Greetings and welcome to the Processa Pharmaceuticals Year-End 2022 Earnings Call and Corporate Update. 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 and thank you for joining us. As Jim mentioned, at the end of 2022, we recognized that it would be beneficial for our investors to concentrate on a few drugs rather than our five-drug portfolio. In the first quarter of 2023, we announced our decision to prioritize the development of our three oncology drugs, which are our next-generation chemotherapy drugs. However, our mission remains unchanged. We continue to develop drugs for patients who lack treatment options or require better alternatives, but we are now focusing solely on cancer patients and our next-generation chemotherapy drugs. The goal for every oncologist and patient is to receive the appropriate drug at the right dose and on the correct treatment schedule. Unfortunately, this is not always the reality. Historically, 30 to 50 years ago, the primary treatments were only chemotherapy drugs and metabolites aimed at preventing cancer cells from growing and dividing. Today, chemotherapy drugs continue to be the foundation of cancer treatment, with three of the most commonly used being capecitabine, gemcitabine, and irinotecan. These drugs are administered for various cancers, yet 30% to 70% of patients experience side effects that force them to reduce their dosage to suboptimal levels or drop out of treatment entirely. Moreover, less than 40% of patients typically have a favorable response to these drugs. Our goal at Processa is to create next-generation versions of these chemotherapy drugs. We refer to them as next-generation because we have modified the way the drugs are metabolized and distributed in the body compared to their FDA-approved counterparts, all while preserving the mechanism that destroys cancer cells. Clinical and/or animal studies have already indicated that these next-generation options lead to fewer and less severe side effects. This improvement in side effects allows patients to maintain a better quality of life during treatment and may expose their cancer to more cancer-fighting agents. Additionally, it's likely that more patients will respond positively to our next-generation chemotherapy drugs, leading to a higher response rate compared to current treatments. You might be wondering what these next-generation chemotherapy drugs are and what makes them superior to existing treatments. To clarify, let’s consider that most oncology companies are working on new targets or developing new delivery methods for existing cancer drugs. When chemotherapy drugs are administered, they first get absorbed into the body, then metabolize into active cancer-killing components and side-effect-inducing metabolites. As they circulate, they kill cancer cells but also harm normal cells before being eliminated from the body. Processa has taken the three well-established chemotherapy treatments—capecitabine, gemcitabine, and irinotecan—and studied how they are processed by the body. We have modified these drugs by either administering them alongside another agent that alters their metabolism and distribution or by slightly changing the molecular structure of a recognized cancer drug to adjust its metabolism or distribution. Importantly, we have maintained the mechanism through which the drug kills cancer cells; we've simply changed how the body processes the drug before it executes its function. The revolutionary aspect of our next-generation chemotherapy is that each drug could potentially benefit over 200,000 newly diagnosed cancer patients each year, providing them with fewer side effects and potentially greater effectiveness, improving both longevity and quality of life. From a business perspective, having these next-generation drugs in our pipeline enhances the efficiency of our drug development, boosts the likelihood of FDA approval, and sets our products apart from existing therapies and those in development. In addition to our novel drug assets, our unique approach to drug development and FDA approval distinguishes us from other firms. We employ a regulatory science approach refined over the past three decades by two of our founders. Recently, the FDA has encouraged the application of regulatory science principles under the Project Optimus oncology initiative and associated draft guidance. This initiative mandates that all NDA oncology submissions must justify their dosage regimen and proposed label based on Project Optimus principles. Thankfully, we had already implemented these principles in our regulatory approach for other non-oncology FDA drug approvals prior to the FDA's announcement for our next-generation drugs. Conversely, many oncology companies lack familiarity with Project Optimus and are consequently required to conduct additional clinical trials to substantiate their dosing regimens and pivotal study designs. The combined strength of our next-generation chemotherapy pipeline, our prior experience with the principles of Project Optimus, and our adeptness in implementing them in non-oncology FDA submissions afford us a more streamlined development process for each of our next-generation drugs. This not only enhances our chances of securing approval but also allows us to differentiate these drugs from existing therapies. Let me now present two of our next-generation drugs and share some results from the past few months. First, let’s examine next-generation capecitabine. This oral prodrug of 5-FU is extensively used for various cancers, including colorectal, gastric, breast, and pancreatic cancers, which collectively account for over 200,000 new patients each year. Our next-generation capecitabine involves the combination of PCS6422, which modifies capecitabine’s metabolism