Processa Pharmaceuticals, Inc. (PCSA) Q4 2022 Earnings Report, Transcript and Summary

Greetings and welcome to the Processa Pharmaceuticals Year-End 2022 Earnings Call and Corporate Update. [Operator Instructions] 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 Processa's 2022 year-end results and corporate update conference call. Joining me on the call today is our Chief Executive Officer, Dr. David Young. Shortly before this call, we filed our year-end Form 10-K. 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. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint presentation, please go to the Investor Relations section on our website or to our earnings press release and click the webcast link to follow along. I'll start 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, and circumstances. Our cash balance on December 31, 2022 was $6.5 billion. Subsequent to year end, we raised $6.4 million from the sale of 8.4 million shares of our common stock through a combination of financing vehicles, including a registered direct offering. These funds have strengthened our balance sheet, and we believe the cumulative $12.9 million will be sufficient to complete our active clinical trials and fund our operations into the third quarter of 2024. As a pre-revenue company, we are careful with our cash, using it to advance the drugs in our pipeline to their next value-producing milestone. We used $9.6 million during the year ended December 31, 2022, to fund our three clinical trials and operations. This represented an increase of $800,000 when compared to the $8.8 million of cash we used in 2021. As I will explain, our operating cash flow is significantly less than our GAAP net loss, primarily due to several non-cash expenses. Our GAAP net loss for the year ended December 31, 2022, was $27.4 million or $1.70 a share compared to a net loss of $11.4 million or $0.75 per share for the same period of 2021. The increase in our net loss was primarily due to a one-time non-cash impairment of an intangible asset for $7.3 million, along with increased stock-based compensation and the clinical trial costs we incurred in our active clinical trials. For the year ended December 31, 2022, we incurred $11.5 million in research and development costs, an increase of $4.6 million when compared to the same period of 2021. During the year ended December 31, 2022, our general and administrative expenses totaled $8.8 million compared to $4.7 million for the same period in 2021. The increase was primarily due to increases in stock-based compensation and other payroll-related expenses. We rely heavily on stock-based compensation for our executive officers. During 2022, the majority of our executive officers' base salary was paid out in restricted stock units. The cash portion for all six of our executive officers' base salaries was less than $600,000 with the remaining portion of their base used to acquire just a little over 390,000 shares of our common stock with a fair value of approximately $1.1 million on the day it was acquired. Not only does this conserve our cash, but it aligns our executive team with our shareholders. In total, during the year ended December 31, 2022, we allocated $8.8 million of non-cash compensation costs between research and development, and general and administrative expense with the majority being recorded as G&A. This is a very exciting time for Processa as we prioritize our efforts to focus on the next-generation chemotherapy drugs in our pipeline. I will now turn the call over to our CEO, Dr. David Young, to go over our current drug pipeline and our current plans. David, please go ahead.

