Greetings, and welcome to Processa Pharmaceuticals third-quarter 2022 earnings call and corporate update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce Jim Stanker, Chief Financial Officer. Thank you, sir. You may begin.

Thank you. And welcome to Processa's third-quarter 2022 results and clinical update conference call. We are very pleased to have recently reported positive results from our ongoing Phase 1B trial for PCS6422 in GI cancer and from our recently completed Phase 2A trial for PCS12852 in gastroparesis. Dr. Young will discuss these later during the call. Joining me on the call today are our Chief Executive Officer Dr. David Young; and our Chief Operating Officer, Mike Floyd. Shortly before this call, we filed our September 30, 2022 Form 10-Q. And this morning, issued a press release containing preliminary results from our PCS12852 gastroparesis trial. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint slides, please go to the Investor Relations section on our website or our earnings press release and click on the webcast link to follow along. I will start our call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of the 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 the forward-looking statements are reasonable, we can make no assurances that such expectations will prove to be correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed on our annual report on Form 10-K. Any forward-looking statements included in this 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. Our cash balance at September 30, 2022 was $9.1 million. We believe this will be sufficient to complete our three ongoing clinical trials and fund our operations into the third quarter of 2023. During the nine months ended September 30, 2022, we spent cash for our three clinical trials and in our operations of $7.1 million. This is significantly less than our GAAP net loss of $14.4 million, due primarily to the effect of noncash stock-based compensation, application of amounts we had prepaid to our CROs, and amortization. We continue to be focused on conserving our cash and using it to advance the drugs in our pipeline. One way we are doing this is by having our executive officers invest the majority of their base salary for shares of our common stock. During the nine months ended September 30, 2022, our executives as a group acquired 305,617 shares of our common stock with a fair value of approximately $916,000. Not only does this conserve precious cash, but it aligns our executive team with our shareholders and provides them with significant potential upside. As I noted, our GAAP net loss for the nine months ended September 30, 2022, was $14.4 million or $0.90 per share compared to a net loss of $8.2 million or $0.54 per share for the same period of 2021. The increase in our net loss relates primarily to increased clinical trial costs we incurred in our three clinical trials. For the nine months ended September 30, 2022, we incurred $8.3 million in research and development costs, an increase of $3.5 million when compared to the same period of 2021. We anticipate clinical trial costs will be fairly consistent for the rest of the year as our trials continue, and we fund development activities for the other drugs in our pipeline as David will discuss. During the nine months ended September 30, 2022, our general and administrative expenses totaled $6.1 million compared to $3.4 million for the same period of 2021. The increase related primarily to increases in stock-based compensation costs along with other operating and consulting costs. We allocated $6.1 million of noncash compensation cost between our R&D and G&A, with the majority being recorded as G&A. Our net cash used in operating activities during the nine months ended September 30, 2022, increased by $1.1 million to $7.1 million compared to $6 million for the same period in 2021. As of September 30, 2022, we had 15.9 million common shares outstanding. That concludes my remarks. I'll turn the call over to our CEO, David Young. David, please go ahead.

