Earnings Call Transcript - PYPD Q2 2023

Operator, Operator

Greetings, and welcome to the PolyPid Second Quarter 2023 Conference Call. I would now like to introduce your host for today's conference, Brian Ritchie, from LifeSci Advisors. Mr. Ritchie, you may begin.

Brian Ritchie, Host

Thank you all for participating in today's PolyPid Second Quarter 2023 Earnings Conference Call. Joining me on the call today will be Dikla Akselbrad, Chief Executive Officer of PolyPid; Jonny Missulawin, PolyPid's Chief Financial Officer; and Ori Warshavsky, Chief Operating Officer of PolyPid. Earlier today, PolyPid released financial results for the 3 and 6 months ended June 30, 2023. 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 recruitment of additional patients into SHIELD II, total recruitment time into the study and the timing of the top line results therefrom; its attention to conduct an unblinded interim analysis once a total of approximately 400 patients complete their 30-day follow-up; the potential NDA submission for D-PLEX100 in the U.S.; its expectation to have 20 centers open in the U.S., Europe and Israel by the end of the current quarter; factors essential in the execution of SHIELD II; flex technology positioning the company well to potentially pursue a number of compelling strategic opportunities; its business plans, prospects and objectives, including its planned objective to formalize two partnerships in 2023; and the potential of D-PLEX100 in addressing the persistent challenge of surgical site infections and the company's expectations regarding its cash balance. 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 actual results or events to materially differ. Accordingly, you should not place any undue reliance on these 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 identify specific factors that may cause actual results or events to differ materially from those described in the 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, August 9, 2023. With the completion of those prepared remarks, it is my pleasure to turn the call over to Dikla Akselbrad, CEO of PolyPid. Dikla?

Dikla Akselbrad, CEO

Thank you, Brian. On behalf of our team at PolyPid, I would like to welcome everyone to our second quarter 2023 earnings call. To begin, we are thrilled with the recent progress we have achieved in the advancement of our promising lead product candidate, D-PLEX100. This May, we announced that the FDA agreed to our SHIELD II Phase III trial design, evaluating D-PLEX100 for the prevention of abdominal colorectal surgical site infection. The revised trial includes only patients undergoing open colorectal abdominal surgery with large incisions. Importantly, you will recall that we previously generated very positive data in SHIELD I from this more focused patient population. Specifically, this patient population showed a highly statistically significant reduction of 54% in surgical site infection in SHIELD I. We intend to enroll an estimated 550 additional patients beyond the 40 patients already recruited into SHIELD II. Total recruitment time into the study is anticipated to be approximately 12 months, and top line results are expected in mid-2024. We also intend to conduct an unblinded interim analysis once a total of approximately 400 patients complete their 30-day follow-up. In late June, the first patient was recruited in the revised SHIELD II trial. Multiple countries have now approved the trial protocol and several recruiting centers were recently opened. We expect to have 20 centers open in the U.S., Europe and Israel by the end of the current quarter. As a reminder, we have a clear regulatory pathway for the potential NDA submission for D-PLEX100 in the U.S. Earlier this year, the FDA acknowledged that not only may the SHIELD I result provide supportive evidence of the safety and efficacy of D-PLEX100 in patients with large surgical incisions, but also confirmed that, if successful, SHIELD II is sufficient to support a potential NDA submission. As we have said previously, we strongly believe that SHIELD II is a derisked Phase III trial, given the more focused patient population, in which we have already generated highly positive data in SHIELD I and the fact that it will not be conducted within the tight COVID-related restrictions that were in place during the pandemic and throughout the duration of SHIELD I. We are also leveraging key learnings from SHIELD I related to the sites involved in the study. While we are targeting approximately 50 centers for SHIELD II, around the same number as SHIELD I, we now have firm knowledge of the best-performing sites from SHIELD I in terms of recruitment, patient monitoring and good clinical practice. We believe this to be essential in the execution of SHIELD II. We have also enhanced our clinical operations team, another key step towards supporting a successful study. Moving on. We also continue to progress our business development initiatives. As previously mentioned, we are focused on two key areas. First, we are targeting additional strong partners with D-PLEX100 in different geographies, like the U.S. and Asia. Second, we are pursuing PLEX platform-related collaborations that would be focused on specific therapeutic areas, such as oncology. Our proprietary PLEX technology positions us well to potentially pursue a number of compelling strategic opportunities. Over the last quarter, we have significantly ramped up our business development activities across both biotech and big pharma. We are at varying levels of discussions with more than 20 companies to either partner with D-PLEX100 or to evaluate co-development partnership opportunities related to the PLEX technology. In addition, we recently retained a business development-focused consulting firm to further strengthen the company's capabilities and support the company's goal in this key area. As we have said previously, our planned objective is to formalize two partnerships in 2023, although the exact pace of partnership discussions is inherently difficult to predict. While we broaden our business development activities, we also continue to augment the published research in support of D-PLEX100. Most recently, a paper highlighting the potent antibacterial activity of D-PLEX100 and its potential as an effective prophylactic drug against the most prevalent bacteria causing surgical site infection, including resistant strains, was published in the European Journal of Pharmaceutical Sciences. This paper highlighted the tremendous potential of D-PLEX100 in addressing the persistent challenge of surgical site infections, especially in an era of increased multidrug-resistant bacteria. The data showed significant antibacterial activity of D-PLEX100 in preclinical and Phase II clinical studies against a wide range of bacteria tested, including resistant ones. Finally, while Jonny will review our current financials momentarily, I'd like to highlight our cost containment efforts throughout the business in 2023, including in clinical operations, G&A, and manufacturing. Most significantly, in a challenging inflationary environment, we have generated over $1 million in cost savings year-to-date. Moreover, our net cash used in operating activities decreased by 59% in the first 6 months of the year as compared to the first 6 months of 2022. With that, it is my pleasure to turn the call over to Jonny. Jonny?

