Earnings Call Transcript - PYPD Q1 2022

Operator, Operator

Greetings and welcome to the PolyPid First Quarter 2022 Conference Call. At this time, participants are in a listen-only mode. As a reminder, this call is recorded. And I would now like to introduce our host for today’s conference, Bob Yedid from LifeSci Advisors. Mr. Yedid, you may begin.

Bob Yedid, Host

Thank you all for participating in PolyPid’s First Quarter 2022 Conference Call. Joining me on the call today will be Amir Weisberg, Chief Executive Officer; Dikla Czaczkes Akselbrad, Executive Vice President and Chief Financial Officer of PolyPid; and Ori Warshavsky, the Chief Operating Officer for PolyPid’s US Operations. Earlier today, the company released financial results for the three months ended March 31st, 2022. A copy of the press release is available in the Investors section of the company’s website. 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 the conditions for the drawdown of the second and third tranches of the Kreos Capital loan, how the loan agreement broadens the company’s financing options and provides it with access on a non-dilutive basis to significant additional capital, the company’s pipeline, the expected benefits from recent executive appointments, the expected timing and recruitment for trials, the interim data analysis, expected timing, the release of its results and their potential implications. Additionally, forward-looking statements include future commercialization of the company’s products, potential use and benefits of D-PLEX100 and OncoPLEX, market opportunity for D-PLEX100, its ongoing pre-commercialization preparations and prelaunch activities, the company’s potential partners, additional publications and presentations and important scientific conferences. 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 that could cause the actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. I encourage you to review the company’s filings with the SEC. 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, May 11th, 2022. A copy of the slides the management team will review on this call can be found under the Investors section of the company’s website. With completion of those prepared remarks, it’s my pleasure to turn the call over to Amir Weisberg, CEO. Amir?

Amir Weisberg, CEO

Thank you, Bob. On behalf of our team at PolyPid, I would like to welcome everyone to our first quarter 2022 earnings call. As this will be my final earnings conference call as the CEO, I would like to take this opportunity to thank the Board and our shareholders for their support and confidence in allowing me to serve as the CEO of PolyPid for over 11 years. I am also grateful to all of my colleagues at PolyPid for their hard work and commitment during this development stage, which has allowed us to accomplish much over the years. PolyPid is now in a position of strength clinically, operationally, and financially. As we advance with our Phase 3 trial, and there is near potential commercialization, it is time for Dikla to lead the company into its next phase of growth. Therefore, once again, I would like to congratulate Dikla on her well-deserved appointment as CEO, which will become effective July 1st. Since joining PolyPid 7 years ago, Dikla has been key in guiding the company towards our objectives. As a shareholder, along with our other shareholders on this call, I look forward to the DMC recommendation on our SHIELD I trial, once the interim data on 750 patients is fully analyzed, and to the continuous development of our promising pipeline product candidate, OncoPLEX for the treatment of solid tumors. With that, I will now turn the call over to Dikla to provide a detailed update, including a discussion of upcoming key milestones and a review of our financial results. Following this, she will open the call for your questions.

Dikla Czaczkes Akselbrad, CFO

Thank you, Amir, and thank you all for joining us on the call. On behalf of the entire PolyPid team, thank you, Amir for your steadfast leadership over the past 11 years. Your guidance has been invaluable to me as we have prepared for the upcoming CEO transition together over the last several months. Next slide, please. With that, I will begin by providing a brief update on the status of our pipeline. First, we remain extremely pleased with the rate of enrollment in SHIELD I, our Phase 3 study evaluating D-PLEX100 for prevention of abdominal soft tissue surgical site infection or SSI. We now have approximately 900 patients enrolled into the study across about 60 centers in the United States, Europe, and Israel. Importantly, you will recall from our first quarter announcement, that the FDA agreed to PolyPid’s request for the addition of an unblinded interim analysis in SHIELD I. Our request was based on the FDA’s recently published guidance for pharmaceutical companies to address the impact of COVID-19 on meeting enrollment and study objectives for clinical trials conducted during the ongoing pandemic. The interim analysis is expected to occur very shortly, once 750 patients complete their 30-day follow-up and the statistical analysis is concluded, which will allow for early trial stopping due to efficacy, futility, or for sample size reassessment. An early stop to the trial can occur if the efficacy results on the SSI rate exceed expectations. As we said on our last call, this interim analysis is an exceptional opportunity for PolyPid to more precisely define the targeted patient enrollment range for the SHIELD I study and the timeline for our NDA submission. As a reminder, the 750 patients were enrolled into SHIELD I in early March 2022. Next slide, please. Before I move on from the development program for D-PLEX100, I would like to remind you that one of the key priorities for 2022 that we discussed on our last call was a focus on building significant evidence to support the safety and efficacy of this promising product candidate through peer-reviewed publications and data presentations at important medical meetings. To this end, we recently presented positive clinical data on D-PLEX100 from our Phase 2 clinical trial at both SAGES 2022 Conference and the Surgical Infection Society 2022 Annual Meeting. Before we continue to discuss PolyPid’s financial results and our activities to strengthen commercial readiness and enhance our clinical development function, Ori will give some insight into market opportunities for D-PLEX100, our ongoing pre-commercialization preparations, and potential partnerships in the US.