and distribution, with capecitabine itself. In our Phase 1b next-generation capecitabine clinical trial, we discovered that the next-generation formulation alters the metabolism and distribution of capecitabine. Importantly, next-generation capecitabine has shown no adverse events related to its metabolites across all doses tested so far. Typically, 50% to 70% of patients on conventional capecitabine experience adverse events linked to metabolites. We have also identified drug exposure levels linked to dose-limiting toxicities, as well as levels that do not cause such issues. We plan to meet with the FDA in mid-April to discuss the Phase 2b safety and efficacy trial and the optimal dosage regimens for implementing Project Optimus. Our aim is to kick off the Phase 2b trial in the latter half of 2023, conduct an interim analysis by mid-2024, and complete patient enrollment by the end of 2024. Next, let’s discuss our next-generation irinotecan drug. Again, over 200,000 patients annually are diagnosed with cancers treated by irinotecan. We wanted to assess whether Project Optimus is applicable to this drug, specifically regarding the necessity for a dose-ranging clinical study to determine an FDA-approvable dose. Our analyses have revealed differences in the exposure-response relationships for irinotecan versus next-generation irinotecan. By reducing the dose of next-generation irinotecan from the maximum tolerated dose (MTD) to 50% of the MTD, we see a decline in adverse events, while efficacy remains stable. In contrast, lowering the dose of conventional irinotecan brings down both adverse events and efficacy. Therefore, we concluded that the Project Optimus principles must be employed for next-generation irinotecan to ensure that adverse event exposure and efficacy exposure dynamics are adequately evaluated for approval. In the last several slides, I’ll provide a brief overview of our accomplishments in 2022 and what lies ahead in 2023. In 2022, we achieved several significant milestones for our next-generation drugs: First, we determined the drug exposure levels for next-generation capecitabine that result in dose-limiting side effects. Secondly, we defined the targeted cancer populations for the Phase 2b trial of next-generation gemcitabine. Lastly, we established that the exposure relationships for next-generation irinotecan regarding adverse events and efficacy differ. For our non-oncology drugs, which we seek to license or partner with others, we completed the Phase 2a trial for 12852, which yielded positive results for gastric emptying rate and improved gastro paresis symptoms, while we unfortunately had to discontinue our 499 trial due to enrollment challenges. We’re now exploring other indications for broader populations for future partnerships or licenses. Looking ahead, we have several major milestones planned for 2023. For next-generation capecitabine, we expect to meet with the FDA in mid-April to discuss the Phase 2b safety and efficacy trial, along with our next steps. We also aim to complete the Phase 1b trial to further explore the adverse event exposure relationship and initiate the Phase 2b study by the end of 2023. For next-generation gemcitabine, we anticipate meeting with the FDA in mid-2023 to discuss the Phase 2b trial's safety and efficacy, with plans to submit our Phase 2b protocol by the fourth quarter of 2023 and to launch the trial in 2024. For next-generation irinotecan, we plan to begin IND-enabling studies in 2023 with a goal to wrap up those studies by the end of 2024. As for our non-oncology drugs, we are actively working towards licensing or partnerships, and we may also explore opportunities to monetize one or more of our next-generation chemotherapy drugs. From a corporate standpoint, we aim to enhance our visibility, including via social media, by engaging a new IR/PR group, and we are committed to improving communication with our investors and connecting more with the oncology community and patient advocacy groups. Finally, I'd like to address a few questions we've received from investors. One common inquiry is why we are focusing on developing next-generation chemotherapy rather than entirely new oncology treatments. As I explained, our next-generation chemotherapy drugs offer improved treatments for cancer patients, enhancing their survival and quality of life with reduced side effects. While they kill cancer cells similarly to existing drugs, they do so with fewer adverse effects and distinct processing by the body, promising a better benefit-risk profile for approval. By applying our regulatory science approach, along with Project Optimus principles, these next-generation drugs can be developed more efficiently with a higher likelihood of approval. Another question pertains to the measures we are taking to boost shareholder value. We have launched various strategies aimed at increasing shareholder value and are in the process of implementing more. These include enhancing Processa's visibility through our IR/PR group and increasing our engagement with the oncology community to ensure that Processa and our next-generation chemotherapy drugs gain recognition. Lastly, there have been questions regarding the recent absence of stock purchases by our C-suite members. Some members were involved in the earlier $6 million raise mentioned by Jim, but we were under a blackout period throughout most of the first quarter of 2023, which hindered any stock purchases. We hope this will change soon. I want to conclude by expressing that my management team and I fully understand the recent underperformance of our stock. While we are disappointed with our current valuation, our focus remains on executing strategies that we believe will be beneficial for Processa and our investors.

