Good day, ladies and gentlemen, and welcome to the Palatin Technologies Third Quarter Fiscal Year 2020 Operating Results Conference Call. As a reminder, this conference is being recorded. Before we begin our remarks, I'd 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 may differ materially from those anticipated due to a variety of risks and uncertainties discussed in the company's most recent filings with the Securities and Exchange Commission. Please consider such risks and uncertainties carefully in evaluating these forward-looking statements and Palatin's prospects. Now I'd like to turn the call over to today's host, Dr. Carl Spana, President and Chief Executive Officer of Palatin Technologies. Please go ahead, sir.

Thank you. Good morning, and welcome to the Palatin Technologies Third Quarter Fiscal Year 2020 Call. I'm Dr. Carl Spana, CEO and President of Palatin's. 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 including the impact of the COVID-19 pandemic. We sincerely hope that you and your families are safe and healthy as you deal with life altering changes brought about by the COVID-19 pandemic. Like many of you, there are members of the extended Palatin family that are working on the front lines, dozen taking care of patients. And to them, we are eternally grateful. We applaud your dedication and pray for your safety. Today's Steve will provide financial update as well as the update on AMAG's divestiture of Vyleesi. I will focus my update on the progress of our exciting development programs. Now I'm going to turn the call over to Steve.

Thank you, Carl, and good morning, everyone. As Carl mentioned, I'll handle the program update related to Vyleesi and then the financial results for the quarter ended March 31, 2020. Regarding Vyleesi, which is an approved drug for hypoactive sexual desire disorder in premenopausal women, or HSDD. Vyleesi is the first as needed treatment approved for premenopausal women with acquired, generalized HSDD. Our North American licensee, AMAG pharmaceuticals, launched Vyleesi nationally in September 2019 through select specialty pharmacies, with its established women's health sales force. In January 2020, AMAG announced that as a result of a strategic review, it will start the process to divest Vyleesi. In May 2020, AMAG stated that it is in negotiations regarding the divestiture of Vyleesi and AMAG will provide an update within the next few months. Palatin continues to closely monitor AMAG's process related to the divestiture of Vylessi with AMAG's obligations under the Vyleesi's license agreement with Palatin. Though sales of Vyleesi have been adversely affected by the COVID-19 pandemic, the company believes that AMAG's divestiture process has also adversely impacted Vylessi's sales. Palatin is prepared to take appropriate steps to protect its rights as the Vyleesi licensor and the significant value of the Vyleesi program. Palatin continues discussions on Vyleesi collaborations for territories outside the currently licensed territories of North America, China and Korea and anticipates executing multiple agreements during the second half of this year and during calendar 2021. Moving over to the third quarter fiscal year 2020 financial results. Regarding revenue, for the quarters ended March 31, 2020 and 2019, there were no revenues recorded. Due to the early commercial stage of Vyleesi and the sales and marketing strategy of AMAG including no charge for the first Vyleesi prescription, AMAG has not generated positive net sales through March 31, 2020. This has resulted in no royalties to Palatin during this period. Regarding operating expenses. Total operating expenses for the quarter ended March 31, 2020, were $5.7 million compared to $5.8 million for the comparable quarter of 2019. The decrease in operating expenses was mainly due to the overall reduction in research and development expenses, offset by a slight increase in the general and administrative expenses. Other income and expense net -- total other income net was approximately $331,000 for the quarter ended March 31, 2020, compared to total other income net of approximately $35,000 for the quarter ended March 31, 2019. The primary difference is related to the increase in investment income. Regarding net loss, Palatin reported a loss of $5.4 million or $0.02 per basic and diluted share for the quarter ended March 31, 2020, compared to a net loss of $5.7 million or $0.03 per basic and diluted share for the same period in 2019. The difference in financial results between the 3 months ended March 31, 2020 and 2019, and was mainly attributable to the increase in the other income net. Regarding cash position, Palatin's cash and cash equivalents were $88.9 million as of March 31, 2020, compared to $91.5 million at December 31, 2019, and compared with cash, cash equivalents and accounts receivable of $103.8 million at June 30, 2019. Management believes that existing capital resources will be adequate to fund the company's planned operations through at least March 31, 2022. Carl?

