Carl Spana - President & CEO Steve Wills - EVP, CFO & COO

Joseph Pantginis - H.C. Wainwright John Newman - Canaccord

Good morning, ladies and gentlemen, and welcome to the Palatin Technologies Third Quarter Fiscal Year 2018 Results Conference Call. As a reminder, this conference is being recorded. Before we begin our remarks, I would like to remind you that the statements made by Palatin that are not historical facts may be forward-looking statements. 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 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' Third Quarter Fiscal Year 2018 Call. I am 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. Now, I'm 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 third quarter ended March 31, 2018, significant and recent operational and financial highlights include: with respect to bremelanotide, which is under development for female Hypoactive Sexual Desire Disorder of HSDD. In March 2018, our exclusive North American licensee for bremelanotide, AMAG Pharmaceuticals submitted a New Drug Application, NDA to the FDA and we anticipate that the FDA will notify us in June that this NDA submission is accepted for review. We have licensed bremelanotide to Fosun Pharma in the China region and Kwangdong Pharmaceuticals in South Korea. In addition, we are in discussions with multiple potential partners for other territories and anticipate closing additional bremelanotide licensing collaborations in the second half of calendar 2018. With respect to our other Melanocortin receptor programs under development for inflammatory bowel diseases, we received FDA clearance of an IND application for PL-8177 for Ulcerative Colitis and in February 2018 initiated subject dosing and first in human clinical studies. In April 2018, we presented pre-clinical oral formulation data on PL-8177 at the 2018 Keystone Symposia on the resolution of inflammation in health and disease. In May 2018, we presented positive pre-clinical melanocortin 1 agonist data at the TIDES Meeting Conference. Going into the financial results regarding our third quarter, fiscal year 2018 financial results, Palatin reported a net loss of $0.7 million or $0.00 for basic and diluted share for the quarter ended March 31, 2018, compared to a net loss of $3.6 million or $0.02 per basic and diluted share for the same period in 2017. The difference in financial results between the three months ended March 31, 2018 and 2017 was mainly due to the decrease in total operating expenses of approximately $4.3 million that is offset by a decrease of $1.8 million of recognized revenue during the 2018 period, pursuant to our license agreement with AMAG. Regarding revenue; for the quarter ended March 31, 2018, we recognized $9 million in licensing contract revenue compared to $10.8 million for the comparable quarter in 2017. For both periods, 100% of the revenue recognized was related to our license agreement with AMAG. Regarding our operating expenses; total operating expenses for the quarter ended March 31, 2018 were $9.5 million compared to $13.8 million for the same period of 2017. The decrease in operating expenses was primarily attributable to the professional services rendered in connection with our license agreement with AMAG which closed in February of 2017 and secondarily to the decrease in development expenses of bremelanotide as we advanced towards the NDA filing stage with the FDA. Regarding other income and expense; total other income expense net was $0.2 million for the quarter ended March 31, 2018 compared to $0.6 million for the quarter ended March 31, 2017. Total other income expense net for both periods consist of primarily of interest expense related to our venture debt. Regarding income tax expenses; pursuant to our bremelanotide license agreements with Fosun and Kwangdong, $500,000 and $82,000 respectively was withheld in accordance with tax support and [ph] requirement in China and the Republic of Korea and will be recorded as an expense during the fiscal year ending June 30, 2018. Regarding cash position and working capital; Palatin's cash and cash equivalents were $25.7 million as of March 31, 2018 compared to cash, cash equivalents and accounts receivable of approximately $55.6 million at June 30, 2017 and $35 million of cash and cash equivalents at December 31, 2017. Current liabilities were $13.6 million, net of current deferred revenue of $0.6 million as of March 31, 2018 compared to $19.9 million net of deferred revenue of $35.1 million as of June 30, 2017. As of December 31, 2017, current liabilities were approximately $14.1 million, net of current deferred revenue of approximately $9.5 million. In April 2018, we entered into an equity distribution agreement, commonly referred to as an ATM program with Canaccord Genuity LLC pursuant to which Palatin may from time-to-time sell shares of its common stock at market prices. Palatin has no obligation to sell any shares under this agreement and may have any time suspend solicitation and offers under this agreement. We believe that existing capital resources will be sufficient to fund our planned operations through at least the June 30, 2019 quarter. Carl?

