Carl Spana – Chief Executive Officer Steve Wills – Executive Vice President, Chief Financial Officer and Chief Operating Officer

John Newman – Canaccord Michael Higgins – Roth Capital Partners

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies First Quarter Fiscal Year 2018 Update Call. As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that statements made by Palatin that are not historical facts may be forward-looking statements. These statements are based on assumptions that may or may not prove to be 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 your host for today, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Good morning, and welcome to the Palatin Technologies first quarter fiscal year 2018 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 now going to turn the call over to Steve, who’ll provide the financial updates. Steve?

Thank you, Carl, and good morning, everyone. Starting with the first quarter ended September 30, 2017, significant and recent highlights include: 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 in the agreement, we received $4.5 million in October, consisting of an upfront payment of $5 million, less $500,000, which was withheld in accordance with tax withholding requirements in China. Fosun is also required to pay us a $7.5 million milestone, based on regularly approval in China, and up to $92.5 million in sales-related milestones, plus 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 cost in the license territory will be the sole responsibility of Fosun. We continue to work closely with AMAG, on completing the tasks and activities necessary to file a New Drug Application, an NDA, with the Food and Drug Administration, the FDA. Filing the NDA with the FDA is targeted for the first quarter of calendar year 2018. Getting into our operating results, regarding the first quarter fiscal year 2018 financial results, Palatin reported net income of $10.6 million or $0.05 per basic and diluted share, for the quarter ended September 30, 2017, compared to a net loss of $13.1 million or $0.08 per basic and diluted share for the same period in 2016. The difference in financial results between the three months ended September 30, 2017, and 2016, was primarily attributable to the recognition of $26.9 million in license and contract revenue during the 2017 period, pursuant to our license agreements with AMAG and Fosun. Regarding revenue, as I stated, we recognized $26.9 million in license and contract revenue for the quarter ended September 30, 2017, which consisted of $21.9 million in license and contract revenue, related to our license agreement with AMAG, and $5 million in license revenue related to our license agreement with Fosun. There was no revenue recorded in the quarter ended September 30, 2016. Regarding operating expenses for the quarter ended September 30, 2017 were $15.7 million compared to $12.4 million for the comparable quarter of 2016. The increase in operating expenses was mainly attributable to the continued progress of the development of bremelanotide for HSDD, including activities necessary to file an NDA with the FDA, again, targeted for the first quarter of calendar 2018. Regarding other income and expense, total other expense, net, was $400,000 – approximately $400,000 for the quarter ended September 30, 2017, compared to approximately $600,000 for the quarter ended September 30, 2016. Total other expense, net, for both periods consisted primarily of interest expense related to our venture debt. Regarding income tax expense, pursuant to the license agreement with Fosun, $500,000 was withheld, in accordance with tax withholding requirements in China, and will be recorded as an expense during the fiscal year ending June 30, 2018. For the quarter ended September 30, 2017, Palatin incurred approximately $225,000 in income tax expense and the remaining balance of approximately $275,000 was included in prepaid expenses and other current assets as of September 30, 2017. Any potential credit to be received by Palatin on its United States tax returns is currently offset by Palatin’s valuation allowance. Regarding cash position, Palatin’s cash, cash equivalents, accounts receivable and investments were $49.3 million as of September 30, 2017 compared to cash, cash equivalents, accounts receivable and investments of $55.6 million at June 30, 2017. Current liabilities were $19.3 million, net of deferred revenue of $20.2 million, as of September 30, 2017 compared to $19.9 million net of deferred revenue of $35 million as of June 30, 2017. We’re in an excellent cash position, and we believe that existing capital resources will be sufficient to fund our planned operations through at least calendar year 2018. Carl?

