Palatin Technologies Inc

F:PTN

Earnings Call Analysis

Palatin Pharmaceuticals Focuses on Obesity Programs Amid Revenue Challenges

Palatin's Q1 FY2025 results show a strategic pivot following the $171 million sale of Vyleesi's rights. Revenue fell to zero, down from $4.6 million last year, and net loss increased to $7.8 million. Operating expenses decreased to $7.8 million, driven by reduced selling costs. The firm aims to develop two obesity treatment programs, expecting Top Line results from a Phase II study in Q1 2025. With cash reserves of $2.4 million, strategies for additional funding are underway, particularly for promising ocular programs. Overall, Palatin intends to channel resources into its core obesity initiatives, targeting a rapidly growing market over the next decade.

Overview and Financial Snapshot

In the first quarter of fiscal year 2025, Palatin Technologies did not record any revenue from product sales due to the recent sale of its Vyleesi rights. In Q1 2024, the company had generated $4.6 million in gross product sales, which illustrates the significant financial impact of this transition. Total operating expenses decreased slightly to $7.8 million from $8.2 million year-over-year, primarily due to reduced selling expenses related to Vyleesi. However, the net loss for the quarter increased significantly to $7.8 million from $5.2 million in the same quarter the previous year, attributed largely to the absence of revenue from Vyleesi.

Cash Position and Future Financial Outlook

As of September 30, 2024, Palatin's cash and cash equivalents stood at $2.4 million, a steep decline from $9.5 million at June 30, 2024. To improve liquidity, Palatin is anticipating a $2.5 million deferred payment from Cosette Pharmaceuticals in November 2024 related to the Vyleesi sale. The company has signaled ongoing discussions regarding strategic options for its assets, especially for its non-obesity programs, indicating a proactive approach to enhance its financial standing.

Focusing on Obesity: A Strategic Shift

Palatin is now directing its efforts toward its core programs in obesity, particularly the melanocortin receptor (MCR) projects. The latest initiative is a Phase II study, BMT-801, which aims to evaluate the combination of bremelanotide with tirzepatide for obesity management. The study has been expanded from 50 to approximately 115 patients due to high enrollment demand, with top-line results expected in the first quarter of 2025. The company believes that the combined treatment could offer enhanced efficacy in weight reduction compared to existing solutions.

Potential Market and Drug Development Pipeline

The market for obesity treatments is poised for significant growth, with projections indicating a potential annual market value exceeding $100 billion. Palatin's strategy focuses on the development of novel melanocortin-4 receptor agonists that could address long-term weight loss maintenance and energy regulation. The company is advancing two product candidates: a long-acting peptide and an orally active small molecule (PL7737), both set to progress into IND-enabling activities by 2025.

Upcoming Milestones and Strategic Partnerships

Palatin anticipates top-line data from several clinical studies in early 2025, including the Phase II study for ulcerative colitis (PL8177), which could attract potential partnerships. Management has expressed optimism regarding out-licensing opportunities for various programs, particularly for dry eye disease and related ocular conditions. Discussions are ongoing with multiple large pharmaceutical companies, highlighting strong interest in collaboration to fund and advance these promising therapies.

Conclusion: A Strategic Pivot Towards Growth

Overall, Palatin’s recent earnings call emphasized a pivotal transition towards obesity treatments, showcasing its commitment to leveraging innovative melanocortin technologies. Investors should closely monitor the upcoming clinical trial results and potential licensing agreements, as these developments could significantly influence the company’s financial trajectory and market position. The leadership’s focus on obesity, coupled with active engagement with pharmaceutical partners, positions Palatin strategically for future growth.

Earnings Call Transcript 2025-Q1

[Operator]

Greetings, and welcome to Palatin's First Quarter Fiscal Year 2025 Operating Results Conference Call. [Operator Instructions]As a reminder, this conference call is being recorded.

Before we begin our remarks, I would like to remind you that 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, and that the actual results may differ materially from those anticipated due to the 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 by Palatin's prospects.

