Q2 2024 Palatin Technologies Inc Earnings Call
Participants
Carl Spana; President, CEO and Director; Palatin Technologies Inc
Steve Wills; CFO, COO, Treasurer and Secretary; Palatin Technologies Inc
Joe Pantginis; Analyst; H.C. Wainwright & Co LLC
Michael Higgins; Analyst; Ladenburg Thalmann & Co Inc
John Newman; Analyst; Canaccord Genuity
Presentation
Operator
Greetings. Welcome to Palatin Second Quarter Fiscal Year 2024 operating results conference call. At this time, all participants are in a listen only mode, a question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded.
Before we begin our remarks, I would like to remind you that statements made by Palatin are not historical facts and may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate and that the actual results may differ materially from those anticipated due to the 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 by Palatin's.
Now I would like to turn the call over to our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.
Carl Spana
Thank you.
Good morning, and welcome to the 22nd quarter fiscal year 2024 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.
I'll turn the call over to Steve and he will give a financial and operating update. Steve?
Steve Wills
Thank you, Karl. Good morning, good afternoon.
Good evening for Palatin's fiscal second quarter ended December 31st, 2023. Certain business highlights and recent updates follow regarding Vyleesi, which is our bremelanotide injection for approved, FDA approved for hypoactive sexual desire disorder or HSDD. We completed an asset sale to Costa pharmaceuticals for up to $171 million in December of 2023. For female HSDD, we received $12 million upfront plus potential sales-based milestones of up to $159 million based on annual net sales ranging from $15 million up to $200 million. Importantly, Palatin retains the rights and use of bremelanotide Vyleesi for obesity and male erectile dysfunction indication.
Regarding other, we had two equity offerings, a registered direct offering in January 30th, 2024, we entered into a securities purchase agreement with healthcare-focused institutional investors selling and issuing an aggregate of approximately 1.8 million shares of Palatin common stock at a purchase price of $5.46 per share of common stock, which was our market price at the time of the transaction. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 1.8 million shares of Palatin common stock at an exercise price of the same $5.46 per share. The offering was completed on February first, 2024, with gross proceeds of $10 million. The common warrants are exercisable beginning six months after the date of issuance and will expire on the date that is four years after the closing date. Second, after a second equity offering was October 2023. On October 23rd, 2023, we entered into a securities purchase agreement with one institutional investor selling and issuing an aggregate of approximately 2.4 million shares of Palatin common stock at a purchase price of $2.12 per share of common stock. Palatin also agreed to issue in a private placement warrants to purchase up to an aggregate of approximately 2.4 million shares of common stock at the exercise price of $2.12 per share. This offering was completed on October 24th, 2023, with gross proceeds of $5 million. The common warrants are exercisable beginning six months after the date of issuance and will expire on the date that is 5.5 years after the closing date.
Moving over to our fiscal second quarter ended December 31st 2023 financial results regarding revenue, total revenue consist of gross product, sales of Vyleesi, net of allowances and accruals. Vyleesi gross product sales to pharmacy distributors for the quarter ended December 31st, 2023 were $4.3 million with net product revenue of approximately $2 million. This compared to gross product sales of $2.6 million and net product revenue of $1 million for the comparable quarter last year. Gross product sales for this period December 31st, 2023 quarter increased 64% and net product revenue increased 98% over the comparable quarter last year.
Regarding operating expenses, total operating expenses were $0.9 million, net of a $7.8 million gain on the sale of IDC compared to $6.6 million net of a $1 million gain on Vyleesi purchase commitments for the comparable quarter last year. The decrease in operating expenses was mainly the result of the gain recognized on the sale of Vyleesi Cosopt pharmaceuticals.
Moving over to other income flash expense. This net figure consists mainly of the change in fair value of warrant liabilities, which Palatin has recorded as a liability on the consolidated financial statements, including the revisions of certain prior period and the use of certain prior period amounts to correct a misstatement with respect to classifying warrants as equity instead of a liability. The statement of operations is adjusted each quarter to reflect changes in the fair value of these warrants for the quarters ended December 31st, 2023 and 2022, Palatin recorded a fair value adjustment loss of $8.1 million and a gain of $5.2 million, respectively.
