Carl Spana - President & Chief Executive Officer Steve Wills - EVP, Chief Financial Officer & Chief Operating Officer

John Newman - Canaccord Genuity Michael Higgins - Roth Capital Partners

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Second Quarter Fiscal Year 2017 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 based on assumptions that may or may not prove to be accurate, actual results could for 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 would like to introduce you to your host for today, 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 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 a financial update and discuss our recent licensing transaction with AMAG Pharmaceuticals and outline our operating objectives for the next four to eight quarters. Last week, we announced the closing of licensing agreement with AMAG Pharmaceuticals for the North American development and commercialization rights for bremelanotide, which we will now refer to as Rekynda product for treating hypoactive sexual desire disorder in premenopausal women. We are very pleased to have AMAG as our Rekynda partner. AMAG Pharmaceuticals is a company dedicated to commercializing innovative products for female health via sales, marketing and commercial teams focusing on reaching the patients and healthcare providers that will be critical for successful Rekynda product launch. I'm now going to turn the call over to Steve, who will provide the financial updates and to review of the Rekynda licensing agreement. Steve?

Thank you, Carl. Good morning, everyone. Starting with recent operational highlights on February 2, 2017, we closed on a license agreement with AMAG Pharmaceuticals for exclusive North American rights to further develop and commercialize Rekynda. And investigational product design for on-demand treatment of hypoactive sexual desire disorder, HSDD in premenopausal women. 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 out-of-pocket expenses, incurred by us, following the effective date of February 2nd in connection with the development and regulatory activities necessary to file an NDA with the FDA for Rekynda for HSDD in the United States. AMAG is also required to pay us up to $80 million upon achievement of certain regulatory milestones, up to $300 million upon achievement of 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. Now regarding the second quarter ended December 31, 2016 financial highlights. In December 2016, we closed on an underwritten public offering of units for gross proceeds of $16.5 million with net proceeds after deducting offering expenses of approximately $15.4 million. We issued approximately 25.4 million shares of common stock and five year Series J Warrants to purchase approximately 12.7 million shares of common stock at an exercise price of $0.80 per share. Regarding the second quarter ended December 31, 2016, financial results. Palatin reported a net loss of 10 million or $0.06 per basic and diluted share for the quarter ended December 31, 2016 compared to a net loss of 13.2 million or $0.08 per basic and diluted share for the same period in 2015. The difference between the three months ended December 31, 2016 and 2015 was primarily traceable to the completion of both of our Phase III reconnect studies for our Rekynda program for HSDD. Regarding revenue, there were no revenues recorded in the quarters ended December 31, 2016 and 2015. Regarding operating expenses. Total operating expenses for the quarter ended December 31, 2016 were 9.4 million compared to 12.6 million for the comparable quarter of 2015. The decrease in operating expenses for the quarter ended December 31, 2016, was the result of the completion of both of our Phase III reconnect studies for HSDD. Regarding other income and expense. Total other expense net was 0.6 million for the quarters ended December 31, 2016 and 2015, consisting primarily of interest expense related to our venture debt. Regarding cash position. As of December 31, 2016 Palatin's cash, cash equivalents and investments were 13.5 million. This is before giving effect to the receipt of 60 million from AMAG in February. This compared to cash and cash equivalents of 9.4 million at June 30, 2016. Current liabilities were 19.6 million as of December 31, 2016, compared to 13.9 million as of June 30, 2016. We believe that existing capital resources will be adequate to fund our planned operations through at least calendar year 2018. Carl?

