Processa Pharmaceuticals, Inc.

Greetings, and welcome to Processa Pharmaceuticals' fourth quarter and year-end 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. If you have a question or a comment, please hit star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. 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 fourth quarter and year-end 2021 results and drug development update conference call. Joining me on the call today are our Chief Executive Officer, Dr. David Young, and our Chief Operating Officer, Mike Floyd. Shortly before this call, we filed our 2021 annual report on Form 10-K. 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 investor relations section of the company's website or our 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. 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 and 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 December 31st, 2021, we had a cash balance of 16.5 million. During the year ending on December 31st, 2021, we increased our cash balance by 1.1 million compared to December 31st, 2020. We accomplished this by raising 9.9 million in a private placement in early 2021 offset by 8.7 million in costs we incurred related to our three clinical trials and along with spending for operating and other related costs. We defined overhead as our general and administrative expenses plus the salaries for our development and admin teams. Our cash outlay for overhead expenses for the year ended December 31, 2021 was only $3 million. We accomplished this in part by having the cash portion of our six executive team members totaling only 525,000 for 2021. We are very much focused on directing our cash to activities that move our drug products forward. Given the current uncertainty in the capital markets, we executed a purchase agreement with Lincoln Park Capital LP earlier this month under which we have the right at our sole discretion to sell to Lincoln Park up to $15 million worth of our common stock over the next three years. We put this facility in place as a financing insurance policy to ensure the continued development of our pipeline. We are under no obligation to sell any shares under the agreement. For the year ending December 31st, 2021, we reported a net loss of 11.4 million or 75 cents per share compared to a net loss of 14.4 million or $2.54 per share for the same period of 2020. The primary reduction in our net loss was due to a decline in licensing activities in 2021 versus 2020. During 2021, we licensed PCS-3117 from OccuFire for cash and stock totaling $567,000. Compare this to a total expense of $8.7 million we incurred related to licensing PCS-12852 from Yuhan Pharmaceuticals, PCS-6422 from Illion Oncology, and PCS-11T from Apisense. Adjusting for in-process research and development acquisition costs, our net loss increased by 5.1 million for the year ended December 31st, 2021, compared to the comparable period in 2020. This increase in our acquisition related net loss relates to clinical trial costs we incurred as we progress with our clinical trials. We anticipate our costs will continue to increase as we continue these trials and continue development activities for the other drug products in our pipeline. During the year ended December 31st, 2021, we incurred research and development expenses totaling 6.9 million compared to 3.2 million for the same period in 2020. The increase in our R&D costs of 3.7 million in 2021 was primarily due to costs we incurred related to our active clinical trials. During the year ended December 31st, 2021, our general and administrative expenses totaled $4.7 million compared to $3.3 million for the same period in 2020. The increase related primarily to increases in professional and other consulting fees as well as non-cash stock-based compensation. Allocated between our R&D and G&A costs is 3.4 million of non-cash compensation costs. As of December 31st, 2021, we had 15.7 million common shares issued and outstanding. Along with a current shareholder, yesterday we purchased shares of our stock from one of our licensees. We consider this to be in the best interest of our shareholders. 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 plan to highlight what we've accomplished in 2021 in our drug development program and briefly share what you should be expecting over the next 12 months. I will not be covering all the details on each slide, but the slides are posted on our website if you want to study them more. Let's go to our first slide, slide three. This slide provides you with a snapshot of Processa High Life. As you know, Processa is a drug development company focused on improving the quality of life and or survival of patients who have an unmet medical need condition. These are patients who either have no treatment option or need a better treatment option. Each of our five drugs within our pipeline addresses a different unmet medical need with a potential market size for each drug being greater than a billion dollars. This means that Procesa is giving each of our investors, which includes the Procesa staff, five independent opportunities or shots on goal to have a blockbuster drug. In