Regarding warrant liabilities, Talison has assessed the impact of a problem of improperly classifying the warrants related to the October 2022 financing with an equity rather than a warrant liability was adjusted through charges or credits to the statement of operations to reflect changes in the fair value of the warrants. And we've determined that the impact is not material 20 prior period impacted. Accordingly, Palatin will adjust prior periods only as those financial statements are presented for comparative purposes and future filings.
On January 24th, on January 24th, 2024, Palatin and the warrant holders amended the terms of the warrants related to the October 22 and October 2023, financing's as a result, the $11.9 million of warrant liabilities as of December 31st, 2023, will be reclassified to additional paid-in capital upon amendment.
So and I gave you the concise version, no harm, no foul, there will be no future adjustments to the statement of operations.
Regarding the liability regarding the warrants, starting with the first quarter of 2024 our filing and the liability that's on the balance sheet as of December 31st, 2023 will be reallocated to access to equity. We amended the warrants too. It two to characterize it as equity versus the liability treatment.
Regarding Palatin's net loss for the quarter ended December 31st, 2023 was $7.8 million or $0.56 per basic and diluted common share compared to income of $2.7 million or $0.25 per basic and diluted common share for the comparable period last year.
The change to net loss of the comparable quarter last year was due to several factors.
Since the derivative liability accounting took place in the fourth quarter. We have we have several and also the sale by the EC. So specifically, we had an increase in net product revenue of Vyleesi of $1 million compared to the prior quarter of last year. We had a gain on the sale of Vyleesi of $7.8 million, and we had a change in fair value of warrant liabilities of $8.1 million of expense in 2023. For 2022, we had $5.2 million of income related to the change in fair value of warrant liabilities, and we had the recognition of an income tax benefit of $4.7 million during the 2022 period. The income tax benefit is related to that very nice program to have in the state of New Jersey for net operating losses.
Moving over to cash position.
As of December 31st, 2023, Palatin's cash, cash equivalents and marketable securities were $9.5 million plus, we had $2.3 million of accounts receivable compared to cash, cash equivalents and marketable securities of $5.5 million, plus $1.3 million of accounts receivable as of September 30th, 2023. The $9.5 billion of cash, cash equivalents and marketable securities as of December 31st, 2023, does not include the $9.2 million of net proceeds from the registered direct equity offering, which closed in February of 2024. So pro forma as of December 31st, January first, 2024, we have approximately $18.7 million of cash, cash equivalents and marketable securities. We believe that existing cash, cash equivalents and marketable securities and accounts receivable will be sufficient to fund currently anticipated operating expenses and disbursements into the second half of calendar year 2024.
Now I'll turn the call back over to Carl for.
Carl Spana
Thank you, Steve.
Nice lesson in accounting.
As you know, our focus has been on understanding the biology and chemistry of the melanocortin system with the goal of developing selective melanocortin agonist for a variety of medical indications.
Our research efforts have resulted in a growing portfolio of non-core face therapeutics.
We have three active clinical programs based on the line of Gordon agonist with multiple new programs ready to advance into clinical development pending resources fall coming from our highly productive research activities. As we have previous previously reported, we have locked the database and instructed the statistical contract research organization to unblind the data for the PL nine six four three MOBILITY one Phase three study in dry eye disease.
We expect to report top line data this month.
Our Phase two study evaluating oral PL. eight one seven selective line of Gordon receptor one agonist in ulcerative colitis patients is on track for an interim assessment of the clinical data in the first half of 2024, supporting oral PL. eight one seven development or preclinical studies, demonstrating that treatment with oilfield eight one seven in disease models. Causes disease colors to improve toward a healthy state and to resolve inflammation evolving inflammation rather than blocking. It provides possibility of efficacy coupled with significantly differentiating safety in treating colitis and inflammatory bowel disease. Additionally, research work apparel has mapped clear mechanisms of action pathways, melanocortin agonist and supporting the resolution of inflammation break-out our Phase two open label study evaluating a melanocortin agonist in diabetic patients with kidney disease is also on track for top line data in the first half of 2024.
