Palatin Technologies, Inc. (NYSE:PTN) Q4 2022 Earnings Conference Call September 22, 2022 11:00 AM ET
Company Participants
Carl Spana – President and CEO
Stephen T. Wills – CFO, COO, and Treasurer and Secretary
Conference Call Participants
Joe Pantginis – H.C. Wainright
Michael Higgins – Ladenburg Thalmann
Operator
Hello, ladies and gentlemen, and welcome to Palatin’s Fourth Quarter and Fiscal Year-End 2022 Operating Results Conference Call. As a reminder, this conference call is being recorded.
Before we begin our remarks, I would like to remind you that the statements made by Palatin are not historical facts and may be forward-looking statements. These statements are based on assumptions that may or may not prove to be accurate. That the actual results may differ materially from those anticipated due to the variety of risks and uncertainties discussed in the company’s recent filings with the Securities and Exchange Commission. Please consider such risks and uncertainties carefully in evaluating these forward-looking statements about Palatin’s prospects.
Now I would like to turn the call over to your host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.
Carl Spana
Thank you. Good morning, and welcome to the Palatin fourth quarter and fiscal year-end 2022 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.
I’ll turn the call over to Steve, and he will give the financials and a brief operating update. Steve?
Stephen T. Wills
Thank you, Carl, and good morning, everyone. Starting with Vyleesi, some highlights. Vyleesi is our commercial product, FDA-approved for hypoactive sexual desire disorder.
The goal of the Vyleesi program is to demonstrate commercial product value in the marketplace with an objective of relicensing the U.S. rights to a committed women’s healthcare company. And we believe the last two quarters are absolutely showing that brand value and the scalability of the program in the right hands. Specifically, for the fiscal fourth quarter ended June 30, ’22, gross product sales increased 79% over the prior quarter and increased 91% over the comparable quarter in 2021.
Net product revenue increased 257% over the prior quarter and increased 857% over the comparable quarter in 2021. Total prescriptions dispensed increased 49% over the prior quarter and increased 54% compared to the comparable quarter in 2021. Refill rates, commercial insurance reimbursement and net revenue per prescription dispensed, all increased over the prior quarter and comparable quarter in 2021. Patients and healthcare providers can learn more about HSDD and Vyleesi at vyleesi.com and vyleesipro.com.
Touching base on a few other somewhat non-financial items, regarding redeemable convertible preferred stock, on May 11, 2022, Palatin entered into a securities purchase agreement with institutional investors. Total gross proceeds from the offering before deducting offering expenses was $15 million. This money was deposited in, and is being held in an escrow account pending the investors’ election to redeem the shares for cash or notes or convert the shares to common stock.
Regarding our recent reverse stock split, at Palatin’s annual meeting of stockholders held on June 24, 2022, the company’s stockholders overwhelmingly approved the amendment to the company’s amended and restated Certificate of Incorporation to effect a reverse stock split of the company’s common stock. The Board of Directors approved the implementation of a 1 for 25 reverse stock split effective as of 5 pm Eastern Time on August 30, 2022. The reverse stock split reduced the number of shares of Palatin’s common stock outstanding from approximately 232 million shares to a little over 9 million shares but did not change the authorized number of shares of common stock, which remains at 300 million shares. Palatin’s common stock continues to trade on the NYSE, American stock market under the symbol PTN.
Getting into some of the specific financial highlights, for the fourth quarter and fiscal year ended June 30, 2022, revenue, total revenue consists of gross product sales of Vyleesi, net of allowances and accruals and license and contracts revenue. The Vyleesi gross product sales to pharmacy distributors for the quarter ended June 30, ’22 were $2.3 million with net product revenue of approximately $771,000 compared to gross product sales of $1.2 million with net product revenue of approximately $81,000 for the comparable quarter of 2021.
Gross product sales increased 91% and net products revenue increased 857% over the comparable quarter 2021. Vyleesi gross product sales to pharmacy distributors for the fiscal year ended June 30, 2022 were $5.8 million with net products revenue of $1.2 million. This was compared to gross product sales of $4.7 million with a negative, yes, a negative net product revenue of $238,000 for the fiscal year ended 6/30/2021. Gross product sales increased 23% and net product revenue increased 530% and over the fiscal year ended June 30, 2021.
Palatin recognized $250,000 in license and contract revenue for the fiscal year ended June 30, ’22 related to our license agreement with Fosun compared to approximately $95,000 of recognized revenue for the quarter and the fiscal year ended June 30, 2021, all related to our license agreement with Kwangdong.