Thank you, Steve. I will start our first quarter fiscal year 2018 operational update with bremelanotide and then cover our pipeline programs. In the past quarter, we completed all remaining clinical activities at a very productive pre-NDA meeting with the Division of Bone, Reproductive, and Urologic Products of the FDA. We are now working with AMAG Pharmaceuticals, our North American licensing partner, to complete the New Drug Application for bremelanotide and we anticipate filing with the NDA in the first quarter of calendar 2018. Our development of bremelanotide outside of the North American market will only be done in the context of a partnership. Last quarter, we closed a licensing deal with Fosun Pharmaceuticals, granting them exclusive rights to bremelanotide in the China territory. We are working with Fosun to support the bremelanotide development and regulatory activities. We have ongoing discussions with multiple potential partners from multiple territories, anticipate closing of an additional licensing transaction by calendar year-end 2017, and others in the first half of calendar year 2018. Palatin’s other drug development efforts are primarily focused on our natriuretic peptide program, for cardiovascular and fibrotic diseases, and our melanocortin autoimmune and anti-inflammatory disease program. Regarding our melanocortin obesity and diabetes program, we are reviewing of our development and business development strategy, including assessing the pursuit of humans for rare genetic deficiencies resulting in life-threatening metabolic disorders in orphan drug designations. Our website, www.palatin.com, has detailed descriptions of our development programs including mechanisms of actions, supporting science and commercial potential. So on today’s call, I will only provide a brief update. Heart failure fibrotic diseases remain major health problems in need of new treatments. We have developed multiple compounds that regulate the natriuretic peptide system, that can address these indications. PL-3994 is a selective agonist at the natriuretic peptide A receptor, and as previously disclosed, we will be evaluating the safety and efficacy of PL-3994, a Phase IIa clinical study that is planned to start by calendar year end in 2017. This study will enroll heart failure patients with preserved ejection fraction and we anticipate preliminary data by year-end 2018. We plan to provide further details on this clinical trial when patient enrollment begins. PL-5028 is an agonist of both NP C receptor and natriuretic peptide A receptors. We believe the dual-agonist activity of PL-5028 should allow for superior efficacy and a much broader dosing window compared to other natriuretic peptide approaches. PL-5028 has demonstrated excellent efficacy of preclinical models of heart failure and we are planning to begin preclinical activities to support inhuman clinical studies with first inhuman studies targeted to begin in 2018. Our second area of focus is our melanocortin autoimmune anti-inflammatory disease program. In this program area, we are initially focusing our development efforts on inflammatory bowel disease and ocular inflammatory indications. Our compound PL-8177 is a selective agonist at the melanocortin 1 receptor, that has demonstrated efficacy in multiple models of inflammatory diseases, including inflammatory bowel disease and uveitis, and we are excited to be moving the compound into clinical development. PL-8177 has completed all preclinical activities, needed to support movement in the clinical trials and we anticipate the first PL-8177 clinical study will be screening patients by year-end calendar 2017. Our second development candidate in this area is PL-8331, which is an agonist at both in melanocortin 1 and 5 receptors. We are currently evaluating PL-8331 in multiple preclinical disease models and drug safety studies. If the data supports continued development of PL-8331 we plan to start the activities required to file a IND, which should allow us to begin clinical studies in 2018. We believe that the potential of targeting the natriuretic peptide and melanocortin peptide systems has potential beyond indications discussed above. We plan to allocate resources to activities that will expand the potential indications of our compounds and strengthen our intellectual property. As I think about future of our company, I’m very excited by the potential of our development programs to lead to new and better treatments that can significantly impact the lives of patients. The success we have had in developing bremelanotide concept through Phase III clinical trials and multiple commercial partnerships, not only provides the potential for realizing the value of bremelanotide, this provided us with the resources to unlock the value in our pipeline programs, without having to access the capital markets for funds. 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 New Drug Application and file with the FDA in the first quarter of 2018. This will put us on track for potential bremelanotide approval by early 2019. In addition, we will be working with Fosun Pharma to support their development in regulatory activities of bremelanotide in the Chinese market. Our business development activities will be primarily focused on bremelanotide partnerships with the EU, Latin America 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. And for PL-5028 to complete required preclinical activities to begin clinical studies, Phase I studies to start 2018. And for our melanocortin peptide system, program has the following objectives: PL-8177 an IND submission and completion of Phase I studies. Establishment of oral formulation, initiation of a proof-of-principle Phase II study in 2018. And for PL-8331 to complete required preclinical activities to begin first demand studies in 2018. And for melanocortin and obesity diabetes program, we have this business development efforts ongoing, with the goal of entering into corporate collaboration. Imagine employees of Palatin will be focused on achieving our objectives and building value for our stakeholders. As a reminder, as I said previously, you can get more information on our website at palatin.com. Thank you. We’ll now open the call to questions.

