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Palatin Technologies (NYSEMKT:PTN)
Q4 2019 Earnings Call
Sep 12, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Please stand by. Good morning, ladies and gentlemen, and welcome to the Palatin Technologies fourth-quarter and fiscal year-end 2019 operating results conference call. As a reminder, this conference is being recorded. Before we begin our remarks, I would 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 would like to introduce you to your host for today, Dr. Carl Spana, president and chief executive officer of Palatin Technologies.

Please go ahead, sir.

Carl Spana -- President and Chief Executive Officer

Thank you. Good morning, and welcome to the Palatin Technologies fourth-quarter and fiscal year-end 2019 call. I am 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'm going to turn the call over to Steve who will provide financial and certain operational highlights. Steve?

Steve Wills -- Executive Vice President, Chief Financial Officer, and Chief Operating Officer

Thank you, Carl. Good morning, everyone. Regarding Palatin's quarter and year ended June 30, 2019, certain operational and financial highlights include, with respect to Vyleesi, which is approved for female hypoactive sexual desire disorder, in June 2019, the FDA granted marketing approval of AMAG Pharmaceuticals' NDA for Vyleesi, a melanocortin receptor agonist developed by Palatin and indicated for the treatment of premenopausal women with acquired generalized hypoactive sexual desire disorder, referred to as HSDD. The FDA's approval of the NDA triggered a $60 million milestone payment to Palatin under our North American license agreement with AMAG.

This $60 million was received in July 2019. Additionally, Palatin is entitled to receive tiered royalties on net sales ranging from high single-digit to low double-digit percentages, and sales milestones based on escalating annual net sales thresholds, the first of which is $25 million, triggered at annual net sales of $250 million. Vyleesi is the first as-needed treatment for premenopausal women with acquired generalized HSDD. It is currently available through specialty pharmacies Avella and BioPlus.

And AMAG will launch Vyleesi nationally with its full sales force mid-September. We remain focused on advancing discussions on Vyleesi collaborations for territories outside the currently licensed territories of North America, China and Korea. And we have excellent interest from multiple parties from multiple regions. With respect to corporate, cash and accounts receivable balances at June 30, 2019 of $102 million is sufficient to cover planned operations through at least calendar 2021.

Included in the accounts receivable balance is the $60 million milestone payment due from AMAG for the Vyleesi FDA approval, again which was received in July 2019. Debt and related liabilities decreased from $7.2 million at June 30, 2018 to approximately $800,000 at June 30, 2019. The final payment of $800,000 was made in July 2019. And we now have no debt.

With respect to financial results, Palatin reported net income of $52.2 million or $0.25 per basic and $0.23 per diluted share for the fourth quarter ended June 30, 2019 compared to net income of $11.8 million or $0.06 per basic and diluted share for the same period in 2018. The difference between the three months ended June 30, 2019 and 2018 was attributable to the recognition of license and contract revenue pursuant to our license agreement with AMAG of $60.3 million for the quarter ended June 30, 2019 compared to $20.6 million for the same period in 2018. For the year ended June 30, 2019, Palatin reported net income of $35.8 million or $0.17 per basic and $0.16 per diluted share compared to net income of $24.7 million or $0.12 per basic and diluted share for the year ended June 30, 2018. The difference in net income for the years ended June 30, 2019 and 2018 was primarily the result of a $16.6 million decrease in operating expenses to $24.6 million for the year ended June 30, 2019 compared to $41.2 million for the year ended June 30, 2018.

This was, of course, partially offset by the recognition of our license and contract revenue of $60.3 million for the year ended June 30, 2019 compared to $67.1 million of the license and contract revenue for the year ended June 30, 2018. Regarding the revenue, for the quarter and year ended June 30, 2019, Palatin recognized $60.3 million in license and contract revenue, all related to our license agreement with AMAG. Regarding the operating expenses, total operating expenses for the quarter ended June 30, 2019 were $8.1 million compared to $8.3 million for the comparable quarter in 2018. And for the year ended June 30, 2019, Palatin incurred $24.6 million of operating expenses compared to $41.2 million for the period of June 2018.

The decrease in operating expenses reflects the completion of the Vyleesi development program and the related ancillary studies necessary to file the NDA with the FDA. Regarding cash position and working capital, Palatin's cash and cash equivalents were $43.5 million at June 30, 2019 compared to $38 million at June 30, 2018. Accounts receivable were $60.3 million at June 30, 2019, and this included the $60 million milestone payment due from AMAG, which, yes again, was received in July 2019. There were no accounts receivables at 6/30/2018.