addition, we not only have five potential blockbusters, but we are simultaneously developing all five drugs, all at different stages, but all are now going through our development process. This process is the regulatory science approach that we started to develop 30 years ago when we worked on two FDA contracts determining the best way to answer a number of FDA clinical and scientific regulatory questions. Our contracts led to the development of a number of FDA guidances. We now have multiple near-term milestones on our five drugs that we expect to achieve from March to August and at the end of the year. I'll discuss these milestones as I briefly review each drug within our pipeline. Next slide. To remind everyone, slide four describes the criteria that we have used to select the five drugs in our pipeline. Since I've already spoken to some of this slide, I would only like to point out one other key item on the slide. The second criteria in the red box states efficacy evidence. This means that there is some clinical evidence of efficacy in the targeted population for each of the five drugs or for a drug with very similar pharmacology. If you look at other biotech companies, how many of the companies can say that they have five potential $1 billion drugs in the pipeline and all five have some positive evidence of efficacy in the targeted population? Next slide. Now let's look at a summary of our pipeline. The status of each drug and the key milestones we expect to achieve in 2022 are presented on the slide. Instead of going into the details of each drug using this slide, I'd like to point out that we have three drugs in clinical development, 6422, 6422 which we are now rebanding the next-generation capcitabine, 499, and 12852, and a fourth drug, 3117, that will be ready for clinical development by the end of the year. In 2022, we should hit key milestones for all four of these drugs. Although in later slides I do provide some background information on each of the five drugs, I will be emphasizing the 2021 achievements and the 2022 value-added milestones for each drug. Next slide. Let's first review the next-generation capcitabine, which should have some data readout mid-2022. Next slide. Next-generation capcitabine, which we previously designated as 6422, is a chemotherapy treatment that includes 6422 chemotherapy modifier to capcitabine. administered with capcitabine, capcitabine being 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 metabolized through DPD enzyme to a metabolite called FBAL, which has no therapeutic effect but can cause side effects, and these side effects can be dose-limiting. 6422 irreversibly inhibits existing DPD in the body, shutting down the right side of 5-FU metabolism to F-ball. The shutdown of the right side results in 5-FU metabolism shifting to the left side, the side that forms 5-FU nucleotides, which kills cancer cells, but also kills normal cells being synthesized like neutrophils. This shift, however, does not last forever because the no DPD is formed over time and if no 6422 is present, the new de novo DPD can metabolize 5-FU death ball. We demonstrated in 2021 the next generation of capcitabine with a single dose of 6422 inhibited DPD activity for 24 to 48 hours after 6422 administration, resulting in the capcitabine potency being 50 times greater than the present FDA approved capcitabine. However, the increased potency appeared to only last for 24 to 48 hours and did not last for all seven days of kepsidamine dosing. Next slide. We have clinical and preclinical evidence that if we can decrease the metabolism of 5-FU to FBAL to less than 10% compared to the typical 80% for all seven days of kepsidamine dosing, while still minimizing the exposure to 6422, The efficacy safety profile for next-generation capcitabine should be much better than presently approved capcitabine. To achieve this, we need to better understand the timeline of DPD inhibition and de novo formation to determine a regimen of 6422 that would provide minimal exposure and still maintain less than 10% metabolism at death ball. Next slide. Given the DPD activity findings after a single dose of 6422, We've modified the Phase 1B protocol to also, one, better understand the timeline of DTD inhibition and de novo formation, and two, evaluate the possibility of using an individualized, personalized treatment approach for next-generation capsaicin. The modified protocol was submitted to FDA in February, and we are working to restart the modified Phase 1B trial. Sites are being reactivated, and we are adding one to two more sites. Sites with IRB approval have begun to identify patients, and we expect to restart dosing patients in the second quarter of 22. We expect to have preliminary results on the DPD timeline by mid-2022 and have the preliminary determination of an MTD for next-generation capcitabine by the end of the year. The overall timeline for initiation of a pivotal registration trial is still 2023 to 2024 and an NDA submission in 2027 to 2028. Next slide. Let me quickly review 499, our Phase IIb drug, for which we have FDA orphan designation for the treatment of necrobiosis lipoidica, and there is