Palatin: Inhibitor Drug With Potential In Autoimmune Disorders

Palatin Technologies (NYSE:PTN) is a great speculative biotech play to look into. The reason why I state that is because it has a type of science that can be explored in several large market indication areas. The drugs it is developing target the melanocortin pathway. The targeting of this pathway allows it to go after several types of autoimmune disorders such as Dry Eye Disease (DED), Ulcerative Colitis and a few others. I believe it offers an opportunity for traders/investors, because it has a few data readouts which are expected in the 1st half of 2023. The first data readout involves the use of PL9643 being explored in a phase 3 study treating patients with DED as noted directly above. Results from this late-stage study are expected to be released in Q2 of 2023. Then, there will also be another data readout expected 1st half of 2023, which is from a phase 2 study using Mcr agonist to treat patients with diabetic nephropathy. Lastly, there could be additional proof of concept with a melanocortin agonist, with the release of two sets of results from a phase 3 study using PL8177 for the treatment of patients with ulcerative Colitis. These particular results are expected first at an interim time point in the 1st half of 2023 and then final results in the 2nd half of 2023. The DED program has already provided evidence of melanocortin targeting helping these patients with this disease in a phase 2 study. The ongoing phase 3 study for this indication will have data in Q2 of 2023, which should reinforce prior proof of concept in the prior mid-stage study.

PL9643 Has Already Achieved Proof Of Concept In A Phase 2 Study

The most advanced program in the pipeline involves the use of PL9643, which is being developed for the treatment of patients with Dry Eye Disease (DED). Dry eye disease is when tears are not enough to provide adequate enough moisture for the cornea of the eyes. Dry eye is a common and chronic disease that is normally found in older adults. The global dry eye disease market is expected to become a $7.78 billion market by 2025. This is a large market and these patients have to deal with a lot of symptoms on a daily basis. Such symptoms that these patients experience are as follows:

• Burning of the eyes
• Stringy mucus in or around eyes
• Sensation of knowing that something is in the eyes
• Watery eyes

This is a large market opportunity and I think that things are looking good for Palatin with respect to this indication. The reason why I state that is because it established proof of concept in that PL9643 was able to help patients with DED.

The phase 3 MELODY-1 study was initiated back in 2021 and it is getting much closer to completion. This is a randomized double-masked, vehicle-controlled study which is evaluating safety and efficacy of PL9643 for the treatment of patients with DED. The goal is to see if this drug performs better than vehicle with respect to the primary composite endpoint, which deals with:

• Inferior Corneal Fluorescein staining change from baseline to week 12
• Ocular discomfort change from baseline to day 15
• Conjunctival Sum Lissamine Green Staining at Baseline and week 12

This trial was designed in agreement with the FDA and if successful would allow Palatin to file a New Drug Application (NDA) for potential approval of PL9643 for the treatment of patients with DED.

It remains to be seen if the results from this phase 3 MELODY-1 study will turn out to be successful. However, there are two positive events that occurred, which may shed some light. The first of which is proof of concept established in the prior phase 2 study. This mid-stage randomized, double-masked and vehicle-controlled study evaluated the safety and efficacy of PL9643 ophthalmic solution compared to vehicle for the treatment of patients with DED. This trial enrolled a total of 160 patients who were randomized 1:1 to receive either PL9643 or vehicle for a total of 12-weeks of treatment. The two prespecified primary endpoints were improvement in inferior corneal staining (sign) and ocular discomfort (symptom) at the 12-week time point. As you can see, a few of these endpoints are also being evaluated in the phase 3 MELODY-1 study noted above. In the sub-population of moderate to severe patients (n=61), PL9643 was shown to achieve statistical significance with a p-value <0.05 versus vehicle at both week 2 and week 12 for multiple signs/endpoints. These endpoints, which were seen as being statistically significant for PL9643 compared to vehicle, were as follows:

• Inferior, superior and total corneal staining
• Temporal, nasal and total conjunctival staining
• Tear film break-up time
• Ocular discomfort

With Statistical significance being achieved in several measures using ophthalmic PL9643 in this phase 2 study, then I believe the ongoing MELODY-1 study has a great shot at being successful.

The second positive event that may shed some light on the MELODY-1 study would be the positive interim analysis that was achieved. In August of 2022, the data monitoring committee (DMC) came to a highly positive assessment at that time. The first and most important thing to note is that there were no safety issues found at all. This is especially important for an eye disease drug, where safety is highly crucial. Secondly, the DMC reviewed the first 120 patients and based on their recommendation, they stated that an additional 230 patients should be enrolled to finish off the study. That means a total of 350 patients are to be enrolled and that will then complete the study with topline data. Speaking of which, topline results from this phase 3 MELODY-1 study are expected to be released by Q2 of 2023.

Financials

According to the 10-K SEC Filing, Palatin Technologies had cash and cash equivalents of $29.9 million as of June 30, 2022. It believes that it has enough cash to fund its operations until at least 1-year from the date of the 10-K SEC filing, which was filed on September 22, 2022. This is not a lot of cash on hand and such, it has a few measures in place to raise additional cash in the coming year. The first of such methods would be an offer to sell shares through the filing of a Form-S3 and then the subsequent 424B3 prospectus filing that came after it. This is where Palatin Technologies can from time to time sell up to sell up to an aggregate of $100,000,000 of its common stock, preferred stock, debt securities, warrants, purchase contracts or units in any combination of these mentioned items. The price at which each item to be sold, plus timing, will be released in a given prospectus at the time the company chooses to use this. Not only that, but as of September 21, 2022 it still had 3,173,338 shares of common stock underlying outstanding convertible preferred stock, options, restricted stock units and warrants. If these are converted, then shareholders will experience additional dilution.

Risks To Business

There are several risks that traders/investors should be aware of before investing in Palatin Technologies. The first risk involves the ongoing phase 3 MELODY-1 study, which is using PL9643 for the treatment of patients with DED. Even though prior phase 2 data were statistically significant with a smaller group of patients, there is no guarantee that a similar outcome will be observed in the ongoing late-stage MELODY-1 study. A good thing to note though is that the interim analysis found no safety issues that would have caused the DMC to recommend stopping it. A second risk to consider would be with respect to other data readouts from a few other studies. In 2023, there will be results to be released from the phase 2 study using MCr agonist for diabetic nephropathy, plus data from a phase 2 program using PL8177 for ulcerative colitis as well. There is no guarantee that one or both of these studies will end up achieving statistical significance with respect to their primary endpoints. The final risk to consider would be the financials of Palatin Technologies. It states that it only has enough cash to fund its operations for at least 1-year from the date of the 10-K SEC Filing, which was filed on September 22, 2022. However, the very next day a Form-S3 was filed, along with a subsequent prospectus a few days later to sell shares from time to time. This leads me to believe that the biotech will use this method to raise cash for the remainder of this year and even into next year as well.

Conclusion

The final conclusion is that Palatin Technologies is a great speculative biotech play to look into. As I have highlighted above, it has already established proof of concept in using PL9643 for the treatment of patients with Dry Eye Disease in a phase 2 study. The ongoing phase 3 MELODY-1 study, which is expected to have data released in Q2 of 2023, should reinforce this prior data. You also have several other catalysts expected in 2023, which if successful, would prove yet again that targeting the melanocortin pathway is highly effective in reducing inflammation and activating several other receptors in the body. Based on the proof of concept established for DED using PL9643, plus several catalysts on the way, these are the reasons why I believe Palatin Technologies is a great speculative biotech play to look into.