Thank you, Steve. I'll start with the operational update with the impact of the COVID-19 pandemic. Our primary concerns have been the safety of our employees, our patients and health care partners. We instituted a work from home policy in early March that remains in effect. Fortunately, most of our key research and development partners continue to remain in operation. By using teleconferences and various online meeting platforms, we have been effective in continuing to advance our programs. Assuming partial opening of economic activities by mid-2020, and we believe there will be limited impact of pandemic on our operations. However, we understand, even with the resumption of activities, there can be further disruptions to business activity based on resurgence of the virus, and we will be prepared for this outcome. Palatin has a primary scientific focus on the melanocortin system, which is involved in the regulation of energy balance, including food intake, sexual function and the resolution of inflammatory responses. Our first successful melanocortin system program was based on the role of the melanocortin system in regulating sexual function. This research work resulted in the discovery of Vyleesi and its eventual approval by the Food and Drug Administration as a treatment for premenopausal women suffering with hypoactive sexual desire disorder. Our recent research has been on developing drugs that target the ability of melanocortin system to resolve or turn down inflammation. We have developed multiple drug candidates that preclinical models have demonstrated the potential to resolve a variety of inflammatory disease conditions. Research work by us and others have shown that targeting immune cells with melanocortin drugs results in the resolution of pro-inflammatory processes. These pro resolution activities include mediating conversion of immune cells from an inflammatory to a regulatory state, the inhibition of the production of pro-inflammatory cytokines, such as TNF-alpha, IL-6 and others, and the upregulation of anti-inflammatory cytokines such as IL-10. In addition, the melanocortin system plays a role in reducing the fibrotic response that occurs as part of many inflammatory diseases. The fibrosis resulting from inflammatory disease as long-term negative consequences for the health of the patients. The multiple actions of the melanocortin system in regulating the overactive immune response that occurs in many inflammatory diseases makes it an exciting target for novel drugs. Therefore, we believe that melanocortin drugs that target the immune system will have broad utility in treating inflammatory diseases. We have developed clinical stage drug candidates for ocular diseases such as dry eye disease, noninfectious uveitis and retinal diseases. We also have a clinical stage drug cabinet for gastrointestinal diseases such as ulcerative colitis. Our first-line of important drug target targeting the immune system, PL-9643 began a Phase II placebo-controlled study in dry eye disease using an eye drop formulation in January 2020. Dry eye disease also known as keratoconjunctivitis sicca affects the cornea and the conjunctiva of the eye resulting in irritation, redness, pain and blurred vision. Problems are varied, and we believe that by activating the melanocortin system locally, PL-9643 will reduce the inflammation that underlies many aspects of dry eye disease. The first group of patients were enrolled in the study prior to the COVID-19 pandemic and these patients have continued being treated, and we expect that they will finish their study treatment in May 2020. Currently, enrollment in the study is on hold. After discussions with our contract research organization running the study, we believe there are a significant number of patients that are waiting to enroll in the study, and we anticipate beginning to enroll new patients starting in June. This will allow us to complete the study and have the data in the fourth quarter of 2020. If we are able to restart enrollment in June, there will have been limited impact of the COVID-19 pandemic on the study. The successful study will provide the data required to advance PL-9643 ophthalmic solution in the pivotal Phase III studies, which will start in the first half of 2021. The market for dry eye disease treatments represents a substantial commercial opportunity with over $2 billion in annual sales and continued growth based on patient demographics. We believe the potential efficacy and favorable tolerability and safety of PL-9643 will allow for substantial market penetration of the dry eye market. Our clinical trials or a retinal disease indication and noninfectious uveitis are now scheduled to begin in the first and second half of 2021. This represents a 2 to 3 quarter delay, which is due to the impact of the COVID-19 pandemic. We are using this additional time to expand our scientific understanding in melanocortin system in ocular inflammation. In addition to our ocular pipeline programs, we have developed an oral colon release formulation of PL-8177 as a treatment for ulcerative colitis and other inflammatory bowel diseases. We've completed 2 Phase I PL-8177 clinical trials, the first was a combined single ascending and multiple ascending dose study to evaluate systemic safety of subcutaneously administered PL-8177. The second study evaluated the pharmacokinetics and safety of the oral colon delivery formulation of PL-8177. We are planning to invest a Phase II placebo-controlled proof-of-principles clinical study in ulcerative colitis patients. This study is scheduled to start in the first half of 2021 with data readout in the second half of 2022. This represents an approximate 2 quarter delay due to the pandemic. Based on our research work on the natriuretic peptide system, our drug canvas PL-3994 in natriuretic peptide receptor-A agonist will be evaluated in a Phase IIa clinical study in heart failure patients with preserved ejection fraction. The proposed study is a collaboration with 2 major academic medical centers and is supported by an American Heart Association brand. The study is now anticipated to start patient enrollment in the second half of calendar year 2020. Fortunately, our preclinical research activities and the toxicology, manufacturing and other drug development work required to file investigational new drug applications with the Food and drug administration have been able to continue on schedule with limited impact of the COVID-19 pandemic. You can find additional information on our programs on our website www.palatin.com. Based on the extreme global uncertainty caused by the COVID-19 pandemic, the executive management and Board of Directors acted quickly to adjust our business operations. We took immediate actions to ensure the safety of our employees, patients and health care partners. We put in place operational processes that have allowed our employees to remain highly productive. Our ability to continue to advance our development programs and our healthy cash position will allow Palatin to emerge from the pandemic in a strong position. However, we will remain diligent, putting plans in place so the virus make resurgence. We believe that AMAG's divestiture of Vyleesi will occur by the end of the second quarter of calendar 2020, and we are taking the appropriate steps to safeguard our rights provided by the Vyleesi North American license agreement to ensure that the value of Vyleesi remains intact. We have a strong pipeline of novel plant clinical drug candidates, and we remain focused on their advancement continuing to progress their developments, which we will anticipate will accelerate as business activities begin to normalize. In closing, I would like to thank the Palatin team and all our development partners for their rapid adjustment to our new working environment and their continued dedication in the advancement of our novel drug candidates. Thank you. We will now open the call for questions.