Ori Warshavsky, COO

Thank you, Dikla. Next slide, please. In the US, we believe the total addressable market for D-PLEX100 is just over 12 million surgeries per year based on IQVIA data, the leading industry source on procedure and prescription data. There are approximately 4.4 million abdominal soft tissue surgeries annually, both open and minimally invasive procedures, principally comprised of hernia repair, appendectomy, and colorectal surgeries. We also believe that there is an opportunity for the use of D-PLEX100 in an additional 2.1 million abdominal procedures, principally in gynecology and urology, including hysterectomies and other related procedures. Other surgeries relevant to D-PLEX100, which either have high SSI rates or are high-risk surgeries, include sternotomies, joint replacements, and vascular surgeries. As part of our prelaunch activities, we examined pricing in the range of $200 to $600 per vial that was tested in market research in line with other local therapies used in the surgery suite such as Exparel and Zynrelef. Moreover, we are doing additional diligence to analyze pricing requirements for D-PLEX100 to qualify for additional reimbursement when used in in-patient and out-patient settings which would facilitate more rapid uptake of our drug by healthcare facilities. From an execution standpoint, we are advancing our go-to-market plan, which includes defining the patient and surgeon journey, establishing our differentiation levers, value drivers, and creating a tactical plan for launch. We are also making significant efforts in the medical affairs area, including onboarding a number of key opinion leaders as well as planning for additional publications and presentations at important scientific conferences. Finally, on the business development front, we continue our discussions with potential partners for the US as well as ex-US, with companies that have established presence in hospitals, many of whom have established surgeon and surgery-focused sales teams. And with that, I will hand the call back to Dikla.

Dikla Czaczkes Akselbrad, CFO

Thank you, Ori. Next slide, please. We continue to strengthen our management team with the recent appointment of Evgeny Valdman as the company’s new EVP of Operations and the promotion of Dalit Hazan to EVP, Research and Development and Clinical and Regulatory Affairs. We believe Evgeny will meaningfully enhance our technical operations, and Dalit will have an extended positive impact on our clinical development initiatives. Evgeny will lead technical operations for PolyPid, including manufacturing, engineering, supply chain, logistics, and quality affairs. His expertise spans FDA approval prerequisites, operational optimization, supply chain management, and sterile pharmaceutical manufacturing. Dalit has served as PolyPid’s Senior Vice President, Research and Development and Regulatory Affairs since June 2021 and has been with the company since 2016 in roles of increasing responsibility. Her new role as Executive Vice President, heading R&D and Clinical and Regulatory affairs, is a recognition of her important contribution to PolyPid. Next slide, please. From the perspective of our balance sheet, we have made excellent progress over the last quarter. We were pleased to recently obtain up to $15 million in a non-dilutive secured term loan facility. This agreement broadens our financing options and provides us with access on a non-dilutive basis to significant additional capital, which strengthens our ability to invest in our commercial capabilities for D-PLEX100 as well as fund future advancement of our unique PLEX technology platform. The loan facility comprises three tranches; the first tranche of $10 million was drawn in April 2022, and the second tranche of $2.5 million will be available subject to any positive results from the planned unblinded interim analysis of SHIELD I. The drawdown of the third and final tranche of $2.5 million will be available subject to obtaining positive top-line results from the SHIELD I trial or if other conditions are met. The drawdown of the second and third tranches can potentially be made by the end of this year. Also, as it relates to our balance sheet, during the first quarter of 2022, we sold approximately $4 million worth of ordinary shares from our existing at-the-market facility. This action, combined with the loan agreement with Kreos Capital, has extended our cash runway into the second quarter of 2023. As of March 31st, 2022, the company had cash, cash equivalents, and short-term deposits of $23.6 million, excluding the first tranche of $10 million of the Kreos loan, which was drawn in April 2022. Next slide, please. Now let’s turn to our income statement. Research and development expenses for the three months ended March 31st, 2022, were $8.7 million compared to $6 million in the same three-month period of 2021. The increase in R&D expenses resulted primarily from increased costs and activities related to the expedited recruitment in the ongoing SHIELD I Phase 3 clinical trial in soft tissue abdominal surgery. Marketing and business development expenses for the first quarter of 2022 were slightly higher than the $2.1 million recorded in the prior year period. For the first quarter of 2022, the company had a loss of $11.9 million as compared to $8.7 million in the prior year period. This was primarily driven by a strong rate of patient recruitment in the SHIELD I Phase 3 clinical trial. We will now open the call to your questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The next question comes from the line of Balaji Prasad from Barclays. Please go ahead.

