Processa Pharmaceuticals, Inc. (PCSA) Q1 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to Processa Pharmaceuticals First Quarter 2022 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. [Operator Instructions] 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 first quarter 2022 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 first quarter 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 the company’s website or to 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 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 those 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 the 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 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. We continue to manage our cash efficiently. And as of March 31, 2022, we had a cash balance of $14.3 million. We believe this will allow us to complete our three ongoing clinical trials and fund our operations into the third quarter of 2023. During the three months ended March 31, 2022, we spent cash on our clinical trials and in our operations of $1.8 million. This is significantly less than our GAAP net loss due to the effect of non-cash items like amortization and stock-based compensation. For the three months ended March 31, 2022, we reported a net loss of $3.2 million or $0.20 a share, compared to a net loss of $2.1 million or $0.14 a share for the same period of 2021. The increase in our net loss relates primarily to increase clinical trial costs we incurred in our three ongoing trials. We anticipate clinical trial costs will continue to increase for the rest of the year as these trials continue and we fund development activities in our other drugs that we have in our pipeline as David will discuss. Our net cash used in operating activities during the three months ended March 31, 2022 was $1.8 million, compared to $2.2 million for the same period in 2021. While we experienced increased GAAP 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 team and certain other employees, and were able to utilize some of our prepaid expenses this quarter in our clinical trials. During the three months ended March 31, 2022, we incurred research and development expenses totaling $2 million, compared to $1.5 million for the same period in 2021. The increase in our R&D costs are primarily due to costs we incurred related to our active clinical trials. During the three months ended March 31, 2022, our G&A expenses totaled $1.2 million, compared to $700,000 for the same period last year. The increase related primarily to increases in non-cash salary costs and other operating and consulting costs. We allocated $829,000 of non-cash compensation costs between our R&D and G&A activities. As of March 31, 2022, we had 15.8 million common shares outstanding. As we had previously announced in late March, we purchased a 100,000 shares of our common stock from one of our licensees. We considered this to be an opportunist purchase. That concludes my remarks. I will turn the call over to our CEO, David Young. David, please go ahead.

