Palatin Technologies, Inc.
Q2 2021 Earnings Call Transcript

Published: 17 Feb 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Palatin Technologies' Second Quarter Fiscal Year 2021 Operating 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 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 the 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.

[Carl Spana:]

Thank you. Good morning and welcome to the Palatin Technologies' second quarter fiscal year 2021 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. On today's call, we will provide financial and operating updates. I will now turn the call over to Steve, who will provide the financial updates as well as an update on Vyleesi. Steve?

[Steve Wills:]

Thank you, Carl. Good morning everyone. Regarding the second quarter ended December 31, 2020 financial highlights, net loss for the quarter was $10 million, or $0.04 per share compared to a net loss of $5.2 million, or $0.02 per share for the comparable quarter of 2019. Total operating expenses for the quarter ended December 31, 2020 were $9.1 million compared to $5.7 million for the comparable quarter of 2019. The increase in net loss and operating expenses was primarily attributable to commercial expenses related to Vyleesi and to PL-9643 Phase 2 study for the treatment of dry eye disease. Of note we had a number of non-recurring expenses related to Vyleesi for the 12/31/20 quarter. Going forward, for the next few quarters, we anticipate the operating expenses to decrease prior to initiation of our dry eye treatment and also the colitis trials, which are targeted to commence around mid-year. As of December 31, 2020, we had $72.2 million in cash and cash equivalents and $4.7 million in accounts receivable compared to $82.9 million in cash and cash equivalents and no accounts receivable as of June 30, 2020. Palatin has no outstanding debt. A few comments regarding our Vyleesi program. And to help frame this where we have been and where we're at regarding Vyleesi, I think it's helpful to recap some history. The product we received back from AMAG last year was a program that needed attention. At the time of the transfer, there was limited to no sales and marketing support. We know it. And in part that is why we received $12 million upfront and are due an additional $4.3 million from AMAG/Covis on March 31, 2021. To ensure a patient access to Vyleesi and regulatory compliance during the transition back to Palatin, we entered into a transition services agreement and importantly commenced the rebuild of the sales and marketing commercial infrastructure and a restructure and streamline of the operational distribution network, including processes and procedures to improve the patient access experience, healthcare provider interaction and increase insurance reimbursement.

[Carl Spana:]

Thank you, Steve. We continue to conduct our operations under the conditions imposed by the ongoing COVID-19 pandemic. To date we believe that the adjustments we have made have allowed us to continue to advance our preclinical, clinical, and commercial programs while maintaining the safety of our employees, our patients and healthcare providers and partners. As we have previously disclosed in 2020, we re-acquired Vyleesi from AMAG Pharmaceuticals. And as a reminder, AMAG's divestiture of Vyleesi was based on a strategic and operational change at AMAG and not on the potential value of Vyleesi. As Steve covered details on our Vyleesi commercial plan, there are a number of accomplishments that I would like to emphasize. After we re-acquired Vyleesi, we undertook an extensive evaluation of the commercial infrastructure and patient experience. It's a stress to say that the commercial infrastructure was not functioning properly, and it was really leading to a very sub-optimal patient experience and very unfavorable economics. Under Steve’s directions, we have rebuilt the Vyleesi commercial infrastructure. And as he mentioned, this is a ground up rebuild from distribution, telemarketing, specialty pharmacies all this had to be redone, we've expanded the patient access of the product. And we believe that the changes that we have put in place over the past six months will dramatically improve the patient experience, patient access, relationships with prescribers and the profitability of Vyleesi. We are now in a position to focus our efforts on improving Vyleesi prescription numbers and partnership discussions. A little early, the initial results of our ongoing geo-targeting efforts are beginning to improve Vyleesi prescription and reimbursement, which we're working to expand. These accomplishments will put us in a strong position to demonstrate the potential value of Vyleesi in a cost effective manner and obtain our ultimate objective to re-license the Vyleesi to a committed partner ensuring the continued available of Vyleesi as a treatment option for premenopausal women with hypoactive sexual desire disorder and a substantial return on our investment. Moving on, our clinical and preclinical pipeline programs continue to advance and we had some pretty exciting results in the past quarter. As a reminder, our primary scientific focus is on the melanocortin system, which is involved in the regulation of energy balance, including food intake, sexual function and resolution of inflammatory responses. Our first melanocortin program was based on the role of melanocortin system in regulating sexual function. This research work resulted in the discovery of Vyleesi and its approval by the FDA as the first on-demand treatment for premenopausal women with hypoactive sexual desire disorder. Also to note, Vyleesi was also the first melanocortin based therapeutic approved by the FDA.

