Palatin Technologies, Inc. (NYSEMKT:PTN) is soaring on data released from its lead female libido trial. The company is up more than 30% mid morning in the US, having reached highs of a 56% gain at market open, and volume suggests we’re going to see further strength go the company’s way before the session draws to a close. Things aren’t as straight forward as they might initially seem, however.

The data seems to have played a bit loose with the predefined endpoints for the trial, and this is causing a little bit of uncertainty as to how markets should read into its interpretation.

Let’s have a go at getting to the bottom of the situation.

First, a quick look at what the company reported, and why the uncertainty.

The drug is called bremelanotide and it’s targeting the treatment of a condition called hypoactive sexual desire disorder (HSDD). HSDD is classified as a sexual deficiency disorder, and it’s essentially a lack of desire to engage in sexual activity in women, or a lack of enjoyment (or active distress) upon engaging in such.

Before the recent data hit, and as reported in the clinical trial documentation upon trial initiation, the two co primary endpoints for the trial were satisfying sexual events and the FSFI desire subdomain, with a noted key secondary endpoint utilizing question 13 of a revised FSDS questionnaire.

Here’s where the uncertainty comes in to play.

On announcing the latest numbers, Palatin noted that it had altered the two co primaries to Female Sexual Function Index: Desire Domain (FSFI-D) and Female Sexual Distress Scale-Desires/Arousal/Orgasm (FSDS-DAO) Item 13, and that it had demoted the satisfying sexual events endpoint to a secondary.

Now, in another trial, this could be a serious shift. If a company investigating PFS in a cancer trial demotes the measurement from a primary to a secondary on release, and promotes, say, a tumor size secondary to primary, it wouldn’t get away with it.

This is essentially what Palatin has done, yet markets are buying on the news. This, of course, hasn’t stopped some analysts from crying failure in this trial.

We are going to give the company the benefit of the doubt, and it’s not even that we’re being optimistic.

Here’s why.

This is pretty much a brand new market – one that was only really defined around two years ago under HSDD as being an official indication. The FDA is still releasing framework guidance under which companies investigating this sort of condition should be operating.

When the trials kicked off, none of this guidance was available, and the whole process was a sort of piece it together as we go type thing. Palatin put together a trial that would cover pretty much every possible measurement that might be considered paramount in measuring clinical benefit, and put forward two of these endpoints as coprimary based on an early stage assumption.

Between then and now, the company has had repeated discussions with the agency regarding what is the most appropriate measurement of benefit. Based on public hearings, sponsor input, increased education, that sort of thing, the FDA and the company agreed that the two endpoints now used are the most appropriate. This was all arranged prior to database lock, so it’s perfectly acceptable and above board.

This database lock came around ten days prior to the agency’s guidance on the overall framework, and the fact that the revised endpoint falls in line with the latter is a plus, not a negative.

That’s essentially the core of this situation. When the trials kicked off, nobody really knew what was the best way to measure efficacy. Now the agency has put together a framework outlining (as best it can, it’s still early days) what it expects to measure clinical benefit against, and Palatin has amended its co-primaries to reflect these agency expectations.

So what’s next?

The company expects to get an NDA with the FDA during the second half of this year, but between now and then we should get a host of data relating to secondary endpoints (including the above discussed ex-primary). Each of these data points has the potential to serve up some bullish momentum, so we expect the trend to continue as we head into the end of the year and the first quarter of 2017.