Thank you, Steve. Our Rekynda licensing agreement with AMAG Pharmaceuticals not only brought us an excellent commercial partner, but has provided us with the financial resources to unlock the potential value of our pipeline programs. I will start our second quarter fiscal year 2017 operational update with Rekynda and then cover the pipeline programs that will be the focus of our efforts, including the objectives we plan to achieve. Concerning Rekynda, we will be working with our licensing partner to complete the activities required to file a new drug application or NDA with the FDA. These activities include various drug-drug interaction studies, certain manufacturing activities and the preparation of a new drug application. We anticipate that Rekynda new drug application will be filed by early first quarter of 2018. Regarding developing Rekynda outside of the North American market, we will do this only in the context of a partnership. To this end, we are focusing our business development efforts on our Rekynda partnership with the European Union as well as other regions of the world. Now I will move on to our pipeline programs. As a drug development company, we have focused of our technology and efforts on 2 receptor families; the melanocortin and the natriuretic peptides. Both families have potential drug targets involved in a regulation of important physiological processes. As a reminder, Rekynda was the first product derived from our research work with melanocortin peptide family. As we think about the programs, we are focusing our efforts on mere two guiding principles that are important for success. One, there must be a substantial unmet medical need and two, the mechanism action of our drugs must support the potential to modify or halt the underlying disease pathology and not just treat disease symptoms. We believe our pipeline programs meet these criteria. Palatin’s drug development efforts will be focused on our natriuretic peptide program for cardiovascular diseases, specifically heart failure and our melanocortin or immune anti-inflammatory disease program specifically targeting inflammatory bowel disease and ocular inflammatory indications. Regarding our melanocortin of DC 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. Our development objectives are to have two drug candidates in clinical development in both program areas and to establish clinical proof of principles for at least one drug development candidate in each area as well. In meeting these objectives, we believe we will create and realize substantial value for the Palatin stakeholders. I will now provide more detail on our pipeline programs starting with our natriuretic peptide program. Heart failure is a progressive disease in which the heart loses the ability to meet the body's demand for oxygen. Basically developing a number of symptoms such as shortness of breath, fatigue and anemia. Progression of heart failure leads to frequent hospitalizations for quality of life and short life expectancy. Heart failing patients can be categorized into two broad groups, those with a reduced left ventricular ejection fraction and those with the preserved left ventricular ejection fraction. To date, there are no FDA-approved drug treatments for heart failure patients with preserved ejection fraction. In 2013, they were approximately 5 million patients with heart failure in the United States. The management of these patients represents a significant cost to healthcare system. There are numerous classes of medication approved to treat and to help in the management of heart failure patients. However, any of the treatments do not address the underlying disease pathology, and the patients with symptomatic heart failure have a very poor 5-year prognosis. Clearly, there was a high unmet medical need in the treatment of heart failure. We believe the natriuretic peptide system represents an under exploited mechanism for treating heart failure with the potential to not only improve patient's symptoms, but to alter the underlying pathophysiology. Natriuretic peptide and the receptors are in digestive system involved in the regulation of cardiovascular homeostasis. Natriuretic peptide system opposes the negative pathophysiology of heart failure. Activation of this system leads to down regulation of the renin-angiotensin-aldosterone system, suppression of cardiac hypertrophy, fibrosis, and remodeling and increases diuresis and natriuresis, and improves myocardial profusion. Preclinical neo-genetic and clinical evidence supports a tremendous potential about regulating natriuretic peptide system as a treatment for patients with heart failure. ENTRESTO, a combination product with angiotensin receptor blocker and neprilysin inhibitor was recently approved for the treatment of heart failure patients with reduced ejection fraction. Patients treated with ENTRESTO, had improved survival and reduced hospitalization when compared to standard of care. The clinical benefit of ENTRESTO is a result of the indirect up regulation of natriuretic peptide system by the neprilysin inhibitor component. Our compounds are direct agonist of the natriuretic peptide system. This approach has several advances over indirect approaches that activates the natriuretic peptide system such as ENTRESTO. Indirect approaches using neprilysin in addition not only increases diuresis natriuretic peptides, which is a positive, but they also increase the level of angiotensin II and radio kinin, which have negative effects on heart failure and limit their dosing. Our compounds should provide the treating clinician better dosing flexibility with the ability to increase the amount of natriuretic peptide system activation independent of [indiscernible] suppression. In addition, our approach is highly specific for activation only the natriuretic peptide system avoiding the negative effects of indirect activation. Palatin has two natriuretic peptide based compounds in development, PL-3994 and PL508. PL-3994 is a selective agonist at the natriuretic peptide A receptor, and the compound has been extensively