Current liabilities $4.2 million at June 30, 2019 were significantly less than the $10.8 million of liabilities at June 30, 2018. And again, cash and cash -- cash and accounts receivable balances at June 30, 2019 of $102 million is sufficient to cover planned operations through at least calendar year 2021. Now I'll turn the call back over to Dr. Carl Spana.

Carl Spana -- President and Chief Executive Officer

Thank you, Steve. I'll start the operational update with Vyleesi. On June 21st, the FDA approved Vyleesi as a treatment for premenopausal women with acquired generalized hypoactive sexual desire disorder. The Vyleesi approval is a major achievement for us and we are excited that premenopausal women with HSDD now have a safe and effective as-needed treatment option.

Vyleesi is a first-in-class melanocortin agonist and the only as-needed product approved by the FDA to treat HSDD. Vyleesi is self-administered by the patient approximately 45 minutes prior to sexual activity. Commercial sales of Vyleesi in the U.S. are the responsibility of our Vyleesi North American partner, AMAG Pharmaceuticals.

In late August, AMAG made Vyleesi available on a limited basis to patients, and the national launch of Vyleesi is scheduled for mid-September. We believe that Vyleesi has significant potential and that AMAG with a strong commercial presence in female health is well-positioned to drive sales of Vyleesi. Outside of North America, we are working with our Chinese partner, Fosun Pharma, and our South Korean partner, Kwangdong Pharmaceuticals, to advance Vyleesi development in those territories toward regulatory filings. The recent FDA approval of Vyleesi has accelerated global interest in Vyleesi, and we are focusing our licensing efforts on finding commercial partners for territories outside North America.

And we believe that we will enter into one or more Vyleesi licensing agreements by the end of calendar 2019. Our goal is to have Vyleesi partnerships for all the major global territories. We believe our Vyleesi licensing strategy will maximize the return on our investment and allow us to focus our resources on our pipeline programs. In the past year, we have also significantly advanced our earlier-stage programs.

Palatin's melanocortin program has two primary therapeutic areas of interest: autoimmune inflammatory diseases and rare genetic forms of obesity. We have developed new families of highly selective melanocortin receptor agonists with potentially broad applications in the treatment of a variety of inflammatory and autoimmune diseases, including inflammatory bowel disease, dry eye, uveitis and retinal diseases. Our clinical development candidate PL-8177 is a highly selective and potent melanocortin-1 receptor agonist, which we believe will have broad applicability as a treatment for inflammatory and autoimmune diseases. In the past year, we have completed two Phase 1 PL-8177 clinical trials.

The first was a single and multiple-ascending dose study with PL-8177 subcutaneously administered to healthy volunteers. PL-8177, at all administered doses, was well tolerated and no potential safety concerns were noted. The second clinical study was a pharmacokinetic study of an oral dosing formulation of PL-8177 as a potential treatment for inflammatory bowel diseases. The data from this study indicates that oral formulation can deliver PL-8177 to the colon without systemic exposure.

In addition, the FDA granted orphan drug status to PL-8177 as a treatment for noninfectious uveitis. Our current clinical development plan for PL-8177 includes conducting two proof-of-principle clinical studies in two indications: noninfectious uveitis, which will begin patient enrollment in the fourth quarter of 2019; and ulcerative colitis, which will begin enrolling patients in the first half of 2020. We're also developing melanocortin-based compounds for other ocular and autoimmune diseases. Our new compound, PL-9643, has demonstrated excellent activity in animal models of dry eye disease and retinal inflammation.

PL-9643 replaces our older compound, PL-8331, providing for a substantially longer patent term and potentially better efficacy. We have developed an eye drop formulation of PL-9643 as a potential treatment for dry eye disease, and we are currently completing required preclinical activities to file an IND, or new -- investigational new drug application, and start clinical studies. Our plan is to begin patient enrollment in a PL-9643 Phase two clinical study in the first half of 2020 with top-line data reading out by the end of the year. We have two programs that are supported by our research on the natriuretic peptide system.

PL-3994, a selective natriuretic peptide receptor A agonist, is scheduled to start a Phase 2 trial, sponsored by the American Heart Association, which is being done in conjunction with two major research centers. The trial has received the required regulatory approvals, and we anticipate patient enrollment beginning by year-end 2019. Although still preclinical, we are very excited by our compound PL-5028, a dual natriuretic peptide A and C receptor agonist for potentially treating cardiovascular and fibrotic diseases. In preclinical studies of liver fibrosis and pulmonary fibrosis completed in the last year, PL-5028 has produced encouraging results.

