Earnings Call Transcript - PYPD Q3 2022

Operator, Operator

Thank you all for participating in PolyPid's Third Quarter 2022 Earnings Conference Call. Joining me on the call today will be Dikla Czaczkes Akselbrad, Chief Executive Officer of PolyPid; and Ori Warshavsky, Chief Operating Officer for U.S. operations. Earlier today, the company released financial results for the 3 and 9 months ended September 30, 2022. A copy of the press release is available in the Investors section on the company's website, www.polypid.com. I'd like to remind you that on this call management will make forward-looking statements within the meaning of the federal securities laws. For example, management is making forward-looking statements when it discusses our ongoing clinical trials and the timing thereof, our expectation to extend the company's cash runway into the third quarter of 2023, our intention to publish important results from the SHIELD I study in a medical journal as soon as it is practical, that the top line results indicate that patients undergoing complex surgeries with large incisions or patients with risk factors could potentially benefit from D-PLEX100; our intention to use the impressive data from SHIELD I in discussions with potential partners regarding future pipeline products, including in oncology; our belief that significant reduction in superficial and deep SSIs and large surgical abdominal colorectal wounds and in high-risk patients as well as the safety data are very encouraging; our intention to discuss with the FDA the lower-than-anticipated overall infection rate in the study, driven by COVID-19 safety restrictions that were in place while our trial was being conducted; our intention to discuss the regulatory pathway for D-PLEX100 for the prevention of SSIs in abdominal surgery with U.S. and EU regulatory authorities in the first quarter of 2023; and the potential of D-PLEX100 to prevent SSIs in abdominal surgery; the potential innovation behind our lead product and preparations with ADVANZ PHARMA; and discussions with other potential partners and the potential outcome of our anticipated meeting with the FDA and EU regulatory authorities. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks described from time to time in our SEC filings. Our results may differ materially from those projections. These statements involve material risks and uncertainties which could cause actual results or events to differ materially. Accordingly, you should not place undue reliance on such statements. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, the company's Form 20-F which identifies specific risk factors that may cause actual results or events to differ materially from those described in forward-looking statements. PolyPid disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and speaks only as of the live broadcast today, November 9, 2022. A copy of the slides the management team will review on this call can be found on the Investors section of PolyPid's website at investor.polypid.com.

