipate and expect that we'll get a bit more granularity regarding the divestiture process on the early March AMAG conference call.

Our next question comes from Joe Pantginis, H.C. Wainwright.

Just following up on Vyleesi if you don't mind. So you did mention it early in your prepared comments about AMAG's requirement to sort of move this process forward in good faith under the contract. So is there any stipulations in the contract with regard to actual timing that they have to divest the product? And is there -- what is your potential recourse that would I guess define a breach of contract?

Sure. There are no specific timings, I mean as to a divestiture. Just in practical terms, I think it's in their interest to do it as quickly as possible. They have a full sales force. It's not -- to our knowledge, they have not yet releasing their sales force people so -- and we know that the sales force people are out detailing the product to doctors as they're required to do. At some point in order to save the expenses that they think they might save through the divestiture, they may have to cut back. When they begin to do that that will put them in a more difficult position vis-a-vis the relationship with Palatin and the potential contract that we have. So although there's no direct time line, I would expect they're going to do it as quickly as they can because they do want to capture those.

No, I understand. And then since you mentioned Fosun and Kwangdong obviously, can you just give maybe a little more detail as to where each of those territories stand into being able to get Vyleesi to market?

Sure, Joe. Both of those countries have had multiple discussions with their regulatory authorities to which we've been part of, they are requested that they do small additional clinical studies, predominantly to look at the pharmacokinetics of the product in the various patient populations, which is fairly typical in those countries. Those studies, protocols are in, and we would anticipate them starting in the first half of this year. And they should be in and done and completed before the end of the year, with submissions following shortly thereafter.

Our next comes from Michael Higgins.

Couple on Vyleesi, if I could. If you can give us an update on if this is still accurate or not. I believe in the past, you've mentioned from the times of development in Asia, you're looking for development milestones early in '21 from Fosun and Kwangdong of roughly $7.5 million and $3 million. Are those still numbers we should look for in that timing?

This is Steve, Michael. Thanks for the question. The numbers are accurate. The timing is going to be to the latter part of '21, early part of '22. These are regulatory milestones related to approval in China and South Korea. The larger, the $7.5 million is related to the China milestone.

Okay. That's helpful. Is -- a question on the uncertainty here that's happening with AMAG. And Joe asked a good question on timing and it sounds like this is something that clearly, they're working towards. There's also precedent here in the past where Addyi gets developed and sold, and then it came back to them, and they had argued that it wasn't being marketed properly and they essentially got the drug back and were paid for. It was essentially a settlement. Is that something that could happen here, given the contract and how it's structured, if need be?

Mike, this is Carl. Look, we are -- let me reiterate this, in as strong and as large as I can, we are absolutely of the belief there is a tremendous commercial potential for Vyleesi, and we certainly believe that AMAG was a partner to realize that. And it's unfortunate that it didn't work out. They were committed up until their divestiture. If it comes down to that, we would not let this product go to a party that we don't believe is committed to selling it. And if that means that Palatin has to step into the breach and take the product back, then that's what we'll do. We believe that there's tremendous value here. And we are not afraid to take it on and grow it. I mean it's just -- our preference, of course, would be for a larger company with better resources and infrastructure, but we're certainly not going to let this product wither. We are going to protect it.

Right. So if it does come back, your preference then would be to develop your own internal sales force, sell it yourself versus partner it with somebody else?

Suffice it to say that Steve and I have worked -- have been working for that eventuality if that's the case, and we have a very, I think, well thought-out plan, which will be if it does come back to us, we will articulate and act on, and that will include being able to have the commercial infrastructure to support the product going forward and growing it.

Okay. So it's actually a preference is what I'm hearing that you'd rather market it than repartner it?

Well, I think at this point, we would take it back. We would remarket it and really demonstrate how great this product can be before we would entertain whether or not we wanted to sell it or keep it.

It's -- Michael, it's Steve. Just to add on to that, it's -- you have to approach this sequentially, right? You can't bring it back in, if that's the scenario that transpires with a strategy to relicense it because that would have to be a sequential strategy. The plan would be to commercialize it and build the value, show the value. And then at a certain point, in the future, and that could be 4 quarters, 6 quarters, that would be another potential strategic scenario to consider. But initially, we would be moving forward with the product and just given it the attention that it needs to grow to the greatest enormous.

Okay. That makes sense. That's very helpful. I noticed we didn't see any Vyleesi revenues reported in this Q, despite the launch last fall. And obviously, you're having to report earlier than AMAG. So that kind of forces it, is there a potential restatement of the Q once AMAG reports Q4 -- calendar Q4 revenues? Or in the future do you expect to continue to report a 1 quarter lag of revenues?

No. We're -- I mean notwithstanding AMAG's reporting, we do get quarterly numbers. So we're comfortable with what we've reflected that it's not going to be -- if there is a change, it's not going to be material enough that would warrant any type of a restatement. I think you just need to appreciate and understand that the way AMAG has launched the product, the first script, which is a 4-pack, there's no charge to the consumer. That's the strategy that AMAG has set up. They want to ensure that there's no barriers for entry into the market by the female. Subsequent doses are capped at a $99 per script. So with the launch starting in late September, you're just in -- from a number standpoint, this is going through the throughput, there would not be a significant revenue because the first dose, which is a 4-pack script has to go through the cycle with the female. We fully expect that the first quarter will include royalties that we will, of course, reflect. And as I mentioned earlier, some of the more granular numbers around the launch, i.e., the script, we would anticipate and expect that AMAG will expand upon in their first quarter conference call, which is, I believe, scheduled for early March.

There are no further questions in the queue at this time.

Great. I'd like to thank everybody for participating on the fiscal second quarter call for Palatin. Thank you for the insightful questions. And hopefully, questions that help clarify where we are and where we're going. We look forward to continuing to move the company forward. We're very excited about our prospects and we will look forward to updating you next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.