Earnings Call Transcript - PYPD Q3 2020

Operator, Operator

Good afternoon and thank you for standing by. Welcome to today's PolyPid Third Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. You must also be advised this meeting is being recorded today Wednesday, November 11, 2020. And I'd now like to hand the meeting over to your speakers today. Please go ahead.

Bob Yedid, IR

Thank you for participating in PolyPid's third quarter 2020 earnings conference call. Joining me on the call today will be Amir Weisberg, Chief Executive Officer of PolyPid; and Dikla Czaczkes Akselbrad, Executive Vice President and Chief Financial Officer. Earlier today, PolyPid released financial results for the three and six months ended September 30, 2020. A copy of the press release is available on the Investors section of 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. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projections. These statements involve materials, risks, and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not take 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 F1 and 6-K, which identifies 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 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 a live broadcast today, November 11, 2020. With that completion of those prepared remarks, it's my pleasure to turn the call over to Amir Weisberg, CEO.

Amir Weisberg, CEO

Thank you, Bob. On behalf of our team at PolyPid, I would like to welcome everyone to our third quarter 2020 earnings call. I will begin today with some brief introductory comments, and then Dikla will provide detailed updates on our business and will review our financial results, after which we will open the call for questions. I am extremely pleased with the recent progress we have achieved in advancing our development program and in continuing our evolution toward becoming a commercial company. As you know, we are currently in Phase 3 with our lead asset D-PLEX 100 for the prevention of surgical site infection, or SSI. Dikla will provide further details on this program shortly. I'm excited to report today that our ongoing SHIELD I trial is proceeding as planned, and we are having great success in adding new clinical centers for our trial. This is the first of our two planned Phase III clinical trials in soft tissue surgery. We are also preparing to conduct our second Phase III trial in abdominal surgery, SHIELD II, which we expect to initiate before the end of this year. Importantly, this two-phase III trial will serve as a basis for PolyPid's first new drug application or NDA submission, and we believe will contribute to support the broad label for the prevention of SSI. Beyond our lead indication, we also have an ongoing clinical development program for D-PLEX 100 for the prevention of SSI in bone tissue, such as the sternum in open heart surgery. In addition, our promising ONCO PLEX local intertumoral therapy per clinical program continues to generate promising early results. Dikla will also provide updates on these two programs shortly. As you can see, PolyPid has a robust ongoing development program for our innovative PLEX technology. Our aggressive R&D initiatives are supported by a strong balance sheet, which we expect to be sufficient to complete the SHIELD I study and to initiate and conduct SHIELD II as well as prepare for the submission of an NDA to the FDA. I will now turn the call over to Dikla to provide you with some further details on our business. Dikla, please take it from here.