[Operator:]

And our first question will come from John Newman with Canaccord. Please go ahead.

[Carl Spana:]

Hi, John.

[John Newman:]

Hi, guys. Thanks for taking my question. So actually, I had two questions. The first one is for Steve. Steve, just curious as to what the additional steps are that you would like to take with the commercial approach for Vyleesi. Obviously, you've done a lot to this point already, but just curious as to what the next steps are over the next few quarters?

[Steve Wills:]

All right. Thanks John. This is Steve. So, regarding the Vyleesi and the commercial strategy, as I mentioned and Carl illuminated a bit more, there were things from an infrastructure standpoint that just had to be modified. And being somewhat specific, the prior authorization process was not being implemented the way it should be implemented. And the prior authorization process, which is done by the specialty pharmacies, is how we get reimbursed for the product. So that level of reimbursement was significantly lower than what we think it should be, especially with the amount of coverage that we have in place for covered lives with the payors. So that was an absolute A item that we've attacked and we believe it's definitely improved. And I anticipate by the end of February, it will be in the position that we think it should be in. In addition, we've attacked the – telemedicine is a pretty significant avenue. So, we've revamped that experience for the patient, made it more streamlined. And also working with the pharmacies that has been a work in process, that too, we believe will be in the position that we think it should be in by the end of February. Those items are very significant tenant metrics for the Vyleesi value. Greater insurance coverage means greater profitability, making the patient experience. And also, the ATP interaction in that regard is of course a plus. And that will drive a script growth. Regarding the other part of your question, the brand, as the steps we're doing right now are going to increase the brand value. If the brand value is increased, we're going to have – we'll be in a much better position regarding our dialogue with potential partners, collaborators regarding the relicense of Vyleesi for the U.S. and also other regions. As I mentioned in the last call, we did slow down some of those discussions with the other regions, because we wanted to concentrate on rebuilding the Vyleesi brand in the U.S. We still have ongoing discussions. We anticipate having partnerships with the rest of the world later in the year. And for the U.S. that is our strategy. We have dialogue, we think it's going to be a later in the year event and that's frankly because of certain things that we think that made sense to modify the Vyleesi commercial operations. So, was that reasonably responsive, John?

[John Newman:]

Yes. Thank you very much.

[Operator:]

And our next question will come from Michael Higgins with Ladenburg Thalmann. Go ahead.

[Michael Higgins:]

Thank you. Thanks guys, for taking the questions. Congrats on the continued execution. Couple on Vyleesi, if I could start-off here. Can you give us a little help on the reimbursements? You mentioned that it's been increasing. Can you give us some level of detail as to how many lives are covered, how that's been changing recently?

[Steve Wills:]

Yes, it's Steve, Michael. I'll jump in a little bit. When we first started – let me also practice the way these lives are calculated if you actually put them all together, it would be greater than 100%. But not withstanding that we've increased the covered lives and importantly, we've increased the contracts, the way the covered lives are applied in the contract. So, we have contracts in place. Some of these contracts were in place with AMAG. We've had some transferred over, we've had some added to just Palatin, all the contracts right now are in Palatin's name. And we've been spending time with our Market Access group to tweak the contracts, really customizing it to Vyleesi and where we should be positioned. And that in addition to implementing a more robust prior authorization process has generated multiple insurance coverage from a – we might've been at XX when we first started now at multiples of that X. From a covered life standpoint, the way most people do the calculations, we're in that 70% range, even though we're just in that 70% range recently, that's considered very good coverage. You're not going to get 100% coverage. The majority is the big boys. And there's only so many big boys in this landscape we have in place. The one or two that we don't have in place are some of the regional players. We are advancing that dialogue with our market access group. And we anticipate – and I would hope we anticipate that we will have those additional contracts and agreements in place over the next several months.

[Michael Higgins:]

Okay. That's really helpful. Appreciate that level of detail. In terms of the profitability on a quarterly basis of this asset, obviously as you've alluded to and described in great detail, you've got a lot of marketing, a lot of rebuild from the ground up that you've done. The expenses appear to be around $1.1 million in the last couple of quarters, is that a fair number to look at going forward like that increase?

