Processa Pharmaceuticals, Inc. Q1 FY2021 Earnings Call

Greetings and welcome to Processa Pharmaceuticals' First Quarter 2021 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. As a reminder, this conference call is being recorded. I would now like to introduce Jim Stanker, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator. With me on the call are Dr. David Young, our Chief Executive Officer and Mike Floyd, our Chief Operating Officer. Before we begin, I’d like to remind everyone that a PowerPoint presentation will accompany Dr. Young’s prepared remarks. To view the PowerPoint slides, please go to the earnings press release and click on the webcast link to follow along. Now, I’d like to begin the 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 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 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, those contained in subsequently filed reports on Form 10-Q, as well as in other reports we file from time to time with the Securities and Exchange Commission. 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 published financial results, then turn it over to Dr. Young for an operational update, which will be followed by a Q&A. We reported a net loss of $2.1 million or $0.14 per share for the quarter ended March 31, 2021 compared to a net loss of $874,000 or $0.16 per share for the same period of 2020. The increase in our net loss primarily relates to increased costs incurred as we start our clinical trials for PCS499 and PCS6422. We anticipate these costs will continue to increase for the rest of the year. Our net cash used in operating activities also increased during the first quarter of 2021 by $1.7 million to $2.2 million when compared to the first quarter of 2020. This increase was due to costs we incurred preparing for our Phase 2b trial for PCS499 and our Phase 1b trial for PCS6422, including advance payments to our CROs. In February of 2021, we closed at $10.2 million gross proceeds from a private offering of common stock, from which we received net proceeds of $9.9 million after deducting offering related costs. Following this offering and as of March 31, we had 15.5 million common shares outstanding. During the first quarter of 2021, we incurred research and development expenses totaling $1.5 million compared to $502,000 for the same period in 2020. The increase in our R&D costs of $1 million in 2021 was primarily due to costs we incurred related to preparing for our Phase 2b trial for PCS499 and our Phase 1b trial for 6422. During the first quarter ended 2021, our general and administrative expenses totaled $717,000 compared to $484,000 for the same period in 2020. Allocated between our R&D and G&A costs is $308,000 of non-cash compensation costs. As of March 31, we had $23 million of cash and cash equivalents. That concludes my remarks. I’ll turn the call over to our CEO, Dr. Young. David, please go ahead.

