Hello, ladies and gentlemen, welcome to Palatin's Third Quarter Fiscal Year 2022 Operating Results Conference Call. As a reminder, this 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 careful in evaluating these forward-looking statements by Palatin's prospects. Now I'd like to turn the call over to our host, Dr. Carl Spana, President and Chief Executive Officer of Palatin. Please go ahead.

Thank you. Good morning, and welcome to the Palatin Third Quarter Fiscal 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. To start the call, Steve will take us through the financials and the corporate updates. Steve?

Thank you, Carl, and good morning, everyone. So regarding the third quarter ended March 31, '22 financial results, starting with revenue. Total revenue consists of gross product sales of Vyleesi, which is Palatin's FDA-approved product for premenopausal women with hypoactive sexual desire disorder. The gross product sales of Vyleesi net of allowance and accruals and license and contract revenue. The Vyleesi gross product sales which is to pharmacy distributors for the quarter ended March 31, '22 amounted to $1.3 million with net product revenue of $216,000 compared to gross product sales of $1.8 million with net product revenue of approximately $89,000 for the comparable quarter of '21. Gross product sales decreased 27% and net product revenue increased 144% over the comparable quarter of '21. Regarding operating expenses, total operating expenses for the quarter ended March 31, '22 were $8 million compared to $6.6 million for the comparable quarter in '21. The increase in operating expenses was a result of increased research and development expenses primarily related to our ongoing pivotal Phase III clinical trial of PL-9643, offset by decreased commercial expenses related to Vyleesi. Regarding cash flows, Palatin's net cash used in operations for the quarter ended March 31, '22 was $9.5 million compared to net cash used in operations of $3.5 million for the same period in '21. The increase is primarily due to a 4.3% payment received in March '21 related to our termination agreement with AMAG, offset by increased operating expenses. Regarding net loss, Palatin's net loss for the quarter ended March 31, '22 was $7.6 million or $0.03 per basic and diluted common share compared to a net loss of $5.7 million or $0.02 per basic and diluted common share for the same period in '21. The increase in net loss, as I mentioned above, was…

Thank you, Steve. Concerning Vyleesi, our operating objective has been to optimize the core metrics that support the commercial value of Vyleesi. For the quarter, as Steve said, we saw significant increases in gross sales, product revenue, prescriptions, refills, the continuing increases in Vyleesi 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. We continue to engage with potential partners in the U.S. and other territories and the timing of potential license is dependent on reaching acceptable terms with the right partner. Across the multitude of inflammatory and autoimmune diseases, there remains a vital medical need for new treatments to provide patients with and clinicians with safe and effective treatment options. Our research and development operations are focused on developing drugs that modulate the melanocortin system, a new treatment modality for patients suffering pathological inflammation with a primary focus on ophthalmic diseases such as diabetic retinopathy and dry eye disease. M any of the current treatments for inflammatory and autoimmune diseases work by blocking 1 or more pro-inflammatory pathways, which can cause immune suppression and major safety concerns. By targeting the melanocortin system, 1 of the body's natural mechanism for resolving inflammation, we can restore the immune system to a normal state and promote tissue healing. We believe that targeting melanocortin system may lead to the development of highly differentiated therapeutics with efficacy and a superior safety profile. Our scientists are advancing the understanding of the melanocortin system at a molecular level and to establish the clinical validation of melanocortin-based therapeutics. Clinical development programs include ocular and nonocular indications and are designed to demonstrate the broad utility of melanocortin system as a new…

[Operator Instructions] We'll take our first question from Joe Pantginis with H.C. Wainwright.

This is Sara Nik on for Joe. My first question is regarding PL-9643. You did mention that you are looking into a second front-of-the-eye indication. I was wondering if you could provide some insight into what are some of the indications that you're currently assessing to study?

Sure. So it actually won't be PL-9643, it will be a different minor agonist that we move forward. Indications can range anywhere from treatment for post-surgery, cataract surgery or lens surgery as well as glaucoma. Although glaucoma is not traditionally in front of the eye, I categorize it that way because it's generally treated with topical eye drops. So those are some of the indications that we are looking at as a follow-on to dry disease.

Okay. Great. And also moving into PL-8177 for ulcerative colitis. I know the trial initiation will be soon. I was wondering if you could maybe expand on some differentiating factors for this particular agent versus other current commercial treatments for UC?

Sure. So PL-8177 is designed to treat the colon topically. So this is a peptide that's in an oral formulation that's released when the drug gets into the colon. So it's in case in a polymer that protects it from being -- from digestion until it's released when it gets to the right spot. And what we're doing is we're targeting melanocortin 1 receptors that are on the epithelial cells with lumen, facing the lumen of the colon. And what you see here is the drug is not systemically absorbed. So it's very safe. So what we have is the potential to essentially provide efficacy with an extremely good safety profile. So we're not immune suppressing here. So -- and also it's quiet as there are no other inflammatory bowel diseases. As you get past first-line therapy, you now move into steroids or immune modulators or biologics, all of which deliver some level of efficacy and certainly representing a huge market. But at the end of the day, they all are mainly given systemically, and they have immune suppressive properties that really come at a pretty high cost from both economically as well as from a medical or safety standpoint. So we really have the potential here to deliver a safe, effective treatment option that doesn't really currently exist in the IBD space and certainly would be ideally suited for pediatric patients, where you don't necessarily want patients that are progressing as young adults on to really severe immunosuppressive treatments that essentially are probably not going to have a great outcome for them over a number of years.