[Steve Wills:]

It's going to be a little bit – it's going to fluctuate depending on what we're doing. We did initiate a geo-targeting digital marketing campaign in the fourth quarter. We're in the process of revamping that now that we have the data back and see where we need to tweak it, whether it's a region or go after a different avenue landscape for the digital marketing. There – we did have several one-time expenses say non-recurring in the fourth quarter, but that number, I mean, it could go – I don't think it's going to go down much, maybe if you want a thousand, but it could also go up by a few hundred thousand, just depends on what's transpiring in that mark.

[Michael Higgins:]

Okay. That's really great. Thank you. Last one here on Vyleesi, in terms of timing for partnering, I guess our assumption is that you're making some efforts here getting the product that's been going. Is there any kind of a level that you can allude to with which you'll increase your partnering efforts? I don't think you want to partner until you really can demonstrate that this is a product that the consumer really wants. And as you get that going that probably is the best optimal time then to partner in this. Is that something you might say here this year? Is that something more of a 2022 outlook? Thanks.

[Steve Wills:]

Well, I definitely think the dialogue will increase in 2021 as we're advancing the scope. For this type of brand, the two main tenants that the partners are looking for are the script increase, obviously the refill increase, but also the insurance coverage. So we believe we're attacking all three of those items and we're showing significant progress. So, we're not going to wait until the end of the year to start these conversations. Some of the conversations are ongoing, but I do – and Carl and I anticipate those discussions will enhance definitely in the second half of the year. And if the things make sense, well we're not opposed to doing something sooner than later. It really just depends on the type of deal, the partner, the collaboration, but that's our strategy. So we license the product, invest a – what we call a reasonable and a measured amount. I mean, we have an approved product. This is a product that we received $165 million since the first quarter of 2017. It's a very valuable asset. So we're – we want to give a certain amount of attention that Palatin can, but it's not going to be the same level of attention that a much larger partner that's say committed in the female healthcare spaces. You see with our presentation, we have a number of other programs that were evolving towards which – around the autoimmune and anti-inflammatory, but we think we have a great asset here and we're going to be increasing the value of that. And later in – whether it's later in the year or the first half of 2022, we will be licensing our product.

[Michael Higgins:]

I appreciate all the detail. I have just one last question here, it's on PL9643. Remind us again the numbers needed for the NDA filing and the size of the upcoming trial. If you think that's all that you're going to need or you needed the Phase 3, I guess is where I'm going. It's a kind of an old question, but if you can update us. Thanks.

[Steve Wills:]

Yes. I think you kind of broke up a little bit, so I'll try and interpret the route through the connection. So, right now, we completed our first study. We're very pleased with the results and we've – and we'll – as I said, we will have it detailed in the presentations occurring a little bit later in the year. So the upcoming trial is requiring a Phase 2/3 will be looking at both – it will be co-primary end points again. There'll be a sign and a symptom. The end size hasn't been finally set yet, but from a statistical standpoint, you don't need that. Maybe we could probably get away with 60 to 80 per arm and see – and have a good power. So we'll probably be higher than that just to because we – because of safety, wanting generally additional safety data to support this as a regulatory submission. And the requirements of the FDA would be two trials. There will be two trials with – where you hit both a sign and a symptom in both trials. So what we would look to do now is to get this trial kicked off in mid-year. We will be taking advantage of an adaptive clinical trial design. And so by the third quarter of this year, probably fourth quarter of this year, we'll get a sense of how the trial is going. And we'll make a decision on how quickly we want to kick off the second Phase 3 trial, which could be as early as – as late this year or probably no later than the first quarter of next year.

[Michael Higgins:]

Okay…

[Steve Wills:]

And as I said, again, these trials are probably going to come in around 200 to 300 patients per study, they are going to probably coming up at that.

[Michael Higgins:]

Okay. Very helpful. Appreciate it. Thanks Carl. Thanks Steve.

[Carl Spana:]

Thank you, Michael.

[Operator:]

And this will conclude today's question-and-answer session. I would now like to turn the conference .

[Carl Spana:]

Well, I don't know we're still on. But if we are, we really thank you for participating in our Palatin Technologies' second quarter fiscal year 2021 conference call. Be safe and we look forward to continuing to update you over the next quarter. Thank you, and have a great day

[Operator:]

This concludes today's conference. Thank you for your participation. You may now disconnect.