Earnings Call Transcript - PCSA Q2 2021

Operator, Operator

Greetings and welcome to Processa Pharmaceuticals Second 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. It is now my pleasure to introduce Jim Stanker, Chief Financial Officer. Thank you, sir. You may begin.

James Stanker, Chief Financial Officer

Thank you and welcome to Processa's second quarter 2021 quarterly results and drug development update conference call. Joining me on the call today are our Chief Executive Officer, Dr. David Young; and our Chief Operating Officer, Mike Floyd. Shortly before this call, we filed our second quarter Form 10-Q. I want to remind everyone that a PowerPoint presentation will accompany Dr. Young's prepared remarks. To view the PowerPoint slides, please go to the earnings press release and click on the webcast link to follow along. I will start our call by reading the Safe Harbor statement. This statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historic 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, those contained in subsequently filed quarterly 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 briefly touch 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. Before I review our published financial results, I'd like to highlight that on June 16, 2021, we entered into a license agreement with Ocuphire Pharma to license RX-3117. RX-3117 is an oral anticancer agent with an improved pharmacological profile relative to gemcitabine and other nucleoside analogues. RX-3117 has a family of patents extending into 2036 as well as U.S. Food and Drug Administration orphan designation for the treatment of pancreatic cancer. Dr. Young will discuss our plans for RX-3117 later in the call. For the second quarter of 2021, we reported a net loss of $3.2 million or $0.20 per share, compared to a net loss of $733,000 or $0.13 per share for the same period of 2020. The increase in our net loss primarily relates to clinical trial costs incurred as we commenced trials for PCS499 in Ulcerative Necrobiosis Lipoidica and PCS6422 in advanced gastrointestinal tumors and costs we incurred licensing RX-3117. As we enter the execution phase of our most advanced programs, we anticipate that our costs will continue to increase for the remainder of the year as we enroll patients and continue the associated development activities for advancing our other exciting pipeline programs. We recently received notification from the Small Business Administration that our PPP loan of $163,000 has been forgiven. Our net cash used in operating activities increased during the 6 months of 2021 by $3.5 million to $4.4 million compared to the 6 month period ended June 30, 2020. The increase was due to costs we incurred preparing for and commencing our Phase 2B trial for PCS499, and our Phase 1B trial for PCS6422, including advanced payments to our CROs and payments related to our licensing of RX-3117. During the second quarter of 2021, we incurred research and development expenses totaling $1.6 million, compared to $427,000 for the same period in 2020. The increase in our R&D costs of $1.2 million in 2021 was primarily due to costs we incurred relative to our 2 active clinical trials. Our general and administrative expenses for the 6 months ended June 30, 2021 totaled $1.3 million compared to $375,000 for the same period in 2020. The increase related primarily to increases in professional fees and stock-based compensation. Our total stock-based compensation included in general and administrative expenses in the second quarter of 2021 was $674,000. As of June 30, 2021, we had $20.8 million in cash and cash equivalents and 15.6 million common shares issued and outstanding. That concludes my remarks. I'll turn the call over to our CEO, David Young. David, please go ahead.

