Processa Pharmaceuticals, Inc.

Greetings and welcome to Processa Pharmaceutical's third quarter 2021 earnings conference call and corporate update. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jim Stanker, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, and welcome to Processa's third quarter 2021 quarterly results and drug development update conference call. Joining me on the call today are Dr. David Young, our Chief Executive Officer, and Mike Floyd, our Chief Operating Officer. Shortly before this call, we filed our third quarter Form 10-Q. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint slides, please go to the earnings press release and click on the webcast link to follow along. I will start our call by reading the Safe Harbor Statement. This statement is made pursuant to the Safe Harbor for Forward Looking Statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Although we believe expectations and assumptions reflected in these forward-looking statements are reasonable, we can make no assurances that such expectations will prove to be correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in our annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10Q, as well as in other reports we file from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. At this time, I will briefly touch on our published financial results, then turn it over to Dr. Young to provide an update on our drug development activities, which will be followed by Q&A. We continue to manage our cash efficiently, and as of September 30th, 2021, we had a balance of $19.1 million. During the nine months ended September 30th, 2021, we increased our cash balance by $3.7 million when compared to December 31, 2020. We accomplished this by raising $9.9 million in a private placement and spending $6.2 million for clinical trials, operating, and other related costs. While our operating cash flow for the nine months ending September 30, 2021 was $6.2 million, we only spent $2.5 million on what we define as overhead. Overhead includes our general and administrative expenses, as well as salaries for all employees, including our development team. For the third quarter of 2021, we reported a net loss of $3 million, or 19 cents per share, compared to a net loss of 3.1 million, or 55 cents a share, for the same period of 2020. The quarter ended September 30, 2020, included an expense of $2 million related to our licensing of 12-852 from the Yuhan Corporation. Adjusting for in-process research and development acquisition costs, our net loss increased by $1.9 million for the third quarter of 2021 compared to the comparable period for 2020. The increase in our acquisition adjusted net loss relates to increased costs we incurred as we progress with our clinical trials for PCS-499 in ulcerative necrobiosis lipoidica and PCS-6422 in advanced gastrointestinal refractory tract tumors. And we begin our Phase II trial in PCS-12852 in gastroparesis. We anticipate our costs will continue to increase for the rest of the year. as we continue to enroll patients in these trials and continue development activities for the other drugs in our pipeline. Our net cash used in operating activities for the nine months ended September 30, 2021, also increased by $5.1 million to $6 million when compared to $867,000 for the same period in 2020. The increase was due to cost we incurred in our clinical trials for PCS-499, PCS-6422, and PCS-12852, including advanced payments to our CROs and a $200,000 payment related to our licensing of PCS-3117. In February 2021, we closed a $10.2 million gross proceeds private offering of common stock from which we received net proceeds of $9.9 million after deducting offering-related costs. Following that offering, and as of today, we have 15.7 million common shares issued and outstanding. During the third quarter of 2021, we incurred research and development expenses totaling $1.7 million compared to $533,000 for the same period in 2020. The increase in our R&D costs of $1.2 million in 2021 was primarily due to costs we incurred related to our active clinical trials. During the third quarter of 2021, our general and administrative expenses totaled $1.3 million compared to $424,000 for the same period in 2020. The increase related primarily to increases in professional and other consulting fees, as well as non- non-cash stock-based compensation. Allocated between R&D and G&A is $2.3 million of non-cash compensation costs. That concludes my remarks. I'll turn the call over to our CEO, David Young. David, please go ahead.

Thank you, Jim. Good evening. Thank you for joining us. During my time with you today, I'll be updating you on our pipeline and briefly discuss what you should be expecting over the next 15 months. I will not be covering all the details on each slide, but the slides will be posted on our website, as Jim said previously. Let's go to our first slide, slide three. This slide provides you with a snapshot of the process of highlights. The first four major bullets are the highlights that I'm sure most of you have already heard or read about. The last three major bullets are the more recent highlights. I will be discussing bullets five and six, our key accomplishments in the third quarter, and some milestones to expect over the next 15 months in more depth in subsequent slides. The last bullet represents something that has happened recently, and we are only beginning in the beginning stages of our discussions. Next slide. Slide four describes the criteria that we have used to select drugs in our pipeline. Again, this is a slide that many of you have already seen or heard about. Next slide. Now let's look at a summary of our pipeline. Instead of going into the details of each drug using this slide, I'd like to point out that we have four drugs in clinical development, 499, 12852, 3117, and 6422. 6422, which we are rebranding as next-generation capcitabine. We expect these same four drugs to be in Phase III in 2023 to 2025, and all four drugs to be FDA-approved and commercialized between 2025 and 2028 in four different $1 billion markets. I will only be briefing you on the status of next-generation capcitabine and 499, which are now being clinically evaluated, and 12852, which we expect to be in patients in the first half of 22. Let's first look at next-generation capcitabine since the interim results are hot off the press. Next slide. Next-generation capcitabine, which we previously designated as 6422, is a chemotherapy treatment that includes 6422, a chemotherapy modifier, administered with capcitabine, currently one of the cornerstone chemotherapy drugs used in cancer, and the oral prodrug form of 5-FU. As you can see from the diagram, looking at the right side of the metabolic scheme for 5-FU, 5-FU is currently metabolized through the DPD enzyme to a metabolite called FBAL, which has no therapeutic effect and can cause side effects. 