[Operator Instructions]. We'll hear first today from John Newman with Canaccord. [indiscernible]

Just had a question on the Vyleesi divestiture. I think you stated in your prepared remarks that you expect the divestiture to be finalized within the next several months. But you also talked about protecting the value of that asset. Would you say that as a company you have concern regarding the timing of the divestiture? Or do you have more concern regarding the terms of the divestiture?

John, it's Steve. Thanks for the question. It's a combination of both. We believe, and I made the statement, that there's been some damages to the Vyleesi program. The -- just by definition, inherently, a divestiture process is going to cause that. There are somewhat standard provisions in our license agreement about putting forth reasonable commercial efforts regarding the program. And that's just not something AMAG has been able to do throughout the divestiture process. As I believe you're aware, they've already done 1 reduction in the first quarter -- early in the first quarter of 2020, and they announced yesterday on their conference call that they are going through another significant reduction. So what we're looking at is twofold. We have some. We believe we have some reasonable influence. We want to make sure that the next owner of Vyleesi is capable and committed. But in addition to that, we are looking, as I mentioned, closely monitoring the process to -- and we're prepared to make sure that our rights are protected and any damages related to the Vyleesi program are resolved.

And just wondering if there's a possibility that you would look to regain the asset through this process that you're considering? And if so, would you prefer to commercialize on your own? Or would you also explore the potential opportunity to relicense the asset?

Okay. I'll say on the Vyleesi, and Carl can add any color once my response is completed. It's -- there is a potential avenue where Palatin actually regains the rights to buy Vyleesi. We are very cognizant of that based on certain confidentiality factors, we -- Carl and I really can't expand on that. But we are making sure that if that type of event transpires, we are as prepared as possible. Regarding the second half of your question, John, there's -- it's not something that we're prepared to state that if we got it back, that we would absolutely commit ourselves to the female healthcare franchise landscape or we license. It's more than likely it would be a combination of both of those paths. We don't have the economy, we don't have that type of infrastructure in place. We've frankly gone in a different direction from female healthcare as Carl has very comprehensively conveyed, regarding our programs in the anti-inflammatory and autoimmune. But we're going to make sure that those -- that Vyleesi has the best chance of having the nominal value to the shareholders. So if that best chance is that it's in Palatin's hands for a period of time, that period of time could be a year, could be greater. But we would structure something whereby we have the flexibility, optionality whereby if it made sense, would we consider relicense it? Absolutely.

We'll hear next from Joe Pantginis with H.C. Wainwright.

Steve, want to continue. And Carl, I'm glad you're doing well on your prior comments. So the statement that you make at the divesture process has also adversely impacted sales. This might be a little bit of a stretch right now or put you on the spot, but it's my understanding that AMAG as part of the contract is essentially or was required to continue with good faith. To keep the franchise intact and growing. So with that said, are we starting or have we entered sort of the legal arena now with regard to potential breach of contract?

This is Carl. And Steve can jump in. No, we haven't. I -- our most favored outcome would be that the divestiture of Vyleesi occurs in a manner that is best with the product without any recourse to legal actions. I think you have to understand, however, that we believe Vyleesi has substantial value, and we've had any conversations over the years about that value. And we will protect that value. We think it's a highly valuable asset. And the reason why we make the statements or legal statements that we have are to make sure that it's clear that we are -- to the shareholders that we believe there is value. And if we have to, we're going to protect our rights to ensure that this that Vyleesi winds up in a home with a company committed to realizing that value. Steve, I don't know if you want to add on any more?