Okay. And lastly, do you plan on -- will there be an interim assessment for this trial?

Yes, we're -- this trial as well as the dry eye disease trial, they use somewhat adaptive designs. And when the first 16 patients go through, we'll take -- we'll do an interim assessment and see if there are any adjustments that are needed to type the patients that we're doing, timing of assessment of endpoints and so on and so forth. The goal of the study really is a pure proof-of-concept study, and it's really designed to give us the information, one, to show that the drug has indeed significant efficacy to go forward and then the types of patients and endpoints that are most appropriate for this mechanism.

We'll take our next question from Michael Higgins with Ladenburg.

This is Farhana on behalf of Michael. We have 4 questions. So I guess, just following up on the Phase II for 8177. Could you provide like a little more details? So how many patients are you expecting? And what sort of primary endpoints are you looking into?

Sure. So we're looking into about 30 to 32 patients. We certainly will go up if we are seeing significant efficacy. We want to push that number, we certainly can go up. The end point is we're looking at mucosal healing. So the treatment time period here is 8 weeks, and we're looking for by colonoscopy, we're looking for evidence of mucosal healing. And we certainly will look at a whole variety of other Mayo scores with regards to the clinical outcome as well.

Okay. Great. And then 1 more question on the front of the eye disease. When can we expect that IND? You mentioned that you will disclose in 2022, but some sort of timeline --

It will be late in the year. It will be more towards the end of the year. So right now, we have several opportunities that we want to -- and several compounds that we can advance. And what we're doing now is really completing some of the final preclinical evaluations. And then Steve and his group are actually matching that with the commercial side. So when we look at some of these opportunities, not only do we look at, “okay, what does the science support? What’s the preclinical evidence doing? How do we translate that clinically?” Then we're matching that with regulatory strategy. And then overall, what's the best opportunity based on what's the market opportunity, risk-adjusted profiles and so on and so forth. So all those things are ongoing now, we'll probably come out in early third quarter with the indication. And then from there, we'll complete -- when you look at the front of the eye, the preclinical tox requirements are relatively straightforward, and we'll get those completed and get applications in to start studies by the end of the year.

Okay. Great. And just 2 quick questions. So PL-9654, is the IND still on track for 2022? And then for PL-3994, is the part data still on track for the first half of 2022?

So for the latter, yes, it is for PL-3994, yes. For PL-9654, we're -- our IND filing would be if we stated that as '22, I'll stand correct that it would be in 2023. Keep in mind, that is a diabetic -- or any of the retinopathies are long-term systemic -- potential systemic treatments, so they require that you would have long-term tox before you start. So we're getting ready to start that program, long-term tox, which will take anywhere from 9-plus months to complete. -- we would go forward. When you look at the front of the eye, you're talking about 12 weeks of treatment, so your tox program is much shorter. But for the back of the eye, it makes no sense to advance the compound unless you're going to complete all of the longer-term tox in 2 species, which takes about 9 months to do the in life and then you get your reports and then can file. So that's about to start probably late third quarter, early fourth quarter and then from there, you can add 12 months on for an IND filing.

We'll take our next question from John Newman with Canaccord.

Just had a question on MELODY-1 study. Wondering if you could remind us of the way that you'll be doing the endpoint analysis there? I believe you previously said you've got some flexibility in terms of which sign and which symptom you need to hit to show statistical significance?

That's a good question, Andre, thank you for reminding us to address that topic. So the issue with dry eye disease is that you've got a wide range of patients, their underlying disease conditions or what cause the disease can be very -- variable. And when we do clinical trials, variability is not something we particularly like. But to address that, what we've done is we've not locked ourselves into a single -- primary or single secondary. We have 3 co-primaries, so 2 signs and 1 symptom. And then we have 3 key secondaries, 2 symptoms and 1 sign. And the goal here is you want to get a sign and a symptom in the same study because that really allows you to do just 2 studies and then submit to the FDA. So what we've done from a physical analysis standpoint is we split the outlook. So instead of 0.05, we would need to hit the primary at 1/3 of that 167. And the way the study is designed, if we hit a single 1 of the co-primaries we then can maintain statistical hierarchy and go on and look at the key secondaries. And if we hit 1 of the key secondaries, we can continue to go forward and continue the analysis. So the way it's designed, if we hit a sign in the key primary and a symptom in the key secondary, that acts as a sign of symptom in the same study, and then we can go to use that as a submission or vice versa, if we get the symptom in the co-primary and the sign and -- as a key secondary, we’re good as well. So it really gives us multiple ways of going without having to lock ourselves into just a sign or a symptom as an end point. In addition, the interim assessment is coupled with that strategy so that, for example, what if we hit a sign in the primary position, but we missed a symptom, they'll be looking to see how many patients more we wouldn't necessarily have to add in to hit the key secondary symptom. So we really have built in as many belt and suspenders and use as much of what modern clinical trial design allows to deal with the variability of these studies and give us the best chance to reduce our risk and get -- and be able to deliver 2 Phase III studies with the sign and symptom in both.

Ladies and gentlemen, this concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Dr. Carl Spana for any additional or closing remarks.

So I'd like to thank everyone. And Steve and I’d like thank everyone for your participation in the third quarter 2022 conference call. We have some big points coming up over the next couple of quarters. We're looking forward to keeping you guys informed. That being said, have a great day, and we'll talk to you soon. Bye-bye.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.