Balaji Prasad, Analyst

Hi, good morning. Just a couple from me. Firstly, I was curious about how you would see the use case in an outpatient setting for D-PLEX. I think Ori called this out in his remarks. And an extension of that, will current trial readouts be sufficient for approval in an outpatient setting? Or if not, what are the requirements from a development perspective? Secondly, probably also for Ori, maybe could you offer some more insights into how the US partnership conversations are evolving, maybe the key demand requirements from potential partners? And what are you looking for in your partners? Thanks.

Ori Warshavsky, COO

Okay, I’ll take the first one and Dikla take the next one. Thank you, Balaji. So on the outpatient piece, we are looking at surgeries that are done within the hospital outpatient, right? So it’s not – at least at this stage, it’s not the standalone ambulatory centers. These are surgeries that are done within, let’s call it, within the 23-hour mark before patients become inpatient surgeries. Most of these surgeries, not all of them, but most of them have an outpatient piece and an inpatient piece. For example, some of the hernia repairs, major open ones are inpatient, but some of the smaller ones, the more minimally invasive ones will be considered outpatient. They are still done within the hospital, they are still done by the same surgeons. It’s more of a question of reimbursement. It’s an issue of risk and a question of reimbursement. If it’s a more high-risk patient, whether it’s an older patient or maybe a high BMI patient, the doctor will decide on an inpatient surgery versus a healthier patient where the doctor will decide on a quicker discharge surgery. From the product and from the risk of SSI, there is still a risk. The risk is different between open surgery and minimally invasive, but the risk still exists. As a reminder, we are talking about prevention here. So there’s an insurance factor in trying to prevent the infection, whether it’s inpatient or outpatient. There will be a question on payment for inpatient versus outpatient, and this is something that we are looking into in terms of the pass-through and getting a procedure code for outpatient payment.

Dikla Czaczkes Akselbrad, CFO

Thank you, Ori. And as for your second question regarding the discussions with partners, we are actively engaged with multiple pharmaceutical and medical device companies, both in the US and out of the US. We are content with the level of discussions. We expect that those will be accelerated once we have the interim data. There’s not much that we could say at this stage beside that we are actively engaged and quite pleased with the discussion.

Balaji Prasad, Analyst

Thanks, Dikla. Good luck.

Dikla Czaczkes Akselbrad, CFO

Thank you. Thank you, Balaji. Good morning.

Operator, Operator

Thank you. Next question comes from the line of Elliot Wilbur from Raymond James. Please go ahead.

Michael Parolari, Analyst

Hi, guys. Good morning. This is actually Michael Parolari on for Elliot. So first question from me, just assuming a positive readout from the interim analysis for D-PLEX. Do you guys expect to see further FDA input before submission of the NDA? Or do you think that the efficacy data would largely be able to speak for itself in the submission process? And then, second one from me. You might have touched on this in prepared comments, apologies if I missed it, but just any update on the IND process for D-PLEX? Thank you.

Dikla Czaczkes Akselbrad, CFO

Sure, sure. Good morning. So we do expect to meet the FDA for an end of Phase 3 meeting. We think that this could be especially with the breakthrough therapy designation that we have an opportunity for us to discuss some aspects of the NDA with the FDA and make sure that what we submit on a rolling submission basis later on during 2023 is accepted well, and there’s no need to add any information. This could also be an opening for discussions on the next stage of commercialization and broadening the labeling. So we do expect to meet the FDA after the top line results. As for the OncoPLEX program, we are very pleased with where we are there. It’s a younger program, and it’s less of a priority at this stage compared to this large Phase 3 900 patient trial, but we’ve published some good data. We met with the FDA for a pre-IND meeting a few months ago. I expect that we will be able to publish additional data and support at conferences. We are starting to have discussions here with pharmaceutical companies around the platform as well as the product itself. I expect we’ll be able to update you on more specific timelines and indications toward the end of the year.

Michael Parolari, Analyst

Got it, that’s helpful. Thank you. And best of luck with the CEO transition. And congrats, Amir on your retirement.