Regarding operating expenses, total operating expenses were $13.9 million for the quarter ended June 30, ’22 and ’21. Total operating expenses for the fiscal year ended June 30, ’22 were $38.1 million compared to $33.2 million for the fiscal year ended June 30 of ’21. The increase in the operating expenses was the result of increased research and development expenses, primarily related to our ongoing pivotal Phase 3 clinical trials of PL9643 in dry eye disease offset by decreased commercial expenses related to Vyleesi.
The net loss for the quarter and fiscal year ended June 30, ’22 was $12.8 million and $36.2 million respectively, compared to a net loss of $13.9 million and $33.6 million respectively for the same periods in 2021. The decrease in net loss for the quarter ended June 30, ’22 over the quarter ended June 30, ’21 was mainly due to our increase of net product revenue of Vyleesi. The increase in net loss for the fiscal year ended June 30, ’22 over the fiscal year June 30, ’21 was mainly due to increased operating expenses primarily related to our PL9643 dry eye disease program, which was also offset by increased Vyleesi total revenues.
Regarding our cash position, as of June 30, 2022, Palatin’s cash and cash equivalents were $29.9 million, with approximately $1.8 million of accounts receivable, and this was compared to cash and cash equivalents of $37.7 million with a little under $1 million of accounts receivable as of March 31, 2022, and $60.1 million of cash and cash equivalents with approximately $1.6 million of accounts receivable as of June 30, 2021. This $29.9 million of cash and cash equivalents at June 30, ’22 does not include the $15 million private placement of redeemable convertible preferred stock. These funds are being held in an escrow account pending the investors’ election to redeem the shares for cash or notes or convert the shares to common stock.
Palatin’s audited financial statements for the fiscal year ended June 30, ’22 does include in the audit report by the independent registered public accounting firm, a going concern explanatory paragraph. We’ll talk more during the Q&A, but the going concern is really a math calculation where you look at over the next four quarters based on your operating plan, do you have sufficient cash in place. And this is in the normal ordinary course.
So i.e., the conversion of the debt does not — we cannot take that into account at this point. If we’re bringing in collaborations in the future, again, we can’t take that into account at this time. We feel very confident that Palatin is in a position to pursue a number of different funding avenues. And as we move forward, we will keep the shareholders apprised accordingly.
Now at this time, I’ll turn the call back over to Carl.
Carl Spana
Thank you, Steve. Before the operating updates, I would like to go over our key objectives that I believe will help put the results in their context. Our long-term goals are to establish melanocortin system as a validated target for safe and effective medicines to treat a variety of inflammatory and autoimmune diseases, and through this process, develop a pipeline of innovative drugs. There are two key parts of achieving these goals.
The first is to advance our understanding of how the melanocortin system works by defining the molecular mechanisms and key signaling pathways that support its physiological effects. This research is ongoing in Palatin’s laboratory and through multiple collaborations with academic researchers. Our success is measured by our scientific publications and presentations at scientific and medical meetings.
The second part is the translation of the science and the clinical results, and ultimately, therapeutics that address unmet medical needs. Our Phase 3 dry eye disease, Phase 2 ulcerative colitis and soon-to-be-initiated Phase 2 diabetic kidney disease studies are all designed to meet these objectives. Our primary goal for Vyleesi is to demonstrate Vyleesi’s value in the marketplace with the aim of relicensing the U.S. rights to a committed women’s healthcare company.
Some of the key operating highlights for the year and quarter as are as follows. Starting with Vyleesi, we continue to show quarter-over-quarter growth with significant increases in gross sales, product revenue, prescriptions and refills. The results indicate to us that there is a substantial market for Vyleesi. The continuing increase in Vyleesi’s core metrics improves our ability to relicense Vyleesi to a committed partner, ensuring the continued availability of Vyleesi as a treatment option for premenopausal women with hypoactive sexual desire disorder and a return on our investment.
Moving on to our clinical programs, topically delivered PL9643 is our most advanced melanocortin agonist for treating ocular diseases that affect the tissues of the front of the eye. The first indication for PL9643 is dry eye disease, and we are enrolling in a pivotal Phase 3 dry eye disease study called MELODY-1. MELODY-1 is using an innovative adaptive trial design to evaluate the safety and efficacy of PL9643 versus vehicle control in patients with moderate to severe dry eye disease over a 12 week treatment period. In August, the Independent Data Monitoring Committee performed its interim assessment of the first 120 patients to complete their 12 weeks of treatment.
The DMC recommended that the study continue and enroll an additional 230 patients for a total of 350. Importantly, no significant safety concerns were identified and PL9643 continues to demonstrate an excellent ocular tolerability profile. After adjusting for the DMC recommendation and the additional patients, topline results are expected in the second quarter of 2023.