Thank you, Jim. Good afternoon! Thank you for joining us today. Since everyone on this call knows the Processa story, my plan is to highlight what we have accomplished so far in 2021, review our clinical drug pipeline, then briefly share what you should expect over the next five to six months. I will not cover all the in-depth details on all the slides. We have presented the first slide before. This is a slide that lays out the overall timeline for the drugs in clinical development. Nothing has changed from what we have stated before. I will be updating you on the status of each drug in subsequent slides. It is important to note that we have achieved our first quarter drug development and corporate goals that we defined for ourselves. Our overall development goal is to move specific drugs closer to FDA submission, and we accomplished that. For 499 we selected clinical sites for the Phase 2b Ulcerative NL trial and we have begun to screen patients this week. Similarly, we have selected clinical sites for 6422 and are now initiating these sites. For both trials, we are in the process of adding more sites over the next few months. For 12852, we completed our pre-IND, FDA meeting and have begun working on the protocol and IND for the use of 12852 in gastroparesis. And for 11T, our second cancer drug, we have begun to evaluate contract manufacturing organizations to make drug supply and drug product for toxicological and clinical studies. Regarding our corporate goals on the right, we had a number of potential investors who want to invest in Processa. So we raised $10.2 million in a PIPE in Q1. This PIPE also provided additional cash to further support the study and all our overhead through 2023. We also added more drug development staff and we plan to hire additional staff to support our drug development and corporate requirements over the next 12 months. Several individuals tell us that Processa is not the typical biotech company, with a drug discovery platform or a company that focuses on one indication or one therapeutic area, and we agree with them. Fortunately, these same individuals understand that we are a drug development company that has the depth and knowledge to develop drugs in multiple therapeutic areas for multiple FDA review divisions. In addition, we are a company whose business model is to develop drugs with a high return using a derisked approach. There is no better way to understand our business model, but to quickly review our criteria for selecting drugs for our portfolio. Our first requirement is that there must be a patient need for the drug and there must be a competitive advantage of our drugs over what is presently used for the patients. To us, this means the drug must target a medical condition for which patients need other treatment options or possibly have no treatment options at all. Second, there must be evidence of clinical efficacy for the drugs or a drug with similar pharmacology. This increases the probability of having a successful pivotal registration study. Third, we must believe that there are more efficient ways to develop the drugs for approval using the regulatory science approach that we have developed over the last 30 years. An approach where we design to develop a program in the clinical trials to demonstrate a beneficial risk profile that would not only be acceptable to the FDA but also demonstrate that our drug is better than the existing treatment options. Fourth, we must believe that we can be capital efficient in developing the drug. This means that we can leverage some of the previous work performed by the previous owners of the drugs so that we can streamline what we are required to complete for approval, including the design of our clinical program. And the final criterion is that our analysis must support that the risk-reward balance is acceptable and that there’s an opportunity for a very high return on investment. This slide summarizes the four drugs that we are actively working on and their target indications. Two drugs are targeted for the treatment of cancer, 6422 in the top row, in Phase 1b; 11T in the bottom row, in the IND toxicology stage. One is in the rare disease space, 499 and Phase 2b for the treatment of ulcerative necrobiosis lipoidica or ulcerative NL, and one is in the GI space, 12852 in Phase 2a being developed for gastroparesis. Each of these drugs has a potential market of over $1 billion. Let us now discuss the three clinical stage drugs; the top three drugs in the pipeline. The next four slides briefly summarize the profile for 6422, our chemotherapy modifier capecitabine, one of the cornerstones of cancer chemotherapy. The target indication when combined with capecitabine is the treatment of metastatic colorectal cancer. The claim is that by combining 6422 with capecitabine, there will be significantly fewer side effects and/or better efficacy than capecitabine by itself, improving the benefit-risk profile. In the development of the combination of 6422 and capecitabine, we expect to differentiate ourselves from capecitabine therapy by having less severe side effects and/or better efficacy than capecitabine. Our preliminary clinical evidence shown on the two graphs on the right support that the 6422-capecitabine combination may significantly decrease adverse events and increase efficacy compared to just capecitabine. The top figure shows that the 6422 and capecitabine combination in a small group of patients should have less dose-limiting side effects than capecitabine by itself. In addition, preliminary clinical data on the lower right figure shows that some patients who do not respond to capecitabine, meaning their cancer still progressed when treated with capecitabine, may respond to a combination of 6422 and capecitabine, resulting in weeks or months of progression-free survival. If we either improve progression-free survival in the blue arrow pointing up or decrease side effects in the black arrow pointing down, the improved benefit-risk profile of 6422 and capecitabine makes this combination a potential $700 million to $1.5 billion market for just metastatic colorectal cancer. If we include other cancers where capecitabine was