Dikla Akselbrad, CFO

Thank you, Amir. And thank you all again for joining us on the call. I would like to begin with a brief discussion on the status of our pipeline. Following the enrollment of our first patient in the SHIELD I trial in July, we have continued to open clinical trial centers at an impressive pace. In fact, in just a few months since the enrollment of the first patient in the study, over 50% of the planned 60 centers have already received IRB approval, and the vast majority of these sites are now open to enrollment. As a reminder, our plan is to enroll 600 to 900 patients within 60 centers in the US, EU, and Israel. Following the enrollment of 500 patients, the study design provides for a blinded sample size re-estimation based on the overall infection rate observed in the study. We continue to anticipate the top-line results from SHIELD I will be available in the second half of 2021. We also expect that the initiation of our second abdominal surgery study, SHIELD II, which will have a broader eligibility criteria including minimally invasive surgical procedures will occur before year-end. This second trial will enroll approximately 900 to 1,400 patients across the same number of centers. We have contracted with a leading CRO to support this study, and they've already engaged with a number of centers globally to participate in the trial. We are very excited about the important progress we have achieved in advancing our pivotal development program for D-PLEX 100 in abdominal surgeries and we look forward to providing investors and analysts with an update once the first 100 patients have been enrolled in the SHIELD I study. While the operating environment for conducting clinical trials continues to evolve due to the ongoing global COVID-19 pandemic, it is important to note that we can reasonably expect that over 70% of the colorectal resection surgery patients to be enrolled into these two clinical trials will have a cancer diagnosis. In our previous Phase II study in 200 patients, 74% of enrolled patients had colorectal cancer. Therefore, these will be deemed high priority surgical procedures in hospitals. From a commercial perspective, in order to maximize our commercial success in the US, we have begun to establish our own footprint in the US to initiate commercial preparation activities, while also exploring potential partnering opportunities with leading pharmaceutical companies. In the US, we are beginning work around branding, packaging, and distributing, conducting market research on the current landscape and significant unmet needs for the prevention of SSI. We have started to establish our team in the US to support the anticipated commercial launch of the product. In Europe, we are currently evaluating commercial strategic partners to maximize the future commercial value of D-PLEX 100 in this market. As we have said in the past, a significant commercial opportunity exists for the prevention of SSI. Based on industry data from 30 million hospital inpatient surgical procedures conducted in the US in 2016, there are around 14 million procedures or about 45% of all inpatient procedures defined as our target market. These are major surgical procedures with a high risk of SSI, such as those in soft tissue for open abdominal procedures, as well as those in orthopedic or cardiac procedures, where SSI often leads to disabling and sometimes even life-threatening complications. For the prevention of SSI in bone tissue, we intend to evaluate the next clinical steps for an open heart surgery Phase III trial in the first half of 2021, which will allow us time to ensure SHIELD II is progressing as planned. As a reminder, in our randomized Phase I trial of 81 patients having open heart surgery, there were no infections in the 58 patients treated with D-PLEX 100 compared to a 4.3% infection rate in the standard of care arm. We focused on bone tissue due to the high risk of morbidity and mortality in cases of deep surgical site infections in these procedures. We initiated our Phase B bone model trial in open heart surgery earlier this year and intend to submit the data as a supplement to the abdominal soft tissue surgery NDA submission. This trial will enroll 1,300 to 1,600 patients in 45 centers across the US, EU, and Israel. Both abdominal and bone tissue surgery pose significant threats of SSIs for hospitals. Patients developing infections following surgery very often incur prolonged lengths of stay, readmissions, and, when infections occur, increased rates of re-operation. In cases with more superficial infections, additional costs for debridement, wound cleaning, negative pressure wound therapy, and other medical treatments are often incurred. Moreover, since infection rates and readmissions are used by Medicare as one of the quality measures in setting a hospital's reimbursement level, high infection rates can negatively impact the overall payment rates by Medicare to the hospital. For example, in 2019, Medicare penalized the New York Presbyterian/Weill Cornell Medical Center with more than $9 million in penalties tied to the hospital-acquired infection reduction program and readmission reduction program that includes the SSI metric. These types of penalties can have a significant impact on a hospital's total budget. As Amir said, we're also very excited about the potential of our pipeline candidate ONCO PLEX, which is an intertumoral chemotherapy currently in the preclinical stage. By the end of this year, we expect the availability of preclinical data for this compelling opportunity. In addition, we plan to be in a position to provide anticipated timeline for a planned pre-investigational NDA meeting with the FDA and for the initiation of the first human study. Moving on to the balance sheet; as of September 30, 2020, the company had cash, cash equivalents, and short-term deposits of $71.8 million compared to $26.6 million as of December 31, 2019. Cash used in operations for the first nine months of 2020 totaled $16.8 million. To reiterate what Amir said, we believe our strong cash position will allow us to complete our first Phase 3 trials, SHIELD I in abdominal soft tissue infection, to initiate and conduct the second abdominal surgery study SHIELD II, and to prepare for the submission of an NDA. Now, let's turn to our income statement. R&D expenses for the three months ended September 30, 2020 were $4.2 million, compared to $3.8 million in the same three-month period of last year. Spending increased due to the initiation of the Phase 3 SHIELD I clinical trial and preparation for the Phase 3 SHIELD II clinical trial. G&A expenses for the three months ended September 30, 2020 were $2.2 million, compared to $1.2 million for the same period of last year. Costs increased as we became a publicly traded company with higher D&O insurance costs, and we also had an increase in non-cash share-based compensation. For the three months ended September 30, 2020, the company had a net loss attributable to ordinary shares of $6.5 million, compared to a net loss of $2.1 million in the three-month period ended September 30, 2019. We will now open the call to your questions.

Operator, Operator

Your first question is from the line of Gary Nachman of BMO Capital Markets.