evaluated in preclinical models of heart failure, demonstrating suppression of the renin-angiotensin-aldosterone system, cardiac hypertrophy and fibrosis and remodeling. PL-3994 has been evaluated in two Phase I clinical studies, which has allowed to establish a society, pharmacogenetic and pharmacodynamic properties and define the dosing range. We will be evaluating the safety efficacy of PL-3994 in a Phase II clinical study that is planned to start in the first half of calendar 2017. This study will heart failure patients with preserved ejection fraction, and we anticipate preliminary data by year-end 2017. We plan to provide further details on this clinical trial when patient enrollment begins. PL-5028 is [indiscernible] and C receptors. The emerging science conducted in part by Dr. Adrian Hobs a member of Health and Scientific Advisory board, indicates that NPRC agonist plays a key role in reducing cardiac fibrosis, which is a major component of the underlying cardiac dysfunction and heart failure. To do agonist activity of PL-5028 should allow for superior efficacy in a much forward dosing window compared to the indirect activation of ENTRESTO. PL-5028 has demonstrated excellent efficacy in preclinical models of heart failure, and we are planning to begin clinical activities to support human clinical studies with first in-human targeted to begin in the first half of 2018. We believe our research and development efforts have put us in a leading position to develop direct acting natriuretic peptide receptor agnostic as treatment 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 program and develop programs as area advance, we will continue to expand our knowhow and intellectual property. The second area we will be focusing on is melanocortin autoimmune and anti-inflammatory disease program. In this program area, we are initially focusing our development efforts on inflammatory bowel disease and inflammatory indications. The current treatments available for managing patients with IBD or Uveitis general, suppress T proteins and for pro-inflammatory pathways. Use of these agents result in moderation of symptoms, but very few patients had meaningful remission of their disease. Targeting of melanocortin pathway as a treatment for inflammatory disease incorporates in [indiscernible] of action that we believe has potential to induce resolution of disease and restore homeostasis to the immune system. Activation of the melanocortin system results in both pro resolution and anti-inflammatory effects. Palatin has developed multiple series of compounds that are agnostic of the melanocortin receptors that are involved in the resolution of pro-inflammatory processes. ,: Our second compound in this area is PL-8331, an agonist at both melanocortin 1 & 5 receptors. We believe there are enough autoimmune inflammatory diseases, such as auto-inflammation where the agonist activity 8331 may provide a superior treatment benefit. We are currently evaluating 8331 in multiple preclinical disease models and drug safety studies. If the data supports continued development, we plan to support historic activities required to file a new drug application or an initial drug application, which would allow us to be in clinical studies in the first half of 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 selected for the melanocortin receptors involved in resolving pro-inflammatory pathways in a broad intellectual property that protects our development work and as our clinical development programs in this area advance, we will continue to expand our knowhow and intellectual property in this area. We believe that the potential of targeting the natriuretic peptide and melanocortin peptide systems has potential beyond the indications discussed above. We will also allocate resources to activities that will expand the potential indications of our compounds and strengthen our intellectual property. As I think about the future of our company, I'm very excited by the potential of our development programs to lead the new treatments that can significantly impact the lives of patients. The success we've had in developing Rekynda from concept through Phase III trials in our North American partnership, not really provides the potential for realizing the value of Rekynda but has provided us with the resources to unlock the value in our pipeline programs without having to access the capital markets. As we look forward to 2017 and 2018, we have an aggressive set of objectives that we're targeting to achieve. We are working diligently with AMAG Pharmaceuticals, our Rekynda North American commercial partner to complete the remaining activities required to file a new drug application with the FDA by early 2018. This will put us on track for a potential Rekynda approval by early 2019. Our business development activities will be focused on Rekynda partnerships for the European Union and other territories. Our natriuretic peptide system program has the following objectives. PL-3994 to begin a Phase IIa clinical study in heart failure patients with preserved ejection fraction in the first half of 2017 with initial data in the second half; PL-5028 complete require preclinical activities to begin clinical studies with Phase I studies to start from the first half of 2018. The melanocortin peptide system has following objectives; PL-8177, the initiation of the IBD clinical program in the first half of 2017 followed by a Phase II proof-of-concept clinical study in 2018 and PL-8331 to complete required preclinical activities to begin clinical studies with a Phase I start in the first half of 2018. For melanocortin DC and diabetics program, we have business development efforts with the goal of entering into a corporate collaboration with a partner that has the resources and expertise to realize the value of this exciting program. The management and employees of Palatin will be focused on achieving our objectives and building value for stakeholders. As a reminder, you can find additional information on our website www.palatin.com. We'll now open the call for questions.