Thank you, Jim. Good evening. Thank you for joining us. Prior to the filing of our 10-Q for the third quarter, we had some great news on two of our drugs, which has been shared in press releases over the last eight days. I hope that you saw our press release on our cancer drug Next Generation Capecitabine, formally called 6422 last Tuesday, and the press release this morning on 12852, our drug for the treatment of gastroparesis. This evening, what I like to do is to concentrate on these two drugs, so that you understand them a little more and can appreciate how the results from each drug increases the probability of success for an FDA new drug application. First slide, slide 3, please. This slide summarizes our findings for Next Generation Capecitabine and 12852. The first three bullets are for the Next Generation Capecitabine or NGC, as I'll call it from now on, while the bottom three bullets are for 12852. For NGC: first, in the ongoing Phase 1B trial, Processa has successfully identified NGC dosage regimens and 5-FU exposures that were well tolerated as well as NGC regimen and 5-FU exposures that had dose-limiting side effects. Second, the timeline for the formation of new DPD was also found to be approximately 24 hours to 72 hours after the 6422 dose was administered, while NGC potency was increased to 50 times greater than reported for FDA-approved capecitabine. And lastly, in 2023, Processa plans to initiate an efficacy/safety Phase 2B trial following FDA's Project Optimus Initiative after meeting with the FDA. For 12852, the proof-of-concept Phase 2A trial in gastroparesis patients has been completed with the results showing that the change in gastric emptying rate after 28 days of treatment on 0.5 milligrams of 12852 was statistically better than placebo treatment at a p-value less than 0.1. Second, the change in gastroparesis symptoms for 12852 versus placebo is expected by the end of the year. And lastly, Processa plans to initiate an efficacy/safety Phase 2B trial in 2023. Next slide, please. Let's look more at Next Generation Capecitabine or NGC, which we previously called 6422. NGC can be used in many cancers with a market opportunity over $1 billion in the US. Next slide. To provide a little background for NGC, 5-FU is a cancer drug approved in 1962 and is administered intravenously while capecitabine is an oral pro-drug of 5-FU approved in 1998. Capecitabine and 5-FU are presently the most widely used cancer chemotherapy agents in the US and worldwide. Approximately 30% of the patients receiving capecitabine do not respond. And another 30% are partial responders, with many of these non-responders and partial responders having adverse events that may require a modification of their regimen, dose interruption, or possibly even a discontinuation of treatment. As you can see from the diagram on the left, capecitabine, after oral administration, is metabolized to 5-FU. Approximately 70% to 80% of 5-FU is then metabolized by the DPD enzyme to catabolites, to the right. And approximately 10% to 20% to the anabolites, to the left. Less than 10% of 5-FU is typically eliminated through the kidney. The catabolites formed on the right have no anti-tumor properties but do cause side effects and may require a modification of their regimen, dose interruption, or discontinuation. Anabolites, to the left, can kill replicating cells, which include cancer cells and normal healthy cells. The side effects associated with anabolites such as neutropenia, mucositis, and severe GI distress also may require dose modification or discontinuation of treatment. Next slide. 6422 is an irreversible inhibitor of DPD that prevents 5-FU to be metabolized to catabolites, to the right in the diagram. This results in 5-FU being metabolized to anabolites, to the left in the diagram, while also being eliminated systemically through the kidney probably greater than the typical 5% to 10%. 6422 has no anti-cancer properties. And at the low doses that we are administering, 6422 should not cause any side effects. After administering 6422, the DPD activity in the body is not only dependent on the presence of 6422 and its irreversible binding to DPD, but the DPD activity is also dependent on the formation of new DPD. If 6422 is not present, the new DPD form can metabolize 5-FU to its catabolites. Next slide. Let's now look at the findings from our trial thus far. Remember, Next Generation Capecitabine regimens are a combination of the 6422 regimen, as an example, 6422 is only administered on day one; and a capecitabine regimen, which in our example, is administered on day two through eight. In our example, the cycle then repeats itself after 14 days. This is one example, but there are other possible combinations of 6422 regimens and capecitabine regimens that would result in different 5-FU and 5-FU catabolites exposure profiles. From the different NGC regimens evaluated, the timeline for the formation of new DPD is approximately 24 hours to 72 hours after the 6422 dose, while NGC potency was increased to 50 times greater than reported for FDA-approved capecitabine. We have also successfully identified NGC dosage regimens and 5-FU exposures that were well tolerated as well as NGC regimens and 5-FU exposures that have dose-limiting side effects. And as stated before, Processa plans to initiate an efficacy/safety Phase 2B trial following FDA's Project Optimus Initiative after meeting with the FDA. The purpose of evaluating multiple regimens in this Phase 2B trial will be to evaluate both efficacy and safety, not just safety; and to select an optimal dosing regimen to achieve a better balance between efficacy and safety, rather than merely using the maximum tolerated dose. Next slide. Since FDA Project Optimus Oncology Initiative is relatively new, I have provided one slide briefly describing the principles behind it. I will not address it except to say that the aim of this approach is to determine the optimal dosage regimen with the best balance between efficacy and safety. This approach is very important for combination products, which is why the approach fits Next Generation Capecitabine so well. Next slide. The latest news released this morning is our initial findings of 12852 in gastroparesis patients. Next slide. Gastroparesis is a condition that affects normal spontaneous movement of the muscles in the stomach. The stomach does not move food down to the small intestine in the normal manner. The typical symptoms are, for example, nausea, vomiting, too much bloating, too much belching, pain in your abdomen, and heartburn. Next slide. At present, there is only one drug that is approved for the treatment of gastroparesis. Metoclopramide, a dopamine D2 agonist, has a black box warning and serious neurological side effects. Its use in gastroparesis is limited to only 12 weeks. Other drugs used off-label have been 5HT4 receptor agonist, which binds to many other receptors and can have serious side effects because of this off-target binding. Side effects such as cardiovascular side effects and even suicidal ideation. One of these drugs was efficacious in gastroparesis but was pulled off the market in 2000 because of its cardiovascular side effects, which were not related to its 5HT4 agonist activity. Next slide. 12852 is a more potent selective 5HT4 receptor agonist than 5HT4 agonists on the market. It enhances both GI motility and GI secretion helping to move food from the stomach to the small intestine. 12852 may also be effective with other GI motility disorders. Next slide. There have been two clinical trials evaluating the effects of 12852 on stomach motility and gastric emptying. The first study was in healthy volunteers with constipation and functional constipation, conducted in South Korea. This study successfully demonstrated 12852 affects the gastric emptying rate. The second study is our US study. Our press release this morning announced that upon completing our proof-of-concept Phase 2A trial in gastroparesis patients with only six to nine patients in each treatment group, the trial showed that for six patients receiving 0.5 milligrams for 12852 compared to eight patients receiving placebo, the gastric emptying rate was significantly different at a p-value less than 0.1. In addition, we had no unexpected side effects including cardiovascular side effects or serious side effects. We expect to receive the analysis of the gastroparesis symptoms before the end of the year. Remember, however, given this is a proof-of-concept study with only six to nine patients per group, we are only looking for a strong trend in symptom efficacy in order to guide us in the Phase 2B 12-week efficacy/safety trial that we plan to initiate in 2023. Next slide. For NGC and 12852, I hope you can see how we are moving closer to not only meeting FDA requirements before running a pivotal trial, but we are also collecting data to increase our likelihood of having a successful pivotal trial by selecting the best dosage regimen and designing the best trial to demonstrate optimal efficacy and safety. Next slide. The next five to six slides not only provide a short corporate overview of Processa but also provide information about a common question that I received. The question is, what makes Processa different than the many other biotech companies? If you're asking the same question, please look at the last five to six slides. And then I hope you will see that there are many reasons why we are different from other biotech companies and why we are a far better investment than other companies. I want to remind our investors that like you, Processa is an equity play for the Processa team. Our goals are aligned with yours: increase the value of Processa. This concludes my remarks, I will now ask the operator to open the phone lines for Q&A. Operator, can you please poll for questions?

