Qualigen Therapeutics, Inc.

Good day, and welcome to the Qualigin Therapeutics Business Update Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Yvonne Briggs. Please go ahead.

Thank you, Operator, and good afternoon. This is Yvonne Briggs with LHA. Thank you all for joining Qualigent Therapeutics Business Update Conference Call. Before we begin, I'd like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a list and description of risks and uncertainties, please review Qualigin's filings with the SEC. Importantly, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast today, August 18, 2020. Except as required by law, Qualigin undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Joining me today from Qualigen are Michael Poirier, President and CEO and Chairman, and Chris Watts, the company's Chief Financial Officer. During today's call, management will provide an overview of the company's development programs and future milestones and its recent financial results. At the conclusion of the prepared remarks, we'll open the call to questions. With that, let me turn the call over to Michael Poirier. Michael?

Good afternoon, everyone, and thank you for joining the call today. Since completing our reverse merger almost three months ago, it's been an exciting and productive time for the company. We expanded our therapeutics pipeline by signing two more exclusive licensing agreements with the University of Louisville for cancer and antiviral drug candidates, developed and then initiated shipments of our COVID-19 antibody test on our FastPak Pro system, and raised an additional $18 million of capital all of which we will review shortly. As this is our first conference call as a public company, and my first as a public company CEO, let me begin by welcoming our new shareholders and providing some background on Qualigen Therapeutics. I founded Qualigen over 20 years ago with the first commercialized product being the FastPak Rapid Diagnostic System. FastPak provides rapid and accurate point of care testing with an assay menu of nine tests, including tests for prostate cancer, thyroid function, metabolic disorders, and research applications for physician offices, clinics, and small hospitals worldwide. Since launch, we have sold more than $100 million worth of FastPak systems in test pouches. We see these historic sales to be a good indicator that the Qualigen team knows how to develop and manufacture medical products, how to get them approved through the FDA, and how to bring them to market worldwide. Diagnostics is a highly competitive market with a challenging reimbursement environment. As a result, a few years ago, we accelerated our focus on therapeutics, which included our decision and recent completion of our GO public strategy. I am pleased to say we now have a robust pipeline of product candidates, drug candidates that we look forward to advancing through clinical development and a materially stronger balance sheet to see this through. So let's talk about Qualigens technology. Our lead drug candidate, AS1411, is a DNA aptamer, which is the basis of separate programs against cancer and against viral diseases such as COVID-19. AS1411 targets and binds to a protein called nucleolin. This protein is expressed on the surface of cancer cells and enables AS1411 to selectively target these cells without damaging normal cells. In addition, nucleolin is believed to play a role in how viruses attack and utilize cells for replication. With the onset of the pandemic, researchers at the University of Louisville conducted in vitro studies at their prestigious Center for Infectious Disease to evaluate AS1411's effects on COVID-19. These studies demonstrated AS1411's ability to protect cells from the damaging effects of the coronavirus by binding the nucleolin protein. Subsequently, in June, we signed an exclusive license agreement with the university for the U.S. patent rights covering the treatment of COVID-19 with AS1411. We are aiming to commence a phase one slash phase two human trial early next year. Although the first indication we are pursuing is for the treatment of COVID-19, we believe AS1411 has the ability to be effective as a broader antiviral therapeutic. since other viruses, such as HIV, hepatitis, and Ebola, also utilize nucleolin. While we're still in the preclinical stage, we know AS1411 is safe in humans, as it has been administered in Phase I and Phase II trials to more than 100 patients with advanced cancers, where it was well-tolerated with no evidence of severe side effects. In addition, the data demonstrated clinical responses in several of the patients, where their cancers disappeared or tumors shrank substantially. These trials were conducted 10 years ago by a different British company that decided to change its strategic direction and their rights to the compound reverted to advanced cancer therapeutics in the U.S. In 2018, Qualigen obtained exclusive worldwide rights to AS1411, as well as assignment of the original cancer IND from advanced cancer therapeutics. The early promising but incomplete results of AS1411 in cancer trials led to our cancer drug candidate, ALLEN, which stands for aptamer-linked antimucleoli. ALLEN is a combination of AS1411 plus a gold nanoparticle using a coding process that we have been doing successfully for almost two decades within our fast-pack assay test pouches. This combination dramatically increases its potency, and we believe its efficacy with the potential to target and destroy tumor cells in a wide variety of cancer types, including leukemia, kidney, pancreatic, brain, and breast, as well as other applications such as enhancing radiation therapy and aiding in tumor scanning. The gold nanoparticles increase potency by extending the life of time the drug remains in the body. And I am glad to say that although it might seem that gold would make the product very expensive to produce, In fact, the small size of the nanoparticles means this would not be the case. We have an exclusive worldwide license agreement from the University of Louisville for Allen, and we have been working with them to advance this program. We plan to conduct IMD enabling studies against acute myeloid leukemia toward the end of this year and expect to be able to commence phase one human trials in calendar 2021. In July, we announced the signing of another exclusive license agreement with the University of Louisville, this one for the intellectual property covering the RasF family of Ras oncogene protein-protein interaction inhibitor small molecule candidates. Ras genes produce proteins that regulate when and where the body produces new cells. Problems occur when these genes become mutated. and the resulting new RAS proteins cannot switch in the off position. These mutations are present in approximately one-third of all cancers, including a high percentage of pancreatic, colorectal, and lung cancers. Current therapies only target downstream signaling of RAS, but blocking one or two pathways does not provide effective clinical activity because RAS acts like a hub for multiple pathways. The intended mechanism of action of our Ras-F small molecule compound instead blocks the binding of mutated Ras protein for their effective proteins upstream and stops