[Operator Instructions] We will go first to John Newman with Canaccord.

Just wanted, if you could you talk about when you might be projecting the clinical data for [indiscernible] of this year?

I'm sorry, John, you broke up on it.

Sorry, I just wanted, if you could talk about when you might be presenting the clinical data set for bremelanotide?

Yes, this is Steve. The next conference where we will have additional data presented will be the issuance conferences later in February call.

I think its March actually.

Either late February or in March. And there will be additional data presented from our Phase III Rekynda trials.

Okay. A may be that little bit more about what you're doing in [IGG] just from a mechanism standpoint. And I'm just curious as the importance of the mechanism that you're studying compared to some of the other approaches from a preclinical [indiscernible].

Yes, sure. John, We can think about the inflammatory conditions that are having both pro-inflammatory processes and pro-resolution. And many of the treatments that are out there and that are working really attacks certain aspects of pro-inflammatory side like [indiscernible] treatment, and so, and so forth. With melanocortin by role is, they're activated when you have autoimmune inflammatory condition locally at the sideway or its ongoing and their role is really to shut down on the broader way of those pro-inflammatory processes. So we really think that, they can have a very key role coming in, after you have treatment with, there are certainly generic treatments and more standard treatments such as steroids and then inflammatory that some of these patients go on. But as those treatments start to lose effect or don't have effect, these patients have a much more limited set of treatment options, and they generally head move on towards the biological treatment options, which really are much more difficult to use, have a lot more side effects. So we really see melanocortin mechanism coming in really between something like the steroid treatment and then at before one goes to the biologics. And the goal there would really be to help drive these patients into immune balance and really move them back into a state where they have disease remission. Now we don't know how well that can be done, if that can be -- in the animal models we certainly do that quite nicely, would they need to stay on, for examples steroid treatment or other treatments in conjunction with that, we're not sure yet, but those are some of these that we're working out on our preclinical models. But I can tell you is that, we've looked at really half a dozen types of inflammatory conditions with this approach. In all cases you're really working at least as good as if not better than the steroid treatment option. So this is quite a pro mechanism and we're really seeing very nice shutdown of those pro-inflammatory pathways, and the immune cell infiltrates that are causing disease process were also being reversed. So this is really a mechanism that we think, has potential to really halt and relatively reverse and potentially reverse the end processes that are ongoing.

And we'll go next to Michael Higgins with Roth Capital Partners.

A couple of questions for you. First on the Rekynda. If you can give us a little more color on 25 million reimbursed R&D timing for that, what kind of events that may trigger those milestone payments?

Thanks for the question, Michael, this is Steve. The way the license agreement is structured, Palatin is responsible as to lead for the remaining activities to be completed to file the NDA, the new drug application with the FDA, which is targeted for early in the first quarter of calendar 2018. And those activities are primarily finalizing the open-labeled extension study data, which we anticipate getting in the end of the second, early third quarter. There is also a number of what are characterized as a drug-drug interaction studies. These types of studies have already been discussed with the FDA. So we have a very specific understanding and clarity on the specific trials, and how these protocols need to be structured. And in addition, we have some CMC activities, specifically related to some what they call, consistency production runs. This is also characterized as validation runs to ensure that you are in control of your process. These are items that we are very comfortable with. We've produced many runs in the past, most notably for the two large Phase III studies, and we will be reimbursed from AMAG on a monthly basis as we complete these tests. Q - Michael Higgins: Okay. That's very helpful. Just a follow-up there, [indiscernible] the biggest reimbursement will come on the acceptance of the NDA filing?

Q - Michael Higgins: Okay. That's helpful. And are you considering additional trials for Rekynda. And if so, what do you make from those, is that something that you would be funding?