Dikla Czaczkes Akselbrad, CEO

Thank you, Bob. On behalf of our team at PolyPid, I would like to welcome everyone to our third quarter 2022 earnings call. I'm pleased to have the opportunity to provide you with a corporate update today during such an eventful period for PolyPid. I will begin with a discussion of the top line results from the SHIELD I Phase III study of D-PLEX100 for the prevention of surgical site infections, or SSIs, in abdominal surgeries which we announced in early September. Beginning with Slide 3, as a reminder, SHIELD I, the largest study of infection prevention in colorectal surgery over a decade, is a prospective global randomized double-blind Phase III trial designed to assess the efficacy and safety of D-PLEX100 restated along with standard of care compared to standard of care alone in the prevention of post-abdominal surgery incisional infection. The primary endpoint of the trial is the combination of incisional SSI, mortality and surgical reintervention due to SSI or wound complication determined by a blinded and independent adjudication committee within 30 days post-surgery. A total of 977 patients were randomized into the study consisting of 488 subjects in the D-PLEX100 treatment arm and 489 patients in the control arm. The study was well designed and well executed as it was balanced on all baseline characteristics and demographic parameters. Importantly, the trial took place during the COVID-19 global pandemic, with the first patient recruited in July 2020 and the last in May 2022. We believe the precautionary measures put in place in hospitals during this time reduced the overall infection rate. These precautionary measures included a reduced number of surgeries being conducted, disallowing visitors, and increased personal and hospital hygiene practices. We believe that these critical external factors significantly impacted the trial statistical plan. On Slide 4, we take a closer look at the study population. Per FDA request, the pre-specified subgroup analysis was done based on incision length. The circle on the left indicates that 43% of total study subjects underwent complex surgeries with large incisions. The middle circle shows that clearly 70% of the total patients in the trial had at least one personal risk factor, including a BMI of over 30, smoking or COPD, diabetes and hypertension. Of significance, each of these risk factors has the potential to increase the risk for SSI and other post-surgical complications. The circle on the right demonstrates that more than 3/4 of the total study subjects were cancer patients. Let's move on to the top line results on Slide 5. As we previously reported, in the intend-to-treat population, the local administration of D-PLEX100 and standard of care in 485 patients resulted in a decrease in the primary endpoint of 23%, compared to standard of care alone in 489 subjects, representing a p-value equal to 0.15. However, in a pre-specified subgroup analysis requested by the FDA, of a total of 423 subjects with incision lengths greater than 20 centimeters, the local administration of D-PLEX100 resulted in a statistically significant reduction of 54% in the primary endpoint compared to standard of care alone, representing a p-value of 0.0032. As I highlighted on the previous slide, this statistically significant reduction was achieved in a large subgroup representing over 43% of the patients in the intend-to-treat population. Since the initial top line readout was announced, we have continued to gather and analyze additional data from SHIELD I. This data has been increasingly encouraging. While we cannot get too granular at this time as we intend to publish this important result in a medical journal, as is practical, I would like to highlight the post-hoc analysis, D-PLEX100 also demonstrated a clinically important reduction of 34% in the primary endpoint in high-risk surgical patients, those with at least one personal risk factor, representing a p-value of 0.047. Now, let's take a deeper dive into the large incision subgroup on Slide 6. Most importantly, we see a large effect size in all efficacy parameters. I'd highlight the decrease in the first two secondary endpoints where the infection rate at 30 days post-abdominal surgery was 10% in the standard of care only arm versus 4% in the D-PLEX100 treatment arm. I'd also point out the lower mortality rate in the D-PLEX100 treatment arm as well as significantly fewer patients treated with IV antibiotics as treatment for adjudicated SSIs. So to conclude, on the efficacy aspects of the trial, we believe that the top line results indicate that patients undergoing complex surgeries with large incisions or patients with one or more risk factors could potentially benefit from D-PLEX100. As you can see on Slide 7, D-PLEX100 showed a good safety profile in SHIELD I. Of significance, there was no impact on mortality in the D-PLEX100 arm compared to the standard of care. In addition, there was a 40% reduction in surgical reintervention in the D-PLEX100 treatment arm versus standard of care alone. Also, severe treatment adverse events occurred in 12% of the patients receiving D-PLEX100 versus 16% in the standard of care arm, and serious treatment adverse events