Thank you, Steve. I will start our third quarter fiscal year 2018 operational update with bremelanotide, our lead clinical product. Bremelanotide is a first in class melanocortin agonist which is the only on-demand drug to complete Phase 3 clinical trials for Hypoactive Sexual Desire Disorder. The product is formatted as a simple single-use subcutaneous auto-injector, self-administered by the patient approximately one hour prior to sexual activity. Working with AMAG Pharmaceuticals, our North American licensing partner for bremelanotide, we completed a new drug application for bremelanotide which AMAG submitted to the FDA in March 2018. We anticipate that the FDA will accept the bremelanotide's NDA for full review before the end of the second quarter of calendar 2018. We are currently working with AMAG to support the bremelanotide new drug application and if all goes well, we anticipate FDA approval of bremelanotide in march 2019. Outside of North America, we are working with our Chinese licensee Fosun Pharma and our South Korean licensee Kwangdong Pharmaceuticals to advance bremelanotide development in those territories towards regulatory filings. As Steve mentioned, we also have ongoing discussions with multiple potential partners for other territories and anticipate closing additional bremelanotide licensing collaborations in calendar year 2018. Moving on to Palatin's other drug development efforts, we are primarily focused on our Melanocortin Program targeting autoimmune and inflammatory diseases and our naturally peptide program for cardiovascular fibrotic diseases. We have developed new families of highly specific and selected melanocortin 1 receptor agonist with broad application and inflammatory in autoimmune diseases including inflammatory bowel disease, dry eye, uveitis and rheumatoid arthritis. Activity in melanocortin 1 receptor controls immune system disregulation by inhibition of the Anti-Kappa B [ph] and down regulation of pro-inflammatory cytokines. PL-8177, our lead clinical development candidate for Ulcerative Colitis is a Phase 1 clinical trial or a formulation of PL-8177 is also in development. PL-8177 has demonstrated reversal of disease in both inflammatory, autoimmune animal models. The Phase 1 study of 8177 is expected to be completed in the third quarter of 2018 and the Phase 1 study of the oral formulation of PL-8177 is targeted to start in the second half of calendar 2018. Our drug candidate under development for treating ocular inflammation including dry eye disease is PL-8331, a dual melanocortin receptor 1 and 5 agonist. We anticipate completing preclinical enabling activities with PL-8331 later this calendar year with an IND filing as early as the end of calendar 2018. Our other area of focus is our naturally peptide system programs for cardiovascular and fibrotic diseases. Palatin has developed multiple agonist to the naturally peptide receptors, PL-3994, a synthetic naturally peptide drug candidate has completed Phase 1 studies and is scheduled to start a Phase 2A trial in conjunction with major research centers in 2018. PL-3994 has the potential application on heart failure partly with preserved or reduced ejection fraction in May and suitable for replacement therapy in patients with growth hormone processing deficiencies. Palatin also developed the peptide that is both a naturally peptide A and tetrapeptide C receptor agonist for use of cardiovascular and fibrotic diseases including reduction of cardiac fibrosis. This peptide PL-5028 is in preclinical evaluation including IND-enabling studies. We have also been working to expand our product portfolio by leveraging our expertise in melanocortin biology in chemistry. We are conducting preclinical activities with an objective of selecting compounds developed with a treatment of rare genetic and chronic diseases in both adult and pediatric populations including the potential to qualify for orphan designations. Our treatment start with patients with mutations in the leptin melanocortin pathway that resulted in life-threatening disorders. We are also developing treatments for rare chronic inflammatory disease that may be mediated to the melanocortin 1 receptor pathway. You can find additional information on our program on our website www.palatin.com. As we think about the future of our company, I am very excited by the potential of our developed programs to lead to new treatments that could significantly impact the lives of the patients. The success we have had in developing bremelanotide from concept through Phase 3 clinical trials and now multiple commercial partnerships not only provides resources realizing the value of bremelanotide, but has provided us with the resources to unlock the value in our pipeline programs. Over the next year, we have the following objectives. We'll be working diligently with AMAG Pharmaceuticals to support the bremelanotide NDA and we are on track for potential bremelanotide approval in March 2019. In addition, we will be working with Fosun Pharma and Kwangdong Pharmaceuticals to support their bremelanotide development and regulatory activities. Our fiscal [ph] development activities will be primarily focused on bremelanotide partnerships for the EU, Asia Pacific, Latin America and other select territories. Our naturally peptide system program has the following objective; that is to complete or distract the PL-3994 trial in heart failures with preserved ejection fraction. Our melanocortin peptide system programs are the following objectives: for PL-8177, a treatment for Ulcerative Colitis, the completion of the Phase 1 single ascending dose and multiple ascending dose study, an initiation of clinical studies of our oral formulation; and for PL-8331 as a treatment for dry eye disease to initiate incomplete to require preclinical activities to begin first in human studies. Our objective for the development of treatments for rare genetic and chronic diseases is to select compounds in advance into IND-enabling studies and activities based on our analysis and assessment of potential treatment targets and results from our preclinical work. Management employees of Palatin will remain focused on achieving our objectives and building value for our shareholders. As a reminder, you can find more information on our website, as I said before, www.palatin.com. I would like to thank all of you for participating on our call and we will now open the call to questions.

Thank you. [Operator Instructions] We'll take our first question from Joe Pantginis with H.C. Wainwright.

Hey, guys. Good afternoon, or good morning, so I should say. A couple of quick questions on the bremelanotide. First, what is the potential timing that you're looking for an ADCOM? But more specifically, what are the lead questions do you expect from the panel? Thanks.