And first, earlier, the company received an email asking to explain the significance of the p-value being less than 0.1. I'll now direct this question to the team. What is the significance of this statistical data?

Thank you, operator. The p-value is a statistical measure that shows whether the effect of 0.5 milligrams of 12852 in our proof-of-concept trial was significantly different from the placebo. Since it was less than 0.1, this indicates there is less than a 10% chance that the results occurred by random chance. To emphasize, there is less than a 10% probability that the results happened by chance. A p-value of less than 0.1 demonstrating a statistical difference is very positive. It's important to remember this was a proof-of-concept study, not designed to determine statistical significance for a larger pivotal study. Instead, we look for strong trends in proof-of-concept studies. This study was specifically designed to identify such trends, and we observed them. We had only six patients in the 0.5-milligram group of 12852 and eight in the placebo group, which are small sample sizes. Nevertheless, a p-value of less than 0.1 indicates that there is a low probability that these results were due to chance. The implication is that these findings are likely to be valid. Thank you, operator.

Hi. Thanks. Appreciate the color on the p-value there. And then I was just wondering in terms of the DPD inhibition and the length, I think you showed here, one of the slides, 24 hours to 72 hours of irreversible inhibition. I'm just wondering, what's optimal? What's ideal? How long would you like to see the inhibition? Just any data or thoughts around that?

Hi, Frank. Good question. So one of the things that we have to remember is that the range of 24 hours to 72 hours is variable. So we had some patients that it was earlier, some patients that were later. And it's not like it's exactly 48 hours. It's not that way. The variation across the patients is wide. Given that, what we would like to have is we would like to have it longer, a little bit longer. Closer to 72 hours would be great for us. If it's not, we just have to figure out how to deal with it in terms of our dosing.

Okay. And then in terms of the Optimus project and going away a little bit from the MTDs, the maximum tolerated doses. I was just wondering, is that something that in order to find the right dose for the right patient, is that something that could potentially require multiple phases?

We have been implementing the concept of Project Optimus to analyze the dose-response relationship in various drugs and indications. Cancer is the only condition that does not follow this trend. In other therapies, we evaluate the balance between efficacy and safety, constantly searching for a regimen that achieves both. High efficacy with poor safety is undesirable, while being able to slightly reduce efficacy without safety concerns is ideal. We strive for this balance across all indications, but cancer is the one that we approach differently. Typically, we do not conduct multiple Phase 2B trials in other indications; instead, we usually carry out one Phase 2B trial followed by a Phase 3 trial. I believe cancer will follow the same path in oncology. Our plan is to conduct one Phase 2B trial and then move on to a pivotal trial, and I believe this approach will be effective for us.