occurred in 14% of the patients receiving D-PLEX100 versus 20% in the standard of care alone arm. Moving to Slide 8. I think it is important to highlight how the overall results of SHIELD I truly validate the ability of our proprietary technology to locally deliver treatment over a prolonged predetermined period with minimal systemic access. PK data collected in the trial showed a very low concentration of doxycycline in the plasma for a prolonged period of 30 days, as designed. We intend to use this impressive data in discussions with potential partners regarding future pipeline products, including in oncology. In summary, on Slide 9, while the overall top line results for D-PLEX100 did not meet study statistical assumptions, the significant reduction in superficial and deep SSI in large surgical abdominal colorectal wounds and in high-risk patients, as well as the safety data, we believe are very encouraging. In fact, we are in the process of preparing a package of data for SHIELD I and trial positive Phase II study for submission to the FDA and intend to discuss with the agency the lower-than-anticipated overall infection rate in the study driven by COVID-19 safety restrictions that were in place while our trial was being conducted. As previously stated, we expect to meet with the FDA regarding the regulatory pathway of D-PLEX100 for the prevention of SSIs in abdominal surgery in the first quarter of next year. We plan to meet with EU regulatory authorities shortly thereafter. Based on the totality of the data generated to date, we remain confident in the potential of D-PLEX100 to prevent SSI in abdominal surgery. As we approach this anticipated meeting with the FDA, it is critical to contemplate a few potential outcomes. For example, the FDA may potentially agree that data could be sufficient for seeking approval in a narrower patient population based on the current collective data. The FDA could require us to conduct another clinical trial or generate additional data. If we were to conduct an added preapproval trial, we currently believe that this trial will be a smaller, more targeted study. Also, from a regulatory perspective, we were pleased to recently receive confirmation from the European Medicines Agency, or EMA, that D-PLEX100 is eligible for submission of a marketing authorization application with the EU under the agency's centralized procedure. The centralized procedure allows the recognition of a single marketing application to the EMA that, if approved, enables the product to be marketed in all EU member states as well as in Iceland, Liechtenstein, and Norway. The centralized process eligibility is granted to D-PLEX100 under the therapeutic innovation criteria which underscores that D-PLEX100 provides a new innovative alternative to patients in preventing abdominal SSIs. On a related note, I think it is important to also highlight that we proceed with our regulatory preparation with our European partner, ADVANZ PHARMA. In addition, we remain engaged in partnering discussions in multiple additional geographies for D-PLEX100. Of course, it is unlikely that we will enter into any additional partnerships prior to the receipt of regulatory feedback. I would now like to provide a brief update on OncoPLEX, our lead intratumoral product candidate in oncology applied as a TACE to the tumor resection area during surgery. OncoPLEX remains the priority for PolyPid and we are currently finalizing CMC processes as we continue our efforts to begin clinical development for this promising product candidate. Moving on. As you know, we recently announced a cost-reduction plan, including a 20% decrease in headcount across all departments as we prepare for our planned regulatory interaction regarding D-PLEX100 early next year. We expect that these decisive actions will extend our cash runway into the third quarter of 2023 and further enhance the company's long-term growth strategy. That is a good transition to now move into a review of our current financials. As of September 30, 2022, the company had cash, cash equivalents and short-term deposits of $18.1 million which includes the $2.6 million upfront payment from ADVANZ PHARMA received in the third quarter. Also, as it relates to our balance sheet, during the third quarter of 2022, we sold approximately $600,000 worth of ordinary shares from our existing aftermarket facility. To reiterate, we expect that our current cash runway will extend into the third quarter of next year. Now, let's turn to our income statement. Research and development expenses for the 3 months ended September 30, 2022, were $6.2 million, compared to $7.3 million in the same 3-month period of 2021. The decrease in R&D expenses resulted primarily from the completion of the SHIELD I Phase III clinical trial. Marketing and business development expenses for the third quarter of 2022 were $840,000, compared to $445,000 for the same period of 2021. General and administrative expenses for the third quarter of 2022 were $1.7 million compared to $2.1 million recorded in the prior year period. For the third quarter of 2022, the company had a net loss of $9.3 million, as compared to $9.9 million in the prior year period. We will now open the call to your questions.