first or second line therapy, the market for 6422 and capecitabine is multiple billions of dollars. This last 6422 slide briefly describes our next steps with the Phase 1b trial. I will not cover all the details of the trial, but this is a typical 3 plus 3 cohort cancer trial designed to determine the maximum tolerated dose for capecitabine and we can administer it alongside a safe dose of 6422. The reason for determining this is that 6422 alters how the body metabolizes capecitabine, and we need to determine a new stable dose of capecitabine. In addition, we will be evaluating a potential biomarker, which could help us with the selection and dosing in future studies and upon approval. After completing this trial, we then expect to move to a Phase 2b trial or an adaptive design Phase 3 trial. Now let’s look at drug 499. The next four slides briefly summarize the profile for 499, our orphan disease drug, which we are developing in ulcerative NL. You will recall that this is a devastating condition that affects the skin and can also affect the tissues below the skin as seen in the picture on the right. Our claim is that 499 will completely close ulcers formed from NL. We believe that we’ll be able to improve non-ulcerative NL, but we do not plan to make this a major objective in any of our trials. It originally made sense to use 499 in NL patients because the pharmacology of 499 and its metabolites are very diverse and directly target the complex pathophysiology associated with NL. All other treatment options to date do not target more than three of the pathophysiological changes associated with NL while 499 affects six of the seven changes. 499 is very different from existing treatment options because currently, there are no approved drugs to treat NL or ulcerative NL. Drugs used off-label typically have more side effects and their efficacy is mixed possibly because of the dose-limiting side effects associated with these drugs. Our Phase 2a trial demonstrated that the drug has fewer side effects, and all the side effects were temporary and easily tolerated by the patient. The study also demonstrated that 499 completely closed the ulcers for the two patients who had ulcers. 499 may provide a safe, well-tolerated option to these patients that will allow them to increase the dose to a therapeutic level that will allow us to completely close the open ulcers. Given there are no successful treatment options for NL patients with or without ulcers, 499 has the potential to completely take the market, which could translate to gross sales of $600 million to $1.4 billion. This last 499 slide briefly describes our Phase 2b trial. The Phase 2b trial is now listed on clinicaltrials.gov, and we have begun screening our first patient this week. Our next step in development after the study will be to meet with the FDA at the end of Phase 2 meeting to agree on the design for the pivotal registration trial and a special protocol assessment submission. The last clinical stage drug to update you on is 12852. The next three slides briefly summarize the profile for 12852, our GI drug for gastroparesis and other GI motility conditions. The target indication for 12852 is gastroparesis. Our claim is that 12852 will improve the symptoms associated with gastroparesis. To remind you, gastroparesis occurs when the stomach does not empty the food in it or empties it out at an abnormally slow rate. This can result in a patient with gastroparesis experiencing symptoms such as bloating, vomiting, nausea, and pain. As shown on the lower right figure, 12852 significantly improves the stomach emptying rate in patients with functional constipation. The increase in the stomach emptying rate is required in gastroparesis patients if their symptoms are to subside. What makes 12852 different from the on-label or off-label drugs used to presently treat gastroparesis? The very first obvious effect that we have already seen is the side effect profile of 12852 compared to the FDA approved gastroparesis drug products and all the drugs used off-label. The drugs now prescribed have cardiovascular effects, neurological side effects, and they are required to be used only for a short period, even though patients often have chronic gastroparesis. If the efficacy is similar, the improved safety profile will be a significant advantage for 12852. Given an improved safety profile for 12852 and the ability to take this drug chronically, the potential market for 12852 is $500 million to $1.5 billion depending on how good the efficacy is compared to the other drugs. Regarding the next steps for 12852, we are presently working on the IND and the final design for the 12852 gastroparesis protocol. These next two slides review the overall clinical development timeline, which was presented earlier in this presentation, as you can see here, and also the key clinical catalysts over the next two years that I presented here. Let me conclude by saying this. So far, we have accomplished a lot in 2021, but we also expect to accomplish even more over the next six months. You can expect in the next 10 to 45 days for our first patient with ulcerative NL to be enrolled in our 499 trial, and six to 10 patients will be enrolled over the next six months. The first cancer patient will be enrolled in our 6422 trial in the next 30 to 60 days, and at the end of the six months, we hope to have analyzed the data from cohorts one and two. We also expect to have FDA IND clearance for 12852 by the end of the six months. We’ve been invited to present at two different Rare Disease Conferences, one in May and one in August. Finally, we anticipate that the analysts who follow Processa will have some very interesting insights to share about us over the next six months. I hope this earnings call has given everyone a better view of our clinical pipeline, as well as the timeline and deliverables over the next few months. We hope to significantly increase the value for Processa by continuing to deliver on our goals while increasing the probability of obtaining FDA approval for each of the drugs in our pipeline. This concludes my remarks. I’ll now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?