No, I'm going to go with what you said, Carl. You said it very well. So I'm good with your statement.

Perfect. No, that's very helpful. I appreciate the clarity. And then the second part of the question is, just wanted to focus on where you already have existing partnerships and markets that can be addressed in the relative near term. Just wanted to check, for example, on -- are there any updated timelines with regard to approval in China and Korea and for your ex U.S. partnerships that currently exist. I know there needed to be some potential short-term PK bridging studies, wanted to check on the status of those?

Sure. I'd say, we're preparing and working with both our Korean and Chinese partners. They've gone through extensive regulatory discussions on what they need to do. And really, we're in the process now of providing drug product and what have you for them to start their studies. We don't know what the impact will be. We have not had any direct discussions yet with them. What, if any, impact there would be of the COVID-19 pandemic on the ability of them to continue those studies or get them completed on their own schedules. I think it would be safe to say there can be some slippage in their timelines. But what I see and I feel very comfortable with is that both of the Chinese and Korean partners have been amazingly committed to this product, we're in contact with some -- multiple times a week and have really worked very closely with them, and they do appear to be quite committed to the product. And I'm sure over the next quarter or so, we'll get a better understanding as these trials start. If -- or what impact there would be of the pandemic on them and how that might affect an eventual timeline.

And from Ladenburg Thalmann, we'll hear from Michael Higgins.

If I can step back on Vyleesi a bit. If you could just give us an update on the communications that you have with AMAG. Do you guys, in your, I'm not sure if it's called a joint venture, which you got exactly with them, the marketing of it. But in that shared agreement that you have, are you a party with their conversations that they have? Do you know who's making in bond interest, what those discussions are like, how much they're offering that kind of a thing, how much detail do you have, I guess, in there negotiating?

Yes. Thanks for the question, Michael. It's Steve. I'll take the first part there. Due to confidentiality contiguity factors, we really can't go into much detail other than tell you that we're the licensor anybody that would be interested in taking over the rights from AMAG would inherently invariably have discussions with us. We're not at liberty, again, due to confidential factors to go into any type of granularity, but we are involved with the process. And we're working with AMAG. As Carl mentioned, we want to make sure as best we can, that the next home of -- with Vyleesi is the best home. But in the same sense, we want to protect our rights, and any deterioration of value in the Vyleesi program. But we are friendly with AMAG at this stage and involved with the divestiture process.

Just a follow-up on that then, and appreciate the situation you can't provide a lot of detail on, but just trying to understand from the outside here. Based on your contractual obligations, their contractual obligations, how much you're able to prevent the sale of those rights, if it's something that's just too small by your estimation? Is it something you can put your foot down on or is it something that they just simply have the, let's say, a 51%, 49% situation where they have the final say.

It's Steve again, Mike, I'm going to go with -- we just can't go into that type of specificity response-wise. We're working with AMAG to make sure it's as good a deal as possible for all the parties. That's about as detailed as I can get it at this stage. So hopefully, you'll appreciate just the confidentiality factors around these types of things. As AMAG mentioned yesterday on their call, within the next several months, they'll be giving an update. And we believe that update will be very -- will be specific regarding the next steps with Vyleesi. And as you recall, there -- it wasn't just the Vyleesi program. There were two programs that AMAG -- there are two commercial programs related to the female healthcare franchises is what they strategically decided to divest.

Yes. I would expect that, that would flip the process a bit, benefiting some cases and maybe delaying others, but I'll move on. I appreciate your feedback and understanding you can't say herein that we may want to hear on it. So a question on the dry eye program. You've mentioned that you're hoping to restart the 9643 Phase II up again in June. What gives you confidence you can restart it in June, that it wouldn't be delayed until the summer or later in the summer or possibly fall.