David Young, Chief Executive Officer

Thank you, Jim. Good evening. Thank you for joining us today. During my time with you today, I plan to highlight what we've accomplished so far in 2021 in our drug development programs, then briefly share what you should be expecting over the next 6 to 12 months. I will not be covering all the details on each slide, but the slides will be posted on our website if you want to study them more. Let's go to our first slide. I'm sure that most of you have seen this slide before; it describes the criteria that we use to select the drug for our pipeline. But it also describes the fundamental approach that Processa uses corporately. We make small bets on potentially large wins in order for Processa to achieve an asymmetrical risk reward or market cap to market opportunity. Both our regulatory science approach and our corporate approach is to evaluate the benefit-risk of everything and determine how to improve the benefit-risk profile to our advantage. That's why we are a drug development company, not a drug discovery company, and while we have 5 criteria that must be met for a drug to be in our pipeline. Today, I will only briefly talk about the first 3 criteria. The first criteria is that the drug must provide treatment to patients who need better treatment options than what already exists. These are patients with an unmet medical need condition who need something to improve their survival and improve their quality of life. Second, there must be some evidence of clinical efficacy for the drug in the target population of patients. This means that a drug or a drug with similar pharmacology must have demonstrated some efficacy in the target population. And third, the regulatory science approach to develop the drug must provide a more efficient path demonstrating a better benefit-risk profile compared to existing therapy options for the targeted patient population. Next slide. Now, let's look at what we've accomplished in our drug development programs over the last 3 months. Our overall development goal was to move the drugs closer to FDA submission. And we accomplished that, as can be seen in the red box describing the present status of our pipeline. For 499, and its Phase 2B trial, 2 patients have been enrolled in the study and we have 3 of 9 sites recruiting patients, with the other 6 sites being initiated over the next few weeks. For 12852 and its Phase 2A trial, we plan to submit the IND before the end of September. During the second quarter, we also in-licensed another cancer drug RX-3117. This drug has already demonstrated some efficacy in treatment-resistant pancreatic cancer patients. To define which patients would benefit more from this drug compared to other existing pancreatic cancer drugs, we have begun to select labs that can develop specific biomarkers to identify the patients more likely to respond to RX-3117 compared to existing chemotherapy. PCS6422, our second drug for the treatment of cancer, is used in combination with capecitabine to treat colorectal cancer and has enrolled its first patient in its first cohort. Other patients are in the screening process; these patients will be screened and, if appropriate, enrolled in a few weeks after we obtain some clinical data on our first patient. We expect to have all our sites operational before the end of September. And for the last cancer drug, PCS11T, we are identifying and evaluating contract manufacturing organizations that can manufacture this drug. Next slide. Let me quickly review our 499 Phase 2B drug, which has FDA orphan designation. NL is an unmet medical need condition that initially appears to be a dermatological condition, but it is a condition that affects the skin and tissues below the skin. NL can last from months to years with complications such as infections and amputation. It's occurring in about 30% of the patients and a conclusive diagnosis can only be accomplished through a biopsy, where the histological presentation is different than other ulcers, such as diabetic ulcers. The NL ulcers can occur naturally over the clinical course, or they can occur from contact trauma to the lesion, as the skin becomes more fragile and brittle. More importantly, natural complete healing of moderate-to-severe ulcers during the first 1 to 2 years after onset occurs in less than 5% of these patients. Currently, there is no FDA-approved treatment for NL and no standard of care. All drugs used off-label are inadequate because of dose-limiting side effects, which prevents the drug from being given at a high enough dose to possibly see significant efficacy. This includes a drug called pentoxifylline, or as I often call it, PTX. PTX does work in closing the ulcers of some patients, but side effects limit the dose that can be administered. Given that there are 22,000 to 55,000 ulcerative NL patients in the U.S., the potential U.S. market is approximately $1 billion. Next slide. 499 is similar to PTX but not identical. It's the deuterated analog of one of the major metabolites of PTX. It has the exact same 7 metabolites of PTX, and it hits the same pharmacological targets; however, the pharmacokinetics of 499 and its metabolites are different after 499 administration, resulting in a better efficacy and safety profile than PTX. 499 and its metabolites affect 6 different pharmacological pathways, which directly affect 6 of the 7 pathophysiological changes known to occur in NL. The results in 499 in these patients act like a multiple drug cocktail, although all the effects are coming from 499 and its metabolites. The safety profile of 1.8 grams per day of 499 is better than the safety profile of 1.2 grams per day of PTX, as shown in toxicology studies as well as Phase 1 and Phase 2 clinical studies. Additionally, we found that in our Phase 2A NL trial, complete wound closure was achieved with the 1.8-gram per day dosage of 499 in the only 2 patients who presented with ulcers; those ulcers closed within 1 month. The picture shown on the left is one of these patients prior to receiving 499. You can see the ulcers circled; after treatment, the ulcers are completely closed, as seen in the picture on the right. The bottom of this slide is from our pipeline slide reminding everyone that we hope to complete the interim analysis for 499 in the first half of 2022. We hope to complete the study in the second half of 2022. Then we plan to meet with the FDA for an end of Phase 2 meeting to discuss the design of a pivotal Phase 3 Special Protocol Assessment trial to begin in 2023. Next slide. The other non-cancer drug in our pipeline is PCS12852. This drug is a 5HT4 agonist that is more potent and more specific to the 5HT4 receptor