For PL8177, oral, our MCR1 or melanocortin-1 receptor selective agonist, we initiated a Phase 2 clinical trial evaluating the safety and efficacy of PL8177 oral in patients with ulcerative colitis. The study is utilizing adaptive design with an interim assessment scheduled in the first quarter of 2023 and topline data in the second quarter of 2023.
In the fourth quarter, we anticipate initiating a Phase 2 clinical trial evaluating the safety and efficacy of a melanocortin agonist in patients with diabetic nephropathy. This results from this study are anticipated in the second half of 2023. You can find additional information about our clinical programs at clinicaltrials.gov.
For fiscal year 2022, our commercial research and clinical programs were successful in meeting their objectives. Steve and I look forward with great anticipation in 2023 and the continued advancement of our programs to meet our corporate objectives.
Thank you for listening to the Palatin fourth quarter and fiscal year-end 2022 conference call. You can find additional information on our science and clinical programs on our website www.palatin.com. And you can also find additional information, as Steve said, on Vyleesi at the vyleesi.com website. Thank you. We’ll now open the call for questions.
Question-and-Answer Session
Operator
Thank you [Operator Instructions]. We’ll take our first question from Joe Pantginis with H.C. Wainright. Please go ahead.
Joe Pantginis
Hey, guys. Good afternoon. Thanks for taking the question. So Carl and Steve, I just wanted to focus on Vyleesi for a bit. I appreciate the growth that you’ve been having with very little effort and showing the potential success of the drug based on that. So first, when you look at the current drug status, can you discuss the overall reimbursement that you’re seeing in the rates and anything else that needs to be done on the blocking and tackling side on the payer side?
Stephen T. Wills
Sure. Thanks, Joe. This is Steve. Specifically, there’s — and when most people talk about the covered lives and getting these contracts, there’s really three big boys. We have contracts with two of the three. The third one, frankly, we’re not really pursuing a contract because we’re just — you don’t 100% have to be on the contract to be on the formulary. So we’re doing well enough, we believe, in the marketplace where we’re not pursuing that additional contract.
And when you correlate, I think the best way to help shareholders and analysts understand where we are with the reimbursement, approximately 60% of all of our dispenses are covered by insurance. We have a co-pay system and the number is eight, which is now my favorite number because the more rates there are, the more insured drug covered. So 60% is a very good number for our drug. No one’s going to get 100%. There’s always plans. And even within the plans you’re covered, there could be a high deductible. It could be on the formulary not covered. But having a 60% rate is considered definitely a very good rate.
And just to correlate that a little bit from where we started, when we took this product over in the second half of 2020, we were below 30%. And it’s tough to scale a model when you have more money going out the door than is coming in the door, pretty much one on one. So that was one of Carl and my number one targets from a metric standpoint. You got to have that insurance in place and the foundation. And we’ve targeted other metrics, but hopefully, that was responsive to your insurance reimbursement question.
Joe Pantginis
No, it certainly was, Steve. I appreciate that. And I guess, I want to focus a bit on next potential steps for Vyleesi. Obviously, you’ve talked about what the company’s primary goal is with regard to out-licensing. So first is, can you maybe describe the maturity of those discussions? But I guess, more importantly, as you go down your corporate decision tree, the optionality that you have, like if — I hope it comes to fruition. I think it’s going to come to fruition with regard to your primary goal. But when you look at future options, if it doesn’t happen with regard to out-licensing, what do you think you’d like to do with it?
Stephen T. Wills
All right. Thanks, Joe. I’ll take that one. The primary objective is to relicense it, and there’s several criteria on why we think that makes the most sense. One is for the patients. We’re just not in a position and it’s not part of our corporate strategy to be investing in the sales force. Most companies, whether it’s even with one product or multiple products, they have 50, 100, 200 — 200 sales folks. We have single digit.
So our plan always has been, and we maintain it, that is an informed targeted approach in that regard to show that brand has value, and it’s very readily scalable. I will tell you, because of the results in the first quarter, the March 31 quarter and the second quarter, we’re in a much better position for these discussions. We’re, for lack of a better phrase, we’re running a process. We’re talking to a number of parties, some of the parties we might have talked to in the past, certain times, strategies change.
But what I think changed — the factor that’s changing the most for these discussions is we’re able to show the metric. The value metrics are quite strong. And this is — yes, it’s tough for me to say, but there are smarter people out there than me and Carl and — but there’s definitely more of those. In the right hand, we believe this product could be a very significantly valuable asset. So again, because of our recent — because of the work we’ve put in and the results we’ve got, we believe these discussions are going to advance, and we’re reasonably confident that we will have a licensing deal with the right party by the end of the year.