Now I would like to turn the call over to our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

[Carl Spana, executive]

Thank you. Good morning, and welcome to the Palatin First Quarter Fiscal Year 2025 Call. I'm Dr. Carl Spana, CEO and President of Palatin. With me on the call today is Steve Wills, Palatin's Chief Financial Officer and Chief Operating Officer.

I'll now turn the call over to Steve. He will give the financial update.

[Steve Wills, executive]

Thanks, Carl, and welcome, everyone. For the fiscal first quarter ended September 30, 2024, financial results regarding revenue pursuant to the completion of the sale of Vyleesi's worldwide rights for female sexual dysfunction to Cosette Pharmaceuticals for up to $171 million in December of 2023, Palatin did not record any product sales to pharmacy distributors for the first quarter ended September 30, 2024. For the first quarter ended September 30, 2023, gross product sales were $4.6 million and net product revenue was $2.1 million.

Regarding operating expenses. Total operating expenses were $7.8 million for the first quarter ended September 30, 2024 compared to $8.2 million for the comparable quarter last year. The decrease was mainly the result of the elimination of selling expenses related to Vyleesi, offset by greater spending on our MCR programs, MCR being melanocortin receptor.

Regarding cash flows. Palatin's net cash used in operations for the quarter ended September 30, 2024 was $7 million compared to a net cash used in operations of approximately $5.9 million for the same period of 2023. The increase in net cash used in operations is mainly due to the increase in the net loss during the period and secondarily to working capital changes.

Regarding net loss. Palatin's net loss for the quarter ended September 30, 2024 was $7.8 million compared to a net loss of $5.2 million for the same period in 2023. The increase in net loss for the quarter ended September 30, 2024 over the quarter ended September 30, 2023 was mainly due to the elimination of Vyleesi net product revenue, offset by the elimination of Vyleesi selling expenses and the recognition of the change in fair market value of warrant liabilities for quarter ended September 30, 2023.

Regarding cash position. As of September 30, 2024, Palatin's cash and cash equivalents were $2.4 million compared to cash and cash equivalents of $9.5 million as of June 30, 2024. Palatin did receive a scheduled $2.5 million deferred payment in November 2024 from Cosette Pharmaceuticals related to the sale of Vyleesi. Obviously, since this was received in November, it is not included in our September 30 cash and cash equivalents balance.

Regarding our going -- our go-forward operations. Future investment and activities will be focused and limited to our core programs in obesity. We've retained an investment bank to conduct, explore and evaluate strategic options for our non-obesity programs. At this stage, there is significant interest in and ongoing discussions for our Phase III dry eye disease program, our early-stage glaucoma and retina development programs and our Phase II ulcerative colitis program from multiple parties.

Now I'll turn the call back over to Carl.

[Carl Spana, executive]

Thank you, Steve. I'll now go over the operating update for the quarter. We are currently conducting a Phase II study, BMT-801, that is evaluating the safety and efficacy of the co-administration of the melanocortin-4 receptor agonist, bremelanotide,with tirzepatide, which is a GLP-1/GIP dual-agonist in patients with generalized obesity. In addition to safety, the study's primary efficacy endpoint is to evaluate the potential increased efficacy of combining the two treatments on reducing weight. A variety of secondary endpoints such as effects on [ society ], preservation of lean body mass and weight loss maintenance will also be evaluated. As of October, the study is fully enrolled and because of the high demand in rapid enrollment, we were able to increase the size of the study from 50 patients to approximately 115. Top line results are expected in the first quarter of 2025.

Our obesity weight loss management portfolio includes both novel acting -- long-acting melanocortin-4 receptor peptide agonist and the orally active MCR4 selective small molecule agonist, PL7737. We are on track to move both of these programs into IND-enabling activities and clinical studies in calendar year 2025. Our novel next-generation selective MCR4 compounds have reduced activity at the melanocortin-1 receptor, and that means they have a reduced potential to cost skin darkening. We believe that the lack of activity or skin darkening coupled with once-a-week dosing or oral dosing represents significant improvements over current FDA-approved melanocortin treatments. You can find additional information on our clinical trial at clinicaltrials.gov, and our website has recent presentations on our novel next-generation MCR4, melanocortin-4 receptor selective compounds.