So clearly, this is a big half for us three clinical trial readouts.
As far as what is on the rise at Palatin, I would like to take a minute to highlight two new clinical studies that we are anticipating starting in the first half of calendar 2024. The first is a Phase two study evaluating co-administration of bremelanotide, a melanocortin agonist for their phosphodiesterase five inhibitor, and those are just biography, Alice. So those are the drugs that are currently used to treat rectal dysfunction. This would be an erectile dysfunction patients that have not responded to current therapy. So these are guys that are failing Salix, Viagra and so on. This clinical study will support the development program of a combination product, which is a co-formulation of our MCR. four agonist bremelanotide with a phosphodiesterase five inhibitor. Just as a reminder, Bremelanotide is the active agent and Vyleesi, our approved product for female sexual dysfunction. All of this work is an extension of our commercial efforts in sexual dysfunction. Just to note, approximately 35% of men with erectile dysfunction fail or have an inadequate response to current therapy and represent a large underserved market. Only treatment options for these failure patients are highly invasive, such as direct-mail injections or penile implants. We have previously conducted clinical trials showing the synergistic effects of combining bremelanotide with a PDE5 inhibitor as a treatment for erectile dysfunction and feel well-positioned for an efficient and successful development program of this co-formulated product.
Second, planned study will evaluate in light of 44 receptor agonist in obese patients taking glucagon-like peptide one or two quick ones.
And you know those as one Gyro Wegovy is all the rage.
Now these are the current treatments that are being used for obesity as construction for obesity is now established and growing rapidly. We believe the treatment goal will switch from driving down weight loss to overall weight management this will require a variety of drugs with different mechanisms of action that affect weight loss and very importantly, weight loss maintenance.
We strongly believe that drugs targeting the melanocortin system will be an important part of future obesity treatment and with what weight loss management through our extensive experience in the design and development of medical, an agonist for treating obesity, including two clinical studies completed and published, we are well positioned to be a leader in the development of microRNA-based therapeutics for weight loss and importantly, weight loss maintenance.
The operating highlights for the second quarter of fiscal year 2024 as follows. As Steve noted, we completed the asset sale of Vyleesi to close pharmaceuticals for up to $171 million with $12 million received upon has an upfront payment. We are planning on initiating two new a lot of corn programs, Phase two clinical study starting in the first half of calendar 24 with readout later in the calendar year. And as we noted, two studies are one will evaluate the co-formulation of bremelanotide with a PDE5 inhibitor. Net patients that have failed first line therapy. And the second, as we also noted, we'll evaluate the addition of a lot of corn for receptor agonist and bremelanotide to these patients taking cyclic one agonist or clinical programs also continued to make good investments for our appeal 94 three, Melody, one Phase three dry eye disease study. We should report top-line data this month, emerging product profile for PL nine six four three is highly differentiated from current treatments with excellent ocular tolerability and broad efficacy that we believe will make it a leading treatment for dry eye disease. Our oral PLA. one seven clinical trial in ulcerative colitis have the interim analysis in the first half of this year, as will our breakout open label Phase two study evaluating a melanocortin agonist in diabetic kidney disease.
I'd like to thank you for listening to the pound in the second quarter fiscal year 2020. For a conference call. You can find additional information on our science and clinical programs on our website, www.powellind.com, and you can find additional information on Vyleesi at Alizay.com website. Steve and I would like to thank you all for participating on the conference call. We will now open the call correct.
Question and Answer Session
Operator
Certainly at this time we would be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue you may press star two. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions. Your first question for today is coming from Joe Pantginis at H.C. Wainwright.
Joe Pantginis
Hey, guys. Good morning, and thanks for taking the question. A couple of questions for us. We don't mind off, Carl and starting at the back end of your comments. I was hoping you could provide
Carl Spana
Okay, hello?
Operator
it looks like we lost the line one moment.
Joe Pantginis
Can you hear me now because your line is live.