Operator, Operator

And your first question comes from Brandon Folkes from Cantor Fitzgerald.

Brandon Folkes, Analyst

I'd just take a color if it's precedent to get a sort of label for a certain size of incisions above 20 centimeters, whether in the U.S. or ex U.S.? And then how do you think that affects the commercial opportunity? I can see it sort of playing out both ways where it gets on formulary and maybe gets used a little bit more broadly or maybe stable formally, so just any color in terms of your market research at this stage, if you do get sort of that narrow a label, how do you think that may play out in practice?

Dikla Czaczkes Akselbrad, CEO

Thank you, Brandon. I will start, and Ori can provide additional details on the commercial opportunity. Our initial discussions with the FDA will focus on the regulatory pathway and the plan for our NDA submission. Labeling will be addressed later. We observe that, for instance, in negative wound pressure, the labeling is oriented towards preventing wound complications. As an example, Heron Therapeutics received an expanded indication around May or June last year, which indicates a reference to small-to-mid incisions in their labeling. This reference to incision length is relevant. Our priority is to ensure a clear regulatory path for our NDA submission. We are actively evaluating this and will discuss it with the regulatory authorities. Existing references in this area are evident, as I mentioned.

Ori Warshavsky, CFO

I’ll address the commercial opportunity. First, we need to recognize that this trial took place during COVID. Despite that, we observed nearly a 20% infection rate among these high-risk groups, affecting 1 in 6 or 1 in 5 patients. This suggests significant potential for expansion and broader implications once hospitals return to their normal operations. In our market research conducted earlier this year, we inquired with doctors about their processes, how they assess patients, and their knowledge of which patients are high risk prior to surgery. We asked them to quantify this population. To our surprise, 40% of abdominal surgeries involve patients classified as high risk. We aim for doctors and surgeons to see our product as an additional tool in their arsenal for prophylaxis, helping them prevent infections in high-risk groups. This product has shown a 50% reduction in infections in complex surgeries and similar trends in high-risk patients. Overall, we believe there's a promising foundation here. Our initial plan was to secure approval, gather more data, and then broaden our label. With COVID diminishing and hospital volumes increasing, we anticipate a growing need for our solution.

Operator, Operator

And your next question comes from the line of Elliot Wilbur from Raymond James.

Elliot Wilbur, Analyst

Yes. Can you hear me all right?

Dikla Czaczkes Akselbrad, CEO

We can hear you now.

Elliot Wilbur, Analyst

Dikla, I want to ask about the additional post-hoc data you presented today regarding a population with one or more risk factors. It appears that this data is independent of incision size, and I wanted to confirm that. I'm also curious if you've analyzed the interaction between large incisions and the inclusion criteria of having one or more risk factors. I'd like to hear your thoughts on that. Additionally, Ori, regarding the secondary data points presented, it seems many of these will resonate well with payers and commercially. Do you think any of these stand out or are more favorable than originally expected before the trial, especially concerning the number of reinterventions following infections or the number of subjects treated with antibiotics to assess surgical site infections? I would appreciate any insights you have on the secondary efficacy endpoints that you think will be particularly favorable to payers.

Dikla Czaczkes Akselbrad, CEO

Thank you, Elliot. Regarding the analysis of risk factors, you are correct that it's a separate group. Seventy percent of the patient population in this trial has at least one patient-related risk factor, compared to about 43% for those undergoing complex surgery with long incisions. There is a significant overlap, as many patients requiring complex surgery also have risk factors. Most trial participants had at least one patient-related risk factor, but these are two distinct analyses. Before I turn it over to Ori, I want to highlight that this is the largest Phase III trial in abdominal colorectal surgery conducted in over a decade. We've gathered extensive data on medical relevance and health economics. As mentioned in our prepared remarks today, we can't go into too much detail now because we plan to publish our findings in medical journals and articles. However, we wanted to provide investors and analysts with insights into the volume of data collected and our ongoing discussions with regulators and potential partners. Ori, would you like to address the second point?

Ori Warshavsky, CFO

Yes, Elliot, what I'm considering is the overall complexity of the situation. I believe the key message that will resonate with hospitals is the reduction of complications and hospital stay duration. This ties into the aspects you've mentioned, such as reinterventions, IV antibiotics, hospital time, and readmissions, which involve a lot of data we are still analyzing. We will need to conduct further investigations on some of this data, but I see a positive trend regarding wound complications. Additionally, Dikla and I discussed earlier how this complexity could influence pricing. From the manufacturer's standpoint, there might be an opportunity to consider higher-risk groups as they may require more expensive products. We are examining several factors related to this data.

Operator, Operator

And your next question comes from the line of Balaji Prasad of Barclays.

Unidentified Analyst, Analyst

This is actually Michaela on for Balaji. You mentioned you're engaged in partnering discussions across multiple additional geographies. So I was wondering if you could provide a bit more color on what we can expect here and really just the key criteria you're looking for in additional partners.

Dikla Czaczkes Akselbrad, CEO

Thank you. As we also said in our prepared remarks, we are continuing the discussions that started prior to the top line. Surprisingly for us, all of those discussions are continuing. We were very clear to say and we don't think it's in our best interest before we have further clarity on the regulatory pathway forward to go into any final discussion even. And it's just to reassure the interest and the continued interest and the unmet need. I think that Ori mentioned it a bit in his previous answer. If investors and listeners and stakeholders really think about it, D-PLEX was tested in the best conditions that ever existed for hospitals for surgery, best in terms of hygiene, best in terms of overloading the hospital that was never before. Such a period that surgeons, hospitals, and patients had these extreme cautionary measures. And still, in this condition, especially in complex surgery and with the long incision, you see an overall reduction and this is indicated in Slide 5. You see an overall reduction in the primary endpoint from 18% to 8%. So companies that are focusing on this area are very much engaged and interested. I think that it's too early to set expectations here because we think it's in our interest to first meet with the FDA, as we said before, this is planned for the first quarter of next year and only after that we can make a better assessment on what's the path forward in this discussion.