Thank you, Jim. Good evening. Thank you for joining us. As Jim stated, at the end of 2022, we began to realize that it would be better for our investors if we focus on a few drugs rather than our portfolio of five drugs. In the first quarter of 2023, we announced that we would be prioritizing the development of our three oncology drugs, which we call our next-generation chemotherapy drugs. Slide 3, please. However, our mission has not changed. We are still developing drugs to treat patients who have no treatment or need better treatment options, but we are now focusing only on patients with cancer and our next-generation chemotherapy drugs. Next slide. It is the goal of every oncologist and the desire of every patient to be treated with the right drug at the right dose following the right treatment schedule. So often this is not the case. 30 to 50 years ago, the right drugs were only chemotherapy drugs and for metabolites that keep cancer cells from growing, dividing, and making more cancer cells. Even now, cancer chemotherapy drugs remain the backbone of cancer treatment, and the three of the most widely used cancer chemotherapy drugs are capecitabine, gemcitabine, and irinotecan. These three drugs are used in all types of cancers, but anywhere from 30% to 70% of the patients who start treatment has side effects requiring the patient to decrease their dose to suboptimal doses or to discontinue therapy. And for those taking these drugs, less than 40% of patients typically have a positive response. Processa's mission is to develop the next-generation versions of these three chemotherapy drugs. We call them next generation because we have altered the drug where it is active metabolite so that it is metabolized and are distributed in the body differently than the FDA-approved drug while maintaining the same mechanism of killing cancer cells. These next-generation versions have already been shown in clinical and/or animal studies to have less severe side effects and fewer side effects. An improvement in the side effect profile with the next-generation chemotherapies allows a given patient to have a better quality of life when on next-generation chemotherapy, and their cancer may potentially be exposed to even more cancer-killing molecules. In addition, it is likely that more patients would respond to our next-generation chemotherapy, thus providing a greater response rate than the presently used versions of each of these drugs. The question that I'm sure many of you are asking yourselves is what are these next-generation chemotherapy drugs, and why are they better than existing drugs? To answer this, let's look a little bit -- Slide Number 5. If you look at the many oncology-oriented companies, the vast majority are developing treatments for new targets or developing a new drug delivery system for an existing cancer drug. If you look at the picture on the left, you will see that chemotherapy drugs, when administered, are first absorbed into the body, then metabolized to active cancer-killing metabolites and to metabolites that may cause side effects. They are then distributed to cancer cells and normal cells, killing cancer cells, but also causing side effects in the normal cells. And they are eliminated out of the body. What Processa has done is to take these three widely used chemotherapy treatments, capecitabine, gemcitabine, and irinotecan, and all showed how the body handles them, specifically altering how the drugs are distributed in the body or how the body metabolizes the next-generation chemotherapy drugs. We have altered them in the body by either administering the drug with a second drug that alters the metabolism and the distribution, or we slightly changed the molecular structure of an approved cancer drug in order to change the metabolism or distribution of the drug. The key, however, is that we have not changed the mechanism of how the drug kills cancer cells. We only have changed how the drug is handled by the body before killing the cancer cells. Next slide. The groundbreaking aspect of our next-generation chemotherapy is that for each drug, there are more than 200,000 cancer patients who are diagnosed with targeted cancer that each next-generation drug could be treated. And those patients would be receiving treatment with less side effects and potentially better efficacy to both increase their survival and their quality of life. As you can see the bottom -- at the bottom of the slide, from a corporate and investor perspective, having these next-generation chemotherapy drugs in our pipeline helps us to be more efficient in drug development, increases the probability of FDA approval, and differentiates our products from existing products and products presently in development. Next slide. But it's not just our drug assets that differentiate us from other companies. It's also how we approach the development and FDA approval of these drugs. We use the Processa regulatory science approach that has been refined over the last 30 years by two of the Processa founders. In addition, more recently, the FDA has been requesting that the principles of regulatory science be used under the FDA Project Optimus oncology initiative and the related draft FDA oncology guidance. This requires that for every NDA oncology submission, the dosage regimen and the proposed label must be justified using the principles of Project Optimus and regulatory summons. Fortunately, for us, we've used the principles of Project Optimus within our regulatory science approach for a number of other non-oncology FDA drug approvals and have already started to use the Project Optimus approach prior to the announcement by the FDA for our next-generation drugs. On the other hand, many other oncology companies are not experienced with the principles of Project Optimus and in fact are having to conduct additional clinical trials to justify their dosing regimens and pivotal clinical study design. The combination of our pipeline of next-generation chemotherapy drugs, our regulatory science approach that already includes the principles of Project Optimus, and our experience with the principles of Project Optimus in non-oncology FDA submissions are more reasons why we can more efficiently develop each of the next-generation drugs. We have a better probability of obtaining approval, and we can differentiate each NGC from its existing counterpart therapy. Next slide. Let me now discuss two of our next-generation drugs and some of the results over the last three to six months. First, looking at next-generation capecitabine, to remind you, capecitabine is the oral prodrug of 5-FU and is widely used in many types of cancers, including colorectal, gastric, breast, pancreatic, and other cancers. Cumulatively, these cancers have an incident rate of greater than 200,000 new patients per year. Next-generation capecitabine is the combination treatment of PCS6422, which alters capecitabine metabolism and distribution and capecitabine itself. Next slide. This slide is a summary of the data to date from our Phase 1b next-generation capecitabine clinical trial. I would like to point out a few items on the slide. First, we found that next-generation capecitabine alters the metabolism distribution of capecitabine. Second, in the last column of the table, next-generation capecitabine at all doses evaluated so far does not cause any adverse events from the metabolite called