Processa Pharmaceuticals, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Process of Pharmaceuticals Second Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Stanker, Chief Financial Officer of Process of Pharmaceuticals. Sir, the floor is yours.

Thank you, and welcome to Process of Second Quarter 2022 Earnings results, and clinical pipeline 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 June 30th, 2022 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 investor relations section on our 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 the 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. Our cash balance at June 30, 2022 was $12.1 million. We believe this will be sufficient to complete our three ongoing clinical trials and fund our operations into the third quarter of 2023. During the six months ended June 30, 2022, we spend cash for our three clinical trials and in our operations totaling 4.1 million. This is significantly less than our gap net loss of 8.4 million due to the effect of non-cash items like amortization and stock-based compensation and the application of amounts we had prepaid to our CROs last year. As I noted, our net loss for the six months and the June 30, 2022 was 8.4 million or 53 cents per share, compared to a net loss of 5.3 million or 35 cents per share for the same period of 2021. The increase in our net loss relates primarily to increased clinical trial costs we incurred in our three ongoing trials. For the six months ended June 30, 2022, we incurred 5.2 million in research and development costs, an increase of 2.1 million when compared to the same period of 2021. We anticipate clinical trial costs will continue to increase for the rest of the year as our trials continue to progress and we fund development activities for the other drugs in our pipeline, as David will discuss. During the six months ended June 30, 2022, our general and administrative expenses totaled $3.2 million compared to $2.1 million for the same period of 2021. The increase related primarily to increases in non-cash or stock-based compensation costs along with other operating and consulting costs. We allocated $2.8 million of non-cash compensation between our R&D and G&A with most of this cost being recorded as GNA. Our net cash used in operating activities for the six months into June 30, 2022 decreased by $300,000 to $4.1 million, compared to $4.4 million for the same period in 2021. While we experienced gap costs related to our clinical trials and operations, we continued to make use of equity incentives to reduce our cash outflow in compensating our executive and development team, and were able to apply previously made advance payments to our CROs against current trial costs. As of June 30, 2022, we had 15.8 million common shares outstanding. 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. Before I provide a quarterly update, I'd like to thank all of our staff and shareholders for their loyalty and support. Slide three, please. I would also like to acknowledge our two new board members, Casa Beluche and James Neal, who attended their first processor board meeting a few days ago with our existing board members, Justin York, our chairman, Virgil Thompson, and Geraldine Panu. Today, I will briefly discuss our programs and the milestones we hope to achieve over the next 12 months. Then I'm going to change the format of the call and address a couple of questions that we have been asked by investors over the last six to nine months. So here we go. Next slide, please. This slide provides you with a snapshot of the Processa highlights. 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 better treatment options. Our approach is to use the regulatory science platform that we started to develop 30 years ago when we worked on two FDA contracts determining the best way to answer and provide the answer to several FDA clinical and scientific regulatory questions. Our contracts led to the development of several FDA guidances. We have in-licensed five drugs that target five different populations of patients who have no treatment or need better treatment options. The potential market size for each drug is greater than $1 billion, and this means that Procesa is providing each of our investors five independent opportunities or shots on goal to have a blockbuster drug. If just one of these drugs reaches approval, we have a multibillion-dollar company. Four of the five drugs have INDs, with three of these four presently being evaluated in clinical trials. The drug development program of the fourth IND drug is being redefined prior to putting it into a clinical study. One of the three drugs in clinical trial, Next Generation Capsidabino 6422, has been delayed because we had to jump through a number of FDA and clinical site regulatory hoops after we modified the protocol based on our first interim analysis. The second drug in clinical trial, 499, has been enrolling patients slower than expected and has been especially affected by COVID. To improve the enrollment rate, we began to implement supplemental patient enrollment programs in November of 2021. These programs are designed to increase the number of eligible patients screened, which will hopefully increase the number of patients enrolled. The third drug in clinical trial is 12852. This drug has done very well in enrolling patients and is expected to complete enrollment and data analysis in 2022. Next slide. To remind everyone, slide five describes the criteria that we have used to select the five drugs in our pipeline. I would like to point out only one 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 similar pharmacology. If you look at the hundreds of other biotech companies, How many of the companies can say they have five potential $1 billion drugs in their pipeline, and all five drugs already have preliminary evidence of clinical efficacy in the targeted population? Next slide. Now let's look at a summary of our pipeline. I'd like to remind you that we have three drugs in clinical development, 6422 or next-generation capsaicin, 499 and 12852, and one drug, 3117, with an IND. but we will not be initiating the clinical study until we have completed our development plan and met with the FDA to agree on a program. Next slide. This slide briefly summarizes the status of each program and the key milestones expected for the next 12 months. For