them from causing further harm. Our plan is to evaluate these compounds in order to identify a lead drug candidate for further development against one or more cancers. We expect to begin preclinical IND enabling studies in calendar 2021. As I mentioned, we have quite a few ongoing development programs with the University of Louisville. We believe the university is an extremely valuable partner to advance these programs due to their expertise, resources, and ability to conduct clinical studies in a cost-effective manner. We are fortunate to be in a position to partner with them on so many programs. We are also seeking other strategic partnerships to advance clinical development of our promising drug candidates and will always seek opportunities to strategically build our portfolio. Let me point out that all these drug candidates, AS1411, Allen, and the RAS inhibitor, can be considered platform technologies. They all have multiple uses for different types of cancers, and in the instance of AS1411, also infectious diseases. We believe this aspect increases the chance of success in clinical trials when looked at in the aggregate. Further, we believe the potential markets for each of these drug candidates could be very large if we're able to bring them through commercialization. While we cannot guarantee these results, and while everyone knows how difficult and slow the drug development process in the United States is, we are optimistic of our future in therapeutic drug development. In addition to our drug candidates, our therapeutics pipeline also includes our SARS blood cleansing system. STARS, which stands for Selective Target Antigen Removal System, is a blood filtration device product candidate rather than a drug candidate. With STARS, we would aim to utilize DNA aptamers in our core commercialized fast-pack particle coding technology to remove tumor-produced compounds and viruses from a patient's blood. In June, we received a notice of allowance for another patent covering the STARS technology. which utilizes a filtration cartridge designed for use in a standard dialysis machine and contains aptamer-coated microparticles that bind to specific agents in circulating blood for targeted removal. I am pleased to report that this new patent issued today. Proof of concept for SARS has been established with in vitro testing, and this program is in the early stages of development. With respect to our diagnostics business, As I mentioned, we have been commercializing the FastPak system for almost 20 years. Except to a limited number of direct customers, we sell FastPak to our distributor, Sekisui Diagnostics. Sekisui has been a supportive partner of ours since 2016 and also holds over 9% of our outstanding common stock. Sekisui serves as our exclusive distributor for FastPak worldwide, except in China. until May of 2022. Therefore, they are key to the amount and pace of products we sell. In addition, we are working to assist distribution through lead generation and marketing. For instance, last month, Mike Haynes, a Pro Football Hall of Fame and College Football Hall of Fame inductee, signed with Qualigen as an advisor and spokesman for the FastPak system. One of the tests run on the FastPak system is for PSA, which, as you know, is a marker for prostate cancer. Mike received an elevated PSA result using a fast-pack test at a 2008 Hall of Fame event sponsored by Qualigen and the American Urological Association and was subsequently diagnosed with prostate cancer. He underwent treatment and made a full recovery. Ever since then, Mike has been a prominent advocate for prostate cancer testing, and he often tells people that the fast-pack testing system saved his life. We look forward to working with Mike on our outreach efforts and sponsorship opportunities with the NFL and other professional sports organizations for the FastPak system. In June, we submitted to the FDA for Emergency Use Authorization, or EUA, for our COVID-19 antibody test on our FastPak Pro system, which is an upgraded version of FastPak meant to run more complex tests. Subsequently, we submitted an official notification to the FDA of our plan to commence sales while the EUA is pending. We are allowed to do this, and we are confident that the FDA will grant the emergency use authorization request for this product. Limited shipments of our FastPak Pro with our COVID-19 antibody test commenced at the end of last month, and we are working to install full-scale manufacturing of our new FastPak Pro analyzers. In addition to our own validation studies, the University of Louisville has begun conducting independent validation studies with hundreds of patient samples using our COVID-19 antibody test on the FastPak Pro system. These validation studies are expected to continue for several months as a range of patient types in various stages of the disease will be examined. Over the next few months, we expect to increase production capacity with the goal of having analyzers and test kits positioned to assist in the fight against the novel coronavirus. We believe these testing resources are needed, especially as the pandemic enters the vaccine stage, where drug supplies will likely need to be rationed and an accurate antibody test would be most useful. Please understand that our FastPak Pro COVID-19 antibody test, like all our tests in the FastPak family, are blood tests, not swab tests, and need to be administered by a credentialed healthcare professional. FastPak provides rapid results in the case of the COVID-19 antibody in about 10 minutes. Our analyzer processes one test at a time, not dozens of tests simultaneously as in large laboratory settings. Large reference laboratories, of course, cannot give results to the patient in 10 minutes at the point of care. The potential market for our product is quite large. However, it will take time to ramp up production and place our analyzers in optimal settings for its unique characteristics. We want our shareholders to view our COVID-19 antibody test as just one of many areas where Qualigen seeks to make a difference in people's health and lives. Along these lines, in an effort to continue to expand our test menu for FastPak Pro, we will be offering another test, cellular fibronectin, or CFN for short, which is a new stroke assessment test developed as a companion diagnostic for Prediction Sciences LLC. This test is expected to attain CE mark in the next month or two for commercialization in Europe and other geographies that recognize CE mark. Even with that news and progress with the FastPak system, I'd like to be clear that Qualigent is primarily a therapeutics company. The bulk of our resources are being invested in therapeutic product candidates, because that is where we see the maximum potential return, the largest market opportunities, and the best path to creating value for our stockholders. The foundation of this company over the years has been diagnostics, which is clearly a very important and scrutinized area right now. Our future, however, is in developing drugs and other technologies that may one day cure or defeat cancer and infectious diseases. With that brief overview, let me turn the call over to Christopher Watts for a discussion of the company's financials. Chris?

