Processa Pharmaceuticals, Inc.

Greetings and welcome to Processa Pharmaceuticals third quarter 2022 earnings call and corporate update. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this call 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 Procesa's third quarter 2022 results and clinical update conference call. We are very pleased to have recently reported positive results from our ongoing phase 1b trial for PCS6422 in GI cancer and from our recently completed phase 2a trial for PCS12852 in gastroparesis. Dr. Young will discuss these later during the 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 September 30, 2022 Form 10-Q, and this morning issued a press release containing preliminary results from our PCS-12-852 gastroparesis trial. 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 contained 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 within the meaning of Section 27 of the Securities Act of 1933 and Section 21 of the Securities Act of 1934. Although we believe expectations and assumptions reflected in the 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 on our annual report on Form 10-K. Any forward-looking statements included in this earning 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 touch briefly 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. Our cash balance at September 30, 2022 was $9.1 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 nine months ended September 30, 2022, we spent cash for our three clinical trials and in our operations of $7.1 million. This is significantly less than our gap net loss of $14.4 million due primarily to the effect of non-cash stock-based compensation, application of amounts we had prepaid to our CROs, and amortization. We continue to be focused on conserving our cash and using it to advance the drugs in our pipeline. One way we are doing this is by having our executive officers invest the majority of their base salary for shares of our common stock. During the nine months ended September 30, 2022, our executives as a group acquired 305,617 shares of our common stock, with a fair value of approximately $916,000. Not only does this conserve precious cash, but it aligns our executive team with our shareholders and provides them with significant potential upside. As I noted, our GAAP net loss for the nine months ended September 30, 2022 was 14.4 million or 90 cents per share compared to a net loss of 8.2 million or 54 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 clinical trials. For the nine months ended September 30, 2022, we incurred $8.3 million in research and development costs, an increase of $3.5 million when compared to the same period of 2021. We anticipate clinical trial costs will be fairly consistent for the rest of the year as our trials continue and we fund development activities for other drugs in our pipeline, as David will discuss. During the nine months ended September 30, 2022, our general and administrative expenses totaled $6.1 million compared to $3.4 million for the same period in 2021. The increase related primarily to increases in stock-based compensation costs along with other operating and consulting costs. We allocated $6.1 million of non-cash compensation costs between our R&D and G&A with the majority being recorded as G&A. Our net cash used in operating activities during the nine months ended September 30, 2022 increased by $1.1 million. to 7.1 million compared to 6 million for the same period in 2021. As of September 30, 2022, we had 15.9 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. Prior to the filing of our 10Q for the third quarter, we had some great news on two of our drugs, which has been shared in press releases over the last eight days. I hope that you saw our press release on our cancer drug, Next Generation Capsidabine, formerly called 6422 last Tuesday, and the press release this morning on 12-8-52, our drug for the treatment of gastroparesis. This evening, what I'd like to do is to concentrate on these two drugs so that you understand them a little more and can appreciate how the results from each drug increases the probability of success. for an FDA new drug application. First slide, slide three, please. This slide summarizes our findings for next-generation capcitabine at 12852. The first three bullets are for the next-generation capcitabine, or NGC, as I'll call it from now on, while the bottom three bullets are for 12852. For NGC, first, in the ongoing Phase 1b trial, PROSESA has successfully identified NGC dosage regimens and 5-FU exposures that were well tolerated, as well as NGC regimens and 5-FU exposures that had dose-limiting side effects. Second, the timeline for the formation of new DPD was also found to be approximately 24 to 72 hours after the 6422 dose was administered, while NGC potency was increased to 50 times greater than reported for FDA-approved capcitabine. And lastly, in 2023, professor plans to initiate an efficacy safety phase 2B trial following FDA's Project Optimist initiative after meeting with the FDA. For 12A52, the proof of concept phase 2A trial in gastroparesis patients has been completed, with the results showing that the change in gastric emptying rate after 28 days of treatment on 0.5 milligrams of 12A52 was statistically better than placebo treatment and a p-value less than 0.1. Second, the change in gastroparesis symptoms for 12A52 versus placebo is expected by the end of the year. And lastly, Processa plans to initiate an efficacy safety phase 2b trial in 2023. Next slide, please. Let's look more at next-generation capsaicin, or NGC, which we previously called 6422. NGC can be used in many cancers with a market opportunity of over $1 billion in the US. Next slide. To provide a little background for NGC, 5-FU is a cancer drug approved in 1962 and is administered intravenously, while Capsidabine is an oral prodrug of 5-FU approved in 1998. Capsidabine and 5-FU are presently the most widely used cancer chemotherapy agents in the US and worldwide. Approximately 30% of the patients receiving capcitabine do not respond, and another 30% are partial responders, with many of these non-responders and partial responders having adverse events that may require a modification of their regimen, dose interruption, or possibly even a discontinuation of treatment. As you can see from the diagram on the left, capcitabine after oral administration is metabolized to 5-FU. Approximately 70% to 80% of 5FU is then metabolized by the DPD enzyme to catabolites to the right and approximately 10% to 20% to the anabolites to the left. Less than 10% of 5FU is typically eliminated through the kidney. The catabolites formed on the right have no antitumor properties but do cause side effects and may require a modification of their regimen dose interruption, or discontinuation. Anabolites to the left can kill replicating cells, which include cancer cells and normal healthy cells. The side effects associated with anabolites such as neutropenia, mucositis, and severe GI distress also may require dose modification or discontinuation of treatment. Next slide. 