Okay. No idea what happened there because I don't even have a mute on the spot I would not I mean, anyway. So I was hoping maybe starting at the back end of your comments about providing some level of the mechanistic rationale of combining bremelanotide with a GLP-1 agonist or you're one of those therapies for weight loss right now about whether it could be the maintenance setting or why those two drugs can really work together for the broader audience?
Carl Spana
Sure.
I tried I tried to allude to it in a simple way. What was the first one was we've done and have presented data on combining a medical or four agonist with equivalent agonist and they work quite nicely together. We're I would say they were quite synergistically. And when you think about it, the In part, the quick ones have probably multiple mechanisms how they bring about the patient feeling being satiated and changing their energy use. And part of that is actually through the leptin melanocortin system. So these things are working in and kind of similar pathways. But when you add the Bio-Quant four agonist on top, you get you get full activation of the leptin melanocortin pathway. And that's a very key pathway in regulating energy homeostasis overall. And that actually leads us into why we will be also very useful in weight loss maintenance. There have actually been several studies published of preclinical studies published on weight loss maintenance using a melanocortin agonist of animals.
And both of those are actually with Paladin compounds.
And you see very, very nice maintenance of the reduced weight state.
And one way to think about this is there are there are differences in how these patients respond to various treatments for weight loss. For example, when you're obese you respond one way when you are losing weight, you respond slightly differently. But importantly, when you get to that weight loss reduced state, you don't always respond the same way to the ones as you do when you're obese and you then need treatments like some of the effect of the leptin melanocortin pathways, things like bremelanotide or some of the new compounds that we are bringing forward to actually maintain that weight. And that's really the key here though we can drive a lot of weight loss with Eclipse and the other incretin therapies but we really need to keep these patients at a reduced weight if you want to have long-term benefits. So if you think that the weight loss market is used to weight loss maintenance margins probably Dorset because these patients are going to be on treatment for many, many years. And so that's why we're very excited about where we stand and really the biology and the science behind targeting the lefamulin accorded a pathway for weight loss maintenance is pretty compelling.
Joe Pantginis
That's a helpful summary. I appreciate that. So I have a specific question, which will then segue into sort of a broader strategy question. So when you look at the upcoming 81, 77 ulcerative colitis data, you have interim data coming up or I'm sorry, in interim analysis coming up, which is part of my question. What is your communication strategy around the interim analysis? Is this a, you know, just a continuous plan type of announcement that we hope to see or will you be afraid providing any data.
Carl Spana
Provide that to you, but we're trying to be transparent. So we have we'll provide the data that we have in our end to the best of our ability, our how we see it playing out from the interim analysis.
The final analysis, your goal here is to we do want is out in public because one of our key goals is to continue to work with the people that are in licensing this product. And we want to make sure that it's out there and people understand where we're going in the cloud space, not perfect.
Joe Pantginis
And then I have it with us having saying ulcerative colitis, I said going to the broader question in strategy. When you look at the indications that you guys are addressing overall with your different assets, these are very large markets. So I guess, you know, as of today, how do you view your business development strategy because they're very large markets, you know, are you looking at, you know, the potential for global regional when you're balancing against your current NASH cash needs?
Carl Spana
Well, you've hit on the head. You would look, let me backtrack for a second.
I'm talking a little bit faster or thinking fast. And I'm talking when it comes also of colitis or dry eye disease. Our goals of those are really to partner those programs and they represent very large markets. But in the case of dry eye disease. We have multiple larger to me success with nine six, four three. There are still several Phase three trials that have to be done plus all the commercial manufacturing and that really in today's world, is it more of a commercial market, right as a consumer market. So we really like to see that product deal, Sumeet, assuming success in the hands of a larger company that's going to eventually market and has the ability to do the outreach there. And that's not really a pilot in place. Steve will tell you he learned a tremendous amount about marketing to consumers through Vyleesi and its expenses are annual and it requires a very consistent effort, and that's not kind of warehousing is set up and certainly not with the resources we currently have, again, but also of colitis, your medical need is extremely high. But again, a competitive marketplace, meaning there are lots of therapies out there competing for patients for the larger trials and then for voice in the commercial sphere.
But with that being said, the need is very high. So we believe it or not.