For PL8177 oral selective MCR1 treatment for ulcerative colitis, the Phase II study will have top line data in the first quarter of 2025. In anticipation of the data, there has been a significant increase in business development discussions with potential partners, which is in line with our current strategy to out-license this exciting program. And finally, for our Phase II BREAKOUT study of bremelanotide patients with diabetic kidney disease, we anticipate releasing top line data this quarter or in the fourth quarter of 2024.

Before moving on to take questions, I'd like to comment on our strategy. By targeting the melanocortin system, our research team has been highly productive in generating multiple exciting development programs in the areas of melanocortin information in ocular diseases, sexual dysfunction and obesity. Senior management discussions with the Board of Directors, investors and outside consultants clearly indicate that as a small company, we need to focus our limited resources and efforts in one area to have a long-term success.

As you heard Steve mention earlier in the call, we will begin to focus our research and development efforts on our MCR-4 obesity assets. We believe the pharmacological treatment of obesity is in the early stages of a multiyear cycle of innovation and will have a market value greater than $100 billion per year. Melanocortin system plays a critically important role in regulating storage energy and food intake. We strongly believe that melanocortin-4 receptor agonists, such as the ones that we are developing, will be an important part of the future of obesity treatment and weight loss management. Palatin has a long-standing research effort to develop melanocortin therapeutics that selectively activates melanocortin-4 receptor as treatments for obesity and weight loss maintenance.

For our extensive experience in the design and development of melanocortin agonist for treating obesity, including 2 clinical studies previously completed and published, we are well positioned to be a leader in the development of melanocortin-based therapeutics, weight loss, and importantly, weight loss maintenance. By focusing our efforts on MC4R assets and obesity and weight loss maintenance, we intend to drive a substantial increase in shareholder value.

However, as Steve said, focusing our efforts doesn't mean that we believe our other assets have less value. To the contrary, we believe that our ocular assets anchored by the PL9643 Phase III dry eye disease program and lead compounds in glaucoma and retinal diseases have tremendous value and are worthy of continued investment. We are taking a multipronged approach to realizing the value of these programs, which includes potential out-licensing to a larger company, engagement with investors that are interested in funding their further development and discussions with peer companies concerning potential business combinations. We will take similar approaches with our PL8177 oral inflammatory bowel disease assets and our assets in sexual dysfunction as well to provide a return to our shareholders.

So Stephen, I would like to thank you for participating in the call, and we're now going to open the call to questions.

[Operator]

[Operator Instructions] Your first question is coming from Joe Pantginis of H.C. Wainwright.

[Joseph Pantginis, analyst]

I just wanted to just logistically ask on the back end of your comments, if I heard you correctly. So for the ulcerative colitis program and following the data, did you say that all the options are available, typical partnering that you might engage with discussions, project finance and beyond?

[Carl Spana, executive]

Yes. I mean, in particular for that one business development with probably a larger company. We've had -- since that study began, we've had a very good interest. We probably have 5 or 6 large companies under CDA. And in anticipation that the data is coming in the first quarter, we have reengaged with them and are updating them on where we are. So we're pretty confident that with a positive outcome, which we think we're going to have with that program, we'll move to be out-licensed.

[Joseph Pantginis, analyst]

Got it, got it. And then obviously, the main focus now is obesity. So a couple of questions, if you don't mind. So for the 801 study, with data coming out next quarter, what are you viewing as a successful trial? Because obviously, you said you're going to be looking at multiple components. And how would that inform your next steps for the combination?