This is Steve. We have a joint steering committee in place now with AMAG, well represented from both AMAG folk and Palatin folk. And there's no question where we’re having discussions on, ways to enhance the asset, to illuminate the asset for the millions of patients out there suffering from female sexual dysfunction. And over the next several months, I anticipate that with AMAG, we will be able to give some guidance on the types of things that we are considering doing. The way the agreement is in place, right now, it could be AMAG paying for these types of items or it could be a combination. It depends on the item, and what we think makes sense for Palatin. There is not a mechanism that Palatin is obligated to pay for any of these types of additional items, but it may be something that we do consider based on other factors, but that won't be decided until sometime later this year. And we do look forward to AMAG Pharmaceuticals discussing marketing commercial plans around the program as they are presenting out in conferences and earnings announcements.

True okay, thank you guys. And moving on to your natriuretic peptide receptor program in cardiovascular and pulmonary indications. Can you describe the activity and how it differs from ENTRESTO for me?

Sure. It's pretty simple, ENTRESTO, it's a combination of an angiotensin receptor blocker which provides suppression of the angiotensin class one system, neprilysin inhibitor, and neprilysin is the peptidase that breaks down the endogenous natriuretic peptide in the body, among others as well. That's with a prognosis. So it's really an indirect mechanism. You take that drug, you get some rash suppression, and, then in addition, you'll get up regulation of natriuretic peptides and the system. We are a little bit different, our compounds are direct acting agonists at the various receptors. So you have a lot better flexibility, one of the issues with ENTRESTO is that, you have a very limited dosing flexibility to press the system up, because as you press the system up you have more angiotension receptor blocker going on as well. So with direct acting agonist, you can really put in as much agonist activity as you want. You can really just push specifically the natriuretic peptide system. The one, that's important is, you really can see a very pronounced reduction, at least in the work we're doing and we've been doing with our collaborators in the preclinical models, we really see a very pronounced reversal of the cardiac hypertrophy, fibrosis, that's occurring in the diseased heart. So the ability to really push that I think is going to be quite important. Also, you have flexibility and how the clinician chooses to suppress [indiscernible] system. When you're using ENTRESTO, it's always an [indiscernible]. You can't put an ACE inhibitor on for an example. So I think, it's just overall, it will provide a much cleaner mechanism and a much cleaner approach to using the system and exploiting the system.

Makes sense. Can you remind me again, the specific indication, you would be speaking?

We're still in the early stages. The next trial that we're doing with 3994 is in heart failure patients with preserved ejection fraction. That doesn't necessarily mean that, that would be the final indication for that product. Certainly, there are some of the reasons for that is that, that trial, the next trials is 3994 is being funded by grants received from the American Heart Association. And they are specific to treating patients with preserved ejection fraction. So, although, 3994 is going to be evaluated, we are not actually paying for those studies. So that's one of the things we haven’t really talked much about, but that study is actually funding by a third party in conjunction with some major academic centers, which will be our partners in those studies. We'll talk a little bit more about that when we start enrollment, with subject to courtesy to our academic collaborators. We told them we wouldn't give a lot of detail until we start enrolling patients. But I think you guys will be quite pleased to see who we are collaborating with on that study. But it's is very important study because preserved ejection fraction patients do not have any treatment options. They are really the very large on a medical need, and if we can show some potential benefit there, I think you really open up the potential for natriuretic peptides. I mean, more than half the patients out there have preserved ejection fraction or preserved ejection fraction in heart failure, and they're not treated or they are not treated very well today. So we think it's very important study and one that we're excited about, and we'll be very excited to talk more about it with people we're collaborating with when we begin enrolling more patients.

And it appears that are no further questions at this time. Dr. Carl Spana, I would like to turn the conference back to you for any additional or closing remarks.

Well, thank you. Well, first of all, I want to thank everyone for participating on our second quarter calendar year 2017 call. We're very excited here at Palatin, I think it's been a long time coming for work with Rekynda. We're very happy to have that work recognized by AMAG Pharmaceuticals and having as a partner help move them forward. And we're really quite excited really for the first time in quite a while to have some resources to really illuminate the other assets that we have. I think that we can do quite a lot to unlock shareholder value here. We're excited by it, and we're also very excited by the fact that we can do this and really provide the value without having constantly go to the marketplace to raise capital. So I think it's a new day for us, and we're very excited and look forward to talking about the company and in really updating you on the progress that we intend to be making. So thank you for participating on the call, and we look forward to updating you next quarter. Thank you. Bye, bye.

And this concludes today's all. Thank you for your participation. You may now disconnect.