Acurx Pharmaceuticals, Inc.

Greetings and welcome to the Acurex Pharmaceuticals second quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Shawa, Chief Financial Officer. Thank you. You may begin.

Thank you. Good morning and welcome to the Acorex Pharmaceuticals second quarter 2021 financial results conference call. Yesterday, we issued a press release providing financial results and company highlights for the second quarter of fiscal and calendar year 2021. This press release is available on our website at acorexpharma.com. Joining me on the call today is David Lucci, President and Chief Executive Officer of Acorex, who will provide a corporate update and outlook for 2021. Following his comments, I will provide an overview of the financial highlights from the quarter and six months ended June 30th, before turning the call back over to David for closing remarks. As a reminder, during today's call, we will be making certain forward-looking statements. These forward-looking statements are based on current information, assumptions, estimates, and projections about future events that are subject to change. and involve a number of risks and certainties that may cause actual results to differ materially from those contained in the forward-looking statements. Investors should consider these risks and other information described in our filings made with the Securities and Exchange Commission, including our quarterly report on Form 10Q, which we filed on Friday, August 13th. Your caution not to place undue reliance on these forward-looking statements and ACREX disclaims any obligation to update such statements at any time in the future. In addition, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, August 17, 2021. Accrax undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date and time of this conference call. I will now turn the call over to David.

Thanks, Rob. Good morning, everyone, and thank you for joining us on this morning's conference call to discuss AccurX's financial results. During today's call, we'll review our financial results for the quarter and six months ended June 30, 2021, as well as some key corporate highlights, and then we'd be pleased to take any questions. The second quarter of 2021 was a critical quarter in the ongoing corporate development of AccurX. In June 2021, we closed our initial public offering of common stock for gross proceeds of $17.25 million, which included the exercise of the underwriter's entire over-allotment options simultaneously with the closing. We also began trading on the NASDAQ with the symbol ACXP. With the closing of the IPO, we now have financial resources to start and finish our Phase 2B clinical trial of ibezopulstat, our lead drug, in patients with C. difficile infection. as well as to allocate significant resources to continue the development of ACX375C, our second DNA polymerase 3C inhibitor that is at the lead optimization stage of preclinical development. Our scientific team is now working on the logistical aspects of supporting our initial seven clinical trial sites, as well as adding potential new trial sites with the goal to add sites as necessary to ensure completion of enrollment as early as the first half of 2022. At the World Microbe Forum virtual conference in June 21, Dr. Kevin Geary, professor and chair, University of Houston College of Pharmacy and principal investigator for microbiome aspects of our Ibezopolstat clinical program, presented newly available data on the anti-recurrence mechanism of Ibezopolstat in a scientific poster presentation. Data from our phase one healthy volunteer trial showed beneficial changes that are potentially predictive of lower risk of C. difficile occurrence associated with Ibezopolstat compared to the standard of care vancomycin. According to Dr. Gary, and I quote, Ibezopolstat's unique spectrum of activity targeting low guanine cytosine gram-positive bacteria which includes C. difficile, spares important actinobacteria while at the same time killing C. difficile but not killing other firmicutes necessary for maintaining a healthy microbiome. Having such potentially predictive data so early in development could create a new paradigm for C. difficile drug development. After the close of the second quarter, we announced that Health Holland has agreed to fund a research program to further characterize the DNA polymerase 3C enzyme. We announced this innovative research grant in August and are working with the University of Leiden Medical Center in Holland to launch this two-year project in the third quarter of 2021. Also in the second quarter of 2021, we added two key advisors to our team. Joining our scientific advisory board is Dr. Mark Goldberger, the former director of the Office of antimicrobial products at the U.S. Food and Drug Administration. And joining us as a corporate advisor is Fred Hassan, currently a director at Warburg Pincus and previous chairman and CEO, Shearing Plow and Pharmacia. Regarding our patent estate, we continue to aggressively pursue patent protection for our two antibiotic candidates to supplement the regulatory exclusivity that we have on Ibezopulse, our lead drug, from FDA Qualified Infectious Disease product designation and new chemical entity status. In the second quarter of 2021, we also submitted a patent application for the use of ibezopolstat to treat C. difficile infection while improving the health of the gut microbiome. We are particularly excited about the dual impact of ibezopolstat to treat the acute infection, the C. difficile, while appropriately managing the long-term care of the microbiome, which we believe is exceptional for antibiotic therapy. We also secured a patent on our second antibiotic candidate, ACX375C, that includes claims for composition of matter formulation and method of use and extends out to December 2039. In the second half of 2021, we will also participate in a number of healthcare and scientific conferences highlighting our programs and announcing new scientific data as it becomes available. I'll now turn the call back over to Robert Schala, our Chief Financial Officer, to guide you through the highlights of our financial results for the second quarter. Rob?