presently no approved treatment or even a standard of care for this condition. Next slide. As seen in these two pictures, necrobiosis lipoidica, or NL, presents in patients as non-ulcerated NL and ulcerated NL. The literature reports approximately 22,000 to 55,000 ulcerative NL patients in the U.S. with painful ulcers occurring naturally or from contact trauma to the lesion. However, the numbers may be significantly less, but this should not alter the potential $1 billion market. It is important to note that natural complete healing or wound closure of moderate to severe ulcers during the first one to two years after onset incurs in less than 5% of these patients. Next slide. Currently, there is no FDA-approved treatment for NL, or also ulcerative NL. There's no standard of care, and all drugs used off-label are inadequate because of dose-limiting side effects, which prevents the drugs to be given at a high enough dose to see significant efficacy in a trial. This includes a drug called petoxyfilin, or as I often call it, PTF. PTX does work in closing ulcers of some patients, but side effects limit the dose that can be administered, which then limits the efficacy. 499 is the deuterated analog of a metabolite of PTX. 499 qualitatively has the same metabolites as PTX, but quantitatively has different amounts of the metabolites, resulting in a better safety profile. Next slide. In addition, In our Phase IIa NL trial, complete wound closure was achieved in the only two patients who presented with ulcers. Next slide. So what have we accomplished in 2021 for 499? We've enrolled three patients in our blinded Phase IIb randomized placebo-controlled trial with the preliminary findings in some of these patients showing complete wound closure and improvement in the NL lesion overall. At this time, we do not know if these patients received 499 or a placebo, and the results are only preliminary. We have had a number of patients interested in enrolling, but not willing to travel because of COVID. Many ulcers and NL patients have other medical conditions such as diabetes, and having lived with ulcers for years, they don't want to travel. With the COVID risk, these patients are willing to continue tolerating the ulcer even a little longer rather than potentially be exposed to COVID and the travel to the sites. In fact, a couple of patients who expressed interest in the study actually died from COVID before they came into the screening process. To improve the enrollment, we have also initiated a number of remedial efforts at the end of last year. We've closed four sites in Europe that were not recruiting well, and we are replacing these sites with new sites in the U.S., or possibly ex-U.S. Since the purpose of this Phase 2B trial is to obtain additional information on the response to 499 and placebo, we are also evaluating if these questions can be answered with fewer patients in the interim and final analysis. The interim analysis group of patients should be enrolled by 6-30-2022, with the interim results expected in December of 2022. Complete enrollment of the trial is expected by the end of the year. We still plan to meet with the FDA after the study is completed and begin a phase three trial at the end of 2023. Next slide. The next drug to discuss is PCS12852. Next slide. Let me remind you that the drug increases the gastric emptying rate, which can have a significant effect on the symptoms of gastroparesis. 12A52 has already been shown to have a significant effect on gastric emptying in patients with constipation. In our phase 2A trial, we expect to see the same type of improvement in the gastric emptying rate in gastroparesis patients. Next slide. At the present time, there is only one FDA-approved drug for the treatment of gastroparesis, and that drug has serious side effects, a black box warning, and can only be used for 12 weeks. even though most patients have chronic gastroparesis. Next slide. We are presently activating clinical sites for this trial and expect our first patient to be dosed in the second quarter of 2022. We expect the trial to complete enrollment in 2022 with top-line final results available December of 2022 or January 23, and the Phase IIb trial to begin in 2023. Next slide. The last two drugs are cancer drugs and they are 3117 and 11T. Next slide. The next three slides briefly describe the status of these programs and the next milestones. A summary of these drugs is one, both are cancer drugs with a market potential each of over $1 billion. Two, for both drugs, the active moiety has already been shown to be clinically efficacious in cancer patients. Three, The potential benefit risk associated with these drugs allows us to target a population of cancer patients who need alternative treatments. And lastly, we are presently defining the development programs and the roadmaps to approval for both of these drugs. The last group of slides are the pipeline background slides that have been presented before in some form. I'll not discuss these slides, but they are in the deck to provide more information on each drug. This concludes my remarks. I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?