Gary Nachman, Analyst

Hi, guys. Good morning. So the first abdominal Phase 3, you've had good progress activating sites, but how long to get to the full 60 target that you've highlighted? And then will you consider fewer sites, if it becomes more challenging to activate them? And have you been enrolling your target of around 1.5 patients per month per site? How's that been going?

Dikla Akselbrad, CFO

So, good morning, Gary. And thank you for that. If you recall in our previous call, we've discussed the fact that we expect that between quarters we will be opening 50% of the centers. And this has worked very well for us. And we're very pleased that just in four months' time we have over 30 centers globally in the US, EU, and Israel that have already received IRB approval. Our assumption is that this will become easier as we go because you can imagine they are not starting from zero but all the others are in the process. So they should be coming as we go along. We indicated that we assume that the rate of recruitment which will be between 1.5 patients per month per center, we are not considering at this stage opening fewer centers. And the reason is that we want to be ready if there is any change in the environment due to COVID-19. Any specific hospital closing their surgery department for a period of time giving space for COVID patients. So we are still going to open the 60. And up until today, we haven't seen any reason to change it or any problem with it due to COVID. With regards to recruitment, based on the recruitment of patients as we said the next time we are going to update will be when we reach the first 100, and our assumption is that it will be early 2021.

Gary Nachman, Analyst

Okay, so the sample size re-estimation. Did you want to answer something, Amir?

Amir Weisberg, CEO

No, just to say that until now it looks good. And we believe that this 65 centers can support us if something will happen with COVID-19. But until now everything is perfect.

Gary Nachman, Analyst

Okay, and so the sample size estimation that should still be in the middle of next year, around July timeframe. You said data in the second half. But sounds like you're on track for the re-estimation mid-year.

Dikla Akselbrad, CFO

You are right.

Gary Nachman, Analyst

Okay. And then for the second abdominal Phase 3, if it's more minimally invasive procedures, how much might that be delayed by the whole COVID situation? How can you potentially get around that and could you have data on that study later next year, or would it be more likely into 2022?

Amir Weisberg, CEO

The trial is set to begin in the next two weeks, and much of the preparation has already been completed. We are confident about this trial, especially since over 70% of the patients will be cancer patients. While some surgeries could be performed laparoscopically, they remain high-priority due to the cancer diagnoses. Currently, we do not anticipate any delays for these high-priority surgeries in the coming months. We have scheduled a gap between the first and second SHIELD trials, with the first starting at the beginning of the third quarter. We are now initiating the second trial and will hold off on the turnaround trial to ensure both trials are operational and all centers are prepared. We do not foresee any delays as both trials involve similar patient populations requiring surgery. As for the readout, it is unrelated to COVID-19. This trial is more balanced in its approach to minimally invasive versus open surgeries and will involve a larger participant pool, ranging from 100 to 1,400. We expect results in 2022 as planned; our service quality and timeline remain unchanged.

Gary Nachman, Analyst

Okay. And then lastly, I think, Amir, in your opening remarks, you said that with these two initial phase 3 studies, you could submit and that should be enough for a broad label, but that would just be in soft tissue, right? To have a broader label in bone, you would need to submit the sternum study as a supplemental filing. Just want to confirm it.

Amir Weisberg, CEO

Correct.

Operator, Operator

Your next request is from the line of Balaji Prasad of Barclays.

Balaji Prasad, Analyst

Hi, good morning, and thanks for taking the questions. Just a couple more from me. Firstly on, can you update us on the developments on the commercial build outside? And how do you see that impacting either OpEx or cash runway, if it's materially different from your earlier communications? And maybe that's also a good segue to discuss the current cash balance and the runway provides for you with your various activities. Thanks.

Dikla Akselbrad, CFO

Thank you, Balaji. Good morning, it's a pleasure to talk with you. Regarding the US separation, we are making a slight increase; instead of having one person, we plan to have three people in that role. This will not affect our cash flow. Additionally, we will have the opportunity to enhance our infrastructure for commercialization. In today's press release, we highlighted some aspects related to health economics, branding, packaging, and other areas that require some additional time to prepare for a commercial NDA with all the necessary data. We do not anticipate this to change our timeline. As for our cash position, as we mentioned earlier this year, we expect our cash to be adequate through 2022.