Our development plan for 5028 is to complete additional preclinical efficacy studies in models of fibrotic diseases and, if these are positive, to begin the preclinical activities required to file an investigational new drug application and begin clinical studies. You can find additional information on our programs on our website, www.palatin.com. In closing, the significant accomplishments of the past year have put us in an excellent position to grow our company and increase shareholder value. The approval of Vyleesi is a major milestone for us and the result of multiple years of hard work and dedication by the employees of Palatin with the support of our investors.

Vyleesi is a significant addition to the treatment of premenopausal women dealing with the physical and emotional impacts of HSDD. In addition, it provides validation of the melanocortin system as a target for drug development. In the background of supporting the Vyleesi New Drug Application review and approval by the FDA, we were able to advance two new compounds into clinical development. Our development efforts will be focused on our ocular and inflammatory disease programs.

We're excited by the potential of PL-8177 and PL-9643 to positively impact the treatment of a variety of ocular diseases and look forward to the clinical trial data that will begin to read out in the second half of 2020. Finally, the milestone payments from our Vyleesi licenses, the revenues that we will receive from new Vyleesi licenses and royalties and our financing efforts have given us a strong balance sheet and will allow us to maintain -- continue to maintain a strong balance sheet and to support the advancements of our exciting pipeline programs. Thank you. We'll now open the call for questions.

Questions & Answers:


Operator

[Operator instructions] We will take our first question from John Newman with Canaccord Genuity.

Justin Zelin -- Canaccord Genuity -- Analyst

Hi. Good morning, guys. This is Justin Zelin on for John Newman. I just had a question, I was wondering if you can give us an update just on the potential timing for additional business development deals around the world outside the current available geographies? And I was just curious on both your interest and your partner's interest in potentially additional partnerships.

Carl Spana -- President and Chief Executive Officer

Sure. Steve can take that question.

Steve Wills -- Executive Vice President, Chief Financial Officer, and Chief Operating Officer

Hey, thanks for the question. We're actually quite pleased with the activity and the interest, and that activity and interest definitely increased post the approval of Vyleesi on -- that we announced on -- with AMAG on June 24th of 2019. We fully expect to get, as Carl mentioned, at least one if not multiple collaborations executed before year end. And our target is to basically have all the regions that are not currently licensed -- and just to remind everyone, the currently licensed regions are North America with AMAG Pharmaceuticals, China with Fosun Pharmaceuticals and South Korea with Kwangdong Pharmaceuticals.

So we're working hard, a lot of interest and looking forward over the next several quarters to executing collaborations in all the available the regions throughout the globe. And one thing that we're doing with the multiple interest is making sure we have the right partner. We want to fit their profile and vice versa regarding our Vyleesi drug. And when I say their side, that they are either already in the female healthcare franchise, have some infrastructure of distribution in place, or they have some very specific granular plans strategically and synergistically to go into those areas.

Justin Zelin -- Canaccord Genuity -- Analyst

Great. Thank you. And just a quick follow-up. Is there any additional trials that are needed for regulatory approval in China and South Korea? I was just curious if you can give an update there.

Carl Spana -- President and Chief Executive Officer

Sure. Both of those territories require a minimum of pharmacokinetic studies, and we are in the process of working with both of them to finalize those protocols and provide drug supply. Anticipate that they will start most likely late this year, but more likely the first quarter of 2020. And since they're relatively short-term studies, they will be conducted relatively quickly.

So we would anticipate that really as we -- either as early as late 2020 if not the first half of 2021 that we would see approval and commercial introduction of Vyleesi in both those territories.

Justin Zelin -- Canaccord Genuity -- Analyst

Excellent. Well, congrats on all progress this quarter. And thanks for taking my question. 

Carl Spana -- President and Chief Executive Officer

Thank you.

Operator

And we'll take our next question from Joe Pantginis with H.C. Wainwright.

Joe Pantginis -- H.C. Wainwright -- Analyst

Hey, guys. Good morning. Thanks for taking the question. With regard to the Vyleesi launch, besides the blocking and tackling of the sales force, I mean just getting the drug out there and the message out there.

What do you identify as the key factors that AMAG needs to address, whether it be just educating physicians about the market or what have you. What do you think the key factors are?

Carl Spana -- President and Chief Executive Officer

Sure. This is Carl. Thanks for the question. And someday some -- one of the operators is gonna get your last name right.

But I think the key issue is -- this is the new indication. Vyleesi is only the second drug approved for the indication. And as you can see even in their presentation, I think the two things are really driving patient awareness and physician education. I mean those are the two things that really -- will be required and will take some time to do.