Timing of an ADCOM, we would anticipate would be this calendar year. And we guess, more towards the latter part of the year; so it could probably be in November-December timeframe, I think that's when the FDA would like to get it done. Although we don't have any direct feedback yet, we would expect that we will receive some of that information when we get letter saying that our filing is going forward. The questions, Joe, always an opinion as to what we think we would ask, but I think the questions will be around how bremelanotide is used, how an intimate drug impacts both desire and distress associated with desire. I think those were the questions. I think there will be questions around labeling, how should the product be labeled appropriately? I don't think there's any real major safety issues coming out of the clinical program. I'm sure there will obviously be a safety officer there as part of the panel that's pretty typical, but I don't have any safety concern that I think they will press on at the panel meeting. I think it's very typical that a panel meeting is held for new molecular entity, particularly first in class and as with bremelanotide is. So I think that's roughly where the FDA will focus. We will see.

And then with regard to looking at Europe, you're obviously looking to obtain EMA advise for the EU pivotal program, I'm assuming. So what if any changes do you anticipate in the protocol compared to the U.S. Phase 3 program?

Obviously, we are approaching them and are in the process of waiting for feedback from the CHMP review group and we feel that the most appropriate way to study bremelanotide in Europe would be the same way we studied in the U.S. and that is using both desire and distress as the co-primary endpoints. We know from prior feedback that we will have populations between pre or post-menopausal -- most likely continue to be separated, so they probably require single trial in pre-menopausal and then one in post-menopausal as separate indications. For us, we want to make sure that we can use the data form the U.S. in support of that filing and so therefore we will make sure the trial really wants us closely to the one that we did in the U.S. as possible.

Moving on, we'll take our next question from John Newman from Canaccord.

My question is regarding the upcoming FDA panel. Just wondering if you think that the panel could actually be beneficial in terms of continuing to draw attention to this disorder as well as highlighting the clinical profile. I think that the last drug that was approved to your -- seem to get a lot of attention in the media despite some of the potential drawbacks. Just curious as to how you think about the panel in that regard.

Just as a point of fact; as a part of ADCOM, by law, they're required to have an open comment period and it has to be pre-scheduled and people submit request to speak and they can also submit written comments if that can be included in submissions to the panels as well. So I expect there certainly will be an open panel session for this product and I think they will put most likely based on the topic. There will be a fair amount of people coming out. I would expect a lot of publicity or public relations around the panel meeting to just by its nature. Obviously we will work with AMAG to do what we can do to influence public opinion to the extent possible by making sure that we have the right experts and what have you riding in and participating in that public comment period. Of that comment period, the public comment period, in ADCOM in general certainly is important to the division as well to the senior members of the FDA. When commissioners have this in front of Congress, they like to have coverage to be able to say that they've had a panel meeting that was supportive of a product. So we will be working as I said, with AMAG to make sure that we have a very robust and well-run panel meeting that really highlights the attributes of bremelanotide and really gets our messages across. I know the team in AMAG is working in the lead on that and I know they're working very diligently on it and people at Palatin are supporting them. But more direct to your point, we do expect that there will be a very robust discussion at the public session.

And one additional question on the commercial aspect of the product. Obviously, we have to wait for an FDA decision, but assuming the drug is approved, do you have plans in conjunction with the AMAG to conduct DTC marketing and if so, at what point after approval do you think it might be appropriate to start thinking about that?

Absolutely. Then Steve can jump in as well. We would expect that AMAG at some point would begin to have direct-to-consumer advertising for the product. It's a product where I think it can be important to success. Certainly, I think we're already there at websites. AMAG has a website up for disease awareness. I think that's very critical as well. So I think we're very comfortable that AMAG will do a good job with using all the available mechanisms to reach patients and practitioners that being direct-to-consumable through prints, probably radio, other sorts of media online. They're very good at that, but the other products they've done a very good job building markets with those types of approaches. When you start that, obviously, that can be discussion that you have with the FDA depending on your label and so on and so forth so I really can't comment on that.

It's Steve, John, not much more to add from Carl other than AMAG, we're extremely comfortable with the collaboration. This is a very significant product for them. They're all about the female healthcare franchises, so it's very synergistic for them. We're really in a supporting role in that regard. I am comfortable with stating that they're already discussing these types of things from the pricing to the specific markets, albeit awareness or education that they're going to be advancing. Frankly, that's more of their call and their timing. We're in discussions from an FYI standpoint where as Carl mentioned they're thinking about it now and there are certain things that are taking place now as we both prepare and again, we're in more in the support role as we prepare for the ADCOM conference and the complete FDA-NDA review process.

At this time that will conclude today's Q&A session. I would like to turn it back over to our speakers for any closing or additional remarks.

Well, I'd like to thank everyone for participating in the Palatin Technology's third quarter fiscal year 2018 conference call. We look forward to updating you next quarter as we continue to make progress. It's an exciting time at the company. Everybody here is working hard and we're excited about the future of the company. So thank you for participating and have a great day.

At this time, that will conclude today's conference. We do thank you for your participation. You may now disconnect.