Balaji Prasad, Analyst

Great, and on your ONCO PLEX program. So you're planning to meet the FDA at the end of the year, is that right understanding? And so if so, with the pre-investigational NDA meeting from there until, so what's the gap or duration before you start trials on the oncology side?

Dikla Akselbrad, CFO

So you have a good understanding of it. We aim to provide more information by the end of this year. Since this program was in its early stages at the time of our IPO, there wasn't much valuable information available for investors. By year-end, we will be able to share more data, including preclinical results and characteristics of the ONCO PLEX product. Everyone is working towards the NDA and the initial demand, but the meeting won't happen until after the end of this year. We anticipate being ready for an IND meeting with the FDA next year.

Operator, Operator

Your next question is from the line of Elliot Wilbur from Raymond James.

Elliot Wilbur, Analyst

Hi, good morning, good afternoon, Amir and Dikla. Wanted to ask a follow-up question to your earlier commentary, Dikla, around the update in SHIELD I with respect to the 100 patient enrollment milestone. I just wanted to confirm that that in fact is just going to be an update in terms of when you hit that enrollment point. And we're not actually going to see any associated data with that update.

Dikla Akselbrad, CFO

You are correct. We wanted to ensure that investors have ongoing insight into our operational progress, especially given the challenges posed by COVID and some companies experiencing delays. We're pleased to report that over 50% of the centers have received IRB approval in just four months since the first month. We will provide another update once we hit the first 100 patients enrolled, so investors can see that we are on track with our expectations.

Elliot Wilbur, Analyst

Okay, so the follow-up to that, just in terms of thinking about the overall efficiency of the program, do you have a sense yet of what the expected overlap would be in terms of participating centers between SHIELD II and SHIELD I?

Dikla Akselbrad, CFO

That's a valid observation. We anticipate some overlap, but it's difficult to determine specifics at this stage. We have already identified centers we initially considered for SHIELD I but later deemed more suitable for SHIELD II, and we have successfully converted them. This is beneficial for us, and we hope it will accelerate the timeline for SHIELD II. However, it's still early to provide updates on the situation. Once we finalize recruitment for SHIELD I, we can convert all those centers.

Elliot Wilbur, Analyst

Okay, and then with respect to SHIELD II, obviously, I presume the primary endpoints will be identical to that of SHIELD I. But are there any noteworthy differences in terms of secondary endpoints between SHIELD II and SHIELD I?

Dikla Akselbrad, CFO

No, their primary and secondary endpoints are quite similar. And they are quite similar to what we had in phase 2 that we've published exactly a year ago.

Elliot Wilbur, Analyst

Okay. And then final question just shifting more to the commercial front. Just to get maybe your high-level thoughts on the timeline for and sort of range of possibilities around European partnerships? I guess my assumption would be that you, at least at this point, you would strongly prefer a pan-European partnership. But I wouldn't also expect to be finalized probably until we saw some initial data, at least from SHIELD I or maybe at the earliest, at the sample size re-estimation. So just wondering if that's consistent with your thinking or if you think maybe that actually we could see something before that initial clinical data point. Thanks.

Dikla Akselbrad, CFO

Thanks Elliot. Of course, we cannot specifically relate timelines especially when it comes to commercialization because those vary from company to company, from negotiation to negotiation, and from product to product. But what we can say is that we are continuing with our strategy that we reiterated for quite some time regarding having our own footprint in the US and still initiating commercial preparation activity while also exploring potential partnering opportunities with leading pharmaceutical companies, as well as the European authority and geography and the rest of the world. We are evaluating commercial strategic partners. We think D-PLEX has a very good market value opportunity; this is the feedback that we are getting, but it's very hard to give a timeline on that. We do not want to create either an unmet or met expectation, but we can say that we are very happy with the process today.

Operator, Operator

Thank you. There are currently no further questions, please continue.

Amir Weisberg, CEO

Thank you for joining our third quarter of 2020 earnings conference call. I would like to emphasize how excited we are about the progress we have achieved today, as well as the company's long-term prospects. We are grateful to our team members and all of our external partners for their commitment to our mission and their collaboration to ensure we continue to progress toward achieving our goal of building D-PLEX 100 to help healthcare providers and patients as soon as possible.

Operator, Operator

Thank you. With that we conclude the presentation. Thank you for participating.