Jonny Missulawin, CFO

Thank you, Dikla. As of June 30, 2023, the company had cash and short-term deposits of $15.1 million. We continue to expect that our cash balance will be sufficient to fund operations into late first quarter of 2024. Now let's turn to our income statement. Research and development expenses for the 3 months ended June 30, 2023, were $4 million compared to $8.4 million in the same 3-month period of 2022. The decrease in R&D expenses resulted primarily from the completion of the SHIELD I Phase III clinical trial and reflects the impact of the cost reduction plan that was executed in the fourth quarter of 2022. Marketing and business development expenses for the second quarter of 2023 were $357,000, a decrease from the $923,000 during the prior year 3-month period. General and administrative expenses for the second quarter of 2023 were $1.5 million compared to the $2.2 million recorded in the same 3-month period of 2022. For the second quarter of 2023, the company had a net loss of $5.8 million as compared to $11.8 million in the second quarter of 2022. Finally, as Dikla noted, we are executing well on our cost containment initiatives. As such, our net cash used in operating activities for the first 6 months of 2023 decreased by $12 million as compared to the same period in 2022 from $20.3 million to $8.3 million. With that, we will now open the call to your questions.

Operator, Operator

The question comes from the line of Balaji Prasad from Barclays.

Unidentified Analyst, Analyst

This is for Balaji. So can you speak of the partnership and the licensing opportunities that you are pursuing, whether across the technology or the product candidates?

Ori Warshavsky, COO

In terms of partnerships, there are a few things that are in discussion. One, on the D-PLEX side, a number of conversations are at different stages, looking both at the U.S., Latin America, and Asia. I think what is interesting is that in some of the conversations, they are more advanced, some less, some are waiting to see more data, and some are really, I would say, more eager to take something now ahead of data. I think when we look at the structures, any deal that is signed before the top line results, we will look at a deal that is similar to the advanced type of deal that we signed, which is milestone-based and really backloaded, with some sort of an initial payment just to align incentives and ensure that both sides are really committed to the product. Most of the milestone payments will be based on regulatory and sales milestones. So very similar to the advanced team. On the platform side, there's quite a lot happening from anywhere from conversations with pharma companies looking at innovative product delivery where local delivery is needed. I can highlight that, and I think I mentioned this in the past, there's increased interest in RNA delivery. That's the buzzword of the day. We do have data, both bench data and animal data, in RNA delivery in nucleic acids in general, not just RNA. We have patents around that delivery. So this is something that we are looking to push on. With any new technology, there's always this window where it's open. Companies are open to learn more in that area, and I think this is where we are with RNA. So as a company, we'll try to push as much as we can on the RNA delivery. In addition, there are conversations around OncoPLEX, local delivery of OncoPLEX, whether as an intratumoral injection or post-resection, adjuvant delivery into the tumor bed.

Dikla Akselbrad, CEO

I think without going into specifics, and obviously, we cannot commit to the timeline in that, I think what's important for investors to understand is that for the first time in the life of PolyPid, we are experiencing such robust interest. We have so many companies that are in parallel discussions. This is something that is new, and we still believe that it will lead to agreements this year.

Operator, Operator

Your next question comes from the line of Roy Buchanan from JMP.

Douglas Buchanan, Analyst

I guess the first one, can we expect enrollment progress updates for SHIELD II each quarter? And what about the blinded infection rate? Or can you at least inform us if the rate is meeting your expectations as we're going through the trial? And can you remind us what you expect for the baseline infection rate based on the design of the trial?