I'll take the question. We've -- the CRO that we work with is Ora. And this is what they do. They're very specialized. They've actually -- we've actually had the first cohort of patients, 90% of them actually continued with their monthly coming back every month. They were able to revise processes to make sure examination rooms and things were cleaned appropriately. And patients came back through. They have a stable of -- a large stable of patients and large outreach to patients. So when we canvass them, and they canvass their patients, there are more than sufficient patients that have expressed a desire interest to enroll in this study. Now obviously, external factors can impact that. For example, the states where these -- mostly sites in the Northeast states where they may come in, they shut down and say you can't do it. But I think under the assumption that there's a groundswell, I guess of the common population in most states now saying it's time to get back to business. I think that by June, we feel comfortable that enrollment will be able to open up or has developed and put in place systems that will ensure patients safety, making sure that the appropriate PPE gear is in place, that patients are spaced appropriately so we've been working very closely with them to make sure that this study can begin its enrollment as quickly as possible. Of course, we always -- listen, we live in a very uncertain world. And at any point, obviously, there can be a resurgence, and maybe we have to shut down again. If that's the case, then we would obviously do take the steps that are necessary to ensure patient safety and the safety of the healthcare workers that are conducting the study. But on the assumption that we will see a lightening up of the -- or less restrictions on people's mobility, the ability to wear face mask, social distancing, in most of the states, we should be able to resume safely the study. So what I can tell you is we worked very hard with Ora. I think they have done an excellent job in getting the patients that we currently have through. I was amazed that -- I mean, it wasn't a large cohort, it's maybe 20-some of the patients, but the vast majority of them, 90% plus has stuck with the study. They've come in on their monthly visits. And their monthly analyses, and they will complete this month. So under that guys, we have to give advice to you as to what we think the impact will be. June is our target date. And at the moment, barring an external factor occurring or a governmental change in something, we expect it will start in June. If it does, we will have patient study done and the data in the fourth quarter. Which really is on schedule. So the impact can be very minimal. But -- and so that's the guys and what we have. Of course, the risk is, of course, nobody knows what's going on with this virus and if it does resurges, and then we'll deal with it appropriately.

Right. No, that's helpful. Yes, I would think during recession, Phase I sites have little trouble enrolling, keep patients in. I think more so an issue regulations. It sounds like you've got clarity on those sites in the states they can start-up in June. Is that fair?

Yes. Absolutely, we have. And these are predominantly -- 2 of the sites are Ora sites. So are they under very tight control. There are very limited staff that are there only necessary staff is there. And look, they've instituted the appropriate in guidance with the CDC and other government agencies instituted the appropriate steps and keep in mind, listen, the healthcare -- I'm going to give you a general statement, the hospitals and the healthcare practice in this country are going to have to start to get back to work very soon. They're losing tremendous amounts of money. And they're going to need to get back to work. I can tell you from a personal experience in the hospitals that I have family members that work at, they are preparing to open up and begin doing surgeries. I know I have family members that are surgeons that are beginning to operate. So this is going to change. We have to get on with life and we have to get on with treating patients. There are patients out there that have disease conditions that have been put on hold so -- healthcare is going to open up again and healthcare treatment and practicing is going to open up again. I think we can do this safely. I know we can do it safely. As we've been showing all through this pandemic, we've been treating these patients. So I'm confident that we will need it. But I always have to put the caveat, and you all have to put in the back of your minds that we know a little bit about how the fibers works and how it's transmitted. We don't know everything. At any point, it can make a resurgence that will cause another quarantine in place.

One final question, if I could. And that's on the digital promotion of Vyleesi and the brand awareness. Is that continuing? Is that something that AMAG is still doing? You not be able to put boots on the ground, but those digital ads can be pretty efficient. Any feedback for us on those?

It's Steve, Michael. The -- in line with their reductions, notwithstanding the feet on the ground, there's also been pull back regarding DTC and those types of things on the Vyleesi program.

They're back in their effort and their spend.

And at this time, I'd like to return the things back to Dr. Spana for any closing remarks.

Well, first of all, I'd like to thank everyone for participating on our call. Certainly, our analysts and the questions they ask help us to clarify our communications to the investors that are either on the call or they'll eventually listen to the call later on. I can only say to all of you, this is -- we live in unprecedented times, and please be safe, practice is also visiting, wash your hands, don't touch your face. These things work. And we really want all of you to be safe, and we hope that we can see a normalization of business activity in the near future. We look forward to obviously updating you the ways we're going to do that in the future will certainly be different. As we begin to get clarity on Vyleesi and some of the exciting earlier stage projects that we're working on. We certainly will be doing virtual non deal roadshows. Both Steve and I will be out talking about the company. We believe that we are in an extremely exciting position with -- as we transition. The Vyleesi story will play out. I am optimistic as I think Steve is, that it will be favorable. And it will find a home with someone that will support it. It's a great product. It's got a great label. It works. We know from the women that we've been talking to, that they like it, they will use it. And I'm optimistic it can find a home and resume its launch activities. So I'd like to thank everyone, be safe. We'll talk to you soon. Bye-bye.

And that will conclude today's conference. Again, thank you all for joining us.