Thanks, Michael, and good afternoon, everyone. As Michael mentioned, after the end of the recent fiscal quarter, we raised $18 million in two registered direct offerings at market prices to a single institutional investor. With the net proceeds from these offerings, along with cash raised at the closing of our May 22, 2020 reverse merger transaction, we currently have approximately $16 million in cash, even after paying expenses and past obligations. We currently have only $1 million in remaining debt made up of mostly of funds received from the payroll protection program before the reverse merger and financed insurance premiums. Our cash position is sufficient to fund operations at our current expected pace into calendar year 2022. New opportunities or unforeseen challenges could change that runway forecast. We have a little over 21 million common shares outstanding. 3.6 million of these shares were issued in the two recent financings and 3.8 million shares were issued in exchange for voluntary conversion of approximately two-thirds of the total outstanding preferred stock since June 30th. We also currently have outstanding 3.7 million employee options and 9.8 million warrants, inclusive of 4.7 million warrants that caused a significant non-cash reported loss for the company in the current quarter due to accounting rules. I'll discuss that further after a brief look at revenue and expenses. Total revenue for the current quarter was approximately $900,000, which is down $600,000 from the same period in 2019. Sales were negatively affected by the COVID-19 pandemic, resulting in fewer non-essential patient visits to physician offices, clinics, and small hospitals, which reduced the number of fast-track tests performed. All revenues in both periods came from the sale of our diagnostic products, both through our exclusive distributorship with Second City and to a limited number of customers that we sell to directly. Reimbursement challenges also affect our diagnostic product sales. On the expense side, we spent $2 million on G&A in the current period compared with about $300,000 in the prior year period. The increase is largely due to one-time expenses related to the reverse merger transaction that closed in late May as well as other public company expenses not incurred in the prior year period. Investors looking at our G&A expenses year over year should keep in mind that the comparison is skewed because it compares this year's public company to last year's private company Qualiging Inc. expenses. And just to be clear, our fiscal years end on March 31st. Therefore, the quarter ending June 30th was our first fiscal quarter. Payroll costs also increased in the quarter and may continue to increase in future periods as we expand. Total R&D expense was approximately $600,000 in the current period compared with $700,000 for the prior year period. In the current quarter, we had higher expenses than last year related to our sponsored therapeutics research at the University of Louisville, which totaled about $350,000 compared to about $200,000 last year. On the diagnostic side, we had COVID-19 antibody test development costs of about $250,000 in the current quarter compared to the year-ago period, which included about $500,000 of costs associated with our diagnostic development project with Sekisui that was terminated in May 2019. We expect our R&D expenses to increase in future periods as we accelerate development of multiple drug candidates and shift our overall R&D spending towards therapeutics. Loss from operations in the first quarter of our fiscal 2021 increased to $2.6 million from a $500,000 loss from operations for the prior year period, mainly due to the higher G&A expenses along with reduced gross profit due to the decline in product sales. In a very disproportionate way though, our net loss in the first quarter of fiscal 2021 was $18.6 million compared with a net loss of $600,000 for the same period last year. As I mentioned earlier, this significant change was primarily a result of a non-cash charge of $16.2 million when under GAAP rules we had to record in this year's first quarter a derivative liability related to a series of warrants we originally issued in 2004. This GAAP rule created and will continue to create significant distortion in our balance sheet and P&L due to external factors such as the price of our stock. We will seek ways to change the underlying factual traditions as we can, and in compliance with GAAP, reduce or eliminate this non-cash line item in the future. In conclusion, diagnostics is a competitive market facing the headwinds of declining reimbursements from Medicare and private insurers, as well as shorter-term pandemic effects. We do not believe that revenue or profitability from our diagnostics business is a critical indicator of the long-term value of Qualigin. Rather, progress towards the potential commercialization of one or more of our drug candidates is a better way to measure our company. And said another way, we believe our peers are other promising early-stage biotech companies with multi-product pipelines, strong academic partnerships, and sufficient capital to fund operations into calendar year 2022. With that, I'd like to open up the call for questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from James Malloy with Alliance Global Partners. Please go ahead.