Certainly. Your first question is coming from Robin Garner. Your line is live.

Hi! Thank you so much. Good evening and thanks for taking my question. I have a few if I may. First, congratulations on publishing the clinical study design for both 6422 and for 499. I’m curious if you could give us an update on the total number of clinical sites you have enrolled so far, and how many you anticipate needing to achieve the patient enrollment numbers that you’re targeting?

Hi Robin, this is David. So are you referring to both studies or are you just referring to the 499 which is the one we are already starting screening for?

Yeah, it would be great to hear about both.

Okay. You know I don’t have the exact numbers in terms of what we are going to be putting into each study, but I can tell you right now in terms of the ballpark numbers. We already have five U.S. sites for 499. We are going to be adding another anywhere from three to four more sites and that will be a combination between U.S. and Europe. It really will depend on which sites they are, whether it will be three, four, or five that we have. So we expect to have at least somewhere between six and 10 sites for 499. For 6422, we have a couple of sites we are now initiating and we expect to have about four or five sites for 6422 and they will all be in the U.S.

Great! Thank you for that additional color. In terms of the interim analysis and again, maybe considering both studies separately, but what kind of data would you be looking to share at that point, at the end of the year and then early next year?

Okay, so for 6422, the interim analysis is actually going to be looking at if in fact the dose that we think will work for 6422 versus Capecitabine is doing what we think it should do. All the evidence we have both in preclinical studies, as well clinical studies that we have done before, says the dosing regimen we chose should work; we just want to confirm that. We want to confirm it in a design study that actually looks at the enzyme abilities at BPD. We want to look in terms of metabolism, of all the metabolites, etc., so that’s what we expect out of cohort 1 and cohort 2. We will also be able to understand if those doses are tolerated well. From the ability to tolerate the drugs of Capecitabine at those doses for cohort 1 and cohort 2, the PK information and the metabolite information in cohort 1 and cohort 2, we think we’ll get enough information to confirm that we’re doing everything right and that we’re going in the right direction, but we will not have the maximum tolerated dose at that time unless it happens to be cohort 2, but we don’t think it’s going to be cohort 2. So, we will not have the MTD determined, but we think this kind of proves that what we believe is right and our hypothesis is correct, and we just have to find that MTD in the next couple of cohorts. With 499, the interesting thing about 499 is it’s a placebo-controlled trial. So one of the questions that we have, as well as the KOLs have been sharing with us, is that there’s a belief that the placebo group will have no response rate; they will not be responding to the drug. They will not be responding over the six months and they will not have natural healing of the ulcers over six months, because typically it doesn’t occur in these patients. So that’s kind of part of our confirmation, so we’ll be looking at the treated versus the placebo group, and our expectation is that the placebo group will have zero response or maybe one patient randomly and the treated group will have three or four, depending on the numbers. So we expect to actually see some differences between the groups early on, just to make sure we’re going in the right direction.

Right, thank you for that. And then in terms of 6422, the study design less GI tract tumors, which is actually quite broad. Do you anticipate treating patients that have other cancer types besides colorectal?

Yeah, so the end indication that we’re going for in the 6422 is metastatic colorectal cancer. That will be the indication. When we go to the pivotal study and when we go further, we will be actually just making it a metastatic colorectal cancer. However, given this is an MTD study, typically what I’ve done in the past is I’ve done MTD studies where I chose a wider group of patients, because all I’m trying to determine really is the tolerability of the drug and whether you had pancreatic cancer or you had any other stomach cancer or colorectal cancer, that doesn’t really matter, because I can determine if you can tolerate the drug, and that’s really what this first study does. It determines the tolerability of the patient for this drug, for these specific doses. So I’m less concerned about getting only colorectal cancer patients. Now we know though that in terms of numbers of patients, there are more colorectal cancer patients than pancreatic cancer patients for example. So we expect to have some colorectal cancer patients in the study. The key to it is all the patients though have to be able to tolerate the drug; there has to be a projection that their survival is long enough to get to the MTD to finish the cycles, and there is also the hope that maybe we might be able to see some positive results clinically, but again that’s not what the goal is.

Okay, great! Thank you. Perhaps just my last question for tonight. In terms of a biomarker for 6422, can you share more detail on that? If that needs to be vague at this time, is it a biomarker that is currently used to evaluate patient progress, currently by your physicians?

So yeah, I have to be vague on this. We are working out some IP on this, and so I do have to be vague. It is not a biomarker that’s presently used to monitor dosing or to determine what patients should receive the drug or to determine how much drug they should receive. It’s not a biomarker that is presently used, and that’s one reason I have to be very vague.

Okay, understand. Thank you very much for answering my questions, and we look forward to all the milestones.

Thank you.

Your next question is coming from an inaudible source. Your line is live.

Hi Aden. Good evening.

Hi! Thanks for taking my questions. I have a couple. First on PCS499, could you comment on what’s the most frequently used off-label drug to treat NL? So given that nothing has approved obviously, and could you give us a breakdown in percentages of what is actually kind of used the most? I’m just trying to understand what kind of drugs PCS499 is going to be competing with.

Okay, so you know there are kind of multiple levels of drugs being used. There are drugs that are being used topically, like topical steroids, and that is part for the itching and softening of the skin, plus some of the treatment of the inflammation. The problem with those steroids, topical steroids, is they also cause hardening of the skin and change to the dermis, and that could result in ulcers. You could do that for a little bit, but you can’t do it forever. But it does not solve the ulcerations, so people don’t typically stick it on the steroids on the ulcer itself. The other drugs that are used are pentoxifylline, which is one which is the parent drug of 499, the non-deuterated version of that, that is used. Unfortunately, many patients can’t tolerate the drug and they have to lower the dose or they can’t take the drug at all. Those who can tolerate the drug at the highest prescribed dose or the highest label dose, some of those patients do respond and they have closed ulcers, but those who can’t tolerate or need a higher dose can never reach the higher dose because of the side effects. There are also immunomodulators that are used, and they all have different ones that have been tried, but again, there are mixed results with those, and no one has been able to prove that the immunomodulators are a good option, again because of their side effects.