Dikla Czaczkes Akselbrad, CFO

Thank you.

Amir Weisberg, CEO

Thank you.

Dikla Czaczkes Akselbrad, CFO

Thank you from both of us.

Operator, Operator

Thank you. Next question comes from the line of Gary Nachman from BMO Capital Markets. Please go ahead.

Gary Nachman, Analyst

Hi, good morning. Congrats on the progress. So regarding the interim analysis for SHIELD I, what does it mean for efficacy to be better than expected in order to stop it early? What’s the threshold for that? And then if you need more patients, what’s the maximum number you can add? How long would that take? Also, will you take a statistical hit on the unblinded analysis? What did you agree with the FDA on that?

Dikla Czaczkes Akselbrad, CFO

Hi. Good morning, Gary. So thank you for pointing this out. Please excuse me if I missed any; there were three of them. In terms of what does it mean for better than expected efficacy, in all of our clinical trials today, we have shown at least a 50% reduction in infection. This is what we are hoping to see in terms of better than. It’s not that 51% will be overwhelming at this stage. However, somewhere we do not disclose what the parameter is that would allow us to show overwhelming results. The reason for that is that we could jeopardize the blinding this way. Of course, when everything is unblinded, we can show that, but as long as we are recruiting patients, we cannot be more specific than that, and this is quite significant for this trial. Regarding what the maximum that we could go after, this is something that we’ve indicated in our annual report, the maximum that we foresee under this protocol as a sample size adjustment could be 1,400 patients overall. As for the statistical hit, this was a minimal statistical hit. I think the overall went down from 5% to 4.1%. But let me get back to you with more specifics later, but it was around 0.5% or something in that regard.

Gary Nachman, Analyst

Okay. And then if you have to expand up to 1,400, how long would that take? Also, you have 60 sites that enrolled the 900 patients. How comfortable are you with the quality control at these sites and their ability to measure the endpoint accurately, especially considering all the dynamics with COVID?

Dikla Czaczkes Akselbrad, CFO

Sure. I’ll start with the second part of the question. We had a process to get to the 60 centers. Part of it due to COVID took time to engage the physicians that we have 60 active centers. For about two quarters, we have had recruitment rates of 200 to 250 patients. We added to this call some slides that investors can see, showing how this graph has grown along the year, and it’s promising. Now, for almost two quarters, we are recruiting about 200 to 250 patients per quarter. We had the time to build the processes for that, and we also have the privilege of having an adjudication committee that reviews each infection case, which is key for measuring the primary endpoint. It’s not that the whole 750 patients that are now being analyzed influence the primary endpoint — we’re very comfortable with that. We have a very good team here in our clinical department, which brings years of experience in large trials, small trials, and different types of medication. Regarding the timeline, it’s easy to estimate; at a rate of 200 to 250 patients, it would take a few additional months for recruitment.

Gary Nachman, Analyst

Yeah. Now I assume you answered that question. So that was helpful. And just lastly, what’s the status of SHIELD II? I guess, is that on hold until completion of SHIELD I? Have you been enrolling any patients in that study? And maybe for Ori, how important is SHIELD II for commercial purposes, just given the numbers you talked about, including more minimally invasive procedures? How much data would you need to hit some of the targets you’re discussing?

Dikla Czaczkes Akselbrad, CFO

In terms of SHIELD II, as we reported in the previous quarter, we already recruited over 200 patients. Yes, we did put it on reduced activity until we have results from the planned SHIELD I, because we started with the understanding that we would need two Phase 3 trials for approval. Following the breakthrough therapy designation, the FDA agreed that one Phase 3 trial is sufficient. Based on positive data from SHIELD I, we would like to strategically change some parameters for SHIELD II, not necessarily the minimally invasive segment of it, but we won’t need an additional 900 patients. It could be reduced, and this is the plan, which will be part of the discussions with the FDA. Ori, do you want to touch upon the aspect of minimally invasive?

Ori Warshavsky, COO

Yes, hi, Gary. First, I want to say that for launch, we don’t need SHIELD II solely. The recent conversations with surgeons indicate that we will initially start with higher-risk patients, who are usually in-patient open surgeries. But as we look to expand into minimally invasive procedures, outpatient procedures, and additional surgeries beyond the initial scope, we will need the data. While SHIELD II is part of this, we are also working on smaller studies, not necessarily full-blown clinical trials, but whether it’s investigator-initiated research or collaborations with some societies to determine what other data will be needed for successful adoption.

Gary Nachman, Analyst

Okay, great. That’s helpful. Thank you.

Operator, Operator

Thank you. Next question comes from the line of Brandon Folkes from Cantor Fitzgerald. Please go ahead.