[Carl Spana, executive]

Well, I'm going to take just a little bit of a step back and kind of give a little slightly global view and then I'll get into more specifics. Right now, the current line of treatment for obesity are the incretins. So those are things that you know as Zepbound or Wegovy. And there are more versions of those coming out. But they all represent relatively a similar mechanism.and they work -- and quite frankly, some of the new ones work probably too well. I think over the long run, what you're going to see is combination therapy where you're going to have to combine different mechanisms so that sort of the broad number of patients [ who have ] obesity can actually safely reach their treatment goals, right? I mean I'm not -- I mean, although it does work, I'm not a big fan of these newer ones that are coming out that are driving 25%, 30% weight loss in 6 months. I don't think that's healthy. And probably outside of the more of the morbidly obese, it's probably not the right way to go. I think the right way to go is probably lower -- slower weight loss combining mechanisms so that you have the long weight loss so these patients can reach their weight loss goals.

In fact, we know that the current treatments, really by the end of 1 year, they pretty much stop working. They plateau out. So you're going to need other treatments like the melanocortin mechanism to really prolong that weight loss so that people can really reach their weight loss goals. So that's really the genesis of why -- or the top line reason why we're doing it. More specifically, we have been doing preclinical research work, and there is also clinical work being done at Oklahoma that indicate that combining a melanocortin mechanism with an incretin therapy like Wegovy or tirzepatide in this case, actually enhances weight loss. So that's really what we're trying to demonstrate here, that by combining these 2 mechanisms, we can see that 1 and 1 hopefully equals more than 2.

Now this is an exploratory study. It's a first step in that direction. We're not going to claim that we've got all the doses and stuff optimized. But I do think that we should see really an increase in weight loss when bremelanotide is added to tirzepatide. In addition to that, we'd like to -- we have -- because of the way the study is set up, we'll be able to look at things like weight loss maintenance. And in addition to that, we'll be looking at lean muscle mass, which is a very key thing today. When you're driving weight loss with incretins, you begin to lose more muscle mass than you should. And it's been reported in the literature and we've seen preclinically that melanocortin -- weight loss derived from melanocortin mechanism actually preserves lean muscle mass. That's another one that we look at, and it's a very important one.

And then, of course, safety -- obviously, combining 2 different mechanisms, we want to see that there are no safety signals.

[Joseph Pantginis, analyst]

No, that's very helpful. I appreciate those details. And I guess, when you look at the rapidly changing dynamic, you're seeing more companies talk about the weight loss maintenance component that you just alluded to. So when you consider -- and I'm trying to take a little bit of a leap here. When you consider both your MCR4 long peptide approach as well as your oral small molecule approach, is that for general obesity, weight loss management? And do you view it as potential monotherapies or combination therapies?

[Carl Spana, executive]

I mean, it's kind of a mixture of all of the above. It's -- and what I mean by that is, certainly, you started with weight less maintenance which is really something I think that is extremely important and it's becoming more important. I was just down at Obesity Week, and it started to be talked about. But the benefit, both Lilly and Novo have put their long-term data out. And what's pretty clear is once you remove the treatment, patients rapidly regain the weight and the cardiometabolic benefits and other benefits that were there due to the treatment and the weight loss disappear. So in order to really capture those benefits of the weight loss and treatment, they're going to have to be on treatment for long term, and that's going to require different mechanisms. And the melanocortin system is very well suited for that. I won't get into the science, but there's a lot of good science that supports its role in energy stores and energy balance. And by low-dose activation of that system, you probably can help maintain weight loss.

When we think about it more broadly in the general population as well, certainly add-on therapy to the incretins are there. Potential monotherapy for patients that are failing therapy, that are dropping off because they don't tolerate as they dose escalate and they need to move on to different therapies as well. So there's a lot of options for a good melanocortin. The way I talked to some is almost like a utility player, right? There's a lot of different places where you can put it to drive value in treating these patients, anywhere from weight loss maintenance to primary treatment. And then it goes for both the small molecule as well as the peptide. Both of them probably will find slightly different patient populations where they'll have their maximum benefit, but both are valuable and should be brought forward.

[Joseph Pantginis, analyst]

No, that's really helpful again. And then I guess one last obesity question. When you look at the broader obesity market, specially hypothalamic obesity, where do you think you fit in with regard to other compounds in development? Because you seem like the -- especially with the melanocortin approaches, you seem to have broad applicability.