Right, I appreciate that. I’m looking at the clinical trial for both, so it’s a 20 patient study excluding the criteria within four weeks, nothing to file in because it’s a new drug, for four weeks. In your opinion, how hard would it be to recruit these patients if there is a function that they’re going to use something, but in order to participate they need to stop any treatment for four weeks?

That’s correct. In our experience of talking to KOLs and previously when we talked to patients, if they don’t think the drugs or treatments or therapy are helping their ulcers, they don’t just keep taking the drug because there are too many side effects. So if it doesn’t help or doesn’t seem to be doing anything, they stop taking these drugs. Most of these patients are not on any drug; most of these ulcer patients are not on any drugs.

Understood, understood. Alright, although I have one financial question. It appears you burned $2.2 million this quarter and the first quarter obviously wasn’t that active in terms of the active clinical trials. So once the trial begins, do you expect this pace to accelerate throughout the year? Just trying to get a sense for modeling purposes.

Yes, we do expect the burn rate to be higher. So we do expect to be using more cash, there’s no question about that. You know I can’t right now give you the exact amount until the studies actually start, but we do expect it to increase in the following quarters. Now, some of the money that you talk about, the $2.2 million, that also included some upfront money to CROs. So it’s not actually burning in terms of actual work that went on. It’s some of the upfront requirements for some of the CROs to start the study up.

Understood, understood, thank you. The last question I have is regarding the timing for professional milestones. So I think you mentioned six months, but we have some new patient investors who would want to hear what happens from three months. So can you give any kind of projections about what we’re going to hear on the next call, by the next quarterly call? Is there any chance that you can complete enrollment for example in any of those two trials by the end of the next quarter?

So there are a couple of things that I think you’ll hear about. I think you’ll hear about our progress of enrolling patients in both studies, that’ll be both 6422 and 499. I think you also – it is possible, though outside possible. You know I don’t know the probability. It’s not probably a high probability, but it is possible that we could quickly enroll patients in 6422 and have the two cycles or the one month of treatment done to get something by the end of the third quarter or the end of the second quarter. But it’s probable, and I wouldn’t say it’s likely. So I think the only thing you really can expect right now is just an update on enrollment. One other thing that you will see, and one of the things that you would see though is, you would anticipate that the cohort would be full in the third quarter in order for us to have results, an interim analysis of 499 in the first quarter of 2022, rather in the first half of 2022. So we’re projecting that we would be enrolled in the third quarter, and we would have that data available for the first part of 2022.

Okay, thank you very much for taking my questions. I’m looking forward to the update. Thank you.

Thank you.

Your next question is coming from Hogan Malalie. Your line is live.

Hi Hogan!

Hi David! Hi Mike! Just a quick follow-up question from an earlier question you received about the interim results we’re going to see on 6422. You mentioned that we’re going to see some – for cohorts 1 and 2 we’ll see some data on key metabolites and I’m assuming you’re referring to F-Bal and DPD. Can you maybe frame for us and investors what exactly you’re expecting, we should see if 6422 is behaving as expected on those sort of key metabolites?

Sure. So, you are correct. As I said, as we expect that from the first two cohorts, we will be able to determine the pharmacokinetics or the level of F-Bal that exists in the body right, in these patients and the cohorts. Our expectation is that over time the amount of F-Bal initially will start very low, practically zero. Over time in the first seven days there will be nothing, there will be no F-Bal. If that occurs, that’s great. That’s our expectation, that’s our hypothesis. Over the next week after that, that may be seven days later, so 14 days total after you gave 6422, there may be some F-Bal, but we don’t expect it to be much. We’re looking to compare the F-Bal levels. If you give 6422 versus what is typically occurring if you don’t give 6422, and our expectation is that seven days after you give 6422, there practically will be no F-Bal and at 14 days there’ll be a little bit maybe, but not a lot, and if we see that, that’s fantastic, our hypothesis is correct.

Fantastic! Look forward to seeing that data.

Yeah, me too.

We have no further questions from the lines at this time. Thank you, ladies and gentlemen. This does conclude today’s event. You may disconnect at this time and have a wonderful day! Thank you for your participation.

Thank you.

Thank you.