catabolites This is important to note, since 50% to 70% of the patients receiving the present capecitabine have adverse events from catabolites. Third, we have identified drug exposure levels that cause dose-limiting toxicities, abbreviated as DLT, and exposure levels that do not cause DLT. Fourth, we will be meeting with FDA in mid-April to discuss the Phase 2b safety efficacy trial and which regimens or exposure level should be used our implementation of Project Optimus. And lastly, our goal is to initiate the Phase 2b trial in the second half of 2023, performance interim analysis mid-2024, and complete enrollment by the end of 2024. Now let's look at our next-generation irinotecan drug. Next slide. Again, there are more than 200,000 patients per year who are diagnosed with the types of cancers that irinotecan is used for. Next slide. We wanted to determine if Project Optimus was important for this drug. In other words, do we need to do a dose-ranging clinical study evaluating response versus dose to determine an FDA-approvable dose as recommended by Project Optimus? What we have analyzed from our cancer animal models is that the response exposure relationships for irinotecan and next-generation irinotecan are different. Looking at the left figure, if we decrease the dose from the maximum tolerated dose or the MTD to 50% of the MTD for next-generation irinotecan, the adverse events decrease, which is the red line. But the efficacy, which is the blue line, remains about the same. For irinotecan, however, in the figure on the right, decreasing the dose to 50% of the MTD results in a decrease in both the adverse events and the efficacy. We concluded that besides now being an FDA requirement for oncology drugs, the principles of Project Optimus need to be used for next-generation irinotecan because the justification of their dosage regimen for approval needs to evaluate the adverse event exposure and the efficacy exposure relationships, which do not appear to follow a parallel path for next-generation irinotecan. Next slide. In the last three slides, I would like to briefly provide an overview of what we have accomplished in 2022 and what we plan to accomplish in 2023. This slide describes what we've accomplished in 2022. Let me just briefly point to three key accomplishments in 2022 for our next-generation drugs. First, we determined what next-generation capecitabine drug exposure levels would cause dose-limiting side effects and what exposure levels will not. Second, we have defined the 2b-targeted cancer populations for next-generation gemcitabine. And third, we have determined that next-generation irinotecan adverse event exposure and efficacy exposure relationships do not follow the similar pattern. For our non-oncology drugs, which we hope to [outlicense] or find a partner, we've completed the Phase 2a 12852 gastroparesis trial in which 12852 had a positive effect on gastric emptying rate and a larger effect in placebo and improving gastroparesis symptoms. And for 499, we discontinued the trial due to enrollment difficulties, which is different from the published literature prior to starting the study. We are now evaluating other indications with larger populations for future licensees or partners. Next slide. The major milestones we expect to achieve in 2023 are: For next-generation capecitabine, we expect to meet with FDA in mid-April to discuss the Phase 2b safety efficacy trial with interim analysis and next-development steps; we expect to complete the Phase 1b trial to refine our understanding of the adverse event exposure relationship; and lastly, we hope to initiate the Phase 2b study sites in 2023 -- at the end of 2023, with the goal to have our interim analysis mid-2024 and complete enrollment in 2024. For next-generation gemcitabine, we expect to meet with FDA in mid-2023 on the Phase 2b safety efficacy trial and next development steps with the goal to submit a Phase 2b protocol to the IND in the fourth quarter of 2023 and initiate the trial in 2024. For next-generation irinotecan, we hope to initiate the IND-enabling studies in 2023 with the goal to complete studies by the end of 2024. Regarding licensing or partnering our drugs, we are now working on licensing or partnering our non-oncology drugs. But we would also consider monetizing one or more of our next-generation chemotherapy drugs. Corporately, we are expanding our visibility and public presence, including social media, by engaging an IR/PR group as well as planning to communicate more with our investors. We also plan to interact more with the oncology community, including key opinion leaders and patient advocacy groups. Next slide. This last slide summarizes some of the material in the previous slides. Before we end my part of the earnings call, I thought I would address a few questions that we received from investors. The first one I'd like to address is we've been asked, why develop next-generation chemotherapy instead of finding a new oncology treatment? As I stated when discussing the slides, our next-generation chemotherapy drugs represent a better treatment for cancer patients that will improve their survival and quality of life. These drugs are not new because they kill the cancer in the same way as the presently approved drugs. But new -- they are new because they provide less side effects. They are handled by the body differently, and it should provide a better benefit risk profile for approval. With these drugs and the implementation of our regulatory science approach, including the principles of Project Optimus, these next-generation chemotherapy drugs can be more efficiently developed, have a greater probability of approval, and will be better treatment options than the existing FDA-approved drugs. A second question that we have been asked is what steps are you taking to enhance shareholder value? We've implemented a number of strategies to increase shareholder value, and we are in the process of launching more. These have included increasing Processa visibility by bringing on the IR/PR group to improve everything from our website to the number and quality of our presentations to include -- increase our presence on social media. We're also reaching out more to the oncology community, as I said, both physicians and patients, to make sure that Processa and our next-generation chemotherapy drugs are better known. And finally, we are working with FDA to hopefully expedite development and make the development process as efficient as possible. The last -- well, not last -- question I'd like to address is we've been asked, why have the members of the C-suite not purchased shares recently? Some of the C-suite and Board were involved in the $6 million raise earlier this year that Jim mentioned. Unfortunately, during most of the first quarter of 2023, we have all been blacked out, which has made any type of Processa stock purchase impossible. Hopefully, that will change in the near future. I want to close by saying that my management team and I are keenly aware of the underperformance of our stock in recent months. As noted earlier, this remains an equity play for all of us involved. While displeased with our current valuation, we are focused on doing those things which we believe are all in our collective best interest and have the potential to create substantial value for Processa and its investors. Operator, I'd like to hand it to you.