Thanks, Dave. As mentioned earlier, our financial results for the quarter and six months ended June 30, 2021, were included in our press release issued yesterday afternoon. Accorex ended the quarter on June 30th with cash totaling $17.1 million compared to $3.2 million as of December 31, 2020. For the six months ended June 30th, 2021, net cash used in operating activities was $0.9 million. Net loss was greater than the net cash used in operating activities by $4.6 million, primarily attributable to share-based compensation and an increase in accounts payable. partially offset by an increase in prepaid expenses. Cash provided by financing activities was approximately $14.8 million for the six months ended June 30, 2021, attributable to the proceeds from the initial public offering. Net cash used in operating activities was $1.6 million for the six months ended June 30, 2020. The net loss was greater than the net cash used in operating activities by $0.6 million primarily attributable to share-based compensation offset by a decrease in accounts payable. Net cash provided by financing activities was $1.1 million for the six months ended June 30, 2020, which was primarily attributable to the net proceeds of the company's private placement offerings. Research and development expenses were $0.1 million for the three months ended June 30, 2021, compared to $0.4 million for the three months ended June 30, 2020. The decrease is primarily due to the completion of the Phase II-A trial in 2020. For the six months ended June 30, 2021, research and development expenses were $0.2 million compared to $1.1 million for the six months ended June 30, 2020. The decrease is due to reduced Phase II-A trial related costs, which was completed in the second half of 2020 as well as a decrease in consulting costs. Selling general administrative expenses were $3.9 million for the three months ended June 30, 2021, compared to $0.5 million for the three months ended June 30, 2020. The increase was primarily due to an increase in stock-based director's fees, stock-based compensation, and an increase in professional fees. For the six months ended June 30, 2021, selling general and administrative expenses were $5.4 million, compared to $1.1 million for the six months ended June 30, 2020. The increase in selling and general administrative expenses is primarily attributable to increase in stock-based compensation, stock-based director's fees, and professional fees. The company reported a net loss of $4 million. or $0.57 per diluted share for the three months ended June 30, 2021, compared to a net loss of $0.9 million, or $0.15 per diluted share for the three months ended June 30, 2020, and a net loss of $5.5 million, or $0.79 per diluted share for the six months ended June 30, 2021, compared to a net loss of $2.2 million, or $0.37 per diluted share for the six months ended June 30, The company had 9,916,208 shares outstanding as of June 30, 2021. With that, I'll turn the call back over to Dave.

Thank you, Rob, and thank you all for joining for today's earnings conference call. We're very pleased to report Accrax's achievements and activities in the second quarter of 2021. We look forward to building on this momentum throughout 2021. I'd now like to open the call for questions. Operator?

Thank you. Ladies and gentlemen, we will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from the line of Lucas Russell with Level 3 Trading. Please proceed with your question.

Hey, Dave, congrats on the IPO. I've got a two-part question here. I'm just curious, were there any, what were the company's financing alternatives other than the traditional IPO? And then two, just kind of walk me through the company's value inflection points for the second half, if you could.