than any other drug approved by the FDA or presently being investigated. The target indication for the drug is the treatment of gastroparesis. In clinical trials, the drug has shown to significantly increase gastric motility and has a better side effect profile compared to other 5HT4 agonists. Next slide. Given that the only approved drug for gastroparesis and drugs used off-label have serious side effects limiting their use, the market for gastroparesis presents enormous potential sales. Fortunately, there's been substantial preclinical and clinical work done on 12852, so that we expect to submit a Phase 2A IND in September and enroll our first patient in the first half of 2022. Final analysis of this Phase 2A study should be completed by the end of 2022 or the beginning of 2023. The first of our oncology drugs to discuss is the one that we recently acquired, PCS3117. Next slide. RX-3117 is our most advanced cancer chemotherapy agent in development. It has a patent life extending to 2036 and FDA orphan designation for the treatment of pancreatic cancer. RX-3117 is an analogue of the endogenous nucleotide cytidine and an analogue of the cancer drug gemcitabine, which has sales exceeding $800 million in the U.S. Gemcitabine is presently used as first-line therapy for metastatic pancreatic cancer and non-small cell lung cancer, and as second-line therapy for other types of cancers. Unfortunately, 55% to 85% of patients receiving gemcitabine are inherently resistant to it or acquire resistance while on the drug. The resistance can exist or occur due to multiple biological reasons; two causes of resistance make RX-3117 an attractive alternative to gemcitabine. First, dCK, the activation enzyme for gemcitabine, is downregulated, resulting in less activation of gemcitabine. The activation enzyme for RX-3117 is dCK2, which is different from dCK. In many patients, dCK2 exists in cancer cells more than normal cells. Secondly, RRM1 and RRM2, which are ribonucleotide reductase enzymes, are upregulated, resulting in an increase in endogenous cytidine nucleotides that compete with gemcitabine. For RX-3117, this upregulation of RRM1 and RRM2 stimulates the production of RX-3117 cancer-killing nucleotides. Additionally, RX-3117 not only follows the same pharmacological pathway as gemcitabine, affecting DNA cancer cell apoptosis, but it also impacts RNA and DNA methyltransferase, resulting in cancer cell apoptosis via a different pathway than gemcitabine. Importantly, the efficacy of RX-3117 has already been demonstrated in a small number of gemcitabine-resistant pancreatic cancer patients. Next slide. Our development program will be based on our overall mission to improve the benefit/risk profile over existing treatment options. For RX-3117, this means targeting patients who do not or probably will not respond to gemcitabine. We believe this can be done through the development and refinement of assays for a few biological molecules or biomarkers to identify which patients are more likely to respond to or activate RX-3117 over gemcitabine. Over the next 6 to 12 months, we hope to complete our biomarker assay development so that we can evaluate the assay in a Phase 2B biomarker pancreatic cancer study initiated in the second half of 2022 and then move to the pivotal Phase 3 FDA Special Protocol Assessment trial in 2023 or 2024. Next slide. The second oncology targeted drug is PCS6422, a chemotherapy modifier of the widely used drug capecitabine, also known as Xeloda, the oral form of 5-FU, one of the cornerstone cancer chemotherapy drugs since the 1960s. PCS6422 has the potential to improve the benefit/risk profile of capecitabine by altering its metabolism, resulting in decreased side effects while potentially improving the progression-free survival of patients, making this combination a potential $1 billion market for just the treatment of metastatic colorectal cancer. If we include other cancers where capecitabine is a first or second-line therapy, the market for PCS6422 and capecitabine is a multiple billion-dollar market. Next slide. Preliminary evidence currently exists demonstrating that the administration of PCS6422 with 5-FU related drugs like capecitabine will improve not only safety but also efficacy profiles for these compounds. Utilizing a regulatory science approach, we have also found potential biomarkers that will help identify those patients who will most likely benefit from this targeted therapy over present treatments. From our Phase 1B trial, we expect to obtain information to better design a Phase 2B or an adaptive design Phase 3 trial in the near future. Over the next 6 to 18 months, we expect to complete an interim analysis of the first 2 cohorts in the fourth quarter of 2021, then define our maximum tolerated dose in the second half of 2022. We plan to begin our Phase 2B or pivotal Phase 3 trial in 2023 or 2024. Next slide. This slide presents just the timeline for the key clinical milestones for all 5 drugs in our pipeline. I've already mentioned these milestones, but this slide provides a summary of the milestones over the next 6 to 18 months in a timeline format. Next slide. We accomplished a lot in the first and second quarters, but we expect to achieve even more over the next 6 months. This last slide summarizes what we expect to accomplish in development over the next 6 months. First, complete enrollment of patients for the interim analysis of 499. Second, obtain IND clearance for 12852 in Gastroparesis. Third, conduct analysis of Cohort 1 and 2 in the 6422 Phase 1B dose escalation study. Fourth, initial development of RX-3117 biomarker assays. Fifth, we will be presenting at the World Orphan Drug Congress from August 25 to 27. Lastly, we'll be presenting at the Oppenheimer Fall Healthcare Life Science and MedTech Conference from September 20 to 23. It's important to note that with the $20.8 million in cash that Jim mentioned, as of June 30, 2021, we have enough cash to support our efforts through 2023 while completing the 499 Phase 2B trial, the 12852 Phase 2A trial, the identification of the maximum tolerated dose of capecitabine when administered with PCS6422 in the Phase 1B trial, and the development of the RX-3117 biomarker assays. I hope this earnings call has given everyone a better understanding of what we've accomplished over the last 3 months as well as the first 6 months of 2021. As you can see, we also have a lot to do over the next 6 months. We believe the value of Processa will become more apparent as we start seeing interim results. With each program, we are one step closer to FDA approval. That concludes my remarks. I'll now ask the operator to open the phone lines for Q&A.