Thank you, Jim. Good afternoon. Thank you for joining us. Today, I plan to highlight what we’ve accomplished in the first quarter of 2022 in our drug development programs and share what you should be expecting over the next nine months. I will be briefly summarizing Slides 3 to 20. Slides 21 to 40 are pipeline background slides, the content which I have previously presented. As Jim stated, the slides are posted on our website if you want to study them more. Let’s go to our first slide, Slide 3. 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 $1 billion or more. This means that Processa is giving each of our investors, which includes the Processa staff five independent opportunities or shots on goal to have a blockbuster drug. There’s one thing to state that we have five potential blockbusters. More importantly, we are simultaneously developing all five drugs at various 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 and provide the answer to 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 that we expect to achieve from March to August and at the end of the year. I will discuss these milestones as I briefly review each drug within our pipeline. Next slide. To remind everyone, Slide 4 describes the criteria that we have used to select the five drugs in our pipeline. Since I have already covered some of the slide, I would only like to point out one other key item on the slide. The second criteria in the red box stating 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. Next slide. Now let’s look at a summary of our pipeline. We have four drugs in clinical development. We have next generation capecitabine, which we are rebranding of what we previously called 6422. We have 499, 12852 and 3117. And we have one drug in pre-IND stage. Three of the drugs are for the treatment of cancer. The fourth 499 is for the treatment of ulcerative necrobiosis lipoidica a rare orphan disease. And the fifth 12852 is for the treatment of gastroparesis, an unmet medical need where the present treatment options have serious adverse events associated with them. Next slide. This slide provides you with the highlights of what we have achieved in the first quarter of 2022. We have moved closer to obtaining key data to assist us in our discussions with the FDA, the design of our pivotal trials and our NDA submission. For next generation capecitabine, which we previously defined as 6422 program, we have amended the Phase 1B protocol to better understand the de novo formation of DPD associated with next generation capecitabine and began enrolling patients in the amended protocol. For 499, we’ve expanded our outreach to identify potential ulcerative NL patients in order to complete enrollment for our interim and final analysis in a more timely manner. For 12852, we’ve enrolled five patients for our gastroparesis trial so far. And for 3117, we began developing assays to determine if we could identify potential biomarkers that would predict response to 3117 versus gemcitabine. In addition, we will continue our evaluation of potential development and regulatory paths, which will increase the probability for FDA approval. Next slide. I would like first to give you an update on our next generation capecitabine cancer program. As we have previously stated, the market for next generation capecitabine in colorectal cancer is about $1 billion market. We expect next generation capecitabine to be better than existing capecitabine with less dose limiting side effects and potentially greater efficacy given the higher potency. Next slide. From our Phase 1b trial to-date, we have seen a decrease in the non-cancer killing metabolites that caused dose limiting side effects and we have seen an increase in the potency for 24 to 48 hours. However, these effects did not last for all seven days of chemotherapy treatment. The amended protocol determines, one, the PCS6422 regimens that will inhibit metabolism and increased potency for all seven days of chemotherapy, and two maximum tolerated dose for next generation capecitabine. Next slide. This slide summarize what we’ve accomplished in the first quarter of 2022 and what to expect from Processa over the next nine months, the next generation capecitabine. First, what have we achieve in Q1? One, we’ve amended the Phase 1b protocol, we will be defining the PCS6422 regimens that will inhibit the formation of the non-cancer killing metabolites that cause dose limiting side effects and increase the potency of cancer killing metabolites during all seven days of next generation capecitabine chemotherapy. Two, we’ve already begun enrolling patients in the amended protocol. And three, we hope to add clinical sites to the study to expedite the enrollment. What do we expect to achieve the rest of the year? Well, in mid-2022, we should have identified a dosage regimen for PCS6422 and completed our initial evaluation of using an individualized personalized treatment approach for next generation capecitabine. By the end of the year, we hope to preliminarily identify the maximum tolerated dose of next generation capecitabine and the dosage regimen to be used in our Phase 2b or Phase 3 trial. Next slide. Let me now review PCS499 for the treatment of ulcerative NL. As you may recall, this is a $1 billion rare disease market in which natural healing of the open ulcers during the first one to two years after onset occurs in probably less than 5% of ulcerative NL patients. Next slide. There are no FDA approved treatments and no standard of care, because all off-label treatments have limited efficacy given their dose limiting safety profile. The off-label use drugs include the use of pentoxifylline or as I often call it, PTX. PTX works in closing the ulcers of some patients, but side effects limit the dose that can be administered. PCS499 is the deuterated analog of a metabolite of PTX. PCS499 qualitatively has the same metabolite as PTX, but quantitatively has different amounts of the metabolites resulting in a better safety profile. Next slide. This slide summarizes what we’ve accomplished with PCS499 in the first quarter of 2022 and what to expect over the next nine months. So again, what have we achieved in Q1? Although, COVID has had a major impact on our enrollment, we have expanded our remedial patient identification enrollment efforts in Q1, such that we have one patient in screening now, one patient in pre-screening and five patients have been identified that require a pre-screening evaluation to determine if they meet the basic requirements prior to moving into the screening procedure. Also, we are evaluating additional sites with the hope of bringing on more sites. What do we expect to achieve over the next seven to eight months of 2022? Well, in mid-2022, we expect to have enrolled five to 10 patients in the Phase 2b trial to be used in our interim analysis. At the end of the year, we hope to have the top line data from the interim analysis reading out, and we hope to have completed enrollment for the trial. We do plan to meet with the FDA in 2023 and depending on the results and the FDA meeting initiate our Phase 3 trial at the end of 2023. Next slide. Quickly reviewing PCS12852 for the treatment of gastroparesis. This is a more selective and potent 5-HT4 agonist and other 5-HT4 agonist drugs use off-label to treat gastroparesis. Next slide. Other 5-HT4 agonist, and the only drug approved to treat gastroparesis metoclopramide has serious dose limiting side effects with black box warnings and limited use. Because of the higher potency and greater selectivity for the 5-HT4 receptor, PCS12852 in preclinical and clinical studies requires a much, much lower dose of PCS12852 and has less side effects than these other drugs. Next slide. So, again, what have we achieved and what do we expect to achieve over the next nine months? We’ve enrolled five out of the total 24 patients plan for this trial so far. We expect a complete enrollment of the study in the September, October timeframe with top line readout of the change in gastric empty rate by the end of the year. Next slide. The last drug that I will be reviewing today is the fourth drug for which we have an IND, PCS3117. This is a drug similar to gemcitabine, a cancer drug, which maximum sales of approximately $1 billion and used for a number of cancers as first or second line therapy. But with a treatment failure rate of 55% to 85% across the various cancers is used for. Next slide. PCS3117 presently has an IND for the treatment of pancreatic cancer and preliminary clinical studies have been completed. Some efficacy has already been demonstrated in different populations of pancreatic cancer patients. Next slide. In Q1, we began developing assays for specific biological molecules that we will be evaluating as potential biomarkers for PCS3117. Our hypothesis is that some of these molecules will be able to predict a patient’s response to PCS3117 and gemcitabine. Thus, giving us away to select patients to be treated with PCS3117 preferentially over gemcitabine. The preliminary assay for initial evaluation should be completed mid-2022. We expect to have developed our roadmaps for the development of PCS3117 for a number of different cancers and targeted populations, such that we can meet with the FDA at the end of this year to discuss the next clinical study for PCS3117. Next slide. In conclusion, you can see that we have successfully moved next generation capecitabine, PCS499 and PCS12852 forward, even with COVID having a serious effect on enrollment for PCS499. We expect by midyear and at the end of the year to have key data on these three trials that will help us design the larger efficacy trials. We also anticipate that all programs will have a roadmap for the various targeted populations along with the potential paths to approval. And lastly, we expect that our interactions and collaboration with the FDA will provide us with more insight into which development path for each drug has the highest probability of demonstrating an FDA approvable benefit risk profile. The last slides are the pipeline background slides that have been presented before in some form. I will not discuss these slides, but they are in the deck to provide more information. This concludes my remarks. I’ll now ask the operator to open the phone lines for Q&A. Operator, can you please pull for questions?

Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Thank you. Your first question is coming from Robin Garner from Craig-Hallum. Your line is live.

Hi there, and thank you for taking my question. I wanted to ask about PCS3117 and given that gemcitabine is treated so broadly across different types of cancers. Is there a smaller indication that you could begin an approach to that could start to create just a shorter regulatory pathway for approval?

Thanks for the question, Robin. This is David. You are correct. It’s used in a lot of different cancers. It depends what you mean by shorter. So if you’re talking about timeframe, shorter in terms of timeframe, there are the subpopulations, for example, third line therapy pancreatic cancer, first line [Technical Difficulty] there are, and that’s what we’re evaluating. That’s the roadmaps we’re developing for each different type of cancer and we’ll evaluate the time it takes the cost and everything, and then develop a plan and go to FDA regarding PCS3117, hopefully, work something out so that we can take the program that would be most likely to get approved in the shortest time, not just the shortest time, just also the most likely to get approved.

Okay. Fully understand that distinction. Thank you. Wanted to ask also about next gen capecitabine, if we’re expecting some interim data by mid this year. Can you give us a preview as to what that might entail and kind of whether or not you believe you’re close to that recommended Phase 2 dose?

Sure. That’s a good question. I can tell you what we will be looking at, and again, I don’t know results yet, but I can tell you what we’ll be looking at. We’ll be looking at to see if the potency across the all day – all the dosing days of next generation capecitabine, if the potency has increased for capecitabine. So that’s the first thing we’ll be looking at. The second thing we’ll be looking at, and this is not in any order. These are just two different things. The second thing we’ll be looking at is to look at the metabolism to those non-cancer killing cell metabolites that are dose limit – cause dose limiting, because they’re side effects. So we’ll be looking at both of those things. What we expect to see is we expect to see a pattern, which we’ll be able to predict what regimen will result in high potency, low side effect metabolites. And that’s the pattern we’ll go forward with that pattern will be dependent on the dosage regimen at PCS6422.

Okay. Thank you very much for that. And if I may ask a third question, wanted to see if you could give us an update on PCS499 and if the efforts that you’ve made towards increasing enrollment have proven fruitful.

Yes. So we had a lot of problems with PCS499 in terms of COVID. And the reason we had these problems is because some of these patients have had these ulcers for years and years and years. So they had a choice and over 60% of the patients are diabetic. So they had a choice, go out and see their physician on a regular basis for the study and be exposed to COVID, which they’ve been living with us also for years. And have they’ve been vine or stay home, wait till the COVID got less COVID issues and then go out. I think what’s happened is that a lot of the patients waited and that was – that’s one thing. The second thing is we expanded some of our efforts, as I said, we – in the – when I gave a talk, the remedial – we’ve done some remedial things like contact more patients, contact other physicians, contact groups, et cetera. And I think all of that’s helped and we’re only starting to see – we started that actually in the fourth quarter. We’re only starting to see now the patients starting to come in, patients starting to contact us saying, I think I have an ulcer. And of course, now we’re going through a pre-screen to make sure it is an ulcer versus an erosion. And I think that’s really helped, we have a better process in place to identify potential patients and then get them through the pre-screening and then into the study.

Okay. Thank you very much and congrats on the quarter.

Thank you.

Thank you. [Operator Instructions] Your next question is coming from Naz Rahman from Maxim Group. Your line is live.

Hi. Thanks for taking my question. Just a couple on PCS499, you just mentioned screening. Could you comment on what percent of patients actually pass versus fail the screening process? Let me start there.

Yes. I don’t know the number off the top of my head, but it’s a small percentage at pass. And the reason – the initially, and the reason is initially we did not have a pre-screen. So patients would call in, and say, okay, I have NL, I’ve been told I have NL and I wanted to be in the study. And then they would come in and we’d say, well, you don’t have an ulcer. You only have an erosion or an abrasion. It’s not really an ulcer. And so you can’t be in the study. And so that’s why it’s hard to give you a number. Because we had some of those patients early on where those kind of patients. That’s why at the end of the third quarter, we put in this pre-screening procedure where we could actually take a picture of their ulcer – of their – what they think is an ulcer. And then see it, and say, yes, that does look like an ulcer, come in to me now be screened. And with that in place, we’ve been able to weed out those patients who really don’t have ulcers. So it’s kind of hard for me to say, what the percentage is, because we changed the process in the middle to take better patients into this actual screening process.

