Prepared remarks
Greetings. Welcome to Palatin's First Quarter and Fiscal Year 2025 Operating Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.
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 and he'll give the financial update.
Thank you, 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 the 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's not included in our September 30 cash and cash equivalents balance. Regarding 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 3 dry eye disease program, our early stage glaucoma and retina development programs, and our Phase 2 ulcerative colitis program from multiple parties. Now, I'll turn the call back over to Carl.
Thank you, Steve. I'll now go over the operating update for the quarter. We are currently conducting a Phase 2 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 GFP 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 satiety, 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 60 patients to approximately 115. Topline results are expected in the first quarter of 2025. Our obesity and weight loss management portfolio includes both a 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 2025. Our novel next generation selective MCR-4 compounds have reduced activity at the Melanocortin-1 receptor and that means they have a reduced potential to cause skin darkening. We believe that the lack of activity on 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 on our website that has recent presentations on our novel next generation MCR-4, Melanocortin-4 receptor selective compounds. For our PL8177 orally selective MCR1 treatment for ulcerative colitis, the Phase 2 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 discussion with potential partners, which is in line with our current strategy to out-license this exciting program.
And finally, for our Phase 2 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 anti-inflammation and 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 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 multi-year cycle of innovation and will have a market value greater than $100 billion per year.
The Melanocortin system plays a critically important role in regulating stored 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 longstanding research effort to develop Melanocortin therapeutics that selectively activate the Melanocortin 4 receptor as treatments for obesity and weight loss maintenance. With extensive experience in the design and development of Melanocortin agonists for treating obesity, including two clinical studies previously completed and published, we are well-positioned to be a leader in the development of Melanocortin-based therapeutics for weight loss and importantly weight loss maintenance. By focusing our efforts on our MCR-4 obesity and weight loss maintenance, we intend to drive substantial increases 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 3 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 multi-pronged 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 asset 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.
Questions and answers
Thank you very much. Your first question is coming from Joe Pantginis of H. C. Wainwright. Joe, your line is live.
Hi, guys. Thanks for taking the questions and the details as usual. Just wanted to 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?
Yes. Specifically regarding that business development with a larger company, we have seen strong interest since the study commenced. We currently have five or six major companies under Confidentiality Agreements. As we anticipate data coming in the first quarter, we have re-engaged with them and provided updates on our progress. We are quite confident that with a positive outcome, which we expect to achieve, this program will be licensed out.
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?
I'm going to take a moment to provide a broader perspective before getting into the details. Currently, the primary treatment for obesity involves incretins, such as Zepbound and Wegovy, with additional options on the way that function similarly. They have shown effectiveness, but some of the newer treatments may be too effective. Looking ahead, I believe combination therapy will become essential, allowing different mechanisms to help a wider range of patients with obesity safely achieve their treatment goals. While the current treatments work, they tend to plateau after a year. Therefore, we will need additional treatments, like the melanocortin mechanism, to sustain weight loss and help people achieve their objectives. We are conducting preclinical and clinical research, particularly in Oklahoma, that suggests the combination of melanocortin with incretin therapy, such as Wegovy or tirzepatide, can enhance weight loss.
Our goal is to show that this combination results in greater weight loss than what would be achieved individually. This is an exploratory study and a preliminary step, and while we are still optimizing doses, we anticipate that adding bremelanotide to tirzepatide will lead to increased weight loss. Moreover, our study design allows us to assess weight loss maintenance and lean muscle mass, which is crucial since using incretins can result in excessive muscle loss. Literature supports that weight loss from the melanocortin mechanism helps to preserve lean muscle mass, making this a significant factor in our investigation. Finally, we will monitor safety to ensure there are no adverse signals when combining these two mechanisms.
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 MCR-4 long acting 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?
I mean, it's kind of a mixture of all of the above. What I mean by that is, certainly you started with weight loss maintenance, which is really something I think that is extremely important and it's becoming more important. I was just down at a BC week and it's starting 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 in treatment, you're going to have to be on treatment for a 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, a 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 way. I talked to someone that's 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 will probably find slightly different patient populations where they'll have their maximum benefit, but both are valuable and should be brought forward.
That's really helpful again. Thanks. I have one last question about obesity. Considering the broader obesity market, particularly hypothalamic obesity, where do you see your position in relation to other compounds that are being developed? It seems that with the Melanocortin approaches, you have a wide range of applicability.
Sure. There are Melanocortin products approved for various forms of genetic or syndromic obesity, such as semaglutide, which is undergoing a large study for hypothalamic obesity that will report results next year. We are also exploring our role in this area. Our goal is to develop either an orally active small molecule like PL7737 or a long-acting peptide administered once a week, akin to incretins. We believe that as a Melanocortin agonist, it would be ideal to eliminate MCR-1 to avoid skin darkening side effects. While some patients may not mind these side effects, others do, so finding a solution to this issue is beneficial.
I appreciate that again. So, when you look at the overall, I guess, company thesis right now, things have been quite dynamic. 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 I'll even throw in there what you said project finance maybe 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?
We need to consider our ocular franchise from a different perspective. This franchise has reached a stage where it almost operates like a separate company. We have several promising programs, including dry eye disease in Phase 3, along with glaucoma and retinal initiatives, all poised for development. However, these efforts are being hindered by a lack of investment, which is a challenge for a small company like ours. The turning point was when we released the Phase 3 data for the Triadis product earlier this year, emphasizing the urgency to advance these programs that require more financial backing than we currently possess. We are exploring all possibilities, including potential interest from larger companies in our dry eye disease, glaucoma, and retinal programs. This could lead to various outcomes, such as licensing our dry eye disease program while combining our earlier stage assets or splitting our assets by having one part, like the front of the eye, go to one company, and the back of the eye programs, including glaucoma and retina, go to another large entity. Steve has been clear about our aim to keep our options flexible, ensuring we pursue the most beneficial transaction for both Palatin and our shareholders. We are open to finding the best deal that maximizes the company's potential returns.
I would like to add that when we mentioned in the press release that we have significant interest and ongoing discussions, it's not just with multiple parties but various types of parties, as Carl pointed out, ranging from large pharmaceutical companies to smaller specialty firms. The combination of their assets with ours could create a much greater value. The ongoing interest and discussions are under confidentiality agreements, they're in the data room, and we are making progress on several fronts. Our expectation, which has been confirmed, is that we will secure multiple deals moving forward, with some potentially happening as early as the first quarter of next year.
Guys, really appreciate all the details and especially looking forward to see how these strategic options play out. Thanks a lot.
Thanks for the question, Joe.
Thank you very much. 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.
Thank you. Steve and I would like to thank everyone for participating in the first quarter fiscal year 2025 conference call. We are very excited about what we have here. We have had a very long-term interest in the Melanocortin system as it pertains to obesity and weight loss maintenance. We now find ourselves really at a great time, where there's an 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 under resources, you can find all of our publications and presentations and posters that we do. That's quite extensive, so you can always get more information there. 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. Thank you guys and all have a great day.
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.