I mean AMAG has been out there doing that already. They've had I think 25 plus sales -- medical reps out since the approval, sitting down with doctors, providing them with the materials required to diagnose and appropriately get patients onto Vyleesi. They've had multiple websites out, both prior and then now after approval, for disease awareness and patient education. Tremendous pickup, I mean, hundreds of thousands of patients coming off of those websites since they've gone on.

And I think that those continued efforts will continue to drive the awareness in both the patient population as well as the clinicians that will be treating these patients -- or treating these women. So those are really two key issues that I can see.

Joe Pantginis -- H.C. Wainwright -- Analyst

Got it. And I'll -- go ahead, Steve. Sorry.

Steve Wills -- Executive Vice President, Chief Financial Officer, and Chief Operating Officer

I would just add. We're extremely comfortable with AMAG Pharmaceuticals, as I mentioned in the earlier response. You look for the right partner and do you fit each other's profile there. They are very motivated.

This is the space they play in. They can talk much better than we can, if you will, but from what we know and what we've been informed about, they are taking all the right steps and we are very confident that this launch is going to be -- is going to do very well. They're doing everything they need to do. And again, they are very motivated and very aligned with our interest.

And frankly, the interest to get a new treatment available to the premenopausal women out there.

Joe Pantginis -- H.C. Wainwright -- Analyst

No. Certainly, that's good to hear. And then my next question is and I don't know how much you want to or are able to address this, but with regard to the -- with the way the shares have been trading, obviously, you have a new drug approved, there was like transient uptick in the shares. I personally don't believe it's part of our work that you're getting value right now from your pipeline assets.

So do you think right now that -- is there anything beyond the typical, I guess, perceived launch execution risk that might be impacting the shares at this point?

Carl Spana -- President and Chief Executive Officer

I'll pass it over to Steve to answer that.

Steve Wills -- Executive Vice President, Chief Financial Officer, and Chief Operating Officer

I mean, the short answer is we don't believe so. Nostradamus doesn't call me back. But the -- it's -- there's a number of different factors out there. We do have bit of a significant short position for our type of company based on what we are -- from a profile standpoint.

It's -- we traded on June 24th. We traded 50 million shares of which 20 -- a little over 20 million were short positions. We do have some warrants outstanding that from an overhang standpoint, we believe it's not unreasonable to certain shareholders. We'd use those warrants as hedging strategies.

That said, we couldn't be more enthusiastic and excited about where we're going with Palatin. We've never had -- I'm not going to call it a war chest, but for Palatin, it's a very significant sum. Once the $60 million came in in July, we have over $100 million of cash. And we're going to be very prudent and very informed of how we -- we don't like to use the word spend.

It's more like how we're going to invest those funds and invest in the Palatin pipeline. As you can see, we're a small company but we have a lot going on. The Vyleesi approval, AMAG's handling the launch, we're very confident that they're going to do an excellent job with that. Our support to AMAG in North America is now somewhat limited but we'll, of course, moving very aggressively for rest-of-the-world collaborations.

And even though, we're very excited with Vyleesi and, no question, the milestone achievement is absolutely a landmark for us, we couldn't be any more excited for the programs that we're now able to advance and advance because we now have the cash and the infrastructure in place. And we're very much looking forward to reporting -- to starting, if you will, at least three trials within the next few quarters and reporting some of the data before the end of calendar 2020.

Joe Pantginis -- H.C. Wainwright -- Analyst

No. Got it. That's great Steve. Thanks a lot guys.

Carl Spana -- President and Chief Executive Officer

Thanks, Joe.

Operator

And that concludes the question-and-answer session. I would like to turn the call back over to Dr. Carl Spana for any additional or closing remarks.

Carl Spana -- President and Chief Executive Officer

Sure. I'd like to thank everyone for participation in our fourth-quarter and fiscal year-end 2019 conference call. I think as Steve has made more than crystal clear, we are quite excited about the prospects of Palatin and achievements that we have. And we continue to look forward to advancing our programs and continuing to have positive progress as these things go forward.

As always, we look forward to seeing some of the institutional investors that are on the call as we go out and meet you. And unfortunately, we don't have ways to see the retail investors, but we do hear your questions when they come in. And many times you can find answers to those questions in our filings. And I hope we've addressed many of them on this conference call.

Thank you. Have a great day.

Operator

[Operator signoff]

Duration: 27 minutes

Call participants:

Carl Spana -- President and Chief Executive Officer

Steve Wills -- Executive Vice President, Chief Financial Officer, and Chief Operating Officer

Justin Zelin -- Canaccord Genuity -- Analyst

Joe Pantginis -- H.C. Wainwright -- Analyst

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