Brandon Folkes, Analyst

Hi, thanks for taking my question. And, Amir, congratulations on all the success over the last 11 years. Dikla, all the best. Looking forward to you taking over. So maybe just two from me sort of following along the earlier line of questioning. Can you just provide some detail in terms of what level of data you expect to provide when you do publicly release the interim analysis? And then secondly, assuming it’s positive, how do you think the FDA will consider the patients you’ve already enrolled in the trial, just given you have met the 900? How do you think the FDA will look at those additional patients? Thank you.

Dikla Czaczkes Akselbrad, CFO

Well, I’ll ask you what do you mean by additional patients? But on your first part, we expect to get from the DMC Committee — the DSMB Committee, which is a Safety Monitor Committee conducting the analysis, a more precise overall number of patients needed for the trial. There are four stocks that could be made, as I said, and involving the 1,400 patients, including overwhelming. There is, of course, the risk for futility, but the chances here are very low. This will allow us to give investors better timelines for both NDA submission and later approval, along with the last patient in. Additionally, it will signify we are meeting the efficacy primary endpoint with at least a 50% reduction of protection. This is what we expect this year. Additionally, you were asking about the patients or were you referring to the additional patients post the 750 patients?

Brandon Folkes, Analyst

You kind of answered it. It looks like … well I guess my question really was, you know if we did hit that futility analysis where you were able to submit. But it sounds like that’s a small percentage chance right? Is the base case really just that we’re going to kind of get a more accurate sample size? Is my understanding correct?

Dikla Czaczkes Akselbrad, CFO

You’re right. As we said, we’re very close to this analysis, and we expect it very soon, and we are now at about 900 patients. So this will give you a sense of what will be the overall size of the trial if we decide to start immediately.

Brandon Folkes, Analyst

Okay. You answered my questions. Thank you very much.

Dikla Czaczkes Akselbrad, CFO

Thank you.

Operator, Operator

Thank you. Next question comes from the line of Roy Buchanan from JMP Securities. Please go ahead.

Roy Buchanan, Analyst

Hi, thanks for taking the questions. I had a quick one on the loan facility for the next $2.5 million tranche, a positive interim. I just want to make sure that definition also includes upsizing the trial?

Dikla Czaczkes Akselbrad, CFO

Sorry, can you repeat the question, please?

Roy Buchanan, Analyst

The positive outcome to enable the $2.5 million tranche from the loan facility, that includes upsizing the trial?

Dikla Czaczkes Akselbrad, CFO

Yes. To some degree, yes.

Roy Buchanan, Analyst

Okay, great. And then I guess, you know, maybe for Ori, but the main question we get for D-PLEX100 is, what’s going to motivate the surgeon to use it? You know, you presented data, and the hospital’s motivation is clear with the penalties they face from infections. And you have the market research and you have the quote about an ethical obligation to use the product if it shows a benefit. But from the surgeon's perspective, they have something else to think about. Can you maybe go into a little bit of detail about how you’re going to convince the surgeons themselves to use this product? Thank you.

Ori Warshavsky, COO

Yeah, sure. In our conversations with surgeons, it’s one of the easier conversations we have, because doctors know their SSI rates. They know the department rates and how they benchmark compared to what other hospitals and other departments do. Honestly, nothing that exists today shows this significant reduction in SSI. When we demonstrate a 50% reduction, the doctors get it. There’s a related question about costs and economic implications. It’s a full package. We will use data. We are collecting a large amount of data from the Phase 3 trial. Imagine a 900-plus sized trial. There is a wealth of data here, and doctors are interested. Beyond what we are currently testing, we hear conversations and had questions at conferences. The conversations have been straightforward regarding what a 50% reduction can do for patient outcomes, doctor management of time, and wound care management. It’ll be a comprehensive set of data surrounding that. Additionally, we’re collecting economic data, which will be a big driver. I can share an example from last week when a Board Member of one of the larger IDNs in New Jersey mentioned that their CEO and the entire top management are partly evaluated on reduction in hospital-acquired infections. So, yes, there’s a big driver from the patient standpoint, but there’s also a significant top-down motivator from hospital management.

Operator, Operator

Thank you. I would like to hand back over to the speakers for final remarks.

Dikla Czaczkes Akselbrad, CFO

Thank you for joining our first-quarter earnings conference call. I would like to reiterate how excited we are about the progress we have achieved to date, especially in our D-PLEX100 clinical program and the opportunities that lie ahead. We remain grateful to our team members and all of 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 on our next call.

Operator, Operator

That does conclude our conference today. Thank you for participating. You may all disconnect.