Operator, Operator

Certainly. Ladies and gentlemen, the floor is now open for questions. Your first question is coming from François Brisebois. Your line is live.

François Brisebois, Analyst

Hi, thanks for taking the question. So I was just wondering on PCS6422, is coming up shortly for an interim look. What are you hoping to see in this interim look? And I think you mentioned having found some biomarkers for 6422. I was just wondering if there's anything shared there on that side? Thank you.

David Young, Chief Executive Officer

Thanks for the question, Frank. This is David. We're not really sharing what the biomarkers are right now, so I can't share that. But what I can tell you is that the interim look is actually aimed at figuring out if PCS6422 is affecting the metabolism enough and long enough to give us an advantage and improve the safety and efficacy of Xeloda or capecitabine. So we'll be looking at the metabolism and its effect. That's really what we will be doing, and we expect to be able to report that out with multiple cohorts by the end of the year.

François Brisebois, Analyst

And will you get any look on levels of DPD for instance?

David Young, Chief Executive Officer

We're going to be looking at DPD, and so we're working on multiple assays. One assay may be a little bit better than the other, and so that's kind of being evaluated now. We will try to look at DPD, but we're not sure what assay we'll be using because there are multiple assays that we could use. But we will have a feeling for what's going on with DPD, yes, 100%.

François Brisebois, Analyst

Understood, that's great. And then, just if I sneak another one in, on PCS6422, in terms of the commercial opportunity, I know that's a little further away. However, I guess a 2-part question, from this Phase 1B, can you move right into a Phase 3 depending on the data, I guess? And also, how important is it to show safety and efficacy advantages? Or would safety alone be sufficient? Thank you.

David Young, Chief Executive Officer

Okay. Let me answer your second question first. It would be better if we had both efficacy and safety. The problem with just demonstrating better safety is that the sample size might require a larger number, which may be a problem. We don't know that yet. However, having conducted safety-only studies or improvement safety studies before in my previous experience, that usually is what occurs. If you're trying to prove that safety is better, it usually requires a larger sample size. So it would be advantageous for us if we could demonstrate efficacy along with safety. We expect to see both, but again, we’re not stating what the exact efficacy improvement will be. But we believe we will make strides in safety as well. Regarding your first question, remind me what your first question was.

François Brisebois, Analyst

He was asking whether you can go from Phase 1B to Phase 3, the question is what could be the next phase of development hereafter?

David Young, Chief Executive Officer

Okay, that depends on what we are seeing in Phase 1B. If we see some efficacy in terms of progression-free survival or overall efficacy, then we might be able to move directly to Phase 3. However, if not, we might have to consider moving to a Phase 2B instead. Therefore, it really depends on the results that we are obtaining. It is indeed a possibility, but we'll need to see the data first.

François Brisebois, Analyst

Thank you very much.

Operator, Operator

Your next question is coming from Aydin Huseynov. Your line is live.

Aydin Huseynov, Analyst

Hi, thank you for taking my questions and congratulations on the quarter. One question on RX-3117. Given that PCS3117 has a similar structure to gemcitabine, how would you imagine, hypothetically, the Phase 3 trial design? One of your slides mentions that 55% to 85% are resistant to gemcitabine? Would you target this population or would you try RX-3117 in a randomized fashion versus gemcitabine?

David Young, Chief Executive Officer

That's a good question. Right now, we're considering all options. We haven't come to a final conclusion yet. However, that's exactly why we're developing the biomarker. We will be conducting a Phase 2B study. If the biomarker helps identify those patients who respond to RX-3117, then we could theoretically pursue a biomarker-based approach against gemcitabine or focus on treatment-resistant gemcitabine patients. Therefore, we have a plethora of options for the Phase 3; we just aren't sure which route we will take until we have the data from the Phase 2B study with biomarkers.

Aydin Huseynov, Analyst

I appreciate that. And about the biomarker for RX-3117, if you had to develop a biomarker assay to improve the efficacy of gemcitabine, and obviously, right now it's just all commerce approach. But if you had to design a biomarker assay for gemcitabine, what would you be looking for in terms of how to improve the response rate of patients to gemcitabine?