Thank you. [Operator Instructions] And we’ll take our first question from John Newman with Canaccord.

Hi, guys. Good morning, thanks for providing all the information today and the update. I’m wondering, if you can talk about your launch plans for bremelanotide next year. I know that you’ll be submitting the filing in early 2018. But you’ll have some time, obviously, to continue to prep the market before FDA approval. Just curious if you can talk about the type of things that should be focused on during that time? Thanks.

Sure. I’ll let Steve handle that one, since he’s working more closely with AMAG on that, because AMAG is really responsible for most of those activities. Steve?

Yes. Hi, John. As Carl mentioned, I mean, this is more AMAG show regarding the activities, preparatory to the launch and obviously the launch. What I can tell you right now, there is definitely an enhanced education and efficacy program going on at AMAG. That you can actually see with multiple third parties out there. No question, our priority is to get this NDA filing in, in the first quarter. Other items being done, say, behind the scenes are really moving forward and advancing the reimbursement landscape, and also the pricing. And just working with the patients, a nice way to coming attractions, and just make sure the patients, the many various health care providers are as educated and informed as possible for this treatment, when, as Carl mentioned earlier, we anticipate approval in the first quarter of calendar 2019.

Okay, great. Thanks. And maybe you can talk a little bit about the – what you’re looking to see in the Phase IIa trial or PL-3994, just the types of things that you’d like to see in order to give you confidence to continue to push that program forward?

Sure. Thanks, John. There are a number of things that we’re really looking to see. This is a IIa study, it’s in – importantly, it’s in patients that have preserved ejection fraction. And for those that aren’t aware, heart failure with preserved ejection fraction, as of today, has no FDA-approved product. So it really represents probably the largest untapped market in the heart failure space. So this is a study in which we are looking for really two types of parameters. It’s a single dosing study. So we’re looking for one, our effects on pulmonary capillary wedge pressure, and other hemodynamic properties that we can measure in the clinic setting. And secondarily, these patients will be having a cardiac biopsy. So what we’re looking forward there is clear evidence that in patients that have preserved ejection fraction, that the natriuretic peptide system is really functioning normally, i.e, that the compound gets in, it’s hitting its receptor and the cardiac tissue and that the downstream signaling pathways are all functioning in a normal way. That will give us a lot of confidence that we should be able to then treat these patients on a long-term basis and potentially have a positive outcome. So that’s really the two broad categories that we’re looking for data. So with that being said, it is kind of an interesting and important study, because again, there are no FDA-approved products for this patient population and we do think this mechanism has a lot of potential and we’ll get it very good look in these patients and get to really see that this system is working and has a potential to essentially impact their disease.

Great. Great, thank you. I’ll jump back in queue.

Great, thanks, John.

And we’ll take our next question from Michael Higgins with Roth Capital Partners.

Thanks, everybody. Good morning, guys. How are you?

Pretty well.

Good.

Couple of questions this morning if I could. First, as it relates to the regulatory views in the U.S. and Europe. I think you talked about the similarities, potential differences in what those two regulatory bodies are looking for? I think, you just, kind of, give us a summary of how that looks again? Thanks.