That's one of the programs that even in its early stage has a huge amount of corporate interest already. And then again, when we think about where we want to go with regards to the obesity and rectal dysfunction you guys have essentially one is an area we know extremely well. We've studied thousands of patients there. The one we are a company of our size can probably make good headway in meeting that the we know how to take it. We know how to get to into commercialization and they're already distribution channels available and has high awareness among patients. So that's one where we were probably trying to keep longer because it's one where we can conceptualize, you know, thinking about it, assuming things go well for us, commercializing it, obesity on book market is hot. And I think we're trying to position ourselves, which in particular is that weight loss maintenance and then in the supplementation or the agent therapeutic which ones those are novel spaces where people are thinking about them. I think very soon shortly they will be and I think we'll be in a great position to monetize our early assets there relatively quickly.
Joe Pantginis
Got it.
Carl Spana
That's very similar to the way we're saying it. And Steve, actually Steve has a business development people to work directly reporting to him and he's really on top of all the business development activities that we're doing and making sure that they're getting done.
Joe Pantginis
Got it. Appreciate it.
Operator
Your next question for today is coming from Michael Higgins with Ladenburg Thalmann.
Michael Higgins
Thanks, Barry, and good morning, guys. How are you?
Steve Wills
Hello, Michael.
Carl Spana
Hi, Michael.
Guys, you can hear me, right?
Michael Higgins
Congrats on the quarter. Looking for disability data readout here in February. Wondering ahead of the data here, what you would consider to be a clinically meaningful threshold from this readout, whether it be timed symptoms or both what is beyond that sig but you may feel is important for its commercial value.
Carl Spana
I think the other dry eye disease, the FDA does not require really requires some significant endpoint. And with regards to them, the side, there really aren't the only in the US, except for signs outside of tear production is a complete resolution of the disease, which is an unrealistic really what we think about it's really on the symptom side, which is really more important because that's really where the that's really what affects the patient are you the sign of dry eye disease, ILD up the staining results, patients understand that it doesn't really mean anything to them from the center front, you'd like to see a 10 point change. You can't pinpoint difference between vehicle and active that would be clinically upcoming vehicle change. So that's what we felt would be a really nice response for us. And we could have 10% or 10 points on the scale.
Michael Higgins
We hope to see there to.
Thanks for that detail and ahead of this, and we don't hold you to it, but just to get your sense for timing for additional data. Obviously, you'll have a very busy first half of the year. Is there a chance you can get additional data out at conferences? How would you expect to give us a bit more top line or anesthesia machine?
Carl Spana
Sure. I think the there are multiple there are a lot of ocular meetings throughout the year and assuming positive data, we'll have we'll have a presentation that at every one of the upcoming ocular meetings, again, positive data will go through the Arval, which is in the we've missed the date there. But we'll go for late-breaking if it's good. So we'll keep we'll keep a very good flow out of the data.
Michael Higgins
Have a great look forward to that. And then switching over to breakout any feedback you can give us as to what type of data we'll see when we do read it out for.
Carl Spana
It was just an open-label study, a single dose study really was on uptake. It really it's really a supportive study because what people realize is we have had a chance to talk about it, but we're actually in the final stages of selecting an actually an orally active small molecule that targets the MCR. one receptor. So this is really a study that was kind of set up for that for the Injectable study. But what we'd expect to see is really a drop in proteinuria and the cracking and closing ratios and the patients don't really maintain. They don't spontaneously remit. So any change, you see an improving you see is going to be really due to the drug activity and then if they don't get better, they just they just progressively get worse. So one reason why we chose the indication of it. Although the disease progresses relatively slowly, it doesn't have spontaneous remission. So you can do an open-label study and that we see effects on your kidney function, they'll be most likely really prematurely the drug.
Michael Higgins
Right. Yes, the expense report, the theme that's and then on the BCD. and ED. programs have you met with the agency to use me to discuss trial design depth.
Carl Spana
I'm not clear on that thing.