[Operator Instructions] François Brisebois, Oppenheimer.

It's Dan on for Frank. Thanks for taking the question. Just -- if I could start with more of a broad-level question, given the alignment of the trials to Project Optimus, just wondering how we should be thinking about dosage levels, given that the dosage is going to be optimized for efficacy and safety, and it can vary from patient to patient? And how should we be thinking about that? And related to that, if you could add some color on what the goals are for the upcoming mid-April meeting with the FDA, that would be great. Thanks.

Okay. Thanks for joining us. Can you hear me? Can everybody hear me okay, I hope?

Yes.

Okay. So let me first -- let me go to the last question first. The goals for the meeting with FDA mid-April are to actually discuss their view of Project Optimus, given our next-generation capecitabine and then come to an agreement and negotiate out what would be the best dosage regimen or designs to put into the Project Optimus Phase 2b trial. Since we use Project Optimus in other types of drugs, we know how to do it. But we wanted to hear from the oncology group because this is new to them, their thoughts and their approach that they want to take. We'll then take that together and discuss it with them, come up with an agreement with them, and then be able to move forward. So that's the real design and -- the design of the study as well as the dosage regimen. Your first question, could you remind me what the first question was? I apologize.

Just in terms of how -- since it's not an MTD trial, how we should be thinking about dosage levels across patients going to be optimized for --

Yes. So what we're going to be doing is -- what we have done in our Phase 1b trial is we've been monitoring the exposure of the drug to each of the patients. You have to remember that this is a drug interaction situation where one drug alters the metabolism of capecitabine. 6422 alters the metabolism of capecitabine, which then alters also the distribution, all right? So what's important is to know that how is it altering? Is it altering? As you said, there may be an individual patient that alters differently than another patient. And all these things are going to be monitored in patients so that by the end of the Phase 2b trial, we'll have a better idea of what the design of the Phase 3 trial should be. We're already getting that initial information in our Phase 1b trial, but we need to get to the efficacy side, which would be in the Phase 2b trial, then we'll be able to design the Phase 3.

Great. And just a quick one from another one. How are you thinking about indications for the next-gen capecitabine program? Is that patients who would be otherwise be prescribed capecitabine or across indications?

Right now, we're going to be looking at patients who would typically be prescribed capecitabine. But we do not think that that will be the end result. We think the types of patients, the targeted population, is much broader. And we also believe that the targeted population will be on metastatic colorectal cancer. It's also pancreatic cancer, other types of cancers. This is just the first step to get to the end.

Great. Thank you for taking my questions.

Thank you.

[Operator Instructions] Naz Rahman, Maxim Group.

Hi, guys. Thanks for taking my question. I have a few, actually. I'll just start on your next-gen capecitabine product. Recently, you announced you're enrolling the 300-milligram patient cohort. And you said that you expect to complete enrollment by mid-2023. Could you comment on what gives you confidence in completing one by mid-2023? And when can we expect to see data from that cohort?

Well, so for the 300-milligram group, we already have some patients enrolled. We have been pushing the sites to enroll more quicker. And so, we're pretty confident we'll have it done in the next month or two, all right? The question then becomes do we go to the next cohort, or should we be going to the next cohort after that? We won't know that until we see the doses or the safety profile from the dose that we're presently on. We're still going to the FDA, though, in mid-April because regardless of having it, we know that one of the dosing regimens that FDA will want us to take into the Phase 2b will be that MTD -- will be that MTD dose. And so, we will be using that. So it doesn't prevent us from meeting the FDA -- with the FDA. It doesn't prevent us from initiating things in terms of protocols and getting CROs selected. It doesn't prevent us from doing all that. But we won't know the exact dose or the exact dosage regimen until we get to that MTD, which, again, we project it will be in mid-year.

Got it. And on that Phase 2b protocol that you plan to discuss with the FDA, could you provide some potential color in what you expect the Phase 2b or what are you thinking the Phase 2b might look like in terms of study design?

Yes, I prefer not to discuss that right now until we negotiate a little bit more and discuss it with the FDA. But it's going to be a more typical efficacy safety study, where we're looking, of course, at efficacy and safety. We are going to be talking about probably anywhere from three to four groups with different dosing regimens and potentially a control group with the established dose. So again, we are proposing something to the FDA and trying to figure out how what how they're thinking about Project Optimus. And based on what they share, we'll be able to figure out how they're thinking about it a little bit more and then be able to tweak our study to -- not only the needs of getting into Phase 3, but also fit the needs of the answers and questions that FDA might have.