Sure. I’ll tell you. Look, the FDA has a very standard review process. We provided them with two placebo-controlled randomized trials to launch Phase III studies with identical protocols. Obviously, as we’ve reported, the FC data was outstanding. There was, both clinically and statistically significant for both of those studies. So they replicated as we hope they would. So we’re excited about that. In the second, there is obviously safety and we provided a open-label safety extension. We provided a fair amount of longer-term safety data. So that’s really the core basis of what will be the evaluation for the efficacy and approval safety and efficacy for the U.S. marketplace or by the FDA. The EU, we’ve had discussions with them prior to the start of the U.S. Phase III, and in those discussions, what we have discussed was doing a single study in the EU with the U.S. studies acting as a support for approval. I think that position is only then strengthened by the quality and strength of the U.S. data. We’ve submitted for an updated review of where we are and really what we’re looking to do there is to see if we can do a single EU study and which we would have both pre and post-menopausal women, and that would support approval for a board indication of women with HSDD, irrespective of their status, whether they are both pre or post-menopausal. The argue point is that there is little difference in the way that pre and post-menopausal women experience HSDD, how they respond to treatments for HSDD and there’s not really any real necessary or requirement that they should be separated. Now whether or not they’ll grant us that, we don’t know but that’s the approach that we’re taking and that’s the one that we’re going to push for when we have a meeting with them, which we’d expect to occur in the first quarter of 2018.

And then just a follow-up on that one, if I could. When would you get back to us as to how the outcome of that next meeting will be? And what your expectations going in on the size of that trial? Thanks.

That would be a single trial, it’ll be a little bit larger than – we were anticipating having a two doses of bremelanotide, since the European population can be lighter. So there will be lighter weight women. So we are anticipating having a placebo or lower dose somewhere in the order 1 or 1.25 milligrams, and 1.75 milligram. So if you’re anticipating around 300 or so, patients per arm still be around 900 patients in total. With regards to timing – with regards to update on the regulatory strategy and development strategy in the EU, that will really be dependent on the outcome of our meeting in the first quarter and any subsequent follow-up that’s required. So I would say the earliest that you’ll probably hear from us would be probably late first quarter or around – or on the first quarter update.

Okay. That’s helpful, thanks. And I think there is an update on the penny warrant situation, how many are outstanding quarter and stay at this point? Thanks.

Sure. It’s Steve, Michael. We started at the beginning of the year, so January 1, with approximately $60 million of those penny prefunded warrants. As of today, we’re down to approximately $5 million, and my expectation is that that’ll be $0 by the end of the year.

Okay, great. You had mentioned, I think in previous calls, the potential for bremelanotide PK data by year-end. Might we see that if you can give us an update on that? Thanks.

Can you give me a little more detail on that? Bremelanotide PK data has been – for that has been established. In what context? And maybe I missed something that I said previously.

Sure. There – I think there was additional safety PK data that you were running this year, some abuse liability, drug interaction studies et cetera?

Oh, sure, sure. Okay, yes, sorry. I think there were eight various studies that would support the NDA submission. All of those have been completed. They range from a population PK analysis of abuse liability studies, interaction with drugs, various types of drugs that pre-menopausal women might beyond such as oral contraceptives and that depression so on and so forth. So we haven’t broken out any of those study specifically, but really there are no – there is nothing to report. I mean, they were all great studies, they ran, they indicate that, really, they support a label that should be quite clean from a drug interaction standpoint. We didn’t see any interactions with any drugs that very uneventful. Abuse liability is a clean study program, it looks good. So we really are expecting bremelanotide to go through at a very nice label.

So no surprises there, okay. All right, appreciate it. Thanks guys.

No. Thank you, Michael.

That concludes today’s question-and-answer session. Dr. Spana, at this time I’ll turn the conference back to you for any additional or closing remarks.

Thank you, everyone. This was really – thanks for participating on the call. As always, really get Palatin a lot of enthusiasm and excitement. Bremelanotide is really on the cost of being submitted for approval and we expect a very positive outcome from that. And we’re quite excited about really now seeing the earlier programs moving the clinical trials as we end the year. And we look forward to next year. So a lot on tap for us. And I think we can move it forward without having to tap the capital markets. So as always, we thank you for being on the call. Look forward to updating you throughout the course of the quarter and really updating you next quarter as well. Thank you, and have a great day.

This concludes today’s conference. We appreciate your participation. You may now disconnect.