6422 is an irreversible inhibitor of DPD. that prevent 5-FU to be metabolized to catabolites to the right in the diagram. This results in 5-FU being metabolized to anabolites to the left in the diagram, while also being eliminated systemically through the kidney, probably greater than the typical 5 to 10%. 6422 has no anti-cancer properties, and at the low doses that we are administering, 6422 should not cause any side effects. After administering 6422, The DPD activity in the body is not only dependent on the presence of 6422 and its irreversible binding to DPD, but the DPD activity is also dependent on the formation of new DPD. If 6422 is not present, the new DPD formed can metabolize 5-FU to its catabolite. Next slide. Let's now look at the findings from our trial thus far. Next-generation capcitabine regimens are a combination of a 6422 regimen, as in the example 6422 is only administered on day one, and a capcitabine regimen, which in our example is administered on day two through eight. In our example, the cycle then repeats itself after 14 days. This is one example, but there are other possible combinations of 6422 regimens and capcitabine regimens that would result in different 5-FU, and 5-FU catabolite exposure profiles. From the different NGC regimens evaluated, the timeline for the formation of new DPD is approximately 24 to 72 hours after the 6422 dose, while NGC potency was increased to 50 times greater than reported for FDA-approved capcitabine. We have also successfully identified NGC dosage regimens and 5-FU exposures that were well-tolerated, as well as NGC regimens and 5-FU exposures that had dose-limiting side effects. And as stated before, Processa plans to initiate an efficacy safety phase 2B trial following FDA's Project Optimist initiative after meeting with the FDA. The purpose of evaluating multiple regimen in this phase 2B trial will be to evaluate both efficacy and safety, not just safety, and to select an optimal dosing regimen to achieve a better balance between efficacy and safety rather than merely using the maximum tolerated dose. Next slide. Since FDA's Project Optimist Oncology Initiative is relatively new, I have provided one slide briefly describing the principles behind it. I will not address it except to say that the aim of this approach is to determine the optimal dosage regimen with the best balance between efficacy and safety. This approach is very important for combination products which is why the approach fits next-generation capsaicin so well. Next slide. The latest news release this morning is our initial findings of 12852 in gastroparesis patients. Next slide. Gastroparesis is a condition that affects normal spontaneous movement of the muscles in the stomach. The stomach does not move food down to the small intestine in the normal manner. The typical symptoms are, for example, nausea, vomiting, too much bloating, too much belching, pain in your abdomen, and heartburn. Next slide. There presently is only one drug that is approved for the treatment of gastroparesis, metoclopramide, a dopamine D2 agonist, has a black box warning and serious neurological side effects. Its use in gastroparesis is limited to only 12 weeks. Other drugs used off-label have been 5-HT4 receptor agonists, which bind to many other receptors, and can have serious side effects because of this off-target binding. Side effects such as cardiovascular side effects and even suicidal ideation. One of these drugs was efficacious in gastroparesis, but was pulled off the market in 2000 because of its cardiovascular side effects, which were not related to its 5-HT4 agonist activity. Next slide. 12-8-52 is a more potent selective 5-HT4 receptor agonist than 5-HT4 agonists on the market. It enhances both GI motility and GI secretion, helping to move food from the stomach to the small intestine. 12A52 may also be effective in other GI motility disorders. Next slide. There have been two clinical trials evaluating the effect of 12A52 on stomach motility and gastric emptying. The first study was in healthy volunteers with constipation and functional constipations conducted in South Korea. This study successfully demonstrated 12A52 affects the gastric emptying rate. The second study is our U.S. study. Our press release this morning announced that on completing our proof of concept phase 2A trial in gastroparesis patients with only six to nine patients in each treatment group, the trial showed that for six patients receiving 0.5 milligrams of 12A52, compared to eight patients receiving placebo, the gastric empty rate was significantly different at a p-value less than 0.1. In addition, we had no unexpected side effects, including cardiovascular side effects or serious side effects. We expect to receive the analysis of the gastroparesis symptoms before the end of the year. Remember, however, given this is a proof-of-concept study with only six to nine patients per group, We are only looking for a strong trend in symptom efficacy in order to guide us in the phase 2B 12-week efficacy safety trial that we plan to initiate in 2023. Next slide. For NGC and 12A52, I hope you can see how we are moving closer to not only meeting FDA requirements before running a pivotal trial, but we are also collecting data to increase our likelihood of having a successful pivotal trial by selecting the best dosage regimen and designing the best trial to demonstrate optimal efficacy and safety. Next slide. The next five to six slides not only provide a short corporate overview of Processor, but also provide information about a common question that I receive. The question is, what makes Processor different than the many other biotech companies? If you're asking the same question, please look at the last five to six slides. And I hope you will see that there are many reasons why we are different from other biotech companies and why we are a far better investment than other companies. I want to remind our investors that, like you, Processor is an equity play for the Processor team. Our goals are aligned with yours. Increase the value of Processor. 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?