François Brisebois, Oppenheimer.

It's Dan asking for Frank. Thank you for taking my question. I would like to start with a broader question. Considering the alignment of the trials with Project Optimus, I'm curious about how we should approach dosage levels, especially since they will be tailored for both efficacy and safety and can differ among patients. How should we think about this? Additionally, if you could provide some insight into the objectives for the mid-April meeting with the FDA, that would be appreciated. Thank you.

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

Yes.

Okay. Let me address the last question first. The objectives for our meeting with the FDA in mid-April are to discuss their perspective on Project Optimus, particularly in relation to our next-generation capecitabine. We aim to reach an agreement and negotiate the optimal dosage regimen or designs for the Project Optimus Phase 2b trial. Having previously applied Project Optimus to other drugs, we are familiar with the process, but we want to understand the oncology group's insights, as this is new to them. We will collaborate with them to develop an agreement that will allow us to proceed. So, the focus will be on the study design and the dosage regimen. As for your first question, could you please remind me what it was? I apologize.

Just in terms of how we should be thinking about dosage levels across patients going to be optimized for.

Yes. In our Phase 1b trial, we have been monitoring the exposure of the drug in each patient. This involves a drug interaction where one drug influences the metabolism of capecitabine. 6422 affects how capecitabine is metabolized, which then impacts its distribution as well. It's crucial to understand how these alterations occur, as different patients may experience variations in this interaction. We will continue to monitor these effects, and by the end of the Phase 2b trial, we aim to have a clearer understanding of how to design the Phase 3 trial. We are already gathering initial information from the Phase 1b trial, but we need to focus on efficacy during the Phase 2b trial to effectively plan for 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 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.

Naz Rahman from 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?

For the 300-milligram group, we already have some patients enrolled and are encouraging the sites to enroll more quickly. We're quite confident we will complete this process in the next month or two. The next step will depend on whether we proceed to the next cohort or wait for the subsequent one, which we won't determine until we evaluate the doses and safety profile from our current dose. We plan to meet with the FDA in mid-April to discuss the phase 2b trial, as one of the dosing regimens they require will be the maximum tolerated dose. This meeting will not hinder our ability to start preparing protocols and selecting contract research organizations. However, we will not finalize the exact dose or dosage regimen until we reach that maximum tolerated dose, which we expect to occur by 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 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 fit the needs of getting into Phase 3, but also fit the needs of the answers and questions that the FDA might have.

Got it. And I'm going to shift gears a little on 3117, a few questions here. Previously, you mentioned that you guys are developing a macro molecule assay. Have you completed work on that, and what might it look like? Is it 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 the 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, 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 you just provide more color surrounding that?

Yes. Currently, we have maintained the dosing regimen and the timing of the dose. The only change we've made is in the actual amount of the active molecule that is dosed. It's important to note that this is not a change in formulation; the formulation itself does not have an impact. The key point here is that this is a prodrug. We have taken the active molecule of irinotecan, known as SN-38, and attached additional molecules to it. These added molecules help deliver the drug preferentially into the membranes of cancer cells rather than normal cells. It acts like a transporter, facilitating the entry of the drug into the cancer cells compared to normal cells. As a result, we achieve a different ratio of how much SN-38 is delivered to cancer cells versus normal cells, compared to irinotecan, which has a different balance. Essentially, the prodrug enhances the drug's affinity for cancer cell membranes.

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 have figures, but I cannot disclose them at the moment. We will provide that information soon. Regarding administration, the method is parenteral rather than oral, so the bioavailability is relatively similar. However, I can't provide specific details right now. There is a significant difference in the cancer-to-tissue ratio between irinotecan and the next-generation irinotecan. It’s a notable distinction, but I can't share the exact number 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 with the FDA 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 will, again, depend on where we think the FDA will want us to go, where the market is for this drug in terms of the 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.

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.