next-generation capcitabine, we are now enrolling patients in cohort 2B and 2C, which will provide us with the data needed to better understand the timeline of the irreversible inhibition and subsequent de novo formation of the enzyme DPD after 6422 administration. We expect to complete this interim analysis, identify the maximum tolerated dose for next-generation capcitabine, and meet with the FDA to determine the next stage of development during the next 12 months. Our hope is to initiate the next next-generation capcitabine clinical trial before the end of 2023. The other two drugs in clinical trials are 499 and 12852. As I previously stated, 499 has been significantly affected by COVID. We have had patients cancel screening because they did not want to travel given COVID, and patients who were to be screened canceled because they were affected by COVID. Since most of these patients have lived with the ulcers for months or years, and many are diabetic, living with the ulcers for additional months is safer to many of these patients than getting COVID. In addition, new sites delayed initiation because of COVID. Even with the delays, we expect to complete enrollment of our interim analysis group of patients in 2022 with results available for the interim group in the first half of 2023 and analysis of the completed study sometime in 2023. We plan to finalize our potential tasks to FDA approval and meet with the FDA in 2023. The last drug presently in clinical trials is 12852. This trial is almost completely enrolled. We expect final top-line results before the end of 2022 so that we can move forward to the Phase IIb trial in 2023. Next slide. Instead of going into more detail on each drug in our earnings call, we thought it would be helpful to our investors if we answered a couple of the questions that we have often been asked. The first set of related questions is, What is management doing to deal with the progress of the programs, especially enrollment in 499 and 6422? And related questions are, has Processa considered that the eligibility requirements to enroll in their trials may be too stringent? And is it possible that Processa is splitting resources across the drugs and the pipeline too much, causing delays? Does the company need more resources? For 499, as I mentioned briefly in my earlier studies, In November of 2021, when we realized that identifying ulcerated NL patients for our study was becoming a significant problem, we initiated several supplemental enrollment programs to attract more patients to the study for screening and hopefully enrollment. For example, we implemented a program to pay for patient travel to the clinical site. We dropped non-performing sites and added new sites. We tried to recruit patients beyond the database of the clinical site, and had a separate recruiting effort to bring our study to the attention of patients seen by other physicians. We evaluated the inclusion and exclusion criteria to make sure we were not too stringent. And more recently, we launched a website to further inform potential study patients about our clinical study. For 6422, the land enrollment was less about patient recruitment and more about having to jump through several regulatory hoops to modify the protocol, given that the de novo formation of DPD enzyme occurred much faster than the protocol was designed. The regulatory hoops at FDA in each clinical site took months and months to complete, losing the momentum originally gained at the site and requiring us to reengage and refocus some sites to our study. We have also added some supplemental patient enrollment programs to 6422 to expedite enrollment and increased the number of study sites. Our efforts are now being rewarded as we are seeing patients added to the queue for screening. Related to the delays, several investors know that we run a very lean ship and worry that we do not have the resources to run these studies efficiently. I can assure all investors that we have a team that is experienced in running several programs and several clinical trials simultaneously. with most of us having worked together at prior successful companies. Nevertheless, over time, we have brought in additional staff to work on the clinical studies, and if needed, we are ready to bring on more staff to expedite the development of each of our drugs. The second set of related questions is, what is your plan for each asset? Do you plan to partner or out-license each asset, and if you do, when? And how do you plan to fund the next studies? Our plan is to out-license or partner each drug when the positives or benefits of the deal strongly outweigh the negatives or risks of the deal or not doing the deal. We have no special ties to any of the drugs, and we would be willing to move any of our drugs if it's best for Processa and our investors. In fact, a few companies have already expressed interest in licensing our drugs or partnering with us. These companies are waiting for the results of our present trials. Regarding the funding of our next trials, funding will come from two potential sources, a licensing or partnership deal and raising additional cash through an offering. I know that some investors are concerned about an offering and the dilution it will have on their holdings. Let me address this by reminding you that, number one, the further along in clinical development a drug is, the more likely to license or partner it, and the more likely the drug is FDA-approvable, all of which should increase the value of Processa. Secondly, with the study for each of the three drugs reading out over the next 12 months, starting with 12852, then 6422, and finally 499, and the anticipated positive news flow, we believe the value of Processa will increase. Number three, Our expectation is to raise money for new trials when the Processa market cap is higher and we are receiving more credit for having multiple drugs in clinical development, targeting $1 billion mark each. I want to again remind investors that the Processa team has invested cash and our salaries into Processa, making sure our goals are aligned with investors. Nobody has a more vested interest than us to create value for our shareholders This is, and always has been, an equity play for all of us. This concludes my remarks. I will now ask the operator to open the phone line for Q&A. Operator, can you please poll for questions?