Dikla Akselbrad, CEO

Roy, thank you for joining us. You could expect that we will be updating on recruitment progress probably every quarter. And definitely, I would expect that we will issue a press release in the next milestone in our eyes, which is 100 patients. I hope we will be able to report this either before or around the first quarter. So this is the next milestone, and we can judge this in the next quarter. We call it the milestone, if we've reached this point. In terms of the overall infection rate, this is something that we will not be able to share because obviously, we do not want to, in any way, jeopardize the unblinding of the trial. What I can tell you is that we used the baseline assumption that we've experienced since SHIELD I for this focused patient population. This assumption is generally lower than what we've seen in the literature. For example, the infection rate that we are presenting around patients with large open abdominal incisions that was experienced in SHIELD I is 9.7%. This is what we are looking at as the baseline. From that, we expect to see substantial reduction. Our assumption is that as we've seen in the Phase II and as we've seen in this focused patient population in the Phase III, it should be at least a 50% reduction.

Douglas Buchanan, Analyst

Okay, great. Can you share the results of your market research conducted ahead of SHIELD I and whether it's ongoing? What do those results indicate about usage in different settings, such as smaller incisions outside of those over 20 centimeters, and potentially in areas beyond colorectal surgery? Also, how would reimbursement be structured if you receive a limited label for large incisions?

Dikla Akselbrad, CEO

I'll take the first part, and Ori, on my side, will take the second part. So our market research showed very clearly that 40% of the open colorectal and other open abdominal surgeries meet the criteria of high-risk surgery, either due to patient risk factors or surgery-related risk factors. This is quite substantial. Just as a reminder, in our SHIELD I, we had 977 patients, and 423 out of those were with large incisions. If you look at patients with one or more personal risk factors, this was even 70% of the trial. So this supports our SHIELD I data.

Ori Warshavsky, COO

Yes. So I would add to that before I get to reimbursement. When we asked surgeons, when we showed them the target product profile (TPP) of the product and asked them, 'Doctor, where would you use this? Which patient would you start using D-PLEX?', they really pointed to these high-risk patients. The next question was, 'Okay, so tell us how many of your patients are high-risk patients?' We split it into colorectal surgery, general surgery, gynecology, and so on. The numbers varied anywhere from 35% to 45% of surgery. This meets what we know of the general population in terms of high BMI, diabetes, and smokers, which fits with these numbers. So as a starting point for the product across all abdominal surgeries, this is a good assumption. In terms of reimbursement, two things here. First, since this is an inpatient product, our conversation is really with the hospitals, not with the payers. A hospital gets paid a lump sum per the Diagnosis-Related Group (DRG). If the surgery goes as planned and the patient leaves on time, then the hospital makes money. If there is an infection and the patient stays in the hospital for another 10 days, the hospital loses money. So our conversation is really showing hospitals that additional preventative measures to reduce infection result in better patient outcomes and also have an economic impact. That said, because we have Qualified Infectious Disease Product (QIDP) Designation, we are eligible for the New Technology Add-on Payment (NTAP). We went through the process, and we meet all the criteria for NTAP, which provides separate reimbursement from CMS to the hospital, up to 75% of the cost of the drug. Although we do not have direct conversations with the payers, the hospital can get reimbursed for the product.

Douglas Buchanan, Analyst

Okay. Great. That's very helpful. And then one last thing, thank you, Ori. On the interim, it sounds like you're probably on track for a Q1 interim announcement. Is that a good assumption? I think on the last call you were waiting for FDA feedback around maybe the nature of the interim and what the implications were, such as upsizing the trial. Do you have anything you can share about any FDA feedback around the interim?

Dikla Akselbrad, CEO

Sure. Yes. You're correct. We were waiting for feedback from the FDA on the overall protocol and we received this approval by the end of May. By the end of June, we recruited the first patient. From that point, we are getting approvals in multiple countries and opening centers with the target to have 20 centers by the end of the current quarter. I expect to see, as we progress, investors noticing quite an increase in patient recruitment. Regarding the interim, once we recruit 400 patients, we expect to reach that during the first quarter of next year. About 1.5 months after that, we should have feedback from the Data Safety Monitoring Board (DSMB) committee. So either at the end of the first quarter or early Q2, we should have the interim results. Just for everyone to remember, our SHIELD I data was around 400 patients, 423 patients in this focused patient population, and we had robust statistical significance. It met the criteria for an interim analysis, which was part of the reason to set the number around 400 patients. The interim is quite in line with what you would expect in terms of the statistical analysis of an interim, and it could change the course of the trial.

Operator, Operator

There seems to be no further questions. I would like to hand back to Dikla Akselbrad for closing remarks.

Dikla Akselbrad, CEO

Thank you for joining PolyPid's Second Quarter 2023 Earnings Conference Call. We remain highly confident in our long-term prospects, especially the potential of our promising late-stage product candidate, D-PLEX100. As always, we are grateful to our team members, shareholders and all of our external partners for their commitment to our mission and their support in continuing to advance toward 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 and throughout the second half of the year.

Operator, Operator

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