Operator, Operator

And your final question comes from the line of Roy Buchanan from JMP Securities.

Roy Buchanan, Analyst

I had a few, I guess, SHIELD II does that remain in slow mode pending the regulatory meetings? And have those meetings actually been scheduled for the first quarter? It sounds like you have an agreement from the EMA that you can submit the MMA. So I guess what do you need to get out of the meeting in 1Q?

Dikla Czaczkes Akselbrad, CEO

So let me first start with the last part. What we got from the EMA is a very lucrative path for this process. It's not yet any indication of how they will evaluate the data or how they will review. As we also said in today's release, after setting a meeting with the FDA, shortly after, we intend to meet with the European authorities for, again, for an advisory meeting. Once we follow that, we will have the option to then approve the product in a centralized procedure which will enable us to get approval at one time and we will not be required to go country by country. But this is not really an indication on the path forward in terms of actual approval but just a very lucrative process in the sense that it's granted to products that showed innovation and it's strengthened our understanding of how they view the results that we've submitted from the Phase II as well as the innovativity that D-PLEX suggests in the anti-infective space. So that's with the European authorities. As we said in the prepared remarks, we are now in the process of preparing the package. We are in the last stages of preparing it and intend to submit it quite in the next few weeks. And knowing the timeframe required from the time we submit the package to have a meeting, we are confident that we can meet with the FDA in the first quarter of next year. But to answer your question, there is still not a specific date. You also asked about Q2. So yes, you described it correctly. It's in a very low-key mode waiting for clarity on the path forward and then we will decide if we can use this infrastructure or maybe convert it into a post-approval. We'll need to decide once we know what's the path forward.

Roy Buchanan, Analyst

Great. I apologize if I missed it, but how do you estimate the proportion of colorectal surgeries in the U.S. with incisions larger than 20 centimeters? I believe there was a guideline in SHIELD I to use 2 vials of D-PLEX100 for incisions larger than 20 centimeters. Was that followed, and could that account for the superior results in that group, essentially a dose effect?

Dikla Czaczkes Akselbrad, CEO

I'll begin with the second part while Ori will address the first. The dosing for abdominal surgery is determined by the length of the incision. For incisions up to 10 centimeters, one vial is used per incision. For incisions between 10 and 20 centimeters, two vials are needed. For incisions over 20 centimeters, three vials are administered. At this point, we do not see any evidence suggesting there were issues with dosing. We believe this is not the case. If we need to explain the lack of a statistically significant effect for incisions less than 20 centimeters based on the current information, we think the most plausible reason is that due to the precautions taken during COVID, the overall infection rate in the standard of care group was extremely low, under 5%, which is unprecedented in open abdominal colorectal resections. This situation resulted in not having enough events to demonstrate a statistically significant effect.

Ori Warshavsky, CFO

And maybe just on your question on the market. So what we looked at in the past, one I mentioned before, is looking at the complexity or the risk for infection. This was part of the market research and this was 40% of patients coming into colorectal resection. It was all of our abdominal surgeries but colorectal was very much in that same numbers. We're now looking into these large incisions. This was a group that we did not look previously in market research, so we're looking into that as well. But again, just to reiterate this, in any case, this is the starting point. This is the initial label at approval and we'll build or expand the label from there.

Operator, Operator

I will now hand the call back for closing remarks.

Dikla Czaczkes Akselbrad, CEO

Thank you for joining our third quarter earnings conference call. I would like to emphasize how firmly we continue to believe in our long-term prospects. We remain grateful to our team members and all our external partners for their commitment to our mission and their support in continuing to advance towards achieving our goal of bringing D-PLEX100 to healthcare providers and patients as quickly as possible. We look forward to speaking with you again on our next call.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.