Hey, guys. Thanks for taking my questions. I had a quick follow-up. I know that, as Chris just said, the therapeutics are more important than diagnostics, but since that's what you're selling currently, I'm going to walk through a little bit on the FastPak Pro. I know you started shipping that. Is there any – when do you anticipate starting to book revenues on that, and is there any – Any idea, any guidance you can give on sort of pricing, number of tests, and sort of the potential size of the FastPak Pro here in the short term?

Hi, Jim. Thanks for the question. We expect to recognize revenue from the sale of the COVID-19 antibody tests in this quarter. But we would expect them to gradually increase over the following quarters as we ramp up manufacturing of the ProAnalyzer. But we're not going to provide any specific guidance right now on pricing or sales numbers. You know, while we are actively working to get this important product into the market, I need to point out that we can't expect to build a long-term business around just the COVID-19 antibody tests. I think an equal or more important endeavor, and this goes to what we were talking about earlier, is what we were doing on the therapeutic side with AS1411. as this drug candidate shows promise for helping with a multitude of viral-based diseases. And I can't stress that enough, and not just COVID-19.

Understood. And on the Allen, I know that you guys are anticipating and still on track for the IMD filing here in the current year. And I apologize, on the AS1-1411, the SARS-CoV-2 for treatment. When did you start starting the IND and starting human trials?