Excellent. Thank you, Lucas. Good morning. Yeah, so the company, other than the IPO, it's a good question. The other viable option we had was from an institutional investor, a venture capital group, that shortly before we commenced the IPO process wanted to do a reverse merger public shell deal. We had the courage to regret the offer that we received as being kind of a toxic deal in nature. It was a deal that would have required us to find NASDAQ-listed public shell. Generally speaking, they don't have cash, but you have to use 20% to 25% of your equity in order to pay the shareholders of the public shell. And then, you know, in the deal itself, we would have had to issue, say, for example, hypothetically, the same number of shares, 2.875 million, that we issued in our IPO, but it would have included 100% A warrants, And in addition to the A warrants, 100 percent B warrants. And when I say 100 percent, I mean 2.875 million A warrants, 2.875 million B warrants, assuming we did the same size deal as the IPO. And the A warrants and the B warrants had VWAP pricing or variable weighted average pricing. So, what that means is as our share price goes down, those warrant exercise prices readjust causing a balloon in the number of shares that are issuable upon exercise of the warrants. So, in that deal structure, we would have had, in my estimation, over 10 million shares and warrants issued in that deal, as opposed to the 2.875 million shares that we issued in our IPO. And lastly, I would like to say that for a deal of our size in our sector, doing the IPO without warrant coverage I thought was a big win for the company. In terms of your second question, I hope that answers your first question, Lucas. Yeah, that's great. Thanks, Dave. For your second question, the value inflection points forward, we're looking at starting the Phase 2B enrollment. We hope kind of very soon. probably early October is our best guess at this point in time. So that'll be, you know, a really big value inflection point for us. We will continue to disclose scientific advancements on our microbiome research of our lead drug at Beza-Polstad at several scientific and healthcare conferences in the second half in the ordinary course. And as something is material to release, we will certainly do so if we get a poster presentation slot, for example. And beyond that, we hope to complete the lead optimization of our second drug, ACX375, and we hope to have more patent news on ACX375 and on Ibezopulstat, our lead drug. And beyond all of that, I'm pleased to announce that we have entered the second round of consideration from Novo Nordisk's Repair Impact Fund. So that's a big pharma partnership that would come our way if we get through the second round and if the partnership is ultimately approved. At this point in time, we are being considered as a second round participant by the Scientific Advisory Committee at the Repair Impact Fund, and we would caution that we don't know if we're going to ultimately be approved, but we can say from prior experience and observation that there aren't very many of the applicants that get into the second round, so we're very excited to be in the second round. If we were to be approved, we would expect to know and be able to advise the street before the end of the year. And we've applied for $13.5 million in the partnership proceeds. So we may get it, we may not. If we get it, we may not get the whole thing. But, you know, if we do get it, we understand that the terms generally, although this could change and we don't know for sure, Generally speaking, for U.S. applicants, they do this through a convertible note process, a 10-year convertible note, interest-free. That's what they've done before, and that's how they've guided us. Could that change? Yes. But it sure looks like an attractive process from our perspective. And we're real excited by it and hope we can kind of complete it in the fourth quarter. So those are the things that we'll be working on primarily for the rest of the year. As I mentioned in my comments, we'll also be kicking off the research program with the Dutch government, Health Holland, and the University of Leiden Medical Center. We'll certainly be advising the street as that continues.

Thanks, Dave. Certainly a non-dilutive big farmer partnership would be amazing. Good luck with the rest of the year. Look forward to following the story. Thank you. Thanks, Lucas.

Thank you. Our next question is coming from the line of Tony Schumann with Corporate Financial Advisors. Please proceed with your question.

Congratulations, Dave and Bob, on the IPO again. I appreciate all the hard work that you've done. My question is probably geared towards Bob, and that is, are you eligible and have you applied for any of the employee retention credits under one of the passable bills passed by the Congress earlier this year?

Employee retention credits. No, we haven't applied for that. We don't know about that, but we can certainly take it up with our tax people.

I've got some people like... Bob, I can connect with you after the call. I can give you a ton of information. I've worked with some specialized firms on that. You can get up to $33,000 per employee total credits. And it's total credit. You don't have to pay anything back as long as you're under 500 U.S. employees.

Well, you can certainly take that up, Tony, with Rob Schauer after the call.

Okay. Will do. Thanks.

Thank you. As a reminder, if you would like to ask a question at this time, please press star 1 on your telephone keypad. Please follow the poll for any additional questions. I'm not seeing any additional questions at this time, so I'd like to pass the floor back over to management for any additional closing comments.

Thank you again for participating today and we look forward to continuing our development process throughout the course of the year and speaking regularly with our shareholders along the way. Thanks again for your investment potentially in our company and we look forward to getting our Phase 2B trial started and reporting back later in the year.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.