All right. So does the – did you find that, I guess, more digital or the initial digital screening process improves the screening rate?

We have found that the initial pictures improves the screening rate – improves the number of patients being screened. Yes, yes, it does.

Okay. So I guess, well, this question now applies to both 499 and 12852. And you touched on a little bit, but I guess at this point, what sort of gives you confidence that you’ll definitely have the necessary amount of patients enrolled to have data by year-end? Like why don’t – like would you expect any additional delays or do you think you’re at the point that you’ll definitely have data by year-end?

For…

I guess both 499 and 12852.

I’m sorry for what – 499 and what?

And 12852 for both trials.

And 12852. Is that what you said?

12852, yes.

Yes. Okay.

For both trials, yep.

Yes. So 12852 we’ve had – I mean, we’ve had five patients already. We’ve had a lot of patients come in and a lot of those patients all most everyone has got the paresis, it’s some fail because of other reasons, because they had other comorbidities. They could be in the study. But we’ve had a lot of patients come in there. And that’s the one we’re really confident it’s going to be enrolled. We expect that to be completing enrollment sometime in September and October, right? And they’re only treated for 28 days. So therefore, we expect to get some results within the 28 days. And that would be at the end of the year. We’re pretty – we’re very confident about that one. In terms of 499, I think it still depends on the issue of what happens with COVID for us. And if COVID comes back up, I think both studies will be hurt. There’s no question about it. How much again, I think 499 will be hurt more of 12852 will hurt be hurt less because there’s so many gastroparesis patients. I mean there’s hundreds and hundreds of thousands of those patients around in the U.S. So that’s why it’s a little easier to enroll. But I think if COVID comes back a little heavy, then we’re going to be delayed a little bit.

Got it. And on 3117, after you complete the biomarker assay development, when would you expect or when do you plan to have a meeting with the FDA? Do you have anything scheduled already regarding the assays?

So we’re planning to meet with the FDA end of the year, sometime in December. We’re preparing our cat – our roadmaps right now. We’re preparing the designs of the studies are will be right now with different options depending on which road we take. And so that’s expectation is in the end of the year for an actual meeting. In terms of the assays, let me reword how we’re looking at this. We are measuring macromolecules, which we will test to see if they are biomarkers. So we don’t know if they’re – we call them biomarkers because they’re potentially biomarkers, but they’re just macromolecules that will be measuring and then seeing if they can be used as biomarkers. So I’ve got to be careful because some people when I say biomarkers, they think it’s already been identified as a biomarker and that’s not true. These are macromolecules, which we will see if they can be used as biomarkers.

Got it. Thanks for taking my questions.

Thanks, Naz.

Thank you. Your next question is coming from Frank Brisebois from Oppenheimer. Your line is live.

Hi, this is Dan on for Frank. Thanks for taking the question.

Hi Dan.

Just a quick one for me. Hi. On 499, given the lower – given that you’re seeing a lower prevalence than originally estimated, are you considering the possibility of potentially completing the trial with a lower number of patients? Are you planning any FDA interactions in the future to reduce the end number in the trial?

You’re reading our mind. Yes, we are. We’ve been involved with rare drugs, super rare drugs, ultra rare drugs before. And given the issues with enrolling those type of patients are very, very difficult. We’ve talked to the FDA about this problem. They understand the problem. We still have to prove safety and an efficacy statistically, but they previously with other drugs for us and other people. They’ve given us a little bit more flexibility in doing that. So it is possible that we may have to decrease the sample size. And hopefully, if in fact what KOL say is that the placebo group is going to have a very low response. Hopefully, it is a low response and if it’s a low response, then close to zero response it is, the smaller number – the smaller sample size. So that would be nice. We just don’t know yet, and we won’t know that until the interim and the final analysis but because it’s blinded. But I think there’s a good chance right now that the placebo group could be close to zero. So that’s what we’re hoping it does occur.

Great. Thank you. That’s very helpful. That’s it for me.

Thanks, Dan.

Thank you. [Operator Instructions] Thank you. That concludes our Q&A session. I will now hand the conference back to Dr. David Young for closing remarks. Please go ahead.

Thank you, operator. I just wanted to thank everybody for attending this earnings call. Hopefully, you can understand that where we’re coming from in this and that we think there will be some very key milestones coming out and being reported in the next few months, as well as through the end of the year. We really see some multiple near-term milestones that will have a major, major impact on these programs both now, but also guide us better into what we should be doing for the Phase 3 programs. Again, thank you very much for joining us and wish you the best. Thank you.

Thank you, ladies and gentlemen. This concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.