That said, if I have a quick coke and a hot dog in between, this is not costing Palatin much money, right? We don’t have 50, 100 sales folks. We’re very close to cash flow breakeven. If we maintain the growth we have just between the first quarter and the second quarter and the third quarter and the fourth quarter, we’ll be breakeven by the end of the year. So what that means is we have some optionality, right?
I want to be clear that Carl’s objective and my objective is to license the product, get it in the right hands, get it as much awareness and engagement with the patient population that is suffering from HSDD and concentrate 100% on our autoimmune anti-inflammatory. We couldn’t be any more excited with our dry eye disease, the ulcerative colitis and then the things we have behind that. So I don’t want to say it’s a distraction, but it’s really not part of our core strategy as we go forward, but we have optionality. But the primary objective is to license it by year-end.
So if you have a follow-on question, I tried to be responsive but also add a bit more color so you can understand how we’re looking at it in that — even if, again, the target is to license by the end of the year, if it slides for the first part of next year because we’re always data-driven. The market is a challenging market out there. We’ll be breakeven by year-end.
Joe Pantginis
Yes, understood. I appreciate that color, Steve. Thanks a lot.
Operator
Thank you. [Operator Instructions] We’ll hear next from Michael Higgins with Ladenburg Thalmann.
Michael Higgins
Thanks, operator. Good morning, guys. How are you?
Carl Spana
We’re well. Thank you.
Carl Spana
Hey, guys. Good, good. A couple of questions in different buckets here. Let me just stay with 9643 for a bit. Just wanted to circle back to the interim results and what the DSMB did at that moment when they were reviewing this. Did they, in making their decision, assess the potential p-value considering the variability that they saw with that first data set to project out to 350 patients? I believe they did. Just want to confirm that. And if so, are you aware of those results?
Carl Spana
Thanks for the question, Michael. So the interim assessment is — essentially, it’s determined if one or more of the primary or key secondary endpoint is in a promising zone and if so, how many more patients would you have to add in to hit the p value. So the answer is yes, they did. So based on their interim assessment it’s logical that one or more of the end points were and would be successful. [Multiple Speakers] considering…
Michael Higgins
Okay, so no need to share it with you, I guess, when they say for C4 with 350, that’s their answer is yes. At 350, this would be set. Now we just need to enroll the other 200-plus patients and confirmed it. Is that fair? Thanks.
Carl Spana
That would be a good assumption.
Michael Higgins
Okay. And then rolling to the second question here, if I could. Any amendments or changes in the enrollment practices since the trial started? Thanks.
Carl Spana
They’re identical. We made no changes. The next patients coming in will be treated identical to the first 120.
Michael Higgins
Sounds good. And then lastly on 9643. Considering there are simple dry eye meds that are approved and not necessarily done well, what do you consider a meaningful clinical response as we wait MELODY-1 results? Thanks.
Carl Spana
I think the ideal response for us would be obviously that we hit multiple signs and symptoms in the same study, right? And I think that would go very well for the drug and its potential as we go forward. But I think as we think about dry eye and dry eye studies, that doesn’t always happen. And of course, we don’t know what we’ll get. But the assumption that we hit at least one sign or at least one symptom, we have a pathway forward.
And from a commercial perspective, a lot of the market is driven by the tolerability — ocular tolerability concerns that patients have. And that’s one of the things that we were very pleased in both the Phase 2 study and the first one in 120 patients plus that have gone through, the product continues to maintain excellent ocular tolerability. From a clinical efficacy standpoint, there really are no validated scales or measures of that necessarily, right?
The FDA doesn’t require a measurement of clinical benefit. All they look for a statistical separation between your vehicle control and your active. So I think we want to look at it more or less how many patients are responding and are they responding to those signs and symptoms. And if that’s what you hit, you’re in a really good position, I think from a commercial standpoint.
Michael Higgins
I appreciate that. Thanks guys. I’ll jump back in the queue.
Operator
Thank you. And at this time, it appears there are no additional questions in the queue. I’d like to turn the conference back over to Dr. Spana for any additional or closing remarks.
Carl Spana
Okay. Well, since there are no additional questions I’d like to thank all of you for participating in the Palatin fourth quarter and fiscal year end 2022 conference call. As always, Steve and I appreciate your support, and we look forward to continuing to update you.
2023 is shaping up to be a really great year, as I said, across all fronts for the company. So we’re quite excited. Employees here are quite excited. And as I said, we look forward to keeping you updated. So have a great day, and we’ll talk to everybody soon. Thank you.
Operator
Thank you. And that does conclude today’s conference. We thank you all for your participation. You may now disconnect.
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