[Carl Spana, executive]

Sure. So obviously, there is melanocortin product approved for a variety of what we call genetic or syndromic obesity. That's setmelanotide, and that is in a large study that should read out sometime next year in hypothalamic obesity. And that's a space where we're evaluating as well, how do we play there. And I think through both the newer compounds that are setmelanotide is what I would call first-generation compound, very similar to [indiscernible], skin darkening and other side effects that you might not want to have in a long-term obesity treatment. And it's also given daily.

We think when we look at where we want to go with our compounds, we want either an oral at a small molecule, which we have in PL7737 or you want a long-acting peptide that's given once a week, very similar to the way the increases are. And it's a melanocortin agonist. You really would like to drop out the MCR1 so you don't have skin darkening. And again, not -- a lot of patients don't necessarily mind it, but there are patients that do. So if you can get rid of it which we have, that's better.

[Joseph Pantginis, analyst]

No, I appreciate that again. So when you look at the overall, I guess, company thesis right now, things have been quite dynamic and we have some definitive catalysts to look forward to in the first quarter. Now you were also talking a lot more regarding the different business development opportunities and strategic options. So you mentioned different options, whether, again, it's typical BD, project finance or all even throw in there -- what you said project finance may be from investors, but you also have like, say, the different royalty aggregators out there. I guess how would you portray, if you can, the mix of those types of financial approaches right now?

[Carl Spana, executive]

I think we've got to kind of look at them slightly differently. So for the -- our ocular franchise, that's really almost -- partly one of the reasons that we're doing what we're doing is that franchise has really gone to a point where it's almost -- it's a company, right? You've got dry eye disease in Phase III. You've got glaucoma and retinal programs that are ready to go and move forward into development. They're held back by lack of investment because we're a small company. So that really started -- that genesis started when we came out with the Phase III data early in the year for the dry eye disease product that we really need to move these things forward. They require a lot more financial resources than we have. So when looking at that, everything is on the table.

We do have large companies that are very interested in the dry eye disease programs and then we have as well as the glaucoma and retinal. So it may be a mixture. You may see a out-licensing of dry eye disease and then corporate -- and a corporate combination of assets for the others that are a little bit earlier. Or you may see a split. You may see front of the eye going one way and the back of the eye, glaucoma and retina going to another -- a different large company. So one of the things that Steve has always been very clear on is that we want to keep our optionality open, and we want to do the best transaction for Palatin and its shareholders. And so we're not going to be [ wedded ] to saying it has to be this or it has to be that. It's got to be the right transaction and that gives the best potential return for the company.

[Steve Wills, executive]

And Joe, if I could just add, when we put a statement in the press release that we have good interest, significant interest, ongoing discussions, these are -- it not just with multiple parties. It's different types of multiple parties as Carl alluded to, from the big pharma to the smaller specialty pharma. They may have an asset combining our asset, could be a 2 plus 2 equals 5, 6 or 7. But this interest in these discussions, they're under CDA, they're in the data room, they're advancing on multiple fronts. Our expectation, non-Nostradamus confirmed, is that we're going to have multiple deals as we go forward, and some of them could be absolutely as early as the first quarter of next year.

[Joseph Pantginis, analyst]

Guys, really appreciate all the details and especially looking forward to see how these strategic options play out.

[Carl Spana, executive]

Thanks for the question, Joe. .

[Operator]

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to Carl for any closing remarks.

[Carl Spana, executive]

Thank you, Steve. I'd like to thank everyone for participating in the first quarter fiscal year 2025 quarter. We are very excited about what we have here. We have had a very long-term interest in melanocortin system as it pertains to obesity and weight loss maintenance. And we now find ourselves really at a great time where there's extremely high interest in what we're doing, and we really have the right set of assets to build tremendous value.

As always, you can find more information on our website. It's actually a very nice resource. If you look on the resources, you can find all of our publications and presentations and posters that we do. We are quite -- they're quite extensive so you can always get more information there. And once again, Steve and I and the full staff here are really, really quite excited about the future for the company, and we look forward to keeping you all updated as we go forward.

So thank you, guys, and all have a great day.

[Operator]

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.