All right. So, I'll take the second one first because that's really the lead. AS1411 is going to be applied to COVID-19. We're aiming to file the IND for that in October, and we're aiming to begin the human trials for COVID-19 early in 2021, in calendar 2021. With Allen, for acute myeloid leukemia, we're aiming to file the IND for that sometime in the second quarter of calendar 2021, with the human trials to follow not too long after that.

And could you speak a little bit about the safety work, the Phase I safety work that Antisoma has done on AS1411 that gives you the confidence, you know, to go right into the Phase IIs?

Yeah. I mean, Antisoma had done Phase I plus they had done several Phase II trials on advanced cancer patients who were immune compromised and their health was – was very deteriorated, and the safety profile on this drug as they did it was excellent. In fact, they were never able to reach a maximum tolerated dose on this drug. So that's one of the beauties of aptamers is the safety profile was so good.

And then a question for Chris. I know that there were a lot of one-timers and sort of non-cash numbers. In the current quarter, how much of the – the G&A really – obviously, the fair value, the warrant liabilities, the non-cash, big non-cash. But in the G&A, the $2 million, I think you call out in the Q, maybe about $800,000 or a million of that is non-recurring. How much of – can you give us an idea of what sort of the goal – the run rate is as a public company on the G&A line going forward?

Sure, Jim. Actually, I would not exclude any of these one-time costs that were mentioned in the queue going forward, because any savings from the non-recurring G&A costs may be offset by the higher costs in future quarters of being a public company. Okay.

And then maybe the last couple questions, and I'll get back in the queue. $16 million on the balance sheet, a good number. What's sort of the burn rate you see going forward for the next couple of years, and what kind of runway does the $16 million get you guys currently?

Yes, we feel that the $16 million is approximately two years of a run rate for us. On a cash basis, after revenue from diagnostic sales, we currently expect cash burn for G&A and R&D expenses to be about $2 million per quarter or less, at our current rate, which is about, as I said, two years of runway. However, this could change as new opportunities or unforeseen challenges arise.

Great. Thank you for taking the questions.

Our next question comes from David Voss with Vax Small Cap Research. Please go ahead.

Hey, good afternoon, everyone. Michael, I was wondering if you could – maybe give a broad outline of what the COVID clinical trial would look like, maybe just how many patients you're thinking and then maybe what potential outcomes you might be looking at.

Sure. Excellent question, David. In broad terms, what we're looking at is clinical trial with several arms one would be with AS1411 alone another one would be AS1411 plus standard of care which in this case today is Remdesivir and we're looking right now at a total number of patients of about 500 and across about 20 sites one of the interesting things about doing a COVID-19 trial right now is that patients are not in short supply and the endpoints come fairly quickly. So you get endpoints at like 10 days or so. If you look at, as an example, the remdesivir trial, they did like 1,060 patients and they were able to get that trial done in a couple of months. So, I mean, that's really what we're looking at there in broad terms.

Okay. Now for Alan, do you foresee that being used as a monotherapy in AML or maybe as a combination therapy?

Well, you know, we would love to see it as a monotherapy, however, AML, like most cancers, is very heterogeneous, meaning that there are multiple clones involved in all of these cancers. These things mutate, different phenotypes and so on. And what we see with all sorts of cancers is the most effective therapies tend to be combination therapies. And so it may be that ultimately it's a combination therapy with Allen plus something, let's say, like in the case of AML, a chemotherapeutic agent like cetarabin.

All right. And for the RAS-F program, are there just – I'm wondering if you could tell us where exactly that is in the development stage and then when we might expect the next update and then what that update would most likely be.

Sure. RASF is, as I mentioned earlier, it's a family of compounds. It's approximately 160 compounds. different compounds. And of those compounds, we are now in the process working with the University of Louisville to narrow that down to one lead candidate that we're going to take forward into the pre-IND studies. And we expect that we're aiming to do those pre-IND studies beginning early in 2021. So at that point, I think we would be looking to provide everyone with an update as to where we are with the program and what the timeline would be more granular as we go forward.

Okay, great. Thanks for taking the questions.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Michael Poirier for any closing remarks.

Thank you. I'd like to thank everyone for participating on today's call and for your questions. We look forward to keeping you updated on our progress and intend to hold periodic conference calls like this one. In the meantime, we appreciate your continued interest in Qualigen Therapeutics. Thank you again for your time and for your support.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.