David Young, Chief Executive Officer

There's been substantial research conducted looking at gemcitabine treatment resistance and whether it's inherent or acquired. A lot of that work points to 4 or 5 different pharmacological and biological factors that could be causing resistance, ranging from dCK levels to the transport of gemcitabine across the cell membrane to ribonucleotide reductase levels. All of these factors are possibilities that could affect gemcitabine resistance and efficacy. Part of our goal in identifying biomarkers for RX-3117 will involve assessing biomarkers that may also exist for gemcitabine and pancreatic cancer in general. We aren’t being overly specific at this point on which biomarkers or biological markers we will be focusing on, but we aim to examine a wide range of potential biological markers.

Aydin Huseynov, Analyst

Understood. Thank you. I have another question on PCS499. So you enrolled 2 patients, 10 patients who were pre-screened but apparently didn't fit the criteria. So would you be able to comment on which criteria those patients didn't meet?

David Young, Chief Executive Officer

Yeah, it was a mixture; there was not one specific criterion. It was a mix of patients not wanting to travel and complete all the necessary tests, which was one factor. Moreover, there were cases where, instead of presenting as an ulcer, it was merely an erosion of the skin, which didn't qualify. Therefore, when the physician started talking to the patient to evaluate if they should come in for screening, they determined that the patient wasn’t eligible based on the characteristics, such as having just a small erosion instead of an adequate ulcer, for instance. It was really a matter of assessing the patient via the phone and making decisions accordingly.

Aydin Huseynov, Analyst

Okay. Thank you very much for taking my questions.

David Young, Chief Executive Officer

Thank you.

Operator, Operator

Your next question is coming from Robin Garner. Your line is live.

Robin Garner, Analyst

Hi, good evening, and congratulations on the quarter. Few questions for me. The first, how many patients do you expect to be part of the interim analysis for necrobiosis lipoidica? And what are you hoping that interim look will reveal?

David Young, Chief Executive Officer

Okay. We expect to have somewhere between 8 and 10 patients for our interim analysis. We anticipate that the analysis will provide insights into the response rate of the placebo group, which is likely the most important aspect since no one has formally studied it. Discussions with physicians and patients suggest that using the standard of care doesn’t heal the ulcers effectively. It may take years for them to heal, if they heal at all. Therefore, the key piece of information we will receive is whether the placebo group has a lower response rate in terms of natural healing. If that is indeed true, it would simplify the design of our Phase 3 study and ease discussions with the FDA, as it would provide evidence that natural healing is limited.

Robin Garner, Analyst

Okay, thank you for that. You mentioned earlier that RX-3117 is your most advanced oncology asset. How should we - and I know this is a little far out, but how should we think about the length of a Phase 3 study for this program? And when would it read out relative to the PCS6422 Phase 3 study?

David Young, Chief Executive Officer

Yeah, that's a tough question, and I don’t have an answer for that quite yet. I need to wait to see the results of the Phase 1B trial and the Phase 2B trial. The reason we refer to it as our most advanced asset is that we believe we can quickly initiate a Phase 3 trial based on the data from a Phase 2B biomarker study or analysis. Meanwhile, for 6422, we're still conducting the Phase 1B trial to determine the maximum tolerated dose, and depending on whether we observe any indications of efficacy, it will guide our next steps. We already have some efficacy data for treatment-resistant gemcitabine patients with RX-3117, but it does add a couple of extra steps for PCS6422. We could find that we see some efficacy results in the Phase 1B for 6422, then it might make the timeline closer for both. It’s difficult for me to specify the exact timing for the Phase 3 trials for either treatment.

Robin Garner, Analyst

Okay, thank you for that. And then my last question, just how should we think about clinical trial costs going forward for all 3 programs that will be in the clinic very shortly?

David Young, Chief Executive Officer

Are you talking about clinical trial costs for the studies currently happening or future clinical trial costs, like Phase 3?

Robin Garner, Analyst

Really just the current, but including gastroparesis PCS12852.

David Young, Chief Executive Officer

Right. Okay. So the studies for PCS499, PCS6422, and the PCS12852 gastroparesis study, those are all in the range of $3 million to $5 million. That’s kind of the typical range for these studies, depending on specific factors. The RX-3117 study is still in the process of developing the biomarker, which will take around 6 to 12 months. Therefore, we haven't finalized the full design of that study yet. But if I were to speculate on the costs, I would estimate it may fall in the range of $3 million. Overall, I think all of these studies would generally fall within the $3 million to $5 million range.

Robin Garner, Analyst

Okay, thank you.

David Young, Chief Executive Officer

Thank you.

Operator, Operator

There are no further questions from the lines at this time. Thank you, ladies and gentlemen, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

David Young, Chief Executive Officer

Thank you. Bye-bye.