Got it. And I'm going to shift gears a little to on 3117, a few questions here. Previously, you mentioned that you guys are developing a macro molecule assay. Have you on completed work on that, and what might it look like? Is it like blood based or biopsy based, and are you still working on this project?

Yes, we are still working on it. But if you think about how biomarkers are evaluated at FDA, identifying a potential biomarker is the first step. That's all the analytical procedures, et cetera. That's the step we're at right now. The next step in the biomarker work is that you have to prove there really is a biomarker. So our hope is that we will have the analytical part done. And then, at the end of the year, we'll be able to submit the protocol to the IND for a Phase 2b trial. And that Phase 2b trial will be the one that says, is it really a biomarker? Even though the analytical is done, you have to prove biologically and clinically it is a biomarker. So that will be done also at the same time in the Phase 2b trial. So we're not using it. We're not going to be using the biomarker to say these are the only patients to study. We cannot do that because we don't know it's a biomarker because there hasn't been a study yet. So that's the Phase 2b study. We're looking at efficacy, safety, as well as determining if this analytical measurement of a macro molecule is really a biomarker.

Got it. And the biomarkers you're evaluating, are they blood based or biopsy based?

I can't comment on that right now.

Okay.

Because there may be some intellectual property things that we're dealing with [and things] -- so I can't comment on that right now.

Got it. And I guess my last question is on 11T irinotecan. You mentioned that you obviously see a better risk benefit profile at a 50% dose. But could you give more color on what the dosing regimen might look like? Does that mean, for example, you provide like 50% or even lower dose and increase the dosing frequency to reduce the incidents of AEs? Or are you dosing at the same volume and intervals just with a better formulation? Could just provide more color surrounding that?

Yes. So right now, what we've done is we've kept the dosing regimen, the timing of the dose, the same. And the only thing we've done is change the actual amount that's been dosed, all right, in terms of the active molecule. But we have to remember, this is not a formulation change. So the formulation of these things don't make a difference. But the key to this is this is a prodrug. So what we've done is we've taken the active molecule of irinotecan, which is SN-38, and we've hooked on some other molecules onto it. And those other molecules preferentially put the drug into the membrane of the cancer cells over normal cells. So it's like -- I don't want to call it -- it's like a transporter, or in some way just loads up the drug into the cancer cells versus normal cells. And so, we have a different balance between how much the cancer cells get this SN-38 versus normal cells compared to irinotecan, where you have a different balance. So what we're really doing is the prodrug that makes this drug be attracted into the membrane of cancer cells.

That actually raised two questions from me. So it sounds like that your 11T, it sounds like it's more selective. Do you have any numbers surrounding selectivity of 11T versus regular irinotecan? And also, is it also more bioavailable?

We do have numbers. I can't share those right now, but we'll be putting something out on that in the near future. But in terms of -- the administration is parenteral administration, if not oral administration. So the bioavailability is pretty much the same. But again, I won't -- I can't comment. There is a difference in the cancer to tissue ratio of irinotecan versus next-generation irinotecan. There is definitely a difference, a big difference. But I just can't say the number right now at this time.

Got it. So I just have one last question, if you don't mind. Is it possible for you to comment on what you think the Phase 2B for 6422 and Phase 2b for 3117 might cost?

That's hard for us to do right now because a lot of it depends on the discussion and negotiations with the FDA. Of course, if they want four arms and they want a bigger study, that's going to be more expensive. If it's only two or three arms and not having a normal control, for example, it would be less expensive. I really can't say because it depends on how we finalize the design, which we won't know until after we meet [NATCO] for next-generation capecitabine. For next-generation gemcitabine, it's a little different. What we are going to be looking at, we are meeting with the FDA also mid-year in that. And what we are going to be looking at is the alternative types of pancreatic cancers that we should be targeting this drug to. And so, a lot of that it will, again, will depend on where we think the FDA will want us to go, where the market is for this drug in terms of type of pancreatic cancer, or in terms of what stage of pancreatic cancer, or surgical/nonsurgical. So there's always nuances of pancreatic cancer that we have to discuss with the FDA and then evaluate from a market as well as drug development timeframe, as well as costs, which is about to go.

Got it. Thanks for taking all my questions.

Thanks, Naz.

[Operator Instructions] Okay. We have no further questions in queue. We have reached the end of the question-and-answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Thank you.