Okay. Great. And then on the gastroparesis, can you just maybe help us understand the magnitude of the efficacy seen here? Although it was a proof-of-concept, but just the magnitude, in terms of whether or not you have a healthy subject or not a healthy subject. Is that something that varies a lot once the subjects aren't so healthy?

Yes, it varies significantly, especially for patients with gastroparesis. There is a considerable difference in gastric emptying rates between those with mild and severe gastroparesis. This is why our study is focused on moderate to severe patients, as they have a greater medical need. While mild gastroparesis patients do experience gastric emptying issues and side effects, they tend to manage them with antacids or dietary adjustments. However, for those with moderate to severe gastroparesis, gastric emptying is extremely slow, leading to significant pain, excessive belching, and other gastrointestinal problems. This is a primary reason we are targeting this population, as they have an unmet medical need. Metoclopramide is effective for them, but the side effects are substantial. If the drug can only be prescribed for 12 weeks due to these side effects, which can include lasting neurological issues like tardive dyskinesia, that is concerning. We need a better solution, and we believe our drug can provide that.

Okay. And those side effects, is it the cardiovascular side? Is it the nausea that's especially bad?

For our drug or for other drugs?

No. Metoclopramide.

So metoclopramide, it's the tardive dyskinesia. It's the CNS problem. That's what is really bad.

Okay. Okay. Great. And then just lastly, I noticed this wasn't emphasized because you just had data on other programs, but I just was looking for an update. I think in the deck, I still see that next year, we might see some data on the 499. So any update there on the difficulty recruiting patients and whatnot?

Yes. The only thing I can comment right now is that we do expect to have that data in the mid next year for the interim analysis group. And then we hope to be able to enroll all the rest of our patients in the beginning of the year, sometime in the first half of the year. So we'll get the results, the final results for the whole study, near the end of the year. That's what our hope is. We're moving slowly, but we're hoping to do that. We're trying to initiate and push other approaches to recruit patients. Unfortunately, the problem with this is it's a very, very small population. The patients that we have been getting, coming in, who think they have ulcerative NL, a lot of them do not have ulcerative NL. A lot of them do not have NL, and a lot of them do not have ulcers. They have lesions, not ulcers. So there's a little bit of problem of defining in this population what ulcerative NL is.

Is it more difficult for the patients to know what they have? Or even amongst physicians or derms, they're not sure exactly if it's an ulcer or not?

No, it's actually very easy for physicians to identify. When we get calls from patients or sites report calls from patients who say they want to come in with what they believe is ulcerative NL, many of them don't actually have an ulcer. Even when biopsied, the lesions may not indicate NL. This highlights a problem where there seems to be some confusion among dermatologists, endocrinologists, and other physicians regarding whether it's truly NL or not, and whether it's an ulcer or just an erosion. Unfortunately, this leads to miscommunication with patients about their actual condition.

Understood. Okay. Thank you very much.

Naz Rahman, Maxim Group.

Hey, guys. Thanks for taking my question and congrats on all the positive data thus far. I want to talk a little more about the gastroparesis data. So first off, just on the symptom measurements we could expect at the end of the year. Could you just give us more color on what we could expect to see, and what you're hoping to see? Or what you're looking for?

Sure. Hi, Naz. We have an FDA-approved, validated scale for gastroparesis that assesses symptoms, including most of the symptoms we mentioned in the slide deck. In our current study, we expect to observe a trend in some of those symptoms. This scale aggregates all symptoms, allowing us to evaluate them collectively as well as individually. We will determine if the overall evaluation indicates a trend toward improvement or if specific symptoms do. The FDA permits us to advance to a Phase 3 study and obtain approval based on either the total symptom score or specific subcategories of symptoms. Therefore, we are examining both aspects to understand precisely how our drug aids in symptom relief, which is crucial, as the FDA only approves a drug based on symptom improvement, not gastric emptying.

Got it. So on that point from a regulatory perspective, you do not hypothetically have to show a statistically significant difference on every symptom? You can just show a difference on a composite score, right?

That's correct. That's correct.

Okay. So my other question was, over the 20 days, did you see the rate of gastric emptying in these patients increase over time? Or did you see like a certain level of emptying, like early in the study was just relatively, let's say, maintained through the 28 days?

Yeah. We'd actually didn't follow it over time. We actually looked at beginning and end, because we wanted to treat them. So we don't know what happened at time across the days of treatment. We did not study that.

Got it. Did you see any discontinuation in the study?