I have 40 of the 81 different and neither have been submitted yet or we haven't opened up I & D's, we're going to probably one the ET study towards the expediency as a physician sponsored trial. We have we have clinicians that were involved in the early days, working with us in the early development, bremelanotide that are very urologists and a very and I think they have some large practices that can and really can't get a lot of patients really quickly. So that will be on probably a run, as I said, assistance market, I&D, we should be submitting.
I think the IND. or the Cline the request to the agency by the end of this month for the obesity study.
Michael Higgins
Interesting. And then a follow up on the obesity. I believe your Phase two on this would be with D. and T., but your Phase three would be kind of a B and T XR version that right?
Carl Spana
So we have we've been using the bremelanotide as a as a as a test molecule for adding extended release and to our various peptides we have across the board has been working very, very well, but we can extend once I quite nicely. The overall program, although it is really great at the mine site is being used as a proof of concept, what we will go forward and we'll be having a little bit more information out on this probably in the second quarter of the year of this calendar year. We have novel compounds that really are highly selective for the monoclonal for receptor. So they have a much cleaner profile than bremelanotide does, and they're much more suited for long-term chronic use and also the receptor profiling for long-term RBC treatments, in other words, a degree of pad layout. But let me not go through that part of this endpoint, but how you interact with the receptor should maybe be a little bit different every Monotype. So plenty that again, I've not done up to the Board of labels that are listening is that you we have a tremendous understanding of the structural function relationships with regards to all the various MoneyCard receptors and your peptide agonist. And we're able to dial in a degree of activity that we think is probably really ideal for an obesity treatment and effort you're going to see going forward into towards the end of Phase twos and Phase two eventual Phase three studies?
Michael Higgins
Yes, these are really exciting programs. So your expertise in this, we're looking forward to seeing your details. So thanks for that, that did for us for now, and congrats again.
Carl Spana
Thanks, Mike.
Operator
Your next question for today is coming from John Newman with Canaccord.
John Newman
Yes, thanks a lot for taking the question on Karma. So I just had a general question about the dry eye program rather than getting into the data details. You know, we've had several dry eye products approved, and I know that sometimes the endpoints can be hard to use in order to gauge the effectiveness and success of the product, but I'm wondering if you could talk more about how and do you believe nine six, four three can be differentiated from some of the other products in the market maybe on the safety side is 12 is a thing?
Carl Spana
Well, I think you hit it real estate.
You're kind of hit today.
I think you at the end of the day, you've got most of the treatments that are approved for dry eye disease have tolerability issues. Safety in these treatments are pretty good. You're giving a small amount of drug topically. So there's not an overall large concerned about systemic effects. So it's really about patient acceptance and tolerability in long term use. And that's what's really played a lot of the drugs that were in the market for a long period of time. And then coming into the marketplace on the PL nine six, four three has really excellent ocular tolerability and safety. So that would be a very key differentiating factor, have a comfortable installation without itching, tearing and burning or feeling grouping this or off patiently. That nature is really key to for a product like this because I said it is very consumer driven. And so that's going to keep the key important factor. I think most of you that like to kind of distinguishes them in the dry eye space, we see different types of products, right? So a product like mine six, four, three really is trying to address the underlying disease. And we're trying to modify the disease condition. And it's true that have an overall effect on the corneal surface health and then how the patient perceives their disease, why their symptoms improving. That's a little bit of a much more difficult challenge than agents that are what I would classify just really symptomatic treatment and others, i.e., they just drive eight a tiering of the eye short term tiering of the eye that may maybe can alleviate symptoms over a relatively short period of time, but don't really have long-term benefit and three, either dry eye disease. So there's another distinct thinking factor there again, assuming succession. And we're really we're likely to be having that success because we're really modifying the underlying disease, not just steel addressing assembly.
John Newman
Great. Thank you.
Operator
And we have reached the end of the question and answer session, and I will now turn the call over to Karl for closing remarks.
Carl Spana
Very few of the what I would like to thank everyone for participating on the call, and we'd like to thank our analysts for the very insightful questions that they ask and helps us to CB&I to more or less eliminate, though what we're doing here. So again, thanks, everyone. A big half for us, obviously, a big month for us. So we're looking forward to the data and take care, and we'll catch up with you soon.
Thank you.
Operator
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