6422 irreversibly inhibits existing DPD in the body, shutting down the right side of 5-FU metabolism to FBAL. The shutdown of the right side results in 5-FU metabolism shifting to the left side, the side that forms 5-FU nucleotide, which kills cancer cells but also normal cells being synthesized, such as neutrophils. This shift, however, does not last forever because de novo DPD is formed over time, and if no 6422 is present, the new DPD can metabolize 5-FU to F-ball. We would expect that as long as next-generation capcitabine inhibits DPD, less F-ball is in the body than current capcitabine, and next-generation capcitabine is more potent as determined by a greater 5-FU systemic exposure per milligram of capcitabine dose. So what did our interim phase 1B results with only one dose of 6422 and seven days of capcitabine telus? 24 to 48 hours after administering a single dose of 6422, less than 10% of 5-FU was metabolized to FBAL compared to 80% reported for FDA-approved capcitabine. And the potency of next-generation capcitabine as determined by the 5FU systemic exposure per milligram of capcitabine administered, was at least 50 times greater than reported for current FDA-approved capcitabine. And in some patients, it was even 100 times greater. We also determined from this interim analysis that the improved metabolism profile and increased potency is transient and did not last for seven days after a single dose of 6422. Next slide. We believe that the change in 5FU metabolism over the seven days occurs because existing DPD is inhibited for 24 to 48 hours after a dose of 6422. New DPD is then formed, and no 6422 exists to irreversibly inhibit the new DPD. Therefore, we are modifying the Phase 1B protocol to better understand the timeline of DPD inhibition and de novo formation. so we can select regimens of 6422 that will inhibit DPD as long as capcitabine is administered. By achieving this, we not only expect next generation capcitabine to be more potent than current capcitabine, but we also expect to have a product that can provide a better benefit-risk profile important to FDA and to patients. The information from the modified protocol will be extremely valuable. and may allow us to treat cancer patients using a personalized or precision medicine approach, which likely would result in next-generation capcitabine taking over all the existing capcitabine markets, as well as some of the 5FU markets for multiple types of cancer. I would like to point out that we also are evaluating other regulatory submissions that could expedite the development of next-generation capcitabine. And even though we've had to call an audible after seeing the interim data, The timeline to initiate Phase III and the timeline for approval has not changed. Next slide. Let me quickly review 499, our Phase IIb drug, for which we have FDA orphan designation. NL is an unmet medical need condition that initially appears to be a dermatological condition, but is a condition that affects the skin and tissues below the skin. NL can last for months to years with complications such as infections, amputation of the limb, and cancer. Ulcers occur in about 30% of the patients, and conclusive diagnosis can only be accomplished through a biopsy, where the histological presentation is different than other ulcers, such as diabetic ulcers. Ulcerative NL is a serious condition with no approved drugs. The prevalence of ulcerative NL is 22,000 to 65,000 patients in the U.S., with the U.S. potential market of approximately $1 billion. The NL ulcers can occur naturally over the clinical course, or they can occur from contact trauma to the lesion because the skin becomes more fragile and brittle. More importantly, natural complete healing of moderate to severe ulcers during the first one to two years after onset occurs in less than 5% of these patients. As I said before, there is no FDA-approved treatment for NL, no standard of care, and all drugs used off-label are inadequate. because of dose-limiting side effects, which prevent the drugs to be given at a high enough dose to see significant efficacy in a formal trial. This includes a drug called pentoxyfilin, or as I often call it, PTX. PTX does work in closing the ulcers in some patients, but side effects limit the dose that can be administered. 499 is the deuterated analog of a metabolite of PTX. In our FACE-2A NL trial, complete wound closure was achieved in the only two patients who presented with ulcers. And each patient had contact trauma ulcers while on the drug. And those ulcers also closed within one month. Next slide. In our Phase IIb randomized placebo-controlled trial, three patients have enrolled, one patient is in screening, and one patient failed screening. A total of 20 patients are to be enrolled. The interim analysis expected in mid-2022 of both placebo and treated patients, is critical to guiding us in our development program as well as future regulatory submissions to expedite the development and approval of 499 in ulcerative NL. We expect to complete our Phase 2B study in 2022 and initiate our Phase 3 trial in 2023. Next slide. The last drug that I'll cover in this update is 12852, a very potent and specific 5-HT4 agonist. You may recall that this drug is being developed for the treatment of gastroparesis. There's only one drug approved for gastroparesis, metoclopramide, while other drugs are used unsuccessfully off-label. All these drugs have side effects that significantly limit their use. Given the high specificity and potency for the 5-HT4 receptor, The side effect profile appears to be significantly better for 12A52 than all of the drugs used for gastroparesis, which would make 12A52 the drug of choice in this $1 billion market. To date, we have received a study to proceed letter from the FDA for our Phase 2A trial. The trial is a placebo-controlled randomized dose response trial evaluating the gastric emptying rate and symptoms in gastroparesis patients. The study is expected to enroll its first patient in the first half of 22 with final analysis in the second half of 2022 or the beginning of 2023. Next slide. Over the next six to nine months, we expect for next-generation capcitabine to interact with the FDA regarding a modification to the Phase 1B protocol, to modify the Phase 1B protocol in order to evaluate the timeline for DPD inhibition and DPD de novo formation. to restart the Phase 1B trial enrolling patients mid first half of 22, to complete an interim analysis on the timeline of DPD inhibition. And for 499, we expect to complete enrollment of patients for interim analysis and possibly complete the interim analysis. And for 12852, we expect to begin enrollment of the Phase 2A trial. Also, since we are now evaluating if we qualify for regulatory submissions, to expedite development and approval, for example, fast-track and breakthrough therapy, we expect to have at least one additional regulatory submission for one of our pipeline drugs within the next six to nine months. Next slide. This table is just a repeat of the first table to remind you where we are now and what we expect to achieve in 2022 and beyond. I hope this earnings call has given everyone a better understanding of what we've accomplished over the last three months as well as what we expect to accomplish over the next 6 to 15 months. This concludes my remarks. I'll now pass it to the operator to open the phone lines for Q&A. Operator, can you please poll for questions?