We did. A couple of patients did drop out. But they did not drop out because of the side effects. They dropped out because all of a sudden, they said, we can't come in to get our tests done. And so that was unfortunate. But again, it wasn't because of adverse events that they dropped out. It was purely because they didn't want to travel and to get tests done.

Got it. And the age you saw in the study, did any of them require any form of intervention to address? Or did they just mostly go away on their own?

Yes. The issues resolved on their own, and they did so quite early. All the adverse events were mild to moderate, and there were very few occurrences. Nothing was severe enough that anyone couldn't handle it. No one dropped out due to these mild to moderate symptoms. Everyone was able to continue except for two patients who decided not to travel anymore. Therefore, there was no problem in that regard.

Got it. So like gastroparesis is mostly a chronic condition and 20 days off the short study, you're just looking for trends here. But in your next study, the Phase 2B, what are you thinking in terms of like a timeline? Or how long the study would be? Would that be like over a year, like 52 weeks? Or what are your thoughts around that?

That's a good question. Fortunately, the FDA has released guidance on gastroparesis. Since there are currently no specific developments or approved treatments in this area, they established this guidance for all companies to follow. It states that the drug must be administered for a minimum of 12 weeks. You can extend the treatment period if desired, but it cannot be shorter than that. Additionally, the FDA has already approved the symptom score I mentioned earlier. The treatment must last at least 12 weeks, and we plan to extend it because we need safety data that exceeds this timeframe. We are looking for safety data for up to one year, meaning some patients will be monitored for one year. The primary endpoint for the Phase 2B study will be assessed at 12 weeks or 16 weeks, but patients will be followed for a longer duration to gather more comprehensive safety information.

Hey, David. Regarding your comment about the 12-week period, is it because the currently approved drugs are not safe to use for more than 12 weeks?

That

Yeah.

Yeah. Good question. Good question. No, that could be one reason that they're doing it because they know all the data that they have is on metoclopramide for 12 weeks. That's all they have in terms of that's good application status. So that's why we say minimally 12 weeks. I think that is one reason. I think the other reason, though, is in terms of the long-term effect of the drug on the GI tract, you need to continually give the drug. You need to have more than just the short acute treatment, because this is a chronic disease. Because a lot of the symptoms don't occur right away, but they occur after you've had the condition for a while. So some patients, for example, have gastroparesis, and they'll have one or two symptoms. And then after a year, they'll get a couple more symptoms. So the symptoms don't all come exactly at the beginning. And so I think they want to make sure that you are treating the condition and you're seeing symptoms improvement over time. We will be looking at symptom improvement over time for that study and expect you to do that. So I think it's one further reason you said, possibly because of metoclopramide 12 weeks. But it's also because they want to make sure that this can be used chronically in the long run.

All right. And regarding the patient population, could you remind us if the patients enrolled in this study were primarily diabetic gastroparesis patients or if it also included post-surgical gastroparesis patients?

Most of the patients in this study had diabetic gastroparesis. We included a few patients with idiopathic gastroparesis. However, we did not include patients with surgical gastroparesis since they would be recovering from surgery, and we wanted to avoid any complications from post-surgical issues. Therefore, we did not take any surgical patients. Got it. I just have one last question, and it's actually on 3117. Have you determined like your path forward on this asset? And what are your development plans here? We have a couple of roadmaps to move forward. We are preparing to request a meeting with the FDA to discuss a few matters, and we aim to do this in the first half of next year. One of our tasks involves clearly identifying the target population. We need to consider the use of biomarkers and determine the appropriate dosing regimen as well as whether it should be first-line, second-line, or third-line therapy. All these aspects are under consideration, and we believe it is important to have a conversation with the FDA before proceeding. We plan to have that discussion in the first half of next year.

Got it. Thanks a lot for taking my questions and congrats on all the recent data thus far.

Thanks, Naz.

Thank you for taking my questions and congratulations on all the recent data thus far.

Thank you. Again, congratulations, gentlemen. David, just a very quick question. On the gastroparesis drug, what were your thoughts on the 0.5 milligrams being significant and the 1.0 milligram? Do you have thoughts on that?

So it's actually 0.5 milligrams and 0.1 milligram?

Oh, I misread it. My bad.

We didn't expect the 0.1 milligram dosage. We thought it was unlikely to be effective compared to the 0.5 milligram. However, we wanted to demonstrate that we could identify a dosage that wouldn't work, which is why we opted for the 0.1 milligram. There was a possibility that the 0.1 milligram could have been effective, but we believed it wouldn't be as effective as the 0.5 milligram. That's the rationale behind our choice.

Great. Thank you.

Thank you. And there are no further questions in queue at this time. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Thank you.

Bye.

Good day.